Monday, May 25, 2015

Removing the Roth IRA Contribution Limit With 401(k) Dollars

NU maga logoGenerating after-tax income can be critical in developing a well-balanced retirement income plan—but for clients who have delayed saving or wish to accumulate a substantial Roth nest egg, the annual contribution limits for retirement savings can present a formidable roadblock.

Fortunately, back-door routes to funding a Roth IRA have developed to allow clients to grow these accounts much more quickly. One of these routes cuts right through one of the most commonly available retirement planning tools—the traditional, employer-sponsored 401(k)—but it’s important that the client be apprised of several important consequences of this particular savings technique before taking any action. 

read the analysis of this strategy at ThinkAdvisor

May 25, 2015 in Current Affairs | Permalink | Comments (0)

Sunday, May 24, 2015

Former Executive Director of the Virgin Islands Legislature Sentenced to Five Years in Prison for Bribery and Extortion

Justice logoThe former Executive Director of the Virgin Islands Legislature was sentenced to five years in prison today, announced Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and U.S. Attorney Ronald W. Sharpe of the District of the Virgin Islands.

Louis “Lolo” Willis, 57, a resident of St. Thomas, was sentenced by U.S. District Court Judge Curtis V. Gomez of the District of the Virgin Islands.  On Nov. 19, 2014, a jury in the Virgin Islands convicted Willis of four counts of federal programs bribery and extortion under color of official right.

According to evidence presented at trial, Willis was the executive director of the Legislature between 2009 and 2012.  His responsibilities included oversight of the major renovation of the Legislature building and awarding and entering into government contracts in connection with the project.  Willis was also responsible for authorizing payments to the contractors for their work.  Evidence presented at trial demonstrated that Willis accepted bribes, including $13,000 in cash and checks, from contractors in exchange for using his official position to secure more than $350,000 in work for the contractors and to ensure they received payment upon completion.

This case was investigated by the FBI’s San Juan Field Office’s St. Thomas Resident Agency, the Internal Revenue Service-Criminal Investigation and the Office of the Virgin Islands Inspector General.  The case is being prosecuted by Trial Attorney Justin Weitz of the Criminal Division’s Public Integrity Section, Trial Attorney Traccee Plowell of the Criminal Division’s Office of Enforcement Operations, Trial Attorney Jennifer Blackwell of the Environment and Natural Resources Division’s Environmental Crimes Section and Assistant U.S. Attorney Delia Smith of the District of the Virgin Islands.

May 24, 2015 | Permalink | Comments (0)

Saturday, May 23, 2015

Chinese Professors Arrested for USA Economic Espionage and Theft Of Trade Secrets

Justice logoChinese Professors Alleged to Have Stolen Valuable Technology from Avago Technologies and Skyworks Solutions to Benefit a PRC University

On May 16, 2015, Tianjin University Professor Hao Zhang was arrested upon entry into the United States from the People’s Republic of China (PRC) in connection with a recent superseding indictment in the Northern District of California, announced Assistant Attorney General for National Security John P. Carlin, U.S. Attorney Melinda Haag of the Northern District of California and Special Agent in Charge David J. Johnson of the FBI’s San Francisco Division.

The 32-count indictment, which had previously been sealed, charges a total of six individuals with economic espionage and theft of trade secrets for their roles in a long-running effort to obtain U.S. trade secrets for the benefit of universities and companies controlled by the PRC government.

“According to the charges in the indictment, the defendants leveraged their access to and knowledge of sensitive U.S. technologies to illegally obtain and share U.S. trade secrets with the PRC for economic advantage,” said Assistant Attorney General Carlin.  “Economic espionage imposes great costs on American businesses, weakens the global marketplace and ultimately harms U.S. interests worldwide.  The National Security Division will continue to relentlessly identify, pursue and prosecute offenders wherever the evidence leads.  I would like to thank all the agents, analysts and prosecutors who are responsible for this indictment.”

“As today’s case demonstrates, sensitive technology developed by U.S. companies in Silicon Valley and throughout California continues to be vulnerable to coordinated and complex efforts sponsored by foreign governments to steal that technology,” said U.S. Attorney Haag.  “Combating economic espionage and trade secret theft remains one of the top priorities of this Office.”

“The conduct alleged in this superseding indictment reveals a methodical and relentless effort by foreign interests to obtain and exploit sensitive and valuable U.S. technology through the use of individuals operating within the United States,” said Special Agent in Charge Johnson.  “Complex foreign-government sponsored schemes, such as the activity identified here, inflict irreversible damage to the economy of the United States and undercut our national security.  The FBI is committed to rooting out industrial espionage that puts U.S. companies at a disadvantage in the global market.”

According to the indictment, PRC nationals Wei Pang and Hao Zhang met at a U.S. university in Southern California during their doctoral studies in electrical engineering.  While there, Pang and Zhang conducted research and development on thin-film bulk acoustic resonator (FBAR) technology under funding from U.S. Defense Advanced Research Projects Agency (DARPA).  After earning their doctorate in approximately 2005, Pang accepted employment as an FBAR engineer with Avago Technologies (Avago) in Colorado and Zhang accepted employment as an FBAR engineer with Skyworks Solutions Inc. (Skyworks) in Massachusetts.  The stolen trade secrets alleged in the indictment belong to Avago or Skyworks.

Avago is a designer, developer and global supplier of FBAR technology, which is a specific type of radio frequency (RF) filter.  Throughout Zhang’s employment, Skyworks was also a designer and developer of FBAR technology.  FBAR technology is primarily used in mobile devices like cellular telephones, tablets and GPS devices.  FBAR technology filters incoming and outgoing wireless signals so that a user only receives and transmits the specific communications intended by the user.  Apart from consumer applications, FBAR technology has numerous applications for a variety of military and defense communications technologies.

According to the indictment, in 2006 and 2007, Pang, Zhang and other co-conspirators prepared a business plan and began soliciting PRC universities and others, seeking opportunities to start manufacturing FBAR technology in China.  Through efforts outlined in the superseding indictment, Pang, Zhang and others established relationships with officials from Tianjin University.  Tianjin University is a leading PRC Ministry of Education University located in the PRC and one of the oldest universities in China.

As set forth in the indictment, in 2008, officials from Tianjin University flew to San Jose, California, to meet with Pang, Zhang and other co-conspirators.  Shortly thereafter, Tianjin University agreed to support Pang, Zhang and others in establishing an FBAR fabrication facility in the PRC.  Pang and Zhang continued to work for Avago and Skyworks in close coordination with Tianjin University.  In mid-2009, both Pang and Zhang simultaneously resigned from the U.S. companies and accepted positions as full professors at Tianjin University.  Tianjin University later formed a joint venture with Pang, Zhang and others under the company name ROFS Microsystem intending to mass produce FBARs.

The indictment alleges that Pang, Zhang and other co-conspirators stole recipes, source code, specifications, presentations, design layouts and other documents marked as confidential and proprietary from the victim companies and shared the information with one another and with individuals working for Tianjin University.

According to the indictment, the stolen trade secrets enabled Tianjin University to construct and equip a state-of-the-art FBAR fabrication facility, to open ROFS Microsystems, a joint venture located in PRC state-sponsored Tianjin Economic Development Area (TEDA), and to obtain contracts for providing FBARs to commercial and military entities.

