International Financial Law Prof Blog

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

Sunday, October 14, 2018

Leader of International Cyber Fraud Ring Returned to United States to Face Federal Racketeering Charges

A Romanian national was returned to the United States Friday to face federal charges that accuse him of being the leader of an international cyber fraud ring that used malware to steal in excess of four million dollars after taking people’s passwords, personal identifying information, and bank account information.

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Justin E. Herdman of the Northern District of Ohio, Peter Elliot of the U.S. Marshals Service, Stephen D. Anthony of the FBI and Chief Kevin Bielozer of the Westlake Police Department made the announcement.

Romeo Vasile Chita, 38, was charged in a four-count indictment unsealed in U.S. District Court in Cleveland, Ohio. The charges include racketeering, wire fraud conspiracy, conspiracy to launder money and conspiracy to traffic in counterfeit services.

Eight other defendants were named in the indictment unsealed today.  Two defendants—Daniel Mihai Radu, 39; and Manuel Tudor, 37, —have already been extradited from Romania and are awaiting trial in Cleveland. The other five defendants remain at large.

“Romeo Vasile Chita allegedly led a multinational criminal enterprise that stole sensitive personal data through deceptive phishing emails and organized fraudulent online auctions, causing millions of dollars in losses to innocent victims,” said Assistant Attorney General Benczkowski.  “The Criminal Division will continue to work with our law enforcement partners, both domestic and international, to aggressively disrupt and dismantle international cyber criminal organizations that victimize our citizens and businesses.”

“This defendant led an international operation that used fraudulent emails and the internet to scam hard-working people out of their savings,” said U.S. Attorney Herdman.  “It is gratifying that this defendant will be forced to answer the charges filed against him.”

According to the indictment, Chita was based in Romania and led a racketeering enterprise that operated in the United States, Romania, Canada, Croatia, Latvia, Hungary, Bosnia, China, Jordan, Malaysia and elsewhere. The goal of the enterprise was to generate money through various criminal acts, including wire fraud, trafficking in counterfeit services, and money laundering.  It began operating as early as 2007.

Among other things, Chita’s group sent “phishing” emails purporting to be from the Better Business Bureau, the IRS, U.S. Tax Court, the National Payroll Records Center, and others. When a victim clicked on a link in a fraudulent email, specialized malware incorporating a “keylogger” was installed onto the victims’ computers, allowing members of the criminal enterprise to capture sensitive and confidential information, including the victims’ bank account information.

The conspirators, including Chita, then transmitted the sensitive information to each other and others for the purpose of fraudulently withdrawing funds from the victims’ bank accounts. The stolen funds were then transferred to specific accounts in the United States, where the money was withdrawn and transferred to other members of the conspiracy. The conspirators used their own network of accounts and “money mules” to transfer hundreds of thousands of dollars at a time to conceal the origin of the money.

The defendants also are alleged to have engaged in an extensive campaign of online auction fraud, placing ads for non-existent cars and other expensive items on eBay, Craigslist, Autotrader.com, and other websites.  According to the indictment, victims were tricked into wiring thousands of dollars to money mules to purchase these vehicles.  The money mules then transferred and laundered the proceeds for the benefit of the enterprise.    

Chita managed and facilitated the various schemes, as well as directing other conspirators to launder fraudulently obtained money.

This case was investigated by the U.S. Marshals Service, the FBI, the Westlake Police Department and the U.S. Secret Service. The case is being prosecuted by Senior Counsel Brian L. Levine of the Criminal Division’s Computer Crime and Intellectual Property Section and Assistant U.S. Attorney Duncan Brown of the Northern District of Ohio.  Valuable assistance is being provided by the Justice Department’s Office of International Affairs.  The Justice Department thanks the government of Romania for its assistance in this matter.

The prosecution of Chita is timely, as it occurs during National Cyber Security Awareness Month (NCSAM).  NCSAM – observed every October – was created as a collaborative effort between government and industry to ensure all Americans have the resources they need to stay safer and more secure online.  The Department of Justice encourages citizens to take advantage of cybersecurity tips and information provided by law enforcement to ensure their personal information is secured.

October 14, 2018 in AML | Permalink | Comments (0)

Saturday, October 13, 2018

Dark Web Administrator Sentenced to 20 Years in Prison for Narcotics Trafficking and Money Laundering

A French national who was serving at times as an administrator and senior moderator on one of the largest dark web criminal marketplaces was sentenced to 20 years in prison, after previously pleading guilty to conspiracy to possess with the intent to distribute controlled substances and conspiracy to launder money.

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Ariana Fajardo Orshan for the Southern District of Florida, Special Agent in Charge Adolphus P. Wright of the U.S. Drug Enforcement Administration (DEA) Miami Field Office, Special Agent in Charge Robert F. Lasky of FBI Miami Field Office, and Special Agent in Charge Michael J. De Palma of IRS Criminal Investigation (IRS-CI), made the announcement. 

Gal Vallerius, aka “Oxymonster,” 36, pleaded guilty before U.S. District Court Judge Robert N. Scola Jr. in the Southern District of Florida on Aug. 28.  Judge Scola sentenced Vallerius to serve 240 months in prison.  Vallierius forfeited 99.98947177 bitcoin and 121.94805811 bitcoin cash.

According to the court record, including the agreed upon factual proffer, beginning in or around November 2013 a criminal online marketplace known as Dream Market began operating on the Tor “dark web” network.  Dream Market was designed to promote and facilitate the anonymous sale of illegal items.  In time, the Dream Market website became one of the largest dark web criminal marketplaces.  All of the items and services on Dream Market were offered for sale in exchange for Bitcoin and other peer-to-peer crypto-currencies. 

According to the agreed upon factual proffer, Vallerius first participated in the conspiracy by becoming a vendor on Dream Market.  As a vendor, he sold Oxycodone and Ritalin under the moniker “Oxymonster.”  Shortly thereafter, Dream Market employed the defendant who acted at times as an administrator and senior moderator.  In these positions, he played a role supporting the daily illicit transactions between buyers and vendors on Dream Market, such as trafficking in narcotics, and the laundering of illicit proceeds using virtual currencies, Dream Market’s tumblers and the dark web. 

This investigation and prosecution was carried out by members of the South Florida High Intensity Drug Trafficking Area (HIDTA) Task Force.  The South Florida HIDTA, established in 1990, is made up of federal, state and local law enforcement agencies that, cooperatively, target the region’s drug trafficking and money laundering organizations.  The South Florida HIDTA is funded by the Office of National Drug Control Policy which sponsors a variety of initiatives focused on combatting the nation’s illicit drug trafficking threats.

The prosecution is a result of the ongoing efforts by the Organized Crime Drug Enforcement Task Force (OCDETF), a partnership between federal, state, and local law enforcement agencies.  The OCDETF mission is to identify, investigate, and prosecute high-level members of drug trafficking enterprises, bringing together the combined expertise and unique abilities of federal, state, and local law enforcement.  

The investigation was conducted by DEA Miami Field Office and Paris Country Office, FBI Miami’s Cyber Task Force, IRS-CI Miami Field Office, U.S. Immigration and Customs Enforcement’s Homeland Security Investigations Miami and Atlanta Field Offices, U.S. Customs and Border Protection’s Field Operations Atlanta, U.S. Postal Inspection Service’s Miami Field Office, the Department of Justice’s Office of International Affairs, Europol, Special Operations Division (SOD), Finnish National Police, Finnish International Judicial Administration of the Ministry of Justice, Dutch National Police, French Ministry of Justice and the Direction Interregionale de la Police Judiciaire as well as the U.S. Attorney’s Office for the Northern District of Georgia.  The case was prosecuted by Trial Attorney C. Alden Pelker of the Criminal Division’s Computer Crime and Intellectual Property Section (CCIPS) and Assistant U.S. Attorney Juan A. Gonzalez and former Assistant U.S. Attorney Frank R. Maderal of the Southern District of Florida.

