International Financial Law Prof Blog

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

Tuesday, August 1, 2017

The Platform for Collaboration on Tax invites comments on a draft toolkit on the taxation of offshore indirect transfers of assets

The Platform for Collaboration on Tax – a joint initiative of the IMF, OECD, UN and World Bank Group – is seeking public feedback on a draft toolkit designed to help developing countries tackle the complexities of taxing offshore indirect transfers of assets, a practice by which some multinational corporations try to minimise their tax liability.   Download Discussion-draft-toolkit-taxation-of-offshore-indirect-transfers

The tax treatment of 'offshore indirect transfers' (OITs) — the sale of an entity located in one country that owns an "immovable" asset located in another country, by a non-resident of the country where the asset is located — has emerged as a significant concern in many developing countries. It has become a relatively common practice for some multinational corporations trying to minimise their tax burden, and is an increasingly critical tax issue in a globalised world. But there is no unifying principle on how to treat these transactions, and the issue was not addressed in the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project. This draft toolkit, "The Taxation of Offshore Indirect Transfers – A Toolkit," examines the principles that should guide the taxation of these transactions in the countries where the underlying assets are located. It emphasises extractive (and other) industries in developing countries, and considers the current standards in the OECD and the U.N. model tax conventions, and the new Multilateral Convention. The toolkit discusses economic considerations that may guide policy in this area, the types of assets that could appropriately attract tax when transferred indirectly offshore, implementation challenges that countries face, and options which could be used to enforce such a tax.

The toolkit responds to a request by the Development Working Group of the G20, and is part of a series the Platform is preparing to help developing countries design their tax policies, keeping in mind that those countries may have limitations in their capacity to administer their tax systems. Previous reports have included discussions of tax incentives, and external support for building tax capacity in developing countries. This series complements the work that the Platform and the organisations it brings together are undertaking to increase the capacity of developing countries to apply the OECD/G20 BEPS Project.

The Platform partners now seek comments by 25 September 2017 from all interested stakeholders on this draft. Comments should be sent by e-mail to taxcollaborationplatform@worldbank.org, a common comment box for all the Platform organisations. Spanish and French language versions of the toolkit are forthcoming and will also be posted for comment. The Platform aims to release the final toolkit by the end of 2017.

Questions to consider

  1. Does this draft toolkit effectively address the rationale(s) for taxing offshore indirect transfers of assets?
  2. Does it lay out a clear principle for taxing offshore indirect transfers of assets?
  3. Is the definition of an offshore indirect transfer of assets satisfactory?
  4. Is the discussion regarding source and residence taxation in this context balanced and robustly argued?
  5. Is the suggested possible expansion of the definition of immovable property for the purposes of the taxation of offshore indirect transfers reasonable?
  6. Is the concept of location-specific rents helpful in addressing these issues? If so, how is it best formulated in practical terms?
  7. Are there other implementation approaches that should be considered?
  8. Is the draft toolkit's preference for the 'deemed disposal' method appropriate?
  9. Are the complexities in the taxation of these international transactions adequately represented? 

Please do not restrict yourself to these questions; any other views you have on addressing the taxation of offshore indirect transfers of assets would be welcome. Comments and inputs on the draft will be published, and will be taken into consideration in finalising the toolkit.

Please note that all comments received will be made publicly available. Comments submitted in the name of a collective "grouping" or "coalition", or by any person submitting comments on behalf of another person or group of persons, should identify all enterprises or individuals who are members of that collective group, or the person(s) on whose behalf the commentator(s) are acting.

Media queries should be directed to:

IMF: media@imf.org
OECD: Pascal Saint-Amans, Pascal.Saint-Amans@oecd.org
UN: Alexander Trepelkov, trepelkov@un.org
World Bank Group: Julia Oliver, joliver@worldbankgroup.org

August 1, 2017 in BEPS | Permalink | Comments (0)

ExxonMobil Corporation Assessed a Penalty for Violating the Ukraine-Related Sanctions Regulations

ExxonMobil Corp., of Irving, Texas, including its U.S. subsidiaries ExxonMobil Development Company and ExxonMobil Oil Corp. (collectively, OFAC"ExxonMobil"), has been assessed a civil monetary penalty of $2,000,000 for violations of the Ukraine-Related Sanctions Regulations, 31 C.F.R. part 589 (Ukraine-Related Sanctions Regulations). Between on or about May 14, 2014 and on or about May 23, 2014, ExxonMobil violated§ 589.201 of the Ukraine-related Sanctions Regulations when the presidents of its U.S. subsidiaries dealt in services of an individual whose property and interests in property were blocked, namely, by signing eight legal documents related to oil and gas projects in Russia with Igor Sechin, the President of Rosneft OAO, 1 and an individual identified on OF AC's List of Specially Designated Nationals and Blocked Persons (the "SDN List") (referred to hereinafter as an "SDN").

On March 16, 2014, the President issued Executive Order 13661, "Blocking Property of Additional Persons Contributing to the Situation in Ukraine," 79 Fed. Reg. 15,535 (Mar. 19, 2014) ("E.O. 13661"). E.O. 13661, among other things, granted the Secretary of the Treasury the authority to designate officials of the Russian Government, and blocked any property and interests in property, and prohibited any dealing in any property and interests in property, of a person so designated. Section 4(b) ofE.O. 13661 expressly states that U.S. persons are prohibited from the receipt of any contribution or provision of funds, goods, or services from the designated person. In response to multiple media inquiries from March to April 2014, the White House issued press guidance or held press calls in which Senior Administration officials stated that the focus of sanctions against high-level Russian cronies at the time was to identify individuals and target their assets instead of the companies they manage and that U.S. persons are prohibited from doing business with persons who had been designated under E.O. 13661.

On April 28, 2014, OFAC designated Igor Sechin pursuant to E.O. 13661 and added him to its SDN List. The Department of the Treasury stated in a press release announcing the action that "[a]s a result of today's action ... transactions by U.S. persons or within the United States involving the individuals and entities designated today are generally prohibited."

On May 8, 2014, before ExxonMobil signed the legal documents, but after the above-referenced White House statements were made, OF AC issued the Ukraine-Related Sanctions Regulations that included definitions of "property" and "property interest" that, along with the prohibitions in E.O. 13661 and the public statements made by the White House and the Department of the Treasury, made clear U.S. persons may not deal with any persons designated pursuant to E.O. 13361, including Igor Sechin or receive, deal in, or benefit from any service a designated person might provide.

Despite these prohibitions and ExxonMobil's global market and sophistication, ExxonMobil moved forward with signing the legal documents with designated person Igor Sechin between on or about May 14, 2014 and on or about May 23, 2014.

Warning Signs That the Conduct at Issue Constituted a Violation of OFAC Regulations

ExxonMobil claims that it interpreted press statements as establishing a distinction between Sechin's "professional" and "personal" capacity, in part citing to a news article published in April 2014 that quoted a Department of the Treasury representative as saying that a U.S. person would not be prohibited from participating in a meeting of Rosneft' s board of directors. However, that brief statement did not address the conduct in this case.

Furthermore, the plain language of the Ukraine-Related Sanctions Regulations (which were issued after the Executive branch statements) and E.O. 13661 do not contain a "personal" versus "professional" distinction, and OF AC has neither interpreted its Regulations in that manner nor endorsed such a distinction. The press release statements provided context for the policy rationale surrounding the targeted approach during the early days of the Ukraine crisis, which was to isolate designated individuals who were targeted as a result of the crisis in Ukraine, rather than imposing blocking sanctions on the large companies that they managed. No materials issued by the White House or the Department of the Treasury asserted an exception or carve-out for the professional conduct of designated or blocked persons, nor did any materials suggest that U.S. persons could continue to conduct or engage in business with such individuals.

Separately, there was a Frequently Asked Question (FAQ) publicly available on the OF AC website at the time of the violations that specifically spoke to the conduct at issue in this case, though framed in the context of the Burma sanctions program. FAQ #285, which OFAC issued in 2013 and was publicly available on OFAC's website at the time ofExxonMobil's violations, stated that U.S. parties should "be cautious in dealings with [a non-designated] entity to ensure that they are not providing funds, goods, or services to the SDN, for example, by entering into any contracts that are signed by the SDN." In rebuttal to this guidance, ExxonMobil has pointed out that OFAC's regulations state that different interpretations may exist among and between the sanctions programs that it administers, but FAQ #285 clearly signaled that OF AC had, in a sanctions program also involving SDNs, viewed the signing of a contract with an SDN as prohibited, even ifthe entity on whose behalf the SDN signed was not sanctioned. OFAC acted consistently with that approach in this case.

The issuance ofE.O. 13661 and the publication of the Ukraine-Related Sanctions Regulations prior to the violations at issue here; press statements by the White House and the Department of the Treasury regarding prohibited transactions with persons designated under E.O. 13661; and previous OFAC precedent published in 2013 and available on OFAC's website at the time of the violations all clearly put ExxonMobil on notice that OF AC would consider executing documents with an SDN to violate the prohibitions in the Ukraine-Related Sanctions Regulations.

OFAC Determinations and Analysis

OFAC determined that ExxonMobil did not voluntarily self-disclose the violations to OF AC and that the violations constitute an egregious case. Both the base civil monetary penalty and the statutory maximum civil monetary penalty amounts for the violations were $2,000,000. OF AC thoroughly considered the arguments ExxonMobil set forth in its submissions to OF AC, and the penalty amount reflects OFAC's consideration of the following facts and circumstances, pursuant to the General Factors under OF AC' s Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A.

OFAC considered the following to be aggravating factors: (1) ExxonMobil demonstrated reckless disregard for U.S. sanctions requirements when it failed to consider warning signs associated with dealing in the blocked services of an SDN; (2) ExxonMobil's senior-most executives knew of Sechin' s status as an SDN when they dealt in the blocked services of Sechin; (3) ExxonMobil caused significant harm to the Ukraine-related sanctions program objectives by engaging the services of an SDN designated on the basis that he is an official of the Government of the Russian Federation contributing to the crisis in Ukraine; and (4) ExxonMobil is a sophisticated and experienced oil and gas company that has global operations and routinely deals in goods, services, and technology subject to U.S economic sanctions and U.S. export controls.

OFAC considered the following to be a mitigating factor: ExxonMobil has not received a penalty notice or Finding of Violation from OFAC in the five years preceding the date of the first transaction giving rise to the violations.

August 1, 2017 in AML | Permalink | Comments (0)

Monday, July 31, 2017

Will The BRICS Lead the Way In BEPS, CbCR, and CRS Now?

