Financial Fraud

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Under Cover: The Targets of Stings

The NYT brought in Will Arkin (partnering with Eric Lichtblau) to talk about the proliferation of the use of undercover officials in government agencies. The Supreme Court, IRS, the Smithsonian, and DOD are all playing dress up to spy on Americans (and the IRS permits agents to pretend to be lawyers, doctors, clergy, and journalists).

The article makes it clear that — as might be imagined — the drug war is the most common focus of these undercover officers.

More than half of all the work they described is in pursuit of the illicit drug trade. Money laundering, gangs and organized crime investigations make up the second-largest group of operations.

But it doesn’t really step back and look at who else is getting targeted, which I’ve tried to lay on in this stable.

Screen shot 2014-11-16 at 12.07.12 PM

There are several concerning aspects of this list. I’m hoping the Smithsonian is using under cover officers solely to police the Holocaust and similar museums; the Holocaust museum, after all, has been targeted by a right wing terrorist recently. I might see the point on the Washington Memorial. But I do hope they’re no patrolling the Air and Space Museum because they might catch people who, like I did when I was in fifth grade, use the museum as a playground for stupid pre-teen drama while on a field trip.

DOD’s expanded use of undercover officers to target Americans is very troubling. The 9th Circuit recently threw out a conviction because the Navy had initiated the case searching data in the guise of protecting Spokane’s bases. I suspect, in response, the government will just get more assiduous at laundering such investigations. And it would be highly improper for them to do so clandestinely.

That said, this table is just as telling for what it doesn’t include as what it does.

If USDA is going undercover, why not send undercover inspectors to work in food processing plants, as a great way to not only show the food safety violations, but also the labor violations? Why not go undercover to investigate CAFOs?

The big silence, however, is about bank crime. While I’m sure SEC uses some undercover officers to investigate financial crime, you don’t hear of it anymore, since the failed Goldman prosecution. And we know FBI gave up efforts to use undercover officers to investigate (penny ante) mortgage fraud crime because, well, it just forgot.

But when DOJ’s Inspector General investigated what FBI did when it was given $196 million between 2009 and 2011 to investigate (penny ante) mortgage fraud, FBI’s focus on the issue actually decreased (and DOJ lied about its results). When FBI decided to try to investigate mortgage fraud proactively by using undercover operations, like it does terrorism and drugs, its agents just couldn’t figure out how to do so (in many cases Agents were never told of the effort), so the effort was dropped.

So it’s not just that Agencies are using undercover officers to investigate every little thing, including legitimate dissent, with too little oversight.

Its also that the government, as a whole, is using this increasingly to investigate those penny ante crimes, but not the biggest criminals, like the banksters. So long as the choice of these undercover operations reflects inherent bias (and it always has, especially in the war on drugs), then the underlying structure is illegitimate.

SWIFT Change

I’ve long tracked developments in SWIFT, the system that tracks international bank transfers. The NSA got SWIFT to turn over data willingly after 9/11. But then the consortium moved its servers to Europe, making the data legally safer — though surely not technically safer  – from NSA hands. And in spite of the fact that the US negotiated, and then violated the spirit of, a permissive deal to access this information, documents leaked by Edward Snowden still show the NSA double dipping, obtaining SWIFT information via the legal front door and the technical back door.

Nevertheless, it wasn’t the evidence that the US had preferential access to the records of international bank transfers is not what led someone to create a competitor. The threat of sanctions did.

Russia has just announced a plan to have some alternative to SWIFT in place by May.

Russia intends to have its own international inter-bank system up and running by May 2015. The Central of Russia says it needs to speed up preparations for its version of SWIFT in case of possible ”challenges” from the West.

“Given the challenges, Bank of Russia is creating its own system for transmitting financial messaging… It’s time to hurry up, so in the next few months we will have certain work done. The entire project for transmitting financial messages will be completed in May 2015,” said Ramilya Kanafina, deputy head of the national payment system department at the Central Bank of Russia (CBR).

Calls not to use the SWIFT (Society for Worldwide Interbank Financial Telecommunication) system in Russian banks began to grow as relations between Russia and the West deteriorated over sanctions. So far, SWIFT says despite pressure from some Western countries to join the anti-Russian sanctions, it has no intention of doing so.

I’ve long wondered when US reliance on sanctions — which is effectively an assertion of the authority to be able to dictate which economic players are acceptable and not — would begin to undermine the US system. And while this does not seem to be primarily motivated by an effort to undercut US hegemony, except to the degree that Russia refuses to comply with US demands it be permitted to rearrange Russia’s immediate neighborhood. Rather, this is a reaction to US actions.

Nevertheless, it may establish the infrastructure that undermines US hegemony.

Was Alex Brown a CIA Front When It Was “Innocuously” Shorting 9/11?

This is going to sound very tinfoily. But here goes.

Prominent Baltimore banker Ed Hale has come forward to reveal he was a CIA NOC while Chair of the Bank of Baltimore from sometime around 1991 until 2001.

