Friday, January 20, 2017
Forbes reports that "Kroll issued its report on February 6, 2015. Based on an inspection of admissions records over six years, the researchers concluded that there had in fact been favoritism by president Powers towards well-connected Texans who wanted their children to get into UT as undergraduates or into its law and business schools."
"Watchdog’s Jon Cassidy calculated that 746 students (not 73 as Kroll had said) with grades and scores that would otherwise merit prompt rejection were admitted to keep legislators and wealthy university supporters happy."
Read the investigative story here. (Wonder if these under-qualified matriculants were reported to US News for ranking purposes?)
Thursday, January 19, 2017
Credit Suisse Agrees to Pay $5.28 Billion in Connection with its Sale of Residential Mortgage-Backed Securities
The Justice Department announced today a $5.28 billion settlement with Credit Suisse related to Credit Suisse’s conduct in the packaging, securitization, issuance, marketing and sale of residential mortgage-backed securities (RMBS) between 2005 and 2007. The resolution announced today requires Credit Suisse to pay $2.48 billion as a civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). It also requires the bank to provide $2.8 billion in other relief, including relief to underwater homeowners, distressed borrowers and affected communities, in the form of loan forgiveness and financing for affordable housing. Investors, including federally-insured financial institutions, suffered billions of dollars in losses from investing in RMBS issued and underwritten by Credit Suisse between 2005 and 2007.
“Today’s settlement underscores that the Department of Justice will hold accountable the institutions responsible for the financial crisis of 2008,” said Attorney General Loretta E. Lynch. “Credit Suisse made false and irresponsible representations about residential mortgage-backed securities, which resulted in the loss of billions of dollars of wealth and took a painful toll on the lives of ordinary Americans. Under the terms of this settlement, Credit Suisse will pay $2.48 billion as a fine for its conduct. And Credit Suisse has pledged $2.8 billion in relief to struggling homeowners, borrowers, and communities affected by the bank’s lending practices. These sums reflect the huge breach of public trust committed by financial institutions like Credit Suisse.”
“Credit Suisse claimed its mortgage backed securities were sound, but in the settlement announced today the bank concedes that it knew it was peddling investments containing loans that were likely to fail,” said Principal Deputy Associate Attorney General Bill Baer. “That behavior is unacceptable. Today's $5.3 billion resolution is another step towards holding financial institutions accountable for misleading investors and the American public.”
“Resolutions like the one announced today confirm that the financial institutions that engaged in conduct that jeopardized the nation’s fiscal security will be held accountable,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. “This is another step in the Department’s continuing effort to redress behavior that contributed to the Great Recession.”
“Credit Suisse’s mortgage misconduct hurt people, including in Colorado,” said Acting United States Attorney for the District of Colorado Bob Troyer. “Unscrupulous lenders knew they could get away with shoddy underwriting when making mortgage loans, because they knew Credit Suisse would buy those defective mortgage loans and put them into securities. When those mortgages went into foreclosure, many people got hurt: families lost their homes, communities were blighted by empty houses, and investors who had put their trust in Credit Suisse’s supposedly safe securities suffered huge losses. Our office led this investigation into Credit Suisse to protect homeowners, communities, and investors across the country, including here in Colorado. Credit Suisse is paying a hefty penalty and acknowledging its misconduct, but that is not all. Years after the Great Recession, many families still struggle to afford a home, so we also crafted an agreement to bring needed housing relief to such families, including specifically in Colorado.”
This settlement includes a statement of facts to which Credit Suisse has agreed. That statement of facts describes how Credit Suisse made false and misleading representations to prospective investors about the characteristics of the mortgage loans it securitized. (The quotes in the following paragraphs are from that agreed-upon statement of facts, unless otherwise noted.):
- Credit Suisse told investors in offering documents that the mortgage loans it securitized into RMBS “were originated generally in accordance with applicable underwriting guidelines,” except where “sufficient compensating factors were demonstrated by a prospective borrower.” It also told investors that the loans “had been originated in compliance with all federal, state, and local laws and regulations, including all predatory and abusive lending laws.”
- Credit Suisse has now acknowledged that “Credit Suisse repeatedly received information indicating that many of the loans reviewed did not conform to the representations that would be made by Credit Suisse to investors about the loans to be securitized.” It has acknowledged that in many cases, it purchased and securitized loans into its RMBS that “did not comply with applicable underwriting guidelines and lacked sufficient factors” and/or “w[ere] not originated in compliance with applicable laws and regulations.” Credit Suisse employees even referred to some loans they securitized as “bad loans,” “‘complete crap’ and ‘[u]tter complete garbage.’”
- Credit Suisse acquired some of the mortgage loans it securitized by buying, from other loan originators, “Bulk” packages containing numerous loans. For example, in December 2006, Credit Suisse purchased a “Bulk” pool of approximately 10,000 loans originated by Countrywide Home Loans. Credit Suisse selected fewer than 10 percent of these loans for due diligence review. “Reports from Credit Suisse’s due diligence vendors showed that approximately 85 percent of the loans in this sample violated Countrywide’s underwriting guidelines and/or applicable law,” but “Credit Suisse securitized over half of the loans into various RMBS it then sold to investors.” Credit Suisse did not review the remaining unsampled 90 percent of the pool to determine whether those loans had similar problems. Instead, it “securitized an additional $1.5 billion worth of unsampled—and therefore unreviewed—loans from this pool into various RMBS it then sold to investors.” A Credit Suisse manager wrote to another manager who was reviewing these loans, “Thanks for working thru this mess. If it helps, it looks like we will make a killing on this trade.”
- Credit Suisse acquired other mortgage loans for securitization through its “Conduit” channel. Through this channel, Credit Suisse bought loans from other lenders one-by-one or in small packages, and also itself extended loans to borrowers as “Wholesale” loans. Approximately 25-35 percent of the loans Credit Suisse acquired from 2005 to 2007 were acquired through its mortgage “Conduit.”
- Credit Suisse employees discussed in internal emails that for Conduit loans, the loan review and approval process was “‘virtually unmonitored.’” For loans Credit Suisse purchased through its Conduit, Credit Suisse told investors, ratings agencies and others, “‘Credit Suisse senior underwriters make final loan decisions, not contracted due diligence firms.’” Credit Suisse has now acknowledged, “For Conduit loans, these representations were false.”
- Credit Suisse has acknowledged that “[a] September 2004 audit by Credit Suisse’s audit department gave the Conduit a C rating on an A-D scale (the second worst possible rating) and a level 4 materiality score on a 1-4 scale (the highest possible score),” and that a March 2006 evaluation by Credit Suisse of one of the third-party vendors it used to review Conduit loans “similarly reported that ‘There are serious concerns as to compliance[.]’”
- Between 2005 and 2007, Credit Suisse managers made comments in emails about the quality of Conduit loans and its process for reviewing those loans. For example, a top Credit Suisse manager wrote to senior traders, “‘Of course we would like higher quality loans. That’s never been the identity of our [mortgage] conduit, and we’re becoming less and less competitive in that space.’” A senior Credit Suisse trader, discussing the “fulfillment centers” Credit Suisse used to review Conduit loans, stated in an email: ‘we make these underwriting exceptions and then we have liability down the road when the loans go bad and people point out that we violated our own guidelines. . . . The fulfillment process is a joke.’”
- For example, in one instance Credit Suisse approved, through its Conduit, a purchase of over $700 million worth of loans originated by Resource Bank. Credit Suisse senior traders “referr[ed] to Resource Bank loans as ‘complete crap’ and ‘[u]tter complete garbage.’” Despite this, “Credit Suisse provided Resource Bank with financial ‘incentives’ in exchange for loan volume [and] securitized Resource Bank loans into various RMBS it then sold to investors.”
- Credit Suisse has acknowledged that it also “received reports from vendors that it might have been acquiring and securitizing loans with inflated appraisals” and that its approach for reviewing the property values associated with the mortgage loans “could lead to the acceptance of inflated appraisals.” In August 2006, a Credit Suisse manager wrote to two senior traders, “How would investors react if we say that 20 percent of the pool have values off by 15 percent? If we are comfortable buying these loans, we should be comfortable telling investors.”
- Credit Suisse used vendors to conduct quality control on a small subset of loans it acquired. Credit Suisse has now acknowledged that its quality control review vendors reported that “more than 25 percent of the loans that they reviewed for quality control were designated ‘ineligible’ because of credit, compliance, and/or property defects.”
- Credit Suisse has now acknowledged that its “Co-Head of Transaction Management expressed concern that the quality control results could serve as a written record of defects, and sought to avoid documented confirmation of these defects.” In May 2007, a top Credit Suisse manager met with others “to discuss implementing this reduction of quality control review.” Credit Suisse’s Co-Head of Transaction Management wrote that “this change was to ‘avoid the previous approach by which a lot of loans were QC’d . . . creating a record of possible rep/ warrant breaches in deals . . . .’”
- In another example, in May 2007, a Credit Suisse employee identified two wholesale loans Credit Suisse itself had originated and wrote, “‘I would think that we would want to see loans like these that seem to represent confirmed problems, especially on our own originations. Why do we have an appraisal watch list and broker oversight group if we aren’t going to review the bad ones and take action appropriately? . . . I just see so many of these cross my desk, fraud, value, etc., it’s hard to just let them go by and not do something.’” Credit Suisse’s Co-Head of Transaction Management responded, “‘I think the idea is that we don’t want to spend a lot of $ to generate a lot of QC results that give us no recourse anyway but generate a lot of negative data, so no need to order QC on each of these loans.’” The employee then stated, “‘I think the lack of interest in bad loans is scary.’”
- As another example, in June 2007, a Credit Suisse employee identified 44 Wholesale loans Credit Suisse had itself originated that had gone 60 days delinquent. Credit Suisse’s Co-Head of Transaction Management wrote in response, “‘if we already know: that the loans aren’t performing . . . the only thing QC will tell us is that there were compliance errors, occupancy misreps etc. I think we already know we have systemic problems in FC/UW [fulfillment centers/underwriting] re both compliance and credit. The downside of QC’ing these 44 loans is, after we get the QC results, we will be obligated to repurchase a fair chunk of the loans from deals, assuming the loans are securitized and the QC results look like the QC we’ve done in the past. So based on a wholesale QC historical fail rate of over 35 percent (major rep defects), the avg bal of wholesale loans and the loss severities, it is reasonable to expect this QC may cost us a few million dollars.’” Credit Suisse has now acknowledged that it “did not inform investors or ratings agencies that its Wholesale loan channel had a ‘QC historical fail rate of over 35 percent (major rep defects).’”
- Credit Suisse commented about the mortgage loans that accumulated in its inventory. For example, Credit Suisse’s Co-Head of Transaction Management wrote to another Credit Suisse manager that “loans with potential defects ‘pile up in inventory . . . . So my theory is: we own the risk 1 way or another. . . . I am inclined to securitize loans that are close calls or marginally non-compliant, and take the risk that we’ll have to repurchase, if we can’t put them back, rather than adding to sludge in inventory. . . .’ One of the senior traders responded, ‘Agree.’” In another instance, a Credit Suisse senior trader commented in 2007 that “‘we have almost $2.5B of conduit garbage to still distribute.’” In another instance, a Credit Suisse trader wrote to a top manager, discussing another bank to which Credit Suisse was seeking to sell loans from its inventory, and stated, “‘[The other bank] again came back with an embarrassing number of diligence kicks this month. . . . If their results are in any way representative of our compliance with our reps and warrants, we have major problems.’ But rather than holding these loans in its own inventory, Credit Suisse securitized certain of these loans into its RMBS.”
Assistant U.S. Attorneys Kevin Traskos, Hetal J. Doshi, Shiwon Choe, Ian J. Kellogg, Lila M. Bateman, and J. Chris Larson of the District of Colorado investigated Credit Suisse’s conduct in connection with RMBS, with the support of the Federal Housing Finance Agency’s Office of the Inspector General (FHFA-OIG).
