Wednesday, December 7, 2016

Tax Inspectors Without Borders announces new South-South partnership between Kenya and Botswana

Tax officials from Kenya and Botswana have agreed to a landmark tax assistance project that marks the first South-South co-operation pact under the Tax Inspectors Without Borders OECDprogramme.
 
Under the new partnership, experts from the Kenya Revenue Authority (KRA) will provide technical assistance on audits of multinational enterprises to counterparts in the Botswana Unified Revenue Service (BURS) starting in early-2017.

Direct assistance in audits is a cornerstone of the Tax Inspectors Without Borders (TIWB) project, which was launched in July 2015 by the Organisation for Economic Co-operation and Development (OECD) and the United Nations Development Programme (UNDP) as an innovative attempt to address widespread tax avoidance by multinational enterprises in developing countries. The programme aims to boost domestic resource mobilisation, which is seen as a key element towards financing the UN's Sustainable Development Goals. 
 
The new Kenya-Botswana co-operation agreement was announced during a seminar on domestic revenue mobilisation organised by the OECD and the African Tax Administration Forum (ATAF), in the margins of the 2nd High-Level Global Partnership for Effective Development Co-operation meeting in Nairobi, Kenya.
 

December 7, 2016 in OECD | Permalink | Comments (0)

Tuesday, December 6, 2016

Money Laundering Evaluation of the United States

The United States has a robust regime to combat money laundering and terrorist financing; however, serious gaps impede timely US FATFaccess to beneficial ownership information

The United States has a well-developed and robust anti-money laundering and counter-terrorist financing (AML/CFT) regime through which it is effectively investigating and prosecuting money laundering and terrorist financing. However, the system has serious gaps that impede timely access to beneficial ownership information.

The FATF and the Asia/Pacific Group on Money Laundering (APG) conducted a detailed assessment of the United States’ AML/CFT framework, and have adopted the country’s 4th mutual evaluation report.

The U.S. dollar’s global dominance and the large volumes of daily transactions through its banks expose the U.S. to substantial money laundering risks. It also faces significant terrorist financing risks due to the unique openness and global reach of its financial system, and the direct threat terrorist groups pose to U.S. interests. The U.S. has a significant level of understanding of these risks.

Terrorism and its financing have the highest priority, and the U.S. is highly effective in this area. It proactively and aggressively investigates, prosecutes and convicts individuals for terrorist financing and can capture any form of material support. The U.S. appears to have kept terrorist funds out of its financial system to a large extent by effectively implementing targeted financial sanctions. Proliferation financing is also a high priority for the U.S. and it has effectively frozen large volumes of assets through its sanctions programs.

The U.S. aggressively pursues high-value confiscation and has been very effective, as the considerable value of confiscations each year demonstrates (over USD 4.4 billion in 2014).

National coordination and cooperation on AML/CFT issues has improved significantly since the last evaluation, in particular on counter-terrorism, counter-proliferation and related financing issues. The federal law enforcement agencies make good use of their extensive  investigation capabilities and intelligence. Authorities pursue a wide variety of money laundering activity, in particular complex and high-dollar value criminal offences, resulting in over 1 200 money laundering convictions per year.

The U.S. also has a substantially effective system for international cooperation, and provides good quality and constructive mutual legal assistance and extradition.

Risk mitigation through  the regulatory framework is less well-developed and has some significant gaps, including minimal coverage of investment advisers, lawyers, accountants, real estate agents, trust and company service providers (other than trust companies).

AML/CFT supervision of the banking and securities sectors appears to be robust as a whole. The U.S. has a range of sanctions and dissuasive remedial measures that it can and does impose on financial institutions. However, while the U.S. placed a strong supervisory focus on the casino sector in recent years, the lack of comprehensive AML/CFT supervision for other designated non-financial businesses and professions is a significant supervisory gap. The Federal authorities have a good understanding of the risks of complex structures of legal persons and arrangements being used to hide ownership and launder money. However, serious gaps in the legal framework prevent access to accurate beneficial ownership information in a timely manner. Fundamental improvements are needed in these areas.

Full report

Executive Summary

Earlier reports on the United States' measures to combat money laundering and terrorist financing

December 6, 2016 in AML | Permalink | Comments (0)

OECD releases mutual agreement procedure (MAP) statistics for 2015

The OECD’s work to advance tax certainty specifically includes work to improve the timeliness of processing and completing mutual agreement procedure (MAP) cases under tax OECDtreaties and to enhance the transparency of the MAP process. As part of this work, the OECD makes available to the public, via its website, annual statistics on the MAP caseloads of all its member countries and of non-OECD economies that agree to provide such statistics. MAP statistics are now available for the 2015 reporting period. 

Improving the effectiveness of dispute resolution mechanisms is an integral component of the work on BEPS and is the aim of Action 14 of the BEPS Action Plan (read the Final 2015 Report on Action 14 of the BEPS Action Plan). One of the principal outcomes of the work on Action 14 is the commitment by OECD and G20 countries to a minimum standard with respect to the resolution of treaty-related disputes. As part of the Action 14 minimum standard, members of the Inclusive Framework on BEPS will report MAP statistics pursuant to an agreed reporting framework ; such reporting will provide a tangible measure of the effects of the implementation of part of the minimum standard. The MAP statistics made available for 2016 and following years will accordingly contain additional information and will include reports from a significant group of non-OECD economies, most of which do not currently report MAP statistics to the OECD.

The MAP statistics now made available correspond to the 2015 reporting period (MAP statistics were provided earlier for reporting periods 2006 through 2014). Considered in the aggregate, MAP inventories in OECD member countries at the end of these reporting periods show a continuous increase from 2006 to 2015, with a slight decrease in 2010. For those countries that reported them, the average cycle times for cases completed, closed or withdrawn decreased in 2015 (20.47 months) as compared to 2014 (23.79 months). The separation of reported MAP cases into cases with other OECD member countries and cases with non-OECD economies continues to show, in general, that more than 90% of OECD member countries’ MAP inventories are cases with other OECD member countries.

For purposes of the 2015 MAP statistics now made available, the reporting framework and the definitions of terms used in reporting – as well as the other results of the proposals in the 2004 Committee on Fiscal Affairs (CFA) report on improving the resolution of cross-border tax disputes – are described in detail in the CFA’s 2007 report Improving the Resolution of Tax Treaty Disputes.


The statistics for each reporting period (generally a calendar year) include:

  • opening inventory of MAP cases on the first day of the reporting period;
  • number of MAP cases initiated during the reporting period;
  • number of MAP cases completed during the reporting period;
  • ending inventory of MAP cases on the last day of the reporting period;
  • cases closed or withdrawn with double taxation during the reporting period; and
  • average cycle time for cases completed, closed or withdrawn during the reporting period.

The data for each reporting period are separated based on the year the relevant MAP cases were initiated. In addition, since 2008, the statistics have been divided into MAP cases with OECD member countries and cases with Partner economies for countries that have provided that information. More information on the MAP reporting framework, including the definitions of terms used in reporting, can be found in the 2007 Report “Improving the Resolution of Tax Treaty Disputes”.

Readers should note that 2015 is the last reporting period for which statistics will be provided in this format. For 2016 and subsequent years, members of the Inclusive Framework on BEPS will use a substantially revised reporting framework which has been developed for use in monitoring the implementation of the BEPS Action 14 minimum standard.  

The tables below show the number of new MAP cases initiated in 2006 through 2015 and the inventory of open MAP cases at the end of each reporting period for OECD member countries and for certain Partner economies that have provided statistics. For detailed country-by-country statistics, please click on the country name for a link to the statistics for that country.