In a life that reads like a spy thriller, Hale says he was recruited into the CIA by former Alex Brown chairman Buzzy Krongard, who was with the agency.

“He came to my officer one day and said ‘Let’s go for a walk,’” Hale said.

Blue collar beginnings in Eastern Baltimore County to the world of espionage, Hale details this secret life in the CIA in a new biography called “Hale Storm.”

“I was called a NOC,” Hale said, “N.O.C.”

That stands for “non-official cover.”

[snip]

During his time with the CIA, from 1991 to 2001, Hale never told anyone.

That’s all very nice. But it suggests that Buzzy Krongard was at the CIA, recruiting other banksters, years before he was known to be (he is known to have started in 1998).

There are other versions of this, with slightly different dates and a different relationship with the CIA for Buzzy, which may be key. Still, they all show Buzzy recruiting a top banker to join the CIA in the early 1990s.

Which would mean that when Alex Brown was shorting United and American stocks in the days before 9/11, it didn’t just have a former employee at the CIA. It had served as a cover for that former employer while he was working for the CIA.

A single U.S.-based institutional investor with no conceivable ties to al Qaeda purchased 95 percent of the UAL puts on September 6 (2001) as part of a strategy that also included buying 115,000 shares of American on September 10. Similarly, much of the seemingly suspicious trading on September 10 was traced to a specific U.S.-based options trading newsletter faxed to its subscribers, which recommended these trades.

The 9/11 Report goes on to report the SEC found these trades to be “innocuous.”

It doesn’t sound all that innocuous.

 

Maybe NSA “Moonlighting” Is Another Name for “Public-Private Partnership”?

As you’ve likely read, NSA’s Chief Technology Officer has so little to keep him busy he’s also planning on working 20 hours a week for Keith Alexander’s new boondoggle.

Under the arrangement, which was confirmed by Alexander and current intelligence officials, NSA’s Chief Technical Officer, Patrick Dowd, is allowed to work up to 20 hours a week at IronNet Cybersecurity Inc, the private firm led by Alexander, a retired Army general and his former boss.

The arrangement was approved by top NSA managers, current and former officials said. It does not appear to break any laws and it could not be determined whether Dowd has actually begun working for Alexander, who retired from the NSA in March.

Dowd is the guy with whom Alexander filed 7 patents for work developed at NSA.

During his time at the NSA, Alexander said he filed seven patents, four of which are still pending, that relate to an “end-to-end cybersecurity solution.” Alexander said his co-inventor on the patents was Patrick Dowd, the chief technical officer and chief architect of the NSA. Alexander said the patented solution, which he wouldn’t describe in detail given the sensitive nature of the work, involved “a line of thought about how you’d systematically do cybersecurity in a network.”

That sounds hard to distinguish from Alexander’s new venture. But, he insisted, the behavior modeling and other key characteristics represent a fundamentally new approach that will “jump” ahead of the technology that’s now being used in government and in the private sector.

Presumably, bringing Dowd on board will both make Alexander look more technologically credible and let Dowd profit off all the new patents Alexander is filing for, which he claims don’t derive from work taxpayers paid for.

Capitalism, baby! Privatizing the profits paid for by the public!

All that said, I’m wondering whether this is about something else — and not just greed.

Yesterday, as part of a bankster cybersecurity shindig, one of Alexander’s big named clients, SIFMA, rolled out its “Cybersecurity Regulatory Guidance.” It’s about what you’d expect from a bankster organization: demands that the government give what it needs, use a uniform light hand while regulating, show some flexibility in case that light hand becomes onerous, and never ever hold the financial industry accountable for its own shortcomings.

Bullet point 2 (Bullet point 1 basically says the US government has a big role to play here which may be true but also sounds like a demand for a handout) lays out the kind of public-private partnership SIFMA expects.

Principle 2: Recognize the Value of Public–Private Collaboration in the Development of Agency Guidance

Each party brings knowledge and influence that is required to be successful, and each has a role in making protections effective. Firms can assist regulators in making agency guidance better and more effective as it is in everyone’s best interests to protect the financial industry and the customers it serves.

The NIST Cybersecurity Framework is a useful model of public-private cooperation that should guide the development of agency guidance. NIST has done a tremendous job reaching out to stakeholders and strengthening collaboration with financial critical infrastructure. It is through such collaboration that voluntary standards for cybersecurity can be developed. NIST has raised awareness about the standards, encouraged its use, assisted the financial sector in refining its application to financial critical infrastructure components, and incorporated feedback from members of the financial sector.

In this vein, we suggest that an agency working group be established that can facilitate coordination across the agencies, including independent agencies and SROs, and receive industry feedback on suggested approaches to cybersecurity. SIFMA views the improvement of cybersecurity regulatory guidance and industry improvement efforts as an ongoing process.

Effective collaboration between the private and public sectors is critical today and in the future as the threat and the sector’s capabilities continue to evolve.

