Tuesday, August 14, 2018
The Justice Department announced today a $4.9 billion settlement with The Royal Bank of Scotland Group plc (RBS) resolving federal civil claims that RBS misled investors in the underwriting and issuing of residential mortgage-backed securities (RMBS) between 2005 and 2008. The penalty is the largest imposed by the Justice Department for financial crisis-era misconduct at a single entity under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, which authorizes the federal government to seek civil penalties against financial institutions that violate various predicate criminal offenses, including wire and mail fraud.
“Many Americans suffered lasting economic harm as a result of the 2008 financial crisis,” said Acting Associate Attorney General Jesse Panuccio. “This settlement holds RBS accountable for serious misconduct that contributed to that financial crisis, and it sends an important message that the Department of Justice will pursue financial institutions that illicitly harm the American economy and our consumers.”
"This resolution – the largest of its kind – holds RBS accountable for defrauding the people and institutions that form the backbone of our investing community,” said Andrew E. Lelling, U.S. Attorney for the District of Massachusetts. “Despite assurances by RBS to its investors, RBS’s deals were backed by mortgage loans with a high risk of default. Our settlement today makes clear that institutions like RBS cannot evade responsibility for the damage caused by their illicit conduct, and it serves as a reminder that the Justice Department, and this Office, will hold those who engage in fraudulent conduct accountable.”
“The actions of RBS resulted in significant losses to investors, including Fannie Mae and Freddie Mac, which purchased the Residential Mortgage-Backed Securities backed by defective loans,” said Associate Inspector General Jennifer Byrne of the Federal Housing Finance Agency-Office of Inspector General’s (FHFA-OIG). “We are proud to have partnered with the U.S Attorney’s Office for the District of Massachusetts on this matter.”
The settlement includes a statement of facts that details – using contemporaneous calls and emails of RBS executives – how RBS routinely made misrepresentations to investors about significant risks it failed to disclose about its RMBS. For example:
- RBS failed to disclose systemic problems with originators’ loan underwriting. RBS’s reviews of loans backing its RMBS (known as “due diligence”) confirmed that loan originators had failed to follow their own underwriting procedures, and that their procedures were ineffective at preventing risky loans from being made. As a result, RBS routinely found that borrowers for the loans in its RMBS did not have the ability to repay and that appraisals for the properties guaranteeing the loans had materially inflated the property values. RBS never disclosed that these material risks both existed and increased the likelihood that loans in its RMBS would default.
- RBS changed due diligence findings without justification. RBS’s due diligence practices did not remove fraudulent and high-risk loans from its RMBS. For example, when RBS’s due diligence vendors graded loans materially defective, RBS frequently directed the vendors to “waive” the defects without justification. One due diligence vendor, which tracked waivers by most major participants in the RMBS industry, concluded that RBS waived material defects 30% more frequently than the industry average. RBS’s waiver of material defects routinely resulted in the securitization of loans with excessive risk. When it engaged in such waivers, RBS never included enhanced “scratch-and-dent” disclosures that would have alerted investors that loans with excessive risks were included in the RMBS.
- RBS provided investors with inaccurate loan data. RBS’s due diligence frequently found that loan data – which RBS passed on to investors, who used the data to analyze the risks associated with its RMBS – were riddled with errors. Many inaccuracies made the loans look less risky than they actually were. RBS, however, did not require originators to correct the data errors. In one deal, where RBS identified over 600 data errors associated with 563 loans (including debt-to-income ratios understated by as much as 2700%), RBS failed to disclose these errors even to the originator; instead, RBS reassured the originator that RBS had not required originators to correct data errors in the past and did not anticipate doing so for that deal.
- RBS failed to disclose due diligence and kick-out caps. To develop and maintain business relations with originators, RBS agreed to limit the number of loans it could review (due diligence caps) and/or limit the number of materially defective loans it could remove from a RMBS (kick-out caps). RBS’s scheme reached its height in two deals issued in October 2007. In both of these RMBS, RBS identified hundreds of underlying loans that carried a particularly high risk of default and would cause losses to the RMBS investors. RBS kept these materially risky loans in the RMBS, without disclosing their inclusion to investors, because RBS had agreed to a kick-out cap limiting the number of defective loans that RBS could exclude from the securities in exchange for receiving a lower price for the loan pool. As a result, over the entirety of its scheme, RBS securitized tens of thousands of loans that it determined or suspected were fraudulent or had material problems without disclosing the nature of the loans to investors.
Through its scheme, RBS earned hundreds of millions of dollars, while simultaneously ensuring that it received repayment of billions of dollars it had lent to originators to fund the faulty loans underlying the RMBS. RBS used RMBS to push the risk of the loans, and tens of billions of dollars in subsequent losses, onto unsuspecting investors across the world, including non-profits, retirement funds, and federally-insured financial institutions. As losses mounted, and after many mortgage lenders who originated those loans had gone out of business, RBS executives showed little regard for this misconduct and made light of it.
These are allegations only, which RBS disputes and does not admit, and there has been no trial or adjudication or judicial finding of any issue of fact or law.
The settlement was the result of a multi-year investigation by the U.S. Attorney’s Office of the District of Massachusetts. Assistant U.S. Attorneys Justin D. O’Connell, Brian M. LaMacchia, Elianna J. Nuzum, Steven T. Sharobem, and Sara M. Bloom of Lelling’s Office investigated RBS’s conduct in connection with RMBS, with the support of the Federal Housing Finance Agency’s Office of the Inspector General.
Monday, August 13, 2018
Defendants deceptively marketed a “system” to make money on Amazon
The Federal Trade Commission and the State of Minnesota have charged Minnesota-based Sellers Playbook with running a large business opportunity scheme. A federal court temporarily halted the operation pending resolution of the case.
The FTC and the Minnesota Attorney General’s Office allege that Sellers Playbook lured consumers into buying its expensive “system” by claiming that purchasers were likely to earn thousands of dollars per month selling products on Amazon. The company used false and unsubstantiated claims, such as make“$20,000 a month” and “Potential Net Profit: $1,287,463.38.” Few, if any, consumers achieved these results, and most lost money.
The defendants are Sellers Playbook Inc., Exposure Marketing Company (also doing business as Sellers Online and Sellers Systems), and Jessie Conners Tieva and Matthew R. Tieva, who have owned and managed these companies. According to the FTC and the Minnesota Attorney General’s Office, the defendants, who have no affiliation with Amazon.com, took in more than $15 million from consumers from April 2017 to May 2018. Many consumers paid them more than $32,000.
Jessie Conners Tieva and Exposure Marketing Company previously promoted, sold and benefited from a similar scheme, known as FBA Stores, which ceased operation in March 2018 as a result of an FTC enforcement action. In June 2018, its key operators were banned from selling business opportunities and business coaching services, and required to surrender approximately $10.8 million for return to consumers. The defendants in the case announce today were not defendants in the FBA Stores case.
The defendants are charged with violating the FTC Act, the Business Opportunity Rule, the Minnesota Prevention of Consumer Fraud Act, and the Minnesota Uniform Deceptive Trade Practices Act. They are also charged with violating the Consumer Review Fairness Act through contracts that improperly sought to restrict consumers’ right to review the products and services they purchased.
The Commission vote approving the complaint was 5-0. The U.S. District Court for the District of Minnesota entered a temporary restraining order against the defendants on July 30, 2018, and a preliminary injunction hearing is currently scheduled for August 13, 2018.
This case was brought with the assistance of the Utah Division of Consumer Protection, the U.S. Marshals Service for the District of Minnesota, Amazon.com, Inc., and the Better Business Bureau of Minnesota and North Dakota.