The six indicted defendants include:

  • Hao Zhang, 36, a citizen of the PRC, is a former Skyworks employee and a full professor at Tianjin University.  Zhang is charged with conspiracy to commit economic espionage, conspiracy to commit theft of trade secrets, economic espionage and theft of trade secrets.  Zhang was arrested upon entry into the United States on May 16, 2015.
  • Wei Pang, 35, a citizen of the PRC, is a former Avago employee and a full professor at Tianjin University.  Pang is charged with conspiracy to commit economic espionage, conspiracy to commit theft of trade secrets, economic espionage and theft of trade secrets.
  • Jinping Chen, 41, a citizen of the PRC, is a professor at Tianjin University and a member of the board of directors for ROFS Microsystems.  Chen is charged with conspiracy to commit economic espionage and conspiracy to commit theft of trade secrets.
  • Huisui Zhang (Huisui), 34, a citizen of the PRC, studied with Pang and Zhang at a U.S. university in Southern California and received a Master’s Degree in Electrical Engineering in 2006.  Huisui is charged with conspiracy to commit economic espionage and conspiracy to commit theft of trade secrets.
  • Chong Zhou, 26, a citizen of the PRC, is a Tianjin University graduate student and a design engineer at ROFS Microsystem.  Zhou studied under Pang and Zhang, and is charged with conspiracy to commit economic espionage, conspiracy to commit theft of trade secrets, economic espionage and theft of trade secrets.
  • Zhao Gang, 39, a citizen of the PRC, is the General Manager of ROFS Microsystems.  Gang is charged with conspiracy to commit economic espionage and conspiracy to commit theft of trade secrets.

The maximum statutory penalty for each of the charges alleged in the superseding indictment is as follows:

  • Count One: conspiracy to commit economic espionage: 15 years imprisonment; $500,000 fine or twice the gross gain/loss; three years’ supervised release; and $100 special assessment. 
  • Count Two: conspiracy to commit theft of trade secrets: 10 years imprisonment; $250,000 fine or twice the gross gain/loss; three years’ supervised release; and $100 special assessment. 
  • Counts Three Through Seventeen: economic espionage; aiding and abetting: 15 years imprisonment; $500,000 fine or twice the gross gain/loss; three years’ supervised release; and $100 special assessment. 
  • Counts Eighteen Through Thirty-Two: theft of trade secrets; aiding and abetting: 10 years imprisonment; $250,000 fine or twice the gross gain/loss; three years’ supervised release; and $100 special assessment. 

Zhang was arrested on May 16, 2015, upon landing at the Los Angeles International Airport on a flight from the PRC.  He made his initial appearance yesterday afternoon in Los Angeles before the U.S. Magistrate Judge Alicia G. Rosenberg of the Central District of California, who ordered the defendant transported in custody to San Jose for further proceedings.  His next scheduled appearance will be before the U.S. District Judge Edward J. Davila of the Northern District of California, at a date to be determined.

The charges contained in an indictment are merely accusations, and a defendant is presumed innocent unless and until proven guilty. 

The investigation is being conducted by the FBI’s Palo Alto Resident Agency/San Francisco Division.  The case is being prosecuted by Assistant U.S. Attorneys Matt Parrella and Dave Callaway of the Northern District of California, in consultation with the National Security Division’s Counterespionage Section.

Zhang Superseding Indictment

May 23, 2015 in Current Affairs | Permalink | Comments (0)

Friday, May 22, 2015

Assistant Attorney General Leslie R. Caldwell Delivers Remarks at the Compliance Week Conference

Justice logoIt is a pleasure to be here to kick off day two of Compliance Week’s 10th annual conference.  This conference represents a great opportunity for corporate executives, compliance officers, auditors and in-house and outside counsel to share information about effective compliance policies and practices.

This morning, I want to discuss corporate accountability.  How corporations should be holding themselves accountable by designing compliance programs that don’t just look good on paper but actually work.  Compliance programs that are designed to protect the company’s reputation, customers, counterparties and the public, as well as ensuring compliance with the law.

I also will take a few moments to tell you about how we in the Criminal Division are trying to hold ourselves accountable and provide increased transparency by explaining our decision making when we can and setting forth our expectations with respect to corporate cooperation in our investigations.

For the past year, it has been my privilege to lead the Criminal Division of the U.S. Department of Justice and the nearly 1,000 dedicated prosecutors and support staff who work every day to investigate and prosecute federal criminal cases, to develop criminal law and sentencing policies and to promote the rule of law around the world. 

While the U.S. Attorneys’ offices generally focus on investigating and prosecuting crime in their respective districts, the Criminal Division – often in partnership with U.S. Attorneys’ offices – generally handles large matters with national or international significance.

Because of the global nature of our cases, the Criminal Division has personnel in more than 45 countries around the world who, among other responsibilities and in conjunction with the Criminal Division’s Office of International Affairs, help facilitate the collection of evidence from abroad through collaboration and cooperation with our international law enforcement partners.

Among the 17 sections and offices that make up the Criminal Division, the Fraud and Asset Forfeiture and Money Laundering Sections are most involved in the investigation and prosecution of corporate crime.  Both sections play critical roles in the department’s efforts to combat sophisticated economic crime.  It is the work of these sections that is most relevant to our discussion today.

A corporation’s internal compliance policies and practices, and its compliance professionals, are the first lines of defense against fraud, abuse and corruption.

As all of you know, there is no “one size fits all” compliance program.  Rather, effective compliance programs are those that are tailored to the unique needs, risks and structure of each business or industry.

While a corporate compliance program must, by definition, address regulatory risk and the risk of potential violations of law, a strong compliance program will not stop there.

A strong program also will aim to deter employee misconduct, whether or not that misconduct poses obvious regulatory risk.

While companies have for years appropriately adopted a “risk-based” approach to compliance, we have seen that corporations all too often misdirect their focus to the wrong type of risk.  We have repeatedly seen corporations target the risk of regulatory or law enforcement exposure of institutional and employee misconduct, rather than the risk of the misconduct itself.

The result: compliance programs are too often behind the curve, effectively guarding against yesterday’s corporate problem but failing to identify and prevent tomorrow’s scandals.

In designing compliance programs, companies would be wise to examine all of their lines of business – including those not subject to regulation – and determine where specific risks are and how best to control or mitigate them.

It is also critical that compliance programs take into account the operational realities and risks attendant to the particular company’s business, and are designed to prevent and detect particular types of misconduct likely to occur in a particular line of business.

For example, to comply with the Foreign Corrupt Practices Act (FCPA), businesses that tend to be exposed to corruption must employ different internal controls than businesses that have less exposure to corruption.

Similarly, in the anti-money laundering context, a financial institution must ensure that its compliance policies and practices are tailored to identify and mitigate the risks posed by its specific portfolio of customers, and that those customers are providing complete and accurate information.

Too often we have heard companies say that a particular course of criminal conduct took them by surprise, when a hard look at the business practices would have identified the risk.  And, far too often, we have heard companies exclaim in defense that everyone else is doing it – that others in the industry are engaged in the same misconduct.  But as you all know, an industry-wide compliance failure is not a defense to knowing and willful criminal activity.

With this principle that compliance programs should be proactive, and not merely reactive in mind, there are some general hallmarks of effective compliance programs that I’d like to share with you today.

  • A company must ensure that its senior leaders provide strong, explicit and visible support for its corporate compliance policies.Corporate management must enforce compliance policies, not tacitly encourage or pressure employees to engage in misconduct to achieve business objectives.

  • We look not just at the written policies, but to other messages otherwise conveyed to employees, including through in-person meetings, emails, telephone calls, incentives/bonuses, etc.; and will make a determination regarding whether the company meaningfully stressed compliance or, when faced with a conflict between compliance and profits, encouraged employees to choose profits.

  • Senior executives should be responsible for the implementation and oversight of compliance.Those executives should have authority to report directly to independent monitoring bodies – for example, internal auditors or the board of directors.

  • A company’s policies should be clear and in writing and should easily be understood by employees.But having written policies – even those that appear specific and comprehensive “on paper” – is not enough.

  • Compliance teams need adequate funding and access to necessary resources.And they must have an appropriate stature within the company.

  • A company should have an effective process – with sufficient resources – for investigating and documenting allegations of violations.

  • A company periodically should review its compliance policies and practices to keep it up to date with evolving risks and circumstances, including when the company merges with or acquires another company.In particular, if a U.S.-based entity merges with, acquires or is acquired by a foreign entity, all compliance policies should be reviewed and revised accordingly.

  • A company should have an effective system for confidential, internal reporting of compliance violations.

  • A company should implement mechanisms designed to enforce its policies, including incentivizing compliance and disciplining violations.

