International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Friday, December 15, 2017

Justice Department Announces Charges and Guilty Pleas in Three Computer Crime Cases Involving Significant DDoS Attacks

Defendants Responsible for Creating “Mirai” and Clickfraud Botnets, Infecting Hundreds of Thousands of IoT Devices with Malicious Software

The Justice Department announced today the guilty pleas in three cybercrime cases.  In the District of Alaska, defendants pleaded guilty to creating and operating two botnets, which targeted “Internet of Things” (IoT) devices, and in the District of New Jersey, one of the defendants also pleaded guilty to launching a cyber attack on the Rutgers University computer network.

On Dec. 8, Paras Jha, 21, of Fanwood, New Jersey; Josiah White, 20, of Washington, Pennsylvania; and Dalton Norman, 21, of Metairie, Louisiana, pleaded guilty to criminal Informations in the District of Alaska charging them each with conspiracy to violate the Computer Fraud & Abuse Act in operating the Mirai Botnet.  In the summer and fall of 2016, White, Jha, and Norman created a powerful botnet – a collection of computers infected with malicious software and controlled as a group without the knowledge or permission of the computers’ owners.  The Mirai Botnet targeted IoT devices – non-traditional computing devices that were connected to the Internet, including wireless cameras, routers, and digital video recorders.  The defendants attempted to discover both known and previously undisclosed vulnerabilities that allowed them to surreptitiously attain control over the victim devices for the purpose of forcing the devices to participate in the Mirai Botnet.  At its peak, Mirai consisted of hundreds of thousands of compromised devices.  The defendants used the botnet to conduct a number of powerful distributed denial-of-service, or “DDOS” attacks, which occur when multiple computers, acting in unison, flood the Internet connection of a targeted computer or computers.  The defendants’ involvement with the original Mirai variant ended in the fall of 2016, when Jha posted the source code for Mirai on a criminal forum. Since then, other criminal actors have used Mirai variants in a variety of other attacks.

On Dec. 8, Paras Jha and Dalton Norman also pleaded guilty to criminal Informations in the District of Alaska charging each with conspiracy to violate the Computer Fraud & Abuse Act.  From December 2016 to February 2017, the defendants successfully infected over 100,000 primarily U.S.-based computing devices, such as home Internet routers, with malicious software.  That malware caused the hijacked home Internet routers and other devices to form a powerful botnet.  The victim devices were used primarily in advertising fraud, including “clickfraud,” a type of Internet-based scheme that makes it appear that a real user has “clicked” on an advertisement for the purpose of artificially generating revenue.

On Dec. 13, Paras Jha pleaded guilty in the District of New Jersey to violating the Computer Fraud & Abuse Act.  Between November 2014 to September 2016, Jha executed a series of attacks on the networks of Rutgers University.  Jha’s attacks effectively shut down Rutgers University’s central authentication server, which maintained, among other things, the gateway portal through which staff, faculty, and students delivered assignments and assessments.  At times, Jha succeeded in taking the portal offline for multi-day periods, harming Rutgers University, its faculty, and its students.

“The Mirai and Clickfraud botnet schemes are powerful reminders that as we continue on a path of a more interconnected world, we must guard  against the threats posed by cybercriminals that can quickly weaponize technological developments to cause vast and varied types of harm,” said Acting Assistant Attorney General Cronan.  “The Criminal Division will remain constantly vigilant in combating these sophisticated schemes, prosecuting cybercriminals, and protecting the American people.”

“Our world has become increasingly digital, and increasingly complex,” said U.S. Attorney Schroder.  “Cybercriminals are not concerned with borders between states or nations, but should be on notice that they will be held accountable in Alaska when they victimize Alaskans in order to perpetrate criminal schemes.  The U.S. Attorney’s Office, along with our partners at the FBI and Department of Justice‘s Computer Crime and Intellectual Property Section (CCIPS), are committed to finding these criminals, interrupting their networks, and holding them accountable.”

“Paras Jha has admitted his responsibility for multiple hacks of the Rutgers University computer system,” said Acting U.S. Attorney Fitzpatrick. “These computer attacks shut down the server used for all communications among faculty, staff and students, including assignment of course work to students, and students’ submission of their work to professors to be graded.  The defendant’s actions effectively paralyzed the system for days at a time and maliciously disrupted the educational process for tens of thousands of Rutgers’ students. Today, the defendant has admitted his role in this criminal offense and will face the legal consequences for it.”

“These cases illustrate how the FBI works tirelessly against the actions of criminals who use malicious code to cause widespread damage and disruptions to the general population,” said FBI Assistant Director Smith. “The FBI is dedicated to working with its domestic and international partners to aggressively pursue these individuals and bring justice to the victims.”   

For additional information on cybersecurity best practices for IoT devices, please visit:

All three cases were investigated by the FBI’s Anchorage, Alaska and Newark, New Jersey Field Offices.  The Mirai Botnet and Clickfraud Botnet cases are being prosecuted by Assistant U.S. Attorney Adam Alexander of the District of Alaska and Trial Attorney C. Alden Pelker of the Computer Crime and Intellectual Property Section of the Criminal Division.  The Rutgers University case is being prosecuted by Assistant U.S. Attorney Shana Chen of the District of New Jersey.  Additional assistance was provided by the FBI’s New Orleans and Pittsburgh Field Offices, the U.S. Attorney’s Office for the Eastern District of Louisiana, the United Kingdom’s National Crime Agency, the French General Directorate for Internal Security, the National Cyber-Forensics & Training Alliance, Palo Alto Networks Unit 42, Google, Cloudflare, Coinbase, Flashpoint, Yahoo and Akamai.  Former Department of Justice prosecutors Ethan Arenson, Harold Chun, and Yvonne Lamoureux provided invaluable support during their previous tenure at DOJ.

December 15, 2017 in AML | Permalink | Comments (0)

Thursday, December 14, 2017

Department of Justice Recovers Millions in Criminal Proceeds Via a First Time Forfeited Asset Sharing by Guernsey Officials

United States prosecutors and investigators are recovering more than $14 million linked to two U.S. criminal cases, in which the money was laundered via Guernsey, thanks to a first-time ever sharing of forfeited assets by Guernsey officials.  Guernsey is a significant offshore financial center located in the English Channel near the coast of France.

“The United States and Guernsey have a valued and close law enforcement relationship, and this first-ever asset sharing from Guernsey to the United States is the latest outward sign AML book of our strong ties,” said John P. Cronan, Acting Assistant Attorney General for the Department of Justice’s Criminal Division.  “Today’s announcement sends a strong message that the Department of Justice and our counterparts in Guernsey will not rest until defendants are brought to justice and denied the illicit proceeds of their crimes.” 

Guernsey Attorney General Megan M.E. Pullum, Q.C., and Guernsey Solicitor General Robert M. Titterington, Q.C., announced their commitment to transfer the funds to the United States under a bilateral asset sharing agreement that entered into force between Guernsey and the United States in February 2015.  Their announcement came during a meeting with U.S. officials at the Department of Justice’s headquarters today.

The $14.3 million to be shared from Guernsey represents one half of the net proceeds recovered in that jurisdiction that stem from the two U.S. criminal cases, which are discussed below.  Guernsey will retain an equal amount.  

Most of the funds being transferred from Guernsey – more than $12.77 million – stem from Guernsey’s cooperation in connection with the prosecution of defendant Raymond Bitar and his associates by the United States Attorney for the Southern District of New York.  In April 2013, Bitar pleaded guilty to unlawful internet gambling and conspiracy to commit bank fraud and wire fraud.  He admitted to defrauding customers of his Full Tilt Poker operation by lying to them about the security of their funds held by Full Tilt Poker, and by falsely promising players that their funds would be protected in segregated accounts.  Instead, Bitar and his accomplices used players’ funds for whatever purposes that Bitar directed, including to pay him and others millions of dollars and to cover the operating expenses of Full Tilt Poker.  Ultimately, Full Tilt collapsed and was unable to pay players approximately $350 million that it owed to them. In connection with his plea and sentencing, Bitar agreed to forfeit $40 million dollars in money and other property derived from his offenses, including the funds he maintained in Guernsey.  

The United States Marshals Service expended significant work on the post-conviction tracing, recovery, and liquidation of the criminal assets of Bitar and his associates, both domestically and internationally.  Between November 2012 and June 2015, the Justice Department’s Office of International Affairs sent a series of three Mutual Legal Assistance requests to the Guernsey authorities seeking their assistance with the tracing, restraint, forfeiture and recovery of the proceeds that had been laundered to Guernsey. In response to those requests, the Guernsey authorities used domestic proceedings to block the Bitar accounts, provided bank records that facilitated the U.S. investigation and forfeiture, and ultimately gave effect to the final U.S. judgment of forfeiture and liquidated the accounts.  

The remaining funds to be shared by Guernsey – more than $1.56 million – stemmed from the prosecution of defendant Paul Hindelang and his associates by the United States Attorney for the Southern District of Florida.  Hindelang was large-scale importer of Colombian marijuana into the United States during the 1970s and 1980s.  Similar to the Bitar case, Guernsey’s assistance in connection with the Hindelang case ultimately included the registration and enforcement of a U.S. judgment of forfeiture against assets that were laundered to Guernsey and the liquidation of those assets. 

This is the second time assets have been shared pursuant to a 2015 asset sharing agreement between the United States and Guernsey.  In 2016, the Department of the Treasury shared more than $2 million with Guernsey in 2016.  Guernsey has long been a reliable partner with the United States in the areas of anti-money laundering and forfeiture cooperation.

Representatives from the United States Marshals Service, Homeland Security Investigations, and the Office of International Affairs, who provided substantial assistance in this matter, also were on hand for the asset sharing announcement.

December 14, 2017 in AML | Permalink | Comments (0)

Wednesday, December 13, 2017

SBM Offshore N.V. And United States-Based Subsidiary Resolve Foreign Corrupt Practices Act Case Involving Bribes in Five Countries

SBM Offshore N.V. (SBM), a Netherlands-based company specializing in the manufacture and design of offshore oil drilling equipment, and its wholly owned U.S. subsidiary, SBM Offshore USA Inc. (SBM USA), have agreed to resolve criminal charges and pay a criminal penalty of $238 million in connection with schemes involving the bribery of foreign officials in Brazil, Angola, Equatorial Guinea, Kazakhstan and Iraq in violation of the Foreign Corrupt Practices Act (FCPA).  SBM USA pleaded guilty in connection with the resolution.

Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division, Acting U.S. Attorney Abe Martinez of the Southern District of Texas and Special Agent in Charge Mark Dawson of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (ICE-HSI) Houston Field Office made the announcement. 

“This corrupt scheme involved some of the highest-level executives within the company, spanned five countries, and lasted for more than a decade,” said Acting Assistant Attorney General Cronan.  “The resolution announced today demonstrates the Criminal Division’s continuing commitment to work closely with our foreign partners to hold both companies and individuals accountable for their actions as we continue to level the playing field for ethical and honest businesses to compete in the marketplace.”

“Deterring corporate crime requires enforcing the law on multiple fronts,” said Acting U.S. Attorney Martinez.  “These cases involve both individual and corporate misconduct, which the guilty pleas reflect. We will continue to aggressively investigate and prosecute individuals and corporations who violate the FCPA and those who misuse our financial system to do so.”

“This case exemplifies how HSI works diligently with our foreign law enforcement partners to promote and protect international trade practices, ensuring a fair and equal playing field for U.S. companies and consumers,” said HSI Special Agent in Charge Dawson. 

SBM entered into a deferred prosecution agreement in connection with a criminal information filed today in the Southern District of Texas charging the company with conspiracy to violate the anti-bribery provisions of the FCPA.  The case is assigned to U.S. District Judge David Hittner.  In addition, SBM USA pleaded guilty and was sentenced by Judge Hittner on a one-count criminal information charging the company with conspiracy to violate the anti-bribery provisions of the FCPA.  Pursuant to its agreement with the Department, SBM agreed to pay a total criminal penalty of $238 million to the United States, including a $500,000 criminal fine and $13.2 million in criminal forfeiture that SBM agreed to pay on behalf of SBM USA.