Consumers can report complaints about similar situations to the Minnesota Attorney General’s Office by calling 651-296-3353 or 800-657-3787. They can also download a complaint form from www.ag.state.mn.us and mail the completed form to the Attorney General’s Office, 445 Minnesota Street, Suite 1400, St. Paul, MN 55101-2131.
NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. The case will be decided by the court.
The operators of a scheme that sold “secrets for making money on Amazon” are banned from marketing and selling business opportunities and business coaching services under a settlement with the Federal Trade Commission, and they will surrender millions of dollars for return to consumers.
According to the FTC, the defendants, who have no affiliation with Amazon.com, falsely claimed their “Amazing Wealth System” would enable consumers to create a profitable online business selling products on Amazon. Buyers, however, did not earn the advertised income. Most of them lost significant amounts of money, and many often experienced problems with their Amazon stores, including suspension and the loss of their ability to sell on Amazon.com.
The settlement order also bans the defendants from making false earnings claims. It imposes a judgment of more than $102 million, which will be partially suspended when they have surrendered approximately $10.8 million to the FTC. The order also prohibits them from profiting from consumers’ personal information collected as part of the scheme, and failing to dispose of it properly.
The defendants are Adam Bowser, Christopher Bowser, Jody Marshall, AWS LLC, FBA Distributors LLC, FBA Stores LLC, Info Pros LLC, Info Solutions LLC, Online Auction Learning Center Inc. (Massachusetts), and Online Auction Learning Center Inc. (Nevada).
This case was brought with the invaluable assistance of the Washington State Office of the Attorney General, Utah Division of Consumer Protection, Utah County Attorney’s Office (Bureau of Investigations), Utah County Sheriff’s Office, Lindon City Police Department, U.S. Marshals Service, and Amazon.com, Inc.
The Commission vote approving the proposed stipulated final order was 5-0. The U.S. District Court for the District of Nevada entered the order on June 15, 2018.
Online ads and in-person workshops for Sellers Playbook claim to offer “secrets” to making big money on Amazon. But like a lot of namedroppers, the truth doesn’t live up to the hype. That’s what the FTC and the Minnesota Attorney General allege in a lawsuit they filed.
According to the complaint, Sellers Playbook lures consumers in with promises like “Potential Net Profit: $1,287,463.38” and “Starting with $1000…1 year later over $210,000,” but the FTC and AG say few people – if anybody – make that kind of money, despite shelling out thousands to learn the company’s so-called secrets. What’s more, Sellers Playbook has no affiliation with Amazon other than dropping the online giant’s name in its ads.
If the tactics sound familiar, that’s because some of the defendants behind Sellers Playbook were affiliated with Amazing Wealth Systems, a venture whose bogus big-money claims were the subject of an FTC lawsuit earlier this year.
The FTC and the Minnesota AG have charged Sellers Playbook with making misleading earnings claims. The FTC also says the defendants have violated the Business Opportunity Rule, a consumer protection provision that requires sellers of money-making ventures to disclose certain facts up front to people thinking about signing up. In addition, the lawsuit alleges the defendants violated the Consumer Review Fairness Act – a new law that bans contract provisions that try to silence consumers from posting their honest opinions about a company’s products or customer service.
Thinking about sinking your savings into a business opportunity? Don’t make a move without consulting a person you trust in your community and considering these suggestions from the FTC. And here’s a tip from in-the-know entrepreneurs: If the promoter of a business opportunity doesn’t give you the disclosure document required by the FTC’s Business Opportunity Rule, that alone should sound an alarm. If they’re not honoring those basic legal requirements, can you trust their money-making promises? Probably not.
Sunday, August 12, 2018
Extension of Limited Exception from Beneficial Ownership Requirements for Legal Entity Customers of Certain Financial Products and Services with Rollovers and Renewals
On May 16, 2018, the Financial Crimes Enforcement Network (FinCEN) issued a 90-day limited exceptive relief to covered financial institutions from the obligations of the Beneficial Ownership Rule for Legal Entity Customers (Beneficial Ownership Rule)1 for certain financial products and services (i.e., certificate of deposit or loan accounts) that were established before the Beneficial Ownership Rule’s Applicability Date, May 11, 2018. FinCEN issued the 90-day limited exception in order to determine whether, and to what extent, a further exception would be appropriate for such products and services. The exception expires on August 9, 2018, but may be extended, modified or revoked at FinCEN’s discretion
FinCEN is extending the limited exception for an additional 30 days, up to and including September 8, 2018, from the obligations of the Beneficial Ownership Rule for rollover or renewal of certain financial products and services (i.e., certificate of deposit or loan accounts) that were established before May 11, 2018 to further consider the issue.
Former Convergex Global Markets CEO Pleads Guilty in New Jersey for Role in Securities and Wire Fraud Scheme
The former Chief Executive Officer of ConvergEx Global Markets Limited (CGM Limited) pleaded guilty for his role in a scheme to commit securities and wire fraud from 2006 through 2011.
Assistant Attorney General Brian A. Benczkowski for the Justice Department’s Criminal Division, U.S. Attorney Craig Carpenito of the District of New Jersey, Assistant Director in Charge Nancy McNamara of the FBI’s Washington Field Office, and Inspector in Charge Peter R. Rendina of the U.S. Postal Inspection Service (USPIS) made the announcement.
Anthony Blumberg, 53, of Short Hills, New Jersey, pleaded guilty before U.S. District Judge Jose L. Linares of the District of New Jersey, in Newark, to one count of conspiracy to commit securities and wire fraud. Sentencing has been scheduled for Dec. 5 before Chief Judge Linares.
According to court documents, CGM Limited was a wholly owned subsidiary of ConvergEx Group LLC (“ConvergEx Group”). As part of his plea today, Blumberg admitted that clients placed orders to buy or sell securities with G-Trade Services LLC and ConvergEx Limited, subsidiaries of ConvergEx Group that offered global trading services to clients, which in turn routed orders to CGM Limited. Blumberg also admitted that traders at CGM Limited executed the orders and sometimes added a “spread,” (a mark-down on the sale of a security or a mark-up on the purchase of a security) to the prices they had obtained for non-fiduciary clients. To hide the fact that spread had been taken, on several occasions from 2007 to 2011, Blumberg and traders acting under his direction, acting in response to requests by clients for information that could reveal the existence of spread, sent false reports (known as time and sales reports) to these clients. The false time and sales reports contained fabricated details regarding the individual transactions, or “fills,” executed during the course of a day to complete a client’s orders, including false information concerning the number of shares involved in a fill, the time at which the fill was executed, and the price at which shares were either purchased or sold.
Blumberg also admitted that he and his co-conspirators agreed to violate a client’s instructions to provide real-time transactional data through an immediate data feed with details of trades that CGM Limited executed for the client by providing “batch fills” that hid the actual information the client sought.
Blumberg is the fourth individual to plead guilty as a result of the investigation into ConvergEx Group and CGM Limited’s practices. On Dec. 18, 2013, CGM Limited pleaded guilty to conspiracy to commit securities and wire fraud before Judge Linares. On the same day, ConvergEx Group entered into a deferred prosecution agreement. Collectively, the two ConvergEx entities paid $43.8 million in criminal penalties and restitution.
The case is being investigated by the FBI’s Washington Field Office and the Washington, D.C. and New York offices of the U.S. Postal Inspection Service. The case is being prosecuted by Trial Attorney Gary A. Winters and Assistant Chief Justin D. Weitz of the Criminal Division’s Fraud Section and by Assistant U.S. Attorney Paul Murphy, Chief of the U.S. Attorney’s Office for the District of New Jersey Economic Crimes Unit in Newark. The Department appreciates the substantial assistance of the Securities and Exchange Commission.