  • A company should sensitize third parties with which it interacts (for example, vendors, agents or consultants) to the company’s expectation that its partners are compliant.This means more than including boilerplate language in a contract.It means taking action – including termination of a business relationship – if a partner demonstrates a lack of respect for laws and policies.

Corporations also must ensure compliance with the laws of all the countries in which they operate.  We appreciate that this may present a major compliance challenge, as international corporations often must bridge cultural, as well as geographic, divides.  But such challenges do not justify non-compliance.

Likewise, if a foreign-based corporation or institution operates in the United States or transacts business in the United States, it must ensure compliance with U.S. laws.

For example, if a foreign bank that operates in the United States identifies suspicious activity related to a foreign account held by a customer that also maintains an account in the United States, compliance personnel in the United States should be alerted to the suspicious activity.

Overall, our message is simple: we expect corporate entities to take compliance risk as seriously as they take other business-related risks.

As all of you know, the adequacy of a compliance program is a factor when we decide how and whether to prosecute a company.  The lack or insufficiency of a compliance program can have real consequences for a company when a violation of law is discovered.

For example, this past December, Alstom S.A., the French power company, pleaded guilty to violating the FCPA by falsifying its books and records and failing to implement adequate internal controls.  Alstom admitted to its criminal conduct and agreed to pay a penalty of over $772 million.

The scheme involved the payment of bribes to various government officials and the falsification of books and records in connection with power, grid and transportation projects for state-owned entities around the world, including Indonesia, Egypt, Saudi Arabia, the Bahamas and Taiwan.  Alstom attempted to conceal that it was the source of the corrupt payments to government officials by funneling the bribes through third-party consultants.

In reaching the global resolution, the department considered many factors, including the company’s failure to voluntarily disclose the misconduct; its refusal to cooperate with the government’s investigation for several years (i.e., until the government charged several company executives); the breadth of the misconduct – which spanned many years, occurred in several countries and crossed business lines; and the company’s criminal history.

And we considered the company’s lack of an effective compliance program at the time of the misconduct.  As a result of all of these factors, Alstom pleaded guilty and paid a significant criminal penalty.

When a compliance program works and a company suspects or discovers potential criminal wrongdoing, a company would be wise to conduct a thorough internal investigation.

While we in the Criminal Division will not tell a company how it should conduct an investigation, we evaluate the quality of a company’s internal investigation, both through our own investigation and in considering what if any charges to bring against a company.  In that regard, we have seen some “best practices” with regard to internal investigations.

Good internal investigations uncover the facts.  They don’t promote corporate talking points or whitewash the truth.  The investigation should be focused on rooting out the relevant facts, identifying and interviewing the knowledgeable actors and capturing and preserving relevant documents and other evidence.  The investigation should seek to identify responsible individuals, even if those individuals hold senior positions at the company.

It is reasonable to take resources – time and money – into account.  If an internal investigation unearths criminal conduct, the inquiry should be thorough enough to identify the relevant facts, players, documents and other evidence, and to get a sense of the pervasiveness of the misconduct.

But, we do not believe that it is necessary or productive for a company to employ its internal investigators to look under every rock and pebble – particularly when a company has offices or personnel around the globe that do not appear to be involved in the misconduct at issue.

In fact, doing so will cost companies much more in the end, both in fees but also because it ultimately will delay our investigation and delay resolution and closure for the company.

For example, if a multi-national corporation discovers an FCPA violation in one country, and has no basis to suspect that the misconduct is occurring elsewhere, the Criminal Division would not expect that the internal investigation would extend beyond the country in which the violation was discovered.  By contrast, if the known offenders operated in multiple countries, we would expect that the internal investigation would extend into those locations as well.

Once your company learns of potential criminal conduct and confirms it through a reasonable internal investigation, the company then must choose whether to disclose the conduct to the government, and whether to cooperate in the government’s investigation.

These are the company’s choices, and very few companies have a legal obligation to disclose criminal misconduct to the department.  Likewise, there is no obligation to cooperate beyond compliance with lawful process.

But if a company chooses to cooperate with the government in its investigation – particularly at an early stage – the company likely will receive significant credit for such efforts when the government is contemplating what prosecutorial action to take.

In conducting an investigation, determining whether to bring charges and negotiating plea or other agreements, federal prosecutors take into account, among other factors, the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents.  Prosecutors also consider the availability of alternative or supplemental remedies such as civil or regulatory enforcement action.

To receive cooperation credit, a company must do more than comply with subpoenas or other compulsory process.  Companies must provide a full accounting of the known facts about the conduct or events under review, and affirmatively must identify responsible individuals (and provide evidence supporting their culpability), including corporate executives and officers – and they must do so in a timely way.

A company’s cooperation may be particularly helpful where the criminal conduct continued over an extended period of time, and the knowledgeable or culpable individuals and/or the relevant documents are dispersed or located abroad.

Under these circumstances, cooperation includes helping to circumvent barriers to the investigation by making knowledgeable personnel available for interviews or testimony, and by producing documents and other evidence that otherwise may not be readily accessible to the government. 

We recognize that some foreign data privacy laws may limit or prohibit the disclosure of certain types of data or information.  Over the years, the Criminal Division has developed an understanding of certain oft-cited data privacy laws, and we will challenge what we perceive to be unfounded reliance on these laws to justify withholding requested information.  Companies should avoid this by giving careful consideration to the government’s requests for information, refraining from making broad “knee jerk” claims that large categories of information are protected from disclosure and producing what can be disclosed.

The consequences of refusing to cooperate in an ongoing investigation are evident in department’s recent, landmark criminal resolution with BNP Paribas (BNPP) – the fourth largest bank in the world.

Between 2004 and 2012, BNPP knowingly violated the IEEPA and the Trading with the Enemy Act (TWEA) by moving more than $8.8 billion through the U.S. financial system on behalf of Sudanese, Iranian and Cuban entities subject to U.S. economic sanctions.  The majority of the transactions facilitated by BNPP were on behalf of entities in Sudan, which is subject to a U.S. embargo due to the Sudanese government’s role in facilitating terrorism and committing human rights abuses.

BNPP’s criminal conduct took place despite repeated warnings expressed by the bank’s own compliance officers and its outside counsel.  In response to the concerns identified by compliance personnel, high-ranking BNPP officials explained that the questioned transactions had the “full support” of BNPP management in Paris.  In short, BNPP expressly elected to favor profits over compliance.

BNPP refused to cooperate with our investigation.  In fact, the bank hindered the investigation by dragging its feet and making exaggerated assertions that certain information was precluded from disclosure by foreign data privacy laws.  BNPP’s intransigence thwarted the government’s ability to prosecute responsible individuals or satellite banks.

Ultimately, BNPP pleaded guilty to conspiracy to violate the IEEPA and the TWEA, and agreed to pay record-setting penalties of over $8.9 billion.  And the company admitted its misconduct – including its disregard of compliance advice – in a detailed statement of facts that was made public.  BNPP’s refusal to cooperate was a key factor in the department’s decision to seek a parent-level guilty plea.

Corporate accountability through a strong, tailored compliance program and thorough internal investigations should be the standard for your companies.

I’d like to speak briefly about another significant risk these days that can bring law enforcement to your door: data breaches.

In recent years, there has been a proliferation of significant data breaches – exposing millions of innocent consumers to violations of privacy, identity theft and other harms resulting in hundreds of millions of dollars in losses – both to individuals and to corporate entities.  The breaches have been carried out by lone hackers and – increasingly – by transnational organized criminals.

Given the financial, reputational, privacy-related and other harms that a data breach may cause, it is essential that corporations establish and maintain policies and practices designed to prevent and detect data breaches, and to mitigate the attendant damage.

The Criminal Division is not looking to investigate or prosecute victim companies.  Rather, we are seeking to partner with the private sector to prevent the breaches in the first place.  To make this partnership as effective as possible, we encourage companies to report actual or suspected breaches to law enforcement authorities – even if the intrusion may have been caused by inadequate safeguards – and cooperate in both the investigation and in what we hope will be the eventual prosecution of the hackers and thieves.