According to the companies’ admissions and court documents, beginning by at least 1996 and continuing until at least 2012, SBM conspired to violate the FCPA by paying more than $180 million in commissions to intermediaries, knowing that a portion of those commissions would be used to bribe foreign officials in Brazil, Angola, Equatorial Guinea, Kazakhstan and Iraq.  SBM made these payments in order to influence those officials, for the purpose of securing improper advantages and obtaining or retaining business with state-owned oil companies in the five named countries.  SBM acknowledged that it gained at least $2.8 billion from projects it obtained from these state-owned oil companies.

The Justice Department resolution follows guilty pleas by two former SBM executives.  On Nov. 9, Anthony Mace, the former CEO of SBM and a former member of the board of directors of SBM USA, pleaded guilty to one count of conspiracy to violate the FCPA.  On Nov. 6, Robert Zubiate, a former SBM USA executive, pleaded guilty to one count of conspiracy to violate the FCPA.  Mace and Zubiate are awaiting sentencing.

In 2014, SBM settled with the Dutch Public Prosecutor’s Office (Openbaar Ministerie) over related conduct and paid the Netherlands a total $200 million in disgorged profits and a $40 million fine.  SBM has paid a combined worldwide total in criminal penalties in excess of $475 million.          

The Department reached this resolution based on a number of factors, including the fact that while SBM brought the conduct to the attention of the Criminal Division’s Fraud Section and Dutch authorities, it did not provide a complete disclosure for approximately one year; that SBM did cooperate with the Department’s investigation, including an accelerated investigation into bribery conduct related to Kazakhstan and Iraq; and that SBM has undertaken significant remedial measures, including terminating and demoting employees who were involved in the criminal conduct, terminating longstanding agency agreements and implementing a new and enhanced system of internal controls to address and mitigate corruption and compliance risks.  Therefore, SBM was entitled to a 25 percent reduction off of the bottom of the U.S. Sentencing Guidelines range.  In addition, the Department considered SBM’s inability to pay a fine. 

In calculating its fine, the Department credited SBM’s payment of penalties to the Openbaar Ministerie and the payment of penalties likely to be paid to the Brazilian Ministério Público Federal (MPF).

The Department of Justice is grateful to Brazil’s MPF, the Netherlands’ Dutch Public Prosecutor’s Office (Openbaar Ministerie) and Switzerland’s Office of the Attorney General and Federal Office of Justice for providing substantial assistance in gathering evidence during this investigation.

ICE-HSI investigated the case.  Trial Attorney Dennis R. Kihm and Assistant Chief Tarek Helou of the Fraud Section and Assistant U.S. Attorney Suzanne Elmilady of the Southern District of Texas are prosecuting the case.  The Criminal Division’s Office of International Affairs also provided substantial assistance in this matter.  The FBI’s International Corruption Squad and the Internal Revenue Service’s Criminal Investigation Division assisted with portions of the investigation of this case.

December 13, 2017 in AML | Permalink | Comments (0)


The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced that the goods and services deficit was $48.7 billion in October, up $3.8 billion from $44.9 billion in September, revised. October exports were $195.9 billion, down less than $0.1 billion from September exports. October imports were $244.6 billion, $3.8 billion more than September imports.

The October increase in the goods and services deficit reflected an increase in the goods deficit of $3.8 billion to $69.1 billion and a decrease in the services surplus of less than $0.1 billion to $20.3 billion.

Year-to-date, the goods and services deficit increased $49.1 billion, or 11.9 percent, from the same period in 2016. Exports increased $97.5 billion or 5.3 percent. Imports increased $146.6 billion or 6.5 percent.

Goods and Services Three-Month Moving Averages (Exhibit 2)

The average goods and services deficit increased $1.2 billion to $46.0 billion for the three months ending in October.
* Average exports of goods and services increased $0.8 billion to $195.2 billion in October.
* Average imports of goods and services increased $2.0 billion to $241.2 billion in October.

Year-over-year, the average goods and services deficit increased $5.1 billion from the three months ending in October 2016.
* Average exports of goods and services increased $8.2 billion from October 2016.
* Average imports of goods and services increased $13.2 billion from October 2016.

Exports (Exhibits 3, 6, and 7)

Exports of goods decreased $0.3 billion to $130.3 billion in October.
Exports of goods on a Census basis decreased $0.5 billion.
* Foods, feeds, and beverages decreased $1.3 billion.
o Soybeans decreased $1.4 billion.
* Capital goods decreased $1.2 billion.
o Civilian aircraft decreased $1.1 billion.
* Industrial supplies and materials increased $2.6 billion.
Net balance of payments adjustments increased $0.2 billion.

Exports of services increased $0.3 billion to $65.6 billion in October.
* Financial services increased $0.1 billion.
* Other business services, which includes research and development services; professional and management services; and technical, trade-related, and other services, increased $0.1 billion.

Imports (Exhibits 4, 6, and 8)

Imports of goods increased $3.5 billion to $199.4 billion in October.
Imports of goods on a Census basis increased $3.5 billion.
* Industrial supplies and materials increased $1.8 billion.
o Crude oil increased $1.5 billion.
* Other goods increased $1.1 billion.
* Consumer goods increased $0.8 billion.
o Cell phones and other household goods increased $0.3 billion.
Net balance of payments adjustments decreased less than $0.1 billion.

Imports of services increased $0.3 billion to $45.2 billion in October.
* Transport increased $0.3 billion.

Real Goods in 2009 Dollars – Census Basis (Exhibit 11)

The real goods deficit increased $3.1 billion to $65.3 billion in October.
* Real exports of goods decreased $0.3 billion to $125.7 billion.
* Real imports of goods increased $2.9 billion to $191.0 billion.


Exports and imports of goods and services were revised for April through September 2017 to incorporate more comprehensive and updated quarterly and monthly data.

Revisions to September exports
* Exports of goods were revised up $0.1 billion.
* Exports of services were revised down $0.9 billion.
Revisions to September imports
* Imports of goods were revised down $0.1 billion.
* Imports of services were revised up $0.6 billion.

Goods by Selected Countries and Areas: Monthly – Census Basis (Exhibit 19)

The October figures show surpluses, in billions of dollars, with South and Central America ($3.9), Hong Kong ($2.3), Brazil ($1.1), Singapore ($0.7), Saudi Arabia ($0.3), and United Kingdom ($0.2). Deficits were recorded, in billions of dollars, with China ($31.9), European Union ($12.0), Mexico ($6.0), Japan ($5.9), Germany ($5.3), Italy ($2.7), South Korea ($2.7), India ($2.1), Canada ($1.9), OPEC ($1.6), France ($1.6), and Taiwan ($1.6).

  • The balance with members of OPEC shifted from a surplus of $0.6 billion to a deficit of $1.6 billion in October. Exports decreased $0.9 billion to $4.3 billion and imports increased $1.3 billion to $5.9 billion.
  • * The deficit with China increased $2.1 billion to $31.9 billion in October. Exports decreased $0.8 billion to $10.6 billion and imports increased $1.2 billion to $42.5 billion.
    * The deficit with the European Union decreased $2.5 billion to $12.0 billion in October.
    Exports increased $1.4 billion to $25.0 billion and imports decreased $1.1 billion to $37.0

Goods and Services by Selected Countries and Areas: Quarterly – Balance of Payments Basis (Exhibit 20)

The third quarter figures show surpluses, in billions of dollars, with South and Central America ($18.3), Hong Kong ($8.4), Brazil ($7.1), Singapore ($5.0), OPEC ($4.9), Canada ($4.3), United Kingdom ($3.7), and Saudi Arabia ($3.5). Deficits were recorded, in billions of dollars, with China ($81.9), European Union ($25.5), Germany ($17.2), Mexico ($15.9), Japan ($14.6), Italy ($8.7), India ($7.4), Taiwan ($4.2), South Korea ($3.5), and France ($3.2).

  • The balance with Canada shifted from a deficit of $0.7 billion to a surplus of $4.3 billion in the third quarter. Exports increased $1.0 billion to $85.5 billion and imports decreased $4.0 billion to $81.2 billion.
  • The deficit with Mexico decreased $2.6 billion to $15.9 billion in the third quarter. Exports increased $1.3 billion to $69.2 billion and imports decreased $1.3 billion to $85.2 billion.
  • The deficit with South Korea increased $2.2 billion to $3.5 billion in the third quarter. Exports decreased $1.5 billion to $17.3 billion and imports increased $0.7 billion to $20.8

December 13, 2017 in Economics | Permalink | Comments (0)

Tuesday, December 12, 2017

Former Procurement Officer at Federally Funded Nuclear Research and Development Facility Pleads Guilty to Wire Fraud and Money Laundering

A former procurement officer employed at Sandia Corporation, the prime operator of a federally funded nuclear research and development facility, pleaded guilty to charges of wire fraud and money laundering for orchestrating a scheme to obtain approximately $2.3 million in federal funds through fraudulent means and for laundering fraudulently obtained proceeds through her father’s companies.

Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division made the announcement.

Carla Sena, 55, of Santa Rosa, New Mexico, pleaded guilty to one count of wire fraud and one count of money laundering before U.S. District Chief Judge M. Christina Armijo in the District of New Mexico.  Sentencing will be scheduled at a later date before Judge Armijo.

According to the plea documents, Sena’s employer, Sandia Corporation, managed and operated Sandia National Laboratories (SNL), a nuclear research and development facility owned by the federal government under sponsorship of the U.S. Department of Energy (DOE).  In late 2010, Sena managed the bidding process for the award of a multi-million-dollar contract for moving services at SNL.  Sena admitted that, in anticipation of the bidding process for this contract, she created the company, New Mexico Express Movers LLC (Movers LLC), to which she awarded the multi-million-dollar contract.  Sena prepared a bid on Movers LLC’s behalf containing fraudulent misrepresentations, and submitted the bid under the name of an individual who had no knowledge of Movers LLC to conceal her involvement.    Sena also admitted that she used her position of trust to access inside information and competing bidders’ documents that she leveraged to ensure award of the contract to Movers LLC. 

As a direct result of Sena’s fraudulent scheme, Movers LLC received approximately $2.3 million in federal funds between May 2011 and April 2016.  Sena also admitted that, between October 2011 and April 2015, she transferred via negotiated checks at least $643,000 of the fraudulently obtained proceeds to legitimate businesses owned by her father with the intent to conceal the source and control of those funds and her subsequent personal gain from the proceeds.

December 12, 2017 in AML | Permalink | Comments (0)

Monday, December 11, 2017

More Than $16 Million Awarded to Two Whistleblowers

The Securities and Exchange Commission today announced awards of more than $8 million each to two whistleblowers whose critical information and continuing assistance helped the agency bring the successful underlying enforcement action.

With this case, SEC enforcement actions involving whistleblower awards have now resulted in more than $1 billion in financial remedies ordered against wrongdoers. SEC

The first whistleblower alerted SEC enforcement staff of the particular misconduct that would become the focus of the staff’s investigation and the cornerstone of the agency’s subsequent enforcement action.  The second whistleblower provided additional significant information and ongoing cooperation to the staff during the investigation that saved a substantial amount of time and agency resources.   

“Whistleblowers have played a crucial role in the progression of many investigations and the success of enforcement actions since the inception of the whistleblower program,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower.  “The value of whistleblowers can be seen in the more than $1 billion in financial remedies ordered against wrongdoers based on actionable information from whistleblowers, including more than $671 million in disgorgement of ill-gotten gains, much of which has been or is scheduled to be returned to harmed investors.” 