Communiqué of BRICS Heads of Tax Authorities Meeting issued in Hangzhou on 27 July 2017 

We, the Heads of Tax and Revenue of the Federative Republic of Brazil, the Russian Federation, the Republic of India, the People’s Republic of China and the Republic of South Africa held a meeting in Hangzhou on 27 July 2017 to discuss the potential areas of cooperation and exchange opinions and views based on our existing commitment to openness, solidarity, equality, mutual understanding, inclusiveness and mutually beneficial cooperation, as stated in the Goa Declaration issued on 16 October 2016 and echoed in the theme of the 2017 Xiamen Summit “BRICS: Stronger Partnership for a Brighter Future” so as to earnestly implement the leaders’ consensus and strengthen our partnership. We will continue our support to all international initiatives towards reaching a modern, globally fair and universally transparent tax system. In this regard we reiterate our commitment to the actions taken to promote interconnected growth and to ensure the fairness of the international tax system, particularly towards shaping and implementing the G20 tax agenda, multilateral tax cooperation and capacity building of developing countries. In accordance with the above, we conducted the meeting with the primary objective of promoting international tax cooperation and exchanging relevant knowledge and experience in these areas.  Download BRICS MOU for CbCR and CRS

Implementation of G20 Tax Agenda

We remain concerned about the world’s economic slow-down and cross-border tax evasion and avoidance that undermine resource mobilisation and the fairness of the tax system, and reaffirm our determination to work together to address and resolve these concerns and to curtail aggressive tax avoidance. We acknowledge our common understanding that profits should be taxed in those jurisdictions where the activities generating those profits are performed and where value is created. In this regard, we agree on continuing to share experiences on the measures we take to address the challenges in implementing the outcomes of the G20 tax reform. We remain committed to the facilitation of economic growth, as well as the timely, consistent and widespread implementation of the BEPS Project outcomes and call upon all relevant jurisdictions to join the Inclusive Framework on BEPS on an equal footing. We support monitoring the progress of BEPS implementation, with due regard to the four minimum standards. We acknowledge the first signing round of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS that took place on 7 June 2017. We confirm that as BRICS countries best represent emerging and developing economies, we will contribute actively to the consistent implementation of the G20 tax agenda through BRICS coordination to enhance tax certainty.

Multilateral Tax Cooperation

We recognize the significance of strengthening multilateral tax cooperation for BRICS countries in order to improve tax compliance and protect our tax base. In this respect, we signed the Memorandum of Cooperation between the BRICS Tax Authorities. We believe that BRICS countries should continue to proactively support and facilitate multilevel cooperation, including policy coordination, tax administration cooperation, the harmonization of interaction between tax authorities and taxpayers as well as dispute resolution procedures. We will continue to support multilateral tax cooperation, to develop effective communication, to further enhance position coordination as well as to identify holistic and consistent approaches to overcome challenges, achieve goals and facilitate consensus.

We recognize the key role of the exchange of information between competent authorities in preventing cross-border tax evasion and in designing a fairer and more transparent international tax system. In this regard we reiterate our endorsement for the global Common Reporting Standard for the Automatic Exchange of Information on a reciprocal basis. We commit without delay to implementing the Common Reporting Standard and to start exchanging information at the latest by September 2018. We call upon those jurisdictions that have not yet signed and ratified the Multilateral Convention on Mutual Administrative Assistance in Tax Matters to do so.

Capacity Building

We are convinced that building and developing a globally fair and modern tax system calls for the involvement of as many jurisdictions as possible. The key role of taxation in sustainable economic development has been attracting extensive attention globally. Developing countries continue to face serious challenges in their tax administration capacity. In this regard, we have reached basic agreement on how to implement the consensus reached at the G20 Hangzhou and Hamburg Summits on capacity building in the tax area and have drafted cooperation programmes for capacity building and experience sharing between BRICS countries and for other developing countries. We welcome the Inclusive Framework encouraging deeper engagement of developing countries in international tax cooperation. We should make profound efforts to implement the G20 tax reform outcomes and to respond to the various obstacles against international tax cooperation in spite of economic difficulties. We commit to continuously promote ongoing exchange and cooperation so as to jointly enhance our own tax capacity while at the same time providing effective and sustainable technical assistance to other developing countries. In this regard, we will contribute by hosting tax training programmes for BRICS countries and other developing countries at the training centers in BRICS countries. The common understanding outlined above has been summarized in the Memorandum of Cooperation between the BRICS Tax Authorities signed today

 

Economic Comment: The BRICS countries of Brazil, Russia, India, China and South Africa contain 42 percent of the global populace, representing a 23 percent share of the global economy and more than half of global growth.

 

 

July 31, 2017 in BEPS | Permalink | Comments (0)

Treasury’s Acts Against a Foreign-Located Virtual Currency Money Services Business

The Financial Crimes Enforcement Network (FinCEN), working in coordination with the U.S. Attorney’s Office for the Northern District of California, assessed a $110,003,314 civil money penalty today against BTC-e a/k/a Canton Business Corporation (BTC-e) for willfully violating U.S. anti-money laundering (AML) laws.  Russian national Alexander Vinnik, one of the operators of BTC-e, was arrested in Greece this week, and FinCEN assessed a $12 million penalty against him for his role in the violations.

Since 2011, BTC-e has served approximately 700,000 customers worldwide and is associated with bitcoin wallet addresses that have received over 9.4 million bitcoin.  Customers located within the United States used BTC-e to conduct at least 21,000 bitcoin transactions worth over $296,000,000 and tens of thousands of transactions in other convertible virtual currencies. The transactions included funds sent from customers located within the United States to recipients who were also located within the United States. For example, from November 14, 2013 through July 21, 2015, BTC-e processed over 1,000 transactions for the unregistered U.S.-based virtual currency exchange Coin.MX. Coin.MX’s operator, Anthony R. Murgio, pled guilty to charges that included conspiracy to operate an unlicensed money transmitting business. Coin.MX processed over $10 million in bitcoin transactions derived from illegal activity throughout its operations, including a substantial number that involved funds from ransomware extortion payments. 

Criminals, and cybercriminals in particular, used BTC-e to process the proceeds of their illicit activity. This was particularly the case for some of the largest ransomware purveyors,  which used BTC-e as a means of storing, distributing, and laundering their criminal proceeds. FinCEN has identified at least $800,000 worth of transactions facilitated by BTC-e tied to the ransomware known as “Cryptolocker,” which affected computers in 2013 and 2014. Further, over 40 percent of all bitcoin transactions, over 6,500 bitcoin, associated with the ransomware scheme known as “Locky” were sent through BTC-e. Despite readily available, public information identifying the bitcoin addresses associated with Locky, BTC-e failed to conduct any due diligence on the recipients of the funds and failed to file SARs.

BTC-e also failed to file SARs on transactions that involved the money laundering website Liberty Reserve. Liberty Reserve was a Costa Rica-based administrator of virtual currency  that laundered approximately $6 billion in criminal proceeds. Liberty Reserve’s website was seized by the U.S. government and shut down when its owner and six other individuals were charged with conspiracy to commit money laundering and operating an unlicensed money transmitting business.

Download Assessment for BTCeVinnik FINAL SignDate 07.26.17

BTC-e is an internet-based, foreign-located money transmitter that exchanges fiat currency as well as the convertible virtual currencies Bitcoin, Litecoin, Namecoin, Novacoin, FINCEN 2Peercoin, Ethereum, and Dash.  It is one of the largest virtual currency exchanges by volume in the world.  BTC-e facilitated transactions involving ransomware, computer hacking, identity theft, tax refund fraud schemes, public corruption, and drug trafficking.

“We will hold accountable foreign-located money transmitters, including virtual currency exchangers, that do business in the United States when they willfully violate U.S. anti-money laundering laws,” said Jamal El-Hindi, Acting Director for FinCEN.  “This action should be a strong deterrent to anyone who thinks that they can facilitate ransomware, dark net drug sales, or conduct other illicit activity using encrypted virtual currency.  Treasury’s FinCEN team and our law enforcement partners will work with foreign counterparts across the globe to appropriately oversee virtual currency exchangers and administrators who attempt to subvert U.S. law and avoid complying with U.S. AML safeguards.” 

FinCEN acted in coordination with law enforcement’s seizure of BTC-e and Vinnik’s arrest.  The Internal Revenue Service-Criminal Investigation Division, Federal Bureau of Investigation, United States Secret Service, and Homeland Security Investigations conducted the criminal investigation.

Among other violations, BTC-e failed to obtain required information from customers beyond a username, a password, and an e-mail address.  Instead of acting to prevent money laundering, BTC-e and its operators embraced the pervasive criminal activity conducted at the exchange.  Users openly and explicitly discussed criminal activity on BTC-e’s user chat.  BTC-e’s customer service representatives offered advice on how to process and access money obtained from illegal drug sales on dark net markets like Silk Road, Hansa Market, and AlphaBay. 

BTC-e also processed transactions involving funds stolen between 2011 and 2014 from one of the world’s largest bitcoin exchanges, Mt. Gox.  BTC-e processed over 300,000 bitcoin in transactions traceable to the theft.  FinCEN has also identified at least $3 million of facilitated transactions tied to ransomware attacks such as “Cryptolocker” and “Locky.”  Further, BTC-e shared customers and conducted transactions with the now-defunct money laundering website Liberty Reserve.  FinCEN previously issued a finding under Section 311 of the USA PATRIOT Act that identified Liberty Reserve as a financial institution of primary money laundering concern.  

BTC-e has conducted over $296 million in transactions of bitcoin alone and tens of thousands of transactions in other convertible virtual currencies.  The transactions included funds sent from customers located within the United States to recipients who were also located within the United States.  BTC-e also concealed its geographic location and its ownership.  Regardless of its ownership or location, the company was required to comply with U.S. AML laws and regulations as a foreign-located MSB including AML program, MSB registration, suspicious activity reporting, and recordkeeping requirements.  This is the second supervisory enforcement action FinCEN has taken against a business that operates as an exchanger of virtual currency, and the first it has taken against a foreign-located MSB doing business in the United States.

July 31, 2017 in AML | Permalink | Comments (0)

Singapore Based CSE Global Limited and CSE TransTel Pte. Ltd. Fined $12 Million by OFAC For Iranian Transactions and Sanctions Regulations.

CSE TransTel Pte. Ltd. (“TransTel”), a wholly owned subsidiary of the international technology group CSE Global Limited (“CSE Global”), both of OFACwhich are located in Singapore, has agreed to pay $12,027,066 to settle its potential civil liability for 104 apparent violations of the International Emergency Economic Powers Act (IEEPA) and the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR). For more information regarding the conduct that led to the apparent violations, please see the Settlement Agreement between OFAC and CSE Global and TransTel here.

Specifically, from on or about June 4, 2012 to on or about March 27, 2013, TransTel appears to have violated § 1705 (a) of IEEPA and § 560.203 of the ITSR by causing at least six separate financial institutions to engage in the unauthorized exportation or re-exportation of financial services from the United States to Iran, a prohibition of § 560.204 of the ITSR.  OFAC determined that TransTel did not voluntarily self-disclose the apparent violations to
OFAC, and that the apparent violations constitute an egregious case. Both the statutory maximum and base penalty civil monetary penalty amounts for the apparent violations were $38,181,161.