Saturday, August 11, 2018
Former Member of Barbados Parliament and Minister of Industry Charged with Laundering Bribes from Barbadian Insurance Company
The former Minister of Industry of Barbados was arrested Friday and had his initial court appearance today in connection with an indictment charging him with laundering bribes that he allegedly received from a Barbadian insurance company in exchange for official actions he took to secure government contracts for the insurance company.
Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Richard P. Donoghue for the Eastern District of New York and Assistant Director-in-Charge William F. Sweeney Jr. of the FBI New York Field Office made the announcement.
Donville Inniss, 52, a U.S. legal permanent resident who resided in Tampa, Florida, and Barbados, was charged in an indictment with one count of conspiracy to launder money and two counts of money laundering. The indictment was returned under seal by a federal grand jury sitting in Brooklyn, New York, on March 15.
“Donville Inniss allegedly used the U.S. financial system to launder bribes he received while serving as a government official in Barbados,” said Assistant Attorney General Benczkowski. “These charges demonstrate the commitment of the Department and our law enforcement partners to hold accountable anyone who seeks to use our financial system to promote or launder the corrupt proceeds of their crimes.”
“As charged in the indictment, Inniss abused his position of trust as a government official by taking bribes from a Barbadian company, then laundered the illicit funds through a bank and a dental company located in the Eastern District of New York,” said U.S. Attorney Donoghue. “The Department of Justice will continue to hold accountable corrupt government officials here or abroad who use the U.S. financial system to facilitate their criminal conduct.”
The indictment alleges that in 2015 and 2016, Inniss took part in a scheme to launder into the United States approximately $36,000 in bribes that he received from high-level executives of a Barbadian insurance company. At the time, Inniss was a member of the Parliament of Barbados and the Minister of Industry, International Business, Commerce, and Small Business Development of Barbados. In exchange for the bribes, Inniss leveraged his position as the Minister of Industry to enable the Barbadian insurance company to obtain two government contracts. To conceal the bribes, Inniss arranged to receive them through a U.S. bank account in the name of a dental company, which had an address in Elmont, New York.
The charges in the indictment are merely allegations, and the defendant is presumed innocent until proven guilty beyond a reasonable doubt in a court of law.
The FBI’s New York Field Office is investigating the case. In 2015, the FBI formed International Corruption Squads across the country to address national and international implications of foreign corruption.
Trial Attorney Gerald M. Moody Jr. of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Sylvia Shweder of the Eastern District of New York are prosecuting the case. The Criminal Division’s Office of International Affairs provided significant assistance in this matter.
The Criminal Division’s Fraud Section is responsible for investigating and prosecuting all Foreign Corrupt Practices Act (FCPA) matters. Additional information about the department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.
Friday, August 10, 2018
Justice Department Announces Addendum To Swiss Bank Program Category 2 Non-Prosecution Agreement With Bank Lombard Odier & Co. Ltd.
The Department of Justice announced that it has signed an Addendum to a non-prosecution agreement with Bank Lombard Odier & Co., Ltd., of Zurich Switzerland. The original non-prosecution agreement was signed on December 31, 2015. Download Addendum
The Swiss Bank Program, which was announced on August 29, 2013, provided a path for Swiss banks to resolve potential criminal liabilities in the United States relating to offshore banking services provided to United States taxpayers. Swiss banks eligible to enter the program were required to advise the Department by December 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts. Swiss banks participating in the program were required to make a complete disclosure of their cross-border activities, provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers had a direct or indirect interest, cooperate in treaty requests for account information, and provide detailed information about the transfer of funds into and out of U.S.-related accounts, including undeclared accounts, that identifies the sending and receiving banks involved in the transactions.
The Department executed non-prosecution agreements with 80 banks between March 2015 and January 2016. The Department imposed a total of more than $1.36 billion in Swiss Bank Program penalties, including more than $99 million in penalties from Lombard Odier. Pursuant to today’s agreement, an addendum to Lombard Odier’s non-prosecution agreement, Lombard Odier will pay to the Department an additional sum of $5,300,000, and will provide to the Department supplemental information regarding its U.S.-related account population, which now includes 88 additional accounts.
Every bank that signed a non-prosecution agreement in the Swiss Bank Program had represented that it had disclosed all of its U.S.-related accounts that were open at each bank between August 1, 2008, and December 31, 2014. Each bank also represented that it would, during the term of the non-prosecution agreement, continue to disclose all material information relating to its U.S.-related accounts. In reaching today’s agreement, Lombard Odier acknowledges that there were certain additional U.S.-related accounts that it knew about, or should have known about, but that were not disclosed to the Department at the time of the signing of the non-prosecution agreement. Lombard Odier provided early self-disclosure of their unreported U.S.-related accounts and has fully cooperated with the Department.
“The Department of Justice and Internal Revenue Service have capitalized on information obtained under the Swiss Bank Program to analyze the flow of money of U.S. tax evaders from closed Swiss bank accounts to banks in other countries. As a result, the Department has learned more about the methods of those who continue to evade their tax obligations and those institutions that assist them,” said Richard E. Zuckerman, Principal Deputy Assistant Attorney General of the Department of Justice’s Tax Division. “I urge any banks that aided and abetted in these schemes, or that have received money from closed Swiss bank accounts owned or controlled by persons or entities that are U.S. related, to contact the Tax Division and disclose complete and accurate information about these activities before they are contacted by the Division or the IRS.”
Principal Deputy Assistant Attorney General Zuckerman thanked Trial Attorney Kimberly M. Shartar, who served as counsel on this matter, as well as Senior Counsel for International Tax Matters and Coordinator of the Swiss Bank Program Thomas J. Sawyer, Senior Litigation Counsel Nanette L. Davis, and Attorney Kimberle E. Dodd of the Tax Division.
Additional information about the Tax Division and its enforcement efforts may be found on the division’s website.
In recent years, the number of victims of human trafficking and migrant smuggling has continued to grow significantly. In addition to the terrible human cost, the estimated proceeds that human trafficking generates have increased five-fold since the Financial Action Task Force (FATF) produced a comprehensive report on the laundering of the proceeds of these crimes in 2011. Since then, there is also a better understanding of how and where human trafficking is taking place, including the increasing prevalence of people being trafficked in the same country or region. Download Human-Trafficking-2018
A new FATF and Asia/Pacific Group on Money Laundering (APG) report aims to raise awareness about the type of financial information that can identify human trafficking for sexual exploitation or forced labour and to raise awareness about the potential for profit-generation from organ trafficking. The report also highlights potential links between human trafficking and terrorist financing.
As human trafficking can happen in any country, it is important that countries assess how they are at risk of human trafficking and the laundering of the proceeds of this crime, share this information with stakeholders and make sure that it is understood. Countries should also build partnerships between public sector, private sector, civil society and non-profit communities to leverage expertise, capabilities and partnership. The private sector - financial institutions in particular - and non-profit organisations that provide support to the victims of this crime, are on the frontline and have a crucial role in tackling human trafficking and the financial flows that derive from it.
Innovative initiatives at the national or regional level have demonstrated how anti-money laundering and counter-terrorist financing measures, and those that implement them, can contribute to stopping this crime. However, globally, there has not been sufficient focus on how to use financial information to detect, disrupt and dismantle human trafficking networks. This report provides good practices to help countries develop measures to address money laundering and terrorist financing from human trafficking and includes red flag indicators to help identify those who are laundering the proceeds of these heinous crimes.
