Examples of International Investigations Fiscal Year 2015

Criminal Investigation (CI) is increasing its focus on international tax compliance. 

International investigations encompass a wide range of activities such as abusive tax schemes, narcotics, non-filers, money laundering, and terrorism funding. IRS Criminal Investigation works closely with international law enforcement partners as well as federal, state, and local law enforcement agencies to investigate financial fraud.

The following examples of investigations with international links are written from public record documents on file in the court records in the judicial district in which the cases were prosecuted. 

Abusive Return Preparer 

Tax Return Preparers Sentenced for Hiding Offshore Account and Assisting Wealthy Clients to Hide Millions in Secret Accounts          
On Aug. 10, 2015, in Los Angeles, California, David Kalai was sentenced to 36 months in prison, three years of supervised release, with a condition of home confinement to last the entire term of release, and ordered to pay a $286,000 fine. Nadav Kalai, David Kalai’s son, was sentenced to 50 months in prison, three years of supervised release and ordered to pay a $10,000 fine.  According to court records, the Kalais were principals of United Revenue Service Inc. (URS), a tax return preparation business with 12 offices located throughout the United States. On Dec. 19, 2014, the Kalais were convicted of conspiracy to defraud the IRS and two counts of willfully failing to file a Report of Foreign Bank and Financial Accounts (FBAR). The Kalais advised and assisted their high net-worth clients in concealing millions of dollars of assets and income in secret foreign bank accounts and filing false federal income tax returns. The Kalais also maintained a secret offshore account of their own at Bank Leumi in Luxembourg in the name of a foreign sham corporation and failed to disclose the account to the IRS or the U.S. Treasury. The Kalais purposefully prepared false individual income tax returns for their URS clients that did not disclose the clients’ foreign financial accounts nor report the income earned from those accounts. In order to conceal the clients’ income, ownership and control of assets from the IRS, the Kalais incorporated offshore companies in Belize and elsewhere and helped clients open secret bank accounts at the Luxembourg locations of two Israeli banks, Bank Leumi and Bank B. Three URS clients who testified at the Kalais’ trial have pleaded guilty to tax felonies arising from their participation in the scheme.  The Kalais each failed to file an FBAR for calendar years 2008 and 2009 with respect to a foreign account held at Bank Leumi in Luxembourg.  

Abusive Tax Scheme

Resolutions under the Department of Justice (DOJ) Swiss Bank Program
The DOJ Swiss Bank Program, announced on Aug. 29, 2013, provided a path for Swiss banks to resolve potential criminal liabilities in the United States. According to the terms of each non-prosecution agreements (NPA), each of these banks has agreed to cooperate in any related criminal or civil proceedings, demonstrate their implementation of controls to stop misconduct involving undeclared U.S. accounts and pay an appropriate penalty in return for the Department of Justice’s agreement not to prosecute the banks for tax-related criminal offenses. The Department of Justice maintains a complete list of non-prosecution agreements executed to date under the Swiss Bank Program.  

Bank Leumi Enters into a Deferred Prosecution Agreement
On Dec. 22, 2014, in Los Angeles, California, Bank Leumi, a major Israeli international bank, entered into a deferred prosecution agreement. Bank Leumi admitted that from at least 2000 until early 2011, it conspired to aid and assist U.S. taxpayers to prepare and present false tax returns to the IRS by hiding income and assets in offshore bank accounts in Israel and elsewhere around the world. The deferred prosecution agreement between the Bank Leumi Group and the Department of Justice marked the first time an Israeli bank has admitted to such criminal conduct which spanned over a 10 year period and included an array of services and products designed to keep U.S. taxpayer accounts concealed at Bank Leumi Group’s locations in Israel, Switzerland, Luxembourg and the United States. As part of the agreement, Bank Leumi Group will pay the United States a total of $270 million. In addition, the Bank Leumi Group provided the names of more than 1,500 of its U.S. account holders and will continue to disclose information to the government regarding its cross-border business and provide testimony and information regarding other investigations. According to the filed statement of facts, the Bank Leumi Group took affirmative and extensive steps to assist U.S. clients in concealing their assets offshore, including opening and maintaining accounts for U.S. taxpayers who left UBS and other Swiss banks in an effort to continue to avoid detection by the U.S. government.

Financial Institution Fraud 

Commerzbank AG Pleads Guilty to Violating U.S Economic Sanctions and Bank Secrecy Act
On March 12, 2015, in Washington, D.C., Commerzbank AG, a global financial institution headquartered in Frankfurt, and its U.S. branch, Commerzbank AG New York Branch, entered into a deferred prosecution agreement for violations of the International Emergency Economic Powers Act (IEEPA) and the Bank Secrecy Act (BSA) and agreed to pay a total of $1.45 billion. Commerzbank admitted and accepted responsibility for its criminal conduct in violation of IEEPA and the BSA, and Commerz New York admitted its criminal conduct in violation of the BSA. According to court documents, Commerzbank AG processed billions of U.S. dollar transactions through the U.S. financial system on behalf of Sudanese and Iranian entities subject to U.S. economic sanctions from 2002 to 2008. In addition, 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, a Japanese-based manufacturer of medical devices and cameras, used Commerzbank and Commerz New York to perpetrate a massive accounting fraud. Commerz New York, through its branch and affiliates in Singapore, loaned money to off-balance-sheet entities created by or for Olympus to perpetrate the accounting fraud. Commerz New York transacted more than $1.6 billion in furtherance of the fraud.

