In Fraud in the Mining Industry, I discuss the various types of frauds which are common in the mining industry. Although rampant, fraud is not the only form of corruption that plagues the industry internationally, and criminal prosecutions and civil lawsuits are not the only tools available to the U.S. government to combat corruption at an international level. One tool frequently deployed by the U.S. Department of the Treasury Office of Foreign Assets Control (OFAC) is the imposition of sanctions. By designating an entity or and individual as a “Specially Designated National” or SDN, OFAC is effectively cutting the SDN off from the international banking industry.

There are a variety of sanctions regimes available to OFAC. When it comes to corruption, however, OFAC most often relies on Global Magnitsky Act Sanctions. These sanctions are aimed at human rights abusers, those who engage in corrupt practices, and those who undermine democracy. It is difficult to know the evidence OFAC uses to make its determination, but once an entity or individual is designated as an SDN, the economic consequences are severe.

Recently, OFAC has taken aim at what it believes to be Russian activities in the international mining industry. On November 18, 2022, three Guatemalan companies, Cimpania Guatemalteca de Niquel (CGN), Compania Procesadora de Niquel (ProNiCo), and Mayanniquel, and two individuals, Dmitry Kudryakov and Iryna Litviniuk, for a variety of corrupt practices involving the Guatemalan government. These included bribery of politicians, judges, and government, at least according to OFAC.

Legislatively, Congress has passed several statutes that allow the President to take action to block certain individuals and transactions from engaging in commercial activities with U.S. citizens and companies (including foreign companies traded on an American stock exchange). These statutes are: the International Emergency Economic Powers Act (IEEPA), 50 U.S.C. 1701, et. seq., the National Emergencies Act, 50 U.S.C. 1601 et seq., and the Global Magnitsky Human Rights Accountability Act, 22 U.S.C. 2656 et. seq. Pursuant to this legislative grant of authority, the President can then sign Executive Orders directing the Department of the Treasury to take action in accordance with the terms of the Executive Order. In the case of the Guatemalan and the individuals named above, the Executive Order involved was E.O. 13818.

In designating CGN, ProNiCo, and Mayanniquel, as well as Kudrykov and Litwiniuk, OFAC has stated, “these designations target an egregious Russian corruption network to disrupt its exploitative practices within the Guatemalan mining industry. The United States stands steadfastly with the people of Guatemala and supports their efforts to protect their country’s natural resources. We will not hesitate to use the tools at our disposal to help ensure that those who profit from corruption face tangible and significant consequences.”

It is noteworthy that the CGN, ProNiCo, and Mayanniquel are all subsidiaries of the Swiss mining conglomerate Solway Investment Group, which is itself a subsidiary of Solway Industries Swiss AG. There are, however, significant differences between Solway’s position concerning the involvement of Russians in the ownership of Solway and the position taken by the government of the United States. According to Solway, no Russians hold an ownership interest in the company. They point to the fact that OFAC had not placed Solway on the SDN list, meaning Americans are free to conduct commercial transactions with Solway (but not its Guatemalan subsidiaries).

The United States, on the other hand, has stated that the three subsidiaries are all part of “an egregious Russian corruption network,” although it has not provided evidence to support his claim. There have been reports in the media, however, linking Aleksandr Bronstein, a Russian oligarch with close ties to the Kremlin, and Alexey Modashov, another oligarch with close ties to Putin, to ownership of Solway. Other reports indicate that Aleksandr Bronstein and his son, Dan Bronstein are involved in the ownership of the company.

It is also noteworthy that Solway operates in Liberia, where the President of Liberia has identified its owners as Liberian. The purpose of this article, however, is not to identify the ownership of Solway, but rather to identify the tools used by the U.S. government to combat fraud and corruption in the mining industry.

OFAC Sanctions.

The Office of Foreign Assets Control is an administrative agency that determines who is to be designated as a Specially Designated National. Once an entity or an individual is identified as an SDN, no American company or individual can conduct business with that individual. In large measure, this cuts the SDN off from the international banking system and greatly limits the SDN’s ability to conduct business. This does not mean, however, that the SDN is subject to criminal prosecution or even that they have done anything illegal.

The process used by OFAC to place an individual or entity on an SDN list is fairly opaque. OFAC does not notify potential SDNs that they may be placed on a list, nor does it provide the SDN with an opportunity to present evidence to OFAC before it is placed on a list. In many instances, the SDN will not even find out if it is on an SDN list until its ATM card does not function or its bank accounts are being closed. Even for those wrongfully placed on an SDN list, it can take months or years to be removed from the list. Filing a suit in court is theoretically possible, but courts tend to show great deference to OFAC.

On the other hand, OFAC does issue general and special licenses allowing Americans to conduct business with SDNs under limited circumstances. General licenses, as the name implies, are licenses anyone can take advantage of. Frequently they involve humanitarian activities. Special licenses are issued for specific business relationships or transactions. The process for obtaining a license can take months or years.

Sanctions are an imperfect tool at best for combatting corruption, but they are an effective tool. In the case of CGN, ProNiCo, Mayanniquel, Kudryakov and Litviniuk, sanctions effectively prevent them from engaging in further corruption in Guatemala (if, indeed, the U.S. government is correct that they were engaged in corrupt conduct). It is possible to work with OFAC, however, to resolve sanctions issues in some cases. It’s noteworthy that Solway has not been sanctioned and reports that it is working with the government of the United States.

Criminal Violations of the Sanctions Regime.

