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Justice Department Files Statement of Interest in Illinois Case Concerning States’ Obligations Under the National Voter Registration Act

Source: United States Department of Justice Criminal Division

Today, the Justice Department filed a Statement of Interest in Judicial Watch v. Illinois State Board of Elections, regarding the requirements under the National Voter Registration Act (NVRA) for states to make reasonable efforts to remove the names of ineligible voters and to make their voter registration list available for public inspection.  The requirement for states to make a “reasonable effort” to clean their voter rolls means that the program should be effective in achieving the goals set out by Congress, and nothing less.

“It is critical to remove ineligible voters from the registration rolls so that elections are conducted fairly, accurately, and without fraud,” said Assistant Attorney General Harmeet K. Dhillon of the Justice Department’s Civil Rights Division. “Under the NVRA, states have the responsibility to conduct a robust program of list maintenance. The Department of Justice will vigorously enforce those requirements to ensure compliance.”

More information about voting and elections is available on the Justice Department’s website at www.justice.gov/voting. Complaints about possible violations of federal voting rights laws can be submitted through the Civil Rights Division’s website at civilrights.justice.gov or by telephone at 1-800-253-3931.

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Justice Department’s Antitrust Division Announces Whistleblower Rewards Program

Source: United States Department of Justice Criminal Division

The Program Incentivizes Individuals to Report Postal-Related Antitrust Crimes that Undermine the Competitive Process or Market Competition Across Industries

The Justice Department’s Antitrust Division today announces its partnership with the United States Postal Service to create the Whistleblower Rewards Program. For the first time, the Antitrust Division will offer rewards for individuals who report antitrust crimes and related offenses that harm consumers, taxpayers, and free market competition across industries from healthcare to agriculture — under existing law and at no additional cost to the taxpayer.

“Antitrust crimes and related offenses that harm free market competition often occur in secret, making detection a formidable challenge. The new Whistleblower Rewards Program will create a new pipeline of leads from individuals with firsthand knowledge of criminal antitrust and related offenses that will help us break down those walls of secrecy and hold violators accountable,” said Assistant Attorney General Abigail Slater of the Antitrust Division. “This program raises the stakes: If you’re fixing prices or rigging bids, don’t assume your scheme is safe — we will find and prosecute you, and someone you know may get a reward for helping us do it.”

“This reporting mechanism gives those with a vested interest in maintaining the integrity of the Postal Service the opportunity to join us in the fight,” said Chief Postal Inspector Gary Barksdale of the U.S. Postal Inspection Service. “The Postal Inspection Service, along with our partners in the Department of Justice’s Antitrust Division and the U.S. Postal Service Office of Inspector General will not tolerate anyone who violates Antitrust Laws; we remain committed to seeking justice against anyone who chooses to do so. And for those who are also motivated to using this tool to report Antitrust crimes, we affirm our commitment to fully investigate and bring violators to justice.”

“As a key partner and original member in the Department of Justice’s Procurement Collusion Strike Force, the U.S. Postal Service Office of Inspector General (USPS OIG), actively collaborates with other federal agencies to detect, investigate, and prosecute antitrust crimes, ensuring fair competition and safeguarding taxpayer’s dollars in federal procurements,” said Assistant Inspector General for Investigations Robert Kwalwasser, U.S. Postal Service Office of Inspector General. “We are pleased to be partnering with DOJ and the Postal Inspection Service to implement the Whistleblower Rewards Program to incentivize individuals and companies to provide information about collusive behavior without fear of reprisal. This newly established program is an example of DOJ’s commitment to root out illicit behavior in all industries, which includes industries where the USPS procures goods and services either directly or indirectly. The USPS OIG will fully participate in this collaborate effort to ensure the USPS and the U.S. taxpayers are not being defrauded of honest services.”