Again, this public-private partnership may be necessary in the case of cybersecurity for critical infrastructure, but banks have a history of treating such partnership as lucrative handouts (and the principle document’s concern about privacy has more to do with hiding their own deeds, and only secondarily discusses the trust of their customers). Moreover, experience suggests that when “firms assist regulators in making agency guidance better,” it usually has to do with socializing risk.

In any case, given that the banks are, once again, demanding socialism to protect themselves, is it any wonder NSA’s top technology officer is spending half his days at a boondoggle serving these banks?

And given the last decade of impunity the banks have enjoyed, what better place to roll out an exotic counter-attacking cybersecurity approach (except for the risk that it’ll bring down the fragile house of finance cards by mistake)?

Alexander said that his new approach is different than anything that’s been done before because it uses “behavioral models” to help predict what a hacker is likely to do. Rather than relying on analysis of malicious software to try to catch a hacker in the act, Alexander aims to spot them early on in their plots.

One of the most recent stories on the JP Morgan hack (which actually appears to be the kind of Treasuremapping NSA does of other country’s critical infrastructure all the time) made it clear the banksters are already doing the kind of data sharing that Keith Alexander wailed he needed immunity to encourage.

The F.B.I., after being contacted by JPMorgan, took the I.P. addresses the hackers were believed to have used to breach JPMorgan’s system to other financial institutions, including Deutsche Bank and Bank of America, these people said. The purpose: to see whether the same intruders had tried to hack into their systems as well. The banks are also sharing information among themselves.

So clearly SIFMA’s call for sharing represents something more, probably akin to the kind of socialism it benefits from in its members’ core business models.

In the intelligence world, they use the term “sheep dip” to describe how they stick people subject to one authority — such as the SEALs who killed Osama bin Laden — under a more convenient authority — such as CIA’s covert status. Maybe that’s what’s really going on here: sheep dipping NSA’s top tech person into the private sector where his work will evade even the scant oversight given to NSA.

If SIFMA’s looking for the kind of socialistic sharing akin to free money, then why should we be surprised the boondoggle at the center of it plans to share actual tech personnel?

Update: Reuters reports the deal’s off. Apparently even Congress (beyond Alan Grayson, who has long had questions about Alexander’s boondoggle) had a problem with this.

Moussaoui Wants to Testify Against the Saudi Banks

Zacarias Moussaoui sent a letter to the judge presiding over a lawsuit against Jordanian Arab Bank, offering to testify against that bank and several Saudi banks that he says supported 9/11.

I want to testify against financial institutions such as Arab Bank, Saudi American Bank, the National Commercial Bank of Saudi Arabia for their support and financing of Usama bin Laden and Al Qaeda from the time of the Eastern Africa embassy bombing, U.S.S. Cole bombing and 9/11.

As Alison Frankel — who broke this story — noted, Moussaoui’s testimony would be inappropriate in the case in question, which found that Arab Bank funded Hamas.

But that’s not the most interesting part of her report (and Moussaoui’s letter). He claims the lawyers for the 9/11 victims have tried to meet with him in the SuperMax at Florence, CO, and also claims he sent a letter to the judge presiding over that case, where his testimony would be on point.

Moussaoui said that plaintiffs’ lawyers representing victims of the Sept. 11 attacks have requested permission to meet with him but that prison officials have denied the request. Moussaoui also claimed that he has previously offered to testify about al Qaeda financing in letters to the judge overseeing the Sept. 11 victims’ consolidated litigation, U.S. District Judge George Daniels of Manhattan, but that he does not know if the prison has mailed them. The docket in that case does not show any communications from Moussaoui, who was once named as a defendant by Sept. 11 victims.

The implication is that the Special Administrative Measures to which Moussaoui is subject may be preventing his letters from getting out or plaintiffs lawyers from being able to meet with him.

I’m not convinced Moussaoui would really have known about the financing of the 9/11 attack; from reports, al Qaeda kept the operation much better compartmented than that, and Khalid Sheikh Mohammed reportedly had real questions about the competence of Moussaoui (which is why he got others for the mission). Plus, Moussaoui’s been in solitary so long, it’s unclear how cogent he can be (though his letter sounds more cogent than some of what he sent during his own trial).

Still, I am curious whether the government has been using the SAMs imposed on Moussaoui as yet another way to bury larger Saudi complicity in the attacks.

With AIG “Bailout,” Did the US become a Planned Economy to Fight Off Takeover by One?

In two posts concluding, ” the government might find a victory [in AIG's lawsuit] to be more costly than it anticipated,” Yves Smith digs out key details from AIG’s claims that in September 2008, the US illegally took it over.

I think Smith is intrigued by the additional evidence provided by the AIG complaint that the government took several actions that ensured it could use AIG as a bailout vehicle, including (in her second post), by not asking whether the counterparties would be willing to take a haircut.

Another stunning new allegation in the “Corrected Proposed Findings of Fact” document is that, in stark contrast with previous claims by the Fed, that only UBS was willing to take a haircut, it turns out the New York Fed only bothered talking to eight of the 16 counterparties (and then as we already know from the SIGTARP report on this issue, using a script that was delivered by junior staffers, as opposed to having Geithner or Paulson call and force them to take a haircut). Moreover, BlackRock, which was advising the Fed, believed that Bank of America and Goldman would be receptive to discounts.