The SEC’s whistleblower program has now awarded more than $175 million to 49 whistleblowers since issuing its first award in 2012.  All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money has been taken or withheld from harmed investors to pay whistleblower awards. 

Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action.  Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million. 

By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.

December 11, 2017 in AML | Permalink | Comments (0)

Sunday, December 10, 2017

Former Company Insider Earns More Than $4.1 Million for Whistleblower Tip

The Securities and Exchange Commission announced an award of more than $4.1 million to a former company insider who alerted the agency to a widespread, multi-year securities law SEC logoviolation and continued to provide important information and assistance throughout the SEC’s investigation.  The whistleblower is the third awarded by the SEC in the past week.  

“Company insiders often have valuable information that can help the SEC halt an ongoing securities law violation and better protect investors,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower.  “The breadth of the SEC’s whistleblower program is demonstrated by this case, where the whistleblower, a foreign national working outside of the United States, affirmatively stepped forward to shine a light on the wrongdoing.”  

The SEC’s whistleblower program has now awarded more than $179 million to 50 whistleblowers since issuing its first award in 2012.  All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money has been taken or withheld from harmed investors to pay whistleblower awards. 

Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action.  Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million. 

By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.

December 10, 2017 in AML | Permalink | Comments (0)

Saturday, December 9, 2017

Former Bank Executive Charged for Role in $15 Million Bank Loan Scheme

A former Kansas bank executive was charged in an indictment filed today for his participation in a bank fraud scheme to obtain a $15 million construction loan from 26 Kansas banks based on allegedly false information contained in the loan documents.

Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division, Special Agent in Charge David Anderson of the Federal Deposit Insurance Corporation Office of Inspector General’s (FDIC-OIG) Kansas City Regional Office, Special Agent in Charge Karl A. Stiften of the Internal Revenue Service Criminal Investigation’s (IRS-CI) St. Louis Field Office, Special Agent in Charge Darrin E. Jones of the FBI’s Kansas City Field Office and Special Agent in Charge Catherine Huber of the Federal Housing Finance Agency Office of Inspector General’s (FHFA-OIG) Central Region Office made the announcement.

Troy A. Gregory, 50, of Lawrence, Kansas, was charged in an indictment filed in the District of Kansas with one count of conspiracy to commit bank fraud, four counts of bank fraud, and two counts of false statements.  

According to the indictment, Gregory was a bank executive and loan officer who had made millions of dollars in loans to a group of borrowers who were struggling to make payments on the loans.  The indictment alleges that beginning in approximately late 2007, Gregory began the process of making a $15.2 million construction loan to build an apartment complex to that same group of borrowers.  The indictment further alleges that Gregory’s bank shared this loan with 25 other Kansas banks.  Gregory allegedly made or caused others to make false statements to the banks about the strength of the borrowers, the debt status of the apartment property and the existence of approximately $1.7 million in certificates of deposit for collateral on the loan, all to get the loan approved.  Instead of using the loan funds promised for building the apartments, Gregory allegedly immediately diverted over $1 million of the loan to pay for part of the certificates of deposit pledged as collateral, pay off debt on the apartment property and make payments on unrelated loans.  Other Kansas banks that shared in this loan allegedly would not have participated in the loan without the false representations and promises.

The indictment alleges that the banks ultimately wrote off millions of dollars on the $15.2 million construction loan.

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

The FDIC-OIG, IRS-CI, FBI and FHFA-OIG are investigating this matter.  Trial Attorney Andrew R. Tyler and Senior Litigation Counsel David A. Bybee of the Criminal Division’s Fraud Section are prosecuting the case.

The Fraud Section plays a pivotal role in the Department of Justice’s fight against white collar crime around the country, focusing on cases of national significance and international scope.  Fraud Section prosecutors have vast experience in investigating and prosecuting securities and financial fraud, health care fraud and foreign corruption.  The Section is routinely the national leader in large, sophisticated white collar investigations and prosecutions, frequently in partnership with U.S. Attorneys’ Offices and in coordination with foreign law enforcement agencies.

December 9, 2017 in AML | Permalink | Comments (0)

Friday, December 8, 2017

Attorney General Sessions Delivers Remarks at the World Bank Global Forum on Asset Recovery

On behalf of President Trump, I want to thank Baroness Williams and the U.K. delegation.  The United States is proud to co-host the forum with you.  We are proud to call attention to the important work that’s been done – and the important work that lies ahead – in our shared fight against crime.  I also want to recognize our distinguished guests from the four focus countries and from our partners in Brazil and Switzerland.  Thank you to the World Bank, the United Nations Office on Drugs and Crime, and everyone else who helped organize this inaugural Global Forum on Asset Recovery.  It is an honor to open the forum today.  I think this is a unique opportunity to bring together investigators, prosecutors, judges, policy-makers and civil society organizations so that we can learn from one another and build relationships.  And that is critically important to us all.

Year by year and day by day, our economies have become increasingly interconnected.  And just as our economies have gone global, so too have the consequences of criminal activity. Criminals are not bound by borders.

Bribes paid to an official in West Africa can be spent on a yacht in Miami.  Dangerous drugs produced in Afghanistan or Colombia can kill a teenager in Cincinnati or Sydney.

A social media post in Syria can inspire a terrorist attack in Europe.  A criminal from Mexico can victimize innocent people in Portland or San Francisco.

In the United States, we know all too well that the consequences of crime can be international.

People across America today are talking about the tragic death of Kate Steinle, a 32-year old woman who was shot in the back walking along a pier in San Francisco.  The man holding the gun had illegally entered the United States six times.

He admitted that he was in San Francisco because the city does not cooperate with immigration enforcement.  He illegally entered 5 times and was charged 10 crimes.

He should not have been in the country in the first place.  Kate Steinle would be alive today if our government had carried out its duties to enforce the law and protect its citizens.

Each one of us—whether we are prosecutors, judges, or legislators—have a responsibility to pursue the common good for the people we serve.  And while each of us has limited jurisdiction, we must recognize that the consequences of our actions can be felt around the world.

You can be sure of this: the United States will do our part.  And we urge every government to do their part, as well.

Over the next few minutes, I’d like to discuss a few of the ways the United States is cooperating with our law enforcement partners across the globe and achieving successes that benefit all of us.

First of all, we have seized or restrained $3.5 billion worth of corruption proceeds involved in money laundering offenses.

Since 2004, the United States has returned millions in corruption proceeds to compensate victims.

That includes approximately $119 million to the people of Italy, $115 million to the people of Kazakhstan, more than $20 million to the people of Peru, and millions more to the people of Nicaragua, South Korea, and Taiwan.

That recovery has only been possible because of cooperation with our foreign law enforcement partners.

You may be familiar with some of these cases.  For example, nearly half of the $3.5 billion in corruption proceeds we have restrained is related to just one enforcement action.

That action was related to a Malaysian sovereign wealth fund known as 1MDB.  1MDB was created by the Malaysian government to promote long-term economic development for the benefit of the Malaysian people.

But allegedly corrupt officials and their associates reportedly used the funds for a lavish spending spree: $200 million for real estate in Southern California and New York.  $130 million in artwork.  $100 million in an American music label.  Not to mention a $265 million yacht.

In total, 1MDB officials allegedly laundered more than $4.5 billion in funds through a complex web of opaque transactions and fraudulent shell companies with bank accounts in countries ranging from Switzerland and Singapore to Luxembourg and the United States.  This is kleptocracy at its worst.

Today, the U.S. Department of Justice is working to provide justice to the victims of this alleged scheme.

As a prosecutor for 14 years, I know firsthand that the best evidence is often simple things like bank records, airplane records, and telephone records.

If they’re not properly shared between nations, then, in many cases, justice cannot be done.  It is essential that we continue to improve that kind of sharing.

That’s why we must all do more to expedite mutual legal assistance requests.  These requests ensure that prosecutors have the evidence that they need to bring criminals to justice.

In response to the increasing volume and complexity of legal assistance requests, the Department of Justice has taken two actions that are critically important.

First, we have increased staffing levels at the Department’s Office of International Affairs, or OIA.  Second, OIA has created two new units dedicated to reviewing and executing foreign requests.  As a result, OIA has significantly reduced its backlog by thousands of cases, despite receiving 16 percent more requests in fiscal 2016 than in fiscal 2015.

These are important steps.  But we can and must do more to help one another.

I challenge all of you to devote more resources to quickly and effectively reducing your backlog too.  You know how serious these cases can be.  There is no time to waste.  We will do our part for you, but we need to work together.

The Department is also working towards the implementation of a framework with some of our closest allies that would supplement the MLAT process and reduce potential conflicts of law regarding the disclosure of electronic evidence.  That kind of framework would enhance public safety efforts in the U.S. and around the world.

In order for this type of framework to function, however, we need to ensure that our warrants continue to be effective even when an American company chooses to store customer data outside of the United States.

When we have access to the right evidence, we get results.

Earlier this year, we worked with foreign authorities to arrest the alleged creator of the Kelihos botnet. Over several years, this network was used to steal login credentials, distribute hundreds of millions of spam e-mails, and install ransomware and other malicious software across the globe.

That pernicious network of tens of thousands of infected computers has now been dismantled.

This summer, with the help of eight of our allies, we dismantled the largest darknet market, AlphaBay.  It operated for more than two years and was used to sell a host of illicit items, including deadly illegal drugs and firearms.

At one time, more than 40,000 vendors offered contraband for sale, and drugs sold on the site have been linked to overdose deaths around the country.  Now this site has been taken down.

The Justice Department has also indicted foreign cyber criminals who have broken into systems in the United States looking to steal ideas that make our nation strong and competitive in the global marketplace.  One of the cases we are prosecuting involved the theft of technology that allegedly caused $800 million in losses.  That is more than ten times the largest bank robbery.

Intellectual property theft is so important today that G-20 leaders have agreed that no country should steal trade secrets or other confidential business information in order to advantage its companies or commercial sectors.  The Department of Justice is committed to bringing those responsible for intellectual property-related crimes to justice.

The United States has too often been a victim, and we intend to fight these crimes vigorously.

All of us need to do a better job of properly evaluating extradition requests, and it is unacceptable for nations to flatly refuse to extradite individuals who have committed crimes in another country.  The United States seeks to participate in economic activity worldwide.

We believe we have a strong record of fairly and professionally prosecuting global criminal activity and we will work hard to assist our global partners in their efforts to crack down on fraud and abuse.  But we will insist on cooperation from our global partners.

Many of the countries in this room have honored our extradition requests, allowing fugitives to undergo the judicial process in the United States.  I want to thank you for that. We are also working with you and plan to do so faster and more effectively in the future.

Cooperation works—and at the Department of Justice, we know that firsthand.

Thank you all for your ongoing efforts against crime. We fully respect the importance of borders. Indeed, borders are an essential component of sovereignty, but if we work together- respectful of each other’s rights- we can far more effectively stop transnational criminals.

And we must do so.  I look forward to our work together—and to many more successes in the future.

December 8, 2017 in AML | Permalink | Comments (0)

Thursday, December 7, 2017

Immigration Attorney Pleads Guilty to Fraud Scheme and Identity Theft in Relation to Visa Applications

An Indianapolis, Indiana immigration attorney pleaded guilty today for defrauding the U.S. Citizenship and Immigration Services (USCIS) and more than 250 of his clients by filing false visa applications and reaping approximately $750,000 in fraudulent fees.

Attorney General Jeff Sessions, Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division and Special Agent in Charge James M. Gibbons of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (ICE-HSI) in Chicago made the announcement.

Indianapolis immigration attorney Joel Paul, 45, of Fishers, Indiana pleaded guilty before U.S. District Judge Jane E. Magnus-Stinson of the Southern District of Indiana to an information charging him with one count each of mail fraud, immigration document fraud, and aggravated identity theft in connection with a scheme to submit fraudulent U-visa applications.  Sentencing will be scheduled before Judge Magnus-Stinson in early 2018.