October 13, 2018 in AML | Permalink | Comments (0)

Friday, October 12, 2018

U.S. International Trade in Goods and Services, August 2018

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced today that the goods and services deficit was $53.2 billion in August, up $3.2 billion from $50.0 billion in July, revised.

Goods and Services Trade Deficit, August 2018

Exports, Imports, and Balance (exhibit 1)

August exports were $209.4 billion, $1.7 billion less than July exports. August imports were $262.7 billion, $1.5 billion more than July imports.

The August increase in the goods and services deficit reflected an increase in the goods deficit of $3.6 billion to $76.7 billion and an increase in the services surplus of $0.4 billion to $23.5 billion.

Year-to-date, the goods and services deficit increased $31.0 billion, or 8.6 percent, from the same period in 2017. Exports increased $129.6 billion or 8.4 percent. Imports increased $160.6 billion or 8.4 percent.

Three-Month Moving Averages (exhibit 2)

The average goods and services deficit increased $3.6 billion to $49.7 billion for the three months ending in August.

  • Average exports decreased $1.7 billion to $211.2 billion in August.
  • Average imports increased $1.8 billion to $260.9 billion in August.

Year-over-year, the average goods and services deficit increased $5.3 billion from the three months ending in August 2017.

  • Average exports increased $16.1 billion from August 2017.
  • Average imports increased $21.3 billion from August 2017.

Exports (exhibits 3, 6, and 7)

Exports of goods decreased $1.9 billion to $138.9 billion in August.

    Exports of goods on a Census basis decreased $1.8 billion.

  • Industrial supplies and materials decreased $2.4 billion.
    • Crude oil decreased $0.9 billion.
    • Other petroleum products decreased $0.7 billion.
  • Foods, feeds, and beverages decreased $1.2 billion.
    • Soybeans decreased $1.0 billion.
  • Consumer goods increased $1.6 billion.
    • Artwork, antiques, stamps, and other collectibles increased $0.6 billion.
    • Pharmaceutical preparations increased $0.4 billion.

    Net balance of payments adjustments decreased $0.1 billion.

Exports of services increased $0.2 billion to $70.5 billion in August.

  • Financial services increased $0.1 billion.
  • Maintenance and repair services increased $0.1 billion.

Imports (exhibits 4, 6, and 8)

Imports of goods increased $1.7 billion to $215.6 billion in August.

    Imports of goods on a Census basis increased $1.6 billion.

  • Automotive vehicles, parts, and engines increased $1.0 billion.
  • Passenger cars increased $0.6 billion.
  • Trucks, buses, and special purpose vehicles increased $0.4 billion.
  • Consumer goods increased $0.9 billion.
  • Cell phones and other household goods increased $0.9 billion.

    Net balance of payments adjustments increased less than $0.1 billion.

Imports of services decreased $0.1 billion to $47.0 billion in August.

  • Charges for the use of intellectual property decreased $0.2 billion. Charges for July included payments for the rights to broadcast the 2018 soccer World Cup.
  • Other business services, which includes research and development services; professional and management services; and technical, trade-related, and other services, increased $0.1 billion.

Real Goods in 2012 Dollars – Census Basis (exhibit 11)

The real goods deficit increased $3.8 billion to $86.3 billion in August.

  • Real exports of goods decreased $1.8 billion to $147.8 billion.
  • Real imports of goods increased $2.1 billion to $234.1 billion.

Revisions

Revisions to July exports

  • Exports of goods were revised up less than $0.1 billion.
  • Exports of services were revised up less than $0.1 billion.

Revisions to July imports

  • Imports of goods were revised up less than $0.1 billion.
  • Imports of services were revised down less than $0.1 billion.

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

The August figures show surpluses, in billions of dollars, with South and Central America ($3.4), Hong Kong ($2.3), Singapore ($0.6), and Brazil ($0.5). Deficits were recorded, in billions of dollars, with China ($34.4), European Union ($14.9), Mexico ($8.7), Japan ($5.8), Germany ($5.3), Canada ($3.0), Italy ($2.7), India ($1.9), South Korea ($1.8), France ($1.3), Saudi Arabia ($1.1), OPEC ($1.0), Taiwan ($0.7), and United Kingdom ($0.1).

  • The deficit with Mexico increased $2.3 billion to $8.7 billion in August. Exports decreased $1.3 billion to $21.5 billion and imports increased $1.0 billion to $30.2 billion.
  • The deficit with Japan increased $0.9 billion to $5.8 billion in August. Exports decreased $0.5 billion to $6.1 billion and imports increased $0.4 billion to $11.9 billion.
  • The deficit with members of OPEC decreased $2.0 billion to $1.0 billion in August. Exports increased $0.9 billion to $5.2 billion and imports decreased $1.1 billion to $6.2 billion.

*             *             *

All statistics referenced are seasonally adjusted; statistics are on a balance of payments basis unless otherwise specified. Additional statistics, including not seasonally adjusted statistics and details for goods on a Census basis, are available in Exhibits 1-20b of this release. For information on data sources, definitions, and revision procedures, see the explanatory notes in this release. The full release can be found at www.census.gov/foreign-trade/Press-Release/current_press_release/index.html or www.bea.gov/data/intl-trade-investment/international-trade-goods-and-services. The full schedule is available in the Census Bureau's Economic Briefing Room at www.census.gov/economic-indicators/ or on BEA's Web site at www.bea.gov/news/schedule.

*             *             *

Next release: November 2, 2018, at 8:30 A.M. EDT

October 12, 2018 in Economics | Permalink | Comments (0)

Thursday, October 11, 2018

Former Upstate New York Democratic Party Chair Pleads Guilty to Conspiracy to Cause Foreign Campaign Donation

A former Erie County, New York Democratic party chair pleaded guilty today to conspiring to illegally cause a $25,000 campaign donation from a foreign source to a New York state official running for reelection.

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division and U.S. Attorney James P. Kennedy Jr. for the Western District of New York made the announcement.

G. Steven Pigeon, 58, of Buffalo, New York, pleaded guilty before U.S. District Judge Richard J. Arcara to an information charging him with conspiracy to cause a foreign donation in a state election in violation of federal law.  Sentencing is set for Jan. 25, 2019.     

As part of his plea, Pigeon admitted that while working as a political consultant and lobbyist in Buffalo, New York, he represented a foreign client, Company A.  At the time, the CEO of Company A was Person A, a Canadian citizen.  In early 2014, despite knowing that it was illegal to make a foreign donation to a state political campaign, Pigeon solicited Person A to make a $25,000 donation to the reelection campaign of a New York state elected official, Public Official A.  The campaign rejected the donation from Person A because Person A was not a citizen or permanent legal resident of the United States.  Pigeon and Person A then agreed to cause the donation from Person A to be made through Person B, a permanent legal resident of the United States and an employee of Company A.  On or about Feb. 24, 2014, as directed by Person A, Person B made a $25,000 donation to Public Official A’s campaign.  Pigeon and Person A knew that Person A would pay for, or reimburse, the donation.  As a result of the $25,000 donation, Pigeon and Person A were granted entry to a fundraising event for Public Official A in New York City on Feb. 26, 2014. 

“Steven Pigeon undermined the transparency and integrity of the electoral process by funneling foreign money into a campaign,” said Assistant Attorney General Benczkowski.  “The Criminal Division and our law enforcement partners are committed to protecting our electoral process and we will aggressively pursue those who seek to circumvent our campaign finance laws.”

“Transparency in political activity, including the disclosure of the sources of political contributions, is a necessary check on the power of money and a necessary ingredient for a healthy democracy,” said U.S. Attorney Kennedy.  “Schemes such as this, which introduce obfuscation and secrecy into the political process, threaten our very democracy by endeavoring to use anonymity as a means of eliminating accountability.”