Between August 25, 2010 and November 5, 2011, TransTel entered into contracts with, and received purchase orders from, multiple Iranian companies to deliver and install telecommunications equipment for several energy projects in Iran and/or Iranian territorial waters. TransTel hired and engaged a number of different third-party vendors – including several Iranian companies – to provide goods and services on its behalf in connection with the above-referenced contracts and purchase orders. 

Prior and subsequent to entering into the above-referenced contracts, CSE Global and TransTel separately maintained individual U.S. Dollar (USD) and Singaporean Dollar accounts with a non-U.S. financial institution located in Singapore (the “Bank”). In a letter entitled “Sanctions – Letter of Undertaking,” dated April 20, 2012 and signed by TransTel’s then-Managing Director and CSE Global’s then-Group Chief Executive Officer (referred to hereafter as the “Letter of Undertaking”), TransTel made the following statement to the Bank: “In consideration of [the Bank] agreeing to continue providing banking services in Singapore to our company, we, CSE Bank] agreeing to continue providing banking services in Singapore to our company, we, CSE TransTel Pte. Ltd … hereby undertake not to route any transactions related to Iran through [the Bank], whether in Singapore or elsewhere.” TransTel continued to receive banking services from the Bank after execution and delivery of its Letter of Undertaking. 

Despite the written attestation that TransTel and CSE Global provided to the Bank, TransTel appears to have begun originating USD funds transfers from its USD-denominated account with the Bank that were related to its Iranian business beginning no later than June 2012 – less than two months after TransTel’s and CSE Global’s management signed and submitted the Letter of Undertaking.

From on or about June 4, 2012 to on or about March 27, 2013, TransTel appears to have violated § 1705 (a) of IEEPA and/or § 560.203 of the ITSR when it originated 104 USD wire transfers totaling more than $11,111,000 involving Iran. TransTel initiated the wire transfers from its account with the Bank. The transactions were destined for multiple third-party vendors (including several Iranian parties) that supplied goods or services to or for the above-referenced energy projects in Iran, and all of the funds transfers were processed through the United States. None of the transactions contained references to Iran, the Iranian projects, or any Iranian parties.

OFAC considered the following to be aggravating factors: (1) TransTel willfully and recklessly caused apparent violations of U.S. economic sanctions by engaging in, and systematically obfuscating, conduct it knew to be prohibited, including by materially misrepresenting to its bank that it would not route Iran-related business through the bank’s branch in Singapore or elsewhere, and by engaging in a pattern or practice that lasted for 10 months; (2) TransTel’s then-senior management had actual knowledge of – and played an active role in – the conduct underlying the apparent violations; (3) TransTel’s actions conveyed significant economic benefit to Iran and/or persons on OFAC’s List of Specially Designated Nationals and Blocked Persons by processing dozens of transactions through the U.S. financial system that totaled $11,111,812 and benefited Iran’s oil, gas, and power industries; and (4) TransTel is a commercially sophisticated company that engages in business in multiple countries.

OFAC considered the following to be mitigating factors: (1) TransTel has not received a penalty notice, Finding of Violation, or cautionary letter from OFAC in the five years preceding the date of the earliest transaction giving rise to the apparent violations; (2) TransTel and CSE Global have undertaken remedial steps to ensure compliance with U.S. sanctions programs; and (3) TransTel and CSE Global provided substantial cooperation during the course of OFAC’s investigation, including by submitting detailed information to OFAC in an organized manner, and responding to several inquiries in a complete and timely fashion

July 31, 2017 in AML | Permalink | Comments (0)

Sunday, July 30, 2017

Gross Domestic Product by State: First Quarter 2017 Real Estate and Rental and Leasing Led Growth Across States in the First Quarter

Real gross domestic product (GDP) increased in 43 states and the District of Columbia in the first quarter of 2017, according to statistics on the geographic breakout of GDP released today by the U.S. Bureau of Economic Analysis. Real GDP by state growth in the first quarter ranged from 3.9 percent in Texas to -4.0 percent in Nebraska (table 1 and chart 1).

Map of US

Real estate and rental and leasing; mining; and durable-goods manufacturing were the leading contributors to U.S. economic growth in the first quarter (table 2). Overall growth in real GDP slowed in the first quarter from the fourth quarter of 2016, with finance and insurance, retail trade, and agriculture, forestry, fishing, and hunting leading the deceleration in real GDP.

Highlights

  • Real estate and rental and leasing grew 2.7 percent nationally in the first quarter of 2017. This industry contributed to growth in 44 states. The largest contributions to growth occurred in Virginia and Maryland; these states grew 2.0 percent and 2.1 percent, respectively.
  • Mining grew 21.6 percent nationally. This industry contributed to growth in 48 states. It was the leading contributor to growth in Texas, West Virginia, and New Mexico–the three fastest growing states–which grew 3.9 percent, 3.0 percent, and 2.8 percent, respectively.
  • Durable-goods manufacturing grew 4.4 percent nationally. This industry contributed to growth in 47 states and the District of Columbia. The largest contributions to growth occurred in Michigan and Kentucky; these states grew 1.5 percent and 1.8 percent, respectively.
  • Finance and insurance declined 2.1 percent nationally. This industry subtracted from growth in 45 states and the District of Columbia. The largest subtractions occurred in Delaware and Utah; these states grew 0.3 percent and 1.9 percent, respectively.
  • Retail trade declined 3.6 percent nationally. This industry subtracted from growth in every state. The largest subtractions occurred in Oklahoma and West Virginia; these states grew 1.9 percent and 3.0 percent, respectively.
  • Agriculture, forestry, fishing, and hunting declined 39.8 percent nationally. This industry subtracted from growth in 39 states. The largest subtractions occurred in South Dakota, Iowa, and Nebraska, the states with the largest declines in real GDP. Real GDP in these states declined 3.8 percent, 3.2 percent, and 4.0 percent, respectively.

July 30, 2017 in Economics | Permalink | Comments (0)

Saturday, July 29, 2017

California Resident Indicted for Impeding the Internal Revenue Laws and Filing False Tax Returns that Did Not Report Secret German and Israeli Accounts

Allegedly Hid $20 Million in Offshore Accounts at the Same Time Falsely Claiming the Earned Income Tax Credit on His Tax Returns

A Beverly Hills, California resident was indicted by a federal grand jury in the Central District of California for corruptly endeavoring to impede the Irs_logointernal revenue laws, filing false tax returns, filing false reports regarding his offshore bank accounts and making false statements to a federal agent, announced Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division and Acting U.S. Attorney Sandra R. Brown for the Central District of California.

The indictment charges that from 2006 through 2014, Teymour Khoubian impeded the administration of the internal revenue laws. According to the indictment, Khoubian filed false individual tax returns with the Internal Revenue Service (IRS) for tax years 2005 through 2010 that did not report his financial interest in multiple Israeli and German bank accounts or the interest income that he earned from those accounts. He also allegedly falsely claimed refundable tax credits to which he was not entitled, including the Earned Income Tax Credit, which is intended for low-to moderate-income working individuals. In 2008, Khoubian is alleged to have held approximately $20 million in assets in his undisclosed accounts. The indictment charges that Khoubian also filed a false 2011 tax return that underreported the interest income he earned from his Israeli accounts and continued to fail to disclose that he held an account in Germany. Khoubian is also alleged to have filed false 2012 and 2013 Reports of Foreign Bank and Financial Accounts forms (FBARs) with the U.S. Department of Treasury that concealed his German account. U.S. citizens, resident aliens, and permanent legal residents with a foreign financial interest in or signatory authority over a foreign financial account worth more than $10,000 are required to file an FBAR disclosing the account.

In addition to filing false tax returns and FBARs, Khoubian allegedly provided his German bank with a copy of his Iranian passport and a residential address located in Israel to prevent the bank from disclosing the account to the IRS. He also allegedly sent a letter to Bank Leumi falsely claiming he was living in Iran when, in fact, he resided in Beverly Hills, California.

Khoubian is also charged with making false statements to an IRS Criminal Investigation (CI) special agent – denying that he owned an account in Germany between 2005 and 2010, stating that the German account was closed, when it was in fact still open, and stating that the funds had been transferred to the United States, when Khoubian had allegedly transferred over $600,000 from his German account to his accounts in Israel.

If convicted, Khoubian faces a statutory maximum sentence of three years in prison for corruptly endeavoring to impede the internal revenue laws and each count of filing a false return and five years in prison for each count of filing a false FBAR and making a false statement. He also faces a period of supervised release, restitution and monetary penalties.

The charges contained in the indictment are only allegations. A defendant is entitled to a fair trial in which it will be the government’s burden to prove guilt beyond a reasonable doubt.

Acting Deputy Assistant Attorney General Goldberg and Acting U.S. Attorney Brown thanked special agents of IRS CI, who conducted the investigation, and Trial Attorneys Christopher S. Strauss and Ellen M. Quattrucci of the Tax Division and Assistant U.S. Attorney Robert Conte, who are prosecuting this case.

July 29, 2017 in GATCA | Permalink | Comments (0)

Friday, July 28, 2017

Foreign Recipients of U.S. Income Statistics

What is the Foreign Recipients of U.S. Income Study?

Withholding Agents who pay U.S.-source income to nonresident aliens and other foreign persons are required to report this income on Form 1042-S, Foreign Persons' U.S.- Irs_logoSource Income Subject to Withholding. This income is subject to a flat, statutory tax rate of 30 percent. However, this rate is frequently reduced or eliminated by an income tax treaty or statutory exemption. Income that is exempt from taxation because of a tax treaty or certain other exemptions must still be reported. U.S. individuals, corporations, or other entities paying U.S.-source income to foreign persons are required to withhold taxes on this income (except where statutory or treaty exemptions apply) or to appoint a withholding agent (normally a U.S. financial institution) to do so. Foreign financial institutions that enter into an agreement with the Internal Revenue Service, known as qualified intermediaries (QIs), may also serve as withholding agents. A withholding agent or qualified intermediary is fully liable for all taxes owed by a foreign beneficial owner and also reports the income paid to each recipient on a Form 1042S. Without this withholding requirement, there would be no effective way to enforce taxpayer compliance because foreign recipients are generally not required to file U.S. tax returns to report this income.

For information about selected terms and concepts and a description of the data sources and limitations, please visit Foreign Recipients of U.S. Income Metadata.

Statistical Tables

Forms 1042-S: Number, Total U.S.-Source Income, and U.S. Tax Withheld
Shown by tax treaty countries and total non-tax treaty countries.

Forms 1042-S: Number, U.S. Tax Withheld, and U.S.-Source Income
Shown by principal type of income, selected recipient type, and selected country of recipient.

Forms 1042S (includes only returns withheld pursuant to Chapter 4):  Number, Total U.S.-Source Income, and U.S. Tax Withheld
Shown by selected income types

Forms 8288-A: Number, Sales Price, and U.S. Tax Withheld
Shown by selected country of the seller.