“Credit Suisse knowingly put investors at risk, and the losses caused by its irresponsible behavior deeply affected not only financial institutions such as the Federal Home Loan Banks, but also taxpayers, and contributed significantly to the financial crisis,” said Special Agent in Charge Catherine Huber of the Federal Housing Finance Agency-Office of Inspector General’s (FHFA-OIG) Midwest Region. “This settlement illustrates the tireless efforts put forth toward bringing a resolution to this chapter of the financial crisis. FHFA-OIG will continue to work with our law enforcement partners to hold those who have engaged in misconduct accountable for their actions.”
The $2.48 billion civil monetary penalty resolves claims under FIRREA, which authorizes the federal government to impose civil penalties against financial institutions that violate various predicate offenses, including wire and mail fraud. The settlement expressly preserves the government’s ability to bring criminal charges against Credit Suisse or any of its employees. The settlement does not release any individuals from potential criminal or civil liability. As part of the settlement, Credit Suisse has agreed to fully cooperate with any ongoing investigations related to the conduct covered by the agreement.
Credit Suisse will pay out the remaining $2.8 billion in the form of relief to aid consumers harmed by its unlawful conduct. Specifically, Credit Suisse agrees to provide loan modifications, including loan forgiveness and forbearance, to distressed and underwater homeowners throughout the country. It also agrees to provide financing for affordable rental and for-sale housing throughout the country. This agreement represents the most substantial commitment in any RMBS agreement to date to provide financing for affordable housing—a crucial need following the turmoil of the financial crisis.
The settlement is part of the ongoing efforts of President Obama’s Financial Fraud Enforcement Task Force’s RMBS Working Group, which has recovered tens of billions of dollars on behalf of American consumers and investors for claims against large financial institutions arising from misconduct related to the financial crisis. The RMBS Working Group brings together attorneys, investigators, analysts and staff from multiple state and federal agencies, including the Department of Justice, U.S. Attorneys’ Offices, the FBI, the U.S. Securities and Exchange Commission (SEC), the Department of Housing and Urban Development (HUD), HUD’s Office of Inspector General, the FHFA-OIG, SIGTARP, the Federal Reserve Board’s OIG, the Recovery Accountability and Transparency Board, the Financial Crimes Enforcement Network and multiple state Attorneys General offices around the country. The RMBS Working Group is led by Director Joshua Wilkenfeld and four co-chairs: Principal Deputy Assistant Attorney General Mizer, Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Director Andrew Ceresney of the SEC’s Division of Enforcement, and New York Attorney General Eric Schneiderman. This settlement is the latest in a series of major RMBS settlements announced by the Working Group.
Former Vice President of Publicly Traded Company Charged with Orchestrating $100 Million Securities Fraud Scheme
A former vice president of U.S. operations at a now-defunct publicly traded Canadian oil-services company was indicted with orchestrating a scheme to fraudulently inflate the company’s reported revenue by approximately $100 million.
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and Inspector in Charge Terrence P. McKeown of the U.S. Postal Inspection Service’s (USPIS) Washington, D.C., Division made the announcement.
Joseph A. Kostelecky, 55, of Dickinson, North Dakota, was charged in an indictment filed yesterday in the District of North Dakota with five counts of wire fraud and one count of securities fraud for his alleged role in the scheme. Kostelecky, who previously worked at Poseidon Concepts Corporation’s field office in Dickinson, made his initial appearance earlier today before U.S. Magistrate Judge Charles S. Miller Jr. of the District of North Dakota.
“The defendant is charged with a $100 million fraud that led to the collapse of an entire company and harm to thousands of individual investors,” said Assistant Attorney General Caldwell. “Today’s indictment again makes clear the department's commitment to protecting the investing public against those who manipulate the markets to enrich themselves.”
“Postal Inspectors will continue to aggressively protect the U.S. mail from being used by fraudsters to further their stock market manipulation schemes,” said Inspector in Charge McKeown.
The indictment alleges that between November 2011 and December 2012, Kostelecky, the sole executive in Poseidon Concepts Corporation’s U.S. division, engaged in conduct that caused the company to falsely report approximately $100 million in revenue from purported contracts with oil and natural gas companies. Kostelecky’s alleged misconduct included fraudulently directing the company’s accounting staff at the U.S. corporate headquarters in Denver to record revenue from such contracts and then assuring management that the associated revenue was collectable, when he knew that such contracts either did not exist or that the associated revenue was not collectable.
When the inflated revenue came to light at the end of 2012, the company’s stock fell precipitously, with shares losing close to $1 billion in value, and the company was forced into bankruptcy. The indictment alleges that Kostelecky perpetrated the scheme in order to inflate the value of the company’s stock price and to enrich himself through the continued receipt of compensation and appreciation of his own stock and stock options.
An indictment is merely an allegation, and a defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.
This case was investigated by the USPIS Washington, D.C. Division. Trial Attorneys Anna G. Kaminska and Henry P. Van Dyck of the Criminal Division’s Fraud Section are prosecuting the case. The Securities and Exchange Commission and the U.S. Attorney’s Office of the District of North Dakota provided assistance in this matter.
Wednesday, January 18, 2017
Deutsche Bank Agrees To Pay $7.2 Billion For Misleading Investors In Its Sale Of Residential Mortgage-Backed Securities
Deutsche Bank’s Conduct Contributed to the 2008 Financial Crisis
The Justice Department, along with federal partners, announced today a $7.2 billion settlement with Deutsche Bank resolving federal civil claims that Deutsche Bank misled investors in the packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities (RMBS) between 2006 and 2007. This $7.2 billion agreement represents the single largest RMBS resolution for the conduct of a single entity. The settlement requires Deutsche Bank to pay a $3.1 billion civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). Under the settlement, Deutsche Bank will also provide $4.1 billion in relief to underwater homeowners, distressed borrowers and affected communities.
“This resolution holds Deutsche Bank accountable for its illegal conduct and irresponsible lending practices, which caused serious and lasting damage to investors and the American public,” said Attorney General Loretta E. Lynch. “Deutsche Bank did not merely mislead investors: it contributed directly to an international financial crisis. The cost of this misconduct is significant: Deutsche Bank will pay a $3.1 billion civil penalty, and provide an additional $4.1 billion in relief to homeowners, borrowers, and communities harmed by its practices. Our settlement today makes clear that institutions like Deutsche Bank cannot evade responsibility for the great cost exacted by their conduct.”
“This $7.2 billion resolution – the largest of its kind – recognizes the immense breadth of Deutsche Bank’s unlawful scheme by demanding a painful penalty from the bank, along with billions of dollars of relief to the communities and homeowners that continue to struggle because of Wall Street’s greed,” said Principal Deputy Associate Attorney General Bill Baer. “The Department will remain relentless in holding financial institutions accountable for the harm their misconduct inflicted on investors, our economy and American consumers.”
“In the Statement of Facts accompanying this settlement, Deutsche Bank admits making false representations and omitting material information from disclosures to investors about the loans included in RMBS securities sold by the Bank. This misconduct, combined with that of the other banks we have already settled with, hurt our economy and threatened the banking system,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. “To make matters worse, the Bank’s conduct encouraged shoddy mortgage underwriting and improvident lending that caused borrowers to lose their homes because they couldn’t pay their loans. Today’s settlement shows once again that the Department will aggressively pursue misconduct that hurts the American public.”
“Investors who bought RMBS from Deutsche Bank, and who suffered catastrophic losses as a result, included individuals and institutions that form the backbone of our community,” said U.S. Attorney Robert L. Capers for the Eastern District of New York. “Deutsche Bank repeatedly assured investors that its RMBS were safe investments. Instead of ensuring that its representations to investors were accurate and transparent, so that investors could make properly informed investment decisions, Deutsche Bank repeatedly misled investors and withheld critical information about the loans it securitized. Time and again, the bank put investors at risk in pursuit of profit. Deutsche Bank has now been held accountable.”
“Deutsche Bank knowingly securitized billions of dollars of defective mortgages and subsequently made false representations to investors about the quality of the underlying loans,” said Special Agent In Charge Steven Perez of the Federal Housing Finance Agency, Office of the Inspector General. “Its actions resulted in enormous losses to investors to whom Deutsche Bank sold these defective Residential Mortgage-Backed Securities. Today’s announcement reaffirms our commitment to working with our law enforcement partners to hold accountable those who deceived investors in pursuit of profits, and contributed to our nation’s financial crisis. We are proud to have worked with the U.S. Department of Justice and the U.S Attorney’s Office for the Eastern District of New York.”
As part of the settlement, Deutsche Bank agreed to a detailed Statement of Facts. That statement describes how Deutsche Bank knowingly made false and misleading representations to investors about the characteristics of the mortgage loans it securitized in RMBS worth billions of dollars issued by the bank between 2006 and 2007. For example:
Deutsche Bank represented to investors that loans securitized in its RMBS were originated generally in accordance with mortgage loan originators’ underwriting guidelines. But as Deutsche Bank now acknowledges, the bank’s own reviews confirmed that “aggressive” revisions to the loan originators’ underwriting guidelines allowed for loans to be underwritten to anyone with “half a pulse.” More generally, Deutsche Bank knew, based on the results of due diligence, that for some securitized loan pools, more than 50 percent of the loans subjected to due diligence did not meet loan originators’ guidelines.
Deutsche Bank also knowingly misrepresented that loans had been reviewed to ensure the ability of borrowers to repay their loans. As Deutsche Bank acknowledges, the bank’s own employees recognized that Deutsche Bank would “tolerate misrepresentation” with “misdirected lending practices” as to borrower ability to pay, accepting even blocked-out borrower pay stubs that concealed borrowers’ actual incomes. As a Deutsche Bank employee stated, “What goes around will eventually come around; when performance (default) begins affecting profits and/or the investors who purchase the securities, only then will Wall St. take notice. For now, the buying continues.”
Deutsche Bank concealed from investors that significant numbers of borrowers had second liens on their properties. In one instance, a supervisory Deutsche Bank trader specifically instructed his team that if investors asked about second liens, “‘[t]ell them verbally . . . [b]ut don’t put in the prospectus.’” Deutsche Bank knew that these second liens increased the likelihood that a borrower would default on his or her loan.
Deutsche Bank purchased and securitized loans with substantial defects to provide “flexibility” to the mortgage originators on whom Deutsche Bank’s RMBS program depended for a continued supply of loans. Indeed, after the president of a large mortgage originator told Deutsche Bank he was “very upset with the rejection percentage,” Deutsche Bank’s diligence team was instructed, on three separate occasions, to clear loans it previously determined should be rejected.
While Deutsche Bank conducted due diligence on samples of loans it securitized in RMBS, Deutsche Bank knew that the size and composition of these loan samples frequently failed to capture loans that did not meet its representations to investors. In fact, Deutsche Bank knew “the more you sample, the more you reject.”
Deutsche Bank knowingly and intentionally securitized loans originated based on unsupported and fraudulent appraisals. Deutsche Bank knew that mortgage originators were “‘giving’ appraisers the value they want[ed]” and expecting the resulting appraisals to meet the originators’ desired value, regardless of the actual value of the property. Deutsche Bank concealed its knowledge of pervasive and consistent appraisal fraud, instead representing to investors home valuation metrics based on appraisals it knew to be fraudulent. Deutsche Bank misrepresented to investors the value of the properties securing the loans securitized in its RMBS and concealed from investors that it knew that the value of the properties securing the loans was far below the value reflected by the originator’s appraisal.
By May 2007, Deutsche Bank knew that there was an increasing trend of overvalued properties being sold to Deutsche Bank for securitization. As one employee noted, “We are finding ourselves going back quite often and clearing large numbers of loans [with inflated appraisals] to bring down the deletion percentages.” Deutsche Bank nonetheless purchased and securitized such loans because it received favorable prices on the fraudulent loans. Ultimately, Deutsche Bank enriched itself by paying reduced prices for risky loans while representing to investors valuation metrics based on appraisals the Bank knew to be inflated.
Deutsche Bank represented to investors that disclosed borrower FICO scores were accurate as of the “cut-off date” of the RMBS issuance. However, Deutsche Bank knowingly represented borrowers’ FICO scores as of the time of the origination of their loans despite the bank’s knowledge that these scores had often declined materially by the cut-off date.