The plea is the result of an investigation by the FBI Buffalo Field Office, under the direction of Special Agent in Charge Gary Loeffert; the New York State Attorney General’s Office, under the direction of Barbara Underwood; and the New York State Police, under the direction of  Major Edward Kennedy.  The case is being prosecuted by Deputy Chief John Keller of the Criminal Division’s Public Integrity Section and Assistant U.S. Attorney Paul E. Bonanno of the Western District of New York.

October 11, 2018 in AML | Permalink | Comments (0)

Wednesday, October 10, 2018

Saudi Arabia’s measures to fight money laundering and the financing of terrorism and proliferation

The Kingdom of Saudi Arabia is achieving good results in fighting terrorist financing, but needs to focus more on pursuing larger scale money launderers and confiscating their assets.

The FATF and the Middle East and North Africa Financial Action Task Force (MENAFATF) jointly conducted an assessment of Saudi Arabia’s anti-money laundering and counter-terrorist financing (AML/CFT) system.  The assessment is a comprehensive review of the effectiveness of a country’s AML/CFT system and its level of compliance with the FATF Recommendations.

Saudi Arabia recently made fundamental changes to its AML/CFT regime to bring its legal and institutional framework in line with up-to-date FATF Recommendations.  Given the recent introduction of some of these measures, their effectiveness cannot yet be demonstrated. 

Two separate national risk assessments have provided the country with a solid understanding of the money laundering (ML) and terrorist financing (TF) risks it faces.   Financial institutions generally understand their ML/TF risks, and are applying preventive measures such as customer due diligence, record-keeping and verification of beneficial ownership. This is largely the result of an effective and proactive supervision of this sector. However, the lack of suspicious transaction reports, in particular on suspected cases of terrorist financing, is a concern. Money exchangers, real estate agents, accountants and other designated non-financial businesses and professions do not fully understand the ML/TF risks they are exposed to, with a correspondingly low level or number of suspicious transaction reports.

Saudi Arabia’s financial intelligence unit is not able to conduct sophisticated financial analysis, although it does provide a wide variety of information that is available to and used by competent authorities.  While money laundering investigations have increased in recent years, Saudi authorities are not investigating and prosecuting money laundering in a proactive fashion, particularly when it comes to complex money laundering schemes. They do not systematically pursue confiscation of proceeds.

Saudi Arabia faces a significant and dynamic risk of terrorist financing including the presence of cells of Al Qaeda, ISIS, affiliates and other groups, as well as a large number of foreign terrorist fighters.  Saudi Arabia demonstrated an ability and willingness to pursue terrorist financing which resulted in over 1700 investigations and convictions since 2013, although these efforts were largely focused on domestic terrorist financing.  Saudi Arabia has a sound mechanism to implement United Nations targeted financial sanctions on terrorism, but the measures to implement targeted financial sanctions for proliferation financing and prevent sanctions evasion are weak.

FATF adopted this report at its Plenary meeting in June 2018.

Download the report: 

Mutual Evaluation of the Kingdom of Saudi Arabia - 2018

Mutual Evaluation of the Kingdom of Saudi Arabia - Executive Summary

Earlier report on Saudi Arabia's measures to combat money laundering and terrorist financing

More information:  

FATF Recommendations

Methodology for assessing technical compliance with the FATF Recommendations and the Effectiveness of AML/CFT Systems

Consolidate assessment ratings - an overview of ratings that assessed countries obtained for effectiveness and technical compliance

October 10, 2018 in AML | Permalink | Comments (0)

Tuesday, October 9, 2018

Fighting corruption in Eastern Europe and Central Asia

The Anti-Corruption Network for Eastern Europe and Central Asia (ACN) supports its member countries in their efforts to prevent and fight corruption. Regular monitoring and country reviews identify progress achieved and challenges remaining. New country reviews are available for ArmeniaKyrgyzstan and Ukraine.

The Istanbul Anti-corruption Action Plan is a sub-regional peer review programme launched in 2003 in the framework of the ACN. It supports anti-corruption reforms through country reviews and continuous monitoring of implementation of recommendations, which promote the UNCAC and other international standards and best practice. 

The results are discussed at regional meetings and published as country and progress reports.

  • The first round of monitoring was conducted between 2004-2007. This 2008 report - Anti-corruption Reforms in Eastern Europe and Central Asia - Progress and Challenges - summarises the results.

  • The second round  monitoring took place between 2008-2012. This 2013 report - Anti-corruption Reforms in Eastern Europe and Central Asia - Progress and Challenges, 2009-2013 - summarises the results. 

  • The third round of monitoring stook place between 2013-2015. This 2016 report - Anti-Corruption Reforms in Eastern Europe and Central Asia - Progress and Challenges, 2013-2015 - summarises the results.

  • The fourth round of monitoring was launched in 2016. The methodology for the fourth round of monitoring was adopted in 2016. 

A manual for monitoring experts is available and provides guidance on the monitoring process [English | Russian]. 

Civil society is also encouraged to take part in the monitoring process and a practical guide is available in order to aid civil society representatives in the third round monitoring process [English | Russian]. 

October 9, 2018 in AML | Permalink | Comments (0)

2019 Dutch Budget: abolishment of the dividend withholding tax and introduction of earnings stripping and CFC rules

Loyens & Loeff announces that the 2019 Dutch Budget (the Budget) includes a proposal to abolish the existing dividend withholding tax, replacing it with a withholding tax on dividend payments to related entities in low-tax jurisdictions and in cases of abuse as of 1 January 2020.

In a separate proposal, implementing the EU Anti-Tax Avoidance Directive (ATAD1) new rules are introduced on the deductibility of interest (earnings stripping rules) and on taxation of Controlled Foreign Companies (CFC rules). The proposal also includes minor adjustments to the exit taxation rules for companies and broadly follows a preliminary proposal that was published for consultation purposes in 2017 (see our Tax Flash of 11 July 2017) and further clarifications provided by the Ministry of Finance early this year (see our Tax Flash of 23 February 2018). These provisions should enter into force per 1 January 2019.

read the full analysis in Loyens' newsflash here

October 9, 2018 in BEPS | Permalink | Comments (0)

Monday, October 8, 2018

Global FDI outflows tumble 44% in the first quarter of 2018 due to US tax reform

FDI outflows tumble 44% in the first quarter of 2018 due to US tax reform

Global FDI outflows fell to USD 136 billion from USD 242 billion in the previous quarter. This precipitous drop was largely due to a switch to negative outward FDI from the United States.   Download OECD FDI TCJA Impact July-2018

Accompanying Excel tables

Past issues of FDI in Figures

October 8, 2018 in Economics | Permalink | Comments (0)

Sunday, October 7, 2018

State-Owned Enterprises and Corruption

What Are the Risks and What Can Be Done?

Corruption is the antithesis of good governance, and it is a direct threat to the purpose of state ownership. This report brings a comprehensive set of facts and figures to the discussion about the corruption risks facing state-owned enterprises (SOEs) and how they, and state ownership, go about addressing them. The report suggests options to help the state as an enterprise owner fight corruption and promote integrity in the SOE sector, laying the foundation for future OECD guidance on the subject.  Access here

October 7, 2018 in AML | Permalink | Comments (0)

Saturday, October 6, 2018

The OECD Blockchain Primer

What is blockchain? A technology? A currency? The new internet? This primer provides an introduction to blockchain technology, outlines some of the potential benefits it can bring, and considers the risks and challenges it poses. While not comprehensive, it is an overview of the key concepts and terms intended to help people better understand this emerging technology and its growing impact. 