July 28, 2017 in Tax Compliance | Permalink | Comments (0)

Thursday, July 27, 2017

Eaton Wins Important Transfer Pricing Case About IRS Post-Review of APAs

 Eaton Corp. v. Commissioner, T.C. Memo. 2017-147

Eaton and the IRS entered into two advance pricing agreements (APAs) establishing a transfer pricing methodology for covered transactions between Eaton and its TP book coversubsidiaries. The first APA (APA I) applied for Eaton’s 2001-05 tax years, and the second APA (APA II) applied for Eaton'’s 2006-10 tax years. Eaton and the IRS agreed that the legal effect and administration of APA I and APA II were governed by Rev. Proc. 96- 53, 1996-2 C.B. 375, and Rev. Proc. 2004-40, 2004-2 C.B. 50, respectively.

In 2011 the IRS determined that Eaton had not complied with the applicable terms of the revenue procedures and canceled APA I, effective January 1, 2005, and APA II, effective January 1, 2006. As a result of canceling the APAs, the IRS determined that under I.R.C. sec. 482 an adjustment was necessary to reflect an arm’s-length result for Eaton’s intercompany transactions.

In its petition to the Tax Court, Eaton acknowledged that certain errors existed in the data used to calculate the results under the TPM for both of the APAs, but emphasized that it identified the errors, immediately disclosed them to the IRS, took appropriate measures to correct the errors, and submitted amended APA annual reports that reflected the changes made to fix the data errors. The Commissioner’s Answer, which the IRS filed on May 7, 2012, responded by stating examples of alleged material deficiencies in APA compliance, including noncompliance with the terms and conditions of the APA, errors in supporting data and computations used in the transfer pricing methodologies, lack of consistency in the application of the TPMs, use of distortive accounting, material facts being misrepresented, mistakenly presented, or not presented in submissions, discrepancies between the transfer pricing reported by Eaton in its APA Annual Reports and the transfer pricing reflected on its books and tax returns, and the failure to explain relevant book-tax differences and schedule M adjustments.

Eaton contends that the IRS’s cancellation of APA I and APA II was an abuse of discretion because there was no basis for the cancellation under the applicable revenue procedures. The IRS contends that the determination to cancel both APA I and APA II was not an abuse of discretion because Eaton did not comply in good faith with the terms and conditions of either APA I or APA II and failed to satisfy the APA annual reporting requirements. As an alternative position, IRS determined that Eaton transferred intangible property compensable under I.R.C. sec. 367(d) to Eaton's’s controlled foreign affiliates for tax year 2006.

Held (202 page decision): The IRS's determination to cancel APA I and APA II was an abuse of discretion. Held, further, Eaton did not transfer intangibles subject to I.R.C. sec. 367(d). Held, further, Eaton’s bonus payments represented employee compensation, entitling Eaton to a deduction under I.R.C. sec. 162(a).

For an in-depth analysis, see the forthcoming supplement of William Byrnes, Practical Guide to U.S. Transfer Pricing (available on Lexis Advance).

July 27, 2017 in Tax Compliance | Permalink | Comments (0)

OECD releases further guidance for tax administrations and MNE Groups on Country-by-Country reporting (BEPS Action 13)

The Inclusive Framework on BEPS has released additional guidance to give certainty to tax administrations and MNE Groups alike on the implementation of Country-by-Country (CbC) Reporting (BEPS Action 13).

The additional guidance addresses two specific issues: how to treat an entity owned and/or operated by two or more unrelated MNE Groups, and whether aggregated data or consolidated data for each jurisdiction is to be reported in Table 1 of the CbC report.

The complete set of guidance related to CbC reporting issued so far is presented in the document released today. This will continue to be updated with any further guidance that may be agreed.

The BEPS Action 13 report (Transfer Pricing Documentation and Country-by-Country Reporting) provides a template for multinational enterprises (MNEs) to report annually and for each tax jurisdiction in which they do business the information set out therein. This report is called the Country-by-Country (CbC) Report.

To facilitate the implementation of the CbC reporting standard, the BEPS Action 13 report includes a CbC Reporting Implementation Package which consists of (i) model legislation which could be used by countries to require the ultimate parent entity of an MNE group to file the CbC report in its jurisdiction of residence including backup filing requirements and (ii) three model Competent Authority Agreements that could be used to facilitate implementation of the exchange of CbC reports, respectively based on the:

  1. Multilateral Convention on Administrative Assistance in Tax Matters;
  2. Bilateral tax conventions; and
  3. Tax Information Exchange Agreements (TIEAs).

As jurisdictions have moved into the implementation stage, some questions of interpretation have arisen. In the interests of consistent implementation and certainty for both tax administrations and taxpayers, the Inclusive Framework on BEPS has issued guidance to address certain key questions. This guidance is periodically updated.

July 27, 2017 in BEPS, OECD | Permalink | Comments (0)

Wednesday, July 26, 2017

Treasury Sanctions 13 Current and Former Senior Officials of Venezuela

OFFICE OF FOREIGN ASSETS CONTROL
Specially Designated Nationals List Update

The following individuals have been added to OFAC's SDN List
 
The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated 13 current or former senior officials of the Venezuelan Government pursuant to Executive OFAC Order (E.O.) 13692, which authorizes sanctions against officials of the Government of Venezuela and others undermining democracy there.  The sanctions come ahead of the planned July 30, 2017 election orchestrated by Venezuelan President Nicolas Maduro of a National Constituent Assembly (Asamblea Nacional Constituyente, or ANC) that will have the power to rewrite the Venezuelan constitution and may choose to dissolve Venezuelan state institutions.  A flawed ANC election process all but guarantees that a majority of the Assembly’s members will represent the interests of President Maduro’s government.  In a “popular consultation” organized by the opposition and held on July 16, 2017, Venezuelans overwhelmingly opposed the ANC process. 
 
“As President Trump has made clear, the United States will not ignore the Maduro regime’s ongoing efforts to undermine democracy, freedom, and the rule of law,” said Treasury Secretary Steven T. Mnuchin.  “As our sanctions demonstrate, the United States is standing by the Venezuelan people in their quest to restore their country to a full and prosperous democracy.  Anyone elected to the National Constituent Assembly should know that their role in undermining democratic processes and institutions in Venezuela could expose them to potential U.S. sanctions.”
 
Today’s designations focus on current and former officials of Venezuelan Government agencies associated with the elections or the undermining of democracy, as well as the government’s rampant violence against opposition protesters and its corruption.  As a result of today’s actions, all assets of these individuals subject to U.S. jurisdiction are frozen, and U.S. persons are prohibited from dealing with them.
 
OFAC today designated four senior officials of Venezuelan Government agencies that are actively pursuing the Constituent Assembly elections or otherwise undermining democracy or human rights in Venezuela:
 
·         Tibisay Lucena Ramirez is the President of the Maduro-controlled National Electoral Council (Consejo Nacional Electoral, or CNE) and President of Venezuela’s National Board of Elections.
 
·         Elias Jose Jaua Milano is the head of the Presidential Commission for the National Constituent Assembly responsible for forming and operating the ANC process.  He is also the Minister of Education, the Sectoral Vice President of Social Development and the Revolution of Missions, and the former Executive Vice President of Venezuela.
 
·         Tarek William Saab Halabi is Venezuela’s Ombudsman and President of Venezuela’s Republican Moral Council.  As the “People’s Defender,” it is ostensibly his role to stand up for human rights in Venezuela.
 
·         Maria Iris Varela Rangel is a Member of Venezuela’s Presidential Commission for the National Constituent Assembly and the former Minister of the Penitentiary Service.
 
The Government’s undermining of democracy in Venezuela has driven the people of Venezuela into the streets in protest, and the Maduro government has responded with repression and violence.  The Venezuelan opposition estimates that up to 15,000 civilians have been wounded in recent protests, with over 3,000 people arrested and 431 political prisoners in detention without fair and transparent judicial process.  Arbitrary arrests are rampant, as is physical abuse against detainees; alleged instances of torture and other violations and abuses of human rights are perpetrated by the Bolivarian National Guard, the Bolivarian National Police, and other security services. 
 
OFAC today has sanctioned five current and former senior officials of those Venezuelan Government agencies responsible for the violence and repression:
 
·         Nestor Luis Reverol Torres is Venezuela’s Minister of Interior, Justice, and Peace. He is also the former Commander General of the Bolivarian National Guard and the former Director of Venezuela’s Anti-Narcotics Agency.  In 2016, the U.S. Department of Justice unsealed an indictment against Reverol for his participation in an international cocaine distribution conspiracy.
 
·         Carlos Alfredo Perez Ampueda is the National Director of Venezuela’s Bolivarian National Police and former Commander of the Carabobo Zone for Venezuela’s Bolivarian National Guard.
 
·         Sergio Jose Rivero Marcano is the Commander General of Venezuela’s Bolivarian National Guard and the former Commander of the East Integral Strategic Defense Region of Venezuela’s National Armed Forces.
 
·         Jesus Rafael Suarez Chourio is the General Commander of Venezuela’s Bolivarian Army and the former Commander of Venezuela’s Central Integral Strategic Defense Region of Venezuela’s National Armed Forces.  In addition, Suarez was formerly the leader of the Venezuelan President’s Protection and Security Unit.
 
·         Franklin Horacio Garcia Duque is the former National Director of the Bolivarian National Police and the former Commander of the West Integral Strategic Defense Region of Venezuela’s National Armed Forces.
 
Finally, Venezuelan Government corruption is associated heavily – but by no means exclusively – with two government entities.  The first of these is Venezuela’s state-owned oil company, Petroleos de Venezuela, S.A. (PDVSA), from which approximately $11 billion went missing between 2004 and 2014, according to news accounts of a report by a Venezuelan congressional commission.  Another significant engine of corruption in Venezuela involves the black market surrounding the official exchange rate regime set by the National Center for Foreign Commerce (Centro Nacional de Comercio Exterior, or CENCOEX). 
 
OFAC today designated four current or former officials of these entities:
 
·         Rocco Albisinni Serrano is the President of CENCOEX.
 
·         Alejandro Antonio Fleming Cabrera is the Vice Minister for Europe of Venezuela’s Ministry of Foreign Affairs and the former President of CENCOEX.
 
·         Simon Alejandro Zerpa Delgado is the Vice President of Finance for PDVSA and the President of Venezuela’s Economic and Social Development Bank (BANDES), and the President of Venezuela’s National Development Fund (FONDEN).  He is the former Vice Minister of Investment for Development of Venezuela’s Ministry of Economy and Finance and the current or former Presidential Commissioner to the Joint Chinese Venezuelan Fund.
 
·         Carlos Erik Malpica Flores is the former National Treasurer and former Vice President of Finance for PDVSA. 
 
The following individuals have been added to OFAC's SDN List:
 
ALBISINNI SERRANO, Rocco, Miranda, Guarico, Venezuela; DOB 06 Mar 1982; Gender Male; Cedula No. 15481927 (Venezuela); President of Venezuela's National Center for Foreign Commerce (CENCOEX); Former Vice Minister of the State and Socialist Economy of Venezuela's Ministry of Economy and Finance; Current or Former Principal Director of Venezuela's National Development Fund (FONDEN) (individual) [VENEZUELA].
 
