“N.S.A. Experiment Traced U.S. Cellphone Locations”

October 3, 2013

The New York Times on October 2, 2013 released the following:

By CHARLIE SAVAGE

“WASHINGTON — The National Security Agency in 2010 and 2011 conducted a secret pilot project to test the collection of bulk data about the location of Americans’ cellphones, but the agency ultimately decided against putting such a program into play for now, according to intelligence officials.

The existence of the pilot project, which has not previously been reported, was recently declassified by James R. Clapper, the director of national intelligence, but it has not been publicly disclosed. It was outlined in a draft answer obtained by The New York Times and written for Mr. Clapper to read at a Senate Judiciary Committee hearing on Wednesday if he is asked about the topic.

The answer is one paragraph long and contains scant details. It says that the N.S.A. does not currently collect locational information under Section 215 of the Patriot Act, the provision that forms the asserted legal basis of its once-secret program that is collecting logs of all domestic phone calls from telephone companies.

“In 2010 and 2011 N.S.A. received samples in order to test the ability of its systems to handle the data format, but that data was not used for any other purpose and was never available for intelligence analysis purposes,” the draft answer says, adding that the N.S.A. has promised to notify Congress and seek the approval of a secret surveillance court in the future before any locational data was collected using Section 215.

An official familiar with the test project said its purpose was to see how the locational data would flow into the N.S.A.’s systems. While real data was used, it was never queried as part of any investigation, the official said. It was unclear how many Americans’ locational data was ingested as part of the project or whether the N.S.A. has held onto that information.

But Senator Ron Wyden, an Oregon Democrat who receives classified briefings as a member of the Intelligence Committee and who has raised oblique concerns about cellphone location tracking, said in a statement on Wednesday that there was more to know about the matter than the government has declassified.

“After years of stonewalling on whether the government has ever tracked or planned to track the location of law-abiding Americans through their cellphones, once again, the intelligence leadership has decided to leave most of the real story secret — even when the truth would not compromise national security,” Mr. Wyden said.

Questions about what, if anything, the N.S.A. has been doing in the bulk tracking of Americans’ movements using cell-site location data have been simmering for several years. The issue flared again last week following an ambiguous exchange between Mr. Wyden and Gen. Keith B. Alexander, the director of the N.S.A., at a Senate Intelligence Committee hearing.

Mr. Wyden has been a critic of domestic surveillance programs and filed legislation in 2011 and again this year that would require warrants for obtaining someone’s locational data for a criminal investigation, while leaving ambiguous whether a similar step was also necessary in the context of a national security investigation. It is unclear what prompted his concerns.

At the hearing, he asked Mr. Alexander “whether the N.S.A. has ever collected or made any plans to collect Americans’ cell-site information in bulk.”

General Alexander replied that the N.S.A. “is not receiving cell-site location data and has no current plans to do so” under Section 215 of the Patriot Act, which allows the secret surveillance court to issue orders for records from businesses — like telephone companies — if the records are “relevant” to an intelligence investigation.

But General Alexander also said there was other classified information that the N.S.A. had sent to the committee in July, in response to a written version of the same question, that provided “additional detail” responsive to the issue.

It is legally unclear whether long-term tracking of people’s locations and movements by the government raises privacy rights under the Fourth Amendment. In a 1979 case involving small-scale collection of “metadata” about telephone calls — information related to the calls, like the number dialed and the duration, but not the contents of the communications — the Supreme Court ruled that such records were not protected by the Constitution because people have already revealed the existence of their calls to telephone companies and so have no reasonable expectation of privacy.

But in 2012, the court ruled that the police’s use of a G.P.S. tracker attached to a suspect’s car violated Fourth Amendment privacy rights. The case turned on the fact that the police had to trespass on the suspect’s property to attach the device, but five justices separately suggested that any long-term, automated collection of a person’s public movements might raise Fourth Amendment issues.”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

Federal Crimes – Detention Hearing

Federal Mail Fraud Crimes

Federal Crimes – Appeal

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To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Liberty Reserve Accused of Laundering Billions Through Virtual Currencies

May 29, 2013

The Wall Street Journal on May 28, 2013 released the following press release:

U.S. Says Firm Laundered Billions

Digital-Currency Group Is Accused of Moving Illicit Cash for Hackers, Drug Dealers and Others

By REED ALBERGOTTI And JEFFREY SPARSHOTT

The money was virtual, but prosecutors say the crime was real.