To consolidate and focus our expertise and resources, during this past year, the Criminal Division created a Cybersecurity Unit within the Computer Crime and Intellectual Property Section (CCIPS).  While the unit in particular and CCIPS as a whole are committed to identifying and prosecuting the hackers that commit the breaches, the unit also is dedicated to partnering with both the private sector and the public to combat cybercrime.

To that end, we have engaged in targeted cybersecurity consultations with members of the private bar, computer security specialists, industry groups and trade associations, financial institutions and others.

And, earlier this month, based on input from both law enforcement authorities with experience investigating and prosecuting cybercrime and from victims, we released guidance reflecting “best practices” for preventing, detecting and responding to data breaches.  This guidance, which is available on the Criminal Division’s website, is a living document, and we will revise it as necessary to reflect up-to-date vulnerabilities and recommended solutions.

Corporate accountability through compliance, investigations and protections against breaches is a good practice for all of your companies.  And in the Criminal Division, I am emphasizing accountability on our side as well, particularly through our work with regulators and other law enforcement agencies, and through increased transparency about our decision-making where possible.

Many of the cases handled by the Criminal Division also involve parallel investigations or civil or enforcement actions by civil or regulatory authorities.  Even if certain misconduct could be pursued civilly or through regulatory action, criminal investigation and prosecution often is appropriate.

It is department policy that criminal prosecutors and civil attorneys coordinate with one another and with agency attorneys, to the extent permissible, to protect and advance the government’s overall interests.  Early and effective coordination is critical to ensuring the efficient use of resources and the best ultimate outcome.

We have heard concerns expressed about regulatory “piling on.”  We agree that there is the potential for unfairness when a company is asked to pay penalties and fines to different regulators and enforcement authorities based on the same set of facts.

Different law enforcement authorities have distinct and important functions.  Companies know who their regulators are, and they know that they are subjecting themselves to those regulatory schemes and the laws of the countries in which they operate.  But we are trying to address this concern and are mindful of making sure that companies are not punished unfairly.

Since becoming Assistant Attorney General, one of my priorities has been to ensure that the Criminal Division is as transparent as possible about its decision making.  While we are limited in the information we can disclose to the public about matters in which we decline to prosecute, when we file charges, secure a guilty plea or enter into a deferred prosecution or non-prosecution agreement, the Criminal Division will place in the public record detailed information explaining the rationale for the particular resolution whenever possible.

Whether we secure a guilty plea or enter into an NPA or DPA, these resolutions generally have the same key components: admissions, a detailed statement of facts, remediation and/or enhanced compliance requirements and penalties.  Depending on the facts and circumstances of a particular case, the Criminal Division also may require the imposition of a compliance monitor.

Companies would be wise to study these publicly-available documents to measure their compliance or to assess their exposure.

In our view, increased transparency benefits everyone.  From the Criminal Division’s perspective, if companies know the benefits that likely will flow from self-reporting or cooperating with the government’s investigation, we are confident that more companies will be willing to voluntarily disclose identified misconduct and cooperate, including against culpable individuals.

In addition, transparency takes a significant amount of the guess work out of assessing the likely benefits of cooperation, as well as the costs of refusing to cooperate or offering limited or partial assistance.

Regardless of the form of resolution, the Criminal Division is committed to enforcing compliance with its terms.  In particular, when a company that is subject to the terms of an NPA or a DPA violates the terms of the agreement, if proportional to the breach, the Criminal Division will not hesitate to tear up the agreement and prosecute the offending entity based on the admitted statement of facts.

If we do so, as with the other resolutions, the Criminal Division will be transparent and include its rationale in publicly-filed documents.

In addition to statements contained in public filings in cases investigated or prosecuted by the Criminal Division, our commitment to transparency also is effectuated by the participation of Criminal Division personnel in conferences such as this one.

We are grateful for the opportunity to use this public forum to communicate our priorities and expectations to corporations.

Thank you. 

May 22, 2015 | Permalink | Comments (0)

Thursday, May 21, 2015

Gateway Banks' Former CEO Pleads Guilty to Bank Fraud

Poppi Metaxas, former president and CEO of TARP applicant Gateway Bank FSB, pleaded guilty to bank fraud conspiracy in a scheme that cost the bank more than $1.8 million, announced the Special Inspector General for the Troubled Asset Relief Program.

According to court filings and the facts presented at the plea hearing, between 2009 and 2010, Metaxas, age 62, of Hillsborough, Calif., engaged in a scheme to defraud Gateway in connection with Gateway’s sale of non-performing assets and mortgage loans to three entities in exchange for $15 million. Specifically, Metaxas caused Gateway to enter into a sham loan agreement with Ideal Mortgage Bankers Ltd., d/b/a Lend America, a Long Island mortgage lender and Gateway’s largest mortgage lending client. Metaxas and her co-conspirators, through a series of wire transfers, then used the proceeds of that sham loan to satisfy the 25 percent down payment that the three entities owed to Gateway in connection with the sale of the non-performing assets and loans. To conceal the fraudulent “round trip” nature of the loan funds, Metaxas deceived the board of directors of Gateway and, in October 2009, she provided false testimony to bank regulators when asked about the source of the down payment.

“While Gateway Bank was applying for TARP and being told by its federal banking regulator to raise capital and to reduce the amount of toxic assets on its books, bank president and CEO Poppi Metaxas orchestrated a fraudulent ‘round-trip’ transaction that masked the true health of the bank,” said Christy Romero, Special Inspector General for TARP (SIGTARP). “Metaxas’ criminal scheme involved ‘selling’ $15 million in non-performing assets to outside investors, secretly using bank money to fund the buyers’ 25 percent down payment, and deceiving the board and the bank’s regulator about the source of the down payment. Metaxas’ crime and cover up made the bank look healthier than it was while its TARP application was pending. SIGTARP and its law enforcement partners will ensure that justice is served for perpetrators of TARP-related crime.”

“As Gateway Bank struggled to survive under the burden of its accumulated toxic assets, its CEO Poppi Metaxas turned to sham transactions to deceive regulators and convince them that the bank had rid itself of its bad loans and underwater real estate holdings,” stated Acting United States Attorney Currie. “Today’s guilty plea puts bank officers on notice that they will be brought to justice if they resort to lies and deceit to fix mistakes of the past.” 

Metaxas’ guilty plea took place before United States District Judge Joseph F. Bianco at the United States Courthouse in Central Islip, N.Y. At sentencing, Metaxas faces up to five years in federal prison. 

May 21, 2015 in Current Affairs | Permalink | Comments (0)

Wednesday, May 20, 2015

subscribe to the International Financial Law news headlines

Please SUBSCRIBE to receive the headlines of the "International Financial Law Professor" in the above menu "SUBSCRIBE"       

Thank you for being our reader!  Prof. William Byrnes

INtelligence wheel all agenciesPlease email me ( any submissions, with JPEG or similar graphics, for posting to this Law Prof Blog:

  • articles and comments
  • conference announcements
  • publication releases
  • scuttlebutt and lagniappe


May 20, 2015 in Current Affairs | Permalink | Comments (1)

Former Chief Information Officer of Foundry Networks Sentenced to 6 Years in Prison for Insider Trading

Preet Bharara, the United States Attorney for the Southern District of New York, announced that SECDAVID RILEY, former Chief Information Officer of Foundry Networks, Inc. (“Foundry”), a California-based technology company that was acquired by Brocade Communications, Inc. (“Brocade”), in 2008, was sentenced to 78 months in prison for his participation in an insider trading scheme that yielded approximately $39 million in ill-gotten gains.

The sentence was imposed by U.S. District Judge Valerie E. Caproni. RILEY was convicted following a 13-day trial in September 2014 in which the jury unanimously concluded that RILEY passed inside information about Foundry’s acquisition by Brocade and about Foundry’s earnings for the first quarter of 2008 to Matthew Teeple, a former analyst for San Francisco-based hedge fund Artis Capital Management, L.P. (“Artis”). Teeple pled guilty to related charges in May 2014 and was sentenced principally to 60 months in prison by U.S. District Judge Robert P. Patterson on October 16, 2014.