Gaming 

Owner of Illegal Online Gambling Website Sentenced
On July 28, 2015, in Newark, New Jersey, Joseph Graziano, of Springfield, was sentenced to 18 months in prison, three years of supervised release and ordered to forfeit $1 million and pay a $16,000 fine. Graziano previously pleaded guilty to racketeering conspiracy. According to court documents, Graziano was the principal owner of Beteagle.com, a website located in Costa Rica used to facilitate illegal online sports betting. Dominick J. Barone, of Springfield, worked with Graziano in carrying out the daily activities of the website and both men conspired with the Genovese Crime Family of La Cosa Nostra in the operation of Beteagle. As part of the conspiracy, associates of the Genovese family crew were given access to Beteagle and were considered “agents.” The agents had the ability to track the “sub-agents” under them and the wagers placed by their bettors. Associates of the crew paid out winnings or collected losses in person. If a bettor failed to pay his gambling losses, the crew used their La Cosa Nostra status and threats of violence to collect on these debts. On June 16, 2015, Barone was sentenced to 18 months in prison for his role in the scheme.

General

Massachusetts Man Sentenced for Swindling Money Through Prep School Admissions Business
On Sept. 17, 2015, in Boston, Massachusetts, Mark J. Zimny, formerly of Cambridge, was sentenced to 63 months in prison, three years of supervised release and ordered to pay forfeiture of $852,564 and restitution of $839,470. On April 8, 2015, Zimny was convicted of five counts of wire fraud, five counts of unlawful money laundering, two counts of filing false federal tax returns and one count of bank fraud. According to court documents, Zimny owned and operated a business called IvyAdmit Consulting Associates that claimed to assist students in obtaining admission to elite American prep schools, colleges, and universities. In 2008, Zimny defrauded a wealthy couple from Hong Kong of more than $650,000 by promising that if they provided him large funds to give to prep schools in New England for “development contributions,” he could influence admissions decisions to the schools on behalf of the couple’s two children. Rather than delivering the funds to the schools as he promised, Zimny embezzled the funds for his own purposes. Furthermore, Zimny defrauded a bank by providing false information including fictitious tax returns that over reported his receipts from IvyAdmit, to support his application for a mortgage loan.

Nigerian Man Sentenced for Operating Sophisticated $13 Million Internet Fraud Scheme
On Sept. 14, 2015, in Phoenix, Arizona, Alex Sualim, from Nigeria but residing in Toronto, Canada, was sentenced to 150 months in prison, ordered to pay over $13 million in restitution, and liquidate more than $2 million of assets. Sualim previously pleaded guilty to conspiracy to commit wire fraud. According to court records, between 2009 and 2013, Sualim helped operate a fraud scheme that spanned four continents and duped more than a dozen victims out of more than $13 million. Sualim would create a website for a Canadian company that purported to manufacture semiconductor chips. Next, Sualim would create passports, email accounts, and toll-free phone numbers for the Canadian company’s supposed employees. Sualim would then send millions of solicitation emails—on behalf of the supposed Canadian employees—to Americans whose email addresses he’d purchased from a spam vendor. These emails would explain that the Canadian company needed a product called “silicon germanium” to manufacture its semiconductor chips, that the company wished to enlist an American distributor to obtain the product from China, and that the Canadian company would cover the entire upfront cost of the product. On the eve of the first shipment from China, the victim would be told that the Canadian company’s financing had unexpectedly fallen through and that the American distributor needed to supply some of the upfront cost. If a victim agreed to this new arrangement, he’d be told how to wire his portion to an overseas bank account (typically located in Cyprus, Greece, Hong Kong, or China). Sualim would then arrange for a co-conspirator to pose as an employee of the Chinese manufacturer and call or email the victim and explain that his company had just been purchased by a new parent company that required a larger minimum order. These victims were told they needed to wire more money to the overseas bank account in order to complete the first order. Once victims discovered they were being scammed and demanded answers, their supposed Chinese and Canadian counterparts would simply stop responding to emails and phone calls.  

Identity Theft

New York Man Sentenced for Role in Multimillion-Dollar International Cybercrime Scheme
On April 14, 2015, in Trenton, New Jersey, Oleg Pidtergerya, of Brooklyn, New York, was sentenced to 92 months in prison, three years of supervised release and ordered to pay restitution of $1,758,127 and a forfeiture judgment of $250,000.  Pidtergerya, a member of an international cybercrime, identity theft and credit card fraud conspiracy, previously pleaded guilty to wire fraud conspiracy and conspiracy to commit access device fraud and identity theft. According to court documents, Oleksiy Sharapka, of Kiev, Ukraine, allegedly directed the conspiracy with the help of Leonid Yanovitsky, also of Kiev. Pidtergerya managed a cash out crew in New York for Sharapka and Yanovitsky. The conspirators used information hacked from customer accounts held at more than a dozen banks, brokerage firms, payroll processing companies and government agencies in an attempt to steal at least $15 million from American customers. Conspiring hackers first gained unauthorized access to the bank accounts of customers then Sharapka and Yanovitsky diverted money from the hacked accounts to bank accounts and pre-paid debit cards they controlled. They employed crews of individuals known as “cashers” to withdraw the stolen funds from the fraudulent accounts by, among other ways, making ATM withdrawals and fraudulent purchases in New York, Massachusetts, Georgia and elsewhere. Pidtergerya was aware the fraudulent accounts and cards were created without the consent of the individuals in whose names they were opened. Pidtergerya coordinated ATM and bank withdrawals of the stolen funds. He then sent the proceeds of the fraud to Sharapka and Yanovitsky in Ukraine.