Number of New MAP Cases Initiated by Reporting Period

OECD member countries

   

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Australia

9

13

8

19

21

10

10

8

10 14

Austria

29

26

36

30

38

35

61

41

49 43

Belgium

31

30

71

213

120

120

151

124

205

428

Canada

76

70

85

103

101

94

87

127

127 130

Chile

0

0

0

0

0

0

0

0

0 0

Czech Republic

5

10

5

6

8

12

13

7

12 11

Denmark

15

18

21

22

20

24

24

22

43 52

Estonia

--

--

--

--

--

0

0

0

1 2

Finland

1

11

8

5

11

13

14

56

49 20

France

104

100

154

169

135

173

181

216

201 173

Germany

212

186

177

177

150

306

277

267

374 363

Greece

1

2

--

--

--

5

3

3*

4 6

Hungary

4

3

1

2

1

0

1

2

4 4

Iceland

1

0

0

0

0

1

2

1

4 1

Ireland

3

3

2

6

7

6

12

12

5 13

Israel

--

--

--

--

4

9

5

3

3 2

Italy

14

20

14

31

22

41

45

52

89 80

Japan

37

49

40

44

34

22

31

36

45 38

Korea

8

9

13

25

13

24

22

23

33 42
Latvia_small

Latvia

-- -- -- -- -- -- -- 0 0* 3

Luxembourg

22

31

31

25

35

75

39

45

116 212

Mexico

14

11

5

10

4

5

17

12

4 3

Netherlands

80

57

--

64

51

34

83

75

87 128

New Zealand

4

5

2

6

4

4

3

14

28 7

Norway

15

21

30

21

16

7

10

26

18 33

Poland

11

7

19

14

7

9

5

19

18 6

Portugal

10

7

5

14

17

15

17

6

11 11

Slovak Republic

0

--

1

1

3

4

1

2

2 3

Slovenia

--

--

3

0

2

2

3

6

11 5

Spain

18

67

24

24

24

18

36

25

33 30

Sweden

72

61

104

64

104

111

100

65

91 92

Switzerland

--

45

99

119

65

112

120

131

109 148

Turkey

0

2

1

3

4

0

0

2

2 2

United Kingdom

--

55

44

56

68

54

69

79

117 115

United States

240

257

308

326

252

279

236

403

354 289

TOTAL

1036

1176

1311

1599

1341

1624

1678

1910

2259 2509

* Where a country did not report the number of new MAP cases initiated in the reporting period, this chart uses the number of new MAP cases reported for the preceding reporting period. These numbers are indicated with an asterisk.

Latvia reported MAP statistics to the OECD for the first time for the 2013 reporting period. 

Partner economies

   

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Argentina

--

--

0

1

0

--

--

-- -- 1

China

--

--

--

--

--

--

--

23 29 25

Costa Rica

--

--

--

--

--

--

--

-- 1 0
Lithuania_small

Lithuania††

--

--

--

--

--

--

--

-- -- 0

South Africa

--

--

4

1

5

5

3

2 4 13

TOTAL

--

--

4

2

5

5

3

25

34 39

China reported MAP statistics to the OECD for the first time for the 2013 reporting period.

Costa Rica reported MAP statistics to the OECD for the first time for the 2014 reporting period.

††Lithuania reported MAP statistics to the OECD for the first time for the 2015 reporting period. 

December 6, 2016 in BEPS, OECD | Permalink | Comments (0)

Monday, December 5, 2016

OECD releases further BEPS guidance on Country-by-Country reporting and country-specific information on implementation

The Inclusive Framework on BEPS has released two new documents to support the global implementation of Country-by-Country (CbC) reporting (BEPS Action 13): OECD

  • Key details of jurisdictions' domestic legal frameworks for CbC reporting; and
  • Additional interpretive guidance on the CbC reporting standard.

These documents provide essential information that will give certainty to tax administrations and MNE Groups alike on implementation of CbC reporting.

The details on jurisdictions' legal frameworks for CbC reporting include the status of the legislation, first reporting periods, availability of surrogate filing and voluntary filing, and whether local filing can be required. This will be updated as Inclusive Framework members continue to finalise their legal frameworks. Information will also be published in the coming months as to the Qualifying Competent Authority Agreements (QCAA) being put in place to facilitate the international exchange of CbC reports between tax administrations.

The additional guidance relates to the case where a notification to the tax administration may be required to identify the reporting entity within a MNE Group (as provided in Article 3 of the Model Legislation in the Action 13 Report). The guidance confirms that if such notifications are required, jurisdictions have flexibility as to the due date for such notifications. This may be particularly relevant during the transition period where jurisdictions are still completing their implementation of CbC reporting, as MNE Groups may not yet have the necessary information to submit their notifications. The guidance also confirms that jurisdictions may wish to consider other transitional relief for MNE Groups with respect to these notifications, which would also be consistent with the minimum standard.

Additional guidance will be published as necessary to support the swift, consistent and global implementation of CbC reporting.

December 5, 2016 in BEPS, OECD | Permalink | Comments (0)

100 jurisdictions have concluded negotiations on a multilateral instrument that will swiftly implement a series of tax treaty measures

Countries adopt multilateral convention  to close tax treaty loopholes and improve functioning of international tax system

More than 100 jurisdictions have concluded  negotiations on a multilateral instrument that will swiftly implement a series of  tax treaty measures to update international tax rules and lessen the opportunity for tax avoidance by multinational enterprises.
 
The new instrument will transpose results from the OECD/G20 Base Erosion and Profit Shifting Project (BEPS) into more than 2 000 tax treaties worldwide. A signing ceremony will be held in June 2017 in Paris.

December 5, 2016 in BEPS | Permalink | Comments (0)

US Banks Turning Over Argentinian Non-Declared Accounts to Argentina

Bloomberg reports that JP Morgan and other US Banks are contacting their Argentina clients with the news that their accounts will be closed. Read Bloomberg  

Bloomberg reports that:

Argentines who come clean on their untaxed savings by March 31 will pay a one-time fine of as much as 15 percent. They can also invest in three-year and six-year Treasury bonds or make long-term investments in infrastructure projects, housing, mortgages or small and medium-size businesses.  Under the program, participants must open a special bank account before Oct. 31 and have until Nov. 21 to deposit undeclared cash.

December 5, 2016 in FATCA, Tax Compliance | Permalink | Comments (0)

Sunday, December 4, 2016

Billions of undeclared Brazilian assets captured by disclosures

Brazilian taxpayers have admitted owning some CHF50.6 billion ($52 billion) in previously undisclosed assets overseas, with Switzerland seen as one of the top potential destinations for stashing the money.  

All those holding undeclared assets in foreign institutions by December 31, 2014 were given the chance to be pardoned, in exchange for some 30% of their undeclared wealth: 15% for revenue tax and another 15% on penalty fees. See the expose on Swiss Info

Adding the taxes and fees together, the Brazilian government was able to raise $15 billion (CHF15.4 billion), which will be mostly used to help cover deficits on regional and national budgets.Data from 2015 – unrelated to the repatriation scheme efforts – shows that Brazilian investors held around $45.7 billion in currency and deposits at foreign banks.

Data from 2015 – unrelated to the repatriation scheme efforts – shows that Brazilian investors held around $45.7 billion in currency and deposits at foreign banks.

Read the Full Analysis and facts/figures at Swiss Info News

December 4, 2016 in Tax Compliance | Permalink | Comments (0)

Saturday, December 3, 2016

Remarks by Acting Under Secretary Adam Szubin at the ABA/ ABA Money Laundering Enforcement Conference

Tank you, Rob, for your kind introduction and thank you to the American Bankers Association and American Bar Association for inviting me to speak today.  I FINCEN 2recognize many of you from last year’s Conference, and it is a pleasure to be back again this year.
           
I would like to focus my remarks today on de-risking—an issue we discussed at length at last year’s Conference and one that remains a key priority for the U.S. Department of the Treasury.  In fact, Treasury has devoted a great deal of time and attention over the past few years to better understanding the issue and developing appropriate responses. 
           
I will first take a moment to provide an overview of how we have come to understand the issue and our efforts thus far to address de-risking as well as improve financial transparency, and then I will focus on what you—the private sector—can do to ensure a risk based approach to your correspondent banking relationships.
 
