Monday, July 27, 2015
Tax competition is usually portrayed as a competition over rates.
Critics argue that such competition leads inevitably to a “race to the bottom,” with the result of reducing tax rates and revenue everywhere. They also decry “secrecy” jurisdictions that allow owners of entities to conceal their identities, suggesting that the only reasons for confidentiality can be to cheat tax authorities somewhere out of their due.
But as anyone who has ever filled out a tax return knows, tax rates are just one facet of tax competition. Jurisdictions can compete over a wide range of tax system attributes – all the way from the complexity of the system to special provisions designed to advantage particular forms of investment to general depreciation rules.
Lower rates can attract taxpayers, but allowing more rapid depreciation of capital investment might trump lowering rates for capital-intensive industries, while an honest and efficient revenue agency may matter more than nominal rates for total revenue collections.
Read this article at Competing For Captives: What Regulatory Competition Can Teach About Tax Competition by authors Dr. Andrew P. Morriss, Dean & Anthony G. Buzbee Dean’s Endowed Chairholder, Texas A&M University School of Law; and Drew Estes, a JD/MBA Candidate, Class of 2016, University of Alabama.
Reuters reports that the State-Boston Retirement System, the pension fund for Boston public employees, sued 22 banks that have been the primary dealer for US Treasuries. The retirement system discovered that the primary dealers, otherwise known as the market makers, were colluding for years to inflate the price of treasuries paid by dealers' customers, and deflate the price when customers sought to sell. Basically, the primary dealers took a "pay to play" attitude over and above their normal fees with their customers, because the primary market is closed access but for these dealers.
How did the retirement system stumble upon this discovery? According to Reuters -
The pension fund said its "expert economists" observed wide gaps between when-issued and auction prices around December 2012, but that these gaps narrowed significantly as the U.S. Department of Justice and other regulators began probing alleged manipulation of the London interbank offered rate, a benchmark used to set interest rates for trillions of dollars worth of loans around the world.
Read Reuters full story here.
The Federal Deposit Insurance Corporation (FDIC) announced the assessment of a civil money penalty of $140 million against Banamex USA, Century City, California, for violations of the Bank Secrecy Act (BSA) and anti-money laundering (AML) laws and regulations.
In a concurrent action, the California Department of Business Oversight (CDBO) assessed a civil money penalty of $40 million. The FDIC's penalty of $140 million will be satisfied in part by the CDBO's penalty. The FDIC's penalty will be paid to the United States Department of the Treasury.
In taking this action, the FDIC determined that the bank failed to implement an effective BSA/AML Compliance Program over an extended period of time. The institution failed to retain a qualified and knowledgeable BSA officer and sufficient staff, maintain adequate internal controls reasonably designed to detect and report illicit financial transactions and other suspicious activities, provide sufficient BSA training, and conduct effective independent testing.
Attachment: Joint Order to Pay Civil Money Penalty
Sunday, July 26, 2015
FinCEN Issues Advisory on the FATF-Identified Jurisdictions with AML/CFT Deficiencies
The Financial Crimes Enforcement Network (FinCEN) today issued an advisory to financial institutions regarding the Financial Action Task Force’s (FATF) updated list of jurisdictions with strategic anti-money laundering/counter-terrorist financing (AML/CFT) deficiencies. These changes may affect U.S. financial institutions’ obligations and risk-based approaches regarding relevant jurisdictions. A summary of the changes to the FATF lists follows:
- Indonesia has been removed from the FATF listing and monitoring process.
- Ecuador has been removed from the “FATF Public Statement” and included in FATF’s “Improving Global AML/CFT Compliance: On-going Process” document.
- Bosnia and Herzegovina has been added to FATF’s “Improving Global AML/CFT Compliance: On-going Process” document.
FinCEN’s advisory can be viewed at http://www.fincen.gov/statutes_regs/guidance/pdf/FIN-2015-A002.pdf
Saturday, July 25, 2015
Investment Treaties and Shareholder Claims for Reflective Loss: Insights from Advanced Systems of Corporate Law
David Gaukrodger, Investment Division, OECD
Abstract: Corporate law in advanced domestic legal systems on the one hand, and typical treaties for the protection of foreign investment on the other hand, treat claims for damages by company shareholders differently. Advanced domestic systems generally bar shareholders from claiming for reflective loss – loss that arises from injury to "their" company (such as a decline in the value of shares).
The claim for the loss belongs to the injured company and not to its shareholders. In contrast, shareholder claims for reflective loss have been widely permitted under typical investment treaties over the last 10 years. Ongoing OECD-hosted inter-governmental dialogue on investment law is considering whether there are policy reasons justifying the different approaches to shareholder claims for reflective loss.
Friday, July 24, 2015
The Department of Justice filed a civil forfeiture complaint seeking to recover approximately $12.5 million in assets found in the United States that derive from bribery and kickback schemes in the Philippines spanning nearly a decade.
“Over nearly a decade, Janet Napoles allegedly stole millions of dollars in funds entrusted to her for development assistance and disaster relief for the people of the Philippines,” said Assistant Attorney General Caldwell. “In an effort to disguise and enjoy her ill-gotten gains, Napoles purchased properties and other assets in the United States for herself and her family members, including a condominium at the Ritz and a Porsche. The Justice Department will not allow the United States to become a playground for the corrupt or a place to hide and invest stolen riches.”
As alleged in the complaint, from approximately 2004 to 2012, Philippine businesswoman Janet Napoles, 51, paid tens of millions of dollars in bribes and kickbacks to Philippine politicians and other government officials in exchange for over $200 million in funding for purported development assistance and disaster relief.
Napoles’ non-governmental organizations (NGOs), however, then either failed to provide, or under-delivered on, the promised support. The complaint further alleges that Napoles also diverted NGO funds for her own personal use and benefit, often draining accounts within days of government disbursements. For this conduct, the Philippines’ Office of the Ombudsman has charged Napoles, two of her children and numerous current and former Philippine politicians and other government officials in connection with what has been nicknamed the “pork barrel scam.”