Manhattan U.S. Attorney Preet Bharara said: “David Riley took advantage of his insider position at Foundry Networks to funnel sensitive nonpublic financial information to Matthew Teeple. This inside information enabled Teeple’s firm to reap nearly $40 million in illegal profits. This conduct has now earned Riley more than six years in federal prison.”

According to the Superseding Indictment filed February 20, 2014, other court documents, and the evidence presented at trial:

As CIO and a Vice President at Foundry, RILEY had access to monthly and quarterly financial reporting, along with other sensitive, nonpublic information (the “Inside Information”) relating to Foundry, well before such information became public. RILEY provided this Inside Information to Teeple—sometimes by telephone and sometimes during meetings the two arranged in the San Jose, California, area. On several occasions, RILEY spoke with Teeple while logged into the database that Foundry used to maintain sensitive financial information. The Inside Information that RILEY passed to Teeple included quarterly financial performance numbers during the first quarter of 2008 and information regarding Brocade’s intended acquisition of Foundry in July 2008.

Teeple passed the Inside Information he got from RILEY on to others, including others at Artis. From the Inside Information Teeple provided about Foundry, Artis ultimately reaped gains of approximately $39 million.

In addition to the prison sentence he received today, RILEY, 48, of San Jose, California, was ordered to pay a fine of $50,000.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation and thanked the Securities and Exchange Commission, which has filed civil charges in a separate action.

Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 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 its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Since the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Telemachus P. Kasulis and Sarah E. McCallum, and Special Assistant U.S. Attorney Michael P. Holland, are in charge of the prosecution.

Criminal Sealed Indictment 

Matthew Teeple 5-year prison sentencing

May 20, 2015 in Current Affairs | Permalink | Comments (0)

Tuesday, May 19, 2015

FinCEN Fines Ripple Labs Inc. in First Civil Enforcement Action Against a Virtual Currency Exchanger

FINCEN 2The Financial Crimes Enforcement Network (FinCEN), working in coordination with the U.S. Attorney’s Office for the Northern District of California, assessed a $700,000 civil money penalty today against Ripple Labs Inc. and its wholly-owned subsidiary, XRP II, LLC (formerly known as XRP Fund II, LLC).

Ripple Labs willfully violated several requirements of the Bank Secrecy Act (BSA) by acting as a money services business (MSB) and selling its virtual currency, known as XRP, without registering with FinCEN, and by failing to implement and maintain an adequate anti-money laundering (AML) program designed to protect its products from use by money launderers or terrorist financiers.

XRP II later assumed Ripple Labs’ functions of selling virtual currency and acting as an MSB; however, like its parent company, XRP II willfully violated the BSA by failing to implement an effective AML program, and by failing to report suspicious activity related to several financial transactions.


Ripple Labs Inc. and XRP II, LLC (formerly known as XRP Fund II, LLC) agree to forfeit $450,000.00 to the Office of the United States Attorney for the Northern District of California (“U.S. Attorney’s Office”). Ripple Labs and XRP II further agree to pay a civil money penalty to FinCEN in the amount of $700,000.00, within 30 days of the date of this agreement. Payment of the forfeiture to the U.S. Attorney’s Office shall be deemed creditable toward FinCEN’s civil money penalty. 2. Migration of Ripple Trade/Ripple Wallet to Registered MSB: Within 30 days of the date of this agreement, Ripple Labs and XRP II will move its service known as Ripple Trade (formerly known as Ripple Wallet, which allows end users to interact with the Ripple protocol to view and manage their XRP and fiat currency balances), and any such functional equivalent, to a money services business that is registered with FinCEN (the “Ripple Trade MSB”). 

b) Users of Ripple Trade (which will include all users registering after the date of this agreement and any existing users who register at the request of Ripple Labs) will be required to submit customer identification information, as required under the rules governing money services businesses, to the Ripple Trade MSB; c) Ripple Labs, via the Ripple Trade MSB, will offer incentives, including but not limited to XRP giveaways, for existing Ripple Trade users to transfer a wallet with customer identification information or account (that is, a wallet or account with customer identification information); and d) After 180 days of the date of this agreement, Ripple Labs will (1) prevent any existing Ripple Trade user who has not transferred to a wallet or account with customer identification information from accessing the Ripple protocol through the Ripple Trade client, and (2) not otherwise provide any support of any kind to such a user in accessing the Ripple protocol.

Effective AML Program: XRP II and the Ripple Trade MSB will implement and maintain, or will continue to maintain, an effective anti-money laundering (“AML”) program, risk assessment, and other compliance measures as required by applicable law, including the Bank Secrecy Act and its implementing regulations. 5. AML Compliance Officer: XRP II and the Ripple Trade MSB will maintain, or will continue to maintain, an anti-money laundering compliance officer to ensure day-to-day compliance with their obligations under the Bank Secrecy Act and its implementing regulations. 6. Training Program: a) Within 45 days after the date of this agreement, XRP II and the Ripple Trade MSB will create an AML training program for Bank Secrecy Act/AML compliance and will provide a copy of the training program to the U.S. Attorney’s Office and FinCEN; b) Within 45 days of the date of this agreement, XRP Fund II and the Ripple Trade MSB will provide training to each of their employees and provide to the U.S. Attorney’s Office and FinCEN written evidence of such training, including a certification of such training, the name of each employee who attended such training, and the dates of such training. 

External audit: Within 60 days, XRP II and the Ripple Trade MSB will secure and retain an independent, external, and qualified party or entity (the “Third-Party Reviewer”), not subject to any conflict of interest, and subject to FinCEN’s and the U.S. Attorney’s Office’s determination of non-objection, to examine their Bank Secrecy Act compliance programs and evaluate whether the programs are reasonably designed to ensure and monitor compliance with the requirements of the Bank Secrecy Act and the FinCEN rules applicable to money services businesses. Three reviews will occur: the first will commence within one year of this agreement; the second will occur in 2018; and the third will occur in 2020. Each review will cover the previous two 3 years, with no less than six months’ worth of transactional analysis of those transactions in which XRP II and the Ripple Trade MSB was a party or served as an exchanger. The Third-Party Reviewer will prepare a written report for each company’s audit committee and the board of directors, setting forth its findings, and will transmit the report and all draft reports to the U.S. Attorney’s Office and FinCEN simultaneously with any transmission to XRP II, the Ripple Trade MSB, or their agents. To the extent that the report identifies any material deficiencies in XRP II’s or the Ripple Trade MSB’s programs and procedures, XRP II and the Ripple Trade MSB shall address and rectify the deficiencies as soon as is reasonably practicable. 

Look-Back for Suspicious Activity: Within 180 days of the date of this agreement, Ripple Labs and XRP II will conduct a review of all prior transactions and attempted transactions to which Ripple Labs and/or XRP II was a party or served as an exchanger, within the last three years involving or aggregating to at least $2,000.00 in funds or other assets. For any such transaction for which it is known, suspected, or there is a reason to suspect that the transaction (a) involves funds involved in illegal activity; (b) is intended or conducted in order to hide or disguise funds or assets derived from illegal activity, or to disguise the ownership, nature, source, location, or control of funds or assets derived from illegal activity; (c) is designed, whether through structuring or other means, to evade any requirement in the Bank Secrecy Act or its implementing regulations; (d) serves no business or apparent lawful purpose, where the MSB knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction; or (e) involves use of the MSB to facilitate criminal activity, Ripple Labs and/or XRP II will file a Suspicious Activity Report within 30 days of such determination. 10. Transaction Monitoring: Ripple Labs will institute AML programmatic transaction monitoring across the entire Ripple protocol, and will report the results of such monitoring to the U.S. Attorney’s Office, FinCEN, and any other law enforcement or regulatory agency upon request. The monitoring and reporting must include, at a minimum: (a) risk rating of accounts based on the particular gateway used; (b) dynamic risk tools to facilitate investigation of suspicious activity, including counterparty reporting, flow of funds reporting, account flagging of suspicious accounts, and degrees of separation reporting; and (c) other reports of protocol-wide activity regarding any unlawful activity. 