Officials brought charges against a group of men who allegedly manufactured an Internet-based currency to launder about $6 billion in ill-gotten gains, a sign of authorities’ rising concern with digital cash.

The charges, in an indictment unsealed Tuesday, describe a complex online system set up by a Costa Rica-based organization called Liberty Reserve. The system allegedly was designed to give criminals a way to move money earned from credit-card fraud, online Ponzi schemes, child pornography and other crimes without being detected by law enforcement.

Liberty Reserve, which was incorporated in 2006, was a “bank of choice for the criminal underworld,” according to the indictment, which said the operation allegedly laundered the money through 55 million transactions before it was shut down earlier this month. The company has about one million users world-wide, including about 200,000 people in the U.S., according to prosecutors. They called the plot one of the largest money-laundering operations ever uncovered.

A spokesman for Liberty Reserve couldn’t immediately be reached for comment. Prosecutors said Tuesday that they arrested five of the seven men charged in the indictment Friday in Spain, Costa Rica and Brooklyn, N.Y., and charged them with operating an unlicensed money-transmitting business. The officials said they plan to seek extradition of those arrested abroad, and that the two remaining men are at large.

The indictment against Liberty Reserve comes amid a concerted effort by Washington to police the nascent world of virtual currencies and ensure operators comply with U.S. law.

On Tuesday, in the first use of the 2001 Patriot Act against a virtual currency, the Treasury Department invoked a section of the law to choke off Liberty Reserve from the U.S. financial system. The Treasury’s proposal would prohibit U.S. financial institutions from opening or maintaining accounts for foreign banks that process transactions for Liberty Reserve and require special steps to guard against any transactions involving it.

Virtual currencies, most notably bitcoin, still account for only a tiny fraction of global transactions, but they are being embraced by some Internet merchants and are used in a host of legitimate transactions—for example, Web services and online-dating sites.

Law-enforcement officials are concerned about criminals’ ability to move around money outside the regulated world of banks and traditional money-moving services such as Western Union. Officials recently warned that digital currency exchanges should follow traditional anti-money-laundering rules.

The rise of virtual currencies has been exemplified by bitcoin, which lets Internet users create new money by solving complex math problems. The currency, which launched in 2009 and has gone through some wild spikes in value this spring, has attracted the attention of established companies and venture capitalists alike.

Tuesday’s case doesn’t involve bitcoin, though the virtual-cash community was watching developments closely.

“I think it is just another giant, flashing warning light to bitcoin exchanges: If you’re not compliant, there are some serious risks, both at the federal and state levels,” said Patrick Murck, legal counsel for the Bitcoin Foundation, a trade group that promotes bitcoin software and security standards.

Preet Bharara, the Manhattan U.S. attorney, said at a news conference Tuesday that he believed “virtually all” of Liberty Reserve’s customers used it for criminal purposes, though he said legitimate users can seek to recover funds.

Mr. Bharara didn’t give details on the alleged criminals but said the investigation was continuing. “There’s more to come,” he said Tuesday, adding that the case has so far involved seizing $25 million dollars in 45 bank accounts around the world.

Prosecutors allege Liberty Reserve facilitated a range of criminal activity by allowing alleged criminals to conduct transactions using its digital currency, “LR.” The system is opaque, and Liberty Reserve deliberately kept the users anonymous and untraceable, prosecutors said.

A transaction would start with one person opening a Liberty Reserve account using a false name and address, including what prosecutors said were blatant criminal monikers such as “Russia Hackers” or “Hacker Account.”

That person would wire real currency such as dollars to approved third-party currency exchangers in countries including Russia and Nigeria. The exchangers would convert the dollars into LRs and deposit them into the person’s Liberty Reserve account.

From there, a criminal could buy narcotics, stolen credit-card numbers or other goods by transferring the LRs to another person’s Liberty Reserve account. The recipient of the LRs could go to another unregulated currency exchanger and convert the LRs back into dollars.

Liberty Reserve charged a 1% fee for LR currency transfers and an additional “privacy fee” of 75 cents per transaction to hide Liberty Reserve account numbers, making the transfer virtually untraceable.