Download OECD-Blockchain-Primer

 
PODCAST The blockchain revolution - Part I

PODCAST The blockchain revolution - Part II

VIDEO Competition and the R3 blockchain consortium

October 6, 2018 in Financial Services, OECD | Permalink | Comments (0)

Friday, October 5, 2018

NGL Crude Logistics LLC Agrees to Pay $25 Million Civil Penalty and to Retire $10 Million in Renewable Fuel Production Credits Under Settlement With United States

The Department of Justice and the Environmental Protection Agency (EPA) today announced a settlement with NGL Crude Logistics, LLC that requires the company to retire 36 million renewable fuel credits and pay a $25 million civil penalty under the settlement to resolve violations of the Renewable Fuel Standard (RFS) program. The cost of the RIN retirement is approximately $10 million. 

The Department of Justice and EPA alleged that NGL entered into a series of transactions with Western Dubuque Biodiesel, LLC in 2011 that resulted in the generation of an extra set of renewable fuel credits for approximately 24 million gallons of biodiesel.  NGL’s scheme generated approximately 36 million additional credits, known as Renewable Identification Numbers or RINs.  RINs are created when a company produces qualifying renewable fuel and can be traded or sold to refineries and importers to use for compliance with renewable fuel production requirements.  On July 3, 2018, the United States District Court for the Northern District of Iowa found NGL liable for: (1) failing to retire RINs when it designated and sold biodiesel to Western Dubuque as “feedstock” for the production of biodiesel, (2) causing Western Dubuque to generate invalid RINs and commit other prohibited acts under the RFS program, and (3) transferring approximately 36 million invalid RINs to other entities. 

“Enforcement actions such as the one we announce today are essential to ensuring the integrity of government programs,” said Principal Deputy Associate Attorney General Jesse Panuccio.  “Fraud in the RFS market will not be tolerated. I applaud the work of the EPA and DOJ enforcement team who achieved today’s excellent result for the taxpayers.”

“A strong enforcement program is essential to maintaining the integrity of the RIN market,” said Assistant Administrator of the Office of Enforcement and Compliance Assurance (OECA) Susan Bodine.  “Through this settlement EPA and DOJ are holding NGL accountable for its violations of the RFS program.”  

“The Renewable Fuel Standards program is important to Iowa’s agricultural community,” said U.S. Attorney for the Northern District of Iowa Peter Deegan.  “Our office is committed to protecting the integrity of the Renewable Fuel Standards program and ensuring a level playing field for Iowa businesses.”

The United States’ complaint alleged that in 2011, NGL purchased millions of gallons of biodiesel on the open market, and that approximately 36 million RINs had been assigned to the biodiesel.  NGL sold most of the RINs to other entities.  NGL then sold the biodiesel to Western Dubuque, but designated it as a “feedstock.”  Western Dubuque reprocessed the biodiesel provided by NGL and generated a second set of RINs for the same fuel.  Western Dubuque sold the reprocessed biodiesel and the second set of RINs back to NGL.  NGL then sold most of these RINs to other entities.  Western Dubuque resolved its alleged violations of the RFS program in a 2016 settlement with the United States. 

EPA discovered the violations through a tip from RFS program participants, an inspection, and extensive investigation into the NGL transactions.

EPA is responsible for developing and implementing regulations to ensure that transportation fuel sold in the United States contains a minimum volume of renewable fuel.  The RFS program was created under the Energy Policy Act of 2005 and expanded under the Energy Independence and Security Act of 2007.

NGL is a midstream energy provider headquartered in Tulsa, Oklahoma that transports crude oil, and markets and supplies refined products, natural gas liquids, and other products.  NGL was known as Gavilon, LLC at the time of the violations.   

The proposed settlement, lodged today in the U.S. District Court for the Northern District of Iowa, is subject to a 30-day public comment period and final court approval. To view the consent decree or to submit a comment, visit the department’s website at: www.justice.gov/enrd/Consent_Decrees.html.

October 5, 2018 in Financial Regulation | Permalink | Comments (0)

Thursday, October 4, 2018

Former NSA Employee Sentenced to Prison for Willful Retention of Classified National Defense Information

Nghia Hoang Pho, 68, of Ellicott City, Maryland, and a naturalized U.S. citizen originally of Vietnam, was sentenced to 66 months in prison, to be followed by three years of supervised release, for willful retention of classified national defense information.  According to court documents, Pho removed massive troves of highly classified national defense information without authorization and kept it at his home.

The sentence was announced by Assistant Attorney General for National Security John C. Demers, U.S. Attorney for the District of Maryland Robert K. Hur, and Special Agent in Charge Gordon B. Johnson of the FBI’s Baltimore Field Office.  U.S. District Judge George L. Russell, III issued the sentence.

“Pho’s intentional, reckless and illegal retention of highly classified information over the course of almost five years placed at risk our intelligence community’s capabilities and methods, rendering some of them unusable,” said Assistant Attorney General Demers.  “Today’s sentence reaffirms the expectations that the government places on those who have sworn to safeguard our nation’s secrets.  I would like to thank the agents, analysts and prosecutors whose hard work brought this result.”

“Removing and retaining such highly classified material displays a total disregard of Pho’s oath and promise to protect our nation’s national security,” said U.S. Attorney Hur.  “As a result of his actions, Pho compromised some of our country’s most closely held types of intelligence, and forced NSA to abandon important initiatives to protect itself and its operational capabilities, at great economic and operational cost.”

“The privilege of working for the U.S. Intelligence Community requires strict adherence to laws governing the lawful secrecy of its work,” said Special Agent in Charge Johnson.  “We cannot have a functioning Intelligence Community without the protection of sources and methods, and taking classified information and placing it in a vulnerable setting has profound and often disastrous consequences.  This case is a clarion call to all security clearance holders to follow the law and policy regarding classified information storage.  The FBI will leave no stone unturned to investigate those who compromise or mishandle classified information.”

According to his plea agreement, beginning in April 2006, Pho was employed as a developer in Tailored Access Operations (TAO) at the National Security Agency (NSA).   NSA is a component of the U.S. intelligence community and the U.S. Department of Defense (DoD).  The NSA's TAO involved operations and intelligence collection from foreign automated information systems or networks, as well as actions taken to prevent, detect and respond to unauthorized activity within DoD information systems and computer networks, for the United States and its  allies.

Pho held various security clearances in connection with his employment, including Top Secret and Top Secret // Sensitive Compartmented Information (SCI).  Pho had access to national defense and classified information and worked on highly classified, specialized projects.   Over his years of holding a security clearance, Pho received training regarding the proper handling, marking, transportation and storage of classified information.  Pho was also told that unauthorized removal of classified materials, and the transportation and storage of those materials in unauthorized locations, risked disclosure of the materials and could endanger the national security of the United States.  Pho signed numerous non-disclosure agreements demonstrating that he understood the trust that the United States places in individuals who receive a security clearance.

According to the plea agreement, beginning in 2010 and continuing through March 2015, Pho removed and retained U.S. government property, including documents and writings that contained national defense information classified as Top Secret and SCI.  This material was in both hard copy and digital form, and was kept in a number of locations in Pho’s residence in Maryland.  Pho knew that he was not authorized to remove the material or store it at his home.

Assistant Attorney General Demers and U.S. Attorney Hur commended the FBI and the NSA for their work in the investigation.  This prosecution was handled by the District of Maryland, and the National Security Division’s Counterintelligence and Export Control Section.

October 4, 2018 in AML | Permalink | Comments (0)

Treasury International Capital Data for July

The U.S. Department of the Treasury released Treasury International Capital (TIC) data for July 2018.  The next release, which will report on data for August 2018, is scheduled for October 16, 2018.

The sum total in July of all net foreign acquisitions of long-term securities, short-term U.S. securities, and banking flows was a net TIC inflow of $52.2 billion.  Of this, net foreign private inflows were $71.6 billion, and net foreign official outflows were $19.4 billion.