on March 18, 2013, FinCEN released guidance that clarified the applicability of existing regulations to virtual currency exchangers and administrators. Among other things, this Guidance expressly noted that such exchangers and administrators constituted “money transmitters” under the regulations, and therefore must register as MSBs. 20. Notwithstanding the Guidance, and after that Guidance was issued, Ripple Labs continued to engage in transactions whereby it sold Ripple currency (XRP) for fiat currency (i.e., currency declared by a government to be legal tender) even though it was not registered with FinCEN as an MSB. Throughout the month of April 2013, Ripple Labs effectuated multiple sales of XRP currency totaling over approximately $1.3 million U.S. dollars. 21. During the time frame that it was engaged in these sales and operated as a money tran

smitter, Ripple Labs failed to establish and maintain an appropriate anti-money laundering program. Ripple failed to have adequate policies, procedures, and internal controls to ensure compliance with the Bank Secrecy Act and its implementing regulations. Moreover, Ripple Labs failed to designate a compliance officer to assure compliance with the Bank Secrecy Act, had no anti-money laundering training in place, and failed to have any independent review of its practices and procedures.

News Release:

Enforcement Action:

Statement of Facts and Violations:

Remedial Framework Agreement:

May 19, 2015 in Current Affairs | Permalink | Comments (0)

Texas A&M Seeking Associate Director for Distance Education Programs

Position link:

Texas A&M University School of Law is seeking to employ an Associate Director for Distance Education Programs.

Seven years of progressively responsible management experience, including three years with Course Management Systems (e.g. Blackboard/Webcourses), webinar systems (e.g. FUZE, WebX, GoToMeeting) and multi-media production (e.g. Echo 360) in an online teaching environment.

Preferred post-graduate degree in law, such as J.D., L.L.M. or equivalent Masters degree in subject matter, such as risk management or wealth management.  Licensed attorney.

May 19, 2015 in Current Affairs | Permalink | Comments (0)

Monday, May 18, 2015

For Small Businesses, Turning a Retirement Burden Into Tax Savings

NU maga logoFor many clients, retirement income planning is as simple as determining how to maximize contributions to an employer-sponsored retirement savings plan—often the primary source of a client’s retirement savings, at least during the accumulation phase of planning. But what about small business clients, where the ability to simply access an employer-sponsored plan falls on their shoulders? 

Most of these clients know of the various retirement plan options, but what is often overlooked is the valuable tax credit that can help small business owners get their plans off the ground—and by helping clients understand the strict IRS requirements for claiming this credit, you can turn a planning burden into tax savings for small businesses.

The Start-Up Credit Basics

read the full analysis of William Byrnes and Robert Bloink on ThinkAdvisor

May 18, 2015 in Current Affairs | Permalink | Comments (0)

Sunday, May 17, 2015

IRS Employees with Tax Misconduct Remain On Job, TIGTA Uncovers!

TigtalogoAccording to Section 1203 of the IRS Restructuring and Reform Act of 1998 (RRA 98) the IRS shall terminate employment of any IRS employee if there is a final determination that the employee committed certain acts of misconduct, including willful violations of tax law, unless such penalty is mitigated by the IRS Commissioner.  As the agency primarily responsible for administering Federal tax law, the IRS must ensure that its employees comply with the tax law in order to maintain the public’s confidence.


The overall objective of this review was to determine whether the IRS had an effective process in place to address willful violations of tax law by employees.


Twice a year, the IRS’s Employee Tax Compliance Branch uses a screening process to identify potential employee tax noncompliance.  TIGTA found that potential employee tax noncompliance cases the IRS identified were forwarded for further examination by managers and Labor Relations Office personnel. More than 1,000 cases of potential employee tax noncompliance are referred each year.

TIGTA reviewed records for cases closed in Fiscal Years 2004 through 2013 (prior to the term of the current Commissioner).  For this period, IRS records show that 1,580 employees were found to be willfully tax noncompliant.  While the RRA 98 states the IRS shall terminate employees who willfully violate tax law, it also gives the IRS Commissioner the sole authority to mitigate cases to a lesser penalty.  Over this 10-year period, 620 employees (39 percent) with willful tax noncompliance were terminated, resigned, or retired. For the other 960 employees (61 percent) with willful tax noncompliance, the proposed terminations were mitigated to lesser penalties such as suspensions, reprimands, or counseling.

TIGTA’s review of a judgmental sample of 34 cases of willful tax violations found that employees with similar violations received different discipline.  In cases that were mitigated, files included mitigating factors as well as evidence that violations of tax law were willful; however, the basis for the Commissioner’s decision to mitigate was not clearly identified in the case files.  Some employees had significant and sometimes repeated tax noncompliance issues, and a history of other conduct issues.  Moreover, management had concluded that the employees were not credible. Nonetheless, the proposed terminations were mitigated by the IRS Commissioner.  These cases included willful overstatement of expenses, claiming the First-Time Homebuyer Tax Credit without buying a home, and repeated failure to file required Federal tax returns timely.


TIGTA recommended that the IRS Commissioner amend existing policy on how Section 1203 cases are handled to include a requirement to document the analysis of evidence and the basis for the decision on whether or not to mitigate penalties to something less than termination.

In its response, the IRS agreed with TIGTA’s recommendation, noting that it plans to review existing procedures to document the analysis of evidence and basis for decision, and consult with its General Legal Services on potential improvements to the transparency of the mitigation process while not interfering with the IRS Commissioner’s authority.  In addition, the IRS has subsequently advised TIGTA that it has begun to document the analysis of evidence and the basis for the decision on whether or not to mitigate penalties for 1203 cases to something less than termination.


To view the report, including the scope, methodology, and full IRS response, go to:

The overall objective of this review was to determine whether the IRS had an effective process in place to address willful violations of tax law by its employees.

TIGTA found that, over a 10-year period (Oct. 1, 2003 through Sept. 30, 2013), 1,580 IRS employees were found to be willfully tax noncompliant.  While RRA 98 states that the IRS shall terminate employees who willfully violate tax law, it also gives the IRS Commissioner the sole authority to mitigate cases to a lesser penalty.  Over this 10-year period, 620 employees (39 percent) with willful tax noncompliance were terminated, resigned, or retired.  For the other 960 employees (61 percent) with willful tax noncompliance, the proposed terminations were mitigated to lesser penalties such as suspensions, reprimands, or counseling.

TIGTA’s review found that in some cases, employees with similar violations received different discipline.  In cases that were mitigated, the files included mitigating factors as well as evidence that violations of tax law were willful; however, the basis for the Commissioner’s decisions to mitigate were not clear.

Some employees had significant and sometimes repeated tax noncompliance issues, and a history of other conduct issues.  Moreover, management had concluded that the employees were not credible.  Nonetheless, the proposed terminations were mitigated by the IRS Commissioner. These cases included willful overstatement of expenses, claiming the First-Time Homebuyer Tax Credit without buying a home, and repeated failure to file required Federal tax returns timely.

"Given its critical role in Federal tax administration, the IRS must ensure that its employees comply with the tax law in order to maintain the public’s confidence,” said J. Russell George, Treasury Inspector General for Tax Administration.  “Willful violation of the law by IRS employees should not be taken lightly, and the IRS Commissioner should fully document decisions made to retain employees whom management has proposed be terminated," he added.

TIGTA recommended that the IRS Commissioner amend existing policy on how Section 1203 cases are handled to include a requirement to document the analysis of evidence and the basis for the decision on whether or not to mitigate penalties to something less than termination.

In its response, the IRS agreed with TIGTA’s recommendation, noting it plans to review existing procedures to document the analysis of evidence and the basis for its decisions, and will consult with its General Legal Services on potential improvements to the transparency of the mitigation process while not interfering with the Commissioner’s authority.  In addition, the IRS has subsequently advised TIGTA that it has begun to document the analysis of evidence and the basis for the decision on whether or not to mitigate penalties for 1203 cases to something less than termination.