 "Individuals who commit immigration fraud undermine and abuse our generous immigration system—a system that lawfully admits more immigrants than any other country in the world—and put our public safety and national security at risk,” said Attorney General Sessions.  “President Trump promised voters he would return this country to a lawful system of immigration, and this Justice Department is committed to fulfilling that promise by rooting out fraud and abuse. We will not tolerate fraud at any level, and will bring those who engage in fraud to justice.”

According to the plea agreement, Paul admitted that from 2013 to 2017, he submitted more than 250 false Applications for Advance Permission to Enter as a Nonimmigrant on behalf of his clients and without their knowledge.  Those applications falsely asserted that Paul’s clients had been victims of a crime and had provided substantial assistance to law enforcement in investigating the crime.  With approximately 200 of the false applications, Paul submitted unauthorized copies of a certification he had obtained from the U.S. Attorney’s Office (USAO) for the Southern District of Indiana in 2013, using the certification without the USAO’s knowledge to falsely claim that the applicant had provided substantial assistance in a criminal prosecution.  In total, Paul charged his clients approximately $3,000 per application.

December 7, 2017 in AML | Permalink | Comments (0)

Wednesday, December 6, 2017

Russian Cyber-Criminal Sentenced to 14 Years in Prison for Role in Organized Cybercrime Ring Responsible for $50 Million in Online Identity Theft and $9 Million Bank Fraud Conspiracy

A Russian cyber-criminal was sentenced today to 14 years in prison  for his role in a $50 million cyberfraud ring and for defrauding banks of $9 million through a hacking scheme.

Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division, Acting U.S. Attorney Steven W. Myhre of the District of Nevada, U.S. Attorney Byung J. Pak of the Northern District of Georgia, Assistant Special Agent in Charge Michael Harris of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (ICE HSI), Special Agent in Charge Brian Spellacy of the U.S. Secret Service in Las Vegas, and FBI Special Agent in Charge David J. LeValley in Atlanta made the announcement.

Roman Valeryevich Seleznev aka Track2, Bulba and Ncux, 33, was sentenced by U.S. District Judge Steve C. Jones of the Northern District of Georgia to serve 168 months in prison for one count of participation in a racketeering enterprise pursuant to an indictment returned in the District of Nevada, and to 168 months in prisonfor one count of conspiracy to commit bank fraud pursuant to an indictment returned in the Northern District of Georgia, with the sentences to run concurrent to one another. In both cases, Seleznev was ordered three years of supervised release to run concurrently.  He was also ordered restitution in the amount of $50,893,166.35 in the Nevada case and $2,178,349 in the Georgia case.Seleznev pleaded guilty to the charges on Sept. 7. 

In connection with his guilty plea in the Nevada case, Seleznev admitted that he became associated with the organization, an identify theft and credit card fraud ring, in January 2009.  According to Seleznev’s admissions in his plea agreement, was an Internet-based, international criminal enterprise whose members trafficked in compromised credit card account data and counterfeit identifications and committed identity theft, bank fraud, and computer crimes.  Seleznev admitted that the group tried to protect the anonymity and the security of the enterprise from both rival organizations and law enforcement.  For example, members communicated through various secure and encrypted forums, such as chatrooms, private messaging systems, encrypted email, proxies and encrypted virtual private networks. Gaining membership in the group required the recommendation of two current members in good standing.

Seleznev further admitted that he sold compromised credit card account data and other personal identifying information to fellow members.  The defendant sold members such a large volume of product that he created an automated website, which he advertised on the organization’s websites.  His automated website allowed members to log into and purchase stolen credit card account data.  The defendant’s website had a simple interface that allowed members to search for the particular type of credit card information they wanted to buy, add the number of accounts they wished to purchase to their “shopping cart” and upon check out, download the purchased credit card information.  Payment of funds was automatically deducted from an established account funded through L.R., an online digital currency payment system.

Seleznev further admitted that he sold each account number for approximately $20.  The organization’s criminal activities resulted in loss to its victims of at least $50,893,166.35.

In connection with his guilty plea in the Northern District of Georgia case, Seleznev admitted that he acted as a “casher” who worked with hackers to coordinate a scheme to defraud an Atlanta-based company that processed credit and debit card transactions on behalf of financial institutions.  Seleznev admitted that pursuant to the scheme, in November 2008, hackers infiltrated the company’s computer systems and accessed 45.5 million debit card numbers, certain of which they used to fraudulently withdraw over $9.4 million from 2,100 ATMs in 280 cities around the world in less than 12 hours.

Fifty-five individuals were charged in four separate indictments in Operation Open Market, which targeted the organization. To date, 33 individuals have been convicted and the rest are either fugitives or are pending trial.

The cases were investigated by HSI, the U.S. Secret Service, and FBI.  The Nevada case was prosecuted by Trial Attorney Catherine K. Dick of the Criminal Division’s Organized Crime and Gang Section and Assistant U.S. Attorney Kimberly M. Frayn of the District of Nevada.  The Northern District of Georgia case was prosecuted by Assistant U.S. Attorney Kamal Ghali of the Northern District of Georgia.

Seleznev is also a defendant in a wire fraud and computer hacking case brought by the Department of Justice in the U.S. District Court for the Western District of Washington.  On Aug. 25, 2016, a federal jury convicted Seleznev of 38 counts related to his role in a scheme to hack into point-of-sale computers to steal and sell credit card numbers to the criminal underworld.  On April 21, Seleznev was sentenced to 27 years in prison for those crimes, which will run concurrent to his sentences today.    

December 6, 2017 in AML | Permalink | Comments (0)

Questions and Answers on the EU list of non-cooperative tax jurisdictions

Questions and Answers on the EU list of non-cooperative tax jurisdictions

Why has the EU produced a list of non-cooperative tax jurisdictions?

The new list is part of the EU's work to clamp down on tax evasion and avoidance. It will help the EU to deal more robustly with external threats to Member States' tax bases and to tackle third countries that consistently refuse to play fair on tax matters.

Up to now, Member States have had a patchwork approach to dealing with tax havens, which has had limited impact. In its External Strategy for Effective Taxation, the Commission EU Commissionsuggested that a common EU list could be a more effective way of tackling countries that encourage abusive tax practices. Member States agreed that a single EU list would hold much more weight than a medley of national lists and would have an important dissuasive effect on problematic third countries.

The EU listing process also prompts change. It creates a positive incentive for international partners to improve their tax systems where there are weaknesses in their transparency and fair tax standards. Throughout the EU listing process, many countries engaged with Member States to address the deficiencies found in their tax systems.

Finally, the common EU list will also create a clearer and fairer environment for businesses and third countries. Divergent national approaches, with different 'triggers' and criteria for listing, send mixed messages to international partners regarding the EU's good governance expectations. A single EU listing process, based on clear criteria and an open dialogue process is much easier for international partners to understand and engage with.

Why weren't EU Member States assessed for this list?

The EU list is a tool to deal with external threats to Member States' tax bases. It is also a means to promote more dialogue and cooperation with international partners on tax issues.

Within the EU, different tools are used to ensure fair and transparent taxation. For example, Member States are bound by far-reaching new transparency rules and anti-avoidance measures, thanks to the ambitious EU agenda against tax abuse. The EU also leads by example when it comes to implementing the OECD BEPS measures and international transparency standards, which are now enshrined in EU hard law.

Member States' laws have been put in conformity with these global standards over the past three years, through several pieces of legislation agreed at EU level. Thanks to these changes, the EU is now is the lead when it comes to tax standards

Besides, Member States tax regimes are also subject to a high degree of scrutiny within the EU, and are challenged if they are considered to be unfair. The Code of Conduct for Business Taxation sets out principles for fair tax competition, which all Member States abide by. The Commission has also launched state aid investigations when it suspected that Member States gave unfair tax advantages to certain companies. The European Semester process is another tool to address national tax schemes which may not be up to scratch when it comes to fair and transparent taxation. It should be noted that, when assessed against the EU list criteria, all Member States are fully compliant. 

How was the list compiled?

In May 2016, EU Finance Ministers endorsed the new listing process set out in the External Strategy, and subsequently agreed on common criteria to assess selected countries. They asked the Code of Conduct Group, the body comprising of Member State taxation experts in the Council, to manage the process and to present a first EU list by the end of 2017.

The list was compiled through a three-step process:

1: Pre-Selection: In September 2016, the Commission pre-assessed 213 countries using over 1600 different indicators. These indicators help to classify countries according to their economic ties with the EU, financial activity, legal and institutional stability, and tax good governance levels. This data was compiled in a Scoreboard, and helped Member States to decide which countries should be examined in greater detail. On the basis of the Scoreboard, Member States decided which countries to screen in more depth.

2: Screening: All jurisdictions chosen for screening were formally contacted, to explain the process and invite them to engage with the EU. Member State experts then assessed the selected jurisdictions' tax systems in-depth, using the agreed criteria. There were many contacts with the jurisdictions during the screening stage, to seek clarification, information and explanations from both sides.

3: Listing: Once the experts had finished the screening stage, they delivered their findings to the Code of Conduct Group. On that basis, a letter was sent to each jurisdiction, either confirming that they complied with the criteria, or highlighting deficiencies in their tax systems. Jurisdictions were asked to make high level commitments to address identified deficiencies within a set time period. Those that did not do so were put forward for listing.

The Code of Conduct Group drafted the first EU list, and submitted it to EU Finance Ministers to endorse at their monthly meeting. Member States also took note of the commitments made by various jurisdictions, and agreed on a general approach to sanctions for the listed countries.


Commission reviews third countries' risk levels

September 2016


Member States agree criteria for screening

November 2016


Member States assess third countries' tax systems and start dialogue

January – December 2017


Member States list countries that did not commit to addressing identified problems

5 December 2017


Continuous review of all jurisdictions. EU listupdated at least once a year.


                                                OVERVIEW OF THE SCREENING PROCESS

                                                  213  pre-assessed for the Scoreboard

                                                              92 chosen for screening

20 given all-clear

72 asked to address deficiencies

47 committed to:

Improve transparency

Stop harmful tax practices

Introduce substance requirements

Implement OECD BEPS

Hurricane Countries have more time

                                                                           17 on EU List


What criteria were used in the EU listing process to assess countries?

The EU listing criteria are in line with international standards and reflect the good governance standards that Member States comply with themselves. These are: 

  • Transparency:The country should comply with international standards on automatic exchange of information and information exchange on request. It should also have ratified the OECD's multilateral convention or signed bilateral agreements with all Member States, to facilitate this information exchange. Until June 2019, the EU only requires two out of three of the transparency criteria. After that, countries will have to meet all three transparency requirements to avoid being listed.   

  • Fair Tax Competition: The country should not have harmful tax regimes, which go against the principles of the EU's Code of Conduct or OECD's Forum on Harmful Tax Practices. Those that choose to have no or zero-rate corporate taxation should ensure that this does not encourage artificial offshore structures without real economic activity. 

  • BEPS implementation:The country must have committed to implement the OECD's Base Erosion and Profit Shifting (BEPS) minimum standards. 

Who was responsible for screening the selected jurisdictions?

The process was led by Member States. They nominated national tax experts to screen the tax systems of the selected third countries. These experts were grouped into panels, which examined the jurisdictions against the agreed criteria. The expert panels were given guidance from the Code of Conduct Group and technical support from the Commission.

Did the screened countries have a chance to present their case?

Yes. Since the very beginning of the exercise, the Commission stressed that the EU listing process must be as fair, transparent and open as possible. At each subsequent stage, high priority was given to ensuring that the relevant countries understood the process and could respond. Many bilateral and multilateral meetings were held to this end, and there was extensive correspondence between Member States and the jurisdictions concerned.