Importance of Financial Access and Financial Transparency
 
The U.S. financial system is essential to proper functioning of the global economy and correspondent banking relationships, in particular, are critical for ensuring that resources flow within and across economies to facilitate trade, foster economic growth, and provide access to financial services.  Though some have pointed to the current regulatory environment as working at cross purposes with financial inclusion, we at Treasury firmly believe that expanding access to the financial system and protecting it from illicit activity are mutually reinforcing goals that can and must be addressed simultaneously. 
 
That is why we are working across our government to develop appropriate policy responses that facilitate financial access to the regulated financial sector, enhancing financial transparency and accessibility, with the end result being a safe and reliable financial system that is protected from abuse by illicit actors.  Addressing losses in correspondent banking relationships has been central to our work on this front, and I would like to spend some time today discussing both what we have come to learn over the course of our lengthy engagement on this topic, as well as some of the steps we have taken to address the issue.
 
De-risking: definition, scope, and drivers
 
The term “de-risking” has come to mean different things to different people, and is not consistently used by various stakeholders.  We prefer to focus the term more precisely on what we view as problematic, which are reports of financial institutions indiscriminately terminating or restricting broad classes of customer relationships without a careful assessment of the risks and the tools available to manage and mitigate those risks.  This type of activity is not in line with U.S. regulatory expectations or with global standards.  
 
Treasury has been focused on this issue for some time now, and over the course of our engagement we have come to understand that some sectors and jurisdictions are affected more than others, but overall, there is no evidence to suggest a global systemic impact.  For example, last year the World Bank undertook a survey that found that small jurisdictions with significant offshore banking activities were disproportionately affected.  Given what we have come to understand about some of the reasons why some global banks are reassessing their business relationships, this is not entirely surprising. 
 
These reasons include that correspondent banking is a low-margin business in a global banking environment that has seen many multinational banks reassess their global strategic footprint, cut costs, and reallocate capital.  Heightened prudential standards following the global financial crisis have also had an effect on banks’ decisions, with more rigorous capital adequacy and liquidity requirements precipitating shifts away from some emerging markets in favor of shoring up core businesses. 
 
Finally, there are often very real concerns about the risks presented by anti-money laundering and countering the financing of terrorism (AML/CFT) compliance.  While “regulatory risk” and fear of fines has been cited by some, the core issue here relates to poor and uneven implementation of global AML/CFT standards—either by individual foreign banks or by jurisdictions as a whole.  The fact is that some countries lag in the effective implementation of global AML/CFT standards and have not taken the necessary steps to implement the proper legal, regulatory, and supervisory frameworks to adequately counter illicit finance.
 
U.S. Government Efforts to Address De-risking and Improve Financial Transparency
 
So what is the U.S. government doing about it?
 
Ongoing Engagement
 
First, we are engaging extensively with the private sector, including ABA members, as well as with foreign jurisdictions, MSBs, non-profit organizations, and a number of other key stakeholders to ensure we are always up-to-date on the scope and scale of the issue, as new developments arise. 
 
We are also working to foster dialogue, exchange information, and identify solutions through a series of bilateral and regional dialogues focusing on correspondent banking.  Over the last few years, we have engaged in a number of these public-private dialogues in countries and regions affected by de-risking, such as the Middle East and the Caribbean.  These events bring together U.S. regulators, policymakers, and private sector institutions to engage with foreign counterparts to foster frank conversations about our cross-border relationships, including any challenges that might exist.  They have provided opportunities for countries and banks to hear directly from correspondent banks and regulators regarding their approach to decision-making, supervision, and enforcement.  Finally, the dialogues present opportunities to help develop a shared understanding of how global AML/CFT standards should be implemented, so that jurisdictions with gaps in their domestic frameworks may better position themselves to address these deficiencies.
 
Outside of the Treasury-led dialogues, we also work closely with international bodies such as the Financial Action Task Force, or the FATF, and the Financial Stability Board (FSB), as well as with international financial institutions such as the World Bank and International Monetary Fund (IMF).  Our work with these organizations ranges from developing more robust data collection and analysis on correspondent banking trends to helping to further clarify global AML/CFT standards, as well as improve their implementation across jurisdictions.
 
Clarifying Expectations and Standards
 
We believe that we cannot address this complex issue by relaxing the prudential requirements that have made our financial system more stable or the AML/CFT rules that have made it safer.  Rather, we must ensure that the global standards in place are well understood and implemented consistently and effectively, and in doing so we will enhance financial transparency and subsequently improve financial access. 
 
The United States maintains an effective AML/CFT regime, which rests on principles of clear requirements, strong and effective supervision, and proportional enforcement.  While we believe our standards and expectations are clearly described in regulation and guidance, Treasury is working to further clarify both global standards and U.S. supervisory and enforcement expectations with respect to AML/CFT and sanctions in the area of correspondent banking. 
 
As part of that effort, this past August Treasury and all of the U.S. banking regulators issued a “Joint Fact Sheet on Foreign Correspondent Banking” that highlights the efforts of U.S. authorities to implement a fair and effective regulatory regime and clarifies further the U.S. government’s approach to supervision and enforcement.  The Fact Sheet describes the expectations of U.S. regulators, the supervisory examination process, and the use of enforcement actions. 
 
Notably, the Fact Sheet highlights that about 95 percent of AML/CFT and sanctions compliance deficiencies identified by Federal Banking Agencies are resolved through cautionary letters or other guidance by the regulators to the institution’s management without the need for a public enforcement action or penalty.  In addition, over 95 percent of OFAC sanctions investigations are closed with administrative actions that do not rise to the level of a monetary penalty or other public enforcement response.  The rare cases of large monetary penalties or settlements for AML/CFT and sanctions violations have generally involved a sustained pattern of reckless or willful behavior over a period of multiple years and a failure by the banks’ senior management to respond to warning signs that their actions were illegal.  Further, the Fact Sheet dispels certain myths about U.S. supervisory expectations, including that there is a general expectation for banks to conduct due diligence on the individual customers of foreign financial institutions, (a practice that has been referred to as “Know Your Customer’s Customer,” or “KYCC”), which is not the case.
 
The Office of the Comptroller of the Currency (OCC) also issued guidance in early October that articulates OCC’s expectations for banks to re-evaluate risk in their foreign correspondent banking relationships.  The guidance does not create any new supervisory expectations, but rather reiterates OCC’s current expectation that banks assess these risks as part of their on-going risk management and due diligence practices, and also provides “best practices” for banks to consider when conducting their reevaluations.
 
These include: i) communicating clearly recommendations for foreign correspondent account closure to appropriate levels of management; ii) considering the potential for adverse international financial inclusion impacts on customers or regions in deciding to close accounts; iii) communicating with customers while determining whether to end a relationship; iv) providing adequate time for customers to open new accounts prior to termination; and v) maintaining clear records of the bases for account terminations.
 
It is clear that many banks already follow these best practices.  We hope the guidance contributes positively to how banks approach their correspondent banking relationships and promotes constructive engagement between correspondent and respondent banks, including on the importance of following the risk-based approach. 
 
We are also working to advance our efforts to help further clarify how global standards are understood and implemented internationally.  For example, Treasury has worked through the FATF to help shape the organization’s recent work on correspondent banking, most notably the FATF’s October guidance paper on correspondent banking.  This guidance clarifies that the FATF Recommendations do not require correspondent financial institutions to know their customer’s customer. This guidance was developed in collaboration with the private sector. We believe this guidance will be helpful in clarifying the application of the FATF standards in the context of correspondent banking relationships.  
 
Offering Technical Assistance
 
Treasury continues to work with countries to improve their AML/CFT and prudential regimes through technical assistance.  Treasury’s Office of Technical Assistance offers technical assistance to roughly 18 countries, including a number of countries impacted by de-risking.  Their work focuses on supporting collaborative efforts that improve the capacity of Financial Intelligence Units, financial and non-financial sector supervision, and enforcement authorities in countries with a demonstrated willingness to improve their supervisory and AML/CFT frameworks.
 