The U.S. Postal Inspection Service and USPS OIG have long played a vital role in uncovering and investigating postal-related antitrust crimes that harm Americans. The Whistleblower Rewards Program will provide individuals with the opportunity to report evidence of antitrust crimes directly to the Antitrust Division and, in appropriate cases, qualify for substantial monetary rewards of up to 30% of any criminal fines recovered, for violations of law affecting the Postal Service, its revenues, or its property. The program expands upon the Division’s long-standing efforts to detect and prosecute cartels and criminal collusion by incentivizing individuals to report specific, credible, and timely information about illegal agreements to fix prices, rig bids, and allocate markets, as well as other federal criminal violations that impact, distort, or undermine the competitive process or market competition.

To facilitate reporting, the Division has established a dedicated Whistleblower Regards Program webpage accessible at www.justice.gov/atr/whistleblower-rewards. Whistleblowers and their counsel are encouraged to contact the Division promptly.

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Justice Department Announces Arrest of Prolific Chinese State-Sponsored Contract Hacker

Source: United States Department of Justice Criminal Division

China’s Ministry of State Security Directed the Theft of COVID-19 Research and the Exploitation of Microsoft Exchange Server Vulnerabilities, Known Publicly as the Indiscriminate ‘HAFNIUM’ Intrusion Campaign

The Justice Department announced today that Xu Zewei (徐泽伟), 33, of the People’s Republic of China was arrested on July 3 in Italy at the request of the United States. Xu and his co-defendant, PRC national Zhang Yu (张宇), 44, are charged in a nine-count indictment, unsealed today in the Southern District of Texas, for their involvement in computer intrusions between February 2020 and June 2021, including the indiscriminate HAFNIUM computer intrusion campaign that compromised thousands of computers worldwide, including in the United States. Xu was arrested in Milan, Italy, and will face extradition proceedings.

According to court documents, officers of the PRC’s Ministry of State Security’s (MSS) Shanghai State Security Bureau (SSSB) directed Xu to conduct this hacking. The MSS and SSSB are PRC intelligence services responsible for PRC’s domestic counterintelligence, non-military foreign intelligence, and aspects of the PRC’s political and domestic security. When conducting the computer intrusions, Xu worked for a company named Shanghai Powerock Network Co. Ltd. (Powerock). Powerock was one of many “enabling” companies in the PRC that conducted hacking for the PRC government.

“This arrest underscores the United States’ patient and tireless commitment to pursuing hackers who seek to steal information belonging to U.S. companies and universities,” said John A. Eisenberg, Assistant Attorney General for the National Security Division. “The Justice Department will find you and hold you accountable for threatening our cybersecurity and harming our people and institutions.”

“The indictment alleges that Xu was hacking and stealing crucial COVID-19 research at the behest of the Chinese government while that same government was simultaneously withholding information about the virus and its origins,” said Nicholas Ganjei, U.S. Attorney for the Southern District of Texas. “The Southern District of Texas has been waiting years to bring Xu to justice and that day is nearly at hand. As this case shows, even if it takes years, we will track hackers down and make them answer for their crimes. The United States does not forget.”

“In February 2020, as the world entered a pandemic, Xu Zewei and other cyber actors working on behalf of the Chinese Communist Party (CCP) targeted American universities to steal groundbreaking COVID-19 research. The following year, these same actors, operating as a group publicly known as HAFNIUM, exploited zero-day vulnerabilities in U.S. systems to steal additional research,” said Assistant Director Brett Leatherman of FBI’s Cyber Division. “Through HAFNIUM, the CCP targeted over 60,000 U.S. entities, successfully victimizing more than 12,700 in order to steal sensitive information. This arrest, carried out with our Italian law enforcement partners, demonstrates the FBI’s relentless commitment to holding CCP-sponsored hackers accountable for their crimes.” 

