TheChek News Flow

Law-enforcement agencies across the U.S. have direct access to over 150 million transactions housed at an Arizona nonprofit

WASHINGTON—Hundreds of federal, state and local U.S. law-enforcement agencies have access without court oversight to a database of more than 150 million money transfers between people in the U.S. and in more than 20 countries, according to internal program documents and an investigation by Sen. Ron Wyden.

The database, housed at a little-known nonprofit called the Transaction Record Analysis Center, or TRAC, was set up by the Arizona state attorney general’s office in 2014 as part of a settlement reached with Western Union to combat cross-border trafficking of drugs and people from Mexico. It has since expanded to allow officials of more than 600 law-enforcement entities—from federal agencies such as the Federal Bureau of Investigation, the Drug Enforcement Administration, and Immigration and Customs Enforcement to small-town police departments in nearly every state—to monitor the flow of funds through money services between the U.S. and countries around the world.

TRAC’s data includes the full names of the sender and recipient as well as the transaction amount. Rich Lebel, TRAC’s director, said the program has directly resulted in hundreds of leads and busts involving drug cartels and other criminals seeking to launder money, and has revealed patterns of money flow that help law-enforcement agencies get a broader grasp on smuggling networks.

“It’s a law-enforcement investigative tool,” Mr. Lebel said. “We don’t broadcast it to the world, but we don’t run from or hide from it either.”

After this article was published, a spokesman for the Arizona attorney general said: “Courts have held that customers using money transmitter businesses do not have the same expectation of privacy as traditional banking customers.”

Mr. Wyden, an Oregon Democrat, said TRAC allows the government to “serve itself an all-you-can-eat buffet of Americans’ personal financial data while bypassing the normal protections for Americans’ privacy.”

Internal records, including TRAC meeting minutes and copies of 140 subpoenas from the Arizona attorney general, were obtained by the American Civil Liberties Union and reviewed by The Wall Street Journal. They show that any authorized law-enforcement agency can query the data without a warrant to examine the transactions of people inside the U.S. for evidence of money laundering and other crimes. One slideshow prepared by a TRAC investigator showed how the program’s data could be used to scan for categories such as “Middle Eastern/Arabic names” in bulk transaction records.

“Ordinary people’s private financial records are being siphoned indiscriminately into a massive database, with access given to virtually any cop who wants it,” Nathan Freed Wessler, deputy director of the ACLU’s Speech, Privacy, and Technology Project, said. “This program should never have been launched, and it must be shut down now.”

To obtain material such as bank records or emails, law enforcement typically needs to show that documents are relevant to an investigation and secure them through a subpoena or a warrant.

TRAC captures money transfers occurring through companies such as Western Union, MoneyGram, DolEx and Euronet through its Ria brand. These services are used by millions of people—especially those without bank accounts—to transfer funds between friends and family. They are an especially popular way for Mexican migrants to remit money earned in the U.S. to family members across the border.

Money-services companies are more loosely regulated than banks, often at the state level. Under federal regulations, banks must monitor transactions for suspicious activity, report those over $10,000 in cash and conduct due diligence on customers. Congress also requires federal agencies to get a subpoena for bank records and notify customers when their records are being seized.

Money-services companies have drawn scrutiny from law enforcement over the years because of concerns about terrorist financing, drug smuggling and other illicit activities. Customers using money-services companies such as Western Union and MoneyGram aren’t told that their transactions will be available to government entities.

Mr. Lebel said that because money-services companies don’t have the same know-your-customer rules as banks, bulk data needs to be captured to discern patterns of fraud and money laundering. He said TRAC put a $500 minimum threshold in place to avoid collecting the overwhelming majority of family remittances back to Mexico and other countries, which typically fall below that threshold.

Mr. Wyden determined last year that the federal government participated in TRAC, and specifically that Homeland Security Investigations, an arm of the U.S. Immigration and Customs Enforcement, used customs summonses, a type of subpoena, to collect about six million records of money transfers from Western Union and Maxitransfers since 2019. All those records ended up stored in the TRAC system, Mr. Wyden said.