Treasury has also urged, at the highest levels, the World Bank and the IMF to increase their technical assistance efforts and funding for the jurisdictions most acutely affected by de-risking.  This is important because both organizations’ work in this area relies heavily on donor-supported trust funds, which are principally limited to work in low-income countries – while de-risking also affects middle and upper-middle income countries, such as those in the Caribbean.
 
Removing Barriers to Communication
 
In closing, I want to share with you a success story in which collaborative efforts to address de-risking concerns, improve information sharing, and help correspondent banks comply with their domestic obligations prompted positive reform with respect to AML/CFT implementation, and financial inclusion and financial transparency efforts. 
 
Last year, we learned from banks that Mexican privacy regulations were impeding the ability of U.S. banks to obtain the necessary transaction information from their Mexican counterparts necessary for U.S. banks to comply with U.S. AML obligations, which in turn was impacting correspondent relationships between financial institutions in the United States and Mexico.  To address the issue, U.S. and Mexico government officials and senior compliance officers of major U.S. and Mexican banks initiated an information-sharing effort to revise Mexican information-sharing regulations to allow Mexican banks to more readily share important transaction information with their U.S. correspondent banks.  The change, prompted initially by concerns of de-risking, puts U.S. financial institutions in a better position to determine whether cross-border transactions are suspicious.  Moreover, it strengthens Mexico’s financial system and supports our collective efforts to improve financial inclusion and financial transparency.
 
Role of the Private Sector
 
Those are some of the efforts we have underway to address de-risking concerns and enhance financial transparency, and now I’d like to highlight some of the positive steps the private sector can take to augment these efforts.
 
As I mentioned previously, Treasury engages regularly with industry and we understand that the perception that banks are taking an indiscriminate approach to terminating, restricting, or denying services across entire sectors is inaccurate and overblown and not, in fact, what most institutions are doing in terms of best practices.  While the U.S. government cannot instruct the private sector on who to bank, we encourage you to continue to take the time and effort to assess your controls and the risks presented by individual clients and where you cannot manage effectively that risk make conscientious decisions. 
 
Conclusion
 
As I noted at the beginning of my remarks, we have a shared responsibility to expand access to the financial system while protecting it from illicit activity, and to ensure that our collective efforts result in a well-functioning, transparent, resilient, safe, and sound financial system.
 
While there have been a number of improvements in AML/CFT controls and regimes over the last few years, it is essential that countries and their financial institutions work to improve and effectively implement and enforce their AML/CFT regimes and controls.  We have seen that, with the necessary political will, countries and financial institutions can address concerns about deficiencies in their AML/CFT compliance and enforcement regimes, thus building the confidence that global financial institutions have in them.
 
Clearly, many challenges remain, and as we strive towards a global financial system that is inclusive, safe, and transparent, your help remains critical.  I look forward to your views on how we can continue to further our objectives, including how we can work together to improve implementation of and adherence to global AML/CFT standards.

December 3, 2016 in AML | Permalink | Comments (0)

Friday, December 2, 2016

Texas Man Pleads Guilty to Running Fraudulent Investment Companies and Obstructing Securities and Exchange Commission Investigation

A San Angelo, Texas, man pleaded guilty today to fraud and obstruction of justice charges in connection with two investment companies he ran that defrauded investors out of Justice logoapproximately $900,000 over a four-year period.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney John R. Parker of the Northern District of Texas and Special Agent in Charge Thomas M. Class Sr. of the FBI’s Dallas Office made the announcement.

Stanley Jonathan Fortenberry, 50, pleaded guilty to two counts of mail fraud and one count of obstructing an official proceeding before U.S. Magistrate Judge D. Gordon Bryant Jr. of the Northern District of Texas.  Sentencing will be scheduled at a later date. 

As part of his guilty plea, Fortenberry admitted that he ran an investment company called Premier Investment Fund (Premier), which raised funds from investors for social media projects run by another company with ties to the country music industry.  Fortenberry misled investors about the profitability of the company and about the destination of the investors’ funds.  Fortenberry admitted that he diverted approximately half of investors’ funds into his own pocket and to pay the expenses of his fundraising operation. 

Fortenberry also admitted that, from 2013 to 2014, he ran Wattenberg Energy Partners (Wattenberg), which raised funds for oil and gas drilling projects in northern Colorado.  Fortenberry admitted that he set up the company in his son’s name because he was then under investigation by the Securities and Exchange Commission (SEC) for misusing the Premier investors’ funds.  He used a network of salespeople to solicit individuals over the phone to invest in drilling projects.  Fortenberry admitted that he spent the vast majority of the funds on himself and the company’s fundraising operation.  In October 2014, at an administrative hearing with the SEC, Fortenberry falsely denied having control of or working for Wattenberg.

Fortenberry admitted that the total loss to victims of both schemes was $887,311.

As part of the department’s investigation into Wattenberg, Peter Szondy, 70, and Stanley Stephen Fortenberry, 24, both pleaded guilty and admitted to committing fraud while working for Wattenberg.

The FBI’s Dallas Office investigated the case.  Trial Attorney William E. Johnston of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Sean Long of the Northern District of Texas are prosecuting the case.  The SEC has provided substantial assistance in this case and referred this matter to the department.

The Fraud Section plays a pivotal role in the department’s fight against white collar crime around the country.  Today’s guilty plea 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.  Over the past three fiscal years, the department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants, including more than 2,700 mortgage fraud defendants.  For more information on the task force, visit www.stopfraud.gov.

December 2, 2016 | Permalink | Comments (0)

Thursday, December 1, 2016

Investigating BOTNETs

This blog post addresses the threat posed by botnets, and the need for an amendment to the Federal Rules of Criminal Procedure to identify a single court that can hear an Justice logoapplication for a search warrant to investigate a nationwide botnet attack.  A previous post addressed the threat posed by internet anonymizing technology and the need for a related amendment to ensure that investigators can identify at least one court from which to seek a search warrant.  A third post will address arguments raised by commentators against the proposed amendments.

One of the fastest-growing species of computer crime is the botnet.  A botnet is essentially a mass hack—a network of victim computers that have been surreptitiously infected with malware and are controlled remotely by criminals.  Botnets range in size from hundreds to millions of infected computers, and they are used for a variety of criminal purposes: sometimes the criminals invade the privacy of the victim users by installing keylogging software to steal sensitive personal or financial information, or by secretly activating computer cameras.  Criminals also use botnets to install ransomware that holds a user’s critical information hostage by encrypting it unless the user agrees to pay a ransom.  And sometimes criminals use victim computers to attack other victims—for example, recent news reports state that a botnet was used to commit the distributed denial of service (DDoS) attack on an Internet infrastructure provider that crippled Internet usage in the United States on Oct. 21, 2016.  Studies by security firms suggest that the rise of botnets is one of the key cybersecurity threats facing American citizens and businesses, and that millions of computers in the United States may be surreptitiously under the control of criminal malware.

Fighting back against botnets, however, can be challenging.  Criminals use sophisticated malware to attack victims, and even a comparatively low infection rate can yield hackers a vast haul of compromised computers.  The malware also burrows into unexpected places on computers, masks itself among innocent files and communicates with command-and-control servers using encrypted traffic that may be unreadable to sophisticated intrusion-detection systems.  The masterminds are often located abroad, which confers upon them the benefit of all of the usual limitations we face in overseas investigations – limited access to digital evidence, delays caused by reliance on the mutual legal assistance process and the possibility of safe haven from arrest or prosecution in their country of residence.  Finally, some botnets are designed to inflict damage, such as by remotely erasing or encrypting data on the victim computers, at the criminals’ whim.  For all of these reasons, although botnets pose a grave threat to innocent Americans, attempts by law enforcement and computer security professionals to defeat them require a substantial investment of manpower and expertise, seamless public-private cooperation, and often months or more to plan.  Absent such efforts, our nation’s computer networks, including sensitive networks that may be located in hospitals or police stations, may remain effectively under the control of ruthless, mercenary and tech-savvy criminals.