FLEMING CABRERA, Alejandro Antonio, Caracas, Capital District, Venezuela; DOB 03 Oct 1973; Gender Male; Cedula No. 11953485 (Venezuela); Vice Minister for Europe of Venezuela's Ministry of Foreign Affairs; Former Vice Minister for North America of Venezuela's Ministry of Foreign Affairs; Former President of Venezuela's National Center for Foreign Commerce (CENCOEX); Former President for Suministros Venezolanos Industriales, C.A. (SUVINCA) of Venezuela's Ministry of Commerce; Former Ambassador of Venezuela to Luxembourg and Chief Ambassador of the Venezuelan Mission to the European Union (individual) [VENEZUELA].
 
GARCIA DUQUE, Franklin Horacio (Latin: GARCÍA DUQUE, Franklin Horacio), Miranda, Venezuela; DOB 19 Aug 1963; citizen Venezuela; Gender Male; Cedula No. 9125430 (Venezuela); Former National Director of Venezuela's Bolivarian National Police; Former Commander of the West Integral Strategic Defense Region of Venezuela's National Armed Forces (individual) [VENEZUELA].
 
JAUA MILANO, Elias Jose (Latin: JAUA MILANO, Elías José), Miranda, Venezuela; DOB 16 Dec 1969; POB Caucagua, Miranda, Venezuela; citizen Venezuela; Gender Male; Cedula No. 10096662 (Venezuela); Head of Venezuela's Presidential Commission for the Constituent Assembly; Venezuela's Minister of Education; Venezuela's Sectoral Vice President of Social Development and the Revolution of Missions; Former Executive Vice President of Venezuela (individual) [VENEZUELA].
 
LUCENA RAMIREZ, Tibisay (Latin: LUCENA RAMÍREZ, Tibisay), El Recreo, Libertador, Capital District, Venezuela; DOB 26 Apr 1959; POB Barquisimeto, Lara, Venezuela; citizen Venezuela; Gender Female; Cedula No. 5224732 (Venezuela); Passport 3802006 (Venezuela); President of Venezuela's National Electoral Council; President of Venezuela's National Board of Elections (individual) [VENEZUELA].
 
MALPICA FLORES, Carlos Erik, Naguanagua, Carabobo, Venezuela; DOB 17 Sep 1972; Gender Male; Cedula No. 11810943; Former National Treasurer of Venezuela; Former Vice President of Finance for Petroleos de Venezuela, S.A. (PDVSA); Former Presidential Commissioner for Economic and Financial Affairs (individual) [VENEZUELA].
 
PEREZ AMPUEDA, Carlos Alfredo (Latin: PÉREZ AMPUEDA, Carlos Alfredo), Caracas, Capital District, Venezuela; DOB 13 Dec 1966; citizen Venezuela; Gender Male; Cedula No. 9871452 (Venezuela); National Director of Venezuela's Bolivarian National Police; Former Commander of Carabobo Zone for Venezuela's Bolivarian National Guard (individual) [VENEZUELA].
 
REVEROL TORRES, Nestor Luis (Latin: REVEROL TORRES, Néstor Luis), Zulia, Venezuela; El Valle, Libertador, Caracas, Capital District, Venezuela; DOB 28 Oct 1964; citizen Venezuela; Gender Male; Cedula No. 7844507 (Venezuela); Passport A0186449 (Venezuela); Venezuela's Minister of Interior, Justice, and Peace; Former Commander General of Venezuela's Bolivarian National Guard; Former Director of Venezuela's Anti-Narcotics Agency (individual) [VENEZUELA].
 
RIVERO MARCANO, Sergio Jose (Latin: RIVERO MARCANO, Sergio José), Caracas, Captial District, Venezuela; DOB 08 Nov 1964; citizen Venezuela; Gender Male; Cedula No. 6893454 (Venezuela); Commander General of Venezuela's Bolivarian National Guard; Former Commander of the East Integral Strategic Defense Region of Venezuela's National Armed Forces (individual) [VENEZUELA].
 
SAAB HALABI, Tarek William, Anzoategui, Venezuela; DOB 10 Sep 1962; citizen Venezuela; Gender Male; Cedula No. 8459301 (Venezuela); Passport 5532000 (Venezuela); Venezuela's Ombudsman; President of Venezuela's Republican Moral Council (individual) [VENEZUELA].
 
SUAREZ CHOURIO, Jesus Rafael (Latin: SUÁREZ CHOURIO, Jesús Rafael), Aragua, Venezuela; Caracas, Venezuela; DOB 19 Jul 1962; citizen Venezuela; Gender Male; Cedula No. 9195336 (Venezuela); General Commander of Venezuela's Bolivarian Army; Former Commander of Venezuela's Central Integral Strategic Defense Region of Venezuela's National Armed Forces; Former Commander of Venezuela's Aragua Integrated Defense Zone of Venezuela's National Armed Forces; Former Leader of the Venezuelan President's Protection and Security Unit (individual) [VENEZUELA].
 
VARELA RANGEL, Maria Iris (Latin: VARELA RANGEL, María Iris), Caracas, Capital District, Venezuela; DOB 09 Mar 1967; POB San Cristobal, Tachira, Venezuela; citizen Venezuela; Gender Female; Cedula No. 9242760 (Venezuela); Passport 8882000 (Venezuela); Member of Venezuela's Presidential Commission for the Constituent Assembly; Venezuela's Former Minister of the Penitentiary Service (individual) [VENEZUELA].
 
ZERPA DELGADO, Simon Alejandro (Latin: ZERPA DELGADO, Simón Alejandro), Sucre, Miranda, Venezuela; DOB 28 Aug 1983; Gender Male; Cedula No. 16544324 (Venezuela); Vice President of Finance for Petroleos de Venezuela, S.A. (PDVSA) ; President of Venezuela's Economic and Social Development Bank (BANDES); President of Venezuela's National Development Fund (FONDEN); Vice Minister of Investment for Development  of Venezuela's Ministry of Economy and Finance; Principal Director of Venezuela's Foreign Trade Bank (BANCOEX); Principal Director of Venezuela's National Telephone Company (CANTV); Current or Former Presidential Commissioner to the Joint Chinese Venezuelan Fund; Current or Former Principal Board Member of Venezuela's National Electric Corporation (CORPOELEC); Former Executive Secretary of Venezuela's National Development Fund (FONDEN) (individual) [VENEZUELA].
 

One of America’s leading experts on the global battle against money laundering, Professor William Byrnes is the lead author of Money Laundering, Asset Forfeiture & Recovery, and Compliance – A Global Guide.  Ray Camiscioli, Esq., Director, Product Strategy & Development for Tax, Accounting and Estates/Elder Law, LexisNexis, Inc.

book cover Money Laundering, Asset Forfeiture and Recovery, and Compliance- A Global Guide (LexisNexis Matthew Bender updated quarterly) is an eBook designed to provide the compliance officer, BSA counsel, and government agent with accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources.  Special topic chapters will assist the compliance officer design and maintain effective risk management programs.  Over 100 country and topic experts from financial institutions, government agencies, law, audit and risk management firms have contributed analysis to develop this practical compliance guide. – See more at: http://www.lexisnexis.com/store/catalog/booktemplate/productdetail.jsp?pageName=relatedProducts&prodId=prod-us-ebook-01701-epub#sthash.Bts3dMm7.dpuf

July 26, 2017 in AML | Permalink | Comments (0)

SEC Announces $2.5 Million Whistleblower Award

The Securities and Exchange Commission announced an award of nearly $2.5 million to an employee of a domestic government agency whose whistleblower tip helped launch an SEC SEC investigation and whose continued assistance enabled the SEC to address a company's misconduct.  Claimant, an employee of a domestic government agency, had become aware of certain improper conduct by a company. Claimant then reported these suspicions to the Commission, and provided supporting documentation, which caused the Commission to open an investigation. Claimant then continued to provide the Commission with specific, timely, and credible information, helpful documents, significant ongoing assistance, and relevant testimony that accelerated the pace of the investigation.   Download SEC's Whistleblower Award

''Whistleblowers can provide a wealth of information and ongoing assistance that helps our agency bring enforcement actions quicker and more efficiently,'' said Jane Norberg, Chief of the SEC's Office of the Whistleblower.  ''This whistleblower not only helped us open the case, but also provided timely ongoing assistance along with critical documents and testimony that accelerated the pace of our enforcement action.''

Approximately $156 million has now been awarded to 45 whistleblowers who voluntarily provided the SEC with original and useful information that led to a successful enforcement action.  No money has been taken or withheld from harmed investors to pay whistleblower awards.

By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower's identity.  Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action.  Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million.  All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators.

For more information about the whistleblower program and how to report a tip, visit www.sec.gov/whistleblower.

July 26, 2017 in AML | Permalink | Comments (0)

Tuesday, July 25, 2017

Former Credit Suisse Banker Pleads Guilty to Conspiring with U.S. Taxpayers and Other Swiss Bankers to Defraud the United States

A citizen and resident of Switzerland pleaded guilty today to conspiring to defraud the United States in connection with her Irs_logowork as the head of a team of bankers for Credit Suisse AG, announced Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division and U.S. Attorney Dana J. Boente for the Eastern District of Virginia.

According to the statement of facts and the plea agreement, Susanne D. Rüegg Meier, admitted that from 2002 through 2011, while working as the team head of the Zurich Team of Credit Suisse’s North American desk in Switzerland, she participated in a wide-ranging conspiracy to aid and assist U.S. taxpayers in evading their income taxes by concealing assets and income in secret Swiss bank accounts. Rüegg Meier was responsible for supervising the servicing of accounts involving over 1,000 to 1,500 client relationships. She was also personally responsible for handling the accounts of approximately 140 to 150 clients, about 95 percent of whom were U.S. persons residing primarily in New York, Chicago and Florida, which held assets under management totaling approximately $400 million. Rüegg Meier admitted that the tax loss associated with her criminal conduct was between $3.5 and $9.5 million.

Rüegg Meier assisted many U.S. clients in utilizing their Credit Suisse accounts to evade their U.S. income taxes and to facilitate concealment of their undeclared financial accounts from the U.S. Department of the Treasury and the Internal Revenue Service (IRS). She took the following steps to assist clients in hiding their Swiss accounts: retaining in Switzerland all mail related to the account; structuring withdrawals in the forms of multiple checks each payable in amounts less than $10,000 that were sent by courier to clients in the United States and arranging for U.S. customers to withdraw cash from their Credit Suisse accounts at Credit Suisse locations outside Switzerland, such as the Bahamas. Moreover, Rüegg Meier admitted that approximately 20 to 30 of her U.S. clients concealed their ownership and control of foreign financial accounts by holding those accounts in the names of nominee tax haven entities or other structures that were frequently created in the form of foreign partnerships, trusts, corporations or foundations.