According to court documents, in early 2020, Xu and his co-conspirators hacked and otherwise targeted U.S.-based universities, immunologists, and virologists conducting research into COVID‑19 vaccines, treatment, and testing. Xu and others reported their activities to officers in the SSSB who were supervising and directing the hacking activities. For example, on or about Feb. 19, 2020, Xu provided an SSSB officer with confirmation that he had compromised the network of a research university located in the Southern District of Texas. On or about Feb. 22, 2020, the SSSB officer directed Xu to target and access specific email accounts (mailboxes) belonging to virologists and immunologists engaged in COVID-19 research for the university. Xu later confirmed for the SSSB officer that he acquired the contents of the researchers’ mailboxes.

Beginning in late 2020, Xu and his co-conspirators exploited certain vulnerabilities in Microsoft Exchange Server, a widely-used Microsoft product for sending, receiving, and storing email messages. Their exploitation of Microsoft Exchange Server was at the forefront of a massive campaign targeting thousands of computers worldwide and known publicly as “HAFNIUM.” In March 2021, Microsoft publicly disclosed the intrusion campaign by state-sponsored hackers operating out of China. Throughout March 2021, Microsoft and other industry partners released detection tools, patches, and other information to assist victim entities in identifying and mitigating this cyber incident. Additionally, the FBI and the Cybersecurity and Infrastructure Security Agency released a Joint Advisory on Compromise of Microsoft Exchange Server on March 10, 2021. However, by the end of March 2021, hundreds of web shells remained on certain U.S.-based computers running Microsoft Exchange Server software. In April 2021, the Justice Department announced a court-authorized operation to remediate hundreds of computers in the United States made vulnerable by HAFNIUM actors. In July 2021, the United States and foreign partners attributed the HAFNIUM campaign to the PRC’s MSS.

Among the victims of Xu’s exploitation of Microsoft Exchange Server were another university located in the Southern District of Texas and a law firm with offices worldwide, including in Washington, D.C. After exploiting computers running Microsoft Exchange Server, Xu and his co-conspirators installed web shells on them to enable their remote administration. These web shells were specific to HAFNIUM actors at the time. As with the earlier COVID-19 research intrusions, Xu and Zhang worked together on the HAFNIUM intrusions, under the supervision and direction of SSSB officers. For example, on or about Jan. 30, 2021, Xu confirmed to Zhang that he had compromised the other university’s network. Later, on or about Feb. 28, 2021, Xu updated a SSSB officer on his successful intrusions. This SSSB officer then directed Xu to obtain a list of other, successful intrusions from a second SSSB officer. Unauthorized access to the law firm’s network allowed Xu and his co-conspirators to steal information from mailboxes and search them for information regarding specific U.S. policy makers and government agencies. Their search terms included “Chinese sources,” “MSS,” and “HongKong.”

The announcement of charges against Xu is the latest describing the PRC’s use of an extensive network of private companies and contractors in China to hack and steal information in a manner that obscured the PRC government’s involvement. Operating from their safe haven and motivated by profit, this network of private companies and contractors in China cast a wide net to identify vulnerable computers, exploit those computers, and then identify information that it could sell directly or indirectly to the PRC government. This largely indiscriminate approach results in more victims in the United States and elsewhere, more systems worldwide left vulnerable to future exploitation by third parties, and more stolen information, often of no interest to the PRC government and, therefore, sold to other third parties.

Xu is charged with conspiracy to commit wire fraud and two counts of wire fraud, which carries a maximum penalty of 20 years in prison for each count; conspiracy to cause damage to and obtain information by unauthorized access to protected computers, to commit wire fraud, and to commit identity theft, which carries a maximum penalty of five years in prison; two counts of obtaining information by unauthorized access to protected computers, which carries a maximum penalty of five years in prison; two counts of intentional damage to a protected computer, which carries a maximum penalty of 10 years in prison; and aggravated identity theft, which carries a maximum penalty of two years in prison. Zhang Yu, remains at large. Anyone with information about his whereabouts is asked to contact the FBI at 1-800-CALL-FBI (1-800-225-5324).