The complaint alleges that Napoles transferred over $12 million in Philippine government-awarded funds to bank accounts in the United States in the names of, or controlled by, her family members. According the complaint, Napoles used the money to purchase numerous assets, including a condominium at the Ritz-Carlton in Los Angeles for her 21-year-old daughter. The complaint seeks to forfeit the proceeds from the sale of the Los Angeles condominium, along with several other assets, including a motel near Disneyland in Anaheim, California; properties in Covina and Irvine, California; a 19 percent stake in a California-based consulting company; and a Porsche Boxster that was purchased for another daughter.
Napoles is currently serving a sentence of life in prison in the Philippines for her role in the kidnapping and detention of her cousin, Benhur Luy, who served as Napoles’s finance officer and tracked her schemes.
The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) yesterday issued a final rule, pursuant to Section 311 of the USA PATRIOT Act, which imposes “special measure five” against FBME Bank Ltd. (FBME), formerly known as the Federal Bank of the Middle East. Special measure five prohibits U.S. financial institutions from opening or maintaining correspondent accounts or payable through accounts for or on behalf of FBME.
What is FBME bank?
FBME was established in 1982 in Cyprus as the Federal Bank of the Middle East, Ltd., a subsidiary of the private Lebanese bank, Federal Bank of Lebanon. Both FBME and the Federal Bank of Lebanon are owned by Ayoub-Farid M. Saab and Fadi M. Saab.
Who regulates FBME bank?
FBME, via its Cypriot branches, are licensed and regulated by the Cyprus Central Bank. According to a Wall Street Journal report of March 4, 2013, FBME acquired €240 million of Cypriot government junk bonds at the height of the 2011 Cypriot financial crisis, representing 13% of FBME's balance sheet. In 2012, on the day of Parliament's announcement of the Cyprus financial system bailout WJS noted, FBME coincidently moved its headquarters to Cyprus and applied for a full banking license that would allow it EU wide distribution.
18 months later, in November 2013, the Cyprus Central Bank stated that FBME may be subject to sanctions and a fine of up to €240 million for alleged violations of Cypriot capital controls put in place with the bailout.
On July 18, the Cyprus Central Bank took control of FMBE's Cypriot branch operations. FMBE responded that it welcomed this takeover by its regulator that FBME may clear itself from the allegations of facilitating money laundering. For a detailed look at Cyprus AML controls, see Special Assessment of the Effectiveness of Customer Due Diligence Measures in the Banking Sector in Cyprus of April 24, 2013.
What money laundering activities are FBME accused of facilitating?
FINCEN alleges that in just the year from April 2013 through April 2014, FBME conducted at least $387 million in wire transfers through the U.S. financial system that exhibited indicators of high-risk money laundering typologies, including widespread shell company activity, short-term “surge” wire activity, structuring, and high-risk business customers. FBME was involved in at least 4,500 suspicious wire transfers through U.S. correspondent accounts that totaled at least $875 million between November 2006 and March 2013.
- In 2008, an FBME customer received a deposit of hundreds of thousands of dollars from a financier for Lebanese Hezbollah.
- As of 2008, a financial advisor for a major transnational organized crime figure who banked entirely at FBME in Cyprus maintained a relationship with the owners of FBME.
- FBME facilitated transactions for entities that perpetrate fraud and cybercrime against victims from around the world, including in the United States. For example, in 2009, FBME facilitated the transfer of over $100,000 to an FBME account involved in a High Yield Investment Program (“HYIP”) fraud against a U.S. person.
- In September 5 2010, FBME facilitated the unauthorized transfer of over $100,000 to an FBME account from a Michigan-based company that was the victim of a phishing attack.
- Since at least early 2011, the head of an international narcotics trafficking and money laundering network has used shell companies’ accounts at FBME to engage in financial activity.
- Several FBME accounts have been the recipients of the proceeds of cybercriminal activity against U.S. victims. For example, in October 2012, an FBME account holder operating as a shell company was the intended beneficiary of over $600,000 in wire transfers generated from a fraud scheme, the majority of which came from a victim in California.
- FBME facilitates U.S. sanctions evasion through its extensive customer base of shell companies. For example, at least one FBME customer is a front company for a U.S.-sanctioned Syrian entity, the Scientific Studies and Research Center (“SSRC”), which has been designated as a proliferator of weapons of mass destruction
What is FMBE's response to FINCEN's allegations?
FMBE, denying the FINCEN allegations, responded:
FBME Bank commissioned a detailed assessment by the German office of a leading international accountancy firm into its operations and practices, which found that the Bank’s services are indeed in compliance with applicable AML rules of the Central Bank of Cyprus and the European Union.
FBME Bank welcomes the involvement of its regulator, is cooperating fully with it and reiterates its absolute continued commitment to full compliance with applicable laws and regulations.
FBME Bank continues to comply with European Capital Adequacy and Liquidity Standards and other healthy balance sheet ratios.
If FBME makes available its AML "assessment of the leading international accountancy firm", then I will post a follow up to this unfolding story with a link to that assessment.
What did FINCEN previously announce about FBME?
Director Jennifer Shasky Calvery stated in FINCEN's July 17, 2014 announcement:
“FBME promotes itself on the basis of its weak Anti-Money Laundering (AML) controls in order to attract illicit finance business from the darkest corners of the criminal underworld.” ... “Unfortunately, this business plan has been far too successful. But today’s action, effectively shutting FBME off from the U.S. financial system, is a necessary step to disrupt the bank’s efforts and send the message that the United States will not stand by while financial institutions help those who intend to harm or threaten Americans.”
In its Notice of Finding, FINCEN stated "FBME is used by its customers to facilitate money laundering, terrorist financing, transnational organized crime, fraud, sanctions evasion, and other illicit activity internationally and through the U.S. financial system."
