International Financial Law Prof Blog

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

Monday, October 14, 2019

Georgia Man Pleads Guilty to Operating Ponzi Scheme on University of Georgia’s Campus

A former University of Georgia undergraduate student pleaded guilty today for his role in a $1 million Ponzi scheme that targeted investors, including his fellow students. 

Syed Arham Arbab, 22, of Augusta, Georgia, pleaded guilty to a one-count information charging him with securities fraud before U.S. District Judge C. Ashley Royal of the Middle District of Georgia.  Arbab further admitted that he spent investor funds on personal expenses, including clothing, shoes, retail purchases, fine dining, alcoholic beverages, adult entertainment and interstate travel, including spending thousands of dollars gambling during three trips to Las Vegas in 2018 and 2019.

As part of his guilty plea, Arbab admitted that from May 2018 through May 2019, while enrolled as an undergraduate student at the University of Georgia campus in Athens, Georgia, he solicited investors, many of whom were his fellow students, to invest in his entities, Artis Proficio Capital Management and Artis Proficio Capital Investments (collectively, APC), which he told investors were “hedge funds.”  Arbab admitted that he convinced approximately 117 investors in Georgia and other states to invest funds with him and APC.

Arbab admitted that he made a number of misrepresentations in order to persuade victims to invest with him, including misrepresenting the funds’ returns, the number of investors, the total funds invested and the nature of the investment plays being made.  He also admitted fabricating account statements.  Victims invested approximately $1 million with Arbab in the course of his scheme, with Arbab falsely promising rates of returns as high as 22 percent or 56 percent, when his overall returns were nowhere near these amounts.  Arbab offered some investors a seemingly risk-free “guarantee” on the first $15,000 invested, and the majority of investors, especially those who were students or younger professionals, invested less than this amount, believing that even if Arbab’s investment choices proved unsound or the market behaved unpredictably, they would still be paid back their entire principal investment.  

Arbab admitted that knew he did not have the liquid capital to make good on these guarantees when he made them, but he did not disclose this to his investors.  Further, when Arbab learned that some prospective investors were UGA football fans, he told them that a famous NFL player and UGA alumnus was an investor in the fund, when in fact the football player had never invested with APC.  Arbab also misrepresented that he was an MBA candidate at UGA’s Terry College of Business. In fact, ARBAB had applied to and been rejected by UGA’s MBA program and was operating the fund primarily from his fraternity house as an undergraduate.

Arbab is also the subject of a previously filed civil complaint by the SEC alleging a Ponzi scheme and offering fraud.

October 14, 2019 in AML | Permalink | Comments (0)

Thursday, October 10, 2019

Defense Intelligence Agency Employee Arrested for Leaking Classified Information to Journalists

An employee of the Defense Intelligence Agency (DIA) was arrested yesterday on charges related to his alleged disclosure of classified national defense information (NDI) to two journalists in 2018 and 2019.

“As laid out in today’s indictment, Frese was caught red-handed disclosing sensitive national security information for personal gain,” said Assistant Attorney General for National Security John C. Demers.  “Frese betrayed the trust placed in him by the American people—a betrayal that risked harming the national security of this country. This is one of six unauthorized disclosure cases the Department has charged in just over two years, and we will continue in our efforts to punish and deter this behavior.”

Henry Kyle Frese, 30, of Alexandria, is a DIA employee and holds a Top Secret//Sensitive Compartmented Information U.S. government security clearance. According to court documents, between mid-April and early May 2018, Frese allegedly accessed classified intelligence reports, some of which were unrelated to his job duties, and provided TOP SECRET information regarding a foreign country’s weapons systems to a journalist (Journalist 1).  According to court documents, Frese and Journalist 1 had the same residential address from August 2017 through August 2018 and, based on reviews of Frese’s and Journalist 1’s public social media pages, it appears that they were involved in a romantic relationship for some or all of that period of time.  The unauthorized disclosure of TOP SECRET information could reasonably be expected to cause exceptionally grave harm to the national security of the United States.

According to the indictment, a week after Frese accessed one of the intelligence reports (Intelligence Report 1) for the second time, Journalist 1 wrote to Frese on April 27, 2018, and asked whether he would be willing to speak with another journalist (Journalist 2). Frese stated that he was “down” to help Journalist 2 if it helped Journalist 1 because he wanted to see Journalist 1 “progress.”