Assistant U.S. Attorneys Edward K. Newman, Matthew R. Belz, Jeremy Turk, and Ryan M. Wilson of the U.S. Attorney’s Office for the Eastern District of New York investigated Deutsche Bank’s conduct in connection with the issuance and sale of RMBS between 2006 and 2007. The investigation was conducted with the Office of the Inspector General for the Federal Housing Finance Agency.
The $3.1 billion civil monetary penalty resolves claims under FIRREA, which authorizes the federal government to impose civil penalties against financial institutions that violate various predicate offenses, including wire and mail fraud. It is one of the largest FIRREA penalties ever paid. The settlement does not release any individuals from potential criminal or civil liability. As part of the settlement, Deutsche Bank has agreed to fully cooperate with investigations related to the conduct covered by the agreement.
Deutsche Bank will also provide $4.1 billion in the form of relief to aid consumers harmed by its unlawful conduct. Specifically, Deutsche Bank will provide loan modifications, including loan forgiveness and forbearance, to distressed and underwater homeowners throughout the country. It will also provide financing for affordable rental and for-sale housing throughout the country. Deutsche Bank’s provision of consumer relief will be overseen by an independent monitor who will have authority to approve the selection of any third party used by Deutsche Bank to provide consumer relief. To report RMBS fraud, go to: http://www.stopfraud.gov/rmbs.html
About the RMBS Working Group:
The RMBS Working Group, part of the Financial Fraud Enforcement Task Force, was established by the Attorney General in late January 2012. The Working Group has been dedicated to initiating, organizing, and advancing new and existing investigations by federal and state authorities into fraud and abuse in the RMBS market that helped precipitate the 2008 Financial Crisis. The Working Group’s efforts to date have resulted in settlements providing for tens of billions of dollars in civil penalties and consumer relief from banks and other entities that are alleged to have committed fraud in connection with the issuance of RMBS.
- Download Annex 1 -- Statement of Facts
- Download Annex 1A -- Statement of Facts Appendices A through D
- Download Annex 2 -- Consumer Relief
- Download Annex 3 -- RMBS Covered by the Settlement
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida, Special Agent in Charge Adolphus P. Wright of the Drug Enforcement Administration’s (DEA) Miami Field Division and Special Agent in Charge Kelly R. Jackson of Internal Revenue Service – Criminal Investigation’s (IRS-CI) Miami Field Office made the announcement.
Guy Philippe, 48, of Haiti, was indicted in 2005 on one count of conspiracy to import narcotics; one count of conspiracy to launder monetary instruments and engage in monetary transactions in property derived from unlawful activity; and one substantive count of engaging in monetary transactions derived from unlawful activity. This afternoon, Philippe was ordered held without bond during an initial hearing before U.S. Magistrate Judge Barry L. Garber of the Southern District of Florida. Philippe’s arraignment hearing is scheduled for Jan. 13, 2017.
According to the indictment, from approximately 1997 through 2001, Philippe conspired with others to import more than five kilograms of cocaine into the United States. From approximately June 1999 through April 2003, Philippe also allegedly conspired with others to engage in money laundering to conceal their participation in criminal activity, including narcotics trafficking. The indictment alleges that in 2000, Philippe transferred a $112,000 check through a financial institution, affecting interstate and foreign commerce, that included monies derived from the illicit drug trafficking enterprise.
An indictment is merely an allegation and a defendant is presumed innocent until proven guilty beyond a reasonable doubt in a court of law.
The DEA and IRS-CI investigated the case. The Criminal Division’s Office of International Affairs, U.S. Marshals Service Fugitive Task Force, U.S. Customs and Border Protection’s Miami Office of Field Operations and the Haitian Government, including the Haitian Ministry of Justice, Haitian National Police and La Brigade de Lutte contre le Trafic de Stupéfiants (BLTS), provided assistance in this matter. Senior Trial Counsel Mark A. Irish of the Criminal Division’s Asset Forfeiture and Money Laundering Section and Assistant U.S. Attorneys Lynn M. Kirkpatrick and Andy R. Camacho of the Southern District of Florida are prosecuting the case.
This case is the result of the ongoing efforts by the Organized Crime Drug Enforcement Task Force (OCDETF) a partnership that brings together the combined expertise and unique abilities of federal, state and local law enforcement agencies. The principal mission of the OCDETF program is to identify, disrupt, dismantle and prosecute high level members of drug trafficking, weapons trafficking and money laundering organizations and enterprises.
Following the first meeting of the Inclusive Framework on BEPS in Japan, on 30 June-1 July, and recent regional meetings, more countries and jurisdictions are joining the framework. The Inclusive Framework on BEPS welcomed Kazakhstan, Côte d’Ivoire and Bermuda bringing to 94 the total number of countries and jurisdictions participating on an equal footing in the project.
- Download the full list of all countries and jurisdictions participating in the Inclusive Framework on BEPS.
Monday, January 16, 2017
The Federal Trade Commission is mailing checks to nearly 350,000 people who lost money running Herbalife businesses. The checks are the result of a July 2016 settlement with the FTC that required Herbalife to pay $200 million and fundamentally restructure its business. This represents one of the largest redress distributions the agency has made in any consumer protection action to date.
“We are pleased to announce that hundreds of thousands of hard-working consumers victimized by Herbalife’s deceptive earnings claims will receive money back,” said Jessica Rich, Director of the agency’s Bureau of Consumer Protection. “Along with changes the company will make to its business structure, this is a win for consumers.”
The FTC used Herbalife’s records to determine who would receive a refund and the amount of each check. Generally, the FTC is providing partial refunds to people who ran an Herbalife business in the United States between 2009 and 2015, and who paid at least $1,000 to Herbalife but got little or nothing back from the company. Most checks are between $100 and $500; the largest checks exceed $9,000.
Also today, the FTC released Redress checks and compliance checks: Lessons from the FTC’s Herbalife and Vemma cases, which, for multi-level marketing companies, provides guidance drawn from the FTC’s cases against Herbalife and Vemma, including four key principles on compliance.
Recipients should deposit or cash checks within 60 days. The FTC never requires people to pay money or provide account information to cash refund checks. If you have questions about the case, contact the FTC’s refund administrator, Analytics Consulting LLC, at 844-322-8146.
Herbalife International of America, Inc., Herbalife International, Inc., and Herbalife, Ltd. have agreed to fully restructure their U.S. business operations and pay $200 million to compensate consumers to settle Federal Trade Commission charges that the companies deceived consumers into believing they could earn substantial money selling diet, nutritional supplement, and personal care products.
Page from Herbalife presentation book, used from at least 2009 through 2014.
In its complaint against Herbalife, the FTC also charged that the multi-level marketing company’s compensation structure was unfair because it rewards distributors for recruiting others to join and purchase products in order to advance in the marketing program, rather than in response to actual retail demand for the product, causing substantial economic injury to many of its distributors.
“This settlement will require Herbalife to fundamentally restructure its business so that participants are rewarded for what they sell, not how many people they recruit,” FTC Chairwoman Ramirez said. “Herbalife is going to have to start operating legitimately, making only truthful claims about how much money its members are likely to make, and it will have to compensate consumers for the losses they have suffered as a result of what we charge are unfair and deceptive practices.”
According to the FTC’s complaint, Herbalife claims that people who participate can expect to quit their jobs, earn thousands of dollars a month, make a career-level income, or even get rich. But the truth, as alleged in the FTC complaint, is that the overwhelming majority of distributors who pursue the business opportunity earn little or no money.
For example, as stated in the complaint, the average amount that more than half the distributors known as “sales leaders” received as reward payments from Herbalife was under $300 for 2014. According to a survey Herbalife itself conducted, which is described in the complaint, Nutrition Club owners spent an average of about $8,500 to open a club, and 57 percent of club owners reported making no profit or losing money.
The small minority of distributors who do make a lot of money, according to the complaint, are compensated for recruiting new distributors, regardless of whether those recruits can sell the products they are encouraged to buy from Herbalife.
Finding themselves unable to make money, the FTC’s complaint alleges, Herbalife distributors abandon Herbalife in large numbers. The majority of them stop ordering products within their first year, and nearly half of the entire Herbalife distributor base quits in any given year.
The settlement announced today requires Herbalife to revamp its compensation system so that it rewards retail sales to customers and eliminates the incentives in its current system that reward distributors primarily for recruiting. It mandates a new compensation structure in which success depends on whether participants sell Herbalife products, not on whether they buy products.
- The company will now differentiate between participants who join simply to buy products at a discount and those who join the business opportunity. “Discount buyers” will not be eligible to sell product or earn rewards.
- Multi-level compensation that business opportunity participants earn will be driven by retail sales. At least two-thirds of rewards paid by Herbalife to distributors must be based on retail sales of Herbalife products that are tracked and verified. No more than one-third of rewards can be based on other distributors’ limited personal consumption.
- Companywide, in order to pay compensation to distributors at current levels, at least 80 percent of Herbalife’s product sales must be comprised of sales to legitimate end-users. Otherwise, rewards to distributors must be reduced.
- Herbalife is prohibited from allowing participants to incur the expenses associated with leasing or purchasing premises for “Nutrition Clubs” or other business locations before completing their first year as a distributor and completing a business training program.
Under the order, Herbalife will pay for an Independent Compliance Auditor (ICA) who will monitor the company’s adherence to the order provisions requiring restructuring of the compensation plan. The ICA will be in place for seven years and will report to the Commission, which shall have authority to replace the ICA if necessary.
The settlement also prohibits Herbalife from misrepresenting distributors’ potential or likely earnings. The order specifically prohibits Herbalife from claiming that members can “quit their job” or otherwise enjoy a lavish lifestyle.
In addition, the order imposes a $200 million judgment against Herbalife to provide consumer redress, including money for consumers who purchased large quantities of Herbalife products (such as many Nutrition Club owners, among others) and lost money. Information on the FTC’s redress program will be announced at a later date.
The Commission votes authorizing the staff to file the complaint and stipulated final order, and to issue a Statement of the Commission, were 3-0. The complaint and the stipulated final order will be filed shortly in the U.S. District Court for the Central District of California.
NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. Stipulated final injunctions/orders have the force of law when approved and signed by the District Court judge.
The Federal Trade Commission works to promote competition, and protect and educate consumers. You can learn more about consumer topics and file a consumer complaint online or by calling 1-877-FTC-HELP (382-4357). Like the FTC on Facebook(link is external), follow us on Twitter(link is external), read our blogs and subscribe to press releases for the latest FTC news and resources.
Sunday, January 15, 2017
The Antitrust Division’s prosecutions of international and national cartels get a lot of headlines. Without question, that work is important – conspiracies to fix the prices of auto parts or capacitors can raise the cost of doing business by hundreds of millions of dollars each year even if consumers often haven’t heard of the companies or parts involved. And, of course, consumers can readily understand the importance of preventing collusion as to widely-used consumer goods like generic drugs and canned tuna.
But what many people don’t realize is that typically almost half of the Division’s criminal investigations target local or regional conspiracies, for example the investigations of mortgage foreclosure bid-rigging conspiracies that the Division has prosecuted in California and several Southeastern states – investigations which are now entering their final stage with trials against the remaining defendants.
These local/regional prosecutions are high priorities for the Division because they typically concern conspiracies that directly affect individual consumers, either because individuals are the victims or because the conduct undermines competition for critical federal, state or local procurement projects, funded with taxpayer money.
The mortgage foreclosure schemes targeted some obvious – and not so obvious – victims. Artificially depressing prices at foreclosure auctions hurts the financial institution that holds the mortgage, which gets less for the foreclosed property than it would have otherwise. But in many places these schemes also hurt the unfortunate families who lost their homes. In addition to losing their homes, these families lost the chance to get back whatever money they should have received if their homes had been auctioned off at a fair price above what was owed on the mortgage. And all homeowners are hurt if reducing expected recoveries from foreclosure auctions results in higher interest rates for everyone.