The FATF is a global standard-setter whose role is to understand money laundering and terrorist financing risks, develop and promote policies and standards to counter these risks and assess countries against those standards. The Asia/Pacific Group on Money Laundering is an FATF-style regional body whose members and observers are committed to the effective implementation and enforcement of internationally accepted standards against money laundering and the financing of terrorism.
The FATF acknowledges the support of several financial institutions and associations (Barclays, Standard Chartered, HSBC, Western Union, Ria Financial, the Wolfsberg Group, European and American Bankers’ Alliances and the Meekong Club,) and NGOs (Liberty Asia and Stop the Traffik) in developing this report.
Thursday, August 9, 2018
he U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced today that the goods and services deficit was $46.3 billion in June, up $3.2 billion from $43.2 billion in May, revised.
Exports, Imports, and Balance (exhibit 1) June exports were $213.8 billion, $1.5 billion less than May exports. June imports were $260.2 billion, $1.6 billion more than May imports. The June increase in the goods and services deficit reflected an increase in the goods deficit of $3.1 billion to $68.8 billion and a decrease in the services surplus of less than $0.1 billion to $22.5 billion. Year-to-date, the goods and services deficit increased $19.6 billion, or 7.2 percent, from the same period in 2017. Exports increased $103.6 billion or 9.0 percent. Imports increased $123.2 billion or 8.6 percent. Three-Month Moving Averages (exhibit 2) The average goods and services deficit decreased $0.3 billion to $45.2 billion for the three months ending in June. * Average exports increased $1.0 billion to $213.5 billion in June. * Average imports increased $0.8 billion to $258.7 billion in June. Year-over-year, the average goods and services deficit decreased $0.4 billion from the three months ending in June 2017. * Average exports increased $20.2 billion from June 2017. * Average imports increased $19.9 billion from June 2017. Exports (exhibits 3, 6, and 7) Exports of goods decreased $1.7 billion to $143.2 billion in June. Exports of goods on a Census basis decreased $1.7 billion. * Consumer goods decreased $1.4 billion. o Pharmaceutical preparations decreased $0.6 billion. o Jewelry decreased $0.4 billion. * Capital goods decreased $0.9 billion. o Civilian aircraft engines decreased $0.4 billion. o Civilian aircraft decreased $0.2 billion. * Automotive vehicles, parts, and engines decreased $0.7 billion. o Passenger cars decreased $0.9 billion. * Industrial supplies and materials increased $2.0 billion. o Other petroleum products increased $0.5 billion. o Nonmonetary gold increased $0.5 billion. o Fuel oil increased $0.5 billion. Net balance of payments adjustments increased less than $0.1 billion. Exports of services increased $0.2 billion to $70.6 billion in June. * Financial services increased $0.1 billion. Imports (exhibits 4, 6, and 8) Imports of goods increased $1.4 billion to $212.0 billion in June. Imports of goods on a Census basis increased $1.5 billion. * Consumer goods increased $2.0 billion. o Pharmaceutical preparations increased $1.5 billion. * Industrial supplies and materials increased $0.9 billion. o Crude oil increased $1.2 billion. * Capital goods decreased $1.5 billion. o Computers decreased $0.8 billion. o Telecommunications equipment decreased $0.5 billion. Net balance of payments adjustments decreased $0.1 billion. Imports of services increased $0.2 billion to $48.1 billion in June. * Charges for the use of intellectual property increased $0.3 billion. The increase reflects payments for the rights to broadcast the portion of the 2018 soccer World Cup that occurred in June. Real Goods in 2012 Dollars – Census Basis (exhibit 11) The real goods deficit increased $3.8 billion to $79.3 billion in June. * Real exports of goods decreased $2.1 billion to $151.1 billion. * Real imports of goods increased $1.7 billion to $230.4 billion. Revisions Revisions to May exports * Exports of goods were revised up less than $0.1 billion. * Exports of services were revised down less than $0.1 billion. Revisions to May imports * Imports of goods were revised down less than $0.1 billion. * Imports of services were revised up $0.2 billion. Goods by Selected Countries and Areas: Monthly – Census Basis (exhibit 19) The June figures show surpluses, in billions of dollars, with South and Central America ($3.3), Hong Kong ($2.5), Brazil ($0.8), United Kingdom ($0.4), and Singapore (less than $0.1). Deficits were recorded, in billions of dollars, with China ($32.5), European Union ($12.8), Mexico ($6.7), Germany ($5.7), Japan ($5.6), Canada ($2.6), Italy ($2.2), OPEC ($1.8), India ($1.7), Taiwan ($1.4), South Korea ($1.3), Saudi Arabia ($0.8), and France ($0.7). * The deficit with members of OPEC increased $1.6 billion to $1.8 billion in June. Exports decreased $0.8 billion to $5.0 billion and imports increased $0.7 billion to $6.7 billion. * The deficit with the European Union increased $0.9 billion to $12.8 billion in June. Exports decreased $0.3 billion to $27.2 billion and imports increased $0.6 billion to $40.0 billion. * The deficit with Japan decreased $0.4 billion to $5.6 billion in June. Exports decreased $0.2 billion to $6.1 billion and imports decreased $0.7 billion to $11.7 billion.
By United States v. Markus, from the District of New Jersey, and Norman v. United States, from the U.S. Court of Federal Claims) are merely the latest opinions issued in an ongoing battle between the government and the tax controversy and white collar defense bar regarding the proper definition of “willfulness” for the purposes of the civil FBAR penalty – a penalty which can be very severe (half the value of the undisclosed offshore account, for each year of the violation), and a battle which the government, with some wrinkles, has been winning. True to this trend, both Markus and Norman find that the IRS properly assessed a willfulness penalty against the taxpayers who previously had undisclosed foreign accounts. What is important for our purposes here is how they describe the willfulness standard."wherein the attorney for Ballad Spahr states: "As noted, the new FBAR opinions (
Read his analysis of these opinions, and their impact on FBAR compliance, penalties, and litigation on his Ballad Spahr blog here.
Jack Townsend's analysis in his blog:
- Norman v. United States (Ct. Fed. Cl. Dkt 15-872T, Order dated 7/31/18), here,
- United States v. Markus, 2018 U.S. Dist. LEXIS 118871 (D. N.J. 7/17/18) (unpublished), here,
- In United States v. Wadhan (D. Colo. Dkt 17-CV-1287 Dkt Entry 55), here,
- In United States v. Colliot (W.D. Texas No. AU-16-CA-01281-SS) here
Wednesday, August 8, 2018
The Treasury Department and the Internal Revenue Service today issued proposed regulations on the new 100-percent depreciation deduction that allows businesses to write off most depreciable business assets in the year they are placed in service.
The proposed regulations, available today in the Federal Register, implement several provisions included in the Tax Cuts and Jobs Act (TCJA),
The 100-percent depreciation deduction generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property. Machinery, equipment, computers, appliances and furniture generally qualify.
The deduction is retroactive, applying to qualifying property acquired and placed in service after Sept. 27, 2017. The proposed regulations provide guidance on what property qualifies for the deduction and rules for qualified film, television, live theatrical productions and certain plants.
For details on claiming the deduction or electing out of claiming it, see the proposed regulations or the instructions to Form 4562, Depreciation and Amortization (Including Information on Listed Property).
Taxpayers who elect out of the 100-percent depreciation deduction must do so on a timely-filed return. Those who have already filed their 2017 return and either did not claim the mandatory deduction on qualifying property, or did not elect out but still wish to do so, will need to file an amended return.
Treasury and IRS welcome public comment, and the proposed regulations provide details on how to submit comments.