FINCEN Proposed Shutting FBME Out of US Financial System
In its Notice of Proposed Rulemaking, FINCEN stated that it intended to impose the fifth, special measure allowed by Section 311 of the USA PATRIOT Act (“Section 311”). FINCEN's Director has the authority, upon finding that reasonable grounds exist for concluding that a foreign jurisdiction, institution, class of transaction, or type of account is of “primary money laundering concern,” to require domestic financial institutions and financial agencies to take certain “special measures” to address the primary money laundering concern.
The fifth special measure prohibits covered financial institutions from opening or maintaining correspondent accounts for or on behalf of FBME Currently, only one U.S. covered financial institution maintains an account for FBME (FBME lists three U.S. correspondent relationships on its website). FINCEN's fifth measure entails as follows:
Covered financial institutions also would be required to take reasonable steps to apply special due diligence .. to all of their correspondent accounts to help ensure that no such account is being used to provide services to FBME. For direct correspondent relationships, this would involve a minimal burden in transmitting a one-time notice to certain foreign correspondent account holders concerning the prohibition on processing transactions involving FBME through the U.S. correspondent account.
U.S. financial institutions generally apply some level of screening and, when required, conduct some level of reporting of their transactions and accounts, often through the use of commercially-available software such as that used for compliance with the economic sanctions programs administered by the Office of Foreign Assets Control (“OFAC”) of the Department of the Treasury and to detect potential suspicious activity. To ensure that U.S. financial institutions are not being used unwittingly to process payments for or on behalf of FBME, directly or indirectly, some additional burden will be incurred by U.S. financial institutions to be vigilant in their suspicious activity monitoring procedures. ...
A covered financial institution may satisfy the notification requirement by transmitting the following notice to its foreign correspondent account holders that it knows or has reason to know provide services to FBME:
Notice: Pursuant to U.S. regulations issued under Section 311 of the USA PATRIOT Act, see 31 CFR 1010.661, we are prohibited from establishing, maintaining, administering, or managing a correspondent account for or on behalf of FBME Bank Ltd. The regulations also require us to notify you that you may not provide FBME Bank Ltd. or any of its subsidiaries with access to the correspondent account you hold at our financial institution. If we become aware that the correspondent account you hold at our financial institution has processed any transactions involving FBME Bank Ltd. or any of its subsidiaries, we will be required to take appropriate steps to prevent such access, including terminating your account.
The special due diligence would also include implementing risk-based procedures designed to identify any use of correspondent accounts to process transactions involving FBME. A covered financial institution would be expected to apply an appropriate screening mechanism to identify a funds transfer order that on its face listed FBME as the financial institution of the originator or beneficiary, or otherwise referenced FBME in a manner detectable under the financial institution’s normal screening mechanisms. An appropriate screening mechanism could be the mechanism used by a covered financial institution to comply with various legal requirements, such as the commercially available software programs used to comply with the economic sanctions programs administered by OFAC.
A covered financial institution would also be required to implement risk-based procedures to identify indirect use of its correspondent accounts, including through methods used to hide the beneficial owner of a transaction. Specifically, FinCEN is concerned that FBME may attempt to disguise its transactions by relying on types of payments and accounts that would not explicitly identify FBME as an involved party. A financial institution may develop a suspicion of such misuse based on other information in its possession, patterns of transactions, or any other method available to it based on its existing systems. Under the proposed rule, a covered financial institution that suspects or has reason to suspect use of a correspondent account to process transactions involving FBME must take all appropriate steps to attempt to verify and prevent such use, ...
23 July 2015 News Release: http://www.fincen.gov/news_room/other/pdf/20150723.pdf
Thursday, July 23, 2015
In 2015, Texas A&M University School of Law hired 11 new faculty members (12 if counting Texas A&M University's new President, Dr. Michael Young, who is a member of the law faculty). Below is Texas A&M Law's announcement for faculty recruitment for the 2016-17 academic year.
TEXAS A&M UNIVERSITY SCHOOL OF LAW seeks to expand its academic program and its strong commitment to scholarship by hiring multiple exceptional faculty candidates for tenure-track or tenured positions, with rank dependent on qualifications and experience. Candidates must have a J.D. degree or its equivalent. Preference will be given to those with demonstrated outstanding scholarly achievement and strong classroom teaching skills. Successful candidates will be expected to teach and engage in research and service. While the law school welcomes applications in all subject areas, it particularly invites applications from:
1) Candidates who are interested in building synergies with Texas A&M University’s Mays Business School, with an emphasis on scholars engaged in international business law who focus on cross-border transactions, trade, and economic law (finance, investments, dispute resolution, etc.);
2) Candidates who are interested in building synergies with the broad mission of Texas A&M University’s College of Agricultural and Life Sciences, which include but are not limited to scholars engaged in agricultural law (including regulatory issues surrounding agriculture), rural law, community development law, food law, ecosystem sciences, and forensic evidence; and
3) Visionary leaders in experiential education interested in guiding our existing Intellectual Property and Technology Law Clinic (with concentrations in both trademarks and patents), Entrepreneurship Law Clinic, Family Law and Benefits Clinic, Employment Mediation Clinic, Wills & Estates Clinic, Innocence Clinic, Externship Program, Equal Justice/Pro Bono Program, and Advocacy Program, with a particular emphasis on candidates who may have an interest in participating in our Intellectual Property and Technology Law Clinic or developing an Immigration Law Clinic.
Texas A&M University is a tier one research institution and American Association of Universities member. The university consists of 16 colleges and schools that collectively rank among the top 20 higher education institutions nationwide in terms of research and development expenditures. As part of its commitment to continue building on its tradition of excellence in scholarship, teaching, and public service, Texas A&M acquired the law school from Texas Wesleyan University in August of 2013. Since that time, the law school has embarked on a program of investment that increased its entering class credentials and financial aid budgets, while shrinking the class size; hired eleven new faculty members, including nine prominent lateral hires; improved its physical facility; and substantially increased its career services, admissions, and student services staff.