Former SSA Employee and Eight Others Sentenced In Fraudulent Income Tax Refund Scheme
On March 11, 2015, in Atlanta, Georgia, the last of nine defendants was sentenced for their roles in a fraudulent income tax fraud scheme. Marcus Behling, of Powder Springs, Georgia, was sentenced to 39 months in prison and ordered to pay $698,249 in restitution for his role in the scheme. From approximately January 2011 until March 2012, Shawn Brown led a criminal organization that used stolen personal identification information from more than 1,000 victims, along with fake wage and withholding information, to prepare and electronically file fraudulent returns claiming more than $5 million dollars in tax refunds. Brown and co-conspirator Maurice Pollock recruited Ronald Bennett, an employee of the United States Social Security Administration (SSA) in Jacksonville, Florida, to improperly access an SSA computer database to steal identities. Brown also recruited Christopher Edwards, an employee of an asset recovery company, to steal identities from a computer database he accessed through his employer. The stolen identities obtained by Bennett and Edwards were used to file fraudulent income tax returns. Brown also recruited Sergey Krayev, a naturalized U.S. citizen from Moldova, to employ individuals in Russia to file fraudulent income tax returns. More than 70 fraudulent returns were filed from Russia and refunds associated with those returns were electronically deposited into bank accounts Brown controlled. On March 6, 2015, Shawn Brown was sentenced to 160 months in prison and ordered to pay $1,230,021 in restitution. Also sentenced on March 6 were: Maurice Pollock to 70 months in prison and ordered to pay $888,697 in restitution; Jonathan Stubbs to 73 months in prison and ordered to pay $659,599 in restitution; Nyron Nelson to 37 months in prison and ordered to pay $98,671 in restitution; Kelly Lonas to 29 months in prison and ordered to pay $98,671 in restitution; Ronald Bennett to 27 months in prison and ordered to pay $3,000 in restitution; Christopher Edwards to 24 months in prison and ordered to pay $9,265 in restitution; and Sergey Krayev to 12 months’ probation and ordered to pay $31,036 in restitution.

Massachusetts Man Sentenced for Role in Multimillion-Dollar International Cybercrime Scheme
On Oct. 24, 2014, in Trenton, New Jersey, Robert Dubuc, of Malden, Massachusetts, was sentenced to 21 months in prison, three years of supervised release and ordered to pay restitution of $338,685. Dubuc previously pleaded guilty one count of wire fraud conspiracy and one count of conspiracy to commit access device fraud and identity theft. According to court documents, Dubuc was a member of an international cybercrime, identity theft and credit card fraud conspiracy that used information hacked from customer accounts held at more than a dozen banks, brokerage firms, payroll processing companies and government agencies to attempt to steal at least $15 million from American customers. Dubuc controlled a cash-out crew in Massachusetts for the organization. Conspiring hackers first gained unauthorized access to the bank accounts of customers then diverted money to other bank accounts and pre-paid debit cards they controlled. They implemented a sophisticated “cash-out” operation, employing crews of individuals known as “cashers” to withdraw the stolen funds from the fraudulent accounts, among other ways, by making ATM withdrawals and fraudulent purchases. Dubuc was aware the fraudulent accounts and cards were created without the consent of the individuals in whose names they were opened. He coordinated ATM and bank withdrawals of the stolen funds and sent proceeds of the fraud to co-conspirators in the Ukraine.

Money Laundering

Father and Son Sentenced for Defrauding the United States
On Sept. 8, 2015, in Buffalo, New York, Gregory Magness, of Polk, was sentenced to 18 months in prison and ordered to pay $6,246,605 in restitution. His son, Justin Magness, of Clymer, was sentenced to one year probation and ordered to pay $4,500 in restitution. Gregory Magness was convicted of conspiracy to smuggle merchandise into the United States and conspiracy to launder money. Justin Magness was convicted of aiding and abetting in the presenting of false documents to United States Customs. According to court documents, Gregory and Justin Magness owned and operated a metal powders business. During the course of the operation, they became involved with supplying magnesium used to produce countermeasure flares for the United States Department of Defense. Since the defendants could not produce the magnesium domestically, they imported it from China. However, the United States had a 305% anti-dumping duty in place with respect to magnesium imported from China. In order to avoid paying the 305% duty, the defendants falsely labeled it as a magnesium product only subject to a 5% duty thereby defrauding the United States out of lawful duties.

California Woman Sentenced for Role in Offshore Sweepstakes Scheme
On Aug. 11, 2015, in Asheville, North Carolina, Patricia Diane Clark, of Sacramento, California, was sentenced to 130 months in prison and ordered to pay $642,032 in restitution and to forfeit the same amount jointly with her co-defendants. Clark pleaded guilty to conspiracy to commit wire fraud, wire fraud and conspiracy to commit money laundering. According to court documents, from about 2007 through February 2013, Clark and her co-conspirators called U.S. residents from Costa Rican call centers, falsely informing them that they had won a cash “sweepstakes.” The victims, many of whom were elderly, were told that in order to receive the prize, they had to send money for a purported “refundable insurance fee.” Clark picked up money from the victims and sent it to her co-conspirators in Costa Rica. Clark also managed others who picked up money from the victims in the US and she kept a portion of the victims’ payments. Once the victims sent money, Clark’s co-conspirators contacted the individuals again and falsely informed them that the prize amount had increased, either because of a clerical error or because another prize winner was disqualified. The victims then had to send more money to pay for “new” fees to receive the larger sweepstakes prize. The attempts to collect additional money from the victims continued until an individual either ran out of money or discovered the fraudulent nature of the scheme. Clark, along with her co-conspirators, was responsible for approximately $640,000 in losses to more than a hundred U.S. citizens.