Both the Department of Justice and the private sector have had some success in dismantling botnets.  In 2014, the FBI, in conjunction with a coalition of nearly a dozen foreign countries and a suite of elite computer security firms, dismantled the Gameover Zeus botnet, which used keystroke logging to collect online financial account information, inflicting over $100 million in losses on American victims alone, and which was also used to infect victim computers with the notorious Cryptolocker ransomware software.  The Gameover Zeus operation was conducted under federal court supervision and relied on both criminal authorities (to seize command and control servers) and a civil injunction (to authorize the redirection of enslaved computers to a server controlled by the court).  As a result of the operation, hundreds of thousands of computers around the world were freed from the control of an Eastern European criminal organization.  Similarly, the Microsoft Corporation has undertaken a number of operations against specific botnets that target Microsoft Windows software, relying on authorities such as civil injunctions under the Lanham Act and the Computer Fraud and Abuse Act, and orders issued under the All Writs Act.

More operations like the highly successful one against Gameover Zeus are necessary if we are to keep up with the cybercriminals engaged in this kind of mass hacking and privacy invasion.  But, unfortunately, current law has not kept up with the technology.  Beyond the technical obstacles, several key legal gaps can stymie botnet investigations and remediation before they even get off the ground.  One such obstacle is in the Federal Rule of Criminal Procedure governing search warrants.  Liberating a computer from a botnet might require first obtaining some information from that computer, such as what version of the malware it is running.  If the government wants to obtain that information, it might need a search warrant.  If investigators seek a warrant to search a single infected computer, they are authorized to bring the warrant application to the court where the computer is located.  And if investigators seek to search multiple infected computers—for example, to determine what kind of computers have been infected or what operating systems they are running—and those computers happen to be located in a single judicial district, they can bring their application to a single judge in that district.  But botnets are, typically, nationwide crimes.  In these cases, the Rules as currently written (and as conceived in 1917) would require the investigators to apply simultaneously for identical warrants in all 94 judicial districts in America—a severe impracticality if not impossibility.  The Rules did not anticipate nationwide crime of this type and make no provision to investigate it efficiently.  The result is that while we are struggling to keep up with criminals who, as you read this, are committing mass, harmful hacking of our computers, our own archaic procedural rules may prevent investigators from taking timely, smart, lawful and court-supervised enforcement action.  In short, under our current procedures, botnets may be “too big to investigate.”

However, there is good news: three years ago the Justice Department proposed an amendment to the Rules that would fix this problem.  The proposed amendment would require that agents must still bring their warrant applications to court and meet the same exacting constitutional requirements as before.  But in cases involving botnets—specifically, in cases involving the criminal hacking of computers in five or more judicial districts—the rule would permit the agents to bring the application to one federal court rather than up to 94 at the same time.  The rule would make no changes to the substantive law governing probable cause or particularity, or to when it may or may not be appropriate to search an infected computer.  The only thing the rule would do is identify a single court that is authorized to consider those questions in the context of an application for a search warrant.

December 1, 2016 in AML | Permalink | Comments (0)

Wednesday, November 30, 2016

Building Contractor Company Executive Convicted of Theft from Labor Union, Unlawful Labor Payments, Fraud and Money Laundering

The owner and CEO of a Greenbelt, Maryland, building contracting company was convicted today for stealing $1.7 million from Local 657 of the Laborers International Union of North FBISeal (1) America (LIUNA) and other related offenses.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Assistant Director in Charge Paul M. Abbate of the FBI’s Washington, D.C., Field Office, Special Agent in Charge Robin Blake of the Department of Labor Office of Inspector General Washington, D.C., Regional Office and District Director Mark Wheeler of the Department of Labor’s Office of Labor-Management Standards Washington, D.C., District Office made the announcement.  

Gary Amoes Cooper, 58, of Upper Marlboro, Maryland, the owner and CEO of STS General Contracting, was convicted of conspiracy to commit theft from a labor organization, conspiracy to make unfair labor payments, wire fraud and money laundering following a jury trial before U.S. District Judge Amit P. Mehta of the District of Columbia.  Sentencing has been scheduled for Feb. 27, 2017.

Evidence presented at trial demonstrated that Cooper and co-defendant Christopher Andrew Kwegan, the president of STS, conspired with Anthony Wendel Frederick Sr., the former business manager of Local 657 of LIUNA, to convert for personal use $1.7 million in funds stolen from Local 657.  LIUNA is a labor organization that represents laborers in the construction industry, and LIUNA’s Local 657 represents construction laborers in Washington, D.C., and five adjacent counties.

According to trial evidence, from May 2013 to June 2014, Frederick directed $1.7 million in Local 657 funds to STS for an unauthorized construction project and other work without the knowledge or authorization of the Local 657 Executive Board or officials in LIUNA.  Cooper and Kwegan then directed part of the stolen funds from STS accounts toward a $225,000 down payment and construction of a garage for a residential property acquired by Frederick, and gave Frederick’s wife 50 percent ownership in a different construction corporation owned by Cooper.  In addition, according to trial evidence, Cooper and Kwegan depleted an STS bank account containing only stolen Local 657 funds by withdrawing more than $400,000 in cash, sending hundreds of thousands of dollars to third parties in Qatar and using the remainder for personal items, entertainment, shopping trips, hotel stays and overseas travel. 

Frederick, 51, also of Upper Marlboro, and Kwegan, 58, of Randallstown, Maryland, previously pleaded guilty to the same offenses and await sentencing. 

November 30, 2016 in AML | Permalink | Comments (0)

Tuesday, November 29, 2016

Salesman Sentenced in Scheme to Defraud Consumers Through Debt Relief Firms

A Newport Beach, California, man was sentenced today in connection with a fraudulent debt relief firm, the Justice Department and U.S. Postal Inspection Service announced.  The 1024px-US-FederalTradeCommission-Seal.svgdefendant worked at Nelson Gamble and Associates and Jackson Hunter Morris and Knight, companies that offered to settle credit card debts but instead took victims’ payments as undisclosed up-front fees.

John Vartanian, 57, was sentenced to serve 27 months in prison, followed by three years of supervised release, and ordered to pay $1,208,086 in restitution.  Vartanian admitted to selling the firm’s fraudulent debt relief services through telephone calls with consumers nationwide.  The sentence was imposed Monday by U.S. District Court Judge Dale Fischer of the Central District of California in Los Angeles.  The defendant previously pleaded guilty for his  role in the scheme.

“These scams take advantage of consumers already struggling with debt,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. “The Department of Justice will continue to work with its law enforcement partners to protect consumers from fraud, especially when they are targeted based on their financially vulnerable conditions.”

“We are gratified by today’s sentencing, on behalf of the many unsuspecting victims who sought financial relief, only to be further burdened by these criminals,” said Inspector in Charge Regina L. Faulkerson of Criminal Investigations, U.S. Postal Inspection Service. “We applaud the work of the Justice Department’s Consumer Protection Branch in bringing this fraudulent credit repair salesman and his accomplices to justice.”

Vartanian pleaded guilty to one count of conspiracy to commit mail and wire fraud. Four other defendants also pleaded guiltyand were sentenced last week in connection with the fraudulent scheme.

Vartanian and other members of the conspiracy at times portrayed Nelson Gamble and Jackson Hunter as law firms or attorney-based companies.  Clients were told the companies would negotiate favorable settlements with creditors.  Clients made monthly payments expecting the money to go toward settlements.  The conspirators instead took at least 15 percent of the total debt as company fees, with the first six months of payments going almost entirely toward undisclosed up-front fees. 