Between 2002 and 2008, Rüegg Meier traveled approximately twice per year to the United States to meet with clients. Among other places, Rüegg Meier met clients in the Credit Suisse New York representative office. To prepare for the trips, Rüegg Meier would obtain “travel” account statements that contained no Credit Suisse logos or customer information, as well as business cards that bore no Credit Suisse logos and had an alternative street address for her office, in order to assist her in concealing the nature and purpose of her business.

After Credit Suisse began closing U.S. customers’ accounts in 2008, Rüegg Meier assisted the clients in keeping their assets concealed. For example, when one U.S. customer was informed that the bank planned to close his account, Rüegg Meier assisted the customer in closing the account by withdrawing approximately $1 million in cash. Rüegg Meier advised the client to find another bank simply by walking along the street in Zurich and locating a bank that would be willing to open an account for the client. The customer placed the cash into a paper bag and exited the bank. Rüegg Meier also recommended that a few U.S. clients open new accounts at other specific banks, such as Bank Frey and Wegelin & Co., and transfer their assets from their Credit Suisse accounts to the new accounts.

Credit Suisse pleaded guilty in May 2014 for conspiring to aid and assist taxpayers in filing false returns, and was sentenced in November 2014 to pay more than $2 billion in fines and restitution.

Sentencing is scheduled for Sept. 8. Rüegg Meier faces a statutory maximum sentence of five years in prison. She also faces a period of supervised release, restitution and monetary penalties.

Acting Deputy Assistant Attorney General Goldberg and U.S. Attorney Boente commended special agents of IRS Criminal Investigation, who conducted the investigation, and Senior Litigation Counsel Mark F. Daly and Trial Attorney Robert J. Boudreau of the Tax Division and Assistant U.S. Attorney Mark Lytle of the Eastern District of Virginia, who are prosecuting this case.

July 25, 2017 in GATCA | Permalink | Comments (0)

Monday, July 24, 2017

AlphaBay, the Largest Online 'Dark Market,' Shut Down

‘Dark Net’ Site Was Major Source of Fentanyl and Heroin, Linked to Overdose Deaths, and Used By Hundreds of Thousands of People to Buy and Sell FBISeal (1) Illegal Goods and Services Anonymously over the Internet

The Justice Department today announced the seizure of the largest criminal marketplace on the Internet, AlphaBay, which operated for over two years on the dark web and was used to sell deadly illegal drugs, stolen and fraudulent identification documents and access devices, counterfeit goods, malware and other computer hacking tools, firearms, and toxic chemicals throughout the world.  The international operation to seize AlphaBay’s infrastructure was led by the United States and involved cooperation and efforts by law enforcement authorities in Thailand, the Netherlands, Lithuania, Canada, the United Kingdom, and France, as well as the European law enforcement agency Europol.

On July 5, Alexandre Cazes aka Alpha02 and Admin, 25, a Canadian citizen residing in Thailand, was arrested by Thai authorities on behalf of the United States for his role as the creator and administrator of AlphaBay.  On July 12, Cazes apparently took his own life while in custody in Thailand.  Cazes was charged in an indictment (1:17-CR-00144-LJO), filed in the Eastern District of California on June 1, with one count of conspiracy to engage in racketeering, one count of conspiracy to distribute narcotics, six counts of distribution of narcotics, one count of conspiracy to commit identity theft, four counts of unlawful transfer of false identification documents, one count of conspiracy to commit access device fraud, one count of trafficking in device making equipment, and one count of money laundering conspiracy.  Law enforcement authorities in the United States worked with numerous foreign partners to freeze and preserve millions of dollars’ worth of cryptocurrencies that were the subject of forfeiture counts in the indictment, and that represent the proceeds of the AlphaBay organization’s illegal activities. 

On July 19, the U.S. Attorney’s Office for the Eastern District of California filed a civil forfeiture complaint against Alexandre Cazes and his wife's assets located throughout the world, including in Thailand, Cyprus, Lichtenstein, and Antigua & Barbuda. Cazes and his wife amassed numerous high value assets, including luxury vehicles, residences and a hotel in Thailand. Cazes also possessed millions of dollars in cryptocurrency, which has been seized by the FBI and the Drug Enforcement Administration (DEA).

According to publicly available information on AlphaBay prior to its takedown, one AlphaBay staff member claimed that it serviced over 200,000 users and 40,000 vendors.  Around the time of takedown, there were over 250,000 listings for illegal drugs and toxic chemicals on AlphaBay, and over 100,000 listings for stolen and fraudulent identification documents and access devices, counterfeit goods, malware and other computer hacking tools, firearms and fraudulent services. Comparatively, the Silk Road dark web marketplace, which was seized by law enforcement in November 2013, had reportedly approximately 14,000 listings for illicit goods and services at the time of seizure and was the largest dark web marketplace at the time.

“This is likely one of the most important criminal investigations of the year – taking down the largest dark net marketplace in history,” said Attorney General Jeff Sessions. “Make no mistake, the forces of law and justice face a new challenge from the criminals and transnational criminal organizations who think they can commit their crimes with impunity using the dark net.  The dark net is not a place to hide. The Department will continue to find, arrest, prosecute, convict, and incarcerate criminals, drug traffickers and their enablers wherever they are. We will use every tool we have to stop criminals from exploiting vulnerable people and sending so many Americans to an early grave. I believe that because of this operation, the American people are safer – safer from the threat of identity fraud and malware, and safer from deadly drugs.”

“Transnational organized crime poses a serious threat to our national and economic security,” said Acting Director Andrew McCabe of the FBI. “Whether they operate in broad daylight or on the dark net, we will never stop working to find and stop these criminal syndicates.  We want to thank our international partners and those at the Department of Justice, the DEA and the IRS-CI for their hard work in demonstrating what we can do when we stand together.”

“The so-called anonymity of the dark web is illusory,” said Acting Administrator Chuck Rosenberg of the DEA. “We will find and prosecute drug traffickers who set up shop there, and this case is a great example of our commitment to doing exactly that. More to come.”

“AlphaBay was the world’s largest underground marketplace of the dark net, providing an avenue for criminals to conduct business anonymously and without repercussions,” said Chief Don Fort of IRS-CI. “Working with our law enforcement partners – both domestically and abroad – IRS-CI used its unique financial and cyber expertise to help shine a bright light on the accounts and customers of this shadowy black marketplace, and we intend to continue pursuing these kinds of criminals no matter where they hide.”

“This ranks as one of the most successful coordinated takedowns against cybercrime in recent years,” said Executive Director Rob Wainwright of Europol. “Concerted action by law enforcement authorities in the United States and Europe, with the support of Europol, has delivered a massive blow to the underground criminal economy and sends a clear message that the dark web is not a safe area for criminals. I pay tribute to the excellent work of the United States and European authorities for the imaginative and resourceful way they combined their efforts in this case.”

AlphaBay operated as a hidden service on the “Tor” network, and utilized cryptocurrencies including Bitcoin, Monero and Ethereum in order to hide the locations of its underlying servers and the identities of its administrators, moderators, and users. Based on law enforcement’s investigation of AlphaBay, authorities believe the site was also used to launder hundreds of millions of dollars deriving from illegal transactions on the website. 

An investigation conducted by FBI Atlanta and the U.S. Attorney’s Office in the Northern District of Georgia identified an AlphaBay staffer living in the United States. That investigation is ongoing.

The investigation into AlphaBay revealed that numerous vendors sold fentanyl and heroin, and there have been multiple overdose deaths across the country attributed to purchases on the site.   

According to a complaint affidavit filed in the District of South Carolina against Theodore Vitality Khleborod and Ana Milena Barrero, an investigation into an overdose death on February 16, in Portland, Oregon, involving U-47700, a synthetic opioid, revealed that the drugs were purchased on AlphaBay from Khelborod and Barrero. According to another complaint affidavit filed in the Middle District of Florida against Jeremy Achey, an investigation into a fentanyl overdose death in Orange County, Florida, on February 27, revealed that the lethal substance was purchased on AlphaBay from Achey.

Charges contained in an indictment and/or complaint are merely allegations, and the defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

This operation to seize the AlphaBay site coincides with efforts by Dutch law enforcement to investigate and take down the Hansa Market, another prominent dark web market. Like AlphaBay, Hansa Market was used to facilitate the sale of illegal drugs, toxic chemicals, malware, counterfeit identification documents, and illegal services. The administrators of Hansa Market, along with its thousands of vendors and users, also attempted to mask their identities to avoid prosecution through the use of Tor and digital currency. Further information on the operation against the Hansa Market can be obtained from Dutch authorities.

The operation to seize AlphaBay’s servers was announced by Attorney General Jeff Sessions; Deputy Attorney General Rod Rosenstein; Acting Assistant Attorney General Kenneth A. Blanco of the Justice Department’s Criminal Division; U.S. Attorney Phillip A. Talbert for the Eastern District of California; Acting Director Andrew G. McCabe of the FBI, Acting Administrator Chuck Rosenberg of the DEA and Europol Executive Director Robert Mark Wainwright.

The case is being investigated by the FBI including FBI Sacramento Field Office and DEA, with substantial assistance from the IRS-CI. U.S. Immigration and Customs Enforcement’s Homeland Security Investigations also assisted in the investigation. The case against Cazes was prosecuted by Assistant U.S. Attorneys Paul A. Hemesath and Grant B. Rabenn of the U.S. Attorney’s Office for the Eastern District of California, and Trial Attorneys Louisa K. Marion and C. Alden Pelker of the Criminal Division’s Computer Crime and Intellectual Property Section. Substantial assistance was provided by the Department of Justice’s Office of International Affairs and Special Operations Division.  Additionally, the following foreign law enforcement agencies provided substantial assistance in the operation to seize AlphaBay’s infrastructure: Royal Thai Police, Dutch National Police, Lithuanian Criminal Police Bureau (LCPB), Royal Canadian Mounted Police, United Kingdom’s National Crime Agency, Europol, and French National Police. 

Attorney General Jeff Sessions Delivers Remarks at Press Conference Announcing AlphaBay Takedown

Among other challenges, our great country is currently in the midst of the deadliest drug crisis in our history. One American now dies of a drug overdose every 11 minutes and more than 2 million Americans are addicted to prescription painkillers. Every day, as a result of drug abuse, American families are being bankrupted, friendships broken and promising lives cut short.

And drug addiction is causing more and more crime and violence in communities across our country. And while law enforcement, first responders, and medical professionals across this country have been doing their part to stop this crisis from growing, drug traffickers and others have chosen to exploit this epidemic of addiction.

And today, some of the most prolific drug suppliers use what’s called the dark web —which is a collection of hidden websites that you can only access if you mask your identity and your location. And it’s called dark not just because these sites are intentionally hidden. It’s also dark because of what’s sold on many of them: illegal weapons, stolen identities, child pornography and large amounts of deadly drugs.