Texas A&M School of Law is located in the heart of downtown Fort Worth, one of the largest and fastest growing cities in the country. The Fort Worth/Dallas area, with a total population in excess of six million people, offers a low cost of living, a strong economy, and access to world-class museums, restaurants, entertainment, and outdoor activities.
As an Equal Opportunity Employer, Texas A&M welcomes applications from a broad spectrum of qualified individuals who will enhance the rich diversity of the university’s academic community. Applicants should email a résumé and cover letter indicating research and teaching interests to Professor Timothy Mulvaney, Chair of the Faculty Appointments Committee, at firstname.lastname@example.org. Alternatively, résumés can be mailed to Professor Mulvaney at Texas A&M University School of Law, 1515 Commerce Street, Fort Worth, Texas 76102-6509.
Individual Retirement Arrangements (IRA) Education and Taxpayers Notification Improvements Necessary for Compliance With Required Minimum Distribution (RMD)
IMPACT ON TAXPAYERS
Individual Retirement Arrangements (IRA) are a key method for individuals to save for retirement. Some types of IRAs require taxpayers to begin withdrawing a minimum amount when they reach age 70½. When taxpayers do not make these withdrawals, there is a loss of revenue to the Government because taxpayers are sheltering IRA funds from taxation.
WHY TIGTA DID THE AUDIT
As a result of previous audits, TIGTA recommended that the IRS develop a strategy to address retirement provision noncompliance. In addition, there is congressional interest in educating taxpayers with respect to IRA provisions and not unreasonably penalizing them for innocent mistakes. The overall objective of this audit was to determine whether IRS processes provide reasonable assurance that taxpayers are complying with provisions for taking required minimum distributions from their IRAs.
WHAT TIGTA FOUND
In response to prior TIGTA recommendations, the IRS developed a broad-based strategy that focuses on educating tax preparers and individuals about IRA rules and notifying potentially noncompliant taxpayers of the minimum distribution requirement. This is a significant improvement from our prior reporting. However, the IRS could also take steps to improve its strategy.
As part of its strategy, the IRS developed educational materials for taxpayers and tax preparers. However, TIGTA believes taxpayers required to take distributions could benefit from more direct methods of communication. For example, informing taxpayers when they reach the age of 70½ that they are required to take a distribution could raise awareness and prevent significant penalties associated with noncompliance.
As part of its strategy, the IRS also sent notices to nearly 1,500 potentially noncompliant taxpayers. The IRS is still in the process of evaluating the results of the sample of notices it distributed. If the IRS expands its notice program, TIGTA found that the IRS could enhance the methodology it uses and identify substantially more potentially noncompliant taxpayers. Expanding the number of taxpayers notified could increase revenue to the Federal Government.
WHAT TIGTA RECOMMENDED
TIGTA recommended that, when evaluating the IRA strategy going forward, the Commissioner, Wage and Investment Division, should consider 1) directly communicating with taxpayers required to take a distribution and informing them about the distribution rules using easily understood language and 2) if the notice program is expanded, modifying the methodology for the required minimum distribution notices to identify additional noncompliant individuals.
In its response, the IRS partially agreed with the first recommendation and agreed with the second recommendation. The IRS stated that it recently added small business IRAs to its sample notice population. However, due to budget limitations, the IRS is not expanding its use of notices. In addition, the IRS agreed that direct communication with taxpayers reaching the age of 70½ would be helpful, but it is not implementing this program due to budget constraints. The IRS did not agree to inform estates of distribution rules associated with IRA inheritances. TIGTA continues to believe it would be beneficial to inform estates of inherited distribution requirements.
Wednesday, July 22, 2015
FTC Asserts LifeLock Failed to Institute Security Program And Misled Consumers About Its Identity Protection Services - see cases filed here
The Federal Trade Commission asserted that LifeLock violated a 2010 settlement with the agency and 35 state attorneys general by continuing to make deceptive claims about its identity theft protection services, and by failing to take steps required to protect its users’ data.
In documents filed with the U.S. District Court for the District of Arizona, the FTC charged that LifeLock failed to live up to its obligations under the 2010 settlement, whereby it paid a $12 million penalty, and asked the court to impose an order requiring LifeLock to provide full redress to all consumers affected by the company’s order violations.
“It is essential that companies live up to their obligations under orders obtained by the FTC,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “If a company continues with practices that violate orders and harm consumers, we will act.”
The 2010 settlement stemmed from previous FTC allegations that LifeLock used false claims to promote its identity theft protection services. The settlement barred the company and its principals from making any further deceptive claims; required LifeLock to take more stringent measures to safeguard the personal information it collects from customers; and required LifeLock to pay $12 million for consumer refunds.
The FTC charged today that in spite of these promises, from at least October 2012 through March 2014, LifeLock violated the 2010 Order by: 1) failing to establish and maintain a comprehensive information security program to protect its users’ sensitive personal data, including credit card, social security, and bank account numbers; 2) falsely advertising that it protected consumers’ sensitive data with the same high-level safeguards as financial institutions; and 3) failing to meet the 2010 order’s record keeping requirements.
The FTC also asserts that from at least January 2012 through December 2014, LifeLock falsely claimed it protected consumers’ identity 24/7/365 by providing alerts “as soon as” it received any indication there was a problem.
Details of the FTC’s action against the company were filed under seal. The court will determine which portions of the case will be unsealed.
Previous $12 Million Penalty
In 2010, LifeLock, Inc. agreed to pay $11 million to the Federal Trade Commission and $1 million to a group of 35 state attorneys general to settle charges that the company used false claims to promote its identity theft protection services, which it widely advertised by displaying the CEO’s Social Security number on the side of a truck. See FTC Press Release here -
In one of the largest FTC-state coordinated settlements on record, LifeLock and its principals are barred from making deceptive claims and required to take more stringent measures to safeguard the personal information they collect from customers.
“While LifeLock promised consumers complete protection against all types of identity theft, in truth, the protection it actually provided left enough holes that you could drive a truck through it,” said FTC Chairman Jon Leibowitz.