But I’m particularly interested in what Treasury forestalled with its bailout: bailouts from sovereign wealth funds from Singapore, China, and some unnamed Middle Eastern funders. From the first post:

[The AIG complaint] argues that AIG was forced to take a bailout it didn’t need, that all that was required was a bridge loan until it could obtain private financing. That may sound like a howler. AIG was teetering on the verge of failure and needed to get a $14 billion bridge loan on September 16 (a Tuesday, the day after the Lehman bankruptcy) that in a few days rose to $37 billion simply to carry it through the weekend when the terms of the credit facility were finalized.

[snip]

7.6 Defendant directly discouraged sovereign wealth funds from providing liquidity to AIG.

(a) Sovereign wealth funds, including the Government of Singapore Investment Corporation (GIC) and the Chinese Investment Corporation (CIC) expressed interest in investing in AIG (Studzinski Dep. 39:4-40:18, 133:11-19).

(b) Defendant discouraged the CIC and representatives of the Chinese Government from assisting AIG. At 12:25 p.m. on September 16, 2008, Taiya Smith, Paulson’s deputy chief of staff and executive secretary, informed Paulson’s chief of staff and Treasury Under Secretary for International Affairs David McCormick that the CIC was “prepared to make a big investment in AIG, but would need Hank to call [Chinese Vice Premier] Wang Qishan” (PTX 89 at 1; see also PTX 423 at 15-18). The Chinese “were actually willing to put up a little bit more than the total amount of money required for AIG” (PTX 423 at 16).

(c) On September 16, 2008, McCormick spoke to Paulson about the Chinese interest in investing AIG (PTX 423 at 16-17). McCormick then told Smith that Treasury “did not want the Chinese coming in at this point in time on AIG” (PTX 423 at 17).

(d) Later that day, Smith met with Chinese Government officials in California during Joint Commission on Commerce and Trade in Yorba Linda, California (PTX 423 at 16). During that meeting, “all [the Chinese officials] wanted to talk about was AIG” (PTX 423 at 17). Smith spent one or two hours explaining what was happening with AIG (PTX 423 at 18). She conveyed the message that Treasury did not want the Chinese to invest in AIG (PTX 423 at 17).

(e) On September 17, 2008, United States Senator Hillary Clinton called Paulson “on behalf of Mickey Kantor, who had served as Commerce secretary in the Clinton administration and now represented a group of Middle Eastern investors. These investors, Hillary said, wanted to buy AIG. ‘Maybe the government doesn’t have to do anything,’ she said” (PTX 706 at 279). Paulson told Senator Clinton, “this was impossible unless the investors had a big balance sheet and the wherewithal to guarantee all of AIG’s liabilities” (PTX 706 at 279). (numbered text page 17, PDF page 21)

The fact that the Singapore and Chinese sovereign wealth funds both were willing to invest in AIG, and that a separate group of Middle Eastern investors was also pressing to buy in, strongly undercuts the official story that the only way out for AIG was into the Fed’s arms. Yes, we don’t know exactly how much they were willing to put in and whether that would have been enough to make up the $85 billion size of the initial credit line.

But the Chinese statement was a clear general indication that “we’re willing and able to go big”.

In this telling, the US government bailed out AIG to prevent China (and Singapore and some of our “allies” in the Middle East) from bailing it out.

As Smith points out, there may well be good national security

Now one can argue there were reasons to turn down these offers. Having the Chinese, or consortium dominated by foreigners, could prove to be ugly. The US, after all, had just put Fannie and Freddie in conservatorship in large measure to reassure the Chinese and Japanese, who were large investors in Freddie and Fannie guaranteed paper, that they would not suffer losses. What if the Chinese government rescued AIG and the black hole turned out to be bigger than anyone though it was?

[snip]

There is also the not-trivial issue that AIG is widely believed to provide legitimate-looking jobs to CIA assets all over the world. Would letting foreigners obtain control put that sort of information at risk?

While Smith believes these issues could have been addressed by having a consortium of foreigners take over AIG, I suspect Treasury would still regard it as having China take over our critical infrastructure. While I don’t get the finance bit like Smith does, it seems like having the monopoly insurer of excessive “capitalist” gambling in Chinese hands would have been the equivalent of letting them hold one of Wall Streets’ nuts for safe keeping.

Plus, I’ve long argued that the government had to bail out GM (though not Chrysler) for similar reasons. Had GM gone bankrupt, China would have bought up key parts of it, obtaining the key part of American’s manufacturing driver that China hasn’t already stolen by spying on DOD.

In both bailouts, I’d argue, the US had to intervene to prevent our biggest rival from basically taking large bites out of the critical heart to our economy, all operating under sound capitalist principles.

To stave that off, it appears — particularly if AIG’s claims have any basis in fact, which they appear to — the US embraced a command economy.

None of that’s a surprise. We’ve always forsworn capitalism when national interests dictated.