Unfortunately, numerous real estate investors have tried to take advantage of the disruption caused by the 2008 financial crisis to line their own pockets. Over the last several years, Division prosecutors in Atlanta, San Francisco, and Washington DC have brought charges against more than 125 individual real estate investors for participating in these bid-rigging schemes that thwarted competition designed to protect and benefit consumers. Furthermore, thanks to the work of the Division’s prosecutors in Atlanta and Washington DC and agents from the Federal Bureau of Investigation – and with the help of the Georgia Attorney General’s Office – more than $4 million in restitution has been paid to homeowners who were victims of these schemes and more restitution is likely as the Division’s investigations wind down.
Furthermore, the fact that Division staffs are currently preparing for 7 trials in 3 states involving 15 individuals charged with victimizing homeowners and financial institutions by rigging bids at these auctions is a testament to the Division’s resolve to prosecute the most culpable individuals responsible for this illegal conduct. Since only the most difficult antitrust cases typically go to trial, the large number of pending foreclosure auctions trials demonstrates the Division’s commitment to ensure individual accountability with respect to this pernicious conduct, regardless of the time and effort required to achieve this result.
And while every trial is different, Division staff in San Francisco recently sent a strong deterrence message in the first foreclosure auctions trial tried by the Division in the Bay Area. This past December, Division prosecutors went to trial against four defendants charged with rigging bids at foreclosure auctions. Over the course of a two-week trial, the jury heard evidence that the defendants had schemed to win hundreds of properties at foreclosure auctions in Alameda County at depressed prices. The conspirators decided who among them would “win” the public auctions and who would get paid off to not bid against the designated winners. The conspirators would then hold a second, secret auction to award the properties to whichever conspirator submitted the highest bid during that auction. After hearing this evidence, the jury promptly returned with guilty verdicts as to all four defendants.
As a new year dawns, Division staff will continue to prepare for the upcoming foreclosure auctions trials against the remaining defendants in these investigations. And the Division will continue to work with our federal, state, and international law enforcement partners to make sure that all conspiracies to undermine competition and victimize American consumers – whether international, national or local/regional – are detected and prosecuted, while emphasizing a deterrence message squarely aimed at the individuals who choose to violate the antitrust laws by fixing prices, rigging bids and allocating markets.
Saturday, January 14, 2017
Four Individuals Charged for Alleged Involvement in Foreign Bribery Scheme Involving $800 Million International Real Estate Deal
Court documents were unsealed today charging four individuals for their roles in a scheme to pay $2.5 million in bribes to facilitate the $800 million sale of a commercial building in Vietnam to a Middle Eastern sovereign wealth fund.
“This alleged conduct proves the adage that there is truly no honor among thieves,” said Assistant Attorney General Caldwell. “The indictment alleges that two defendants wanted to bribe a government official; instead they were defrauded by their co-defendant. Today’s charges are another example of the Criminal Division’s commitment to rooting out all manner of corruption.”
“The father-son defendants, Ban Ki Sang and Joo Hyun Bahn, allegedly conspired to bribe a foreign official to close an $800 million deal for a 72-story skyscraper in Vietnam, a deal that would have led to a multimillion-dollar commission for the Manhattan real estate broker son and much needed capital for the father’s construction company in Korea,” said U.S. Attorney Bharara. “But these alleged schemers were themselves double-crossed, as the man who purportedly set up the bribery scheme, Malcolm Harris, took the bribe money and pocketed it. This alleged bribery and fraud scheme offends all who believe in honest and transparent business, and it stands as a reminder that those who bring international corruption to New York City, as alleged here, will face the scrutiny of American law enforcement.”
“When Ban, a senior executive at Landmark 72, realized the debts owed to his company’s creditors were mounting, he sought the support of his son Bahn, a broker for a real estate firm in Manhattan,” said Assistant Director in Charge Sweeney. “The plan was for Bahn to secure an investor for Landmark 72, and the brokerage agreement they entered into would ultimately secure Bahn a lucrative profit. But instead of lawfully obtaining financing for the deal, they allegedly entered into an illegal agreement with Harris to bribe a foreign official into purchasing the property. In the end, they were hoodwinked by their very own criminal activity.”
Joo Hyun Bahn, aka Dennis Bahn, 38, of Tenafly, New Jersey, and his father, Ban Ki Sang (Ban), 69, of Seoul, South Korea, are each charged with one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA), three counts of violating the FCPA, one count of conspiracy to commit money laundering and one count of money laundering. In addition, Bahn and Malcolm Harris, 52, of New York City, are each charged with one count of wire fraud, one count of conducting monetary transactions in illegal funds and aggravated identity theft. San Woo, aka John Woo, 35, of Edgewater, New Jersey, was charged separately by complaint with one count of conspiracy to violate the FCPA. Bahn was arrested in Tenafly earlier this morning, and Woo was arrested at JFK Airport. Bahn and Woo are expected to be presented later today before U.S. Magistrate Judge Kevin Nathaniel Fox of the Southern District of New York. Ban and Harris remain at large.
According to the indictment and the complaint, from in or about March 2013 through in or about May 2015, Ban was a senior executive at Keangnam Enterprises Co. Ltd. (Keangnam), a South Korean construction company that built and owned Landmark 72, a building complex in Hanoi, Vietnam. In early 2013, Keangnam was experiencing a liquidity crisis; the debts owed to the company’s creditors were maturing and Keangnam needed to raise capital. Ban allegedly convinced Keangnam to hire his son Bahn to secure an investor for Landmark 72. Thereafter, Keangnam entered into an exclusive brokerage agreement with Bahn, who worked as a broker at a commercial real estate firm in New York City, and his firm. Pursuant to the agreement, Bahn stood to earn a multimillion-dollar commission from Keangnam if he was successful in securing an investor.
Instead of obtaining financing through legitimate channels, Bahn and Ban allegedly conspired to pay bribes to a foreign official of a Middle Eastern country, in order to induce the official to use his influence to convince his country’s sovereign wealth fund to acquire Landmark 72 for approximately $800 million. Harris, who held himself out as an agent of the foreign official despite not actually having such a relationship, allegedly deceived Bahn and Ban by sending numerous emails that were purportedly sent by the foreign official. According to the indictment, in or about April 2014, Bahn and Ban agreed to pay, through Harris, $2.5 million in bribes to the official, including $500,000 upfront and $2 million upon the close of the sale of Landmark 72. Woo helped Bahn and Ban obtain the $500,000 that was used as the upfront bribe payment. Bahn and Ban arranged the transfer of the $500,000 to Harris for him to pay to the foreign official, unaware that Harris did not have the relationship he claimed with the foreign official. Instead, Harris stole the $500,000, spending the money on lavish personal expenses, including rent for a luxury penthouse apartment in Williamsburg, Brooklyn.
According to the indictment, over the course of 2014 and 2015, Keangnam’s liquidity crisis worsened. Believing that the planned bribery would result in the sale of Landmark 72, and not wanting to lose his commission, Bahn allegedly engaged in a fraudulent scheme to trick Keangnam and its creditors into believing the sovereign wealth fund was close to acquiring Landmark 72. In furtherance of the fraudulent scheme, Bahn repeatedly lied to Keangnam and its creditors about the status of the Landmark 72 deal, knowing that Keangnam and its creditors would rely upon the misrepresentations. In addition, Bahn forged emails from the foreign official and other documents to make the sale of Landmark 72 to the sovereign wealth fund appear imminent to Keangnam and its creditors. Ultimately, when the sale of Landmark 72 to the sovereign wealth fund failed to materialize, Keangnam was forced to enter court receivership in South Korea. Bahn is also alleged to have stolen approximately $225,000 of the $500,000 that Keangnam had advanced Bahn’s firm to cover brokerage expenses.
The charges contained in the indictment and the complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
FBI’s New York Field Office International Corruption Squad investigated the case. The Department of Justice’s Office of International Affairs is providing assistance in this investigation. Trial Attorney Dennis R. Kihm of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Daniel Noble of the Southern District of New York’s Complex Frauds and Cybercrime Unit are prosecuting the case.
The Criminal Division’s Fraud Section is responsible for investigating and prosecuting all FCPA matters.Additional information about the department’s FCPA enforcement efforts can be found atwww.justice.gov/criminal/fraud/fcpa.
Friday, January 13, 2017
Two Businessmen Plead Guilty to Foreign Bribery Charges in Connection with Venezuela Bribery Schemes
A former general manager and partial owner of a Florida-based energy company and an owner of multiple Texas-based energy companies each pleaded guilty today to foreign bribery charges for their roles in a scheme to corruptly secure contracts from Venezuela’s state-owned and state-controlled energy company, Petroleos de Venezuela S.A. (PDVSA).
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Kenneth Magidson of the Southern District of Texas, Special Agent in Charge Mark Dawson of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (ICE-HSI) in Houston and Special Agent in Charge Richard Goss of Internal Revenue Service-Criminal Investigation’s (IRS-CI) Houston Field Office made the announcement.
Juan Jose Hernandez Comerma (Hernandez), 51, of Weston, Florida, pleaded guilty in federal court in Houston to one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and one count of violating the FCPA. Charles Quintard Beech III, 46, of Katy, Texas, pleaded guilty to one count of conspiracy to violate the FCPA. U.S. District Judge Gray H. Miller of the Southern District of Texas accepted the guilty pleas. Sentencing for both defendants is scheduled for July 14, 2017.
According to admissions made in connection with Hernandez’s plea, Hernandez conspired with U.S.-based businessmen Abraham Jose Shiera Bastidas (Shiera) and Roberto Enrique Rincon Fernandez (Rincon) to pay bribes and other things of value to PDVSA purchasing analysts. This ensured that Shiera’s and Rincon’s companies were placed on PDVSA bidding panels, which enabled the companies to win lucrative energy contracts with PDVSA. From 2008 until 2012, Hernandez admitted that, while general manager and later partial owner of one of Shiera’s companies, he provided recreational travel and entertainment and offered bribes to PDVSA officials, including Alfonzo Eliezer Gravina Munoz (Gravina), based on a percentage of contracts the officials helped to award to Shiera’s companies. Rincon, Shiera and Gravina have all also pleaded guilty in the case.
According to admissions made in connection with Beech’s plea, from 2011 to 2012, Beech paid bribes to multiple PDVSA officials, including Gravina, in exchange for their assistance in placing Beech’s companies on PDVSA bidding panels and assisting Beech’s company or companies in receiving payment for previously awarded PDVSA contracts. Beech also admitted that he agreed with others, including PDVSA officials, to engage in financial transactions to conceal the nature, source and ownership of the bribe proceeds.
In addition to Hernandez and Beech, the Justice Department has announced the guilty pleas of six other individuals as part of a larger, ongoing investigation by the U.S. government into bribery at PDVSA.
ICE-HSI is conducting the ongoing investigation with assistance from the FBI and IRS-CI. Trial Attorneys Aisling O’Shea and Jeremy R. Sanders of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys (AUSA) John Pearson and Robert S. Johnson of the Southern District of Texas are prosecuting the case. AUSAs Kristine Rollinson and Vincent Carroll of the Southern District of Texas are handling the forfeiture aspects of the case.
The Criminal Division’s Office of International Affairs and the Swiss Federal Office of Justice also provided assistance.
The Fraud Section is responsible for investigating and prosecuting all FCPA matters. Additional information about the Justice Department’s FCPA enforcement efforts can be found at www.justice.gov/criminal-fraud/foreign-corrupt-practices-act.
Thursday, January 12, 2017
OECD Updates BEPS Other Financial Payments, Action 4 - 2016 and tax treaty provisions of BEPS Action 6 and entitlement of non-CIV funds
Comments are invited on draft examples included in a discussion draft on the follow-up work on the interaction between the treaty provisions of the report on BEPS Action 6 and the treaty entitlement of non-CIV funds.
Paragraph 14 of the final version of the BEPS report on Action 6 (Preventing the Granting of Treaty Benefits in Inappropriate Circumstances) indicated that the OECD would continue to examine issues related to the treaty entitlement of non-CIV funds to ensure that the new treaty provisions included in the Report on Action 6 address adequately the treaty entitlement of these funds.