Two Colombian Citizens Sentenced for International Money Laundering Conspiracy      
On July 20, 2015, in Miami, Florida, Leonardo Forero Ramirez and Ubaner Alberto Acevedo Espinosa were sentenced to 37 months and 18 months in prison, respectively, and ordered to serve one year of supervised release. Both defendants previously pleaded guilty to conspiracy to commit money laundering. According to court documents, both Acevedo and Forero were Colombian citizens residing in Bogota. During 2008 and 2009, Acevedo handled customer accounts at a stock brokerage firm that offered accounts that could be used by customers to receive deposits, wire transfers, and other credit or money, and to disburse the funds through wire transfers and cash or other withdrawals. The stock brokerage firm was authorized to receive funds in U.S. dollars, provided that they were properly documented and justified as being for legitimate business transactions. Forero was one of Acevedo's customers. During the course of his participation in this scheme, Forero received approximately $1.2 million from IRS undercover accounts that he passed on to the people designated to receive it. Acevedo was involved in the transfer of approximately $335,000 from IRS undercover accounts in the United States to the stock brokerage firm in Colombia, and the conversion of the dollars into pesos and the subsequent withdrawal of the monies by Forero. Both Acevedo and Forero knew that the money was derived from criminal activity.

Creator and Operator of the “Silk Road&quot Website Sentenced
On May 29, 2015, in Manhattan, New York, Ross Ulbricht, aka “Dread Pirate Roberts,” of San Francisco, California, was sentenced to life in prison and ordered to forfeit $183,961,921. On Feb. 5, 2015, Ulbricht was found guilty of distributing narcotics, distributing narcotics by means of the Internet, conspiring to distribute narcotics, engaging in a continuing criminal enterprise, conspiring to commit computer hacking, conspiring to traffic in false identity documents, and conspiring to commit money laundering. According to court documents, Ulbricht created Silk Road in January 2011, and owned and operated the underground website until it was shut down by law enforcement authorities in October 2013. Silk Road served as a sophisticated and extensive criminal marketplace on the Internet where unlawful goods and services, including illegal drugs of virtually all varieties, were bought and sold regularly by the site’s users. While in operation, Silk Road was used by thousands of drug dealers and other unlawful vendors to distribute hundreds of kilograms of illegal drugs and other unlawful goods and services to more than 100,000 buyers, and to launder hundreds of millions of dollars deriving from these unlawful transactions. Ulbricht sought to anonymize transactions on Silk Road by operating Silk Road on a special network of computers on the Internet, distributed around the world, designed to conceal the true IP addresses of the computers on the network and thereby the identities of the networks’ users. Ulbricht also designed Silk Road to include a Bitcoin-based payment system that concealed the identities and locations of the users transmitting and receiving funds through the site.

Arizona Cocaine Trafficker Sentenced on Drug and Money Laundering Charges
On May 11, 2015, in Phoenix, Arizona, Terance Taylor Prigge, was sentenced to 318 months in prison and 10 years of supervised release.  Prigge was convicted by a federal jury on Feb. 12, 2015, of five felony charges that included conspiracy to possess with intent to distribute cocaine, conspiracy to commit money laundering, international money laundering, promotional money laundering, and possession with intent to distribute cocaine. The trial evidence showed that Prigge’s drug trafficking organization transported at least 122 kilograms of cocaine from Latin America, into the American southwest, and then to Chicago from at least early 2010 to September 2013.  The organization used private charter flights to transport the drugs from Phoenix and Southern California to Chicago. In September 2013, Prigge was arrested after he exited one of those flights with a co-conspirator in DeKalb, Ill. with 22 kilograms of cocaine in their luggage. Prigge had extensive contacts with sources of drug supply in at least two Latin American countries. He was convicted of international money laundering for organizing the transfer of $100,000 to an individual in Guatemala in support of a drug deal.  He was also convicted of taking other steps to launder money in support of his drug trafficking. Prigge was convicted previously for trafficking cocaine from Panama into the United States and served seven years in prison.

Former Bechtel Executive Sentenced in Connection with Kickback Scheme
On March 23, 2015, in Greenbelt, Maryland, Asem Elgawhary, of Potomac, Maryland, was sentenced to 42 months in prison and ordered to forfeit $5.2 million. Elgawhary, the former principal vice president of Bechtel Corporation and general manager of a joint venture operated by Bechtel and an Egyptian utility company, pleaded guilty on Dec. 4, 2014, to mail fraud, conspiracy to commit money laundering, obstruction and interference with the administration of the tax laws. According to court documents, from 1996 to 2011, Elgawhary was assigned by Bechtel as the general manager at Power Generation Engineering and Services Company (PGESCo), a joint venture between Bechtel and Egypt’s state-owned and state-controlled electricity company, known as EEHC. PGESCo assisted EEHC in identifying possible subcontractors, soliciting bids and awarding contracts to perform power projects for EEHC. Elgawhary accepted a total of $5.2 million from three power companies, who paid to secure a competitive and unfair advantage in the bidding process. One of the power companies, Alstom S.A., pleaded guilty on Dec. 22, 2014, to violations of the Foreign Corrupt Practices Act (FCPA) in connection with a scheme to pay bribes to foreign officials, including Elgawhary, in various countries. Elgawhary attempted to conceal the kickback scheme by routing the payments through various off-shore bank accounts under his control. In addition, Elgawhary obstructed and interfered with tax laws by failing to report any of the kickback payments as income for the tax years 2008 through 2011 and providing false information about foreign bank accounts.