As alleged, in that same communication, Frese and Journalist 1 also discussed a story that Journalist 1 was working on, the subject matter of which was the topic of Intelligence Report 1.  Several days after that communication, Frese searched on a classified United States government computer system for terms related to the topics contained in Intelligence Report 1.  According to the indictment, in the hours after searching for terms related to the topic of Intelligence Report 1, Frese spoke by telephone with both Journalist 1 (twice) and Journalist 2, and within approximately a half hour after Frese’s conversations with the two journalists, Journalist 1 published an article (Article 1) through News Outlet 1, which contained NDI from Intelligence Report 1 classified at the TOP SECRET//SCI level.

In addition, as alleged in the indictment, on Sept. 24, 2019, Frese was captured on court-authorized surveillance of his cell phone orally transmitting classified NDI to Journalist 2. These disclosures contained NDI classified at the SECRET level, meaning that the unauthorized disclosure of the information could reasonably be expected to cause serious harm to the national security of the United States.

“Henry Kyle Frese was entrusted with TOP SECRET information related to the national defense of our country,” said G. Zachary Terwilliger, U.S. Attorney for the Eastern District of Virginia. “Frese allegedly violated that trust, the oath he swore to uphold, and is charged with engaging in dastardly and felonious conduct at the expense of our country. This indictment should serve as a clear reminder to all of those similarly entrusted with National Defense Information that unilaterally disclosing such information for personal gain, or that of others, is not selfless or heroic, it is criminal.”

"Mr. Frese allegedly disclosed highly classified national defense information, which puts our country and people at risk," said Alan E. Kohler Jr., Special Agent in Charge of the FBI's Washington Field Office Counterintelligence Division.  "He violated his oath to serve and protect the United States.  The men and women of the FBI work hard every day to protect the American people and uphold the Constitution - we will not stand by while trusted government employees violate that trust in such an egregious way."

A federal grand jury returned an indictment yesterday charging Frese with two counts of willful transmission of national defense information to persons not entitled to receive it. If convicted, he faces a maximum penalty of 10 years in prison on each count. Actual sentences for federal crimes are typically less than the maximum penalties. A federal district court judge will determine any sentence after taking into account the U.S. Sentencing Guidelines and other statutory factors.

Assistant U.S. Attorney Danya E. Atiyeh and Trial Attorney Jennifer Kennedy Gellie of the National Security Division’s Counterintelligence and Export Control Section are prosecuting the case.

An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed to be innocent until and unless proven guilty in court.

October 10, 2019 in AML | Permalink | Comments (0)

Wednesday, October 9, 2019

Drexel University Admits Department Chair Used $189,062 of Federal Grants for Stripper Clubs and Sports Bars

 

Drexel University has agreed to pay the United States $189,062 to resolve potential liability under the False Claims Act for a former professor’s use of grant funds towards “gentlemen’s clubs” and other improper purchases.  For ten years, the head of Drexel’s Department of Electrical and Computer Engineering, Dr. Chikaodinaka D. Nwankpa, submitted improper charges against federal grants. The majority of the charges were made to gentlemen’s clubs and sports bars in the Philadelphia area.

The government’s investigation began in 2017 after Drexel voluntarily disclosed the improper charges to eight federal grants for energy and naval technology related research that it received from the Department of the Navy, the Department of Energy, and the National Science Foundation. After an internal audit in 2017, Drexel discovered that between July 2007 through April 2017, Dr. Nwankpa submitted improper charges against the federal grants for items such as personal iTunes purchases and for “goods and services” provided by Cheerleaders, Club Risque, and Tacony Club.

Drexel disclosed Dr. Nwankpa’s conduct to the government and cooperated with the investigation to identify the full scope of the misconduct. Dr. Nwankpa repaid $53,328 to Drexel, resigned his position in lieu of termination, and was debarred from federal government contracting for a period of six months. Drexel has implemented changes to prevent similar misconduct in the future, such as improvements to its charge approval and auditing policies.

“This is an example of flagrant and audacious fraud, and a shameful misuse of public funds.” said U.S. Attorney McSwain. “The agencies providing these grant funds expect them to be used towards advancements in energy and naval technology for public benefit, not for personal entertainment.”

U.S. Attorney McSwain continued, “We appreciate Drexel’s self-disclosure and cooperation in this matter. At the same time, we are disappointed that Dr. Nwankpa’s conduct went unnoticed for so long, but Drexel’s strengthening of its charge approval process is certainly a step in the right direction.”