“This agreement effectively prevents LifeLock from misrepresenting that its services offer absolute prevention against identity theft because there is unfortunately no foolproof way to avoid ID theft,” Illinois Attorney General Lisa Madigan said. “Consumers can take definitive steps to minimize the chances of having their personal information stolen, and this settlement will help them make more informed decisions about whether to enroll in ID theft protection services.”
Since 2006, LifeLock’s ads have claimed that it could prevent identity theft for consumers willing to sign up for its $10-a-month service.
According to the FTC’s complaint, LifeLock has claimed:
- “By now you’ve heard about individuals whose identities have been stolen by identity thieves . . . LifeLock protects against this ever happening to you. Guaranteed.”
- “Please know that we are the first company to prevent identity theft from occurring.”
- “Do you ever worry about identity theft? If so, it’s time you got to know LifeLock. We work to stop identity theft before it happens.”
The FTC’s complaint charged that the fraud alerts that LifeLock placed on customers’ credit files protected only against certain forms of identity theft and gave them no protection against the misuse of existing accounts, the most common type of identity theft. It also allegedly provided no protection against medical identity theft or employment identity theft, in which thieves use personal information to get medical care or apply for jobs. And even for types of identity theft for which fraud alerts are most effective, they do not provide absolute protection. They alert creditors opening new accounts to take reasonable measures to verify that the individual applying for credit actually is who he or she claims to be, but in some instances, identity thieves can thwart even reasonable precautions.
New account fraud, the type of identity theft for which fraud alerts are most effective, comprised only 17 percent of identity theft incidents, according to an FTC survey released in 2007.
The FTC’s complaint further alleged that LifeLock also claimed that it would prevent unauthorized changes to customers’ address information, that it constantly monitored activity on customer credit reports, and that it would ensure that a customer always would receive a telephone call from a potential creditor before a new account was opened. The FTC charged that those claims were false.
In addition to its deceptive identity theft protection claims, LifeLock allegedly made claims about its own data security that were not true. According to the FTC, LifeLock routinely collected sensitive information from its customers, including their social security numbers and credit card numbers. The company claimed:
- “Only authorized employees of LifeLock will have access to the data that you provide to us, and that access is granted only on a ‘need to know’ basis.”
- “All stored personal data is electronically encrypted.”
- “LifeLock uses highly secure physical, electronic, and managerial procedures to safeguard the confidentiality and security of the data you provide to us.”
The FTC charged that LifeLock’s data was not encrypted, and sensitive consumer information was not shared only on a “need to know” basis. In fact, the agency charged, the company’s data system was vulnerable and could have been exploited by those seeking access to customer information.
The FTC and state settlements with LifeLock bar deceptive claims, and prohibit the company from misrepresenting the “means, methods, procedures, effects, effectiveness, coverage, or scope of any identity theft protection service.” They also bar misrepresentations about the risk of identity theft, and the manner and extent to which LifeLock protects consumers’ personal information. In addition, the settlements require LifeLock to establish a comprehensive data security program and obtain biennial independent third-party assessments of that program for twenty years.
The Attorneys General of Alaska, Arizona, California, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan, Missouri, Mississippi, Montana, Nebraska, Nevada, New Mexico, New York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Vermont, Virginia, Washington, and West Virginia participated in this settlement.
In addition to LifeLock, the FTC complaint named co-founders Richard Todd Davis and Robert J. Maynard, Jr., who will be barred from the same misrepresentations as LifeLock.
The Commission vote to authorize staff to file the complaint and the settlement with LifeLock and Richard Todd Davis was 4-0. The Commission vote to authorize staff to file the settlement with Robert J. Maynard, Jr. was 3-1, with Commissioner J. Thomas Rosch dissenting. The documents were filed in the U.S. District Court for the District of Arizona.
The FTC will use the $11 million it receives from the settlements to provide refunds to consumers. It will be sending letters to the current and former customers of LifeLock who may be eligible for refunds under the settlement, along with instructions for applying. Customers do not have to contact the FTC to be eligible for refunds.
Up-to-date information at www.ftc.gov/lifelock.
Tuesday, July 21, 2015
Implementation of Law No. 23 of April 27, 2015 for the prevention of Money Laundering and Financing of Terrorism Financing Proliferation of Weapons of Mass Destruction, which in Article 13 provides for the creation of this new Administration as supervisory authority for non-financial subjects.
The government stated that Panama has already completed 90% of the action plan agreed with the Financial Action Task Force (FATF).
UK Amnesty Not Leading to Disclosure of Tax Evasion in Channels. Is It "Much To Do About Nothing" or Are the Evaders Hiding Elsewhere?
For the record, I think that the UK has approached its tax evasion problem, as much as it has one, with an even hand, seeking to "gently but firmly" bring taxpayers into compliance, without bankrupting them (via FBAR type fines). I say, "as much as it has one", because the various type of domicile and residency leave much 'facts and circumstances' area for potentially avoiding attaching tax to global income and assets, global capital gains. Certainly makes the HMRC's job more difficult, but it is legislated public policy, thus so be it.
Having said this, in 2011, HMRC forecast that it would receive "billions" from the Swiss Disclosure Facility. In 2012, HMRC stated that this number would be 5 billion sterling, and another 3 billion sterling from the LDF. This implies that a couple hundred thousand United Kingdom tax residents are non tax compliant by not disclosing income and income-producing assets overseas, in offshore countries. As of that report of data up to 2012, 50,000 taxpayers had come forward through all offshore disclosure facilities, generating one billion in tax, interest, and tax penalties, thus on average 20,000 sterling per disclosure.
Like the United States, the United Kingdom has non-compliant taxpayers evading tax via offshore accounts, and from a tax-burden equity and tax administrative perspective, it simply needs to stop. But how large a population are these non-compliant taxpayers, and what portion of lost tax revenues do they represent? Is it enough to produce five billion from Switzerland, three billion from Liechtenstein, or billions more from rectifying offshore non-compliance in general? Probably not.