Former Liberty Reserve IT Manager Sentenced for Operating an Unlicensed Money Transmitting Business
On Jan. 30, 2015, in New York, New York, Maxim Chukharev, a citizen of Russia and resident of Costa Rica, was sentenced to 36 months in prison in connection with his work for Liberty Reserve, a company that operated one of the world’s most widely used digital currency services. Chukharev pleaded guilty in September 2014 to conspiring to operate an unlicensed money transmitting business. According to court documents, Chukharev was primarily responsible for maintaining Liberty Reserve’s technological infrastructure and for implementing systems designed to create the false appearance that Liberty Reserve had an effective anti-money laundering program. Chukharev created and implemented a system designed to hide information about Liberty Reserve’s users and the sources of its business from the company’s Costa Rican regulatory agency. By design, the system provided mostly “fake” statistics about Liberty Reserve’s business to the agency, in order to give the appearance that Liberty Reserve had an effective anti-money laundering program. Beginning in January 2012, Chukharev took over responsibilities in the day-to-day management of Liberty Reserve’s technical operations, including the maintenance and operation of its website. The fact that Liberty Reserve had not registered as a money transmitting business under U.S. law was a vital component of its success as a system used to launder funds derived from, or intended to promote, criminal activity.

Bitcoin Exchanger Sentenced for Selling Nearly $1 Million in Bitcoins for Drug Buys on Silk Road  
On Jan. 20, 2015, in Manhattan, New York, Robert M. Faiella, of Fort Myers Beach, Florida, was sentenced to 48 months in prison, three years of supervised release and ordered to forfeit $950,000. Faiella, an underground Bitcoin exchanger, pleaded guilty in September 2014 to operating an unlicensed money transmitting business. According to court documents, from about December 2011 to October 2013, Faiella ran an underground Bitcoin exchange on Silk Road, a website that served as a sprawling and anonymous black market bazaar where illegal drugs of virtually every variety were bought and sold regularly by the site’s users. Operating under the username “BTCKing,” Faiella sold Bitcoins – the only form of payment accepted on Silk Road – to users seeking to buy illegal drugs on the site. Upon receiving orders for Bitcoins from Silk Road users, he filled the orders through BitInstant, a company based in New York. BitInstant was designed to enable customers to exchange cash for Bitcoins anonymously, that is, without providing any personal identifying information, and charged a fee for its service. Faiella obtained Bitcoins with BitInstant’s assistance, and then sold the Bitcoins to Silk Road users at a markup. With the knowledge and active assistance of Charles Shrem, the Chief Executive Officer of BitInstant, Faiella exchanged nearly $1 million in cash for Bitcoins for the benefit of Silk Road users, so that the users could, in turn, make illegal purchases on Silk Road. Faiella’s co-defendant, Shrem, was sentenced to two years in prison on Dec. 19, 2014.

Former CEO of Bitcoin Exchange Company Sentenced for Helping to Sell Nearly $1 Million in Bitcoins for Drug Buys on Silk Road
On Dec. 19, 2014, in Manhattan, New York, Charlie Shrem, of New York, was sentenced to 24 months in prison, three years of supervised release and ordered to forfeit $950,000. Shrem pleaded guilty in September 2014 to knowingly transmitting nearly $1 million in Bitcoins intended to facilitate drug trafficking on the “Silk Road” website, a black-market international cyber business, designed to enable users to buy and sell illegal drugs anonymously and beyond the reach of law enforcement. According to court documents, Shrem was the Chief Executive Officer of BitInstant, and from about August 2011 until about July 2013, when BitInstant ceased operating, he was also its Compliance Officer, in charge of ensuring BitInstant’s compliance with federal and other anti-money laundering (AML) laws. Shrem was also the Vice Chairman of the Bitcoin Foundation, a foundation dedicated to promoting the Bitcoin virtual currency system. Shrem’s co-defendant, Robert M. Faiella, ran the underground Bitcoin exchange on the Silk Road website. Shrem was fully aware that Silk Road was a drug-trafficking website and he also knew that Faiella was operating a Bitcoin exchange service for Silk Road users. Nevertheless, Shrem knowingly allowed Faiella to use BitInstant’s services to buy Bitcoins for his Silk Road customers; personally processed Faiella’s orders; gave Faiella discounts on his high-volume transactions; failed to file a single suspicious activity report with the United States Treasury Department about Faiella’s illicit activity and deliberately helped Faiella circumvent BitInstant’s AML restrictions. Faiella, pleaded guilty in September 2014, and his sentencing has been scheduled for a later date.  

Chief Technology Officer of Liberty Reserve Sentenced for Fraud
On Dec. 12, 2014, in Manhattan, New York, Mark Marmilev, of Brooklyn, was sentenced to 60 months in prison, three years of supervised release and fined $250,000. Marmilev pleaded guilty in September 2014 to conspiring to operate an unlicensed money transmitting business that he knew involved the transmission of funds derived from criminal activity. In conjunction with the sentencing, a civil forfeiture complaint was filed seeking the forfeiture of two businesses located in Brooklyn, and the forfeiture of his interest in Grimaldi’s, a pizzeria located in the Coney Island area of Brooklyn. According to the complaint, Marmilev purchased these business interests using more than $1.6 million in Liberty Reserve proceeds. Marmilev was a longtime associate of Liberty Reserve founder Arthur Budovsky and served as Liberty Reserve’s chief technology officer. In that role, Marmilev was principally responsible for designing and maintaining Liberty Reserve’s technological infrastructure. Liberty Reserve was incorporated in Costa Rica in 2006 and billed itself as the Internet’s “largest payment processor and money transfer system.” Liberty Reserve was created, structured, and operated to help users conduct illegal transactions anonymously and launder the proceeds of their crimes. It emerged as one of the principal money transfer agents used by cybercriminals around the world to distribute, store, and launder the proceeds of their illegal activity. Marmilev worked for Liberty Reserve for years despite knowing that the business was used extensively to process criminal transactions. Marmilev even promoted Liberty Reserve to criminals on Internet discussion forums, where, using aliases, he touted Liberty Reserve’s lack of anti-money laundering policies and its tolerance for, as he put it, “shady businesses.” Before being shut down by the U.S. government in May 2013, Liberty Reserve had more than five million user accounts worldwide, including more than 600,000 accounts associated with users in the United States, and processed tens of millions of transactions through its system, totaling more than $16 billion in funds. These funds encompassed suspected proceeds of credit card fraud, identity theft, investment fraud, computer hacking, child pornography, narcotics trafficking, and other crimes.