NCIS Northeast Field Office Special Agent in Charge Leo S. Lamont stated: "Fraud is never a victimless crime. In this case, the flagrant and wrongful misuse of American taxpayers’ funds not only eroded the public trust, but jeopardized the Department of Navy’s efforts to obtain the best technology and research for our brave men and women in uniform. NCIS will continue to battle fraud in all forms and tirelessly pursue all those who seek to cheat, steal, defraud, or harm the American Public and the Department of the Navy.”

October 9, 2019 in AML | Permalink | Comments (0)

Tuesday, October 8, 2019

DOJ's Review of its Global Investigations

Remarks delivered (see transcript here

Over the past two years, the Criminal Division has pursued white collar criminal prosecutions aggressively, and with some degree of success. 

In fact, in 2018, our Fraud Section prosecuted significant numbers of white-collar cases in category after category: 

  • We charged 406 individuals – a 33 percent increase from the prior year -- and convicted 40 percent more individuals at trial. 
     
  • We brought 10 corporate enforcement actions.
     
  • We recovered more than $1 billion in corporate U.S. criminal fines, penalties, restitution and forfeiture, as part of resolutions that returned $3 billion globally. 
     
  • And I am pleased to say that we are on track to surpass these benchmarks in 2019.
     

Our prosecutors and federal law enforcement partners have much to be proud of.  As the numbers show, we are intensely focused on holding both culpable individuals and corporations accountable. 

We bring to justice those who defraud and cheat, so that those among us who abide by the laws may compete on a level playing field.    

But effective crime prevention requires more than simply holding criminals accountable.  Our goal – as it should be – is to not just punish corporate crime, but to deter it as well.   

The best way to deter white-collar crime is to provide the proper incentives for law-abiding businesses to prevent misconduct before it occurs and foster the types of ethical corporate behavior that benefits all of us. 

To that end, over the past two years, the Criminal Division has instituted a variety of new policies and guidance geared towards enhancing transparency.  We in the Criminal Division often talk of the importance of transparency – and I want to unpack this concept a bit further today.

Internally, at the Department of Justice, transparency helps define and refine the criteria prosecutors will apply to key decisions. 

Prosecutors build cases around well-defined statutory elements and evidentiary rules.  But they also make charging decisions based upon both mandatory and discretionary standards. 

Having internal guidance that is both clear and clearly memorialized helps to ensure consistency and predictability in how those standards are applied within the Department.

Whether that be in deciding whether a monitor should be recommended as part of a resolution, evaluating the adequacy of a corporate compliance program, or determining whether a resolution is appropriate at all, consistency and predictability in these decisions ensures as much as possible that similar behavior in similar cases is treated consistently and fairly across the board. 

Externally, it is equally important to convey to the bar and the business community the standards we as prosecutors will apply when making key decisions.  Some might joke that this is akin to handing defense lawyers a toolkit they can use to make prosecutors’ work that much more difficult.

But in fact, we want lawyers on the other side of the table to be well-prepared and base their advocacy on the very criteria that our prosecutors find relevant to their decisions.  It makes the process that much more efficient and productive for both sides.

It makes you work a little harder, but it makes our trial attorneys work that much harder, too.  And I think the result, at least I hope the result, will be outcomes that are fairer and more just. 

Transparency about the types of corporate practices and programs that the Department of Justice values has the additional benefit of reinforcing real-world outcomes that we desire as an institution. 

By demystifying the considerations commonly confronted by white-collar prosecutors, our hope is that companies will have the information and security they need to invest fully in compliance on the front end, and to make good decisions in the face of misconduct on the back end.

*    *    *

Over the past few months, we have taken a hard look at areas of white-collar criminal enforcement where we can bring, and benefit from, greater transparency. 

One such area is the criteria by which prosecutors evaluate “inability to pay” claims.  As you know, companies sometimes claim that they are unable to pay a proposed criminal fine or monetary penalty. 

And although the U.S. Sentencing Guidelines and the sentencing provisions of Title 18 address this issue in certain respects, they do not provide specific guidance for how such claims are considered.

To that end, I am pleased to announce that today I am issuing a memorandum to all Criminal Division prosecutors that will provide greater guidance in how they will evaluate and address inability to pay claims. 

The memorandum and its accompanying questionnaire – which will be published today on the Department’s website – provide an analytical framework for evaluating assertions by a business organization that it cannot pay a criminal fine or monetary penalty that it would otherwise concede is appropriate based on the law and the facts.

As the memo makes clear, where legitimate questions exist regarding a company’s inability to pay, the government will consider a range of factors. 

The factors include the company’s ability to raise capital, the circumstances giving rise to the organization’s current financial condition, the significant and likely collateral consequences of the fine or penalty to the company, and whether the proposed fine or penalty will impair the ability to pay restitution to victims.