Read the report.

May 17, 2015 in Current Affairs | Permalink | Comments (0)

Saturday, May 16, 2015

Indictments of Wilmington Trust's former Controller and Chief Credit Officer for Hiding Bad Loans

William North, former chief credit officer, and Kevyn Rakowski, former controller of TARP recipient Sigtarp_logo Wilmington Trust, were indicted on May 6, 2015, for their respective roles in making false statements to agencies of the United States government.

The charges include one count of making false statements to the Securities and Exchange Commission (SEC) and three counts of making false statements to the Federal Reserve. The charges stem from North’s and Rakowski’s involvement in concealing from the market and the Federal Reserve the total quantity of past due loans on the bank’s books during October and November 2009.

Wilmington Trust was required to report in its quarterly filings with both the SEC and the Federal Reserve the quantity of its loans for which payment was past due for 90 days or more. Investors and banking regulators consider the 90-day number in evaluating the health of a bank’s loan portfolio. According to the Indictment, North, age 55, of Bryn Mawr, Penn., and Rakowski, age 61, of Lakewood Ranch, Fla., helped conceal the truth about the quality of Wilmington Trust’s loan portfolio from the investing public and from the bank’s regulators. 

Notwithstanding these reporting requirements and the value of this metric to investors and regulators, North and Rakowski participated in Wilmington Trust’s failure to include in its reporting a material quantity of past due loans. North, as the bank’s chief credit officer, approved the exclusion or “waiver” of such loans from internal reports that he knew would be used to generate the bank’s external financial reports. Rakowski, as controller, approved the bank’s filings with the SEC and the Federal Reserve knowing that those reports did not include past due loans that had been “waived.”

In November 2010, Wilmington Trust was acquired by another bank at a discount of approximately 46 percent from the bank’s share price the prior trading day.

“Bankers across our nation faced rising past due loans during the financial crisis, but not all made a choice to hide the bad loans from shareholders and regulators like these two former Wilmington Trust officers are alleged to have done,” said Christy Romero, Special Inspector General for TARP (SIGTARP). “One of these shareholders was Treasury on behalf of American taxpayers who invested $330 million in

TARP bailout funds in the bank. Following the alleged criminal scheme to mask the true health of the bank, the TARP bank was later acquired by another bank at a severe discount, roughly half its value from the prior day. We commend United States Attorney Charles Oberly and our law enforcement partners for standing firm with SIGTARP to combat TARP-related crime.”

In announcing the Indictment, United States Attorney Oberly stated, “This Indictment represents another significant step forward in holding accountable those individuals whose criminal conduct contributed to the decline of Wilmington Trust. As the Chief Credit Officer and Controller of Wilmington Trust, North and Rakowski knew that the false information being provided to the Bank’s regulators and shareholders masked the true condition of its loan portfolio. Their respective roles in compiling and providing this false information to regulators during the Fall of 2009 are addressed in the Indictment returned by the Grand Jury.” 

May 16, 2015 in Current Affairs | Permalink | Comments (0)

Friday, May 15, 2015

Disrupting ISIL's Terrorism Financing Through Bank Reporting of Suspicious Activities

On Thursday, April 30, Director Jennifer Shasky Calvery gave a keynote address at the Institute of FINCEN 2International Bankers Annual Anti-Money Laundering (AML) Seminar in New York. She discussed how Bank Secrecy Act reporting has proven to be an essential component in identifying foreign terrorist fighters, their financial facilitators, and the flow of funds. 

Though much of ISIL’s revenue is generated within Iraq and Syria, to sustain its self-described caliphate, ISIL will need to transact with parties that often rely on the international financial system.   Oil, commodities, or antiquities purchasers may use a bank to store funds or send payments.  Local businesses that provide support to ISIL may rely on international trade to replenish stocks. Foreign terrorist fighters may use an ATM, a money services business (MSB), or a depository institution to send or receive funds to facilitate travel to Iraq and Syria.  The impairment of any of its revenue streams or its capacity to spend funds would greatly diminish ISIL’s ability to attract and pay fighters, purchase weapons, or exert influence over territory.

The Financial Action Task Force’s (FATF’s) February 2015 study on ISIL also provides valuable information on that group’s fundraising and financing mechanisms. However, as noted in the FATF study, gaps remain and more work is needed to identify the most effective countermeasures to prevent ISIL from using accumulated funds and disrupt sources of funding.

ISIL financing is a constantly changing picture, and a very difficult and complicated area to address given the operational situation on the ground. Today more than ever, financial institutions play a pivotal role in helping us make sense of this picture. The reports your institutions file with FinCEN provides the U.S. Government with valuable insight into financial activity in areas where al-Qa’ida, ISIL, and other terrorist groups operate. 

Her remarks are available at

May 15, 2015 in Current Affairs | Permalink | Comments (0)

Thursday, May 14, 2015

ACA: TIGTA Issues Report On IRS Readiness To Ensure Compliance With Minimum Essential Coverage And Shared Responsibility Payment Requirements

TigtalogoDelays in employer and insurer reporting of health insurance information reduces the IRS’s ability to determine whether taxpayers and their dependents have basic health insurance as required under the Affordable Care Act (ACA).

That is the conclusion of a new report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).

Beginning in January 2014, the ACA requires each individual to have basic health insurance coverage known as Minimum Essential Coverage (MEC) or pay an additional tax which is referred to as a Shared Responsibility Payment (SRP).  The ACA allows for exemptions from the MEC requirement.  Exemptions can be obtained from a Health Care Exchange or from the IRS.

The objective of this review was to evaluate the status of the IRS’s preparations for determining whether taxpayers maintained MEC or met exemption requirements, and its preparations for assessing the SRP during the 2015 Filing Season.

TIGTA found that the Treasury Department has delayed employer and insurer reporting of health insurance information until March 2016.  Therefore, the IRS has not developed processes and procedures to verify compliance with MEC requirements for the 2015 Filing Season.

However, the IRS will assess MEC compliance on Tax Year 2014 tax returns that it identifies through its normal examination compliance activity.  To assist tax examiners, the IRS developed a tool to compute the SRP. TIGTA found that this tool accurately computes the SRP.  In addition, TIGTA believes the tool would be helpful to taxpayers and should be made available on

In addition, the IRS plans to use information obtained during the 2015 Filing Season to develop post-processing compliance strategies to be used in future years.

“As many taxpayers are unfamiliar with their obligations under the Affordable Care Act, the Internal Revenue Service should provide taxpayers with an online tool to assist them in calculating the amount of the Shared Responsibility Payment owed,” said J. Russell George, Treasury Inspector General for Tax Administration.

TIGTA recommended that the Director, Affordable Care Act Office, add an online SRP calculation tool to for the 2016 Filing Season, in a continued effort to provide taxpayers with self-assistance interactive tools.  The IRS agreed with this recommendation and plans to assess the feasibility and cost to provide an online SRP estimator tool.

Read TIGTA's report



May 14, 2015 in Current Affairs | Permalink | Comments (0)

Wednesday, May 13, 2015

The Cadillac of Taxes: Not Just for Luxury Health Savings Vehicles

NU logoThe effective date for the Affordable Care Act’s “Cadillac tax” on high cost health coverage may be over two years away, but the time to start planning to avoid its application is now. While the tax’s nickname implies that it will apply only to the most luxurious of health plans, preliminary information released by the IRS shows that the tax will likely impact the employer-sponsored health coverage offered to a much more extensive group of middle class taxpayers. 

The penalty itself is steep, and the types of benefits that are counted in determining whether it applies may be surprising—two factors that highlight the importance of thoughtful advanced planning to minimize this tax’s impact, especially when it comes to employer-sponsored benefits like HSAs and FSAs.   