The scheme ran from February 2010 to September 2012 and, in 2011, changed names from Nelson Gamble to Jackson Hunter. Conspirators told victims that Nelson Gamble had gone bankrupt and that Jackson Hunter was an unrelated company that had taken over some of the accounts. Participants in the scheme blamed past problems on Nelson Gamble and denied requests for refunds of money paid to Nelson Gamble. Some victims who previously demanded refunds accepted the explanation that Nelson Gamble was bankrupt and did not pursue complaints against Jackson Hunter.

In September 2012, the Federal Trade Commission (FTC) brought a civil case against the companies and its principal, Jeremy Nelson, alleging that the defendants misrepresented debt relief services offered to consumers. (See https://www.ftc.gov/enforcement/cases-proceedings/122-3030-x120048/nelson-gamble-associates-llc-et-al). The case was settled by entry of a consent decree in August 2013.

For more information about the Consumer Protection Branch, visit its website at http://www.justice.gov/civil/consumer-protection-branch.

November 29, 2016 in AML | Permalink | Comments (0)

Monday, November 28, 2016

Tax Inspectors Without Borders making significant progress

Significant progress has been made by an international program designed to enhance developing countries' ability to bolster domestic revenue collection through strengthening of OECDtax audit capacities.

The Tax Inspectors Without Borders (TIWB) project was launched in July 2015 by the Organisation for Economic Co-operation and Development (OECD) and the United Nations Development Programme (UNDP) as an innovative attempt to address widespread tax avoidance by multinational enterprises in developing countries and as a contribution towards financing the UN's Sustainable Development Goals.


TIWB organizes deployment of highly qualified tax experts to countries that request assistance with ongoing audits of multinational companies. The projects focus on revenue recovery and improving local audit capacity while sending a strong message on the need for tax compliance.

Eight pilot projects – in countries spanning the globe from Africa to Asia and Latin America – have resulted in more than $260 million in additional tax revenues to date. This includes more than $100 million in new tax revenues generated through TIWB audits in Zimbabwe, demonstrating the tremendous potential for future projects.

Thirteen projects are underway worldwide, in Botswana, Costa Rica, Ethiopia, Georgia, Ghana, Jamaica, Lesotho, Liberia, Malawi, Nigeria, Uganda, Zambia and Zimbabwe.

A range of new programs will launch in the coming year – including new deployments of auditors to Republic of Congo, Egypt, Uganda, Cameroon and Vietnam - toward the goal of 100+ deployments by 2020. This will also include the first South-South cooperation project under the TIWB initiative, which will see Kenyan auditors deployed to Botswana in 2017.

"Developing countries face serious challenges in raising domestic resources to fund basic government services, and tax avoidance by multinational enterprises is a complicating factor," said James Karanja, head of the TIWB Secretariat. "The Tax Inspectors Without Borders program is demonstrating how effective capacity building can make a difference toward the goal of ensuring that all companies pay their fair share of tax."

TIWB projects are currently being supported by a range of organizations, including revenue authorities in the Netherlands, Spain and the United Kingdom, the African Tax Administration Forum and the Paris-based TIWB Secretariat, which facilitates full-time or periodic deployment of experts for all programs.

To better fulfill its clearinghouse role – matching demands for auditing assistance with appropriate experts – and to meet growing demand for TIWB projects, the Secretariat is expanding its roster of available experts. Information on candidacies is available here.

November 28, 2016 in OECD, Tax Compliance | Permalink | Comments (0)

Sunday, November 27, 2016

SOI Tax Stats - Corporation Income Tax Returns Line Item Estimates

The 2013 Corporation Income Tax Returns Line Item Estimates (publication 5108) is now available on SOI's Tax Stats Website. This report contains estimates of frequencies of taxpayer Irs_logoentries and estimates of monetary amounts recorded on the applicable lines of the Forms 1120 and 1120S, representing nearly 80 percent of total returns filed as part of the SOI corporation income tax return sample. In addition, estimates of frequencies and money amounts pertaining to separate attachments to all 1120-series forms within the SOI sample are included. While data reported on Forms 1120-F, 1120-L, 1120-PC, 1120-REIT, and 1120-RIC are part of the SOI sample, the data presented have been limited for Tax Year 2013 while additional review with our other publications is being coordinated.

November 27, 2016 in Economics | Permalink | Comments (0)

Saturday, November 26, 2016

JPMorgan’s Investment Bank in Hong Kong Agrees to Pay $72 Million Penalty for Corrupt Hiring Scheme in China

JPMorgan Securities (Asia Pacific) Limited (JPMorgan APAC), a Hong Kong-based subsidiary of multinational bank JPMorgan Chase & Co. (JPMC), agreed to pay a $72 million FBI DOJ logopenalty for its role in a scheme to corruptly gain advantages in winning banking deals by awarding prestigious jobs to relatives and friends of Chinese government officials.

Assistant Attorney General Leslie R. Caldwell of the Criminal Division, U.S. Attorney Robert L. Capers of the Eastern District of New York and Assistant Director in Charge William F. Sweeney Jr. of the FBI’s New York Field Office made the announcement. 

“The so-called Sons and Daughters Program was nothing more than bribery by another name,” said Assistant Attorney General Caldwell.  “Awarding prestigious employment opportunities to unqualified individuals in order to influence government officials is corruption, plain and simple.  This case demonstrates the Criminal Division’s commitment to uncovering corruption no matter the form of the scheme.”

“U.S. businesses cannot lawfully seek to gain a business advantage by corruptly influencing foreign government officials,” said U.S. Attorney Capers.  “The common refrain that this is simply how business is done overseas is no defense.  In this case, JPMorgan employees designed a program to hire otherwise unqualified candidates for prestigious investment banking jobs solely because these candidates were referred to the bank by officials in positions to award business to the bank.  In certain instances, referred candidates were hired with the understanding that the hiring was linked to the award of specific business.  This is no longer business as usual; it is corruption.”

“Creating a barter system in which jobs are awarded to applicants in exchange for lucrative business deals is a corrupt scheme in and of itself,” said Assistant Director in Charge Sweeney.  “But when foreign officials are among those involved in the bribe, the international free market system and our national security are among the major threats we face.  Those engaging in these illegal acts abroad may think they're out of sight and out of mind, but they're wrong.  The FBI has recently established three dedicated international corruption squads to combat this type of quid pro quo, and we'll use all resources at our disposal to uncover and put an end to these crimes.”

According to JPMorgan APAC’s admissions, beginning in 2006, senior Hong Kong-based investment bankers set up and used a “client referral program,” also referred to as the “Sons and Daughters Program,” to hire candidates referred by clients and government officials.  The Sons and Daughters Program was used as a means to influence those same officials to award investment deals to JPMorgan APAC.  By late 2009, JPMorgan APAC executives and senior bankers revamped the client referral program to improve its efficacy by prioritizing those hires linked to upcoming client transactions.  In order to be hired, a referred candidate had to have a “directly attributable linkage to business opportunity.” 

According to admissions made in connection with the resolution, these quid pro quo arrangements were discussed internally among JPMorgan APAC bankers.  For example, in late 2009, a Chinese government official communicated to a senior JPMorgan APAC banker that hiring a referred candidate would significantly influence the role JPMorgan APAC would receive in an upcoming initial public offering (IPO) for a Chinese state-owned company.  The banker communicated this message to several senior colleagues, who then spent several months trying to place the referred candidate in an investment banking position in New York.  Despite learning from personnel in New York that this referred candidate was not qualified for an investment banking position, senior JPMorgan APAC bankers created a new position for the candidate in New York, and JPMorgan APAC thereafter obtained a leading role in the IPO.  Further, JPMorgan APAC employees misused compliance questionnaires to justify and paper over corrupt business arrangements.  Employees also used a template with pre-filled answers, including that there was “no expected benefit” from the hire, and compliance personnel drafted and modified questionnaires that failed to state the true purpose of the hire.

JPMorgan APAC further admitted that candidates hired during the scheme were typically given the same titles and paid the same amount as entry-level investment bankers, despite the fact that many of these hires performed ancillary work such as proofreading and provided little real value to any deliverable product. 