The memo further clarifies that where a company is in fact unable to pay the appropriate fine or penalty, Criminal Division attorneys should recommend an adjustment to that amount.  But the amount should be adjusted only to the extent necessary to avoid threatening the organization’s viability or impairing its ability to make restitution to victims. 

Meanwhile, the accompanying questionnaire helps flesh out the company’s full financial picture – requiring information about recent cash flow projections and operating budgets to acquisition or divestiture plans and encumbered assets. 

Responses to those questions and supporting documentation from companies will be used by prosecutors and the government’s accounting experts to determine the company’s current assets and liabilities, as well as to compare current and anticipated cash flows against working capital needs, all with a view towards making a fully-informed, rational, and fair decision about a company’s ability to pay.

At bottom, these materials promote transparency – both inside and outside the Department.  They help ensure that prosecutors stick to a more uniform set of considerations, and also that companies looking to resolve matters have greater insight into how prosecutors think. 

We want you to know what we consider to be a legitimate inability to pay argument, but also the facts and arguments that won’t be given credence.

This inability-to-pay guidance comes on the heels of the Criminal Division’s April 2019 guidance on how to evaluate corporate compliance programs.  That guidance underscores the importance we have long placed on companies employing risk-based, fit-for-purpose compliance programs.  And it spells out in more rigorous detail the factors we use to evaluate the adequacy of compliance programs. 

To harmonize the guidance with other Department policies, the relevant considerations have been reorganized around three questions that go to the heart of every compliance matter: 

First, is the compliance program well designed?  Second, is the program being implemented effectively and in good faith?  And third, does the compliance program work in practice?

The guidance thus describes the hallmarks of a well-designed compliance program – from the requisite company policies and procedures to training and communications. 

It details the features of effective implementation – from commitment by senior and middle management to incentives and disciplinary measures.  And it lays out the metrics to be used in determining whether a program is in fact operating effectively in practice – from periodic testing to the investigation and remediation of misconduct.

By publishing this guidance for all to see, the Criminal Division again sought to promote transparency. 

And as a retooling of a prior iteration of the guidance from 2017, it also makes clear that our transparency initiative is ongoing.  Just as compliance programs must evolve over time, so too should our policies and practices in order to remain clear, comprehensive, and current.   

That brings us to the Criminal Division memorandum on corporate monitorships that we issued last October.  Like many of you, I had seen the numbers and knew that monitors are plainly the exception, not the rule. 

That basic principle was the premise of our new policy, which supplemented prior guidance: that monitors should be approved only in cases where there is a demonstrable need for one, with clear benefits to be derived.  Monitorships should never be punitive.

And those benefits must always be weighed against the projected costs and burdens that a monitor will impose on a business’s operations. 

The new policy clarifies that, in deciding whether to impose monitors, Criminal Division attorneys should consider pragmatic factors, including the type of misconduct, the pervasiveness of the conduct, and whether it involved senior management. 

They are also to look at any investments and improvements a company has made to its corporate compliance program and internal control systems, and whether the misconduct took place in an inadequate compliance environment that no longer exists.

And the new policy further clarifies that demonstrable changes to a compliance program and culture can suffice to protect against future misconduct, and eliminate the need for a monitor. 

All of these initiatives – on inability to pay, compliance, and monitorships – are part and parcel of our broader mission at the Criminal Division to establish more predictable guideposts by which companies can gauge expectations, conform their conduct, and act as responsible corporate citizens. 

Our aim is for companies to work diligently to deter criminal wrongdoing before it ever needs the attention of the Department of Justice, but also to make wise decisions about how to approach us when things do go wrong.

That is, after all, the vision behind the FCPA Corporate Enforcement Policy, which lays out concrete incentives for companies to voluntarily self-disclose, fully cooperate, and engage in timely and appropriate remediation. 

And it is the same vision that lies behind the Criminal Division’s recent practice of publishing declination letters on our website, which help further convey to the private sector the specific actions that were favorably credited or penalized. 

These are all different threads of a singular collective push: to incentivize companies to prevent on the front end the very problems we would have to prosecute on the back end.

*     *     *

In keeping with the theme of transparency, the Criminal Division has also been busy examining our own structures to ensure that our prosecutors are as focused as possible on our defined missions.  We fully recognize that our message to the public has to match our mission. 

For many years, the Securities and Financial Fraud Unit within the Fraud Section has investigated and prosecuted some of the largest and most complex criminal fraud cases in the Department. 