Foreign residents increased their holdings of long-term U.S. securities in July; net purchases were $40.6 billion.  Net purchases by private foreign investors were $54.4 billion, while net sales by foreign official institutions were $13.8 billion.

U.S. residents decreased their holdings of long-term foreign securities, with net sales of $34.2 billion.

Taking into account transactions in both foreign and U.S. securities, net foreign purchases of long-term securities were $74.8 billion.  After including adjustments, such as estimates of unrecorded principal payments to foreigners on U.S. asset-backed securities, overall net foreign purchases of long-term securities are estimated to have been $56.6 billion in July.

Foreign residents increased their holdings of U.S. Treasury bills by $8.5 billion.  Foreign resident holdings of all dollar-denominated short-term U.S. securities and other custody liabilities increased by $5.3 billion.

Banks’ own net dollar-denominated liabilities to foreign residents decreased by $9.8 billion.

Complete data are available on the Treasury website at:

www.treasury.gov/resource-center/data-chart-center/tic/Pages/index.aspx

About TIC Data

The monthly data on holdings of long-term securities, as well as the monthly table on Major Foreign Holders of Treasury Securities, reflect foreign holdings of U.S. securities collected primarily on the basis of custodial data.  These data help provide a window into foreign ownership of U.S. securities, but they cannot attribute holdings of U.S. securities with complete accuracy.  For example, if a U.S. Treasury security purchased by a foreign resident is held in a custodial account in a third country, the true ownership of the security will not be reflected in the data.  The custodial data will also not properly attribute U.S. Treasury securities managed by foreign private portfolio managers who invest on behalf of residents of other countries.  In addition, foreign countries may hold dollars and other U.S. assets that are not captured in the TIC data.  For these reasons, it is difficult to draw precise conclusions from TIC data about changes in the foreign holdings of U.S. financial assets by individual countries.

Press notice TIC for September 2018

      TIC Monthly Reports on Cross-Border Financial Flows
      (Billions of dollars, not seasonally adjusted)
                12 Months Through        
            2016 2017 Jul-17 Jul-18 Apr May Jun Jul
    Foreigners' Acquisitions of Long-term Securities                
                           
1     Gross Purchases of Domestic U.S. Securities 29632.6 31501.6 30635.4 34205.6 2834.8 3113.0 2893.5 2742.8
2     Gross Sales of Domestic U.S. Securities 29574.6 31096.2 30439.2 33847.2 2812.2 3092.7 2939.0 2702.2
3     Domestic Securities Purchased, net (line 1 less line 2) /1 58.0 405.4 196.2 358.5 22.6 20.3 -45.5 40.6
                           
4       Private, net /2 348.7 510.6 377.9 389.0 66.1 31.2 -43.5 54.4
5         Treasury Bonds & Notes, net 5.7 169.3 96.3 118.8 43.5 50.5 -40.3 42.0
6         Gov't Agency Bonds, net 225.1 93.0 132.0 120.9 14.0 1.7 13.1 21.4
7         Corporate Bonds, net 130.0 129.8 98.9 116.5 3.0 6.8 9.8 5.1
8         Equities, net -12.2 118.4 50.6 32.8 5.5 -27.8 -26.2 -14.1
                           
9       Official, net /3 -290.7 -105.1 -181.7 -30.6 -43.5 -10.9 -2.0 -13.8
10         Treasury Bonds & Notes, net -331.5 -149.4 -228.6 -106.8 -48.3 -23.8 -8.3 -23.0
11         Gov't Agency Bonds, net 40.8 42.0 44.5 82.1 5.7 13.5 6.8 10.4
12         Corporate Bonds, net -5.3 1.7 -1.5 -1.1 -1.4 -1.9 0.4 -1.2
13         Equities, net 5.4 0.5 3.8 -4.8 0.5 1.2 -0.9 0.0
                           
14     Gross Purchases of Foreign Securities from U.S. Residents 10124.4 13710.7 11821.1 16143.8 1471.6 1428.6 1401.1 1338.3
15     Gross Sales of Foreign Securities to U.S. Residents 9921.3 13583.6 11691.9 15886.3 1400.2 1403.3 1392.1 1304.1
16     Foreign Securities Purchased, net (line 14 less line 15) /4 203.1 127.1 129.2 257.5 71.4 25.2 9.0 34.2
                           
17         Foreign Bonds Purchased, net 258.7 233.2 225.8 262.3 38.6 26.1 15.2 32.9
18         Foreign Equities Purchased, net -55.7 -106.1 -96.6 -4.8 32.8 -0.8 -6.2 1.3
                           
19     Net Long-term Securities Transactions (line 3 plus line 16): 261.0 532.6 325.4 615.9 94.0 45.5 -36.5 74.8
                           
20     Other Acquisitions of Long-term Securities, net /5 -313.9 -224.2 -256.6 -96.4 81.2 -14.3 -14.9 -18.2
                           
21   Net Foreign Acquisition of Long-term Securities                
          (lines 19 and 20): -52.9 308.4 68.8 519.5 175.2 31.2 -51.4 56.6
                           
22   Increase in Foreign Holdings of Dollar-denominated Short-term                
          U.S. Securities and Other Custody Liabilities: /6 12.8 40.1 78.2 352.5 8.9 31.5 256.4 5.3
23     U.S. Treasury Bills -55.9 33.5 -2.8 78.5 -5.5 30.0 9.3 8.5
24       Private, net -16.9 14.0 -56.8 69.4 -10.1 6.9 19.2 5.2
25       Official, net -39.0 19.5 54.0 9.1 4.6 23.1 -10.0 3.3
26     Other Negotiable Instruments                
          and Selected Other Liabilities: /7 68.7 6.6 81.1 274.0 14.5 1.5 247.2 -3.2
27       Private, net 67.4 6.2 75.3 271.7 9.1 0.3 249.0 -5.9
28       Official, net 1.3 0.4 5.8 2.4 5.4 1.2 -1.8 2.7
                           
29   Change in Banks' Own Net Dollar-denominated Liabilities -110.2 77.4 -36.5 -66.6 50.2 7.6 -15.4 -9.8
                           
30 Monthly Net TIC Flows (lines 21,22,29) /8 -150.3 425.9 110.5 805.4 234.3 70.3 189.7 52.2
    of which                  
31     Private, net 218.7 608.1 308.6 910.7 259.1 59.2 216.6 71.6
32     Official, net -368.9 -182.2 -198.1 -105.3 -24.8 11.1 -26.9 -19.4
                           
                           
/1     Net foreign purchases of U.S. securities (+)                
/2     Includes international and regional organizations                
/3     The reported division of net purchases of long-term securities between net purchases by foreign official institutions and net purchases
        of other foreign investors is subject to a "transaction bias" described in Frequently Asked Questions 7 and 10.a.4 on the TIC website.
/4     Net transactions in foreign securities by U.S. residents. Foreign purchases of foreign securities = U.S. sales of foreign securities to foreigners.
        Thus negative entries indicate net U.S. purchases of foreign securities, or an outflow of capital from the United States; positive entries
        indicate net U.S. sales of foreign securities.                
/5     Minus estimated unrecorded principal repayments to foreigners on domestic corporate and agency asset-backed securities +  
        estimated foreign acquisitions of U.S. equity through stock swaps -              
        estimated U.S. acquisitions of foreign equity through stock swaps +              
        increase in nonmarketable Treasury Bonds and Notes Issued to Official Institutions and Other Residents of Foreign Countries.  
/6     These are primarily data on monthly changes in banks' and broker/dealers' custody liabilities. Data on custody claims are collected  
        quarterly and published in the TIC website.                
/7     "Selected Other Liabilities" are primarily the foreign liabilities of U.S. customers that are managed by U.S. banks or broker/dealers.  
/8     TIC data cover most components of international financial flows, but do not include data on direct investment flows, which are collected
        and published by the Department of Commerce's Bureau of Economic Analysis. In addition to the monthly data summarized here, the
        TIC collects quarterly data on some banking and nonbanking assets and liabilities. Frequently Asked Question 1 on the TIC website
        describes the scope of TIC data collection.