Former Apple Executive Sentenced for Defrauding Apple in Kickback Scheme and Laundering the Proceeds
On Dec. 1, 2014, in San Jose, California, Paul S. Devine was sentenced to 12 months and one day in prison, three years of supervised release and ordered to pay $4,464,664 in restitution. Devine pleaded guilty on Feb. 28, 2011, to wire fraud, conspiracy to commit wire fraud, money laundering and engaging in transactions with criminally-derived property. According to the plea agreement, beginning in approximately February 2007, Devine engaged in a scheme to defraud Apple of money or property as well as to defraud Apple of its right to his honest services. Devine had been a Global Supply Manager at Apple from 2005 until August 2010. Devine’s job gave him access to confidential internal Apple information. In the course of the scheme, Devine transmitted confidential information, such as product forecasts, pricing targets, and product specifications, to suppliers and manufacturers of Apple parts. In return, the suppliers and manufacturers paid Devine kickbacks. The scheme enabled the suppliers and manufacturers to, among other things, negotiate more favorable contracts with Apple than they would have been able to obtain without the confidential information. Devine received kickbacks as wire transfers into bank accounts that he opened for that purpose in the U.S. and South Korea, including accounts in the name of a shell corporation, CPK Engineering. Devine knowingly transferred the proceeds of the wire fraud between his various accounts, including CPK Engineering accounts, in order to conceal and disguise the nature, location, source, ownership, and control of the proceeds. Devine agreed to forfeit $951,552 in proceeds of the fraud and a vehicle, all of which were seized by the FBI and IRS at the time of his arrest. Devine also agreed to forfeit $612,407 in proceeds of the fraud, which he transferred from overseas bank accounts and deposited with the clerk of the District Court following his arrest.

Costa Rica Based Telemarketing Fraud Results in Prison Terms for Two
On Oct. 30, 2014, in Charlotte, North Carolina, Glen Adkins Jr., of San Diego, California, was sentenced to 300 months in prison and Warren F. Tonsing Jr., of St. Paul, Minnesota, was sentenced to 144 months in prison. Both were ordered to pay $2.4 million in restitution, joint and several with their co-defendants. Adkins and Tonsing were convicted in August 2013 of wire fraud and money laundering.  According to court documents, the defendants schemed to defraud United States residents, most over the age of 55, out of millions of dollars by deceiving them into believing that each had won a large monetary prize in a “sweepstakes contest.” Both defendants worked in a Costa Rica-based call center that used computers to make telephone calls over the internet to victims in the United States. This process allowed the defendants and their co-conspirators to disguise the originating location of the calls. Victims were informed that the callers were from a federal agency and that to receive their “prize” they had to wire thousands of dollars to Costa Rica for a purported “refundable insurance fee.” As long as the victims continued to pay, the co-conspirators continued to solicit more money from them in the form of purported fees. To date, 46 defendants have been convicted for their participation in similar Costa Rican telemarketing schemes.

Washington Man Sentenced for Operating Unlicensed Money Transmitting Business
On Oct. 6, 2014, in Seattle, Washington, Pavel Rombakh was sentenced to 24 months in prison and ordered to forfeit cash and property worth $510,000. Rombakh, who immigrated to the United States from Ukraine in the 1990’s, pleaded guilty in May 2014 to operating an unlicensed money transmitting business. According to court documents, over a five year period, Rombakh received wires of more than $150 million from overseas and then wired the funds back out to other accounts. Many of the wires originated in Russia and Cyprus and were promptly re-wired to England, Latvia, the United Arab Emirates, and China. Rombakh kept a small percentage of the funds as his fee.

Illinois Man Sentenced For Money Laundering and Wire Fraud
On Oct. 3, 2014, in Springfield, Illinois, Brian J. Fields, of Belleville, was sentenced to 27 months in prison, three years supervised release and ordered to pay $98,800 in restitution. Fields previously pleaded guilty to money laundering and wire fraud. According to court documents, Fields conspired with a person in Nigeria to defraud United States citizens by sending counterfeit checks and money orders to people in several schemes (such as a “Secret Shopper” scam). The schemes resulted in victims receiving the counterfeit check or money order, depositing it into their own bank account, and then at the direction of Fields, the victim would wire transfer legitimate funds to Fields. By the time the person learned the check or money order was worthless, they had already sent the money to Fields. When Fields received the victims’ money, he would keep a portion for himself and then to further the scheme, Fields would send the remaining funds to a person located in Nigeria.