The consequence of violating sanctions, however, does not end with administrative actions such as financial penalties. The violations of sanctions can and does result in criminal charges filed by DOJ. For Americans involved in foreign corruption, the risk of prosecution for violating the Foreign Corrupt Practices Act (FCPA) in addition to IEEPA, is very real. In one recent case, for example, the Swiss mining company, Glencore International A.G. (Glencore) agreed to pay more than $1 billion for widespread bribery and market manipulations in multiple countries. According to DOJ, Glencore paid bribes in Nigeria, Cameroon, Ivory. Although a Swiss company, Glencore nevertheless found itself subject to the U.S. F.C.P.A. Indeed, it is difficult to find any multinational corporation that would not be subject to U.S. jurisdiction.

IEEPA also provides for criminal sanctions. In Unites States v. Nikitin, for example, Russian, Italian, and a U.S. citizen were charged with sanctions evasion to disguising the ultimate location of mining equipment. The equipment in question was destined for use in a Russian deep sea mining operation. At the time, the Crimea Sanctions, imposed for Russia’s annexation of the Crimea from Ukraine, prohibited transactions involving the particular equipment involved. There are likely no effective limits on the exercise of jurisdiction under IEEPA.

While no criminal violations have been filed against CGN, ProNiCo, Mayanniquel, Kudryakov or Litviniuk, this does not mean that charges cannot be filed. There seems to be a feeling in Washington that corruption in Guatemala and elsewhere in Central America are a threat to the national security of the United States. In October of 2021, the DOJ launched a task force aimed at combatting corruption in Central America. This task force has only begun to do its work, and it should be expected that new cases in the mining industry and elsewhere will soon be filed. Whether these efforts will be successful remains to be seen.

The Involvement of Russian Organized Crime in the Mining Industry.

One of the themes underlying the CGN, ProNiCo, Mayanniquel, Kudrykov and Litwiniuk cases is the alleged involvement of Russian Organized Crime (ROC) in the international mining sector. Even a cursory google search will reveal the scope and depth of ROC involvement in all manner of corruption from human trafficking and racketeering to a variety of white-collar frauds and international corruption. In fact, there is substantial evidence that ROC maintains close relationships with the Kremlin, Russian Intelligence Services, and Russian Security Services and may cooperate with these organizations in a variety of matters.

These types of criminal organizations flourish in regions that do not have effective law enforcement. Much of Central America is awash in weak governance and endemic corruption. Drug cartels and street gangs like MS-13 exercise more power and influence over the lives of common citizens than the government does, and, in most cases, the government is powerless to protect its citizens. There is substantial evidence that, in many cases, government officials are more interested in working for cartels than in working for the people.

Cartels operating from Colombia and Mexico are primarily interested in narcotics distribution and money laundering with Central America being primarily a transshipment point. As the sanctioning of CGN, ProNiCo, Mayanniquel, Kudryakov and Litviniuk demonstrates, however, ROC may be targeting the international mining sector. The sector provides potentially lucrative returns with little risk of domestic law enforcement interference. Governments that are unable to combat violent drug cartels would certainly lack the resources, expertise, and will to address less violent white-collar crimes.

In addition to Guatemala and Central America, there is also evidence that ROC is targeting the gold mining regions in Central and West Africa. As with Central America, this is a region plagued by weak governance, endemic corruption, and the presence of powerful criminal organizations. With the Russian Federation facing heavy sanctions, Africa may provide the Russian government—acting in concert with ROC—with access to gold and hard currency. As with Central America, there is little in the way of domestic law enforcement to deter ROC from further corrupting this region.

How Can People and Companies in the Region Protect Themselves?

The use of U.S. Treasury Department and DOJ to combat international corruption is, at best, an imperfect tool to fight corruption. Companies and individuals forced to operate in an environment where law enforcement is weak and corruption common are going to find themselves in close proximity to corrupt organizations, and this could result in them being wrongfully sanctioned by OFAC. Adopting and enforcing a strict compliance program can certainly assist in reducing risk. It is also possible to be removed from an SDN list, and we have represented clients wrongfully placed on a list in the past. The path to removal is not quick, easy, or cheap, and it requires a lot of investigation and effort on the part of counsel, but it is possible.

In the last few years, more than half of all Foreign Corrupt Practices Act investigations undertaken by DOJ and the Securities and Exchange Commission (SEC) have taken place in Latin America with a significant proportion of those cases in Central America. We can expect this trend to continue and to accelerate. Any investigation by the U.S. government is a very serious matter, requiring experienced and competent defense counsel to represent the company and its officers, directors, and managers. In most cases, defense counsel will be required to investigate, and in many cases, the company may need to make changes to corporate policies in order to avoid prosecution. This is one of our primary practices at Boyle & Jasari.

Finally, there may be instances where victims of fraud and corruption may want to seek redress either through international litigation or arbitration. The presence of fraud or corrupt activities of government officials can void a contract in some circumstances. In the United States, the Racketeering Influenced and Corrupt Organization Act (RICO) provides victims with a way to go after criminal organizations and corporations of other business that are controlled by organized crime. Every case, of course, is different, but there are frequently things that can be done.

If you or your organization is wrongfully accused of fraud or corruption or has been victimized by fraud and corruption, contact us. We may be able to help.

Dennis Boyle
Founder / Partner

Mr. Dennis Boyle is an accomplished white-collar criminal defense and complex civil litigation attorney who practices throughout the United States and internationally.

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