October 4, 2018 in Economics | Permalink | Comments (0)

Wednesday, October 3, 2018

Petróleo Brasileiro S.A. – Petrobras Agrees to Pay More Than $850 Million for FCPA Violations

Petróleo Brasileiro S.A. – Petrobras (Petrobras), a Brazilian state-owned and state-controlled energy company, entered into agreements with U.S. and Brazilian authorities and agreed to pay a combined total of $853.2 million in penalties to resolve the U.S. government’s investigation into violations of the Foreign Corrupt Practices Act (FCPA) in connection with Petrobras’s role in facilitating payments to politicians and political parties in Brazil, as well as a related Brazilian investigation. Download Non-Prosecution Agreement and Statement of Facts

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney G. Zachary Terwilliger of the Eastern District of Virginia and Assistant Director Robert Johnson of the FBI’s Criminal Investigative Division made the announcement.

“Executives at the highest levels of Petrobras—including members of its Executive Board and Board of Directors—facilitated the payment of hundreds of millions of dollars in bribes to Brazilian politicians and political parties and then cooked the books to conceal the bribe payments from investors and regulators,” said Assistant Attorney General Benczkowski.  “The Criminal Division’s Fraud Section—together with our partners in the Eastern District of Virginia, the SEC, and the FBI—are grateful for the assistance provided by our Brazilian law enforcement counterparts.  This case is just the most recent example of our ability to work with our foreign counterparts to investigate companies and other criminal actors whose conduct spans multiple international jurisdictions.”

“Protecting the integrity of U.S. financial markets is one of the highest priorities of this Administration,” said U.S. Attorney Terwilliger. “Those who choose to access our capital markets while failing to disclose the corrupt activities of company executives will be held accountable. I want to thank our law enforcement partners for their diligence and dedication in pursing this important case.”

“Today’s global resolution demonstrates the FBI’s commitment to thoroughly investigating and holding accountable those international companies who seek to take advantage of our financial system while also facilitating bribes and fraud in other countries,” said FBI Assistant Director Johnson.  “The hefty $853.2 million criminal penalty should act as a deterrent to anyone seeking to perpetrate this kind of fraud in the future.  This case proves that no company is above the law and that corruption that spans borders will not be tolerated by the United States. I want to thank the agents, analysts, and prosecutors who investigated this case in parallel with Brazilian authorities. We will continue to pursue any and all companies and individuals throughout the world who disregard the rule of law and threaten our fair and competitive marketplace for their personal gain.”

“Today’s substantial resolution demonstrates the FBI’s continued commitment to working with U.S. and international partners to investigate corruption no matter where it occurs,” said Special Agent in Charge Matthew J. DeSarno of the FBI Washington Field Office’s Criminal Division. “We remain committed to holding companies and executives who violate the Foreign Corrupt Practices Act accountable for their activity, and we will continue to work diligently to uphold the integrity of an increasingly global marketplace."

According to Petrobras’s admissions, while the company’s American Depository Shares traded on the New York Stock Exchange, members of the Petrobras Executive Board were involved in facilitating and directing millions of dollars in corrupt payments to politicians and political parties in Brazil, and members of Petrobras’s Board of Directors were also involved in facilitating bribes that a major Petrobras contractor was paying to Brazilian politicians.  During this period, for example, a Petrobras executive directed the payment of illicit funds to stop a parliamentary inquiry into Petrobras contracts, and the executive also directed payments received from Petrobras contractors to be corruptly used to pay millions of dollars to the campaign of a Brazilian politician who had oversight over the location where one of Petrobras’s refineries was being built. 

Petrobras admitted that it failed to make and keep books, records and accounts that accurately and fairly reflected the company’s capitalization of property, plant and equipment as a result of the bribes being generated by the company’s contractors with the cooperation of certain Petrobras executives, and that certain Petrobras executives signed false Sarbanes-Oxley (SOX) 302 sub-certifications while they were involved in, and were aware that other executives at Petrobras were involved in, obtaining and facilitating the payment of millions of dollars in bribes to Brazilian politicians, to Brazilian political parties and to themselves.  Petrobras also admitted that certain executives failed to implement internal financial and accounting controls in order to continue to facilitate bribe payments to Brazilian politicians and Brazilian political parties.     

Petrobras entered into a non-prosecution agreement and agreed to pay a criminal penalty of $853.2 million to resolve the matter.  This reflects a 25 percent discount off the low end of the applicable U.S. Sentencing Guidelines fine range for the company’s full cooperation and remediation.  In related proceedings, Petrobras reached a settlement with the U.S. Securities and Exchange Commission (SEC) and Petrobras entered into an agreement to reach a settlement with the Ministerio Publico Federal in Brazil.  Under the non-prosecution agreement, the United States will credit the amount that Petrobras pays to the SEC and Brazil under their respective agreements, with the Department of Justice and the SEC receiving 10 percent ($85,320,000) each and Brazil receiving the remaining 80 percent ($682,560,000).  As part of the agreement, Petrobras 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 unique factors presented by this case, including that Petrobras is a Brazilian-owned company that entered into a resolution with Brazilian authorities and is subject to oversight by Brazilian authorities, and that, in addition to the significant misconduct engaged in by Petrobras, a number of executives of the company engaged in an embezzlement scheme that victimized the company and its shareholders.  In addition, the company did not voluntarily disclose the conduct, but did notify the government of its intent to fully cooperate after learning of the allegations of misconduct; Petrobras fully cooperated in the investigation and fully remediated.  Petrobras’s cooperation included conducting a thorough internal investigation, proactively sharing in real time facts discovered during the internal investigation and sharing information that would not have been otherwise available to the Department, making regular factual presentations to the Department, facilitating interviews of and information from foreign witnesses, and voluntarily collecting, analyzing and organizing voluminous evidence and information for the Department in response to requests, including translating key documents.  Petrobras also took extensive remedial measures, including replacing the Board of Directors and the Executive Board (the company’s high-level managers) and implementing governance reforms, as well as disciplining employees and ensuring that the company no longer employs or is affiliated with any of the individuals known to the company to be implicated in the conduct at issue in the case.

In the related SEC matter, Petrobras also agreed to pay to the SEC disgorgement and prejudgment interest totaling $933,473,797, which shall be reduced by the amount of any payment Petrobras makes to the class action Settlement Fund in the matter of In re Petrobras Securities Litigation, No. 14-cv-9662 (S.D.N.Y.).

The FBI’s International Corruption Squad in Washington, D.C. investigated the case.  Assistant Chiefs Christopher Cestaro and Lorinda Laryea and Trial Attorney Derek Ettinger of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Grace Hill of the Eastern District of Virginia prosecuted the case. 

The Department appreciates the significant cooperation provided by the SEC and the Criminal Division’s Office of International Affairs in this case. 

October 3, 2018 in AML | Permalink | Comments (0)

Tuesday, October 2, 2018

Former Chief Financial Officer of Bankrate Inc. Sentenced to 10 Years in Prison for Orchestrating a Complex Accounting and Securities Fraud Scheme

The former chief financial officer of Bankrate Inc., a publicly traded financial services and marketing company formerly headquartered in North Palm Beach, Florida, was sentenced to 10 years in prison for orchestrating an accounting and securities fraud scheme that caused more than $25 million in shareholder losses.