The FBI’s Houston Field Office is investigating the case. The Justice Department’s Office of International Affairs provided valuable assistance in securing the defendant’s arrest.

Assistant U.S. Attorneys Mark McIntyre and John Marck for the Southern District of Texas and Deputy Chief Matthew Anzaldi of the National Security Division’s National Security Cyber Section are prosecuting the case. The Justice Department’s Office of International Affairs is handling the extradition.

An indictment is merely an allegation. All defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

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Phoenix Return Preparer Indicted for Filing False Tax Returns for Himself and Others

Source: United States Department of Justice Criminal Division

A Phoenix man made his initial appearance in federal court recently after a grand jury in Phoenix returned an indictment charging him with filing false tax returns for himself and for clients of his tax preparation business.

The following is according to the indictment: from 2021 to 2023, Pacifique Kashosi allegedly prepared and filed false tax returns for clients of Africa Union Tax Services LLC, his return preparation business.  On those returns, Kashosi claimed false or inflated sick and family leave and fuel credits that created or increased refunds to which he knew the clients were not entitled. The indictment further alleges that Kashosi earned income through the operation of his tax preparation business for the years 2022 and 2023 that he did not report on the tax returns he filed for himself for those two years.

If convicted, Kashosi faces a maximum penalty of three years in prison for each count of aiding and assisting in the preparation of a false tax return. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

Acting Deputy Assistant Attorney General Karen Kelly of the Justice Department’s Tax Division and U.S. Attorney Timothy Courchaine for the District of Arizona made the announcement.

IRS Criminal Investigation is investigating the case.

Assistant Chief Andrew Kameros of the Tax Division and Assistant U.S. Attorney Kevin Rapp for the District of Arizona are prosecuting the case.

An indictment is merely an allegation. All defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

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Hong Kong-Based Company Agrees to Pay $876,000 to Resolve Alleged False Claims Act Violations

Source: United States Department of Justice Criminal Division

Schaefer Systems International Ltd. (SSI) has agreed to pay $876,000 to resolve alleged False Claims Act violations relating to the payment of a prohibited finder’s fee in connection with the award of an Army and Air Force Exchange Service (AAFES) contract to supply a pallet racking system for a warehouse at a U.S. military base in South Korea. SSI markets and sells warehouse logistics systems and provides related services throughout Asia. SSI disclosed the prohibited payment to the government following an internal compliance review and internal investigation.

The settlement resolves allegations that prior to the award of the AAFES contract in 2018, SSI falsely certified its compliance with a procurement integrity provision limiting the payment of commissions to certain bona fide employees and agencies. Unbeknownst to AAFES, SSI intended to pay a finder’s fee to a South Korean national who had informed SSI of the potential contracting opportunity and helped secure the contract.

“Those who do business with the government must do so fairly and honestly,” said Assistant Attorney General Brett A. Shumate of the Justice Department’s Civil Division. “We will hold accountable contractors that fail to follow procurement rules, but we will also give credit to those who disclose their wrongdoing, take appropriate remedial actions, and meaningfully cooperate with the government’s investigation.”      

“Department of Defense contractors have a duty to uphold their contractual obligations and deliver honest value to the American taxpayer,” said Special Agent-in-Charge Stanley A. Newell of the Department of Defense Office of Inspector General’s Defense Criminal Investigative Service (DCIS), Transnational Operations Field Office. “This civil settlement demonstrates that illicit payment schemes and kickbacks will not be tolerated. The dedicated professionals of DCIS will work tirelessly to hold those who violate the public trust accountable.”

In connection with the settlement, the United States acknowledged that SSI took a number of significant steps entitling them to credit for cooperating with the government. Following an internal compliance review and independent investigation, SSI promptly disclosed to the government the prohibited payment. SSI also provided the government with a detailed and thorough written disclosure and cooperated with the government throughout its investigation.

The resolution obtained in this matter was the result of a coordinated effort between the Civil Division’s Commercial Litigation Branch, Fraud Section and DCIS.