Caribbean-Based Investment Advisor and Attorney Sentenced For Using Offshore Accounts to Launder and Conceal Funds
On Oct. 3, 2014, in Washington, DC, Eric St-Cyr, an investment advisor, and Patrick Poulin, an attorney, were each sentenced to 14 months in prison and three years of supervised release for conspiring to launder monetary instruments. St-Cyr and Poulin, both Canadian citizens, along with Joshua Vandyk, a U.S. citizen, previously pleaded guilty. Vandyk was sentenced on Sept. 5, 2014, to 30 months in prison. According to court documents, Vandyk, St-Cyr and Poulin conspired to conceal and disguise the nature, location, source, ownership and control of property believed to be the proceeds of bank fraud, specifically $2 million. Vandyk, St-Cyr and Poulin assisted undercover law enforcement agents posing as U.S. clients in laundering purported criminal proceeds through an offshore structure designed to conceal the true identity of the proceeds’ owners. Vandyk and St-Cyr invested the laundered funds on the clients’ behalf and represented that the funds would not be reported to the U.S. government. Poulin established an offshore corporation for the undercover agents. Upon request from the U.S. client, Vandyk and St-Cyr liquidated investments and transferred money, through Poulin, back to the United States. According to Vandyk and St-Cyr, the investment firm would charge clients higher fees to launder criminal proceeds than to assist them in tax evasion.

Narcotics

Texas Man Sentenced for Role in International Money Laundering Conspiracy
On Aug. 26, 2015, in Anchorage, Alaska, Jose Ramon Canales, of El Paso, Texas, was sentenced to 70 months in prison and two years of supervised release. Canales previously pleaded guilty to conspiring with others to launder the proceeds of drug trafficking internationally. According to court documents, Canales received nearly $100,000 in drug money, which he secretly transported out of the country with the help of his co-conspirators. Canales was involved in longstanding conspiracies to distribute heroin and methamphetamine to Anchorage-based drug dealers and then transport the profits from those drug sales out of the United States to co-conspirators operating in Mexico. Canales joined the conspiracy by at least October 2013, when he received $70,000 in drug money from an Alaska co-conspirator. Canales then worked with Mexican co-conspirators to ship three kilograms of heroin from El Paso, Texas to Alaska for distribution. Several months later, in March 2014, Canales received an additional $28,000 in cash sent as payment for the purchase of one kilogram of heroin. Canales later drove the funds, which he knew were the proceeds of drug trafficking, over the border into Mexico.

Head of the Gulf Cartel Sentenced for Drug Trafficking, Money Laundering
On June 30, 2015, in Beaumont, Texas, Juan Francisco Saenz-Tamez, of Camargo, Tamaulipas, Mexico, was sentenced to 360 months in prison and ordered to pay a money judgment of $100 million. Saenz-Tamez pleaded guilty on Jan. 13, 2015, to distribution and possession with intent to distribute cocaine, conspiracy to distribute and possession with intent to distribute marijuana, and conspiracy to commit money laundering. According to information presented in court, a federal investigation into the large-scale trafficking of illegal drugs from Mexico into Texas revealed that Saenz-Tamez was responsible for the shipment of one-half ton of cocaine and 90 tons of marijuana into Texas and then to locations across the nation, including Florida, Ohio, Michigan, Mississippi, Louisiana, Washington D.C., Pennsylvania, Tennessee, Maryland and Georgia. As a result of this scheme, $100 million was laundered by Saenz-Tamez and his drug trafficking organization.

Creator and Operator of the “Silk Road&quot Website Sentenced
On May 29, 2015, in Manhattan, New York, Ross Ulbricht, aka “Dread Pirate Roberts,” of San Francisco, California, was sentenced to life in prison and ordered to forfeit $183,961,921. On Feb. 5, 2015, Ulbricht was found guilty of distributing narcotics, distributing narcotics by means of the Internet, conspiring to distribute narcotics, engaging in a continuing criminal enterprise, conspiring to commit computer hacking, conspiring to traffic in false identity documents, and conspiring to commit money laundering. According to court documents, Ulbricht created Silk Road in January 2011, and owned and operated the underground website until it was shut down by law enforcement authorities in October 2013. Silk Road served as a sophisticated and extensive criminal marketplace on the Internet where unlawful goods and services, including illegal drugs of virtually all varieties, were bought and sold regularly by the site’s users. While in operation, Silk Road was used by thousands of drug dealers and other unlawful vendors to distribute hundreds of kilograms of illegal drugs and other unlawful goods and services to more than 100,000 buyers, and to launder hundreds of millions of dollars deriving from these unlawful transactions. Ulbricht sought to anonymize transactions on Silk Road by operating Silk Road on a special network of computers on the Internet, distributed around the world, designed to conceal the true IP addresses of the computers on the network and thereby the identities of the networks’ users. Ulbricht also designed Silk Road to include a Bitcoin-based payment system that concealed the identities and locations of the users transmitting and receiving funds through the site.

Arizona Cocaine Trafficker Sentenced on Drug and Money Laundering Charges
On May 11, 2015, in Phoenix, Arizona, Terance Taylor Prigge, was sentenced to 318 months in prison and 10 years of supervised release.  Prigge was convicted by a federal jury on Feb. 12, 2015, of five felony charges that included conspiracy to possess with intent to distribute cocaine, conspiracy to commit money laundering, international money laundering, promotional money laundering, and possession with intent to distribute cocaine. The trial evidence showed that Prigge’s drug trafficking organization transported at least 122 kilograms of cocaine from Latin America, into the American southwest, and then to Chicago from at least early 2010 to September 2013.  The organization used private charter flights to transport the drugs from Phoenix and Southern California to Chicago. In September 2013, Prigge was arrested after he exited one of those flights with a co-conspirator in DeKalb, Ill. with 22 kilograms of cocaine in their luggage. Prigge had extensive contacts with sources of drug supply in at least two Latin American countries. He was convicted of international money laundering for organizing the transfer of $100,000 to an individual in Guatemala in support of a drug deal.  He was also convicted of taking other steps to launder money in support of his drug trafficking. Prigge was convicted previously for trafficking cocaine from Panama into the United States and served seven years in prison.