But given the ideology involved — given that this involved holding off a purported command economy threatening to gut our country using the tools of capitalism — it does seem worth noting.

This is one of the reasons I’m so intrigued by the apparent TREASUREMAPPING of JP Morgan Chase. Someone — it may be the Russians, but this kind of thing is easy to project — is treating JPMC as the ripe critical underbelly that it obviously is. The AIG bailout shows just how vulnerable we really are to such acts.

Former FBI Assistant Director Makes a Compelling Case to Eliminate the Corporation

Former FBI Assistant Director apparently isn’t afraid to embarrass himself to fear monger for law enforcement.

That’s the only conclusion I can reach by his penning this op-ed, which still bears its original title in the URL.

http://www.washingtonpost.com/posteverything/wp/2014/09/23/i-helped-save-a-kidnapped-man-from-murder-with-apples-new-encryption-rules-we-never-wouldve-found-him/

In it, Ronald T. Hosko claimed shamelessly that if Apple had been employing its new encryption plans earlier this year, a kidnap victim the FBI rescued would be dead. The two nut paragraphs originally read,

Hosko Fearmongering

It made no sense! As Hosko correctly explained, they solved this case with lawful intercepts of phone content.

Once we identified potential conspirators, we quickly requested and secured the legal authority to intercept phone calls and text messages on multiple devices.

Even if the kidnappers had a new iPhone, FBI would still go to precisely the same source they did go to — the telecom providers — to get the intercepts. The FBI never even had the actual phones of kidnappers in hand — except for the phone the gang leader used to direct the plot from prison, which he crushed before it could be investigated, a technology that has been available to thugs far longer than encryption has.

So it is quite clear that, had this technology been used by the conspirators in this case, the FBI would still have caught them, using precisely the same process they did use to catch them..

After Hosko got called on his false claims on Twitter, he made two corrections — first to this interim fallback. (h/t @empirical error for catching this)

Hosko

That didn’t make any more sense, as they were tracing calls made from the kidnappers. Once they got close enough to examine their actual devices, they had the kidnappers. Now he has changed it to read:

Last week, Apple and Google announced that their new operating systemswill be encrypted by default. Encrypting a phone doesn’t make it any harder to tap, or “lawfully intercept” calls. But it does limit law enforcement’s access to a data, contacts, photos and email stored on the phone itself.

That kind information can help law enforcement officials solve big cases quickly. For example, criminals sometimes avoid phone interception by communicating plans via Snapchat or video. Their phones contain contacts, texts, and geo-tagged data that can help police track down accomplices. These new rules will make it impossible for us to access that information. They will create needless delays that could cost victims their lives.*

[snip]

Editors note: This story incorrectly stated that Apple and Google’s new encryption rules would have hindered law enforcement’s ability to rescue the kidnap victim in Wake Forest, N.C. This is not the case. The piece has been corrected.

Phew. Apparently all this surveillance technology is hard to keep straight, even for an experienced FBI guy. But the truly funny part of Hosko’s piece — now that he at least has some semblance of factual accuracy (though I think he’s still exaggerating about video and Snapchat) — is where he suggests that we should not avail ourselves of any technologies that make it easier on criminals.

If our cutting edge technologies are designed to keep important dots out of the hands of our government, we all might start thinking about how safe and secure we will be when the most tech-savvy, dedicated criminals exponentially increase their own success rates​.

This would lead you to believe Hosko is unaware of the “cutting edge technology” that has probably kept more crime-solving information out of the hands of the government than any measly encryption: incorporation. Drug cartels, human traffickers, even dreaded banksters all use shell corporations as a favored technology to not only hide the evidence of their crime, but to dodge accountability if it ever is discovered. That snazzy technology, the corporation, has empowered criminals far more than cell phone encryption — with all the possible workarounds — will ever do.

Yet if you called for eliminating a beneficial technology like the corporation just because criminals also happen to find it useful, people would consider you batshit insane. It would be a totally disproportionate measure, trading away real benefits in the name of relative but not absolute safety.

But hey! Hosko has already embarrassed himself. So if he feels like doing so again, by all means, I implore him to call for the elimination of the corporation — or even just a few of the exotic financial tools that the most dangerous financial criminals use.

After all, it will make us safer!

Are New Sealed Filings in Barry Bonds Appeal More Dirty Tricks By DOJ? Update: YES!

The handling of the BALCO series of investigations, both by lead investigator Jeff Novitsky and the US Attorneys office, has been relentlessly aggressive and marked by dubious, at best, tactics. Considering that the DOJ, during the entire time period, could not find the resources to prosecute the banksters who brought down the entire economy, BALCO was one of the most hideous wastes of taxpayer money imaginable.