Liberty Reserve made an appearance in a criminal case earlier this month. Federal prosecutors in Brooklyn, N.Y., accused eight people of stealing about $45 million from automated-teller machines throughout New York City using stolen prepaid debit-card numbers. Prosecutors said at least one of the men used an account at the online-currency operator to transfer some of the allegedly stolen funds.

James T. Hayes Jr., special agent-in-charge of the New York field office of the U.S. Immigration and Customs Enforcement’s Homeland Security Investigations, said his agency became aware of possible wrongdoing at Liberty Reserve in 2010 and teamed up with the Internal Revenue Service to investigate the matter.

The indictment described how two of Liberty’s founders, Arthur Budovsky and Vladimir Kats, were convicted in 2006 in New York for operating Gold Age Inc. as an unlicensed money-transmitting business.

Lawyers for Mr. Budovsky and the other defendants named in the indictment couldn’t immediately be reached for comment. A lawyer for Mr. Kats declined to comment.

The indictment said Liberty Reserve also caught the attention of Costa Rican regulators in 2009, forcing the company to allegedly set up a fake compliance system. In late 2011, the Treasury Department warned financial institutions about the risks of doing business with Liberty Reserve.

In an Internet chat-room exchange included in the indictment, one defendant allegedly said he knew the company’s activities were “illegal” and said “everyone,” including the U.S. Department of Justice, knows Liberty Reserve “is a money-laundering operation that hackers use.”

About two weeks after the Treasury’s warning note, Liberty Reserve “went underground,” the indictment says, and continued to operate in Costa Rica using a “stripped-down staff working out of an office space held in the name of shell companies.” The defendants also allegedly tried soon after to drain their bank accounts.”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

Federal Crimes – Detention Hearing

Federal Mail Fraud Crimes

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To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


U.S. Seizes $150 Million in Alleged Hezbollah-Linked Cash

August 21, 2012

The Wall Street Journal on August 20, 2012 released the following:

“By Samuel Rubenfeld

U.S. officials said Monday they seized $150 million connected to a scheme in which entities linked to Hezbollah allegedly used the U.S. financial system to launder money through West Africa and back to the group’s base of Lebanon.

The seizure stems from a civil lawsuit filed last year by federal prosecutors in Manhattan against defunct Lebanese Canadian Bank, or LCB, and two Lebanese exchange houses seeking more than $480 million in funds allegedly derived from drug trafficking and other criminal activity passing through the U.S. financial system.

The seizure was reported by The Wall Street Journal, and there’s more here.

Hezbollah is a U.S.-designated foreign terrorist organization. The group’s leadership has denied engaging in money laundering to finance its activity.

Prosecutors said Monday they seized $150 million from a New York correspondent account of Lebanon’s Banque Libano Francaise SAL, or BLF. Société Générale de Banque au Liban, which bought LCB in September 2011 for $580 million, paid for part of the transaction through BLF. The seized funds are substitutes for the money in the LCB account in escrow at BLF, prosecutors said.

The warrants to seize the funds were issued August 15, but made public Monday. Neither BLF nor Société Générale de Banque au Liban were accused of wrongdoing, prosecutors said.

“Money is the lifeblood of terrorist and narcotics organizations, and while banks which launder money for terrorists and narco-traffickers may be located abroad, today’s announcement demonstrates that those banks and their assets are not beyond our reach,” said Manhattan U.S. Attorney Preet Bharara in a statement.

A lawyer for LCB declined to comment to the Journal.

The U.S. Treasury Department designated LCB as a “primary money-laundering concern” under the Patriot Act in February 2011, accusing it at the time of facilitating money laundering by a network of drug traffickers spanning South America, Europe, the Middle East and West Africa.

Société Générale de Banque au Liban acquired LCB’s assets and liabilities following the Treasury’s finding.

According to the civil complaint filed last year, the alleged scheme involved cash sent from Lebanon to the U.S. between January 2007 and early 2011 to buy used cars that were later sold in West Africa for cash.

The money from from the car sales was then allegedly transferred back to Lebanon with proceeds from narcotics trafficking and other crimes, prosecutors said in the complaint.

Correction: The seized funds came from the New York correspondent account of Lebanon’s Banque Libano Francaise SAL, not from a U.S. account at Société Générale de Banque au Liban.”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

————————————————————–

To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.