The corrupt scheme netted JPMorgan APAC at least $35 million in profits from business mandates with Chinese state-owned companies. 

JPMorgan APAC entered into a non-prosecution agreement and agreed to pay a criminal penalty of $72 million to resolve the matter.  As part of the agreement, JPMorgan APAC 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 JPMorgan APAC did not voluntarily and timely disclose the conduct at issue.  However, JPMorgan APAC did receive full credit for its and JPMC’s cooperation with the criminal investigation, including conducting a thorough internal investigation, making foreign-based employees available for interviews in the United States and producing documents to the government from foreign countries in ways that did not implicate foreign data privacy laws.  JPMorgan APAC also took significant employment action against six employees who participated in the misconduct resulting in their departure from the bank, and it disciplined an additional 23 employees who, although not involved in the misconduct, failed to effectively detect the misconduct or supervise those engaged in it.  JPMorgan APAC imposed more than $18.3 million in financial sanctions on former or current employees in connection with the remediation efforts.  Based on these actions and other considerations, the company received a non-prosecution agreement and an aggregate discount of 25 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 JPMC, whereby JPMC agreed to pay $130.5 million in disgorgement to the SEC, including prejudgment interest.  The Federal Reserve System’s Board of Governors also issued a consent cease-and-desist order and assessed a $61.9 million civil penalty. Thus, the combined U.S. criminal and regulatory penalties paid by JPMC and its Hong Kong subsidiary are approximately $264.4 million. 

The FBI’s New York Field Office investigated the case.  The department appreciates the significant cooperation and assistance provided by the SEC and the Federal Reserve Bank of New York in this matter.  Assistant Deputy Chief Leo Tsao and Trial Attorneys James P. McDonald and Derek J. Ettinger of the Criminal Division’s Fraud Section and Assistant U.S. Attorney James P. Loonam of the Eastern District of New York’s Business and Securities Fraud Section prosecuted the case. 

November 26, 2016 in AML | Permalink | Comments (0)

Friday, November 25, 2016

Rising Use of Virtual Currencies Requires IRS to Take Additional Actions to Ensure Taxpayer Compliance

Alternative payment methods, such as convertible virtual currencies, have grown in popularity in recent years and have emerged for some people as a potential alternative to using Irs_logotraditional currencies like U.S. dollars. Virtual currencies offer potential benefits over traditional currencies, including lower transaction fees and faster transfer of funds for services provided. However, some virtual currencies are also popular because the identity of the parties involved is generally anonymous, leading to a greater possibility of their use in illegal transactions. Recently, many types of virtual currencies have been created for use in lieu of currency issued by a government to purchase goods and services in the real economy. The overall objective of this review was to evaluate the IRS’s strategy for addressing income produced through virtual currencies.

Although the IRS issued Notice 2014-21, Virtual Currency Guidance, and established the Virtual Currency Issue Team, there has been little evidence of coordination between the responsible functions to identify and address, on a program level, potential taxpayer noncompliance issues for transactions involving virtual currencies. None of the IRS operating divisions have developed any type of compliance initiatives or guidelines for conducting examinations or investigations specific to tax noncompliance related to virtual currencies.

The IRS has not used an important enforcement tool at its disposal to address unlawful activities by those who use virtual currencies. Under authority of the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), the IRS has Bank Secrecy Act enforcement responsibilities for financial institutions not regulated by a Federal bank agency or another Federal regulator such as money service businesses. Although FinCEN has designated administrators or exchanges that accept and transmit a virtual currency, or buy or sell virtual currency as money service businesses and subject to IRS enforcement, the IRS has not taken enforcement action in this area. In addition, it does not appear that any of the actions already taken by the IRS to address virtual currency tax noncompliance were coordinated to ensure that the IRS maintains a strategic approach to the tax implications of virtual currencies.

Although the IRS requested comments to Notice 2014-21 from the public, no actions were taken to address the comments received. TIGTA reviewed all the comments and found several examples of information requested by the public that would be helpful in understanding how to comply with the tax reporting requirements when using or receiving virtual currencies.

In addition, third-party methods of reporting taxable transactions to the IRS do not separately identify transactions related to virtual currencies. While employers and businesses are required to report taxable virtual currency transactions, current third-party information reporting documents do not provide the IRS with any means to identify that the taxable transaction amounts being reported were specifically related to virtual currencies.

“It is imperative that the IRS ensures that those who engage in activities using virtual currencies comply with all of their tax obligations,” said J. Russell George, Treasury Inspector General for Tax Administration.

TIGTA made three recommendations. The IRS agreed with TIGTA’s recommendations and plans to develop a virtual currency strategy, including an assessment of whether changes to information reporting documents are warranted. The IRS also agreed that additional guidance would be helpful and plans to share the recommendation with the IRS’s Office of Chief Counsel for coordination with the Department of the Treasury’s Office of Tax Policy.

Read the report.

November 25, 2016 in AML | Permalink | Comments (0)

Thursday, November 24, 2016

Saint Lucia expands its capacity to fight international tax avoidance and evasion

Saint Lucia today signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. Saint Lucia became the 107th jurisdictions to join the Convention. Hon. OECDAllen Michael Chastanet, Prime Minister and Minister for Finance, Economic Growth, Job Creation, External Affairs and Public Service, signed the Convention in the presence of the OECD Secretary-General, Angel Gurría.

The Convention provides for all forms of administrative assistance in tax matters: exchange of information on request, spontaneous exchange, automatic exchange, tax examinations abroad, simultaneous tax examinations and assistance in tax collection. It guarantees extensive safeguards for the protection of taxpayers' rights.

The Convention was developed jointly by the OECD and the Council of Europe in 1988 and amended in 2010 to respond to the call by the G20 to align it to the international standard on exchange of information and to open it to all countries, thus ensuring that developing countries could benefit from the new more transparent environment.

Since then, the Convention has become a truly global instrument. It is seen as the ideal instrument for the swift implementation of the standard on exchange of information on request and the new OECD/G20 Standard for Automatic Exchange of Financial Account Information in Tax Matters. The signing and ratification of the Convention is therefore very timely since Saint Lucia has already signed the CRS Multilateral Competent Authority Agreement (MCAA) based on Article 6 of the Convention to operationalise automatic exchange of financial account information. The Convention can also be used to swiftly implement the transparency measures of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project such as the automatic exchange of Country-by-Country reports under Action 13 as well as the sharing of rulings under Action 5. A powerful tool for the fight against illicit financial flows the Convention also enables jurisdictions to implement the commitments they have each made as members of the Global Forum on Transparency and Exchange of Information for Tax Purposes.

November 24, 2016 in AML | Permalink | Comments (0)

Wednesday, November 23, 2016

One year post-BEPS: The OECD, EU, USA and Mexico perspectives - Monday, 28 November 2016, 8:00 – 13:00 (breakfast included)

Monday, 28 November 2016, 8:00 – 13:00 (breakfast included) at The University Club of Mexico - Salón Terraza, Paseo de la Reforma 150, 06600 D.F. Mexico city

http://universityclub.com.mx/ Limited seats available: RSVP required. Please email C.D.M.vandenBerg@uva.nl.

 During this morning-seminar, organized by the Amsterdam Centre for Tax Law (ACTL) of the University of Amsterdam, Texas A&M University  School of Law, IFA Mexico and Universidad Nacional Autónoma de México (UNAM), several aspects of anti-BEPS measures of States around the world will be highlighted. The discussion will be the OECD BEPS initiatives and the resulting EU-measures, USA measures and Mexican measures.

7:45 – 8:00 Registration and Breakfast

8:00 – 8:45 Keynote Practical Tax Information Exchange and Use: CbCR software application pilot for Mexico by Dr. George Salis (Vertex) and David Deputy (Vertex)

8:45 – 9:00 Welcome by Miguel Ortiz (President IFA Mexico; Ortiz, Sosa Y Asociados, S.C.)