Remarkably, the questionable tactics by DOJ may well be raising their ugly head yet again. Bonds’ appeal in the 9th Circuit is a somewhat mundane legal issue that has been fully briefed on the en banc petition for the better part of a year. The en banc hearing, before KOZINSKI, Chief Judge; and REINHARDT, O’SCANNLAIN, GRABER, WARDLAW, W. FLETCHER, RAWLINSON, CALLAHAN, N.R. SMITH, NGUYEN and FRIEDLAND, Circuit Judges is set for 2:00 pm tomorrow, Thursday September 18, 2014

Yet, less than 48 hours before the en banc rehearing is scheduled to commence, the DOJ has suddenly, and mysteriously, lodged sealed filings at 8:00 pm last night. These are Docket Numbers 64 and 65 respectively:

Filed UNDER SEAL Appellee USA motion to file a letter to the court under seal (PANEL). Deficiencies: None. Served on 09/16/2014. [9242886] (JFF)

Filed UNDER SEAL Appellee USA letter dated 09/16/2014 re: constructive amendment argument. (PANEL) Paper filing deficiency: None. [9242910] (JFF)

Here is Bonds’ Petition for Rehearing En Banc. Here is the previous panel decision in the 9th Circuit. If you don’t want to bother with the full pleadings, this article from the Orange County Breeze gives a nice synopsis of the scope of the en banc proceeding for Bonds.

As can quickly be discerned, the appeal centers really on common statutory interpretation as applied to the facts in the public trial record. The issue is whether there was sufficient evidence to convict Bonds because his statement describing his life as a celebrity child — in response to a question asking whether his trainer ever gave him any self-injectable substrances — was evasive, misleading, and capable of influencing the grand jury to minimize the trainer’s role in the distribution of performance enhancing drugs, and whether, under the law, that can properly constitute obstruction. I wrote an extensive piece arguing the weakness and infirmities of the verdict at the time it was handed down by the jury. Which is when the jury also acquitted Bonds of all the substantive underlying perjury counts.

Yes, the appeal is really that simple. So why, pray tell, does the DOJ need to be interjecting last minute sealed documents? What possible need could there be for anything to be sealed for this mundane criminal appeal? There may be a valid explanation, but it is nearly impossible to fathom what it could be.

I am willing to bet Bonds’ attorneys, Allen Ruby and Dennis Riordan, must be apoplectic.

UPDATE: Well well, I am sitting in Alice Cooperstown having lunch, waiting for my preliminary hearing to reconvene, and Josh Gerstein just sent me the answer to the question of this post. YES! Indeed the sealed filings are a slimy last minute trick pulled by the DOJ. DOJ was trying to insert grand jury testimony from the aforementioned government BALCO investigator, Jeff Novitsky, into the appeal when it has never, at any point of the proceedings, whether in the trial court or 9th Circuit, been part of the record or indictment.

Here is the responsive pleading just filed by Bonds’ attorney Dennis Riordan. Here is the pertinent part:

The grand jury transcripts referred to in the government’s motion and letter are not part of the record on appeal. Had they been before the district court in any form, the proper method of adding them to the appellate record would have been by means of a timely motion to correct or modify the record under Rule 10(e) of the Federal Rules of Appellate Procedure. The transcripts which are the subject of the government’s motion, however, were never placed before the district court in either pretrial, trial, or post-trial proceedings. Notably, the declaration of AUSA Merry Jean Chan which accompanies the government’s motion makes no claim that the transcripts were filed with the district court. “Papers not filed with the district court or admitted into evidence by that court are not part of the clerk’s record and cannot be part of the record on appeal.” Kirshner v. Uniden Corp. of Am., 842 F.2d 1074, 1077 (9th Cir. 1988) (citing, inter alia, United States v. Walker, 601 F.2d 1051, 1054–55 (9th Cir.1979)).

Should the Court nonetheless wish to consider the transcripts in question, they fully support Mr. Bonds’s argument that the district court constructively amended the indictment by instructing on “Statement C” as a basis for conviction on the Count Five obstruction count, although that statement was not contained in the indictment. In his testimony, in discussing Statement C, then labeled “Statement F” before the grand jury, Novitsky admitted that Mr. Bonds had responded to the pending question—“Did Greg ever give you anything that required a syringe to inject yourself with?”—with a “denial” before veering off into a digression about “being a celebrity child.” (RT of February 3, 2011, at 110.) Novitsky’s admission that the prosecutor’s question was in fact answered by Mr. Bonds constituted a good reason why the grand jury would not have relied on Statement C in indicting on the obstruction charge. The only manner of accurately ascertaining whether a grand jury relied on an act in indicting is by the inclusion of that act in the indictment itself. Here, Statement C was expressly excised from the indictment by the use of asterisks. See Appellant Bonds’s Petition for Rehearing En Banc, at 16.

Hilarious. DOJ tries a patently inappropriate punk move and Dennis Riordan turns it around to bite them in the butt. Quite well deserved. You have to hand it to the DOJ in the BALCO cases, they are nothing if not consistently ethically dubious.

The Intelligence Propaganda Complex

Matt Apuzzo has a remarkable story about the efforts DOJ is making to protect the records of United Against Nuclear Iran, a purported NGO that shames entities potentially doing business with Iran.

Greek shipping magnate Victor Restis is suing the group for defamation, claiming they falsely accused him of being an Iranian front.

