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Saturday, May 19, 2018

Cocktails & Popcorn: FinCEN & "Attorney-Client Privilege"

Image result for eating popcorn giphyRecently, on Cocktails & Popcorn, U.S. House Judiciary has taken a "financial" interest in the Michael Cohen "Attorney-Client Privilege" situation by entering documents in question to the missing SARs.

Little does anyone know, unless you follow me, that the U.S. Treasury, through its financial intelligence division, FinCEN, has been in preparation to address this "Attorney-Client Privilege" because they have access to all the records.

All the records...and emails....and phone calls.

Cohen Leaker Steps Forward: "To Say That I Am Terrified Right Now Would Be An Understatement"

Journalist Ronin Farrow is back with another bombshell report - this time from the person who leaked Michael Cohen's banking records, detailing "pay for play" type payments from the likes of Novartis and AT&T.

In short: The leaker, law enforcement official, became alarmed after two "suspicious-activity reports" (SARs) filed by Cohen's bank, First Republic, went missing from a the Treasury Department's Financial Crimes Enforcement Network (FINCEN) that he leaked the rest.

And instead of going to the Treasury's Inspector General, or special counsel Robert Mueller, the leaker chose porn star lawyer Michael Avenatti, who published the remaining SARs on Cohen (along with two other men named "Michael Cohen" wrongly included in the disclosure). 
The official, who has spent a career in law enforcement, told me, “I have never seen something pulled off the system. . . . That system is a safeguard for the bank. It’s a stockpile of information. When something’s not there that should be, I immediately became concerned.” The official added, “That’s why I came forward.”
The report also refers to two previous suspicious-activity reports, or sars, that the bank had filed, which documented even larger flows of questionable money into Cohen’s account. Those two reports detail more than three million dollars in additional transactions—triple the amount in the report released last week. -New Yorker
Farrow reports that "seven former government officials and other experts familiar with the Treasury Department’s FINCEN database expressed varying levels of concern about the missing reports," with some speculating that FINCEN may have deliberately restricted access to the reports due to the sensitivity of their content - a move officials say would be "nearly unprecedented."

That said, "A record-retention policy on FINCEN's Web site notes that false documents or those “deemed highly sensitive” and “requiring strict limitations on access” may be transferred out of its master file," according to Farrow.
Nevertheless, a former prosecutor who spent years working with the fincen database said that she knew of no mechanism for restricting access to sars. She speculated that fincen may have taken the extraordinary step of restricting access “because of the highly sensitive nature of a potential investigation. It may be that someone reached out to fincen to ask to limit disclosure of certain sars related to an investigation, whether it was the special counsel or the Southern District of New York.”
Banks are legally required to file SARs with the Treasury in order to note activity resembling money laundering, fraud or other criminal conduct. Once filed, the reports are routed to a permanent database maintained by FINCEN - searchable by "tens of thousands of law-enforcement and other federal government personnel."

Of note, they are not proof of criminal activity, however the information they contain can be used in law-enforcement proceedings.