Some figures from HMRC reports are below.
The offshore noncompliance problem in the context of all non-tax compliance, and all taxpayers, requires first asking how many individual taxpayers file in the UK? For 2014-15, it's approximately 29.7 million, of which 4.65 million pay the higher rate of 40% for income between 31,786 and 150,000 sterling. 332,000 filers report more than 150,000 sterling income and pay the highest applicable rate.
The next interesting issue is what portion of noncompliance is estimated to be offshore non-compliance. According to HMRC:
The tax gap, which is the difference between what we collect and the tax that is theoretically owed, was £35 billion in the tax year 2011 to 2012, or 7% of total tax liabilities.
Tax evasion accounted for £5.1 billion, the hidden economy accounted for £5.4 billion and criminal activity £4.7 billion of the tax gap.
Nearly half the tax gap, 47.7%, is down to non-payment by small and medium-sized enterprises (SMEs), and while much of this is due to error, there is a significant risk of evasion among a small minority of SMEs, which we are tackling.
Back of the napkin calculation estimation, approximately 16% of the 35 billion tax gap is from tax evasion and 1.4% of potential tax income to the state. Not all the 5.1 billion tax evasion results from offshore non-compliance. How much though ?
On 12 February 2015 HMRC disclosed that it had collected a total of £2 billion from offshore evasion disclosure and other compliance initiatives - primarily from the Swiss Disclosure Facility (SDF) and the Liechtenstein Disclosure Facility (LDF) - thus an additional billion since the 2012 report, approximately 333 million sterling additional per annum.
Based on my table constructed below from HMRC, 5,400 disclosures brought in one billion sterling, and it is unclear how many disclosures have been made in Switzerland. HMRC stated in 2012 that it had received 57,000 offshore disclosures from all disclosures. Thus disclosures are falling - hopefully because most have come in from the cold.
HMRC reported that between 2010 and 2014 it secured more than 2,650 criminal prosecutions and 2,718 years of prison sentences for all tax crimes, approximately 530 annual prosecutions, with an average 1.2 years prison sentence (one was reported to be for 11 years and thus, several must be for less than a year). The HMRC only prosecuted one Swiss leaked account, as explained below:
The HSBC Suisse data initially revealed 6,800 ‘entities’ – individuals, businesses and trusts – but this contained duplication (some people had multiple accounts). Removing duplication left us with 3,600 entities, all of which we have examined.
We have investigated and challenged more than 1,000 account holders, and collected £135 million from them in unpaid tax, interest and fines. In many of these cases, people chose to disclose their offshore income through the Liechtenstein Disclosure Facility, set up by international agreement, which gave them an exemption from criminal prosecution if they fully disclosed all information.
In 150 of these cases, we sought to collect evidence for criminal prosecution. To do this successfully, we needed to demonstrate criminal intent (rather than error, for example). In addition, because stolen data is considered ‘dirty’ it needs additional corroborating evidence.
With these tests of evidence, and with the exemptions arising from the Liechtenstein Disclosure Facility, we could only prepare three cases for submission to the Crown Prosecution Service. Having examined the evidence, the CPS considered only one case to be strong enough to take forward, and that was successfully prosecuted in 2012.
In around 2,000 cases, we found no evidence of evasion and believe the account holders to be compliant, although we continue to monitor them.
We are still examining around 100 cases and 400 cases were untraceable.
|disclosures||# settled||settled||unsettled||avg settlement|
table shows the Isle of Man disclosure facility (IOMDF) figures
31 March 2014 30 September 2014 31 March 2015 Registrations 134 190 232 Disclosures received 62 139 186 Yield generated from IOMDF settlements £600,000 £1,600,000 £3,700,000 Payments made in IOMDF cases not yet settled £1,500,000 £2,000,000 £1,900,000 Number of settlements to date 27 101 149
This table shows the Guernsey disclosure facility (GDF) figures
31 March 2014 30 September 2014 31 March 2015 Registrations 24 43 56 Disclosures received 6 21 37 Yield generated from GDF settlements £100,000 £200,000 £700,000 Payments made in GDF cases not yet settled £200,000 £600,000 £1,900,000 Number of settlements to date … 13 25
This table shows the Jersey disclosure facility (JDF) figures.
31 March 2014 30 September 2014 31 March 2015 Registrations 106 185 232 Disclosures received 39 124 181 Yield generated from JDF settlements £400,000 £1,000,000 £2,200,000 Payments made in JDF cases not yet settled £1,000,000 £2,300,000 £3,500,000 Number of settlements to date 20 86 131
LDF Yield Stats as of March 2015
- Yield Generated from LDF Settlements £1,075m
- Payments made in LDF cases not yet settled £94million
- Number of settlements under £100,000: 3777
- Number of Settlements between £100,000 and £1 million: 1,549
- Number of settlements between £1 million and £5 million: 143
- Number of Settlements over £5 million: 14
- Average Settlement figure to date under the LDF: £171,195
- Crown dependency disclosure facility figures: Isle of Man
- Crown dependency disclosure facility figures: Guernsey
- Crown dependency disclosure facility figures: Jersey
- Offshore disclosure facilities: Liechtenstein Disclosure Facility
- Offshore disclosure facilities: Swiss bank accounts and investments
Monday, July 20, 2015
Krebs on Security News Service reports that:
Large caches of data stolen from online cheating site AshleyMadison.com have been posted online by an individual or group that claims to have completely compromised the company’s user databases, financial records and other proprietary information. The still-unfolding leak could be quite damaging to some 37 million users of the hookup service ....
Besides snippets of account data apparently sampled at random from among some 40 million users across ALM’s trio of properties, the hackers leaked maps of internal company servers, employee network account information, company bank account data and salary information.
read the full story at Krebs on Security
10% of the US population, if the 37 million subscriber number is close to true, are on the site. Imagine the embarrassed politicians and business figures ? The bonanza for divorce attorneys!