The group said it had uncovered a letter proving there was a plan to do business in Iran. It also accused Mr. Restis of using his ships in support of Iran’s oil industry.

Mr. Restis said the letter was fraudulent, the illicit Iranian deal never existed, and his ships made only authorized humanitarian shipments. He accused the group of shaking down companies for donations; the group in turn accused him of being a “master criminal.”

The group said it based its accusations on “valid research, credible documents, distinguished relationships, and pre-eminent sourcing.” In court, Mr. Restis demanded that the group disclose those documents and its relationships.

Soon after that demand, Mr. Restis said he was approached by an Israeli businessman, Rami Ungar, with no direct connection to United Against Nuclear Iran.

According to court documents filed by Mr. Restis’s lawyers, Mr. Ungar knew details about the case and said he was “authorized to try to resolve the issues” on behalf of the group’s supporters.

It was not clear who those supporters were. Like many nonprofit groups, its donor list is secret. Mr. Restis’s lawyers said in a letter to the judge in April that they had uncovered information that United Against Nuclear Iran “is being funded by foreign interests.”

DOJ suggested they might claim a law enforcement exception to protect the files, though it has not yet formally claimed such a privilege. That might suggest the files are Treasury files that may soon be used to impose sanctions on Restis. Or perhaps it means they have files that don’t meet Treasury’s standards for imposing sanctions, and UANI exists to shame people where sanctions are unavailable. In any case, Restis wants to know how Ungar got them; I’d like to know precisely what UANI is getting from whom.

Apuzzo lists some of the characters who are behind the group: former Mideast Peace Envoy Dennis Ross, Fran Townsend, and Joe Lieberman. Otto Reich, whose role in Iran-Contra (as opposed to his role in trying to overthrow Hugo Chavez in the 2002 coup) involved illegally funneling taxpayer dollars for the purposes of lobbying, is of particular note. Restis is particularly interested in interviewing UANI advisor Meir Dagan, the long-time head of Mossad; Restis believes Dagan provided the documents to Ungar. In addition, Richard Dearlove, who was in charge of sexing up the British case for war in 2003 when he was MI6, also advises the group.

in other words, it’s a classic case of a quasi-governmental group, one that apparently plays an extra-legal purpose in the campaign to isolate Iran (to be fair, most, though not all, of its advisors have worked hard to stave off war). And Restis’ efforts to get some kind of justice against it may be stymied by US claims they’ve got privileged interests in the case.

The entire episode raises some very good questions about what goes into isolating our adversaries.

In a Nation Ravaged by Banksters, FBI Can’t Afford the “Luxury” of Frivolous Counterterrorism Stings

In a JustSecurity post reviewing the same speech that I observed ignored US failures to prevent violent extremism, NYU Professor Samuel Rascoff defends the US use of counterterrorism stings, even in spite of the details revealed by HRW’s report on all the problems related to them. David Cole has an excellent response, which deals with many of the problems with Rascoff’s argument.

I’d like to dispute a more narrow point Rascoff made when he suggested that, because we have so many fewer trained militants than the Europeans, we “can[] afford” the “luxury” of stings.

There are now approximately 3,000 European passport holders fighting in Syria and Iraq. In the time that it took Najibullah Zazi to drive from Denver to New York, a fighter could drive from Aleppo to Budapest. What that means is that European officials are relatively more consumed than American counterparts in keeping up with, and tabs on, trained militants.   Orchestrating American-style sting operations is, in a sense, a luxury they cannot afford.

The claim is astonishing on its face, in that it suggests that, because we don’t have real militants like Europe does, we should engage in the “luxury” of entrapping confused young Muslim men and sending them to expensive decades-long prison terms.

Think a bit more about that notion of “luxury” and the financial choices we make on law enforcement. Here are some numbers taken from two sources: the HRW report (I basically searched on the dollar sign, though this doesn’t include every mention of dollars) and today’s Treasury settlement with Bank of America for helping 10 drug kingpins launder their money over a four year period, three years of which constituted “egregious” behavior.

First, HRW reports that FBI spends over $1.3 billion a year on counterterrorism, much of it stings, leaving less than $2 billion for all other investigations.

More than 40 percent of the FBI’s operating budget of $3.3 billion is now devoted to counterterrorism.

That allows the FBI to pay some of its informants and experts hefty sums.

Beginning in August 2006, the FBI paid Omar $1,500 per week during the investigation. Omar received a total of $240,000 from the FBI. This included: $183,500 in payment unrelated to expenses, and $54,000 for expenses incurred during the investigation including car repair and rent.

[snip]

“Kohlmann is an expert in how to use the Internet, like my 12-year-old. He has found all the bad [stuff] about Islam, and testifies as if what he is reading on the Internet is fact. He was paid around $30,000 to look at websites, documents, and testify.”

These informants sometimes promise — but don’t deliver — similar hefty sums to the guys they’re trying to entrap.

Forty-five-year-old James Cromitie was struggling to make ends meet when, in 2009, FBI informant Hussain offered him as much as $250,000 to carry out a plot which Hussain—who also went by “Maqsood”—had constructed on his own.