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Ariana Fajardo Orshan of the Southern District of Florida and Inspector in Charge Delany DeLeon-Colon of the U.S. Postal Inspection Service’s Criminal Investigations Group made the announcement.

Edward J. DiMaria, 53, of Fairfield County, Connecticut, was sentenced by Chief U.S. District Judge K. Michael Moore of the Southern District of Florida, who also imposed three years of supervised release and ordered DiMaria to pay restitution in the amount of $21,234,214.  On June 28, DiMaria pleaded guilty to one count of conspiracy to making false statements to a public company’s accountants, falsifying a public company’s books, records and accounts, and securities fraud; and one count of making materially false statements to the Securities and Exchange Commission (SEC).  

“While serving as Bankrate’s CFO, Edward DiMaria blatantly manipulated the company’s publicly reported financial statements by repeatedly lying and directing others to lie to auditors, regulators, and shareholders,” said Assistant Attorney General Benczkowski.  “The significant sentence handed down today underscores the serious nature of corporate fraud and the damage it causes to shareholders and to the public’s trust in our financial markets.  The sentence also demonstrates the Department’s commitment to prosecuting corporate misconduct to the fullest extent of the law.”

“The U.S. Postal Inspection Service has an extensive history of investigating complex financial fraud schemes in order to protect investors as well as the integrity of the financial marketplace from fraudulent activities by trusted insiders who abuse their positions,” said Inspector in Charge Delany DeLeon-Colon. “Anyone who engages in this type of financial fraud scheme should know they will be found and they will be held accountable.”

As part of his guilty plea, DiMaria admitted that between 2010 and 2014 he directed and conspired to commit a complex scheme to artificially inflate Bankrate’s earnings through so-called “cookie jar” or “cushion” accounting, whereby millions of dollars in unsupported expense accruals were purposefully left on Bankrate’s books and then selectively reversed in later quarters to boost earnings.  In addition, DiMaria admitted that he conspired with other Bankrate employees to misrepresent certain company expenses as “deal costs” in order to artificially inflate publicly reported adjusted earnings metrics.  DiMaria made materially false statements to Bankrate’s independent auditors to conceal the improper accounting entries, and he caused Bankrate’s financial statements filed with the SEC to be materially misstated, he admitted.

Hyunjin Lerner, Bankrate’s former vice president of finance, previously pleaded guilty for his role in the conspiracy.  Lerner was sentenced by Judge Moore earlier this year to serve 60 months in prison. 

The U.S. Postal Inspection Service’s National Headquarters Fraud Team investigated the case.  Assistant Chief Henry Van Dyck and Trial Attorneys Emily Scruggs and Jason Covert of the Criminal Division’s Fraud Section are prosecuting the case, with assistance from the U.S Attorney’s Office for the Southern District of Florida.  The SEC also provided assistance in this matter.

Potential victims of the scheme can find information about their rights under relevant law at the following website: www.justice.gov/criminal-vns/case/edward-j-dimaria.

October 2, 2018 in AML, Financial Regulation | Permalink | Comments (0)

Gross Domestic Product, 2nd quarter 2018 (third estimate); Corporate Profits, 2nd quarter 2018 (revised estimate)

Real gross domestic product (GDP) increased at an annual rate of 4.2 percent in the second quarter of 2018 (table 1), according to the "third" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 2.2 percent.

The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month.  In the second estimate, the increase in real GDP was also 4.2 percent. With this third estimate for the second quarter, the general picture of economic growth remains the same; a downward revision to private inventory investment was offset by small upward revisions to most other GDP components. Imports which are a subtraction in the calculation of GDP, were revised down slightly (see "Updates to GDP" on page 2).

Real GDP Percent Change

Real gross domestic income (GDI) increased 1.6 percent in the second quarter, compared with an increase of 3.9 percent in the first quarter. The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, increased 2.9 percent in the second quarter, compared with an increase of 3.1 percent in the first quarter (table 1).

The increase in real GDP in the second quarter reflected positive contributions from PCE, nonresidential fixed investment, exports, federal government spending, and state and local government spending that were partly offset by negative contributions from private inventory investment and residential fixed investment. Imports decreased (table 2).

The acceleration in real GDP growth in the second quarter reflected accelerations in PCE, exports, federal government spending, and state and local government spending, as well as a smaller decrease in residential fixed investment. These movements were partly offset by a downturn in private inventory investment and a deceleration in nonresidential fixed investment. Imports decreased after increasing in the first quarter.

Current-dollar GDP increased 7.6 percent, or $370.9 billion, in the second quarter to a level of $20.41 trillion. In the first quarter, current-dollar GDP increased 4.3 percent, or $209.2 billion (table 1 and table 3).

The price index for gross domestic purchases increased 2.4 percent in the second quarter, compared with an increase of 2.5 percent in the first quarter (table 4). The PCE price index increased 2.0 percent, compared with an increase of 2.5 percent. Excluding food and energy prices, the PCE price index increased 2.1 percent, compared with an increase of 2.2 percent.

Updates to GDP

The percent change in real GDP was unrevised from the second estimate, reflecting a downward revision to private inventory investment that was offset by upward revisions to state and local government spending, PCE, nonresidential fixed investment, exports, and residential fixed investment. Imports were revised down slightly.   For more information, see the Technical Note. A detailed "Key Source Data and Assumptions" file is also posted for each release.  For information on updates to GDP, see the "Additional Information" section that follows.

  Advance Estimate Second Estimate Third Estimate
(Percent change from preceding quarter)
Real GDP 4.1 4.2 4.2
Current-dollar GDP 7.4 7.6 7.6
Real GDI 1.8 1.6
Average of Real GDP and Real GDI 3.0 2.9
Gross domestic purchases price index 2.3 2.3 2.4
PCE price index 1.8 1.9 2.0

Corporate Profits (table 10)

Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased $65.0 billion in the second quarter, compared with an increase of $26.7 billion in the first quarter.

Profits of domestic financial corporations increased $16.5 billion in the second quarter, in contrast to a decrease of $9.3 billion in the firstquarter. Profits of domestic nonfinancial corporations increased $53.0 billion, compared with an increase of $32.3 billion. Rest-of-the-world  profits decreased $4.5 billion, in contrast to an increase of $3.7 billion. In the second quarter, receipts increased $0.5 billion, and payments increased $5.0 billion.

October 2, 2018 in Economics | Permalink | Comments (0)

Monday, October 1, 2018

Former Non-Profit President Charged with Scheme to Conceal Foreign Funding of 2013 Congressional Trip

The former president of a Texas-based non-profit has been charged in an indictment unsealed for his role in a scheme to conceal the fact that a 2013 Congressional trip to Azerbaijan was funded by the Azerbaijan government.  Download Indictment

Kemal Oksuz, aka Kevin Oksuz, 48, previously a resident of Arlington, Virginia, allegedly lied on disclosure forms filed with the U.S. House of Representatives Committee on Ethics prior to, and following, a privately sponsored Congressional trip to Azerbaijan.  According to the indictment, Oksuz allegedly falsely represented and certified on required disclosure forms that the Turquoise Council of Americans and Eurasions (TCAE), the Houston non-profit for which Oksuz was president, had not accepted funding for the Congressional trip from any outside sources.  According to the charges, Oksuz in truth orchestrated a scheme to funnel money to fund the trip from the State Oil Company of Azerbaijan Republic (SOCAR), the wholly state-owned national oil and gas company of Azerbaijan, and allegedly concealed the true source of funding, which is alleged to violate House travel regulations.

The five-count indictment was returned earlier this year in the U.S. District Court for the District of Columbia and ordered unsealed today. It charges Oksuz with one count of devising a scheme to falsify, conceal, and cover up material facts from the Ethics Committee and four counts of making false statements to Congress.