“The scope of this surveillance program and federal agencies’ role is far greater than initially revealed,” Mr. Wyden said this week in a letter asking the Justice Department inspector general to investigate the FBI and DEA’s relationship with the program.

The Department of Homeland Security watchdog informed Mr. Wyden’s office last year that it was reviewing the activities of ICE’s investigative arm to combat drug trafficking in response to his questions about TRAC. ICE didn’t respond to a request for comment.

North Atlantic Treaty Organization allies have over 2,000 German-made Leopard tanks

BERLIN—Germany won’t allow allies to ship German-made tanks to Ukraine to help its defense against Russia nor send its own systems unless the U.S. agrees to send American-made battle tanks, senior German officials said on Wednesday.

North Atlantic Treaty Organization allies have over 2,000 German-made Leopard tanks, considered to be among the most sophisticated in the world, according to the London-based International Institute for Strategic Studies.

Several European governments have said they are ready to send German-made tanks to Ukraine, including Poland, Finland and Denmark, if they get approval from Berlin, though none has made a formal request. Britain has said it would send 14 of its Challenger 2 main battle tanks, an older equivalent to the Leopard.

“One can’t differentiate between direct exports (of German-made tanks) and exports by third countries,” a senior German official said Wednesday.

But the U.S. is “not there yet” when it comes to giving Abrams tanks to Ukraine, Colin Kahl, the Undersecretary of Defense for Policy, the No. 3 at the Pentagon, told reporters on Wednesday.

“The Abrams tank is very complicated, It’s expensive. It’s hard to train on. It has a jet engine…It is not the easiest system to maintain,” Dr. Kahl said. While he didn’t directly address Germany’s call for the U.S. to provide tanks, he said the Pentagon doesn’t want to give Ukrainians equipment “they can’t repair, they can’t sustain and they over the long term can’t afford.”

“This isn’t about the news cycle or what’s symbolically valuable. It’s what will actually help Ukraine,” Dr. Kahl said.

But the U.S. remains hopeful it can persuade Germany to greenlight the tanks. Defense Secretary Lloyd Austin arrived in Berlin Wednesday to meet with his counterpart in Germany, Boris Pistorius, who was named to the post on Tuesday following the resignation of the previous defense minister, Christine Lambrecht.

U.S. officials believe the Leopard tanks can help Ukraine confront the moment it is facing now—a Russian offensive that is anticipated to begin soon.

“That’s why we are looking at modern, mechanized armored capabilities, and that’s why the focus on tanks, and Germany is the key to that capability because the most immediate need, the most accessible, useful capability are the Leopards,” said a senior U.S. defense official.

“We are very optimistic that we will make progress on this requirement by the end of the week,” the official said. It was unclear if the U.S. official was aware of the German position regarding American tanks.

The export of significant numbers of modern, Western-made tanks—something the U.S. and Ukraine’s European allies have long resisted—would mark a notable escalation in Western support for Kyiv. Berlin has long been concerned that such a step could drag the country into a direct confrontation with Russia.

German Chancellor Olaf Scholz said on Wednesday that Germany was “strategically interlocked” with friends and partners when it came to making decisions on how to support Ukraine, including with tanks.

By deferring to Washington, Mr. Scholz is now adding pressure on President Biden to authorize the export of Abrams tanks to Kyiv, the closest U.S. equivalent to the Leopard.

NATO Secretary-General Jens Stoltenberg said on Wednesday the war has entered a pivotal phase and NATO allies need to provide more heavy weaponry, particularly tanks, to Ukraine.

Mr. Stoltenberg said in an interview at the World Economic Forum in Davos, Switzerland, that he is looking for “more announcements of modern and heavier weapons,” following moves by the U.K., France and Canada in recent days to provide additional armored vehicles. But for Ukraine to prevail, Kyiv will require more than what has already been committed, he added.