[snip]

The informant proposed to lend Hossain $50,000 in cash so long as he paid  him back $2,000 monthly until he had paid back $45,000.

Which is particularly important because many of these guys are quite poor (and couldn’t even afford to commit the crimes they’re accused of).

At the time he was in contact with the informant and the undercover [agent] he was living at home with his parents in Ashland and he didn’t have a car, he didn’t have any money and he didn’t have a driver’s license because he owed $100 and he didn’t have $100 to pay off the fine. In various parts of the investigation he didn’t have a laptop and he didn’t have a cellphone. At one point the informant gave him a cell phone.

And some of these crimes (the very notable exceptions in the HRW report include two material support cases, both of which are close calls on charity designations, but which involved very large sums, $13 million a year in the case of Holy Land Foundation) involve relatively minscule sums.

According to the prosecution, Mirza was the ringleader in collecting around $1,000—provided by the FBI agents and co-defendant Williams—that he handed to a middleman with the intent that it go to families of Taliban fighters.

So one theme of the HRW report is we’re spending huge amounts entrapping what are often poor young men in miniscule crimes so taxpayers can pay $29,000 a year to keep them incarcerated for decades.

These are the stakes for what Rascoff calls a “luxury.” At a time of self-imposed austerity, these stings are, indeed, a luxury.

Compare that to what happens to Bank of America, which engaged in “egregious” violations of bank reporting requirements for three years (and non-egregious ones for a fourth), thereby helping 10 drug kingpins launder their money. No one will go to jail. Bank of America doesn’t even have to admit wrong-doing. Instead, it will have to pay a $16.5 million fine, or just 0.14% of its net income last year.

This settlement came out of a Treasury investigation, not an FBI one.

But when DOJ’s Inspector General investigated what FBI did when it was given $196 million between 2009 and 2011 to investigate (penny ante) mortgage fraud, FBI’s focus on the issue actually decreased (and DOJ lied about its results). When FBI decided to try to investigate mortgage fraud proactively by using undercover operations, like it does terrorism and drugs, its agents just couldn’t figure out how to do so (in many cases Agents were never told of the effort), so the effort was dropped.

Banks commits crimes on a far grander scale than most of these sting targets. But FBI throws the big money at its counterterrorism stings, and not the banks leaching our economy of its vitality.

Rascoff accuses HRW’s and similar interventions of being one-dimensional.

[F]or all the important questions about official practices that critics raise, they have tended to ignore some hard questions about the use of stings and the tradeoffs they entail.Instead, their interventions have an exaggerated, one-dimensional quality to them.

But he himself is guilty of his own crime. Because every kid the FBI entraps in a $240,000 sting may represent an actual completed bank crime that will never be investigated. It represents an opportunity cost. The choice is not just sting or no sting or (more accurately, as David Cole points out) sting or community outreach and cooperation.

Rather, the choice is also between manufacturing crimes to achieve counterterrorism numbers or investigating real financial crimes that are devastating communities.

So long as we fail to see that tradeoff, we fail to address one major source of the economic malaise that fuels other crimes.

Ignoring bank crimes is, truly, something we don’t have the luxury of doing. Nevertheless, we continue to choose to go on doing so, even while engaging in these “luxurious” counterterrorism stings that accomplish so little.

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Emptywheel Twitterverse
emptywheel @NickBaumann Any reason to believe she--who bought house in own name-- covert? Even people who were govt has shown great negligence with
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emptywheel @dnvolz not at all. They've used "torture" for some time.
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emptywheel Glad NYT calling for torture prosecution. Pretty funny to call those who refuse to use T-word blinkered apologists bc NYT just adopted Tword
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emptywheel Remember Curveball? Turns out torture has a Curveball too. http://t.co/b5LvTDojEX
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emptywheel Add torture and the Internet dragnet to Bush programs partly justified by a fabricator. http://t.co/b5LvTDojEX
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JimWhiteGNV RT @GreggJLevine: How false witness helped CIA make a case for torture //very excited to welcome @emptywheel to the pages of @AJAM http://t…
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emptywheel RT @GreggJLevine: How false witness helped CIA make a case for torture //very excited to welcome @emptywheel to the pages of @AJAM http://t…
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JimWhiteGNV Werner was basketball Driskel. RT @gatorhoops: @APMarkLong Werner had Charlie Brown syndrome, a.knack.for making losing plays.
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JimWhiteGNV One of four genetic tests #FBI used on #anthrax samples had 43% false negative rate. Still used it! #Amerithrax https://t.co/3yUk5sKX7n
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JimWhiteGNV Re-upping: GAO Analysis Highlights Lab Samples Excluded in Sloppy FBI Anthrax Investigation https://t.co/tayFUfUjol
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bmaz @goodyk Had to go to the airport. Which prevented me from saying you were right. Ugh.
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bmaz @robertcaruso @KatieSimpsonCTV Hey, in Ohio that person would be dead; the border is apparently safer!
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