That said, "A record-retention policy on FINCEN's Web site notes that false documents or those “deemed highly sensitive” and “requiring strict limitations on access” may be transferred out of its master file," according to Farrow.
Nevertheless, a former prosecutor who spent years working with the fincen database said that she knew of no mechanism for restricting access to sars. She speculated that fincen may have taken the extraordinary step of restricting access “because of the highly sensitive nature of a potential investigation. It may be that someone reached out to fincen to ask to limit disclosure of certain sars related to an investigation, whether it was the special counsel or the Southern District of New York.”
Banks are legally required to file SARs with the Treasury in order to note activity resembling money laundering, fraud or other criminal conduct. Once filed, the reports are routed to a permanent database maintained by FINCEN - searchable by "tens of thousands of law-enforcement and other federal government personnel." 
Of note, they are not proof of criminal activity, however the information they contain can be used in law-enforcement proceedings. 
Cohen opened up the account at First Republic for his company, Essential Consultants, in October 2016 - right before the US election, in order to pay off porn star Stormy Daniels (real name Stephanie Clifford), to keep quiet about an alleged affair she had with President Trump. 
First Republic’s compliance officers later began flagging Cohen’s transactions in the account as possible signs of money laundering. Among other potential violations, the documents cite “suspicion concerning the source of funds,” “suspicious EFT/ wire transfers,” “suspicious use of multiple accounts,” and “transaction with no apparent economic, business, or lawful purpose.” (A spokesperson for First Republic Bank declined to comment.)
By January of 2018, First Republic filed three suspicious-activity reports on Cohen's account - the most recent of which covers the period between September 2017 and January 2018, and included activity totaling nearly one million dollars. It also refers to the two missing reports that made the leaker suspicious, which cover periods prior to September 2017. 
Moreover, Cohen's transfer of the money into his personal accounts caused Morgan Stanley Smith Barney to file their own SAR on Cohen!
A substantial portion of this money seems to have ended up in Cohen’s personal accounts. Morgan Stanley Smith Barney filed a separate sar showing that, during that same three-month period, Cohen set up two accounts with the firm, into which he deposited three checks from his Essential Consultants account, two in the amount of two hundred and fifty thousand dollars and one in the amount of five hundred and five thousand dollars. Morgan Stanley Smith Barney marked those transactions, which added up to more than a million dollars, as possible signs of “bribery or gratuity” and “suspicious use of third-party transactors (straw-man).”
Cohen also apparently lied to First Republic - repeatedly telling them that Essential Consultants would be used for leveraging "his experience in real estate to consult on commercial and residential" deals - for which he said that the transactions would be "modest." The bank's compliance officers noted "a significant portion of the target account deposits continue to originate from entities that have no apparent connection to real estate or apparent need to engage Cohen as a real estate consultant."
David Murray, a former Treasury official focussed on illicit finance, told me, “There are a ton of red flags here. The pattern of activity has indicators that are inherently suspicious, and the volume and source of funds do not match the account profile that was built when the account was opened.”
Pay for play?
Last week's report by Avenatti details a payment from Cohen's First Republic account to Demeter Direct, Inc. - a Korean food company on its face, however "a Web site, since taken down, suggested that it was a global consulting firm." 
After the press began scrutinizing Cohen’s accounts, a man listed as Demeter Direct’s C.E.O., Mark Ko, told CNN that he served as an intermediary and translator in Cohen’s dealings with an aviation firm, majority-owned by South Korea’s government, called Korea Aerospace Industries. 
First Republic's SAR on the transaction noted that the aerospace company paid Cohen $150,000 in November, 2017, the same month President Trump visited South Korea, while Korea Aerospace Industries was lobbying for a multibillion-dollar US Air Force contract. 
The Korean defense company, partnered with Lockheed Martin to build the T-50A trainer jet in hopes of securing a U.S. Air Force contract worth roughly $16 billion.
Lockheed Martin, the Pentagon's top weapons supplier, entered the T-50A into the bidding contest. The plane is a version of KAI's T-50, which is used in South Korea as well as several other U.S. partner nations.
Lockheed told CNBC in a statement, "We had no knowledge of a business relationship between Korea Aerospace Industries and Mr. Cohen, and are not aware of any connection that it may have to the U.S. Air Force Advanced Pilot Training competition."
The companies are widely expected to win the lucrative contract for the delivery of 350 aircraft. -CNBC
Cohen also used his Essential Consultants account to pay personal expenses, such as his Amex bill, AT&T and Mercedes Benz bills, along with initiation fees and dues to the "Core Club," a place for socialites to rub elbows described once by the Times as a "portal to power." Cohen also cut himself several personal checks from his business account of around $100,000, on top of the million he deposited into his Smith Barney accounts. 
Russia?
One payment which may be of particular interest to Robert Mueller (who has all of Cohen's records now) are payments received by a company closely tied to a Russian oligarch close to Putin. 
In many cases, the suspicious-activity reports highlight activity of potential interest to ongoing investigations, including that of the special counsel, Robert Mueller. Bank compliance officers noted eight payments from a company called Columbus Nova to Cohen’s account between January and August of 2017, totalling five hundred thousand dollars. The investigators wrote that Columbus Nova’s biggest client is a company controlled by Viktor Vekselberg, whom they described as “reputed to be a longtime ally of Russian President Vladimir Putin.” The report also points out that Andrew Intrater, Vekselberg’s relative and the C.E.O. of Columbus Nova, donated more than three hundred thousand dollars to Trump-related causes.
The report flagged the activity as suspicious “because the CEO’s company transferred substantial funds to the personal attorney of Trump at the same time the CEO reportedly donated substantial funds to Trump’s inauguration fund and joint fundraising committee for Trump’s reelection and the Republican National Committee.”
More banks, more SARs
Several other banks flagged Cohen for suspicious transactions - some of which piece together the reasons for the transactions from news reports, "citing articles from publications including the Wall Street Journal and Vanity Fair about Trump, Russia, and secret election-season payments." These include the Stormy Daniels payment.

Another, filed by City National Bank, concerns Elliott Broidy - the former deputy finance chairman for the RNC, who Cohen arranged a $1.6 million payoff to a former Playboy model in late 2017. The woman says Broidy impregnated her, then forced her to get an abortion as part of the deal. 
The report notes, “Broidy also owns a private security company, Circinus, which provides services to the U.S. and other governments. The company has hundreds of millions of dollars in contracts with the U.A.E.” Broidy has said that Cohen and another lawyer, Keith Davidson, worked out a deal in which Broidy would pay $1.6 million to a former Playboy model he had impregnated. Broidy appears to have paid both lawyers for arranging the deal. The City National report shows that Broidy funnelled the payments through Real Estate Attorneys’ Group, a legal corporation. Broidy seems to have paid Davidson two hundred thousand dollars, and to have sent three payments, of $62,500 each, to Cohen—one to the Essential Consultants account and two to the account of Michael D. Cohen and Associates.
A rep for Broidy said that the description of the payments was "not correct," adding that "Mr. Broidy is not going to detail his payments for legal services to Mr. Cohen." 
According to FINCEN, disclosing a SAR is a federal offense which carries harsh penalties including fines of up to $250,000 and five years in prison. The official who leaked to Avenatti says he was aware of the risks, but feared that the missing SARs might be suppressed. 
“We’ve accepted this as normal, and this is not normal,” the official said. “Things that stand out as abnormal, like documents being removed from a system, are of grave concern to me.” 
When it comes to the potential legal consequences of leaking, the official said “To say that I am terrified right now would be an understatement.”
“This is a terrifying time to be an American, to be in this situation, and to watch all of this unfold.”
To this some would counter: why did he put himself in this position, and why - given the seriousness of the official's concerns - did he leak to a porn star's lawyer instead of going straight to Mueller?
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