The jurisdictions were sent a formal letter when they were selected for screening in January 2017. At the end of the screening process, they received another letter, either confirming that they were compliant or asking them to make specific improvements to their tax systems. At every stage, the jurisdictions were encouraged to engage with the EU, provide any relevant information and seek any clarifications they needed. Each country had a chance to present their position, address concerns and discuss how to deepen their cooperation with the EU on tax matters. 

Why didn't Member States list every country that failed to meet the criteria?

The EU list was always intended as a last resort option – when all other efforts to engage with a third country had failed. Jurisdictions that were prepared to cooperate were not listed, so long as they gave a clear and concrete commitment to address the identified tax deficiencies.

For certain jurisdictions, specific factors needed to be taken into account. For example, 8 jurisdictions (Antigua and Barbuda, Anguilla, Bahamas, British Virgin Islands, Dominica, St Kitts and Nevis, Turks and Caicos, US Virgin Islands) that were badly hit by the hurricanes in summer 2017 have been given until early 2018 to respond to the EU's concerns. Special consideration was also given to the situation of developing countries. Least Developed Countries without financial centres were automatically excluded from the screening process, while other developing countries without financial centres were given more time to address their shortcomings. 

What positive changes can already be seen as a result of the EU listing process?

A key benefit of the EU listing process is that it re-launched discussions on tax good governance and prompted countries to improve their tax systems, in line with international standards. Many jurisdictions cooperated closely with the EU during the listing process and made firm commitments to fix problems identified in their tax systems. Many others actually improved their standards immediately, in response to the EU listing exercise. 

What is the breakdown of the commitments made by jurisdictions to improve their taxation standards?  

In total 47 countries committed to improving their transparency standards. Once fulfilled, these commitments should enhance the tax good governance environment, globally. Work must now continue to review the situation throughout 2018. 

What type of commitments did countries make in response to the EU listing process?  

Member States agreed not to list jurisdictions if they committed to address the deficiencies that were found during the screening process. These commitments had to be made at high political level (e.g. Minister of Finance), and give a clear domestic timeline for implementing the changes. The commitments related to the good governance criteria used in the listing process. 

Improve Transparency Standards

Armenia; Bosnia & Herzegovina; Botswana
Cape Verde; Hong Kong SAR; Curaçao; Fiji; Former Yugoslav Republic of Macedonia; Jamaica; Georgia; Maldives; Montenegro
Morocco; New Caledonia; Oman; Peru; Qatar; Serbia; Swaziland; Taiwan; Thailand; Turkey; Viet Nam.

Improve Fair Taxation

Andorra; Armenia; Aruba; Belize; Botswana; Cape Verde; Cook Islands; Curaçao; Fiji; Hong Kong SAR; Jordan; Labuan Island; Liechtenstein;  Malaysia; Maldives; Mauritius; Morocco; Niue; St Vincent & Grenadines; San Marino; Seychelles; Switzerland; Taiwan, Thailand, Turkey;  Uruguay; Viet Nam.

Introduce substance requirements

Bermuda; Cayman Islands; Guernsey; Isle of Man; Jersey; Vanuatu.

Commit to apply OECD BEPS measures

Albania; Armenia; Aruba; Bosnia & Herzegovina; Cape Verde; Cook Islands; Faroe Islands; Fiji; Former Yugoslav Republic of Macedonia; Greenland; Jordan; Maldives; Montenegro; Morocco; Nauru; New Caledonia; Niue; Saint Vincent & Grenadines; Serbia; Swaziland; Taiwan; Vanuatu.

Why did the EU not exclude developing countries from the EU listing process?

The specific situation of developing countries was taken fully into account throughout the EU listing process. The Commission excluded 48 Least Developed Countries from the pre-assessment, in recognition of the particular constraints they face. In addition, developing countries without financial centres have been given an extra year to meet the expected standards, when deficiencies were found in their tax systems with respect to transparency and BEPS implementation.

The Commission is very sensitive to the challenges that developing countries face in the area of taxation. The External Strategy has a whole section on supporting developing countries in fighting tax abuse and collecting domestic revenues, which builds on the Commission's “Collect More, Spend Better” strategy. This delivers on the EU's commitments under the Addis Tax Initiative, such as increased support to low income countries in improving their revenue raising capacities. The Commission and Member States have also started to examine possible effects of EU and national tax policies on developing countries, to prevent negative spill-overs and ensure greater policy coherence. 

What sanctions will apply to listed countries?

The EU list should have a real impact on the countries concerned, thanks to new EU legislative measures.

First, following Commission proposals the EU list is now linked to EU funding in the context of the European Fund for Sustainable Development (EFSD), the European Fund for Strategic Investment (EFSI) and the External Lending Mandate (ELM). Funds from these instruments cannot be channelled through entities in listed countries. Only direct investment in these countries (i.e. funding for projects on the ground) will be allowed, to preserve development and sustainability objectives.

Second, the Commission has made reference to the list in other relevant legislative proposals. For example, the public Country-by-Country reporting proposal includes stricter reporting requirements for multinationals with activities in listed jurisdictions. In the proposed transparency requirements for intermediaries, a tax scheme routed through an EU listed country will be automatically reportable to tax authorities. The Commission is also examining legislation in other policy areas, to see where further consequences for listed countries can be introduced.

In addition to the EU provisions, the Commission encouraged Member States to agree on coordinated sanctions to apply at national level against the listed jurisdictions. First steps have been taken in this direction. Member States have agreed on a set of countermeasures which they can choose to apply against the listed countries. These include measures such as increased monitoring and audits, withholding taxes, special documentation requirements and anti-abuse provisions. The Commission will support Member States' work to develop a more binding and definitive approach to sanctions for the EU list in 2018. 

Will the list be updated?  

Yes. The list will be updated at least once a year. This update will be based on the continuous monitoring of listed jurisdictions, as well as those that have made commitments to improve their tax systems. Depending on developments, Member States may also decide to screen even more countries in 2018. An interim report will be prepared by mid-2018 to assess progress made. 

From June 2019, more stringent transparency criteria come into effect, which will require a re-assessment of all jurisdictions to ensure that they are in line. The EU listing criteria will also be updated in the future, to reflect new elements that Member States agreed upon, such as transparency on beneficial ownership, as well as possible evolutions at international level. 

How can a country be de-listed by the EU? 

A country will be removed from the list once it has addressed the issues of concern for the EU and has brought its tax system fully into line with the required good governance criteria. The Code of Conduct will be responsible for updating the EU list, and recommending countries for de-listing to the Council. 

Is the EU list in line with the international agenda for tax good governance?

Yes, the EU list firmly supports the international tax good governance agenda. The EU listing criteria reflect internationally agreed standards and countries were encouraged to meet these standards to avoid being listed. The EU also took on board OECD assessments of countries' transparency standards and tax regimes, as part of the screening process. The Commission and Member States were in close and regular contact with the OECD throughout the listing process, to ensure that EU and international work in this area remained complementary and mutually reinforcing.

How is the EU list different from the list published by the OECD in July?

The OECD list focussed on countries that failed to meet international transparency standards, as requested by the G20. The EU list is based on a wider set of good governance criteria. In addition to transparency, it also covers fair taxation, adherence to BEPS standards, and the level of taxation, where this might encourage artificial structures and arrangements. As such, there was a wider scope to the EU listing process. This is in line with the broad spectrum of tax good governance standards that EU Member States themselves adhere to.

How does the new EU list compare to the "pan-EU list" published in 2015?

The new EU list is a fully coordinated EU project. It was conceived, developed and managed at EU level. The criteria and process were agreed by EU Finance Ministers at the ECOFIN Council, and Member States worked together to screen selected countries and to decide which ones to list. The final EU list was unanimously endorsed by Member States in Council.

The "pan-EU" list was simply a compilation of Member States' individual lists. The Commission published this consolidated version of national lists in June 2015, as a first step towards a more coordinated EU approach. The "pan-EU" list highlighted how diverse Member States' lists were, and the confusion this created for businesses and international partners. Many countries welcomed the idea of a single EU listing process, which would be clearer and easier to work with than a patchwork of different lists.

What is the difference between this list of non-cooperative tax jurisdictions and the EU anti-money laundering list?

The anti-money laundering (AML) list is focussed on countries with poor anti-money laundering and counter-terrorist financing regimes. It reflects the Financial Action Task Force (FATF) approach to dealing with countries that have not implemented internationally agreed anti-money laundering standards. Banks must apply higher due diligence controls to financial flows towards these listed countries.

The EU tax list targets external risks posed by countries that refuse to respect tax good governance standards. It has different objectives, different criteria, a different compilation process and different consequences to the AML list. Nonetheless, the two lists will complement each other in ensuring double protection for the Single Market against external good governance risks.

December 6, 2017 in BEPS | Permalink | Comments (0)

Tuesday, December 5, 2017

What is the Economic Activity Requirement that Offshore Financial Center's (Bermuda; Cayman Islands; Guernsey; Isle of Man; Jersey) Agreed to Adopt into Law?

Fair Tax Competition: The country should not have harmful tax regimes, which go against the principles of the EU's Code of Conduct or OECD's Forum on Harmful Tax Practices. EU CouncilThose that choose to have no or zero-rate corporate taxation should ensure that this does not encourage artificial offshore structures without real economic activity. In the context of the screening process, the Code of Conduct Group invited each jurisdiction where concerns were identified to commit to address such concerns. The large majority of jurisdictions have decided to introduce the relevant changes in their tax legislation in order to comply with the EU screening criteria.  The following jurisdictions are committed to addressing the concerns relating to economic substance by 2018: Bermuda; Cayman Islands; Guernsey; Isle of Man; Jersey; and Vanuatu.

What is "economic reality", according to BEPS?  Lot's of mention of "economic" reality and substance. but no actual definition.  Albeit the transfer pricing BEPS project defines it by defining what it is not.  Economic activity includes 'capital rich entities' but mere capital is not enough for economic substance to justify premium returns. 

"Capital-rich entities without any other relevant economic activities (“cash boxes”), and therefore unable to exercise control over investment and other risks, will not be entitled to any premium returns." 

128.   How will the BEPS Project affect “tax havens”?

The BEPS Project aims to end the use of shell companies used to stash profits offshore or unduly claim tax treaty protection and neutralise all schemes that artificially shift profits offshore. Though the BEPS Project is not about dictating whether countries should have a specific corporate income tax rate, it will have an impact on regimes that seek to attract foreign investors without requiring any economic substance.

5.       Do the BEPS measures increase the risk of double taxation?

The aim of the measures is to realign taxation with economic substance and value creation, while preventing double taxation. The BEPS package represents the first substantial renovation of the international tax rules in almost a century. This renovation is necessary not only to tackle BEPS, but also to ensure the sustainability of a consensus-based system aimed at eliminating double taxation. As new rules always raise interpretation issues, Action 14 on improving dispute resolution is a key part of the BEPS Project.

6.      Will MNEs have to restructure their business in light of the BEPS outputs?

This should not be the case for groups whose legal and tax structures reflect the underlying economic reality.

55.  What are the main revisions in transfer pricing rules?

The work has focused on strengthening the guidance on applying the arm’s length principle to ensure outcomes where profits are aligned with the value created through underlying economic activities. This work has focused on several key areas, such as:

  • Transactions involving intangibles, since misallocation of the profits generated by valuable intangibles has contributed to BEPS;
  • Contractual allocation of risks, and the resulting allocation of profits to those risks, which may not correspond with the activities actually carried out;
  • The level of returns to funding provided by a capital-rich MNE group member, where those returns do not correspond to the level of activity undertaken by the funding company;
  • Recharacterisation of transactions which are not commercially rational; and
  • Service fees and commodity transactions.

64.  How will the profits of “cash-boxes” be determined?

Capital-rich entities without any other relevant economic activities (“cash boxes”), and therefore unable to exercise control over investment and other risks, will not be entitled to any premium returns. The profits that the cash box is entitled to retain will be equivalent to no more than a risk-free financial return. Moreover, if this return qualifies as interest or an economically equivalent payment, then those already marginal profits will also be targeted by the interest deductibility rules of Action 4.