As part of the follow-up work on this issue, on 24 March 2016 the OECD published a consultation document on the treaty entitlement of non-CIV funds which included a number of specific questions related to concerns, identified in the comments received on previous discussion drafts related to the Report on Action 6, as to how the new provisions included in that Report could affect the treaty entitlement of non-CIV funds as well as possible ways of addressing these concerns. The comments received in response to that consultation document were published on the OECD website on 22 April 2016.
This discussion draft has been prepared to provide stakeholders with information on the subsequent developments in the work on the interaction between the treaty provisions of the report on BEPS Action 6 and the treaty entitlement of non-CIV funds, including the conclusions reached at the May 2016 meeting of Working Party 1* and the subsequent work on the development of examples related to the application of the principal purposes test (PPT) rule included in the Report on Action 6 with respect to some common transactions involving non-CIV funds. The discussion draft invites comments on three draft examples under consideration by the Working Party for inclusion in the Commentary on the PPT rule.
The Committee invites interested parties to send their comments on these three examples. The draft examples and the comments received will be discussed by Working Party 1 at its February 2016 meeting.
Comments should be sent by 3 February 2017 at the latest by e-mail to email@example.com in Word format (in order to facilitate their distribution to government officials). They should be addressed to the Tax Treaties, Transfer Pricing and Financial Transactions Division, OECD/CTPA.
Please note that all the comments on the examples will be made publicly available. Comments submitted in the name of a collective “grouping” or “coalition”, or by any person submitting comments on behalf of another person or group of persons, should identify all enterprises or individuals who are members of that collective group, or the person(s) on whose behalf the commentator(s) are acting.
The draft examples included in this discussion draft do not, at this stage, represent the consensus views of the CFA or its subsidiary bodies but are intended to provide stakeholders with substantive proposals for analysis and comment.
* Working Party No. 1 on Tax Conventions and Related Questions is the subsidiary body of the OECD’s Committee on Fiscal Affairs responsible for the tax treaty-related work, including the follow-up work on BEPS Action 6.
A federal grand jury returned an indictment against three former traders of major banks for their alleged roles in a conspiracy to manipulate the price of U.S. dollars and euros
exchanged in the foreign currency exchange (FX) spot market, the Justice Department announced today.
The one-count indictment, filed in the U.S. District Court for the Southern District of New York, charges Richard Usher (former Head of G11 FX Trading-UK at an affiliate of The Royal Bank of Scotland plc, as well as former Managing Director at an affiliate of JPMorgan Chase & Co.), Rohan Ramchandani (former Managing Director and head of G10 FX spot trading at an affiliate of Citicorp) and Christopher Ashton (former Head of Spot FX at an affiliate of Barclays PLC) with conspiring to fix prices and rig bids for U.S. dollars and euros exchanged in the FX spot market.
“Whether a crime is committed on the street corner or in the corner office, no one gets a free pass simply because they were working for a corporation when they broke the law,” said Deputy Attorney General Sally Q. Yates. “Today’s indictment reiterates our commitment to holding individuals accountable for corporate misconduct.”
“The charged conspiracy involved competitors manipulating the exchange rate for the hundreds of billions of dollars traded on foreign exchange markets for their benefit and to the detriment of their customers,” said Principal Deputy Associate Attorney General Bill Baer. “We previously secured criminal convictions of the financial institutions involved in the misconduct. Today we seek to hold accountable the individuals who conspired on their behalf.”
“These former bank traders are alleged to have gained an unfair advantage on their counterparts by committing corporate fraud involving the manipulation of the foreign currency exchange,” said Assistant Director in Charge Paul M. Abbate of the FBI’s Washington Field Office. “Their actions affected worldwide trading positions in the global marketplace. Today’s announcement reinforces the FBI’s commitment to investigate and prosecute individuals responsible for criminally interfering with the global financial markets.”
The indictment follows the May 20, 2015 agreements of Barclays PLC, Citicorp, JPMorgan Chase & Co., and The Royal Bank of Scotland plc to plead guilty to conspiring to fix prices and rig bids for U.S. dollars and euros exchanged in the FX spot market, and to pay criminal fines totaling more than $2.5 billion. On Jan. 5, 2017, the federal district court in Connecticut accepted those plea agreements and sentenced the banks accordingly.
The charge in the indictment carries a maximum penalty of 10 years in prison and a $1 million fine. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by victims if either amount is greater than $1 million.
According to the indictment, from at least December 2007 through at least January 2013, Usher, Ramchandani and Ashton (along with unnamed co-conspirators) conspired to fix prices and rig bids for the euro – U.S. dollar currency pair. Called “the Cartel” or “the Mafia,” this group of traders participated in telephone calls and electronic messages, including near-daily conversations in a private electronic chat room, to carry out their conspiracy. Their anticompetitive behavior included colluding around the time of certain benchmark rates known as fixes, such as coordinating their orders and trading to manipulate the price of the currency pair by the time of the fix. In another example of collusion, the conspirators coordinated their orders and trading to manipulate the price of the currency pair, such as by refraining from entering orders or trading at certain times.
The charge in the indictment is merely an allegation, and the defendants are presumed innocent unless and until proven guilty.
The Department of Justice has now charged six individuals in the FX investigation. On July 20, 2016, fraud charges were brought by the Justice Department’s Criminal Division against two FX executives for conspiring to defraud a client of their bank through a front running scheme. On Jan. 4, 2017, an antitrust charge and plea agreement were announced for a trader in connection with a conspiracy to manipulate emerging market FX rates.
This investigation is being conducted by the FBI’s Washington Field Office. This prosecution is being handled by the Antitrust Division’s New York Office. The Criminal Division’s Fraud Section also provided substantial assistance in this matter.
The charge in this case was brought in connection with the President Obama’s Financial Fraud Enforcement Task Force. The president established the task force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ Offices and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants.
For more information about the task force, please visit www.StopFraud.gov. Anyone with information concerning price fixing or other anticompetitive conduct in the FX market should contact the Antitrust Division’s Citizen Complaint Center at (888) 647-3258, visit www.justice.gov/atr/contact/newcase.html or call the FBI tip line at (415) 553-7400.
Wednesday, January 11, 2017
Volkswagen AG Agrees to Plead Guilty and Pay $4.3 Billion in Criminal and Civil Penalties; Six Volkswagen Executives and Employees are Indicted in Connection with Conspiracy to Cheat U.S. Emissions Tests
VW to Pay $2.8 Billion Criminal Fine in Guilty Plea and $1.5 Billion Settlement of Civil Environmental, Customs and Financial Violations; Monitor to Be Appointed to Oversee the Parent Company
Volkswagen AG (VW) has agreed to plead guilty to three criminal felony counts and pay a $2.8 billion criminal penalty as a result of the company’s long-running scheme to sell approximately 590,000 diesel vehicles in the U.S. by using a defeat device to cheat on emissions tests mandated by the Environmental Protection Agency (EPA) and the California Air Resources Board (CARB), and lying and obstructing justice to further the scheme, the Justice Department announced today.
In separate civil resolutions of environmental, customs and financial claims, VW has agreed to pay $1.5 billion. This includes EPA’s claim for civil penalties against VW in connection with VW’s importation and sale of these cars, as well as U.S. Customs and Border Protection (CBP) claims for customs fraud. In addition, the EPA agreement requires injunctive relief to prevent future violations. The agreements also resolve alleged violations of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).
The Criminal Case:
VW is charged with and has agreed to plead guilty to participating in a conspiracy to defraud the United States and VW’s U.S. customers and to violate the Clean Air Act by lying and misleading the EPA and U.S. customers about whether certain VW, Audi and Porsche branded diesel vehicles complied with U.S. emissions standards, using cheating software to circumvent the U.S. testing process and concealing material facts about its cheating from U.S. regulators. VW is also charged with obstruction of justice for destroying documents related to the scheme, and with a separate crime of importing these cars into the U.S. by means of false statements about the vehicles’ compliance with emissions limits. Under the terms of the plea agreement, which must be accepted by the court, VW will plead guilty to all these crimes, will be on probation for three years, will be under an independent corporate compliance monitor who will oversee the company for at least three years, and agrees to fully cooperate in the Justice Department’s ongoing investigation and prosecution of individuals responsible for these crimes.
In addition, a federal grand jury in the Eastern District of Michigan returned an indictment today charging six VW executives and employees for their roles in the nearly 10-year conspiracy. Heinz-Jakob Neusser, 56; Jens Hadler, 50; Richard Dorenkamp, 68; Bernd Gottweis, 69; Oliver Schmidt, 48; and Jürgen Peter, 59, all of Germany, are charged with one count of conspiracy to defraud the United States, defraud VW’s U.S. customers and violate the Clean Air Act by making false representations to regulators and the public about the ability of VW’s supposedly “clean diesel” vehicles to comply with U.S. emissions requirements. The indictment also charges Dorenkamp, Neusser, Schmidt and Peter with Clean Air Act violations and charges Neusser, Gottweis, Schmidt and Peter with wire fraud counts. This case has been assigned to U.S. District Judge Sean F. Cox of the Eastern District of Michigan.
Schmidt was arrested on Jan. 7, 2017, in Miami during a visit to the United States and appeared in federal court there on Monday. The other defendants are believed to presently reside in Germany.
Today’s announcement was made by Attorney General Loretta E. Lynch, EPA Administrator Gina McCarthy and Assistant Administrator Cynthia Giles, Deputy Attorney General Sally Q. Yates, FBI Deputy Director Andrew McCabe, Acting Deputy Secretary Russell C. Deyo for the Department of Homeland Security, U.S. Attorney Barbara L. McQuade of the Eastern District of Michigan, Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Assistant Attorney General John C. Cruden of the Justice Department’s Environment and Natural Resources Division and Principal Deputy Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division.
“Volkswagen’s attempts to dodge emissions standards and import falsely certified vehicles into the country represent an egregious violation of our nation’s environmental, consumer protection and financial laws,” said Attorney General Lynch. “Today’s actions reflect the Justice Department’s steadfast commitment to defending consumers, protecting our environment and our financial system and holding individuals and companies accountable for corporate wrongdoing. In the days ahead, we will continue to examine Volkswagen’s attempts to mislead consumers and deceive the government. And we will continue to pursue the individuals responsible for orchestrating this damaging conspiracy.”
“When Volkswagen broke the law, EPA stepped in to hold them accountable and address the pollution they caused,” said EPA Administrator McCarthy. “EPA’s fundamental and indispensable role becomes all too clear when companies evade laws that protect our health. The American public depends on a strong and active EPA to deliver clean air protections, and that is exactly what we have done.”
“This wasn’t simply the action of some faceless, multinational corporation,” said Deputy Attorney General Yates. “This conspiracy involved flesh-and-blood individuals who used their positions within Volkswagen to deceive both regulators and consumers. From the start of this investigation, we’ve been committed to ensuring that those responsible for criminal activity are held accountable. We’ve followed the evidence—from the showroom to the boardroom—and it brought us to the people whose indictments we’re announcing today.”
“Americans expect corporations to operate honestly and provide accurate information,” said Deputy Director McCabe. “Volkswagen’s data deception defrauded the U.S. government, violated the Clean Air Act and eroded consumer trust. This case sends a clear message to corporations, no matter how big or small, that if you lie and disregard rules that protect consumers and the environment, you will be caught and held accountable.”
“Blatant violations of U.S. customs and environmental laws will not be tolerated, and this case reinforces that,” said Acting Deputy Secretary Deyo. “These actions put our economy, consumers and citizens at risk, and the Department of Homeland Security and U.S. Customs and Border Protection will continue to take every step necessary to protect the American people.”
According to the indictment, the individuals occupied the following positions within the company:
Heinz-Jakob Neusser: from July 2013 until September 2015, Neusser worked for VW as head of Development for VW Brand and was also on the management board for VW Brand. From October 2011 until July 2013, Neusser served as the head of Engine Development for VW.