Two Former Company Executives Plead Guilty to Participating In Bribery Scheme
Louis Berger International Inc. (LBI), a New Jersey-based construction management company admitted to violations of the Foreign Corrupt Practices Act (FCPA) and agreed to pay a $17.1 million criminal penalty to resolve charges that it bribed foreign officials in India, Indonesia, Vietnam and Kuwait to secure government construction management contracts. Two of the company’s former executives also pleaded guilty to conspiracy and FCPA charges in connection with the scheme.
LBI entered into a deferred prosecution agreement (DPA) today and admitted its criminal conduct, including its conspiracy to violate the anti-bribery provisions of the FCPA. Pursuant to the DPA, LBI has agreed to pay a $17.1 million criminal penalty, to implement rigorous internal controls, to continue to cooperate fully with the department and to retain a compliance monitor for at least three years.
Richard Hirsch, 61, of Makaati, Philippines, and James McClung, 59, of Dubai, United Arab Emirates, each pleaded guilty to one count of conspiracy to violate the FCPA and one substantive count of violating the FCPA. Hirsch previously served as the Senior Vice President responsible for the company’s operations in Indonesia, Thailand, the Philippines and Vietnam. McClung previously served as the Senior Vice President responsible for the company’s operations in India and, subsequent to Hirsch, in Vietnam. The sentencing hearings for Hirsch and McClung are scheduled for Nov. 5, 2015.
According to admissions in the DPA and statements in the charging documents, from 1998 through 2010, the company and its employees, including Hirsch and McClung, orchestrated $3.9 million in bribe payments to foreign officials in various countries in order to secure government contracts. To conceal the payments, the co-conspirators made payments under the guise of “commitment fees,” “counterpart per diems,” and other payments to third-party vendors. In reality, the payments were intended to fund bribes to foreign officials who had awarded contracts to LBI or who supervised LBI’s work on contracts.
Among other factors, in entering into a DPA in this case, the government considered: (1) LBI’s self-reporting of the misconduct; (2) the company’s cooperation, including voluntarily making both U.S. and foreign employees available for interviews, and collecting, analyzing and organizing evidence and information for federal investigators; (3) the company’s extensive remediation, including terminating the officers and employees responsible for the corrupt payments; and (4) the company’s demonstrated commitment to improving its compliance program and internal controls.
This case was investigated by the FBI’s Newark Division. This is being prosecuted by Trial Attorney John W. Borchert of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Thomas J. Eicher and Scott B. McBride of the District of New Jersey. The Criminal Division’s Office of International Affairs also provided assistance.
Additional information about the Justice Department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.
The government announced four consultations as part of its publication Tackling Evasion and Avoidance. These take forward HMRC’s strategy for tackling offshore evasion, No Safe Havens. An update on this strategy was published in April 2014.
The four consultations are:
1. Tackling offshore tax evasion: Strengthening civil deterrents for offshore evaders
This consultation seeks views on the options to further strengthen civil deterrents for tax evaders.
2. Tackling offshore tax evasion: Civil sanctions for enablers of offshore evasion
This consultation seeks views on the design of civil sanctions to tackle enablers of offshore evasion.
3. Tackling offshore tax evasion: A new corporate criminal offence of failure to prevent the facilitation of evasion
The government announced its intention to introduce a new corporate criminal offence for failure to prevent tax evasion. This consultation seeks views on the design and potential impacts of the offence.
4. Tackling offshore tax evasion: A new criminal offence for offshore evaders
The government has confirmed its intention to introduce a new criminal offence for tax evaders. This consultation seeks further views on the design of the offence and provides responses to the first consultation on this offence, which took place in Autumn 2014.
Sunday, July 19, 2015
Michael J. Dodd, also known as “Michael Stanley,” Kenneth Ardell Landgaard, and James Robert Shipman, Jr. were arrested today on charges that they conspired to launder over two million dollars of proceeds from what they thought to be a penny stock fraud scheme. The money was, in fact, provided to the defendants by an undercover FBI agent who posed as a criminal stock promoter as part of a sting operation.
Defendants Landgaard and Shipman were arrested after flying to an airport in New York on a private jet to take possession of $2,200,000 in cash they had agreed to launder through banks in Panama and Belize. The defendants had already laundered $400,000 in cash previously provided by the undercover agent. Dodd was arrested a few hours later at a Manhattan restaurant where he expected to meet with the undercover agent.
“As charged in the criminal complaint, these defendants agreed to transport millions of dollars of stock fraud proceeds on private jets to Panama and then engage in a series of financial transactions. They did so with the intention of laundering the money, evading federal tax and banking laws, and lining their own pockets,” stated Acting United States Attorney Currie. “Today’s arrests have grounded these defendants, and will serve as a warning to others who are similarly inclined. We are committed to closing fraudulent offshore safe havens and prosecuting those who seek to abuse the financial markets to enrich themselves.”
“As alleged, the defendants willingly entered a scheme to transport more than $2 million of stock fraud profits out of the United States using private jets and financial transactions in exchange for a 13 to 15 percent fee. The FBI is committed to working with our law enforcement partners to investigate and bring those who seek to evade federal tax and banking laws to justice.” stated FBI Assistant Director-in-Charge Rodriguez.
According to the complaint unsealed this afternoon and other documents filed in the Eastern District of New York, the defendants used private jets and off-shore bank accounts in Panama to launder cash for an undercover FBI agent who posed as a corrupt stock promoter. In his dealings with the defendants, the undercover agent represented himself to be a middleman working with corrupt stock brokers who artificially inflated prices for worthless stock in exchange for high commissions. In exchange for a 13% to 15% fee, the defendants agreed to launder $2,600,000.