9:00 – 10:30 Panel 1 One year post-BEPS What’s happening around the world?

Chair: Prof. William Byrnes (Texas A&M University School of Law)

EU anti-BEPS implementation: What can we expect?  Prof. dr. Dennis Weber (ACTL, University of Amsterdam)

The EU and non-EU countries: treaty abuse, EU blacklist Dr. Bruno da Silva (ACTL, University of Amsterdam)

Impact of BEPS in practice - Jeroen Janssen (Loyens & Loeff)

USA new MAP/competent authority procedures - Melissa Muhammad (OECD & U.S. Treasury, APMA Competent Authority)

Coffee break

11:00 – 12:30 Panel 2 One year post-BEPS The Mexican perspective

Chair: Prof. Gabriela Rios (UNAM)

Anti-BEPS measures in Mexico Manuel E Tron (Manuel Tron, SC)

Making dispute resolution mechanisms more effective (BEPS Action 14) Armando Lara (Chevez, Ruiz, Zamarripa)

Disclosure of Tax Arrangements (BEPS Action 12) Jorge Correa (Creel, García-Cuéllar, Aiza y Enríquez)

Challenges for the government to implement anti-BEPS measures Juan Carlos Perez Pena (Secretaria de Hacienda y Credito Publico)

12:30 networking until 13:00

November 23, 2016 in Education | Permalink | Comments (0)

Tuesday, November 22, 2016

Prosecuting Tech Savvy Criminals

This DOJ blog post is from Assistant Attorney General Leslie R. Caldwell of the Criminal Division and addresses the abuse of internet anonymizing technology, and the need for the USCYBERCOM_Logo
amendment to the Federal Rules of Criminal Procedure adopted by the Supreme Court to ensure that investigators can identify the right court from which to seek a search warrant.  A second post will address the threat posed by botnets, and the need for a related amendment to make the warrant process effective when law enforcement must investigate a nationwide attack.  A third post will address arguments raised by commentators against the amendments adopted by the Supreme Court.

In 2014, I returned to the Department of Justice to lead the Criminal Division after nearly a decade in private practice.  This decade coincided with a revolution in how computers and the Internet affect our lives.  While most changes were for the better, some technologies enable new forms of crime and victimization that would have been difficult to imagine not that long ago.  One of the most surprising and disturbing trends I learned about when I returned was the proliferation of online child sexual exploitation forums.  As you read this blog post, dozens of websites openly distribute images of child rape and sexual exploitation.  Tens of thousands of pedophiles congregate on these sites to buy, sell and trade images and videos of abuse, and even to pay abusers to commit new abuses and to record and share them.  Many of these same websites feature discussion groups where pedophiles can provide one another advice on how to groom young children for abuse, how to evade detection by caregivers and law enforcement and other ways to facilitate these vile crimes.

The reason these sites can remain and even thrive in the open, despite violating the laws of just about every country in the world, is that they employ software that allows their administrators and users to hide their identities and locations.  Often the sites are located on the Tor network, which uses anonymizing technology designed to make it impossible for anyone – a victim, a relative or a criminal investigator – to learn who has posted a particular video of child rape, or purchased access to one.  Although this kind of technology is comparatively new, it doesn’t require much technical expertise, which is why so many thousands of criminals have adopted it.  Because of the technology, however, while law enforcement can readily locate images of child sexual exploitations or planning sessions related to child rape, it often cannot identify and bring to justice the online criminals responsible for the abuse.  Even worse, the child victims whose torment is so openly and notoriously disseminated stand little chance of rescue.  In essence, we now confront the digital equivalent of crimes committed in the middle of a busy street, in full view of the citizenry and the police, with little risk of being caught.

But sometimes we beat these odds.  A string of recent successful prosecutions have stopped some of the child exploitation crimes committed on Tor; in other cases, we have been able to find criminals who have used Tor to commit crimes such as firearms trafficking, narcotics trafficking, and fraud.

Recent judicial decisions and news coverage have highlighted a recent investigation, of the Playpen website, a Tor site used by more than 100,000 pedophiles to encourage sexual abuse and exploitation of children and to trade sexually explicit images of the abuse.  Investigators caught a break with Playpen.  Authorities were able to wrest control of the site from its administrators, and then obtained approval from a federal court to use a remote search tool to undo the anonymity promised by Tor.  The search would occur only if a Playpen user accessed child pornography on the site (a federal crime), in which case the tool would cause the user’s computer to transmit to investigators a limited amount of information, including the user’s true IP address, to help locate and identify the user and their computer.  Based on that information, authorities could then conduct a traditional, real-world investigation, such as by running a criminal records check, interviewing neighbors, or applying for an additional warrant to search a suspect’s house for incriminating evidence.  Those court-authorized remote searches in the Playpen case have led to more than 200 active prosecutions – including the prosecution of at least 48 alleged hands-on abusers – and, extraordinarily, the identification or rescue of at least 49 American children who were subject to sexual abuse.

Despite surmounting this technological obstacle, however, the Playpen prosecutions still face an additional obstacle: a loophole in judicial procedures that makes it unclear which court – if any – an investigator is supposed to go to with a search warrant application when investigating anonymized crime.  Under a rule first codified in 1917, when the government seeks court approval to conduct a search – like the searches that helped to identify the computers of Playpen members – it is generally required to make an application to the court where the property to be searched is located.  But when a child abuser has successfully anonymized their identity and location online, investigators do not know where the abuser’s computer is located.  So in those cases, the Rules do not clearly identify which court the investigators should bring their warrant application to.  And in several of the cases resulting from the Playpen investigation, federal courts have thrown out evidence because the agents – who didn’t know where the suspects were located when they started their investigation – could not guess the right court.  In other cases, the courts have declined to throw out evidence because the law was not clear, but have suggested that they would do so in any future cases.

This outcome would be merely nonsensical if the consequences were not so serious.  Despite being prepared to comply fully with the Fourth Amendment’s warrant requirements, including persuading a federal judge that a lawful basis for a warrant exists, investigators are being told that, because criminals have successfully used technology to hide their location, there is no court available to hear their warrant application.  Unless that nonsensical outcome is addressed, cases such as Playpen fail, meaning that pedophiles – including hands-on abusers – will be free to continue their crimes.

We believe technology should not create a lawless zone merely because a procedural rule has not kept up with the times.  That is why, for almost three years, the Justice Department has followed the process set by Congress to fill this gap in the Rules by making clear which courts are available to consider whether a particular warrant application comports with the Fourth Amendment.  The amendments do not create any new law enforcement authority, or make any change to what constitutes a crime or what must be shown to a court in order to investigate crime.  Nor do they change in any way the traditional protections under the Fourth Amendment, such as the requirement that investigators establish probable cause before each search.  They simply do what the Rules were always intended to do: identify a judge who can consider whether to grant or deny a warrant application.

In good news for victims of child sexual exploitation and their families, and for all of those victimized by the crimes facilitated by online anonymizing technology, the United States Supreme Court recently approved the proposed amendments.  After three years of review by expert committees and public comment, the rule is scheduled to go into effect on Dec. 1, 2016.  That date won’t immediately change life for the many victims of child sexual exploitation or other crimes.  Successfully investigating these crimes requires resources, perseverance, technology and often luck.  But the proposed amendment will eliminate one obstacle that currently grants effective immunity to many serious criminals.

November 22, 2016 in AML | Permalink | Comments (0)

Monday, November 21, 2016

Russia Companies Must Collect Ultimate Beneficial Owners Info as of 2017

Clifford Chance analyzes Federal Law dated 23 June 2016 #215-FZ amended Russian AML legislation with effect from 21 December 2016. From that date, legal entities will be obliged to FATF logocollect and maintain information on their ultimate beneficial owners (UBOs). No grandfathering or transitional provisions are contemplated.  Read teh analysis here:  Download Russian_UBOs_Briefing_Note_ENG_6034056

November 21, 2016 in AML | Permalink | Comments (0)