Jens Hadler: from May 2007 until March 2011, Hadler worked for VW as head of Engine Development for VW.
Richard Dorenkamp: from 2003 until December 2013, Dorenkamp worked for VW as the head of VW’s Engine Development After-Treatment Department in Wolfsburg, Germany. From 2006 until 2013, Dorenkamp led a team of engineers that developed the first diesel engine that was designed to meet the new, tougher emissions standards in the United States.
Bernd Gottweis: from 2007 until October 2014, Gottweis worked for VW as a supervisor with responsibility for Quality Management and Product Safety.
Oliver Schmidt: from 2012 through February 2015, Schmidt was the General Manager in charge of the Environment and Engineering Office, located in Auburn Hills, Michigan. From February 2015 through September 2015, Schmidt returned to VW headquarters to work directly for Neusser, including on emissions issues.
Jürgen Peter: Peter worked in the VW Quality Management and Product Safety Group from 1990 until the present. From March 2015 until July 2015, Peter was one of the VW liaisons between the regulatory agencies and VW.
According to the charging documents and statement of facts filed with the court, in 2006, VW engineers began to design a new diesel engine to meet stricter U.S. emissions standards that would take effect by model year 2007. This new engine would be the cornerstone of a new project to sell diesel vehicles in the United States that would be marketed to buyers as “clean diesel,” a project that was an important strategic goal for VW’s management. When the co-conspirators realized that they could not design a diesel engine that would both meet the stricter NOx emissions standards and attract sufficient customer demand in the U.S. market, they decided they would use a software function to cheat standard U.S. emissions tests.
VW engineers working under Dorenkamp and Hadler designed and implemented a software to recognize whether a vehicle was undergoing standard U.S. emissions testing on a dynamometer or it was being driven on the road under normal driving conditions. The software accomplished this by recognizing the standard published drive cycles. Based on these inputs, if the vehicle’s software detected that it was being tested, the vehicle performed in one mode, which satisfied U.S. NOx emissions standards. If the software detected that the vehicle was not being tested, it operated in a different mode, in which the vehicle’s emissions control systems were reduced substantially, causing the vehicle to emit NOx up to 40 times higher than U.S. standards.
Disagreements over the direction of the project were articulated at a meeting over which Hadler presided, and which Dorenkamp attended. Hadler authorized Dorenkamp to proceed with the project knowing that only the use of the defeat device software would enable VW diesel vehicles to pass U.S. emissions tests. Starting with the first model year 2009 of VW’s new “clean diesel” engine through model year 2016, Dorenkamp, Neusser, Hadler and their co-conspirators installed, or caused to be installed, the defeat device software into the vehicles imported and sold in the United States. In order to sell their “clean diesel” vehicles in the United States, the co-conspirators lied to the EPA about the existence of their test-cheating software, hiding it from the EPA, CARB, VW customers and the U.S. public. Dorenkamp, Neusser, Hadler, Gottweis, Schmidt, Peter and their co-conspirators then marketed, and caused to be marketed, VW diesel vehicles to the U.S. public as “clean diesel” and environmentally-friendly.
Around 2012, hardware failures developed in certain of the diesel vehicles. VW engineers believed the increased stress on the exhaust system from being driven in the “dyno mode” could be the cause of the hardware failures. In July 2012, VW engineers met with Neusser and Gottweis to explain what they believed to be the cause of the hardware failures and explained the defeat device. Gottweis and Neusser each encouraged further concealment of the software. In 2014, the co-conspirators perfected their cheating software by starting the vehicle in “street mode,” and, when the defeat device realized the vehicle was being tested, switching to the “dyno mode.” To increase the ability of the vehicle’s software to recognize that it was being tested on the dynamometer, the VW engineers activated a “steering wheel angle recognition feature.” With these alterations, it was believed the stress on the exhaust system would be reduced because the engine would not be operating for as long in “dyno mode.” The new function was installed in existing vehicles through software updates. The defendants and other co-conspirators falsely represented, and caused to be represented, to U.S. regulators, U.S. customers and others that the software update was intended to improve durability and emissions issues in the vehicles when, in fact, they knew it was used to more quickly deactivate emission control systems when the vehicle was not undergoing emissions tests.
After years of VW selling their “clean diesel” vehicles in the United States that had the cheating software, in March 2014, West Virginia University’s Center for Alternative Fuels, Engines and Emissions published the results of a study commissioned by the International Council on Clean Transportation (ICCT). The ICCT study identified substantial discrepancies in the NOx emissions from certain VW vehicles when tested on the road compared to when these vehicles were undergoing EPA and CARB standard drive cycle tests on a dynamometer. Rather than tell the truth, VW employees, including Neusser, Gottweis, Schmidt and Peter, pursued a strategy to disclose as little as possible – to continue to hide the existence of the software from U.S. regulators, U.S. customers and the U.S. public.
Following the ICCT study, CARB, in coordination with the EPA, attempted to work with VW to determine the cause for the higher NOx emissions in VW diesel vehicles when being driven on the road as opposed to on the dynamometer undergoing standard emissions test cycles. To do this, CARB, in coordination with the EPA, repeatedly asked VW questions that became increasingly more specific and detailed, and tested the vehicles themselves. In implementing their strategy of disclosing as little as possible, Neusser, Gottweis, Schmidt, Peter and their co-conspirators provided EPA and CARB with testing results, data, presentations and statements in an attempt to make it appear that there were innocent mechanical and technological problems to blame, while secretly knowing that the primary reason for the discrepancy was their cheating software that was installed in every VW diesel vehicle sold in the United States. The co-conspirators continued this back-and-forth with the EPA and CARB for over 18 months, obstructing the regulators’ attempts to uncover the truth.
The charges in the indictment are merely accusations and each defendant is presumed innocent unless and until proven guilty.
The case was investigated by the FBI and EPA-CID. The prosecution and corporate investigation are being handled by Securities and Financial Fraud Unit Chief Benjamin D. Singer and Trial Attorneys David Fuhr, Alison Anderson, Christopher Fenton and Gary Winters of the Criminal Division’s Fraud Section; Trial Attorney Jennifer Blackwell of the Environment and Natural Resources Division’s Environmental Crimes Section; and from the U.S. Attorney’s Office for the Eastern District of Michigan, Criminal Division Chief Mark Chutkow and White Collar Crime Unit Chief John K. Neal and Assistant U.S. Attorney Timothy J. Wyse. The Justice Department’s Office of International Affairs also assisted in the case. The Justice Department also extends its thanks to the Office of the Public Prosecutor in Braunschweig, Germany.
The Civil Resolutions:
The first civil settlement resolves EPA’s remaining claims against six VW-related entities (including Volkswagen AG, Audi AG and Porsche AG) currently pending in the multidistrict litigation before U.S. District Judge Charles R. Breyer of the Northern District of California. EPA’s complaint alleges that VW violated the Clean Air Act by selling approximately 590,000 cars that the United States alleges are equipped with defeat devices and, during normal operation and use, emit pollution significantly in excess of EPA-compliant levels. VW has agreed to pay $1.45 billion to resolve EPA’s civil penalty claims, as well as the civil penalty claim of CBP described below. The consent decree resolving the Clean Air Act claims also resolves EPA’s remaining claim in the complaint for injunctive relief to prevent future violations by requiring VW to undertake a number of corporate governance reforms and perform in-use testing of its vehicles using a portable emissions measurement system of the same type used to catch VW’s cheating in the first place. Today’s settlement is in addition the historic $14.7 billion settlement that addressed the 2.0 liter cars on the road and associated environmental harm announced in June 2016, and $1 billion settlement that addressed the 3.0 liter cars on the road and associated environmental harm announced in December 2016, which together included nearly $3 billion for environmental mitigation projects.
A second civil settlement resolves civil fraud claims asserted by U.S. Customs and Border Protection (CBP) against VW entities. VW entities violated criminal and civil customs laws by knowingly submitting to CBP material false statements and omitting material information, over multiple years, with the intent of deceiving or misleading CBP concerning the admissibility of vehicles into the United States. CBP enforces U.S. customs laws as well as numerous laws on behalf of other governmental agencies related to health, safety, and border security. At the time of importation, VW falsely represented to CBP that each of the nearly 590,000 imported vehicles complied with all applicable environmental laws, knowing those representations to be untrue. CBP’s relationship with the importing community is one based on trust, and this resolution demonstrates that CBP will not tolerate abrogation of importer responsibilities and schemes to defraud the revenue of the United States. The $1.45 billion paid under the EPA settlement also resolves CBP’s claims.
In a third settlement, VW has agreed to pay $50 million in civil penalties for alleged violations of FIRREA. The Justice Department alleged that a VW entity supported the sales and leasing of certain VW vehicles, including the defeat-device vehicles, by offering competitive financing terms by purchasing from dealers certain automobile retail installment contracts (i.e. loans) and leases entered into by customers that purchased or leased certain VW vehicles, as well as dealer floorplan loans. These financing arrangements were primarily collateralized by the vehicles underlying the loan and lease transactions. The department alleged that certain of these loans, leases and floorplan financings were pooled together to create asset-backed securities and that federally insured financial institutions purchased certain notes in these securities. Today’s FIRREA resolution is part of the department’s ongoing efforts to deter wrongdoers from using the financial markets to facilitate their fraud and to ensure the stability of the nation’s financial system.
Except where based on admissions by VW, the claims resolved by the civil agreements are allegations only.
The civil settlements were handled by the Environmental and Natural Resources Division’s Environmental Enforcement Section, with assistance from the EPA; the Civil Division’s Commercial Litigation Branch; and CBP.
* * *
Monday, January 9, 2017
General Cable Corporation Agrees to Pay $20 Million Penalty for Foreign Bribery Schemes in Asia and Africa
General Cable Corporation, a Kentucky-based manufacturer and distributor of cable and wire, entered into a non-prosecution agreement and agreed to pay a $20 million penalty, reflecting a 50 percent reduction off the bottom of the U.S. Sentencing Guidelines fine range, to resolve the government’s investigation into improper payments to government officials in Angola, Bangladesh, China, Indonesia and Thailand to corruptly gain business in violation of the Foreign Corrupt Practices Act (FCPA), announced Assistant Attorney General Leslie R. Caldwell of the Criminal Division and Assistant Director Stephen Richardson of the FBI’s Criminal Investigative Division.
“General Cable paid bribes to officials in multiple countries in a scheme that involved a high-level executive of the company and resulted in profits of more than $50 million worldwide,” said Assistant Attorney General Caldwell. “But General Cable also voluntarily self-disclosed this misconduct to the government, fully cooperated and remediated. This resolution demonstrates the very real upside to coming in and cooperating with federal prosecutors and investigators. It also reflects our ongoing commitment to transparency.”
“In 2015, International Corruption Squads across the country were formed to address the national and international implications of foreign corruption,” said Assistant Director Richardson. “This settlement is an example of the exceptional efforts of those dedicated squads and investigators. The FBI looks forward to continuing to work with our law enforcement partners to address corruption, no matter how big or small.”
According to General Cable’s admissions, some parent-level and subsidiary-level employees, including executives, knew that some of its foreign subsidiaries used third-party agents and distributors to make corrupt payments to foreign officials in order to obtain and retain business. In one case the foreign subsidiary made corrupt payments directly to foreign officials. The corrupt conduct began in 2002. In 2011, when employees from a General Cable subsidiary expressed concerns to regional and parent-level executives that commission payments were being used for improper purposes, including potentially bribery, General Cable nevertheless failed to implement and maintain a system of internal accounting controls designed to detect and prevent such corruption and otherwise illegal payments.
According to admissions by General Cable made in connection with the resolution, these payments were discussed openly in email messages. For example, in June 2012, a sales agent in Bangladesh emailed an executive and other employees of General Cable’s subsidiary in Thailand and said that a portion of the money that the Thailand subsidiary paid the sales agent would “be shared by decision makers in [the] customer, concerned higher ups in [the] Ministry[,] and some top executives at [the] bidder.” In May 2013, the executive, who had become an executive at General Cable in December 2012, approved a payment to the Bangladeshi sales agent. In addition, in 2011, the same executive, who was at that time working at General Cable’s Thailand subsidiary, informed a General Cable executive that payments to a distributor in Thailand were being used for corrupt purposes. General Cable did not investigate those payments, which continued to be made.