Immediately prior to their arrest earlier today, Landgaard and Shipman accepted $2,200,000 from the undercover agent, which they believed to be proceeds from the penny stock fraud. In conversations which were recorded by the FBI, the defendants explained in detail the measures they took to avoid detection of their money laundering scheme by law enforcement. Dodd insisted that the undercover agent download and use encryption software for online chats and voice communications. Landgaard insisted that the cash be provided in expensive Louis Vuitton duffel bags, and Shipman explained their reasoning: “You know why they do that? Because cops can’t get the authority to buy a Louis Vuitton bag, it’s too expensive … they can’t get the authorization to buy a Louis Vuitton bag. And if you think about it, it’s very smart.” Landgaard and Shipman also insisted that the undercover agent buy a “throwaway” or “burner” phone on which to speak to them about the scheme.
read about these type of schemes in Byrnes' Money Laundering, Asset Forfeiture, Recovery & Compliance.
Saturday, July 18, 2015
Key areas of work include assessments of AML/CFT measures of countries against the revised FATF Recommendations and development of FATF policy papers.
For the detailed job description, please see the vacancy notice :
· Policy Analysts - Financial Action Task Force
For more information, please see the OECD's recruitment information at www.oecd.org/careers/.
Closing date for applications: 23 August 2015
An indictment was unsealed today charging nine defendants with offenses based on their roles in complex, international stock manipulation and money laundering schemes generating approximately $6.5 million in illicit proceeds.
Harold Bailey Gallison II; Anna Hiskey; Michael Randles; Roger Coleman; Carl Kruse Sr.; Carl Kruse Jr.; Frank Zangara; Mark Dresner; and Charles Moeller were charged in an indictment filed June 24, 2015, and unsealed July 14 in the Eastern District of Virginia.
The indictment charges Gallison, Hiskey, Kruse Jr. and Kruse Sr. with one count of conspiracy to commit wire fraud and one count of securities fraud in connection with a “pump-and-dump” securities manipulation scheme involving the common stock of Warrior Girl Corp., which was quoted on the Over-the-Counter (OTC) market under the ticker symbol WRGL.
The indictment also charges Gallison, Hiskey, Zangara, Moeller and Dresner with one count of conspiracy to commit wire fraud and one count of securities fraud in connection with a pump-and-dump securities manipulation scheme involving the common stock of Everock Inc., which was quoted on the OTC market under the ticker symbol EVRN. In addition, the indictment charges Gallison, Randles, Hiskey and Coleman with one count of conspiracy to commit money laundering.
The indictment alleges that the defendants artificially “pumped” or inflated the trading volume and price of the securities by touting business activities and deceptive revenue forecasts, and by engaging in coordinated trading activity to create the appearance of increasing market demand. The defendants then allegedly “dumped” or sold the securities at the inflated prices and laundered the proceeds from their scheme through bank accounts in the United States and overseas.
According to the allegations in the indictment, the scheme was facilitated through an offshore brokerage and money laundering platform controlled by Gallison that went by various names, including Sandias Azucaradas, Moneyline Brokers and Trinity Asset Services (collectively, Moneyline). The defendants allegedly used Moneyline to create nominee accounts in the names of shell companies, and used those accounts to conceal both the true source and ownership of the securities and the flow of funds.
The conspirators also allegedly took elaborate steps to hide their illegal conduct from law enforcement, including the use of proprietary internal chat and telephone systems. In a recorded call from 2010, Gallison told Randles that Moneyline maintained a private internal telephone system that did not go through a U.S. server on which he and Randles could hold “private conversation[s] that the Fed cannot get a wiretap on.” In another conversation with Randles, Gallison noted that Moneyline’s proprietary internal chat system, which did not retain records of chats, was better than an internet service provider because “if the Fed came in with a search warrant, they’d take your computer and it’d have your last ninety days’ worth of Yahoo messengers and Skype chats.”
The charges and allegations contained in the indictment are merely accusations. The defendants are presumed innocent until and unless proven guilty.
Friday, July 17, 2015
The Tax Inspectors Without Borders (TIWB) initiative enables the transfer of tax audit knowledge and skills to tax administrations in developing countries through a real time, “learning by doing” approach. Experts – currently serving or recently retired tax officials – are deployed to work directly with local tax officials on current audits and audit-related issues concerning international tax matters, and to share general audit practices.
In addition to improvements in the quality and consistency of audits and the transfer of knowledge to recipient administrations (tax administrations seeking assistance), broader benefits are also anticipated including the potential for more revenues, greater certainty for taxpayers and encouraging a culture of compliance through more effective enforcement.
- Information note
- TIWB feasibility study report
- TIWB Toolkit: a guide to parties through the TIWB deployment process (governments in both receiving and supplying administrations and donor agencies).
The partnership between the OECD and United Nations Development Programme (UNDP) on Tax Inspectors Without Borders was officially launched on 13 July 2015 during the Third International Conference on Financing for Development in Addis Ababa, Ethopia.
A number of pilot projects and international tax workshops are already underway, including in Albania, Ghana and Senegal. The role of the TIWB Secretariat, composed of OECD and UNDP staff and based at the OECD in Paris, is to facilitate the deployment of experts who will provide real-time tax audit assistance to developing countries.
Finance Committee Bipartisan Tax Working Group Recognize FATCA and FBAR Are Concerns, But Kick the Can
Excerpt: According to working group submissions, there are currently 7.6 million American citizens
living outside of the United States. Of the 347 submissions made to the international working group, nearly three-quarters dealt with the international taxation of individuals, mainly focusing on citizenship-based taxation, the Foreign Account Tax Compliance Act (FATCA), and the Report of Foreign Bank and Financial Accounts (FBAR).
While the co-chairs were not able to produce a comprehensive plan to overhaul the taxation
of individual Americans living overseas within the time-constraints placed on the working group,
the co-chairs urge the Chairman and Ranking Member to carefully consider the concerns
articulated in the submissions moving forward.
Committee’s five tax reform working groups. These documents provide the Committee with materials to consider as it works towards reforming our nation’s tax system. While each report is a bipartisan product of each group’s Co-Chairs, unless otherwise stated, the materials presented are not necessarily endorsed, in whole or in part, by each member of each working group. The Chairman and Ranking Member sincerely appreciate the undertakings of the working groups and their contribution to the tax reform debate.