“It means more armored vehicles,” he said. “It means battle tanks as we’ve seen U.K. and France have already announced.” It also means more advanced air-defense systems, he said.

France said recently it would ship AMX-10 wheeled armored vehicles to Ukraine. The vehicle resembles a small tank with wheels and is referred to as a “tank killer” because it fires shells that can pierce tanks’ armor and destroy them.

Key supporters of Ukraine from 50 nations, known as the Ukraine Defense Contact Group, plan to meet at the U.S.’s Ramstein Air Base in Germany on Friday to agree on a substantial new package of military aid to Kyiv.

Diplomats from several NATO countries said that the issue of sending Leopards—including Germany’s approval for third-country exports to Ukraine—would be one of the key topics at the meeting.

Mr. Scholz’s government hasn’t received any such requests, several officials said, but when it does, it said it would respond swiftly. The interagency process of approval could take anything from a few days to a few weeks, officials said.

Germany, like many arms-making countries, requires buyers to seek its governmental approval before exporting its military equipment to a third nation.

Some European diplomats had hoped that Germany would signal at the Friday meeting that it would permit allies to send German-made Leopard tanks to Ukraine. However a senior European official said that Germany was unlikely to make a decision on Friday and that it would likely take longer.

There are two main types of German main battle tanks: Leopard 1, designed in the 1960s, and the much-improved model Leopard 2. Germany itself has only about 15 Leopard 2 tanks it could ship to Ukraine on short notice, officials said.

Mr. Scholz’s government is divided on the issue: His coalition partners, the Green Party and the Free Democrats favor sending tanks to Ukraine, while many in the chancellor’s left-leaning Social Democrats—including himself—have long been reluctant, especially as long as the U.S. refuses to send its own Abrams tanks.

In April, Mr. Scholz suggested sending any Western tanks to Ukraine would increase the risk of a nuclear war between NATO and Russia.

His concerns have since subsided, two aides said, also because a broad, global group of countries including allies to President Vladimir Putin such as Xi Jinping of China, condemned the threats of using nuclear weapons in Ukraine.

Yet Mr. Scholz remains cautious. Asked on Wednesday why he was hesitating to send Leopard tanks to Kyiv, Mr. Scholz told the World Economic Forum that he was concerned about the Ukraine conflict becoming a global conflagration.

“The Ukrainians can rely on our support in their courageous fight but it is also clear that we want to avoid this becoming a war between Russia and NATO,” Mr. Scholz said.

DAX:

MDAX:

SDAX:

Treasury Department also designates platform as a primary money-laundering concern, a rarely used sanction used mostly against banks

U.S. authorities designated cryptocurrency exchange Bitzlato Ltd. as a primary money-laundering concern and charged its founder for allegedly facilitating money laundering for criminals.

The Treasury Department designated Bitzlato under a section of the USA Patriot Act, a law used to combat money laundering and terrorist financing, for allegedly laundering illicit funds for ransomware actors based in Russia. This type of action, a rarely used so-called death-knell sanction that cuts off the entity from the U.S. financial system, has been used mainly in the past against banks and other financial institutions and in most cases has forced the institution to close.

Bitzlato, which is based in Hong Kong but operates globally, allegedly exchanged more than $700 million in cryptocurrency with Hydra Market, a darknet marketplace that was the largest in the world before it was shut down in April 2022, the U.S. Justice Department said. Bitzlato also received more than $15 million of ransomware proceeds, the Justice Department said.

Anatoly Legkodymov, the founder and majority owner of Bitzlato, was arrested Tuesday night in Miami. Mr. Legkodymov is a 40-year-old Russian national who lives in Shenzhen, China, according to the Justice Department.

Joel DeFabio, a federal crime attorney in Miami, has been retained to represent Mr. Legkodymov, according to court records. Mr. DeFabio didn’t respond to a request for comment.