Today the Department of Justice announces the takedown of the dark web market AlphaBay. This is the largest dark net marketplace takedown in history.

An AlphaBay staff member claimed that it serviced more than 40,000 illegal vendors for more than 200,000 customers.

By far, most of this activity was in illegal drugs, pouring fuel on the fire of the national drug epidemic. Around the time of takedown of the site, there were more than 250,000 listings for illegal drugs and toxic chemicals on AlphaBay — more than two-thirds of all listings on AlphaBay.

As of earlier this year, 122 vendors advertised fentanyl and 238 advertised heroin, and we know of several Americans who were killed by drugs sold on Alpha Bay.

One victim was just 18 years old when, in February, she overdosed on a powerful synthetic opioid, which she had bought on AlphaBay. The drug was shipped right to her house through the mail.

A little more than a week after her death, a victim in Orange County, Florida, died of an overdose from a drug bought on AlphaBay.

And then there was Grant Seaver. He was only 13 years old and a student at Treasure Mountain Junior High in Park City, Utah when he passed away after overdosing on a synthetic opioid that had been purchased by a classmate on AlphaBay.

The ability of these drugs to so instantaneously end these promising lives is a reminder to us all of just how incredibly dangerous these synthetic opioids are — especially when they are purchased anonymously from the darkest places on the internet.

This is likely one of the most important criminal case of the year. Make no mistake, the forces of law and justice face a new challenge from the criminals and transnational criminal organizations who think they can commit their crimes with impunity by ‘going dark.’ This case, pursued by dedicated agents and prosecutors, says you are not safe.  You cannot hide. We will find you, dismantle your organization and network.  And we will prosecute you.

I believe that because of this operation, the American people are safer — safer from the threat of identity fraud and malware, and safer from deadly drugs.

But the Department’s work is not finished.  We will continue to find, arrest, prosecute, convict and incarcerate criminals, drug traffickers and their enablers, wherever they are. The dark net is not a place to hide. We will use every tool we have to stop criminals from exploiting vulnerable people and sending so many Americans to an early grave.

I want to thank our international partners at Europol and in Thailand, the Netherlands, Lithuania, Canada, the United Kingdom, Canada, France and Germany who worked closely with us to takedown this criminal enterprise.

July 24, 2017 in AML | Permalink | Comments (0)

Sunday, July 23, 2017

Canadian Man Pleads Guilty to Conspiring to Defraud U.S. With Fake Tax Refunds

A Canadian man pleaded guilty today in Rochester, New York to conspiring to defraud the United States and stealing Irs_logogovernment funds, announced Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division and Acting U.S. Attorney James P. Kennedy Jr. for the Western District of New York.

According to documents filed with the court, Jose Compuesto, 52, of Mississauga, Ontario, Canada, along with other Canadian citizens, participated in a scheme to file fraudulent claims for refund with the Internal Revenue Service (IRS). In January 2010, Compuesto filed a fraudulent nonresident alien income tax return seeking a refund of $383,155.46. On this return, Compuesto falsely claimed that the requested refund represented the amount of income taxes that had been withheld and paid to the IRS on his behalf. After the IRS issued the refund to Compuesto, he entered the United States and opened a bank account in Kenmore, New York to deposit the fraudulently obtained check. In April 2010, Compuesto caused the funds to be transferred from this account to bank accounts in the United States and Canada in the name of one of his co-conspirators.

U.S. District Judge Frank P. Geraci Jr. of the Western District of New York scheduled sentencing for Oct. 17. Compuesto faces a statutory maximum sentence of five years in prison, a period of supervised release and monetary penalties. As part of his plea agreement, Compuesto agreed to pay restitution to the IRS in the amount of $383,155.46 plus interest.

Compuesto is the fourth Canadian citizen to be convicted for his role in this scheme. In January 2016, Kevin Cyster of Burlington, Ontario, was sentenced to 135 months in prison after a jury convicted him of conspiring to defraud the United States and steal government funds, making a false claim against the United States and transferring stolen money in foreign commerce. In June 2014, Renee Jarvis, also of Ontario, pleaded guilty to conspiring to defraud the United States and steal government funds. Last month, Timothy Johnston of Calgary, Alberta also pleaded guilty to conspiring to defraud the United States and steal government funds. Jarvis and Johnston are both awaiting sentencing.

July 23, 2017 in AML | Permalink | Comments (0)

Saturday, July 22, 2017

Don’t Take the Bait: Be Alert to Account Takeover Tactics

The IRS, state tax agencies and the tax industry today warned tax professionals that account takeovers by cybercriminals are Irs_logo on the rise and practitioners increasingly are the targets.

Account takeovers occur when a thief manages to steal or guess the username and password of a tax professional, enabling access of their computers or their other online accounts. With these credentials, thieves can, for example, access a tax professional’s IRS e-Services account to steal their Electronic Filing Identification Number (EFINor access tax pro software account to obtain critical taxpayer information.

“We urge tax professionals to be on the lookout for the warning signs of these schemes and many others that can contribute to data loss and identity theft,” said IRS Commissioner John Koskinen. “A few simple steps can protect tax professionals as well as their clients.”

Increasing awareness about account takeovers is part of the “Don’t Take the Bait” campaign aimed at tax professionals. This is the second part of a special 10-week series aimed at increasing security awareness in the tax community. It is part of the Protect Your Clients; Protect Yourself effort. The IRS, state tax agencies and the tax industry, working together as the Security Summit, urge practitioners to learn to protect themselves from account takeovers.

Tax professionals and taxpayers are among a larger set of groups that face increased threats from account takeovers.

Javelin Strategy and Research conducts an annual identity fraud report. In 2017, it reported a surge in account takeover incidents nationwide – generally aimed at financial accounts – after years of decline. There was a 31 percent increase in the number of incidents for 2016 from 2015.

Account takeovers are a common source of data breaches of taxpayer data, leading to fraudulent tax filings for individuals and for businesses. Account takeovers are often the result of spear phishing emails specifically targeting the tax community. See last week’s “Don’t Take the Bait” news releasefor information about spear phishing.

Here’s how account takeovers work: Thieves do their homework; perusing web sites and social media for clues about tax preparer’s email addresses and business activities. Then, they pose as a familiar organization, for example, IRS e-Services or a private-sector tax pro software provider by sending a spear phishing email that appears similar to the IRS or the software provider. They may even pose as another tax professional, a familiar bank or, increasingly, a cloud-based storage provider.

Often, the email seems urgent with descriptions like: “Avoid Account Shutdown” or “Unlock Your Account Now.” The email includes a disguised link that may take users to a page that looks like the login pages for IRS e-Services or a tax preparation software provider.

Alternatively, the email link or attachment may load malware onto computers to capture keystrokes, eventually giving the thieves access to user credentials when users log into their accounts. The thieves may pose as a potential client, emailing an attachment that claims to contain tax information but is really infected with keystroke logging malware. Here’s an example of a fake IRS e-Services email:

example of a fake IRS e-Services email

The email claims to be from “IRS E Services,” slightly off from the official IRS e-Services name. Also, IRS e-Services does not send emails except through the Quick Alerts system. Note the “Account Closure Now!” subject line to instill urgency, as does the “update now” link.

Tax professionals should hover their cursors over a suspicious link to see the destination, which may be a URL like: bit.ly; ow.ly; or tinyurl.com, as opposed to an actual IRS.gov URL. The suspicious link takes the practitioner to a website designed to appear as the actual e-Services login page. Here’s one example of a fake web page:

example of a fake web page

Once a thief obtains a tax pro’s credentials, they immediately can access accounts and steal EFIN, which they can use either to file fraudulent tax returns or sell to other criminals who could file fraudulent tax returns. They may also use a Power of Attorney and Centralized Authorization File (CAF) number, allowing them to access clients’ transcripts. Those who reuse usernames and passwords for multiple online accounts -- as many people do – may find the thief has accessed those accounts as well.

Protecting Clients and Businesses from Account Takeovers

Identity thieves have many schemes to steal login credentials. A common tactic is to use a spear phishing email that targets tax professionals. Here are a few steps to protect clients and business accounts:

  • Educate all employees about the dangers of spear phishing and account takeovers. It only takes one employee to open a link to give cybercriminals access the entire system.
  • Use strong, unique passwords. Better yet, use a phrase instead of a word. Use different passwords for each account. Use a mix of letters, numbers and special characters. Longer is better, but a minimum of eight to 10 characters. Use a password manager if necessary to help remember these unique credentials.
  • Use the strongest encryption software available. Encrypt and password protect all sensitive data, using unique passwords for each document.
  • Use strong malware/phishing software protection. Good software can help detect and stop malware or warn users when they are going to a suspected phishing site. A periodic deep scan also may help uncover embedded malware lurking in systems.
  • Use two-factor authentication whenever possible – This practice helps protect accounts by requiring two steps for access. For example, the IRS Secure Access process requires credentials (username and password) plus a security code that is sent as a text to a mobile phone that is registered with the IRS. Account takeovers are one reason the IRS is moving to protect e-Services with this more rigorous process. Many banks and social media outlets are moving to two-factor authentication, either by using a code sent to an email address or phone. Use the two-factor option whenever possible.
  • Check EFIN counts weekly. Access the application via e-Services and select “Check EFIN Status.” If someone is using the EFIN without your knowledge, a higher number of returns filed under that number will result. Call the Help Desk immediately.
  • Report phishing emails. Fraudulent phishing or malicious email can be sent to phishing@irs.gov.  For more information, see Report Phishing.
  • Report security incidents. The IRS considers these examples to be security incidents: a user clicked on a phishing link and entered their email credentials; a user clicked on a malicious URL that infected the computer; or someone created a domain like the user’s domain and used that to send phishing emails to other preparers.  Publication 4557, Safeguarding Taxpayer Data, provides guidance to report incidents. If the incident was an IRS-related scam, report it to the Treasury Inspector General for Tax Administration (TIGTA).

July 22, 2017 in AML | Permalink | Comments (0)

Friday, July 21, 2017

Director of South Korea's Earthquake Research Center Convicted of Money Laundering in Million Dollar Bribe Scheme

The Director of South Korea’s Earthquake Research Center at the Korea Institute of Geoscience and Mineral Resources FBISeal (1)(KIGAM) was convicted yesterday following a four-day jury trial of laundering bribes that he received from two seismological companies based in California and England through the U.S. banking system. Sentencing is scheduled to occur before the Honorable John F. Walter of the U.S. District Court for the Central District of California, on October 2.

Acting Assistant Attorney General Kenneth A. Blanco of the Justice Department’s Criminal Division, Acting U.S. Attorney Sandra R. Brown for the Central District of California and Assistant Director in Charge Deirdre Fike of the FBI’s Los Angeles Field Office, announced the conviction.

Heon-Cheol Chi (Chi), 59, of South Korea, was convicted of one count of transacting in criminally derived property, in violation of 18 U.S.C. § 1957. According to the charges, the funds that he laundered were proceeds derived through violations of South Korea’s bribery law, Article 129 of South Korea’s Criminal Code.