70.  What do the BEPS Indicators show?

A "dashboard of BEPS indicators” highlights BEPS behaviours using different data sources, employing different metrics, and examining different BEPS channels. The six indicators provide indirect measures of BEPS and are designed to be used to track changes in BEPS over time and in the future to monitor the effectiveness of BEPS measures adopted by individual countries. The indicators show the disconnect between financial and real economic activities, profit rate differentials within top global MNEs, tax rate differentials between MNEs and comparable non-MNEs and profit shifting through intangibles and interest.  No single indicator is capable of providing a complete picture of BEPS, but when taken together, these BEPS indicators give a strong indication of the existence of BEPS and the likelihood that it has been increasing over time. These indicators are complemented by the more than one hundred academic empirical analyses that also find evidence of BEPS.

126.   Is the BEPS Project meant to stop tax competition?

Taxation is at the core of countries’ sovereignty, and each country is free to set up its corporate tax system as it chooses, including charging the rate it chooses.  The work is not aimed at restricting the sovereignty of countries over their own taxes; instead, it is aimed at restoring and strengthening sovereign taxing rights by ensuring that countries can tax the profits arising from the economic activities undertaken there. The project achieves this in a number of ways such as by addressing regimes that apply to mobile activities and that unfairly erode the tax bases of other countries, potentially distorting the location of capital and services.

128.   How will the BEPS Project affect “tax havens”?

The BEPS Project aims to end the use of shell companies used to stash profits offshore or unduly claim tax treaty protection and neutralise all schemes that artificially shift profits offshore. Though the BEPS Project is not about dictating whether countries should have a specific corporate income tax rate, it will have an impact on regimes that seek to attract foreign investors without requiring any economic substance.

December 5, 2017 | Permalink | Comments (0)

EU publishes list of non-cooperative tax jurisdictions

The first ever EU list of non-cooperative tax jurisdictions has been agreed today by the Finance Ministers of EU Member States during their meeting in Brussels.

In total, ministers have listed 17 countries for failing to meet agreed tax good governance standards. In addition, 47 countries have committed to addressing deficiencies in their tax EU Commissionsystems and to meet the required criteria, following contacts with the EU.   Download 17 countries

Download Eu_list_factsheet_en

This unprecedented exercise should raise the level of tax good governance globally and help prevent the large-scale tax abuse exposed in recent scandals such as the "Paradise Papers".

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: "The adoption of the first ever EU blacklist of tax havens marks a key victory for transparency and fairness. But the process does not stop here. We must intensify the pressure on listed countries to change their ways. Blacklisted jurisdictions must face consequences in the form of dissuasive sanctions, while those that have made commitments must follow up on them quickly and credibly. There must be no naivety: promises must be turned into actions. No one must get a free pass."

The idea of an EU list was originally conceived by the Commission and subsequently taken forward by Member States. Compilation of the list has prompted active engagement from many of the EU's international partners. However, work must now continue as 47 more countries should meet EU criteria by the end of 2018, or 2019 for developing countries without financial centres, to avoid being listed. The Commission also expects Member States to continue towards strong and dissuasive countermeasures for listed jurisdictions which can complement the existing EU-level defensive measures related to funding.

Next Steps

The EU listing process is a dynamic one, which will continue into 2018:

  • As a first step, a letter will be sent to all jurisdictions on the EU list, explaining the decision and what they can do to be de-listed.
  • The Commission and Member States (in the Code of Conduct Group) will continue to monitor all jurisdictions closely, to ensure that commitments are fulfilled and to determine whether any other countries should be listed in the future. A first interim progress report should be published by mid-2018. The EU list will be updated at least once a year.

December 5, 2017 in BEPS | Permalink | Comments (0)

FinCEN Issues $8 Million Penalty on California Card Club for Willful Violation of Anti-Money Laundering Controls

Artichoke Joe’s Casino Turned a Blind Eye to Loan Sharking, Suspicious High-Value Chip Transfers, and Flagrant Criminal Activity for Years

The Financial Crimes Enforcement Network (FinCEN) announced an $8 million civil money penalty against Artichoke Joe’s, a California corporation, doing business as Artichoke FINCEN 2Joe’s Casino (AJC). AJC, one of the largest card clubs in California, willfully violated U.S. anti-money laundering (AML) laws from October 2009 to November 2017. During this 8-year period, AJC failed to implement and maintain an effective AML program, and failed to detect, deter, and timely report many suspicious transactions.

“For years, Artichoke Joe’s turned a blind eye to loan sharking, suspicious transfers of high-value gaming chips, and flagrant criminal activity that occurred in plain sight.  FinCEN’s $8 million civil penalty results from the card club’s failure to establish adequate internal controls and its willful violations of the Bank Secrecy Act,” said Jamal El-Hindi, Acting Director of FinCEN. “Casinos, card clubs and others in the gaming industry should consider their risk of exploitation by criminal elements, and understand that they will be held accountable if they disregard anti-money laundering and illicit finance laws.  This significant action highlights the need for all entities, including those in the gaming industry, to build a robust culture of compliance into their policies and procedures to ensure they are not facilitating illicit activities.”

AJC, a card club located in San Bruno, California, has been in operation since 1916. In March 2011, AJC was the subject of a raid by state and Federal law enforcement which led to the racketeering indictment and conviction of two AJC customers for loan-sharking and other illicit activities conducted at AJC. AJC senior-level employees knew that loan-sharks were conducting criminal activity through the card club and using AJC gaming chips to facilitate illegal transactions. Nonetheless, AJC failed to file any Suspicious Activity Reports (SARs) on this activity. For example, there were several instances in which loan-sharks provided AJC chips to customers on the gaming floor within plain sight of AJC employees.

AJC also failed to implement adequate internal controls, which exposed the card club to a heightened risk of money laundering and other criminal activity.  In particular, AJC failed to adopt adequate policies and procedures to address risks associated with gaming practices that allow customers to pool or co-mingle their bets with relative anonymity. Further, AJC did not establish procedures for obtaining and incorporating information from propositional players (players paid by casinos or card clubs to wager at a game) or other employees who may have observed suspicious transactions. AJC also failed to file complete and timely reports on suspicious transactions involving potentially structured chip redemptions and purchases, and redemptions of large volumes of chips with no cash-in or gaming activity. FinCEN’s Assessment of $8 million recognizes the duration and severity of AJC’s violations, the size and sophistication of the card club, AJC’s awareness of criminal activity on its premises, and its deficient culture of compliance.

Acting Director El-Hindi expressed his appreciation to the Internal Revenue Service Small Business/Self-Employed Division, the Federal Bureau of Investigation, the State of California Department of Justice’s Bureau of Gambling Control, and the U.S. Attorney’s Office for the Northern District of California for their support and strong partnerships with FinCEN. This is the third enforcement action against a card club for FinCEN, the only Federal regulator with AML enforcement authority over card clubs.

For analysis of FinCEN decisions, see  Money Laundering, Asset Forfeiture and Recovery, and Compliance- A Global Guide (LexisNexis Matthew Bender updated quarterly), an eBook designed to provide the compliance officer, BSA counsel, and government agent with accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources.  Special topic chapters will assist the compliance officer design and maintain effective risk management programs.  Over 100 country and topic experts from financial institutions, government agencies, law, audit and risk management firms have contributed analysis to develop this practical compliance guide.

December 5, 2017 in AML | Permalink | Comments (0)

Monday, December 4, 2017

FinCEN Further Restricts North Korea’s Access to the U.S. Financial System and Warns U.S. Financial Institutions of North Korean Schemes

The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a final rule under Section 311 of the USA PATRIOT Act that severs Bank of FINCEN 2Dandong, a Chinese bank that acts as a conduit for illicit North Korean financial activity, from the U.S. financial system.  FinCEN also issued today an advisory to further alert financial institutions to schemes commonly used by North Korea to evade U.S. and United Nations (UN) sanctions, launder funds, and finance the North Korean regime’s weapons programs. 

“Today’s actions will better protect the U.S. financial system from illicit schemes used by North Korea to evade sanctions and finance its weapons programs,” said Treasury Secretary Steven T. Mnuchin.  “Banks and businesses worldwide should take note that they must be vigilant against attempts by North Korea to conduct illicit financing and trade.”

Section 311 Action against Bank of Dandong   

On June 29, 2017, FinCEN found Bank of Dandong to be of “primary money laundering concern” for serving as a gateway for North Korea to access the U.S. and international financial systems despite U.S. and UN sanctions.  As described in the Notice of Proposed Rulemaking (NPRM), Bank of Dandong acts as a conduit for North Korea to access the U.S. and international financial systems, including by facilitating millions of dollars of transactions for companies involved in North Korea’s weapons of mass destruction (WMD) and ballistic missile programs.  Bank of Dandong also facilitates financial activity for North Korean entities designated by the United States and listed by the UN for proliferation of WMDs, as well as for front companies acting on their behalf. 

Today, FinCEN finalized this rulemaking by imposing a prohibition on U.S. financial institutions from opening or maintaining correspondent accounts for, or on behalf of, Bank of Dandong.   Restricting Bank of Dandong from accessing the U.S. financial system—directly or indirectly—helps protect the U.S. financial system from the illicit finance risks posed by Bank of Dandong and serves as an additional measure to prevent North Korea from accessing the U.S. financial system.

Advisory on North Korean Sanctions Evasion Schemes 

FinCEN also issued today an advisory that provides red flags of illicit North Korean schemes, including the use of financial representatives, front and shell companies, trading companies, and financial institutions operating in areas bordering North Korea.  The red flags are designed to assist financial institutions in identifying and reporting suspected illicit activity by North Korea and its financial institutions. 

The final rule, as submitted to the Federal Register, is available here.

The June 29, 2017 NPRM is available here.

The Advisory to financial institutions is available here.

December 4, 2017 in AML | Permalink | Comments (0)

Sunday, December 3, 2017

Gross Domestic Product: Third Quarter 2017

Real gross domestic product (GDP) increased at an annual rate of 3.3 percent in the third quarter of 2017 (table 1), according to the "second" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 3.1 percent. The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 3.0 percent. With this second estimate for the third quarter, the general picture of economic growth remains the same; nonresidential fixed investment, state and local government spending, and private inventory investment were revised up from the prior estimate.

Real GDP: Percent Change from Preceding Quarter
Real gross domestic income (GDI) increased 2.5 percent in the third quarter, compared with an increase
of 2.3 percent (revised) in the second. The average of real GDP and real GDI, a supplemental measure of
U.S. economic activity that equally weights GDP and GDI, increased 2.9 percent in the third quarter,
compared with an increase of 2.7 percent in the second quarter (table 1).

The increase in real GDP in the third quarter reflected positive contributions from PCE, private inventory
investment, nonresidential fixed investment, and exports that were partly offset by a negative
contribution from residential fixed investment. Imports, which are a subtraction in the calculation of
GDP, decreased (table 2).

The acceleration in real GDP in the third quarter reflected an acceleration in private inventory
investment, a downturn in imports, and smaller decreases in state and local government spending and
in residential fixed investment that were partly offset by decelerations in PCE, in nonresidential fixed
investment, and in exports.

Current-dollar GDP increased 5.5 percent, or $259.0 billion, in the third quarter to a level of $19,509.0
billion. In the second quarter, current-dollar GDP increased 4.1 percent, or $192.3 billion (table 1 and
table 3).

The price index for gross domestic purchases increased 1.8 percent in the third quarter, compared with
an increase of 0.9 percent in the second quarter (table 4). The PCE price index increased 1.5 percent,
compared with an increase of 0.3 percent. Excluding food and energy prices, the PCE price index
increased 1.4 percent, compared with an increase of 0.9 percent (appendix table A).