Between 2002 and 2013, General Cable subsidiaries paid approximately $13 million to third-party agents and distributors, a portion of which was used to make unlawful payments to obtain business, ultimately netting the company approximately $51 million in profits.
General Cable entered into a non-prosecution agreement and agreed to pay a criminal penalty of $20,469,694.80 to resolve the matter. As part of the agreement, General Cable has agreed to continue to cooperate with the department in any ongoing investigations and prosecutions relating to the conduct, including of individuals, to enhance its compliance program and to report to the department on the implementation of its enhanced compliance program.
The department reached this resolution based on a number of factors, including that General Cable voluntarily and timely disclosed the conduct at issue, fully cooperated in the investigation and fully remediated. General Cable’s cooperation included conducting a thorough internal investigation; making regular factual presentations and proactively providing updates to the Fraud Section; voluntarily making foreign-based employees available for interviews in the United States; producing documents, including translations, to the Fraud Section from foreign countries in ways that did not implicate foreign data privacy laws; collecting, analyzing and organizing voluminous evidence and information for the Fraud Section; identifying, investigating and disclosing conduct to the Fraud Section that was outside the scope of its initial voluntary self-disclosure; and, by the conclusion of the investigation, providing to the Fraud Section all relevant facts known to it, including information about individuals and third parties involved in the misconduct. General Cable also took extensive remedial measures, including taking employment action against 13 employees who participated in the misconduct, resulting in their departure from the company, and terminating its relationships with 47 third-party agents and distributors who participated in the misconduct. Based on these actions and other considerations, the company received a non-prosecution agreement and an aggregate discount of 50 percent off of the bottom of the U.S. Sentencing Guidelines fine range.
In related proceedings, the U.S. Securities and Exchange Commission (SEC) filed a cease and desist order against General Cable, whereby General Cable agreed to pay approximately $55 million in disgorgement to the SEC, including prejudgment interest. Thus, the combined penalties and disgorgement paid by General Cable is approximately $75.75 million. The Fraud Section appreciates the cooperation and assistance provided by the SEC in this matter.
The FBI’s International Corruption Squad in Washington, D.C., investigated the case. The department appreciates the cooperation and assistance provided by the U.S. Attorney’s Office of the Eastern District of Kentucky in this matter. Trial Attorneys Christopher Cestaro and Lorinda Laryea of the Criminal Division’s Fraud Section prosecuted the case. The Criminal Division’s Office of International Affairs also provided substantial assistance in this matter.
The Criminal Division’s Fraud Section is responsible for investigating and prosecuting all FCPA matters. Additional information about the department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.
Sunday, January 8, 2017
The Department of Justice announced today that it has reached final resolutions with banks that have met the requirements of the Swiss Bank Program. The Program provided a path for Swiss banks to resolve potential criminal liabilities in the United States, and to cooperate in the Department’s ongoing investigations of the use of foreign bank accounts to commit tax evasion. The Program also provided a path for those Swiss banks that were not engaged in wrongful acts but nonetheless wanted a resolution of their status. Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the Program.
“The Swiss Bank Program has been and continues to be a vital part of the Justice Department's efforts to aggressively pursue tax evasion,” said Attorney General Loretta E. Lynch. “This groundbreaking initiative has uncovered those who help facilitate evasion schemes and those who hide funds in secret offshore accounts; improved our ability to return tax dollars to the United States; and allowed us to pursue investigations into banks and individuals. I want to thank the Swiss government for their cooperation in this effort, and I look forward to continuing our work together to eradicate fraud and corruption.”
“Working with the Swiss government, we have made financial institutions reform the way they do business,” said Principal Deputy Associate Attorney General Bill Baer. “We are moving toward an era of global financial transparency, and those seeking to violate our nation’s tax laws, or the laws of our treaty partners, will find that the days of hiding funds abroad are over."
“The completion of the resolutions with the banks that participated in the Swiss Bank Program is a landmark achievement in the Department’s ongoing efforts to combat offshore tax evasion,” said Principal Deputy Assistant Attorney General Caroline D. Ciraolo. “We are now in the legacy phase of the Program, in which the participating banks are cooperating, and will continue to cooperate, in all related civil and criminal proceedings and investigations. The Tax Division, working closely with its colleagues throughout the Department and its partners within the Internal Revenue Service (IRS), will continue to hold financial institutions, professionals, and individual U.S. taxpayers accountable for their respective roles in concealing foreign accounts and assets, and evading U.S. tax obligations.”
“The completion of the examination of Category 3 and 4 banks in the Swiss Bank Program marks another milestone in the continued success of this valuable criminal compliance effort,” said Chief Richard Weber of IRS Criminal Investigation (CI). “IRS–CI will continue to partner with DOJ in pursuing those who facilitate or engage in international income tax evasion.”
The Program established four categories of Swiss financial institutions. Category 1 included Swiss banks already under investigation when the Program was announced, and therefore, not eligible to participate. Category 2 was reserved for those banks that advised the department by Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S. related accounts. In exchange for a non-prosecution agreement, the Category 2 banks made a complete disclosure of their cross-border activities, provided detailed information on accounts in which U.S. taxpayers have a direct or indirect interest, are cooperating in treaty requests for account information, are providing detailed information as to other banks that transferred funds into hidden accounts or that accepted funds when those secret accounts were closed, and must cooperate in any related criminal and civil proceedings for the life of those proceedings. The banks were also required to pay appropriate penalties.
Banks eligible for Category 3 of the Program were those that established, with the assistance of an independent internal investigation of their cross-border business, that they did not commit tax or monetary transaction-related offenses and have an effective compliance program in place. The Category 3 banks were required to provide the Department with an independent written report that identified witnesses interviewed and a summary of each witness’s statements, files reviewed, factual findings, and conclusions. In addition, the Category 3 banks were required to appear before the Department and respond to any questions related to the report or their cross-border business, and to close accounts of accountholders who fail to come into compliance with U.S. reporting obligations. Upon satisfying these requirements, Category 3 banks received a non-target letter pursuant to the terms of the Program.
Category 4 of the Program was reserved for Swiss banks that were able to demonstrate that they met certain criteria for deemed-compliance under the Foreign Account Tax Compliance Act (FATCA). Category 4 banks also were eligible for a non-target letter.
Between March 2015 and January 2016, the Department executed non-prosecution agreements with 80 Category 2 banks and collected more than $1.36 billion in penalties. The Department also signed a non-prosecution agreement with Finacor, a Swiss asset management firm, reflecting the Department’s willingness to reach fair and appropriate resolutions with entities that come forward in a timely manner, disclose all relevant information regarding their illegal activities and cooperate fully and completely, including naming the individuals engaged in criminal conduct.
Between July and December 2016, four banks and one bank cooperative satisfied the requirements of Category 3, making them eligible for Non-Target Letters. No banks qualified under Category 4 of the Program.
“Offshore compliance remains an important area of tax administration,” said IRS Large Business & International Division (LB&I) Commissioner Douglas O’Donnell. “We are evaluating incoming information to detect accountholders who have evaded reporting overseas assets and income, and we are using this information to further untangle the web of financial institutions and intermediaries helping with this evasion. We have expanded our investigations to other regions of the world, and we will continue to apply these techniques to help protect honest taxpayers.”
Principal Deputy Assistant Attorney General Ciraolo thanked the IRS and in particular, IRS-CI and the LB&I for their substantial assistance. Principal Deputy Assistant Attorney General Ciraolo also thanked Tax Division Trial Attorneys Kimberle Dodd, Paul Galindo, Mark Kotila, Kathleen Lyon, and Thomas Voracek, who served as counsel on the Category 3 and 4 bank matters, as well as Senior Counsel for International Tax Matters and Coordinator of the Swiss Bank Program Thomas J. Sawyer and Senior Litigation Counsel Nanette L. Davis of the Tax Division.
Saturday, January 7, 2017
The U.S. net international investment position increased to -$7,781.1 billion (preliminary) at the end of the third quarter of 2016 from -$8,026.9 billion (revised) at the end of the second quarter, according to statistics released today by the Bureau of Economic Analysis (BEA). The $245.8 billion increase in the net investment position reflected a $346.2 billion increase in U.S. assets and a $100.5 billion increase in U.S. liabilities.
The net investment position increased 3.1 percent in the third quarter, compared with a decrease of 5.9 percent in the second quarter and an average quarterly decrease of 6.0 percent from the first quarter of 2011 through the first quarter of 2016.
U.S. assets increased $346.2 billion to $24,861.2 billion at the end of the third quarter, reflecting an increase in assets excluding financial derivatives that was partly offset by a decrease in financial derivatives.
- Assets excluding financial derivatives increased $794.9 billion to $22,086.1 billion, mostly reflecting increases in portfolio investment and direct investment assets due to increases in foreign equity prices.
- Financial derivatives decreased $448.7 billion to $2,775.1 billion, mostly in single-currency interest rate contracts and in foreign exchange contracts.
U.S. liabilities increased $100.5 billion to $32,642.3 billion at the end of the third quarter, reflecting an increase in liabilities excluding financial derivatives that was partly offset by a decrease in financial derivatives.
- Liabilities excluding financial derivatives increased $546.3 billion to $29,922.5 billion, reflecting increases in portfolio investment and direct investment liabilities due to financial transactions and increases in U.S. equity prices.
- Financial derivatives decreased $445.8 billion to $2,719.9 billion, mostly in single-currency interest rate contracts and in foreign exchange contracts.
Updates to Statistics
The preliminary statistics for the U.S. international investment position for the second quarter of 2016 have been updated to incorporate new and revised source data.
|Preliminary estimate||Revised estimate|
|U.S. net international investment position||-8,042.8||-8,026.9|
|Direct investment at market value||6,963.6||6,979.7|
|Direct investment at market value||6,910.3||6,955.5|
Next release: March 29, 2017 at 8:30 A.M. EDT
U.S. Net International Investment Position, Fourth Quarter and Year 2016
* * *
|Fourth Quarter and Year 2016||March 29|
|First Quarter 2017, Year 2016, and Annual Update||June 28|
|Second Quarter 2017||September 27|
|Third Quarter 2017||December 28|
- Stay informed about BEA developments by reading the BEA blog, signing up for BEA's email subscription service, or following BEA on Twitter @BEA_News.
- Historical time series for these estimates can be accessed in BEA's Interactive Data Application.
- Access BEA data by registering for BEA's Data Application Programming Interface (API).
- For more on BEA's statistics, see our monthly online journal, the Survey of Current Business.
- BEA's news release schedule.
- More information on these International Investment Position statistics will be provided next month in the Survey of Current Business.
- More information on the International Investment Position accounts and a description of the estimation methods used to compile them is provided in U.S. International Economic Accounts: Concepts and Methods.
Friday, January 6, 2017
Teva Pharmaceutical Industries Ltd. Agrees to Pay More Than $283 Million to Resolve Foreign Corrupt Practices Act Charges
Companies Agree to Pay Nearly $520 Million to U.S. Criminal and Regulatory Authorities, Representing the Largest Criminal Fine Imposed Against a Pharmaceutical Company for Violations of the FCPA
“Teva and its subsidiaries paid millions of dollars in bribes to government officials in various countries, and intentionally failed to implement a system of internal controls that would prevent bribery,” said Assistant Attorney General Caldwell. “Companies that compete fairly, ethically and honestly deserve a level playing field, and we will continue to prosecute those who undermine that goal.”
“No matter where corruption occurs, the FBI and our global partners are committed to diligently rooting out the corruption that betrays the public trust and threatens a fair economy for all,” said FBI Assistant Director Stephen Richardson.
“As demonstrated by this case, the Foreign Corrupt Practices Act has a long reach,” said William J. Maddalena, Assistant Special Agent in Charge, FBI Miami. “Teva’s egregious attempt to enrich themselves failed and they will now pay a tough penalty.”