Fraud Section Senior Trial Counsel Andrew A. Steinberg handled the matter.

The claims resolved by the United States in the settlement are allegations only. There has been no determination of liability.

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Two California Residents Plead Guilty in Connection with $16M Hospice Fraud Scheme and Money Laundering Scheme

Source: United States Department of Justice Criminal Division

Two California residents pleaded guilty yesterday in connection with their roles in defrauding Medicare of nearly $16 million through sham hospice companies and to laundering the proceeds of the fraud as part of a multi-year scheme.

According to court documents, Karpis Srapyan, 35, of Winnetka, California, conspired with others, including co-defendants Petros Fichidzhyan and Juan Carlos Esparza, to bill Medicare for hospice services that were not medically necessary and never provided. To conduct their fraudulent scheme, they used a series of four sham hospice companies: one owned by Esparza and the other three owned by foreign nationals but controlled by the defendants. Srapyan and his co-defendants concealed the scheme by using foreign nationals’ personal identifying information to open bank accounts, submit information to Medicare, and sign property leases. They also misappropriated names and other identifying information of several doctors, two of whom were deceased, to fraudulently bill Medicare for purported hospice services. In total, Medicare paid the fake hospice companies nearly $16 million.

Fichidzhyan, Esparza, and Srapyan worked with others to launder the fraudulent proceeds from their hospice scheme. Susanna Harutyunyan, 39, of Winnetka, was aware that her husband and co-defendant Mihran Panosyan was involved in illegal activity with Srapyan and Fichidzhyan. As part of the money laundering scheme, Harutyunyan and her co-defendants maintained fraudulent identification documents, bank documents, checkbooks, and credit and debit cards in the names of purported foreign owners in the residence where she and Panosyan lived and another residence that was owned in her name. Srapyan conducted dozens of financial transactions, totaling approximately $3.2 million, moving funds between accounts in the names of the sham hospice companies, accounts in the names of foreign nationals that were controlled by the defendants, and other accounts involved in the money laundering scheme. Harutyunyan knowingly spent fraudulent proceeds on personal expenses, including payments for a BMW automobile.

Srapyan pleaded guilty to conspiracy to commit health care fraud and money laundering and is scheduled to be sentenced on Oct. 6. He faces a maximum penalty of 20 years in prison. Harutyunyan pleaded guilty to money laundering and is scheduled to be sentenced on Nov. 17; she faces a maximum penalty of 10 years in prison. A federal district court judge will determine their sentences after considering the U.S. Sentencing Guidelines and other statutory factors. Harutyunyan faces deportation.

Co-defendant Petros Fichidzhyan previously pleaded guilty to health care fraud, aggravated identity theft, and money laundering. In May, Fichidzhyan was sentenced to 12 years in prison. Co-defendant Mihran Panosyan pleaded guilty to money laundering in June and is scheduled to be sentenced Sept. 8. Co-defendant Juan Carlos Esparza’s change of plea hearing is scheduled for July 14.

The guilty pleas today are the most recent convictions in the Justice Department’s ongoing effort to combat hospice fraud in the greater Los Angeles area. Last year, a doctor was convicted at trial for his role in a scheme to bill Medicare for hospice services patients did not need, and two other defendants were sentenced for their roles in a hospice fraud scheme.  

Matthew R. Galeotti, Head of the Justice Department’s Criminal Division, Assistant Director in Charge Akil Davis of the FBI Los Angeles Field Office, and Deputy Inspector General for Investigations Christian J. Schrank of the U.S. Department of Health and Human Services Office of the Inspector General (HHS-OIG) made the announcement.

The FBI and HHS-OIG are investigating the case.

Trial Attorneys Michael Bacharach, Sarah E. Edwards, and Allison L. McGuire of the Criminal Division’s Fraud Section are prosecuting the case, and Assistant U.S. Attorney Tara B. Vavere for the Central District of California is handling asset forfeiture.