Oksuz is considered a fugitive. A warrant for his arrest was issued earlier this year and remains outstanding. Oksuz was recently detained by authorities in Armenia.

The investigation was conducted by the FBI. The case is being prosecuted by Trial Attorney Marco Palmieri of the Criminal Division’s Public Integrity Section and Assistant U.S. Attorney David Misler of the District of Columbia.

An indictment contains only allegations. A defendant is presumed innocent until proven guilty beyond a reasonable doubt in a court of law. 

October 1, 2018 in AML | Permalink | Comments (0)

State Quarterly Personal Income, 2nd quarter 2018

State personal income increased 4.2 percent, at an annual rate, in the second quarter of 2018, a deceleration from the 5.0 percent increase in the first quarter, according to estimates released today by the Bureau of Economic Analysis (table 1). The percent change in personal income across all states ranged from 6.0 percent in Texas to 1.6 percent in Washington.

Personal Income: Percent Change, 2018:Q1-2018:Q2

Increases in earnings, property income, and transfer receipts all contributed to growth in second quarter personal income (table 2).

Earnings. For the nation, earnings increased 4.5 percent in the second quarter of 2018, after increasing 5.1 percent in the first quarter, and increased in 21 of the 24 industries for which BEA prepares quarterly estimates (table 4). Earnings was the leading contributor to personal income growth in most states, including the four states with the fastest personal income growth — Texas, Louisiana, Kentucky, and North Dakota.

  • Professional, scientific, and technical services was the leading contributor to the earnings increase in Texas (table 3).
  • Construction was the leading contributor to the earnings increase in Louisiana.
  • Health care and social assistance was the leading contributor to the earnings increase in Kentucky.
  • Mining was the leading contributor to the earnings increase in North Dakota.

Nationally, earnings increased fastest in farming and mining (chart 1). Although neither industry contributed more than 0.2 of a percentage point to personal income growth nationally; both industries were important contributors to growth in several states.

Earnings 2018:Q1-2018:Q2 (Percent Change)

  • Farm earnings contributed half a percentage point or more to increases in personal income in nine states — Arkansas, Kansas, Mississippi, North Dakota, Montana, Idaho, Minnesota, Indiana, and Iowa.
  • Mining earnings contributed half a percentage point or more to increases in personal income in seven states — North Dakota, Wyoming, Oklahoma, Alaska, Texas, New Mexico, and Colorado.

Property income. Property Income increased 3.3 percent in the second quarter of 2018, after increasing 3.6 percent in the first. Growth rates ranged from 3.7 percent in Arkansas to 2.9 percent in the District of Columbia.

Transfer receipts. Transfer receipts increased 4.1 percent in the second quarter of 2018, after increasing 6.6 percent in the first quarter. Growth rates ranged from 9.4 percent in Connecticut to -2.5 percent in the District of Columbia.

October 1, 2018 in Economics | Permalink | Comments (0)

Saturday, September 29, 2018

Houston Attorney Charged in Helping Client Repatriate Offshore Tax Evasion Dollars

A federal grand jury sitting in Houston, Texas returned an indictment today charging a Houston attorney with one count of conspiracy to defraud the United States and three counts of tax evasion, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Department of Justice’s Tax Division and U.S. Attorney Ryan K. Patrick for the Southern District of Texas.

According to the indictment, Jack Stephen Pursley, also known as Steve Pursley, conspired with another individual to repatriate more than $18 million in untaxed earnings from the co-conspirator’s business bank account located in the Isle of Man.  Knowing that his co-conspirator had never paid taxes on these funds, Pursley allegedly designed and implemented a scheme whereby the untaxed funds were made to appear to be stock purchases in United States corporations owned and controlled by Pursley and his co-conspirator.

The indictment alleges that Pursley received more than $4.8 million and an ownership interest in the co-conspirator’s ongoing business for his role in the fraudulent scheme.  The indictment further alleges that for tax years 2009 and 2010 Pursley evaded the assessment of and failed to pay the incomes taxes due on this money by, amongst other means, withdrawing the funds as purported non-taxable loans or returns of capital.  Pursley allegedly used the money he received to purchase personal assets, including a vacation home in Vail, Colorado and property in Houston.  

If convicted, Pursley faces a statutory maximum sentence of five years in prison for the conspiracy count, and five years in prison for each count of tax evasion.  He also faces a period of supervised release, monetary penalties, and restitution.

An indictment merely alleges that a crime has been committed. A defendant is presumed innocent until proven guilty beyond a reasonable doubt.

Principal Deputy Assistant Attorney General Zuckerman and U.S. Attorney Patrick commended special agents of IRS-Criminal Investigation, who investigated the case, and Senior Litigation Counsel Nanette Davis, Trial Attorney Grace Albinson, and Trial Attorney Sean Beaty of the Tax Division, who are prosecuting this case.

September 29, 2018 in AML | Permalink | Comments (0)

Saudi Arabia’s measures to fight money laundering and the financing of terrorism and proliferation

The Kingdom of Saudi Arabia is achieving good results in fighting terrorist financing, but needs to focus more on pursuing larger scale money launderers and confiscating their assets.

The FATF and the Middle East and North Africa Financial Action Task Force (MENAFATF) jointly conducted an assessment of Saudi Arabia’s anti-money laundering and counter-terrorist financing (AML/CFT) system.  The assessment is a comprehensive review of the effectiveness of a country’s AML/CFT system and its level of compliance with the FATF Recommendations.

Saudi Arabia recently made fundamental changes to its AML/CFT regime to bring its legal and institutional framework in line with up-to-date FATF Recommendations.  Given the recent introduction of some of these measures, their effectiveness cannot yet be demonstrated. 

Two separate national risk assessments have provided the country with a solid understanding of the money laundering (ML) and terrorist financing (TF) risks it faces.   Financial institutions generally understand their ML/TF risks, and are applying preventive measures such as customer due diligence, record-keeping and verification of beneficial ownership. This is largely the result of an effective and proactive supervision of this sector. However, the lack of suspicious transaction reports, in particular on suspected cases of terrorist financing, is a concern. Money exchangers, real estate agents, accountants and other designated non-financial businesses and professions do not fully understand the ML/TF risks they are exposed to, with a correspondingly low level or number of suspicious transaction reports.

Saudi Arabia’s financial intelligence unit is not able to conduct sophisticated financial analysis, although it does provide a wide variety of information that is available to and used by competent authorities.  While money laundering investigations have increased in recent years, Saudi authorities are not investigating and prosecuting money laundering in a proactive fashion, particularly when it comes to complex money laundering schemes. They do not systematically pursue confiscation of proceeds.

Saudi Arabia faces a significant and dynamic risk of terrorist financing including the presence of cells of Al Qaeda, ISIS, affiliates and other groups, as well as a large number of foreign terrorist fighters.  Saudi Arabia demonstrated an ability and willingness to pursue terrorist financing which resulted in over 1700 investigations and convictions since 2013, although these efforts were largely focused on domestic terrorist financing.  Saudi Arabia has a sound mechanism to implement United Nations targeted financial sanctions on terrorism, but the measures to implement targeted financial sanctions for proliferation financing and prevent sanctions evasion are weak.

FATF adopted this report at its Plenary meeting in June 2018.

 

Download the report: 

Mutual Evaluation of the Kingdom of Saudi Arabia - 2018

Mutual Evaluation of the Kingdom of Saudi Arabia - Executive Summary

Earlier report on Saudi Arabia's measures to combat money laundering and terrorist financing

More information:  

FATF Recommendations

Methodology for assessing technical compliance with the FATF Recommendations and the Effectiveness of AML/CFT Systems

Consolidate assessment ratings - an overview of ratings that assessed countries obtained for effectiveness and technical compliance.

Key findings, ratings and priority actions:

 

 

September 29, 2018 in AML | Permalink | Comments (0)