According to the companies’ admissions, Teva executives and Teva Russia employees paid bribes to a high-ranking Russian government official intending to influence the official to use his authority to increase sales of Teva’s multiple sclerosis drug, Copaxone, in annual drug purchase auctions held by the Russian Ministry of Health. The corrupt arrangement occurred at the same time that the Russian government was seeking to reduce the amount spent on costly foreign pharmaceutical products, such as Copaxone. Between 2010 and at least 2012, pursuant to an agreement with a repackaging and distribution company owned by the Russian government official, Teva earned more than $200 million in profits on Copaxone sales to the Russian government. Moreover, the Russian official earned approximately $65 million in corrupt profits through inflated profit margins granted to the official’s company.
Teva also admitted to paying bribes to a senior government official within the Ukrainian Ministry of Health to influence the Ukrainian government’s approval of Teva drug registrations, which were necessary for the company to market and sell its products in the country. Between 2001 and 2011, Teva engaged the official as the company’s “registration consultant,” paid him a monthly fee and provided him with travel and other things of value totaling approximately $200,000. In exchange, the official used his official position and influence within the Ukrainian government to influence the registration in Ukraine of Teva pharmaceutical products, including Copaxone and insulins.
In addition, Teva admitted that it failed to implement an adequate system of internal accounting controls and failed to enforce the controls it had in place at its Mexican subsidiary, which allowed bribes to be paid by the subsidiary to doctors employed by the Mexican government. Teva admitted that its Mexican subsidiary had been bribing these doctors to prescribe Copaxone since at least 2005. Teva executives in Israel responsible for the development of the company’s anti-corruption compliance program in 2009 had been aware of the bribes paid to government doctors in Mexico. Nevertheless, Teva executives approved policies and procedures that they knew were not sufficient to meet the risks posed by Teva’s business and were not adequate to prevent or detect payments to foreign officials. Teva also admitted that its executives put in place managers to oversee the compliance function who were unable or unwilling to enforce the anti-corruption policies that had been put in place.
Teva entered into a deferred prosecution agreement (DPA) in connection with a criminal information, filed today in the Southern District of Florida, charging the company with one count of conspiracy to violate the anti-bribery provisions of the FCPA and one count of failing to implement adequate internal controls. Pursuant to its agreement with the department, Teva will pay a total criminal penalty of $283,177,348. Teva also agreed to continue to cooperate with the department’s investigation, enhance its compliance program, implement rigorous internal controls and retain an independent corporate compliance monitor for a term of three years.
Teva Russia has signed a plea agreement in which it has agreed to plead guilty to a one-count criminal information, also filed today in the Southern District of Florida, charging the company with conspiring to violate the anti-bribery provisions of the FCPA. The plea agreement is subject to court approval. The case was assigned to U.S. District Judge Kathleen M. Williams of the Southern District of Florida and Teva Russia's initial court appearance has been scheduled for January 12, 2017.
In related proceedings, the U.S. Securities and Exchange Commission (SEC) filed a cease and desist order against Teva, whereby the company agreed to pay approximately $236 million in disgorgement to the SEC, including prejudgment interest. Thus, the combined total amount of U.S. criminal and regulatory penalties to be paid by Teva is nearly $520 million.
The Criminal Division’s Fraud Section reached this resolution based on a number of factors, including the fact that Teva did not timely voluntarily self-disclose the conduct, but did cooperate with the department’s investigation after the SEC served it with a subpoena. Teva received a 20 percent discount off the low end of the U.S. Sentencing Guidelines fine range because of its substantial cooperation and remediation. The company, however, did not receive full cooperation credit because of issues that resulted in delays to the early stages of the Fraud Section’s investigation, including vastly overbroad assertions of attorney-client privilege and not producing documents on a timely basis in response to certain Fraud Section document requests. Because many of the company’s compliance enhancements were more recent, and therefore have not been tested, the DPA imposes an independent compliance monitor for a term of three years.
The FBI’s International Corruption Unit and Miami Field Office investigated the case. Fraud Section Trial Attorneys Rohan A. Virginkar and John-Alex Romano prosecuted the case. The Fraud Section appreciates the significant cooperation and assistance provided by the SEC in this matter. The Criminal Division’s Office of International Affairs and the Mexican Attorney General’s Office (Procuradura General de la República or PGR) also provided assistance in this matter.
The Fraud Section is responsible for investigating and prosecuting all FCPA matters. Additional information about the Justice Department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.
Thursday, January 5, 2017
Former Guinean Minister of Mines Charged with Receiving and Laundering $8.5 Million in Bribes from Chinese Companies
The former Minister of Mines and Geology of the Republic of Guinea was arrested and charged today with laundering proceeds from bribes that he allegedly received from two Chinese companies that are part of a Chinese conglomerate in exchange for official actions he took to secure valuable mining rights for the conglomerate.
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Preet Bharara of the Southern District of New York, Assistant Director Stephen Richardson of the FBI’s Criminal Investigative Division, and Assistant Director in Charge William F. Sweeney Jr. of the FBI’s New York Field Office made the announcement.
“Former Minister Thiam is accused of enriching himself at the expense of the people of the Republic of Guinea,” said Assistant Attorney General Caldwell. “We cannot allow the United States to be a safe haven for the spoils of official corruption. The department is committed to pursuing both those who pay bribes, and also the corrupt officials who receive them.”
“Mahmoud Thiam, a former high-ranking official of Guinea, allegedly used his position to accept millions in bribes from a Chinese conglomerate and laundered the money through New York,” said U.S. Attorney Bharara. “Thiam, a U.S. citizen, will now face justice in a federal court.”
“This arrest exemplifies the commitment to personnel and resources the FBI continues to make towards combating corruption,” said Assistant Director Richardson. “The FBI looks forward to the development of those relationships with our partners both in the United States and around the world.”
“Today’s action shows that the FBI, along with our partners, is committed to investigating all levels of corruption,” said Assistant Director in Charge Sweeney. “The United States will be relentless in its efforts to uphold fair, equal and competitive markets. The actions of a few who use corruption for personal gain will not be tolerated.”
Mahmoud Thiam, 50, a U.S. citizen residing in New York City, was charged by complaint with two counts of money laundering. Thiam was arrested this morning and made his initial appearance this afternoon before a magistrate judge in the Southern District of New York.
The complaint alleges that in 2009 and 2010, Thiam took part in a scheme to launder, into the United States and elsewhere, approximately $8.5 million in bribes he received from senior representatives of a Chinese conglomerate. In exchange for the bribes, Thiam allegedly used his official position in the Guinean government to enable affiliates of the Chinese conglomerate to obtain exclusive and highly-valuable investment rights in a wide range of sectors of the Guinean economy, including near total control of Guinea’s valuable mining sector.
In order to conceal the bribes, Thiam allegedly opened a bank account in Hong Kong and misreported his occupation to conceal his status as a government official. Thiam later transferred millions of dollars in bribe proceeds into the United States, where he allegedly lied to two U.S. banks to conceal both his position as a foreign government official and the source of the funds. Thiam allegedly spent the bribe proceeds on, among other things, construction work on his estate in upstate New York.
A complaint is merely an allegation, and the defendant is presumed innocent until and unless proven guilty beyond a reasonable doubt.
The FBI’s International Corruption Squads in New York City and Los Angeles are investigating the case. In 2015, the FBI formed International Corruption Squads across the country to address national and international implications of foreign corruption.
Wednesday, January 4, 2017
University & College Enrollments Decreasing. Smaller Potential Pool of Graduate and Professional Studies Applicants?
Table 1: Estimated National Enrollment by Sector (Title IV, Degree-Granting Institutions)
|Fall 2016||Fall 2015||Fall 2014|
|Sector||Enrollment||% Change from Prior Year||Enrollment||% Change from Prior Year||Enrollment||% Change from Prior Year|
Enrollment, All Sectors
|Four-Year, Private Nonprofit||3,788,980||-0.6%||3,811,176||-0.3%||3,823,465||1.6%|
|Unduplicated Student Headcount (All Sectors)||
Estimated Undergraduate Enrollment at Four-Year Institutions by Classification of Instructional Program Family
|Fall 2016||Fall 2015|
|CIP Family Code||CIP Family Title||Enrollment||% Change from Prior Year||Enrollment|
|52||Business, Management, Marketing, and Related Support||1,639,373||-1.2%||1,659,647|
|24||Liberal Arts and Sciences, General Studies and Humanities (includes undeclared)||1,289,296||4.7%||1,231,558|
|51||Health Professions and Related Programs||1,142,636||-0.6%||1,149,576|
|26||Biological and Biomedical Sciences||601,572||1.6%||592,175|
|11||Computer and Information Sciences and Support Services||406,889||-0.2%||407,834|
|50||Visual and Performing Arts||394,347||-3.9%||410,464|
|09||Communication, Journalism, and Related Programs||325,973||-2.9%||335,815|
|43||Homeland Security, Law Enforcement, Firefighting, and Related Protective Services||300,666||-6.0%||319,872|
|31||Parks, Recreation, Leisure and Fitness Studies||234,763||-0.6%||236,219|
|23||English Language and Literature/Letters||146,898||-3.9%||152,822|
|44||Public Administration and Social Service Professions||144,546||-0.8%||145,750|
|15||Engineering Technologies and Engineering-Related Fields||108,420||-14.5%||126,768|
|19||Family and Consumer Sciences/Human Sciences||100,552||-7.0%||108,103|
|01||Agriculture, Agriculture Operations, and Related Sciences||93,442||1.2%||92,358|
|27||Mathematics and Statistics||87,164||1.4%||85,958|
|03||Natural Resources and Conservation||77,542||2.5%||75,647|
|16||Foreign Languages, Literatures, and Linguistics||54,919||-6.1%||58,503|
|04||Architecture and Related Services||39,253||4.1%||37,725|
|38||Philosophy and Religious Studies||33,056||-5.6%||35,017|
|39||Theology and Religious Vocations||30,335||-4.8%||31,858|
|49||Transportation and Materials Moving||26,571||-2.6%||27,279|
|22||Legal Professions and Studies||24,793||-10.9%||27,824|
|12||Personal and Culinary Services||23,651||-17.8%||28,774|
|05||Area, Ethnic, Cultural, Gender, and Group Studies||23,083||-2.7%||23,729|
|10||Communications Technologies/Technicians and Support Services||18,296||-8.2%||19,930|
|47||Mechanic and Repair Technologies/Technicians||17,226||-8.4%||18,810|
Tuesday, January 3, 2017
The Federal Trade Commission has charged the operators of a timeshare reselling scheme with bilking at least $15 million dollars from timeshare property owners by imposing hefty up-front fees based on false promises that they would sell or rent their properties.
At the FTC’s request, a federal court temporarily halted the operation and froze the defendants’ assets pending litigation. The agency seeks to permanently stop the allegedly illegal practices and return money to consumers.
According to the FTC’s complaint, the defendants telemarket to timeshare property owners and falsely claim that they have a buyer or renter ready and willing to buy or rent their properties for a specified price, or they promise to sell the timeshares quickly, sometimes within a specified time period.
The defendants charge property owners as much as $2,500 or more in advance but fail to deliver on their promises, the FTC alleged. The FTC noted in the complaint that the defendants string some owners along with additional false claims, such as that they will soon send them money from a sale or rental, and often get them to pay extra for purported closing costs or other fees. Consumers’ requests for refunds are typically denied or ignored, according to the complaint.
The defendants are Jess Kinmont, John P. Wenz, Jr., Pro Timeshare Resales of Flagler Beach LLC, Pro Timeshare Resales LLC, and J. William Enterprises LLC, doing business as Pro Timeshare Resales. They are charged with violating the FTC Act and the FTC’s Telemarketing Sales Rule, including calling numbers listed on the Do Not Call Registry.
The Commission thanks the Florida Attorney General’s Office for its contributions to this case.
The Commission vote approving the complaint was 3-0. The U.S. District Court for the Middle District of Florida, Orlando Division, entered a temporary restraining order against the defendants on December 13, 2016.