Updates to GDP

The percent change in real GDP was revised up from the advance estimate, reflecting upward revisions
to nonresidential fixed investment, state and local government spending, and private inventory
investment. For more information, see the Technical Note. A detailed "Key Source Data and
Assumptions" file is also posted for each release.  For information on updates to GDP, see the
“Additional Information” section that follows.

                                               Advance Estimate      Second Estimate

                                              (Percent change from preceding quarter)
Real GDP                                             3.0                  3.3
Current-dollar GDP                                   5.2                  5.5
Real GDI                                              …                   2.5
Average of Real GDP and Real GDI                      …                   2.9
Gross domestic purchases price index                 1.8                  1.8
PCE price index                                      1.5                  1.5

For the second quarter of 2017, the percent change in real GDI was revised from 2.9  percent to 2.3
percent based on newly available second-quarter tabulations from the BLS Quarterly Census of
Employment and Wages program.

Corporate Profits (table 12)

Profits from current production (corporate profits with inventory valuation adjustment and capital
consumption adjustment) increased $91.6 billion in the third quarter, compared with an increase of
$14.4 billion in the second quarter.

Profits of domestic financial corporations increased $60.6 billion in the third quarter, in contrast to a
decrease of $33.8 billion in the second quarter. Profits of domestic nonfinancial corporations increased
$12.5 billion, compared with an increase of $59.1 billion. Rest-of-the-world profits increased $18.6
billion, in contrast to a decrease of $10.8 billion. In the third quarter, receipts increased $23.1 billion,
and payments increased $4.6 billion.


December 3, 2017 in Economics | Permalink | Comments (0)

Saturday, December 2, 2017

Deputy Attorney General Rosenstein Delivers Remarks at the 34th International Conference on the Foreign Corrupt Practices Act

Deputy Attorney General Speech of November 29, 2017
Corporate Enforcement Policy (USAM 9-47.120)

Good morning and thank you, Sandra for that thoughtful and brief introduction. 

It is a pleasure for me to be here with so many compliance officers, lawyers, auditors, and corporate executives for ACI’s 34th annual conference on the Foreign Corrupt Practices Act. 

I must admit that I was amused by a marketing blurb for this event.  It promised that the audience would hear from “anti-corruption” leaders and other “highly respected” experts. 

Then, it noted that you also would hear from government officials.  I hope those categories are not mutually exclusive!   

As a matter of fact, the experts you will hear from include some of the federal government’s leading fraud prosecutors and investigators. I am proud to work with them.

This year, we mark four decades since Congress enacted the FCPA.  It was the first effort by any country in the world to make it a crime to pay bribes to foreign officials. 

There was a time in the 1960s and ’70s when paying bribes was viewed as a necessary part of doing business abroad.  Some American companies were unapologetic about making corrupt payments. 

Corruption was rife in many parts of the world.  There were European countries that allowed companies to deduct bribes on their corporate tax returns, as business expenses. 

In 1976, the U.S. Senate Banking Committee revealed that hundreds of U.S. companies had made corrupt foreign payments. The payments totaled hundreds of millions of dollars. 

The Committee concluded that there was a need for anti-bribery legislation.  Its report reasoned that “[c]orporate bribery is bad business” and “fundamentally destructive” in a free market society.

Paying bribes may still be common in some places.  But that does not make it right.  As Thomas Jefferson famously said: “On matters of style, swim with the current.  On matters of principle, stand like a rock.”  

Some people refer to me as a career prosecutor, but I studied management, marketing, and finance at an undergraduate business school.  I expected to put those skills to use in corporate America.  Law enforcement took me in a different direction, but understanding the business world remains valuable to my work.

One of the lessons I learned in business school is that ethical conduct is a good investment. Companies sometimes gain a short-term advantage over competitors by cutting corners, but in the long run, companies with a culture of integrity usually prevail in the marketplace.

Good people want to work for honest businesses. Investors trust them.  Customers like to do business with them.

I visited the nation of Armenia in 1994, just as it was emerging from seven decades of Soviet domination. I gave a talk about public corruption at the University of Yerevan, the oldest university in the country. After I finished, a student raised his hand with a question. He asked me, “If you cannot pay bribes in America, how do you get electricity?”

It was a pragmatic question that illustrated how that young man had learned to think about his society.  Corruption may start small, but it has a tendency to spread like an infection.  It stifles innovation, fuels inefficiency, and inculcates distrust of government.

I offer those thoughts in the spirit of the open dialogue of this conference.  But it is not for the Department of Justice to say whether the FCPA reflects sound policymaking.  The United States Congress made that judgment.  Our mission is to detect, deter, and punish violations of the laws of the United States. 

The Attorney General and I have been faithful to that principle.  We plan to continue to emphasize it as an essential step in promoting respect for the rule of law. 

The FCPA is the law of the land.  We will enforce it against both foreign and domestic companies that avail themselves of the privileges of the American marketplace. 

The United States plays a central role in the worldwide fight against corruption, and we serve as a role model.  Following our lead, many other countries have joined America by implementing their own anti-corruption laws.  Those laws do not just encourage good business.  They promote good government.

The Organization for Economic Co-operation and Development adopted an Anti-Bribery Convention in 1997.  That convention fuels the growing international rejection of corruption.

Forty-three nations participate in the OECD Anti-Bribery Convention.  The agreement establishes legally binding standards.  Member countries are required to adopt laws that criminalize bribery of foreign public officials in international business transactions.  Just a few months ago, a new country, Costa Rica, ratified the convention.

These forty-three nations recognize the importance of a level playing field that protects citizens and honest businesses. 

Earlier this year, Attorney General Sessions spoke about the harmful consequences of corruption.  It leads to increased prices, substandard products and services, and reduced investment. 

It is no coincidence that crime syndicates and authoritarian rulers use corruption to enrich themselves.  They engage in corruption to consolidate political power and defeat legitimate political adversaries.  

Working together with international partners, we are making headway in combatting corruption. Federal prosecutors in our Criminal Division’s Fraud Section, together with Assistant U.S. Attorneys and law enforcement partners, continue to secure convictions in important FCPA-related cases.

Recently, the FCPA Unit worked with the U.S. Attorney’s Office for the Southern District of New York to obtain a trial conviction against a former Guinean Minister of Mines, for laundering proceeds from $8 million in bribes. 

The FCPA Unit and the U.S. Attorney’s Office for the Southern District of New York secured another trial victory against a Chinese billionaire for bribing United Nations officials. 

In a third case, FCPA prosecutors worked with Assistant U.S. Attorneys in the Central District of California, and prevailed at trial against a South Korean earthquake research center director who laundered the bribery proceeds in the United States. 

In total, 19 individuals have pleaded guilty or been convicted in FCPA-related cases so far this year. 

The Department of Justice announced another significant case earlier this month.  Two former executives of Rolls‑Royce and its subsidiaries, along with a former employee and a consultant, all pleaded guilty to conspiracy in connection with a scheme to bribe foreign officials.

That results reflects tremendous work by the FCPA Unit, Assistant U.S. Attorneys for the Southern District of Ohio, U.S. Postal Inspectors, and the FBI, as well as cooperation with law enforcement authorities in the United Kingdom, Brazil, Austria, Germany, the Netherlands, Singapore, and Turkey.  We look forward to continuing to work with our international partners.

Those cases and others like them reinforce the Department’s commitment to hold individuals accountable for criminal activity. 

Effective deterrence of corporate corruption requires prosecution of culpable individuals.  We should not just announce large corporate fines and celebrate penalizing shareholders.

Most American companies are serious about engaging in lawful business practices.  Those companies want to do the right thing. They need our support to protect them from criminals who seek unfair advantages.

Law enforcement agencies prosecute criminal wrongdoing only after it occurs.  Those prosecutions achieve deterrence indirectly.  But a company with a robust compliance program can prevent corruption and reduce the need for enforcement. 

That frees agents and prosecutors to focus on people who are committing other financial crimes.  It also allows them to focus on different threats to the American people, including terrorism, gang violence, drug trafficking, child exploitation, and human smuggling.  People who commit those horrendous crimes do not make voluntary disclosures.    

Threats to American safety and security will grow more complex over time.  We need corporate America to help us detect and fight those threats.

As Attorney General Jeff Sessions explained, “Societies where the rule of law is treasured … tend to flourish and succeed. Societies where the rule of law is subject to political whims and personal biases tend to become … afflicted by corruption, poverty, and human suffering.”

The most fundamental mission of the Department of Justice is to protect the American people by enforcing the rule of law.

The rule of law is good for business. It allows businesses to compete for work, enter contracts, make investments, and project revenue with some assurance about the future.  It establishes a mechanism to resolve disputes, and it provides a degree of protection from arbitrary government action.

Corporate America should regard law enforcement as an ally.  We support the rule of law, which establishes and safeguards a vibrant economic marketplace for your products and services.

The government should provide incentives for companies to engage in ethical corporate behavior.  That means fully cooperating with government investigations, and doing what is necessary to remediate misconduct – including implementing a robust compliance program.  Good corporate behavior also means notifying law enforcement about wrongdoing.  

The incentive system set forth in the Department’s FCPA Pilot Program motivates and rewards companies that want to do the right thing and voluntarily disclose misconduct. 

In the first year of the Pilot Program, the FCPA Unit received 22 voluntary disclosures, compared to 13 during the previous year.  In total, during the year and a half that the Pilot Program was in effect, the FCPA Unit received 30 voluntary disclosures, compared to 18 during the previous 18‑month period. 

We analyzed the Pilot Program and concluded that it proved to be a step forward in fighting corporate crime.  We also determined that there were opportunities for improvement.

So today, I am announcing a revised FCPA Corporate Enforcement Policy. 

The new policy enables the Department to efficiently identify and punish criminal conduct, and it provides guidance and greater certainty for companies struggling with the question of whether to make voluntary disclosures of wrongdoing. 

Before I speak about the substance of the policy, let me digress for a moment to make a process point.

I know that previous corporate fraud policies often were identified by the name of the Deputy Attorney General who wrote the memo.  It is nice to be remembered. But one of my goals is not to be remembered for writing a memo.

After spending nearly three decades trying to keep track of prolix memos, I want the Department to issue concise policy statements.  Historical background and commentary should go in a cover memo or a press release.  In most instances, the substance of a policy should be in the United States Attorneys’ Manual, and it should be readily understood and easily applied by busy prosecutors.

So, the FCPA Corporate Enforcement Policy I am announcing today will be incorporated into the United States Attorneys’ Manual.

We expect the new policy to reassure corporations that want to do the right thing.  It will increase the volume of voluntary disclosures, and enhance our ability to identify and punish culpable individuals. 

The new policy, like the rest of the Department’s internal operating policies, creates no private rights and is not enforceable in court.  But it does promote consistency by attorneys throughout the Department.

Establishing internal policies helps guide our exercise of discretion and combat the perception that prosecutors act in an arbitrary manner.

The new policy does not provide a guarantee.  We cannot eliminate all uncertainty.  Preserving a measure of prosecutorial discretion is central to ensuring the exercise of justice. 

But with this new policy, we strike the balance in favor of greater clarity about our decision-making process.

The advantage of the policy for businesses is to provide transparency about the benefits available if they satisfy the requirements.  We want corporate officers and board members to better understand the costs and benefits of cooperation.  The policy therefore specifies what we mean by voluntary disclosure, full cooperation, and timely and appropriate remediation.

Even if a company does not make a voluntary disclosure, benefits are still available for cooperation and remediation.  Those steps assist the Department in running an efficient investigation that identifies culpable individuals.  They also reduce the likelihood that crimes will be committed again.    

I want to highlight a few of the policy’s enhancements. 

First, the FCPA Corporate Enforcement Policy states that when a company satisfies the standards of voluntary self-disclosure, full cooperation, and timely and appropriate remediation, there will be a presumption that the Department will resolve the company’s case through a declination.  That presumption may be overcome only if there are aggravating circumstances related to the nature and seriousness of the offense, or if the offender is a criminal recidivist.