Xiaoqing Zheng, 55, of Niskayuna, New York, was arrested in connection with a criminal complaint charging him with stealing trade secrets belonging to General Electric (GE).
The criminal complaint alleges that on or about July 5, Zheng, an engineer employed by General Electric, used an elaborate and sophisticated means to remove electronic files containing GE’s trade secrets involving its turbine technologies. Specifically, Zheng is alleged to have used steganography to hide data files belonging to GE into an innocuous looking digital picture of a sunset, and then to have e-mailed the digital picture, which contained the stolen GE data files, to Zheng’s e-mail account.
The defendant appeared today in federal court in Albany, New York, before U.S. Magistrate Judge Christian F. Hummel and was ordered detained without bail pending a hearing scheduled for August 2, at 1:30 p.m.
The charge filed against Zheng carries a maximum sentence of 10 years in prison, a fine of up to $250,000, and a term of supervised release of up to three years. The maximum statutory sentence is prescribed by Congress and is provided here for informational purposes. If convicted of any offense, the sentencing of the defendant will be determined by the court based on the advisory Sentencing Guidelines and other statutory factors. The charge in the complaint is merely an accusation. The defendant is presumed innocent unless and until proven guilty.
This case is being investigated by the FBI, and is being prosecuted by Assistant U.S. Attorney Rick Belliss of the Northern District of New York, and Trial Attorneys Jason McCullough and Matt Chang of the National Security Division’s Counterintelligence and Export Control Section.
Tuesday, August 7, 2018
The Internal Revenue Service issued guidance today on new tax law changes that allow small business taxpayers with average annual gross earnings of $25 million or less in the prior three-year period to use the cash method of accounting.
The Revenue Procedure outlines the process that eligible small business taxpayers may obtain automatic consent to change accounting methods that are now permitted under the Tax Cuts and Jobs Act, or TCJA.
The TCJA, enacted in December 2017, expands the number of small business taxpayers eligible to use the cash method of accounting and exempts these small businesses from certain accounting rules for inventories, cost capitalization and long-term contracts. As a result, more small business taxpayers will be allowed to change to cash method accounting starting after Dec. 31, 2017.
The Department of the Treasury and the Internal Revenue Service welcome public comments on future guidance. For details on submitting comments, see the Revenue Procedure.
A dual U.S.-Venezuelan citizen who controlled multiple companies was arrested yesterday on foreign bribery charges for conspiring to make, and making, corrupt payments to an official of Venezuela’s state-owned and state-controlled energy company, Petroleos de Venezuela S.A. (PDVSA), in exchange for favorable business treatment with PDVSA.
Jose Manuel Gonzalez Testino (Gonzalez), 48, was arrested at Miami International Airport, on an arrest warrant based on a criminal complaint filed in the Southern District of Texas that was unsealed yesterday. He made his initial appearance today before U.S. Magistrate Judge Lauren F. Louis of the Southern District of Florida. Gonzalez is charged with conspiring to violate the Foreign Corrupt Practices Act (FCPA) and paying bribes to a foreign official in violation of the FCPA.
According to the criminal complaint, Gonzalez and a co-conspirator paid at least $629,000 in bribes to a former PDVSA official in exchange for the official taking steps to (1) direct PDVSA contracts to Gonzalez’s companies, (2) give Gonzalez’s companies priority over other vendors to receive payments, and (3) award Gonzalez’s companies PDVSA contracts in U.S. dollars instead of Venezuelan bolivars.
The charges contained in the complaint are merely allegations and the defendant is presumed innocent until proven guilty beyond a reasonable doubt in a court of law.
With the arrest of Gonzalez, the Justice Department has announced charges against 17 individuals, 12 of whom have pleaded guilty, as part of a larger, ongoing investigation by the U.S. government into bribery at PDVSA. HSI in Houston is conducting the ongoing investigation with assistance from HSI in Boston and Miami. Trial Attorneys Sarah E. Edwards and Jeremy R. Sanders of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys John P. Pearson and Robert S. Johnson of the Southern District of Texas are prosecuting the case. Assistant U.S. Attorney Kristine Rollison of the Southern District of Texas is handling the forfeiture aspects of the case. The Criminal Division’s Office of International Affairs also provided assistance.
The Fraud Section is responsible for investigating and prosecuting all FCPA matters. Additional information about the department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.
Monday, August 6, 2018
Three Members of Notorious International Cybercrime Group “Fin7” In Custody for Role in Attacking Over 100 U.S. companies
Three high-ranking members of a sophisticated international cybercrime group operating out of Eastern Europe have been arrested and are currently in custody facing charges filed in U.S. District Court in Seattle, announced Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Annette L. Hayes for the Western District of Washington and Special Agent in Charge Jay S. Tabb Jr. of the FBI Seattle Field Office.
According to three federal indictments unsealed today, Ukrainian nationals Dmytro Fedorov, 44, Fedir Hladyr, 33, and Andrii Kolpakov, 30, are members of a prolific hacking group widely known as FIN7 (also referred to as the Carbanak Group and the Navigator Group, among other names). Since at least 2015, FIN7 members engaged in a highly sophisticated malware campaign targeting more than 100 U.S. companies, predominantly in the restaurant, gaming, and hospitality industries. As set forth in indictments, FIN7 hacked into thousands of computer systems and stole millions of customer credit and debit card numbers, which the group used or sold for profit.
In the United States alone, FIN7 successfully breached the computer networks of companies in 47 states and the District of Columbia, stealing more than 15 million customer card records from over 6,500 individual point-of-sale terminals at more than 3,600 separate business locations. Additional intrusions occurred abroad, including in the United Kingdom, Australia, and France. Companies that have publicly disclosed hacks attributable to FIN7 include such familiar chains as Chipotle Mexican Grill, Chili’s, Arby’s, Red Robin and Jason’s Deli. Additionally in Western Washington, FIN7 targeted other local businesses.
“The three Ukrainian nationals indicted today allegedly were part of a prolific hacking group that targeted American companies and citizens by stealing valuable consumer data, including personal credit card information, that they then sold on the Darknet,” said Assistant Attorney General Benczkowski. “Because hackers are committed to finding new ways to harm the American public and our economy, the Department of Justice remains steadfast in its commitment to working with our law enforcement partners to identify, interdict, and prosecute those responsible for these threats.”
“Protecting consumers and companies who use the internet to conduct business – both large chains and small ‘mom and pop’ stores -- is a top priority for all of us in the Department of Justice,” said U.S. Attorney Hayes. “Cyber criminals who believe that they can hide in faraway countries and operate from behind keyboards without getting caught are just plain wrong. We will continue our longstanding work with partners around the world to ensure cyber criminals are identified and held to account for the harm that they do – both to our pocketbooks and our ability to rely on the cyber networks we use.”
“The naming of these FIN7 leaders marks a major step towards dismantling this sophisticated criminal enterprise,” said Special Agent in Charge Tabb. “As the lead federal agency for cyber-attack investigations, the FBI will continue to work with its law enforcement partners worldwide to pursue the members of this devious group, and hold them accountable for stealing from American businesses and individuals.”
Each of the three FIN7 conspirators is charged with 26 felony counts alleging conspiracy, wire fraud, computer hacking, access device fraud, and aggravated identity theft.
In January 2018, at the request of U.S. officials, foreign authorities separately arrested Ukrainian Fedir Hladyr and a second FIN7 member, Dmytro Fedorov. Hladyr was arrested in Dresden, Germany, and is currently detained in Seattle pending trial. Hladyr allegedly served as FIN7’s systems administrator who, among other things, maintained servers and communication channels used by the organization and held a managerial role by delegating tasks and by providing instruction to other members of the scheme. Hladyr’s trial is currently scheduled for Oct. 22.