Cadillac Tax Basics ... read about it at ThinkAdvisor

May 13, 2015 in Current Affairs | Permalink | Comments (0)

Tuesday, May 12, 2015

FinCEN Provides Additional E-Filing Method for FBAR Individual Filers

FINCEN 2The Financial Crimes Enforcement Network (FinCEN) has announced that the BSA E-Filing System now provides an alternative E-Filing method for individuals filing the Report of Foreign Bank and Financial Accounts (FBAR).

Filers can now choose between the current method of filing using an Adobe PDF or use the new online form that only requires an Internet browser to file. More information is available at

May 12, 2015 in Current Affairs | Permalink | Comments (0)

Sports Gambling Leader Convicted of Conspiracy to Commit Money Laundering

A federal jury in Oklahoma City convicted a Texas man today of running an illegal international Justice logogambling enterprise and conspiring to commit money laundering.

Bartice Alan King, aka “Luke,” 44, of Spring, Texas, was found guilty of conducting an illegal gambling business and engaging in a conspiracy to commit money laundering.  According to evidence presented at trial, from 2003 to 2013, King was the owner, CEO and President of Legendz Sports, an Internet and telephone gambling enterprise based in Panama City, Panama. 

Over the course of a decade, the international gambling enterprise took more than $1 billion in illegal wagers, almost exclusively from gamblers in the United States on American sporting events

The evidence demonstrated that after founding Legendz Sports, King directed and supervised a network of bookies located all over the United States, who illegally solicited and accepted sports wagers and settled gambling debts.  The evidence further demonstrated that bookies and runners for Legendz Sports transported millions of dollars of gambling proceeds in cash and checks from the United States to Panama.  The checks were made out to various shell companies created by Legendz Sports throughout Central America to launder gambling proceeds. 

The evidence demonstrated that the illegal gambling proceeds were used to further promote the gambling business, including to pay employees, build a new multi-million dollar call center to take bets and build a “bank” of cash to pay future winning bettors.  King used the profits to live a lavish lifestyle, including mansions in Florida and Texas.

May 12, 2015 | Permalink | Comments (0)

Monday, May 11, 2015

Thank You Madrid ! Hello Athens...

Just spent a wonderful lecture week in Madrid discussing FATCA, the OECD's Common Reporting Standards (CRS), and AML.  The first of a six week, round-the-world, FATCA tour.  Now unto Greece to discuss the same, and its potential impact on tax collections that the Greek government may be able to meet its debt obligations.  

Organized by Spanish Financial Crimes attorney Ricardo Seoane Rayo, the Centro de Estudios Madrid lecture 1
 ("CEF") of the university UDIMA hosted my two hour FATCA discussion of the W-8BEN, W-8BEN-E, and a contrast of the FBAR, Form 8938 (Statement of Specified Foreign Financial Assets) and Spanish Form 720.  Attendees joined from the Madrid Bar Association, IE university, big 4 audit firms and also included several tax counsel of public companies.  

Gonzalo Del Valle De Joz, Senior Manager of Ernst & Young, commented on LinkedIn "The conference was excellent".

A personal highlight was lunching with Dr. Jesus Huerta de Soto, discussing legal pedagogy and the potential for cooperation with his new Libertarian focused Master and PhD program, hosted by Universidad Rey Juan Carlos.

May 11, 2015 | Permalink | Comments (1)

Fiduciary v. Suitability at Supreme Court, DOL

NU maga logoAs the Supreme Court gears up to decide a fiduciary responsibility case that could have far-ranging impact on the financial advisor community, all eyes seem to have turned toward the standard for advisors who handle clients’ retirement accounts.

The fiduciary v. suitability debate is not new, but President Obama’s decision to push for the implementation of a fiduciary standard for retirement account advisors at a time when the issue is pending before the Supreme Court has given proponents of the fiduciary standard a potentially game-changing boost. In the coming months, the debate will only heat up as we await both Department of Labor and Supreme Court action—and because widespread press generates client concerns, the time for advisors to familiarize themselves with the arguments is now. 

The question presented in Tibble v. Edison International is technically a narrow one—how does the six-year statute of limitations imposed by ERISA operate with respect to 401(k) investment advice? The real issue, however, could go to the heart of the professional responsibility of financial advisors who advise as to clients’ retirement account investment choices.  read the full analysis of William Byrnes & Robert Bloink at ThinkAdvisor 

May 11, 2015 in Current Affairs | Permalink | Comments (0)

Sunday, May 10, 2015

U.S. Citizen Pleads Guilty for International Business Opportunity Fraud

A U.S. citizen, John White, charged in connection with the operation of a series of fraudulent business Justice logoopportunities based in Costa Rica plead guilty in Miami, the Justice Department announced

John White was charged in a Nov. 29, 2011, indictment in the Southern District of Florida with conspiracy to commit mail and wire fraud as well as mail fraud and wire fraud counts.  White was arrested on Feb. 9, 2012, in Costa Rica pursuant to the indictment, and extradited to the United States on Feb. 11.  As part of his guilty plea to the conspiracy charge, White, also known as Gregory Garrett, admitted that he and his co-conspirators fraudulently sold beverage and greeting card business opportunities to victims in the United States.

The case against White is part of the government’s continued nationwide crackdown on business opportunity fraud.  In addition to White, 11 other defendants have been charged in connection with related business opportunity fraud ventures that operated in Costa Rica.  Nine of those other defendants have been convicted in the United States with sentences ranging from three to 16 years in prison.  Two remaining defendants are not yet in the custody of the United States.  

“Business opportunity schemes target innocent victims who simply want to work for the American dream,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division.  “We will continue to prosecute those who commit fraud and take advantage of those seeking to start a new business.” 

As part of his guilty plea, White admitted that from 2005 to 2008, he and his co-conspirators fraudulently induced purchasers in the United States to buy business opportunities in USA Beverages Inc., Twin Peaks Gourmet Coffee Inc., Cards-R-Us Inc., Premier Cards Inc. and The Coffee Man Inc.  White and his co-conspirators claimed that these opportunities would allow purchasers to sell coffee and greeting cards from display racks located at other retail establishments.  The business opportunities cost thousands of dollars each and most purchasers paid at least $10,000.  Each company operated for several months and after one company closed, the next opened.

White admitted that the conspiracy used various means to make it appear to potential purchasers that the businesses were located entirely in the United States.  The companies used bank accounts, office space and other services in the Southern District of Florida and elsewhere.  In reality, White and his co-conspirators operated out of call centers in Costa Rica. 

White admitted that he and his co-conspirators made numerous false statements to potential purchasers of the business opportunities, including that purchasers likely would earn substantial profits; that prior purchasers of the business opportunities were earning substantial profits; that purchasers would sell a guaranteed minimum amount of merchandise, such as greeting cards and beverages; and that the business opportunity worked with locators familiar with the potential purchaser’s area who would secure or had already secured high-traffic locations for the potential purchaser’s merchandise stands.  Potential purchasers also were falsely told that the profits of the companies were based in part on the profits of the business opportunity purchasers, thus creating the false impression that the companies had a stake in the purchasers’ success and in finding good locations.

As alleged in the indictment against White and others, the companies employed various types of sales representatives, including fronters, closers and references.  A fronter spoke to potential purchasers when the prospective purchasers initially contacted the company in response to an advertisement.  A closer subsequently spoke to potential purchasers to close deals.  References spoke to potential purchasers about the financial success they purportedly had experienced since purchasing one of the business opportunities.  The companies also employed locators, who were typically characterized by the sales representatives as third parties who worked with the companies to find high-traffic locations for the prospective purchaser’s merchandise display racks.  White admitted that he worked as a fronter and reference using assumed names.

White faces a statutory maximum sentence of 25 years in prison, a fine and mandatory restitution
on the conspiracy count.  “This international and domestic investigation shows the Postal Postal inspectorInspection Service’s resolve to protect Americans from business opportunity scams,” said Postal Inspector in Charge Ronald J. Verrochio of the U.S. Postal Inspection Service (USPIS) Miami Division. 

May 10, 2015 in Current Affairs | Permalink | Comments (0)