It makes sense to treat corporations differently than individuals, because corporate liability is vicarious; it is only derivative of individual liability.

Second, if a company voluntarily discloses wrongdoing and satisfies all other requirements, but aggravating circumstances compel an enforcement action, the Department will recommend a 50% reduction off the low end of the Sentencing Guidelines fine range.  Here again, criminal recidivists may not be eligible for such credit.  We want to provide an incentive for good conduct.  And scrutiny of repeat visitors.

Third, the Policy provides details about how the Department evaluates an appropriate compliance program, which will vary depending on the size and resources of a business. 

The Policy therefore specifies some of the hallmarks of an effective compliance and ethics program.  Examples include fostering a culture of compliance; dedicating sufficient resources to compliance activities; and ensuring that experienced compliance personnel have appropriate access to management and to the board. 

We expect that these adjustments, along with adding the FCPA Corporate Enforcement Policy to the U.S. Attorneys’ Manual, will incentivize responsible corporate behavior and reduce cynicism about enforcement.         

Of course, companies are free to choose not to comply with the FCPA Corporate Enforcement Policy.  A company needs to adhere to the policy only if it wants the Department’s prosecutors to follow the policy’s guidelines. 

Companies that violate the FCPA are always free to choose a different path.  In those instances, if crimes come to our attention through whistleblowers or other means, the Department will take appropriate action consistent with the facts, the law, and the Principles of Federal Prosecution of Business Organizations. 

Since 2016, the Fraud Section’s FCPA Unit has secured criminal resolutions in 17 FCPA-related corporate cases, resulting in penalties and forfeiture to the Department in excess of $1.6 billion.  Of those 17 corporate criminal resolutions, only two were voluntary disclosures under the Pilot Program. 

Significantly, each of the two voluntary disclosure cases was resolved through a non-prosecution agreement, and in neither case did we impose a compliance monitor. 

Of the 15 corporate resolutions that were not voluntary disclosures, all but three were resolved through guilty pleas, deferred prosecution agreements, or some combination of the two.  In ten of those cases, the company was required to engage an independent compliance monitor.   

Over that same time period, seven additional matters that came to our attention through voluntary disclosures were resolved under the Pilot Program through declinations with the payment of disgorgement. Clearly, this is not immunity. 

Allow me to conclude with the observation that corrupt government officials and criminals who bribe them learn from the cases we bring and the investigative techniques we use. 

Criminals try to evade law enforcement.  But they also need to evade internal controls and compliance programs, if those internal controls and programs exist.  Honest companies pose a meaningful deterrent to corruption.

Companies can protect themselves by exercising caution in choosing their business associates and by ensuring appropriate oversight of their activities.

There is an ancient proverb that counsels, “If you want to know a person’s character, consider his friends.” 

My advice is to make sure that you can stand proudly with the company you keep.

Thank you very much.

December 2, 2017 in AML | Permalink | Comments (0)

Friday, December 1, 2017

Will FATCA Be Repealed Today? Senate to Vote This Evening.

On Friday, December 1, 2017, the Senate will vote on whether to repeal chapter 4 of the Internal Revenue Code (IRC), also known as FATCA, or whether to continue to it.  The vote will be broadcast live on C Span here.  All amendments are listed here with the respective vote.

Senator Rand Paul and Senator Wicker have submitted Senate Amendment 1623 to repeal FATCA as part of the Senate Tax Bill to be voted on as a package late Friday night.
The supporting documents for analysis and scoring cite to the academic research of Professor William Byrnes of Texas A&M University School of Law as published in several articles on SSRN.


Summary of analysis IRS data by William Byrnes of Texas A&M University School of Law;; O: (817) 212-3969; M: (786) 271-5202.


Through October 2016, 55,800 taxpayers have come into the OVDP (Overseas Voluntary Departure Program) to resolve their tax obligations, paying more than $9.9B in combined taxes, interest and primarily FBAR (Report of Foreign Bank and Financial Accounts) penalties since 2009. In addition, another 48,000 taxpayers have made use of separate streamlined procedures to correct prior non-willful omissions and meet their federal tax obligations, paying approximately $450M in combined taxes, interest and penalties. (See: “Offshore Voluntary Compliance Efforts Top $10 Billion; More Than 100,000 Taxpayers Come Back into Compliance”; IR-2016-137, Oct. 21, 2016; ) However, this is the yield for all payments (interest and penalties, not just taxes) and from all overseas recovery programs (not just FATCA). To isolate tax revenues recovered solely due to FATCA, Byrnes notes that streamlined procedures are only producing a revenue from three years of tax filings, interest and penalties of $9,375 per taxpayer. This indicates that the portion of the combined tax payments attributable solely to FATCA from income that would not otherwise have been reported from taxpayers who would not have been in compliance absent FATCA is a fraction of the OVDP, less than $300M and probably more realistically in the range of $100-200M and falling over time.

IRS Costs:

In its budget request for 2017, the IRS requested a half-billion dollar budget increase, of which more than 20 percent is for an increase of $126,739,000 to  fund 273 FTE (full time employee) positions solely for FATCA activities under the heading “Theme 2: Understand non-compliant taxpayer behavior and develop approaches to deter and change it.” The increase (the equivalent of $460,000 per FTE requested) is targeted to “updates to the legacy electronic filing system to modify and process FATCA forms, add additional capabilities in the webbased registration system, and enhance functionality in the systems that facilitate the exchange and processing of FATCA data to and from withholding agents, Foreign Financial Institutions (FFIs) and Host Country Tax Authorities and the United States.” Translated into normal English, this means contending with a flood of data in foreign formats, the overwhelming bulk of which has no tax enforcement value.  The $127M increase is above existing spending on personnel and systems, which is not broken out specifically for FATCA. Given the size of the 2017 increase, a base of least $75M for FATCA activities is a conservative estimate of legacy annual FATCA spending, with the new projected total in the range of $200M, perhaps as high as $250M. This is only IRS costs and does not include damage to U.S. geopolitical interests through the forcing of FATCA and “intergovernmental agreements” upon foreign governments, with the industry costs associated therefrom more than $100 billion. 

SA 1623. Mr. PAUL (for himself and Mr. Wicker) submitted an amendment intended to be proposed to amendment SA 1618 proposed by Mr. Hatch (for himself and Ms. Murkowski) and intended to be proposed to the bill H.R. 1, to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018; which was ordered to lie on the table; as follows:


(a) In General.--Chapter 4 is repealed.

(b) Conforming Amendments for Rules for Electronically Filed Returns.--Section 6011(e)(4) is amended-- (1) by inserting ``, as in effect on January 1, 2017'' after ``(as defined in section 1471(d)(5)'', and (2) by striking ``or 1474(a)''. (c) Conforming Amendment Related to Substitute Dividends.-- Section 871(m) is amended by striking ``chapters 3 and 4'' both places it appears and inserting ``chapter 3''. (d) Other Conforming Amendments.-- (1) Section 6414 s amended by striking ``or 4''. (2) Paragraph (1) of section 6501(b) is amended by striking ``4,''. (3) Paragraph (2) of section 6501(b) is amended-- (A) by striking ``4,'', and (B) by striking ``and witholding taxes'' in the heading and inserting ``taxes and tax imposed by chapter 3''. (4) Paragraph (3) of section 6513(b) is amended-- (A) by striking ``or 4'', and (B) by striking ``or 1474(b)''. (5) Section 6513(c) is amended by striking ``4,''. (6) Section 6611(e)(4) is amended by striking ``or 4''. (7) Paragraph (1) of section 6724(d) is amended by striking ``under chapter 4 or''. (8) Paragraph (2) of section 6724(d) is amended by striking ``or 4''. (e) Effective Date.--The amendments made by this section shall apply to payments made after the date of the enactment of this Act.

SEC. 14602. REPEAL OF INFORMATION REPORTING WITH RESPECT TO FOREIGN FINANCIAL ASSETS. (a) In General.--Subpart A of part III of subchapter A of chapter 61 is amended by striking section 6038D. (b) Repeal of Modification of Statute of Limitations for Significant Omission of Income in Connection With Foreign Assets.-- (1) Paragraph (1) of section 6501(e) is amended by striking subparagraph (A) and by redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively. (2) Subparagraph (A) of section 6501(e), as redesignated by paragraph (1), is amended by striking all that precedes clause (i) and inserting the following: ``(A) General rule.--If the taxpayer omits from gross income an amount properly included therein which is in excess of 25 percent of the amount of gross income stated in the return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within 6 years after the return was filed. For purposes of this subparagraph--''. [[Page S7469]] (3) Paragraph (2) of section 6229(c) is amended by striking ``and such amount is described in clause (i) or (ii) of section 6501(e)(1)(A)'' and inserting ``which is in excess of 25 percent of the amount of gross income stated in its return''. (4) Paragraph (8) of section 6501(c) is amended-- (A) by striking ``pursuant to an election under section 1295(b) or'', (B) by striking ``1298(f)'', and (C) by striking ``6038D,''. (c) Clerical Amendment.--The table of sections for subpart A of part III of subchapter A of chapter 61 is amended by striking the item related to section 6038D. (d) Effective Date.-- (1) In general.--Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act. (2) Returns.--The amendments made by subsection (b) shall apply to returns filed after the date of the enactment of this Act.

SEC. 14603. REPEAL OF PENALTIES FOR UNDERPAYMENTS ATTRIBUTABLE TO UNDISCLOSED FOREIGN FINANCIAL ASSETS. (a) In General.--Section 6662 is amended-- (1) in subsection (b), by striking paragraph (7) and redesignating paragraph (8) as paragraph (7), and (2) by striking subsection (j) and redesignating subsection (k) as subsection (j). (b) Effective Date.--The amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act.

SEC. 14604. REPEAL OF REPORTING OF ACTIVITIES WITH RESPECT TO PASSIVE FOREIGN INVESTMENT COMPANIES. (a) In General.--Section 1298 is amended by striking subsection (f) and by redesignating subsection (g) as subsection (f). (b) Conforming Amendment.--Section 1291(e) is amended by striking ``and (d)'' and inserting ``, (d), and (f)''. (c) Effective Date.--The amendments made by this section shall take effect on the date of the enactment of this Act.

SEC. 14605. REPEAL OF REPORTING REQUIREMENT FOR UNITED STATES OWNERS OF FOREIGN TRUSTS. (a) In General.--Paragraph (1) of section 6048(b) is amended by striking ``shall submit such information as the Secretary may prescribe with respect to such trust for such year and''. (b) Effective Date.--The amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act.

SEC. 14606. REPEAL OF MINIMUM PENALTY WITH RESPECT TO FAILURE TO REPORT ON CERTAIN FOREIGN TRUSTS. (a) In General.--Section 6677(a) is amended-- (1) by striking ``the greater of $10,000 or'', and (2) by striking the last sentence and inserting the following: ``In no event shall the penalty under this subsection with respect to any failure exceed the gross reportable amount.''. (b) Effective Date.--The amendments made by this section shall apply to notices and returns required to be filed after the date of the enactment of this Act.


December 1, 2017 in GATCA | Permalink | Comments (0)

President Termer of Brazil Back in Limelight of Petrobras Corruption Scandal?

Reuters reports that the Petrobras investigation is again closing in President Termer of Brazil following revelations of a separate alleged scheme involving Transpetro and President Michel Temer’s Brazilian Democracy Movement Party (PMDB).   The president has twice received Congressional votes in favor of his immunity from prosecution while he serves in government. Read the Reuters report here.

In September, a Brazilian prosecutor charged six current and former PMDB senators of unduly receiving 864 million reais in bribes, generating losses of 5.5 billion reais at Petrobras and 113 million reais at the Transpetro subsidiary.

December 1, 2017 in AML | Permalink | Comments (0)