Mr. Legkodymov made his first appearance Wednesday at a federal court in Florida and was ordered to be detained, according to a spokesman for the U.S. Attorney’s Office for the Eastern District of New York, which brought the prosecution alongside the Justice Department in Washington. Mr. Legkodymov faces a charge of operating an illegal money-transmitting business and could get up to five years in prison if convicted, according to the Justice Department.

Concurrent with the U.S. action, French authorities have taken their own enforcement steps, including closing Bitzlato’s digital infrastructure and seizing its cryptocurrency.

U.S. prosecutors said Bitzlato lacked effective know-your-customer procedures to check users’ identity as required by U.S. anti-money-laundering laws and did substantial business with U.S.-based customers despite claiming not to accept users from the U.S.

Representatives for Bitzlato couldn’t be reached for comment. Bitzlato’s website shows that it’s been seized by French authorities.

“Today the Department of Justice dealt a significant blow to the cryptocrime ecosystem,” Deputy Attorney General Lisa Monaco said Wednesday. “Today’s actions send the clear message: Whether you break our laws from China or Europe—or abuse our financial system from a tropical island—you can expect to answer for your crimes inside a United States courtroom.”

Deputy Treasury Secretary Wally Adeyemo said authorities continue to investigate whether Bitzlato was used to help circumvent sanctions that were imposed on Russia over its invasion of Ukraine. The enforcement action should serve as a warning against the use of crypto to launder illicit funds and as a reminder that U.S. authorities are ready to act if they see it occur, he said, adding that there could be other charges against Bitzlato or its founder.

“The message [to those using crypto tools to circumvent Russia sanctions]: We will, in collaboration and coordination with our allies and with the DOJ, find you and go after you and take actions against you with the tools at our disposal,” Mr. Adeyemo said at Wednesday’s press conference announcing the enforcement action.

The Justice Department said enforcement actions imposed in recent weeks against the crypto industry have shown that investments in improving its expertise in the sector are paying off. Ms. Monaco told The Wall Street Journal last month that a surge of Justice Department resources into cryptocurrency investigations more than a year ago helped prosecutors quickly charge FTX founder Sam Bankman-Fried and the move augurs a spate of aggressive enforcement actions ahead. The Justice Department is coordinating cryptocurrency enforcement efforts through a 25-member national team, she added.

The enforcement action against Bitzlato comes as the crypto industry continues to face scrutiny following upheaval in the sector last year. U.S. prosecutors charged Mr. Bankman-Fried last month with eight counts of fraud after FTX filed for bankruptcy in November. Mr. Bankman-Fried is under house arrest at his parents’ California home as he faces federal fraud charges, to which he has pleaded not guilty.

Bitzlato was a little-known exchange before Wednesday’s action. The Financial Crimes Enforcement Network, the Treasury unit tasked with combating money laundering, said in its order against Bitzlato that the exchange “represents a limited percentage of daily” crypto transfers by U.S. and international standards.

FinCEN said that by April 2022, Bitzlato had a daily bitcoin balance that was 0.0185% of the largest U.S.-based crypto exchange. Although FinCEN didn’t name the largest exchange, Coinbase Global Inc. is ranked as the biggest in the U.S., according to research site CoinMarketCap.com.

A blog post from last year by blockchain analytics firm Chainalysis Inc. said Bitzlato received about $2 billion worth of cryptocurrency between 2019 and 2021, and nearly half of that value was considered illicit or risky.

The enforcement action against Bitzlato appears to have come as a shock to its users. Minutes after the Justice Department’s announcement, a Russian-language Telegram group for Bitzlato users filled up with complaints about the exchange’s shutdown and the U.S. authorities’ actions.

“They took Hydra, looks like Bitzlato too, the USA is squeezing Russia from all sides,” a user posting under the handle Daniel Yanson wrote in the group, which has more than 5,500 members.

Another user, with the handle Non, wrote: “Is this even legal? Let’s say the owner did launder something there. What about ordinary people?…Does the USA just take their money or what?”

New investment would allow the country to reduce its reliance on dirty gas-fired power plants but financing remains uncertain