The Fraud Section leads the Criminal Division’s efforts to combat health care fraud through the Health Care Fraud Strike Force Program. Since March 2007, this program, currently comprised of 9 strike forces operating in 27 federal districts, has charged more than 5,800 defendants who collectively have billed federal health care programs and private insurers more than $30 billion. In addition, the Centers for Medicare & Medicaid Services, working in conjunction with HHS-OIG, are taking steps to hold providers accountable for their involvement in health care fraud schemes. More information can be found at www.justice.gov/criminal-fraud/health-care-fraud-unit.

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Azumi Limited Restaurants Agree to Pay $3.6M to Resolve False Claims Act Allegations Relating to Paycheck Protection Program Loans

Source: United States Department of Justice Criminal Division

Azumi LLC; Zuma NYC LLC; Zuma Las Vegas LLC; Zuma Japanese Restaurant Miami LLC; Inko Nito Garey St. LLC; and Beach Chu Hallandale LLC (collectively, the “Azumi Entities”) have agreed to pay $3,602,423 to resolve allegations that they violated the False Claims Act by obtaining Paycheck Protection Program (PPP) loans for which they were not eligible.

“PPP loans were intended to assist eligible small businesses during the pandemic,” said Assistant Attorney General Brett A. Shumate of the Justice Department’s Civil Division. “When ineligible businesses improperly obtained loans, they harmed both the taxpayers who funded the program and the eligible businesses who were denied relief.”

“The Paycheck Protection Program limits were put in place to prevent large corporate groups from obtaining a disproportionate share of the limited funds that were available to assist small businesses struggling during COVID,” said U.S. Attorney Leah B. Foley for the District of Massachusetts. “Our office is committed to holding accountable those who misappropriated taxpayer-funded relief program limits.”

The PPP, an emergency loan program established by Congress in March 2020 and administered by the U.S. Small Business Administration (SBA), was intended to support small businesses struggling to pay employees and other business expenses during the COVID-19 pandemic. Borrowers were eligible to seek forgiveness of the loans if they spent the loan proceeds on employee payroll and other eligible expenses. In January 2021, SBA announced that certain parties that had previously received PPP loans were eligible to apply for a second loan, typically referred to as a second-draw PPP loan.   

When applying for PPP loans, borrowers were required to certify the truthfulness and accuracy of all information provided in their loan applications and agree that they would comply with all PPP rules. Among other things, PPP rules limited the total amount of funding a single “corporate group” could receive in connection with both first-draw and second-draw loans.

The Azumi Entities are limited liability companies, each of which operates a restaurant in the United States and each of which is either fully or partially owned by Azumi Limited. As part of the settlement, the Azumi Entities admitted that they collectively received and were granted loan forgiveness for second-draw loans in a total amount that exceeded the applicable corporate group limit for second-draw loans.  

The claims resolved by the resolution announced today include claims that were brought under the qui tam or whistleblower provisions of the False Claims Act. Under the Act, a private party can file an action on behalf of the United States and receive a portion of any recovery. The qui tam case is captioned United States ex rel. GNGH2 Inc. v. Azumi LLC et al., No. 22-cv-11822 (D. Mass.). As part of today’s resolution, GNGH2 Inc. will receive approximately $360,000.

The resolution obtained in this matter was the result of a coordinated effort between the Justice Department’s Civil Division, Commercial Litigation Branch, Fraud Section and the U.S. Attorney’s Office for the District of Massachusetts with assistance from the SBA’s Office of General Counsel and Office of the Inspector General.

This matter was handled by Fraud Section Trial Attorney Kimya Saied and Senior Trial Counsel Benjamin Wei, and Assistant U.S. Attorney Julien M. Mundele for the District of Massachusetts.

Except for the facts admitted by the Azumi Entities, the claims in the complaint are allegations only, and there has been no determination of liability.