Fedorov, a high-level hacker and manager who allegedly supervised other hackers tasked with breaching the security of victims’ computer systems, was arrested in Bielsko-Biala, Poland. Fedorov remains detained in Poland pending his extradition to the United States.
In late June 2018, foreign authorities arrested a third FIN7 member, Ukrainian Andrii Kolpakov in Lepe, Spain. Kolpakov, also alleged to be a supervisor of a group of hackers, remains detained in Spain pending the United States’ request for extradition.
According to the indictments, FIN7, through its dozens of members, launched numerous waves of malicious cyberattacks on numerous businesses operating in the United States and abroad. FIN7 carefully crafted email messages that would appear legitimate to a business’ employee, and accompanied emails with telephone calls intended to further legitimize the email. Once an attached file was opened and activated, FIN7 would use an adapted version of the notorious Carbanak malware in addition to an arsenal of other tools to ultimately access and steal payment card data for the business’ customers. Since 2015, FIN7 sold the data in online underground marketplaces. (Supplemental document “How FIN7 Attacked and Stole Data” explains the scheme in greater detail.)
FIN7 used a front company, Combi Security, purportedly headquartered in Russia and Israel, to provide a guise of legitimacy and to recruit hackers to join the criminal enterprise. Combi Security’s website indicated that it provided a number of security services such as penetration testing. Ironically, the sham company’s website listed multiple U.S. victims among its purported clients.
The charges in the indictments are merely allegations, and the defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.
The indictments are the result of an investigation conducted by the Seattle Cyber Task Force of the FBI and the U.S. Attorney’s Office for the Western District of Washington, with the assistance of the Justice Department’s Computer Crime and Intellectual Property Section and Office of International Affairs, the National Cyber-Forensics and Training Alliance, numerous computer security firms and financial institutions, FBI offices across the nation and globe, as well as numerous international agencies. Arrests overseas were executed in Poland by the “Shadow Hunters” from CBŚP (Polish Central Bureau of Investigation); in Germany by the LKA Sachsen - Dezernat 33, (German State Criminal Police Office) and the Polizeidirektion Dresden (Dresden Police); and in Spain the Grupo de Seguridad Logica within the Unidad de Investigación Technologica of the Cuerpo Nacional de Policía (Spanish National Police)..
This case is being prosecuted by Assistant U.S. Attorneys Francis Franze-Nakamura and Steven Masada of the Western District of Washington with assistance from Trial Attorney Anthony Teelucksingh of the Justice Department’s Computer Crime and Intellectual Property Section.
Sunday, August 5, 2018
Direct Investment by Country and Industry: 2017
The U.S. direct investment abroad position, or cumulative level of investment, increased $427.3 billion to $6,013.3 billion at the end of 2017 from $5,586.0 billion at the end of 2016, according to statistics released by the Bureau of Economic Analysis (BEA). The increase mainly reflected a $243.6 billion increase in the position in Europe, primarily in Switzerland, the United Kingdom, Ireland, and the Netherlands. By industry, affiliates in manufacturing and holding companies accounted for the largest increases.
The foreign direct investment in the United States position increased $260.4 billion to $4,025.5 billion at the end of 2017 from $3,765.1 billion at the end of 2016. The increase mainly reflected a $128.2 billion increase in the position from Europe, primarily Ireland, Switzerland, and the Netherlands. By industry, affiliates in manufacturing and wholesale trade accounted for the largest increases.
The increase in the U.S. direct investment position abroad in 2017 mainly reflected financial transactions of $300.4 billion, primarily reinvestment of earnings. The increase in the foreign direct investment position in the United States in 2017 mainly reflected financial transactions of $277.3 billion, primarily equity investment other than reinvestment of earnings.
U.S. direct investment abroad (tables 1 – 4)
U.S. multinational enterprises (MNEs) invest in nearly every country, but their investment in foreign affiliates in five countries accounted for more than half of the total position at the end of 2017. The U.S. direct investment abroad position was largest in the Netherlands at $936.7 billion, followed by the United Kingdom ($747.6 billion), Luxembourg ($676.4 billion), Ireland ($446.4 billion), and Canada ($391.2 billion).
By industry of the immediate foreign affiliate, investment was highly concentrated in holding companies, which accounted for nearly half of the position in 2017. By industry of the U.S. parent, investment by manufacturing MNEs accounted for 55.6 percent of the position, followed by MNEs in finance and insurance (12.4 percent).
U.S. MNEs earned income of $470.9 billion on their investment abroad in 2017.
Foreign direct investment in the United States (tables 5 – 8)
By country of the immediate foreign parent, five countries accounted for more than half of the total position at the end of 2017. The United Kingdom was the top investing country with a position of $540.9 billion, followed by Japan ($469.0 billion), Canada ($453.1 billion), Luxembourg ($410.7 billion), and the Netherlands ($367.1 billion).
By country of the ultimate beneficial owner (UBO), the top five countries in terms of position were the United Kingdom ($614.9 billion), Canada ($523.8 billion), Japan ($476.9 billion), Germany ($405.6 billion), and Ireland ($328.7 billion). On this basis, investment from the Netherlands and Luxembourg was much lower than by country of foreign parent, indicating that much of the investment from these countries was ultimately owned by investors in other countries.
Foreign direct investment in the United States was concentrated in the U.S. manufacturing sector, which accounted for 39.9 percent of the position. There was also sizable investment in finance and insurance (13.4 percent).
Foreign MNEs earned income of $173.8 billion on their investment in the United States in 2017.
Saturday, August 4, 2018
National Income and Product Accounts Gross Domestic Product: Second Quarter 2018 (Advance Estimate), and Comprehensive Update
Real gross domestic product increased at an annual rate of 4.1 percent in the second quarter of 2018 (table 1), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 2.2 percent (revised). The Bureau emphasized that the second-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see "Source Data for the Advance Estimate" on page 2). The "second" estimate for the second quarter, based on more complete data, will be released on August 29, 2018. The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures (PCE), exports, nonresidential fixed investment, 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, which are a subtraction in the calculation of GDP, increased (table 2).
BOX._______ Comprehensive Update of the National Income and Product Accounts The estimates released today also reflect the results of the 15th comprehensive update of the National Income and Product Accounts (NIPAs). The updated estimates reflect previously announced improvements, and include the introduction of new not seasonally adjusted estimates for GDP, GDI, and their major components. For more information, see the Technical Note. Revised NIPA table stubs, initial results, and background materials are available on the BEA Web site. END BOX.______ The acceleration in real GDP growth in the second quarter reflected accelerations in PCE and in exports, a smaller decrease in residential fixed investment, and accelerations in federal government spending and in state and local spending. These movements were partly offset by a downturn in private inventory investment and a deceleration in nonresidential fixed investment. Imports decelerated. Current-dollar GDP increased 7.4 percent, or $361.5 billion, in the second quarter to a level of $20.4 trillion. In the first quarter, current-dollar GDP increased 4.3 percent, or $209.2 billion (table 1 and table 3A). The price index for gross domestic purchases increased 2.3 percent in the second quarter, compared with an increase of 2.5 percent in the first quarter (table 4). The PCE price index increased 1.8 percent, compared with an increase of 2.5 percent. Excluding food and energy prices, the PCE price index increased 2.0 percent, compared with an increase of 2.2 percent (table 4). Personal Income (table 8) Current-dollar personal income increased $183.7 billion in the second quarter, compared with an increase of $215.8 billion in the first quarter. Decelerations in wages and salaries, government social benefits, personal interest income, and nonfarm proprietors' income were partly offset by accelerations in personal dividend income and rental income, a deceleration in contributions for government social insurance (a subtraction in the calculation of personal income), and an upturn in farm proprietors’ income. Disposable personal income increased $167.5 billion, or 4.5 percent, in the second quarter, compared with an increase of $256.7 billion, or 7.0 percent, in the first quarter. Real disposable personal income increased 2.6 percent, compared with an increase of 4.4 percent. Personal saving was $1,051.1 billion in the second quarter, compared with $1094.1 billion in the first quarter. The personal saving rate -- personal saving as a percentage of disposable personal income -- was 6.8 percent in the second quarter, compared with 7.2 percent in the first quarter.