“International corruption undermines the rule of law, threatens our national security, and harms honest companies who are playing by the rules,” said Acting Assistant Attorney General Blanco. “As this case demonstrates, the Criminal Division will hold responsible the companies and individuals who are paying bribes to foreign government officials, and the foreign government officials themselves.  For the second time in recent months, the Criminal Division has convicted a foreign official who solicited bribes and then laundered the illicit proceeds in the United States. We will continue to hold such individuals responsible and accountable.”

“The American financial system is not to be used as a storehouse for the proceeds of corrupt activity,” said Acting U.S. Attorney Brown. “This defendant used a bank account here in Southern California to conceal over one million dollars in bribe money obtained through the abuse of his public position. This conviction sends a message that should be heard around the world.”

“Defendant Chi exploited the U.S. banking system to enrich himself and to conceal his corrupt practices,” said Assistant Director in Charge Fike. “The FBI and our partners will continue to hold accountable international offenders who gain the advantage on the global playing field by breaking U.S. law.”

According to the evidence presented at trial, between at least 2009 and 2015, Chi abused his official position at KIGAM to demand and receive over $1 million in bribes from two seismological companies in exchange for providing them with unfair business advantages in the South Korean seismological market. In particular, the trial evidence showed that Chi advocated the purchase and use of equipment from these two companies by KIGAM and other South Korean customers, and he provided these companies with market intelligence and inside information, including confidential information about their competitors and the KIGAM bidding process. The evidence also showed that Chi directed that his bribe payments be paid in cash or wired to his personal bank account in Glendora, California. From that account, Chi transferred approximately half of those bribe payments to an investment account he held in New York City and spent approximately 70 percent of the remaining funds back in South Korea, where he resided and worked, according to the evidence.

In addition to his use of cash payments and the U.S. banking system, the trial evidence showed that Chi took a number of steps to conceal his bribery scheme, including instructing representatives of the companies to delete or not respond to his emails, requesting that these company representatives not inform his colleagues at KIGAM of his illegal arrangements with these companies, and by sending fictitious invoices listing a false address in New Jersey. As Chi acknowledged in an email to one of the companies in 2005, “Usually I deleted almost all e-mail or papers related to [payments from these companies] because I am the director of earthquake research center and I am not allowed to be involved in it.”

The evidence at trial included numerous additional emails in which Chi admitted that he was acting illegally. For example, Chi wrote to a company representative in 2014, “I am a governmental officer and I should not have any contact with [a] private company. Moreover, it is illegal to assist any company related to the test.”

According to the trial evidence, the total of the bribe payments to Chi exceeded his legitimate income from KIGAM by a substantial margin and, during the relevant time period, Chi was paid more in bribes than in KIGAM salary.

The case is being investigated by the FBI’s International Corruption Squad in Los Angeles. Trial Attorneys David Fuhr and Anna Kaminska of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Poonam Kumar of the Central District of California are prosecuting the case. The Criminal Division’s Office of International Affairs also provided substantial assistance in this matter. 

The Department is grateful to the government of South Korea for providing substantial assistance in gathering evidence during this investigation. The Department also thanks its law enforcement colleagues in the United Kingdom for their assistance in the Department’s investigation.

July 21, 2017 in AML | Permalink | Comments (0)

Thursday, July 20, 2017

Mallinckrodt Agrees to Pay Record $35 Million Settlement for Failure to Report Suspicious Orders of Pharmaceutical Drugs and for Recordkeeping Violations

Mallinckrodt LLC, a pharmaceutical manufacturer and one of the largest manufacturers of generic oxycodone, agreed to pay $35 million to settle DEA badge allegations that it violated certain provisions of the Controlled Substances Act (CSA) that are subject to civil penalties, Attorney General Jeff Sessions of the Justice Department and Acting Administrator Chuck Rosenberg of the Drug Enforcement Administration (DEA) announced today.

 This is the first settlement of its magnitude with a manufacturer of pharmaceuticals resolving nationwide claims that the company did not meet its obligations to detect and notify DEA of suspicious orders of controlled substances such as oxycodone, the abuse of which is part of the current opioid epidemic. These suspicious order monitoring requirements exist to prevent excessive sales of controlled substances, like oxycodone in Florida and elsewhere. The settlement also addressed violations in the company’s manufacturing batch records at its plant in Hobart, New York. Both sets of alleged violations impact accountability for controlled substances, and the compliance terms going forward are designed to help protect against diversion of these substances at critical links in the controlled substance supply chain.

 “In the midst of one of the worst drug abuse crises in American history, the Department of Justice has the responsibility to ensure that our drug laws are being enforced and to protect the American people,” said Attorney General Sessions. “Part of that mission is holding drug manufacturers accountable for their actions. Mallinckrodt’s actions and omissions formed a link in the chain of supply that resulted in millions of oxycodone pills being sold on the street. Thanks to the hard work of our attorneys and law enforcement, Mallinckrodt has agreed to do everything they can to help us identify suspicious orders in the future. And as a result of today's settlement, we are sending a clear message to drug companies: this Department of Justice will hold you accountable for your legal obligations and we will enforce our laws. I believe that will prevent drug abuse, prevent new addictions from starting, and ultimately save lives.”

“Manufacturers and distributors have a crucial responsibility to ensure that controlled substances do not get into the wrong hands,” said DEA Acting Administrator Chuck Rosenberg. “When they violate their legal obligations, we will hold them accountable.”

The government alleged that Mallinckrodt failed to design and implement an effective system to detect and report “suspicious orders” for controlled substances – orders that are unusual in their frequency, size, or other patterns. From 2008 until 2011, the U.S. alleged, Mallinckrodt supplied distributors, and the distributors then supplied various U.S. pharmacies and pain clinics, an increasingly excessive quantity of oxycodone pills without notifying DEA of these suspicious orders. Through its investigation, the government learned that manufacturers of pharmaceuticals offer discounts, known as “chargebacks,” based on sales to certain downstream customers. Distributors provide information on the downstream customer purchases to obtain the discount. The groundbreaking nature of the settlement involves requiring a manufacturer to utilize chargeback and similar data to monitor and report to DEA suspicious sales of its oxycodone at the next level in the supply chain, typically sales from distributors to independent and small chain pharmacy and pain clinic customers.

 

The government also alleged that Mallinckrodt violated record keeping requirements at its manufacturing facility in upstate New York. Among other things, these violations created discrepancies between the actual number of tablets manufactured in a batch and the number of tablets Mallinckrodt reported on its records. Accurate reconciliation of records at the manufacturing stage is a critical first step in ensuring that controlled substances are accounted for properly through the supply chain.

In addition to the significant monetary penalty, this settlement includes a groundbreaking parallel agreement with the DEA, as a result of which the company will analyze data it collects on orders from customers down the supply chain to identify suspicious sales. The resolution advances the DEA’s position that controlled substance manufacturers need to go beyond “know your customer” to use otherwise available company data to “know your customer’s customer” to protect these potentially dangerous pharmaceuticals from getting into the wrong hands. DEA’s Memorandum of Agreement with Mallinckrodt also sets forth specific procedures it will undertake to ensure the accuracy of batch records and protect loss of raw product in the manufacturing process.

By entering into these agreements, elements of which Mallinckrodt is already implementing, the company is becoming part of the solution to this public health epidemic.

This lengthy investigation was led by DEA’s Detroit Field Division on the suspicious order issues and the New York Field Division on the manufacturing record keeping issues.

July 20, 2017 in AML | Permalink | Comments (0)

Wednesday, July 19, 2017

Four More Members of ATM Skimming Conspiracy Targeting Multiple New Jersey Bank Locations Plead Guilty

Four members of a scheme that used secret card-reading devices and pinhole cameras on PNC and Bank of America ATMs to steal at least $428,581 ICE logopleaded guilty today in Newark federal court.

Acting Assistant Attorney General Kenneth A. Blanco of the Justice Department’s Criminal Division; Acting U.S. Attorney William E. Fitzpatrick of the District of New Jersey; and Acting Special Agent in Charge Brian A. Michael of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations Newark Division made the announcement.

Marcel Peckham, 43, of Little Neck, New York; Catalin Mihai Dragomir, 33, of Glendale, New York; Eduard Vasilica Ticu, 32, of Glendale; and Silvester Florentin Papp, 25, of Ridgewood, New York, pleaded guilty before U.S. District Judge Esther Salas to separate informations charging them each with one count of conspiracy to commit bank fraud.

According to documents filed in this case and statements made in court:

Peckham, Dragomir, Ticu, Papp, and others sought to defraud financial institutions and their customers by illegally obtaining customer account information, including account numbers and personal identification numbers. Peckham admitted providing counterfeit ATM cards to other conspirators, knowing that they were going to use them to withdraw cash from compromised bank accounts at ATMs in New Jersey. Dragomir, Ticu, and Papp each admitted that between March 2015 and July 2016, they made unauthorized cash withdrawals using the counterfeit ATM cards.

The conspiracy to commit bank fraud charge carries a maximum potential penalty of 30 years in prison and a $1 million fine. Sentencing for all four defendents is set for Oct. 23, 2017.

Joel Abel Garcia, Victor A. Hanganu, and Radu Bogdan Marin also pleaded guilty to their roles in the scheme and await sentencing. To date, seven of the 13 defendants charged in this matter have been convicted.

July 19, 2017 in AML | Permalink | Comments (0)

Tuesday, July 18, 2017

Mauritius signs the multilateral BEPS Convention to tackle tax avoidance by multinational enterprises

Mahess Rawoteea of the Ministry of Finance and Economic Development of Mauritius, signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the MLI) in the presence of Douglas Frantz, OECD Deputy Secretary-General.

Based on expressed reservations at this point in time, 23 tax treaties would be impacted by this signing. We note that Mauritius issued a statement today, reaffirming its commitment to OECD implement the minimum standards developed in the course of the OECD/G20 BEPS Project into its entire tax treaty network by the end of 2018. Mauritius has committed to modify its remaining tax treaties through bilateral negotiations. 

The  MLI is a legal instrument designed to prevent base erosion and profit shifting (BEPS) by multinational enterprises. BEPS refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. The MLI allows jurisdictions to transpose results from the OECD/G20 BEPS Project, including minimum standards to implement in tax treaties to prevent treaty abuse and “treaty shopping”, into their existing networks of bilateral tax treaties in a quick and efficient manner. It was developed through inclusive negotiations involving more than 100 countries and jurisdictions, under a mandate delivered by G20 Finance Ministers and Central Bank Governors at their February 2015 meeting.

The OECD is the depositary of the MLI and is supporting governments in the process of signature, ratification and implementation. The 69 jurisdictions participating in the MLI and the position of each Party and Signatory under the Convention are available on the OECD website.

The text of the MLI, the explanatory statement and background information are available at: oe.cd/mli.

July 18, 2017 in BEPS, OECD | Permalink | Comments (0)