International Drug Dealer Sentenced to Prison
On Nov. 19, 2014, in Raleigh, North Carolina, Andrew Wayne Landells, of Jamaica, was sentenced to 180 months in prison, three years of supervised release and ordered to pay a money judgment of $1,000,000 and forfeit his interest in several properties located in New Jersey and Florida. Landells previously pleaded guilty to conspiracy to launder monetary instruments. According to court documents, Landells directed the activities of his estranged wife, and at least seven co-conspirators to assist him in the trafficking marijuana from Mexico throughout, New York, Florida, Virginia, Arizona, and North Carolina. Landells then used the drug proceeds to purchase luxury vehicles and residences, and to rent residences in others’ names. In order to disguise the source of the proceeds from his illegal activities, Landells also operated sham companies purporting to be in the candle manufacturing business. Landells distributed up to 1,000 kilograms of marijuana and laundered money from drug proceeds through the straw purchase of at least seven pieces of real property, thirteen motor vehicles, and four businesses, all with a combined value of over $1,000,000.

Questionable Refund 

New York Man Sentenced for Role in Multimillion-Dollar International Cybercrime Scheme
On April 14, 2015, in Trenton, New Jersey, Oleg Pidtergerya, of Brooklyn, New York, was sentenced to 92 months in prison, three years of supervised release and ordered to pay restitution of $1,758,127 and a forfeiture judgment of $250,000.  Pidtergerya, a member of an international cybercrime, identity theft and credit card fraud conspiracy, previously pleaded guilty to wire fraud conspiracy and conspiracy to commit access device fraud and identity theft. According to court documents, Oleksiy Sharapka, of Kiev, Ukraine, allegedly directed the conspiracy with the help of Leonid Yanovitsky, also of Kiev. Pidtergerya managed a cash out crew in New York for Sharapka and Yanovitsky. The conspirators used information hacked from customer accounts held at more than a dozen banks, brokerage firms, payroll processing companies and government agencies in an attempt to steal at least $15 million from American customers. Conspiring hackers first gained unauthorized access to the bank accounts of customers then Sharapka and Yanovitsky diverted money from the hacked accounts to bank accounts and pre-paid debit cards they controlled. They employed crews of individuals known as “cashers” to withdraw the stolen funds from the fraudulent accounts by, among other ways, making ATM withdrawals and fraudulent purchases in New York, Massachusetts, Georgia and elsewhere. Pidtergerya was aware the fraudulent accounts and cards were created without the consent of the individuals in whose names they were opened. Pidtergerya coordinated ATM and bank withdrawals of the stolen funds. He then sent the proceeds of the fraud to Sharapka and Yanovitsky in Ukraine.

Former SSA Employee and Eight Others Sentenced In Fraudulent Income Tax Refund Scheme
On March 11, 2015, in Atlanta, Georgia, the last of nine defendants was sentenced for their roles in a fraudulent income tax fraud scheme. Marcus Behling, of Powder Springs, Georgia, was sentenced to 39 months in prison and ordered to pay $698,249 in restitution for his role in the scheme. From approximately January 2011 until March 2012, Shawn Brown led a criminal organization that used stolen personal identification information from more than 1,000 victims, along with fake wage and withholding information, to prepare and electronically file fraudulent returns claiming more than $5 million dollars in tax refunds. Brown and co-conspirator Maurice Pollock recruited Ronald Bennett, an employee of the United States Social Security Administration (SSA) in Jacksonville, Florida, to improperly access an SSA computer database to steal identities. Brown also recruited Christopher Edwards, an employee of an asset recovery company, to steal identities from a computer database he accessed through his employer. The stolen identities obtained by Bennett and Edwards were used to file fraudulent income tax returns. Brown also recruited Sergey Krayev, a naturalized U.S. citizen from Moldova, to employ individuals in Russia to file fraudulent income tax returns. More than 70 fraudulent returns were filed from Russia and refunds associated with those returns were electronically deposited into bank accounts Brown controlled. On March 6, 2015, Shawn Brown was sentenced to 160 months in prison and ordered to pay $1,230,021 in restitution. Also sentenced on March 6 were: Maurice Pollock to 70 months in prison and ordered to pay $888,697 in restitution; Jonathan Stubbs to 73 months in prison and ordered to pay $659,599 in restitution; Nyron Nelson to 37 months in prison and ordered to pay $98,671 in restitution; Kelly Lonas to 29 months in prison and ordered to pay $98,671 in restitution; Ronald Bennett to 27 months in prison and ordered to pay $3,000 in restitution; Christopher Edwards to 24 months in prison and ordered to pay $9,265 in restitution; and Sergey Krayev to 12 months’ probation and ordered to pay $31,036 in restitution.

Canadian Promoter of Tax Fraud Scheme Sentenced
On Oct. 7, 2014, in Seattle, Washington, Franzie F. Colaco, of Brampton, Ontario, Canada, was sentenced to 108 months in prison, three years of supervised release and ordered to pay $6,206,998 in restitution jointly with Ronald Brekke. Colaco, who was extradited from Canada, was convicted in July 2014 of conspiracy and three counts of wire fraud. According to court documents, Colaco conspired with Ronald L. Brekke and others to promote a scheme known as “1099 OID” fraud. Under this scheme, tax filers use fraudulent Form 1099-OID forms to claim tax refunds equal to the value of the filer’s personal debt. Colaco promoted this scheme throughout Canada and encouraged Canadian citizens to request refunds from the United States government. The IRS flagged the vast majority of the 1099 OID filings as frivolous. Brekke, the leader of the scheme, was sentenced in June 2012 to 144 months in prison. Three others defendants in the scheme were sentenced to terms between 33 and 12 months in prison.

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