Updates for the first quarter of 2018
For the first quarter of 2018, real GDP is now estimated to have increased 2.2 percent (table 1); in the
previously published estimates, first-quarter GDP was estimated to have increased 2.0 percent. The 0.2-
percentage point upward revision to the percent change in first-quarter real GDP primarily reflected
upward revisions to private inventory investment, nonresidential fixed investment, and federal
government spending that were partly offset by downward revisions to PCE and residential fixed
investment. Imports were revised down.
Real GDI is now estimated to have increased 3.9 percent in the first quarter (table 1); in the previously
published estimates, first-quarter GDI was estimated to have increased 3.6 percent.
First Quarter 2018
Previous Estimate Revised
(Percent change from preceding quarter)
Real GDP 2.0 2.2
Current-dollar GDP 4.2 4.3
Real GDI 3.6 3.9
Average of Real GDP and GDI 2.8 3.1
Gross domestic purchases price index 2.7 2.5
PCE price index 2.5 2.5
Summary of historical updates
The picture of the economy presented in the updated estimates is very similar to the picture presented
in the previously published estimates.
* For 1929–2012, the average annual growth rate of real GDP was 3.2 percent, unrevised from the
previously published estimates. For the more recent period, 2007–2017, the growth rate was
1.5 percent, 0.1 percentage point higher than in the previously published estimates.
* For 2012–2017, the average annual growth rate of real GDP was 2.2 percent, the same as in the
previously published estimates. The percent change in real GDP was unrevised for 2012; revised
up 0.1 percentage point for 2013; revised down 0.1 percentage point for 2014; unrevised for
2015; revised up 0.1 percentage point for 2016; and revised down 0.1 percentage point for
* For 2012–2017, the average rate of change in the prices paid by U.S. residents, as measured by
the gross domestic purchasers’ price index, was 1.2 percent, 0.1 percentage point lower than in
the previously published estimates.
* For the period of contraction from the fourth quarter of 2007 to the second quarter of 2009,
real GDP decreased at an average annual rate of 2.7 percent; in the previously published
estimates, it decreased 2.8 percent.
* For the period of expansion from the second quarter of 2009 to the first quarter of 2018, real
GDP increased at an average annual rate of 2.2 percent, the same as previously published.
Real GDP (Table 1A) The updated statistics largely reflect the incorporation of newly available and revised source data (see the box below) and improvements to existing methodologies. * From 2012 to 2017, real GDP increased at an average annual rate of 2.2 percent, the same as previously published. From the fourth quarter of 2012 to the first quarter of 2018, real GDP increased at an average annual rate of 2.3 percent, the same as in the previously published estimates.
o For 2012, real GDP growth was unrevised. Upward revisions to nonresidential fixed investment and inventory investment were offset by an upward revision to imports and by a downward revision to state and local government spending. o For 2013, real GDP growth was revised up 0.1 percentage point. Upward revisions to nonresidential fixed investment, state and local government spending, inventory investment, and federal government spending were partly offset by an upward revision to imports. o For 2014, real GDP growth was revised down 0.1 percentage point. An upward revision to imports and downward revisions to inventory investment and state and local government spending were partly offset by upward revisions to nonresidential fixed investment. o For 2015, real GDP growth was unrevised. Upward revisions to state and local government spending, personal consumption expenditures (PCE), exports, and inventory investment were offset by an upward revision to imports and by a downward revision to nonresidential fixed investment. o For 2016, real GDP growth was revised up 0.1 percentage point. Upward revisions to nonresidential fixed investment, state and local government spending, residential investment, exports, and federal government spending were partly offset by a downward revision to inventory investment and by an upward revision to imports. o For 2017, real GDP growth was revised down 0.1 percentage point. A downward revision to PCE, an upward revision to imports, and downward revisions to state and local government spending and exports were partly offset by upward revisions to inventory investment, nonresidential fixed investment, residential investment, and federal government spending. * From the first quarter of 2012 through the fourth quarter of 2017, the average revision (without regard to sign) in the percent change in real GDP was 0.4 percentage point. The revisions did not change the direction of the change in real GDP (increase or decrease) for any of these quarters. * Current-dollar GDP was revised up for all years from 2012 to 2017: by $41.8 billion, or 0.3 percent, for 2012; $93.3 billion, or 0.6 percent, for 2013; $94.1 billion, or 0.5 percent, for 2014, $98.6 billion, or 0.5 percent, for 2015, $82.7 billion, or 0.4 percent, for 2016, and $94.8 billion, or 0.5 percent, for 2017. Gross domestic income (GDI) and the statistical discrepancy (Table 1A) * From 2012 to 2017, real GDI increased at an average annual rate of 2.0 percent, unrevised from the previous estimate. From the fourth quarter of 2012 to the fourth quarter of 2017, real GDI increased at an average annual rate of 2.1 percent; in the previously published estimates, real GDI increased at an average annual rate of 2.0 percent. * The statistical discrepancy as a percentage of GDP was revised from -1.3 percent to -1.5 percent for 2012; was revised from -0.8 percent to -1.0 percent for 2013; was revised from -1.3 percent to -1.7 percent for 2014; was unrevised at -1.4 percent for 2015; was revised from -0.8 percent to -0.7 percent for 2016; and was revised from -0.2 percent to -0.7 percent for 2017. * The average of GDP and GDI is a supplemental measure of U.S. economic activity. In real, or inflation-adjusted, terms this measure increased at an average annual rate of 2.1 percent from 2012 to 2017, the same as previously published. Price measures (Table 4) * Gross domestic purchases - From the fourth quarter of 2012 to the fourth quarter of 2017, the average annual rate of increase in the price index for gross domestic purchases was 1.2 percent, 0.1 percentage point lower than the previously published estimates. * Personal consumption expenditures - From the fourth quarter of 2012 to the fourth quarter of 2017, the average annual rate of increase in the price index for PCE was 1.2 percent, the same as previously published. The increase in the “core” PCE price index, which excludes food and energy, was 1.6 percent, 0.1 percentage point higher than previously published. Income and saving measures (Table 1A) * National income was revised up $32.8 billion, or 0.2 percent, for 2012; was revised up $49.9 billion, or 0.3 percent, for 2013; was revised up $101.4 billion, or 0.7 percent, for 2014; was revised up $43.4 billion, or 0.3 percent, for 2015; was revised up $6.9 billion, or less than 0.1 percent, for 2016; and was revised up $146.2 billion, or 0.9 percent, for 2017. o For 2012, an upward revision to proprietors’ income was partly offset by downward revisions to supplements to wages and salaries and to net interest. o For 2013, upward revisions to proprietors’ income and to taxes on production and imports were partly offset by downward revisions to net interest, corporate profits, and rental income. o For 2014, upward revisions to proprietors’ income and to taxes on production and imports were partly offset by downward revisions to corporate profits and net interest. o For 2015, upward revisions to proprietors’ income and to taxes on production and imports were partly offset by downward revisions to corporate profits and rental income. o For 2016, upward revisions to proprietors’ income and to taxes on production and imports were partly offset by downward revisions to corporate profits, net interest, supplements to wages and salaries and rental income. Footnote 2. The statistical discrepancy is current dollar GDP less current dollar GDI. GDP measures final expenditures -- the sum of consumer spending, private investment, net exports, and government spending. GDI measures the incomes earned in the production of GDP. In concept, GDP is equal to GDI. In practice, they differ because they are estimated using different source data and different methods. o For 2017, upward revisions to proprietors’ income, wages and salaries, and taxes on production and imports were partly offset by downward revisions to corporate profits, rental income, and net interest. * Corporate profits was revised down $0.8 billion, or less than 0.1 percent, for 2012; was revised down $22.2 billion, or 1.1 percent, for 2013; was revised down $21.7 billion, or 1.0 percent, for 2014; was revised down $60.2 billion, or 2.8 percent, for 2015; was revised down $38.5 billion, or 1.9 percent, for 2016; and revised down $65.4 billion, or 3.0 percent, for 2017. * Personal income was revised up $95.0 billion, or 0.7 percent, for 2012; was revised up $107.4 billion, or 0.8 percent, for 2013; was revised up $173.6 billion, or 1.2 percent, for 2014; was revised up $166.6 billion, or 1.1 percent, for 2015; was revised up $196.4 billion, or 1.2 percent, for 2016; and was revised up $401.9 billion, or 2.4 percent, for 2017. * From 2012 to 2017, the average annual rate of growth of real disposable personal income was revised up 0.4 percentage point from 1.8 percent to 2.2 percent. * The personal saving rate (personal saving as a percentage of disposable personal income) was revised up from 7.6 percent to 8.9 percent for 2012; was revised up from 5.0 percent to 6.4 percent for 2013; was revised up from 5.7 percent to 7.3 percent for 2014; was revised up from 6.1 percent to 7.6 percent for 2016; was revised up from 4.9 percent to 6.7 percent for 2016; and was revised up from 3.4 percent to 6.7 percent for 2017.
Friday, August 3, 2018
Wells Fargo Agrees to Pay $2.09 Billion Penalty for Allegedly Misrepresenting Quality of Loans Used in Residential Mortgage-Backed Securities
The Justice Department announced that Wells Fargo Bank, N.A. and several of its affiliates (Wells Fargo) will pay a civil penalty of $2.09 billion under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) based on the bank’s alleged origination and sale of residential mortgage loans that it knew contained misstated income information and did not meet the quality that Wells Fargo represented. Investors, including federally insured financial institutions, suffered billions of dollars in losses from investing in residential mortgage-backed securities (RMBS) containing loans originated by Wells Fargo. Download Settlement Agreement
“This settlement holds Wells Fargo accountable for actions that contributed to the financial crisis,” said Acting Associate Attorney General Jesse Panuccio. “It sends a strong message that the Department is committed to protecting the nation’s economy and financial markets against fraud.”
“Abuses in the mortgage-backed securities industry led to a financial crisis that devastated millions of Americans,” said Acting U.S. Attorney for the Northern District of California, Alex G. Tse. “Today’s agreement holds Wells Fargo responsible for originating and selling tens of thousands of loans that were packaged into securities and subsequently defaulted. Our office is steadfast in pursuing those who engage in wrongful conduct that hurts the public.”
FIRREA authorizes the federal government to seek civil penalties against financial institutions that violate various predicate criminal offenses, including wire and mail fraud. The United States alleged that, in 2005, Wells Fargo began an initiative to double its production of subprime and Alt-A loans. As part of that initiative, Wells Fargo loosened its requirements for originating stated income loans – loans where a borrower simply states his or her income without providing any supporting income documentation.
To evaluate the integrity of its increasing volume of stated income loans, Wells Fargo subjected a sample of these loans to “4506-T testing.” A 4506-T form is a government document signed by the borrower during the loan approval process that allows the lender to obtain the borrower’s tax transcripts from the Internal Revenue Service (IRS). 4506-T testing involves comparing the tax transcripts of the borrower with the income stated on the loan application. Wells Fargo implemented 4506-T testing on two of its programs. This testing revealed that more than 70% of the loans that Wells Fargo sampled had an “unacceptable” variance (greater than 20% discrepancy between the borrower’s stated income and the income information reflected in the borrower’s most recent tax returns filed with the IRS), and the average variance was approximately 65%. After receiving these results, Wells Fargo conducted further internal testing. This additional testing, performed by quality assurance analysts, was designed to determine if “plausible” explanations existed for the “unacceptable” variances over 20%. This additional step revealed that nearly half of the stated income loans that Wells Fargo tested had both an unacceptable variance and the absence of a plausible explanation for that variance.
The results of Wells Fargo’s 4506-T testing were disclosed in internal monthly reports, which were widely distributed among Wells Fargo employees. One Wells Fargo employee in risk management observed that the “4506-T results are astounding” yet “instead of reacting in a way consistent with what is being reported WF [Wells Fargo] is expanding stated [income loan] programs in all business lines.”
The United States alleged that, despite its knowledge that a substantial portion of its stated income loans contained misstated income, Wells Fargo failed to disclose this information, and instead reported to investors false debt-to-income ratios in connection with the loans it sold. Wells Fargo also allegedly heralded its fraud controls while failing to disclose the income discrepancies its controls had identified. The United States further alleged that Wells Fargo took steps to insulate itself from the risks of its stated income loans, by screening out many of these loans from its own loan portfolio held for investment and by limiting its liability to third parties for the accuracy of its stated income loans. Wells Fargo sold at least 73,539 stated income loans that were included in RMBS between 2005 to 2007, and nearly half of those loans have defaulted, resulting in billions of dollars in losses to investors.
The settlement was the result of a coordinated effort between the Civil Division’s Commercial Litigation Branch and the U.S. Attorney’s Office for the Northern District of California, with investigative support from the Federal Housing Finance Agency, Office of Inspector General.
The claims resolved by this settlement are allegations only, and there has been no admission of liability.
Wednesday, August 1, 2018
IRS and Treasury issue proposed regulations implementing repatriation tax of 15.5% on cash and 8% on assets on deferred offshore earnings under new IRC Section 965
The Internal Revenue Service and the Department of the Treasury today issued proposed regulations on section 965 of the Internal Revenue Code. The proposed regulations affect United States shareholders, as defined under section 951(b) of the Code, with direct or indirect ownership in certain specified foreign corporations, as defined under section 965(e) of the Code. Download Prop reg 965 repatriation tax
Section 965, enacted in December 2017, levies a transition tax on post-1986 untaxed foreign earnings of specified foreign corporations owned by United States shareholders by deeming those earnings to be repatriated. For domestic corporations, foreign earnings held in the form of cash and cash equivalents are generally intended to be taxed at a 15.5 percent rate for 2017 calendar years, and the remaining earnings are intended to be taxed at an 8 percent rate for 2017 calendar years.
The lower effective tax rates applicable to section 965 income inclusions are achieved by way of a participation deduction set out in section 965(c) of the Code. A reduced foreign tax credit also applies with respect to the inclusion under section 965(g) of the Code.
Taxpayers may generally elect to pay the transition tax in installments over an eight-year period under section 965(h) of the Code. The proposed regulations contain detailed information on the calculation and reporting of a United States shareholder’s section 965(a) inclusion amount, as well as information for making the elections available to taxpayers under section 965.