For example, in a 2017 case, Takata Corporation, one of the world’s largest suppliers of automotive safety-related equipment, pleaded guilty to one count of wire fraud and was sentenced to pay a total of $1 billion in criminal penalties, stemming from the company’s conduct regarding sales of defective airbag inflators. 

But as Takata highlights, many of the Unit’s cases were neither securities fraud, nor financial fraud cases.  The Unit’s mission has expanded beyond its stated message and moniker.

So we rethought the structure of that Unit, and I am excited to announce that going forward, the Unit will be renamed the Market Integrity and Major Frauds Unit, to capture the broad range of fraud enforcement work that its prosecutors actually perform. 

The new name, of course, is only part of the story.  More importantly, the Unit will also reorganize internally to hone in on five well-defined missions, each with dedicated teams:  1) Securities Fraud, 2) Commodities Fraud, 3) Government Procurement Fraud, 4) Fraud on Financial Institutions, and, finally, 5) Consumer Fraud, Regulatory Deceit, and Investor Schemes. 

Each of these types of fraud are identified and investigated differently.  Securities and commodities fraud often can be identified using data analytics, whereas procurement fraud typically is identified and investigated by our law enforcement partners in the inspector general community.  

Each of these types of fraud, moreover, involve different types of victims.  We believe the increased specialization and mission-driven focus of this reorganization will put us on better footing to pursue cases and vindicate the interests of those particular victims.

*     *     *

As we move forward, the Criminal Division will continue to look for additional ways to promote clarity about what our prosecutors do, how they do it, and why.  The interests of prosecutors and businesses are inextricably aligned when it comes to rooting out corporate crime. 

We want to assist responsible companies in instituting effective and ethical practices.  And we want them to trust that, if they respond appropriately to misconduct, they can be assured of fair and evenhanded treatment by the Department of Justice.

It has been the honor of my professional career to lead the Criminal Division, and the amazing men and women who have chosen careers dedicated to the cause of justice. 

Whether it’s addressing the opioid epidemic, reducing violent crime by dismantling regional and national street gangs, battling transnational criminal organizations, or those who use the internet to harm children or victimize other vulnerable populations, or pursuing the best white collar policies that lead to fair and effective outcomes, I remain humbled every day by the depth and the breadth of the work, and the professionalism displayed by the team in the Criminal Division.      

Download AAG Benczkowski Memo

October 8, 2019 in AML | Permalink | Comments (0)

Monday, October 7, 2019

State Department Contracting Officer Convicted of Bribery and Procurement Fraud

A contracting officer with the U.S. Department of State was convicted today of conspiracy, bribery, honest services wire fraud and making false statements.  Zaldy N. Sabino, 60, of Fort Washington, Maryland, was convicted of 13 counts of conspiracy, bribery, honest services wire fraud and making false statements.  Sentencing has been set for Feb. 14, 2020.

Sabino was indicted in April 2019.  According to the indictment, between November 2012 and early 2017, Sabino and the owner of a Turkish construction firm allegedly engaged in a bribery and procurement fraud scheme in which Sabino received at least $239,300 in cash payments from the Turkish owner while Sabino supervised multi-million dollar construction contracts awarded to the Turkish owner’s business partners and while Sabino made over a half million dollars in structured cash deposits into his personal bank accounts.  Sabino allegedly concealed his unlawful relationship by, among other things, making false statements on financial disclosure forms and during his background reinvestigation.

October 7, 2019 in AML | Permalink | Comments (0)

Saturday, October 5, 2019

BEA logo and link to website BEA News: U.S. International Trade in Goods and Services, August 2019

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced today that the goods and services deficit was $54.9 billion in August, up $0.9 billion from $54.0 billion in July, revised.

U.S. International Trade in Goods and Services Deficit
Deficit: $54.9 Billion +1.6%°
Exports: $207.9 Billion +0.2%°
Imports: $262.8 Billion +0.5%°

Next release: November 5, 2019

(°) Statistical significance is not applicable or not measurable. Data adjusted for seasonality but not price changes

Source: U.S. Census Bureau, U.S. Bureau of Economic Analysis; U.S. International Trade in Goods and Services, October 4, 2019

Goods and Services Trade Deficit, Seasonally Adjusted

Exports, Imports, and Balance 

August exports were $207.9 billion, $0.5 billion more than July exports. August imports were $262.8 billion, $1.3 billion more than July imports.

The August increase in the goods and services deficit reflected an increase in the goods deficit of $0.8 billion to $74.4 billion and a decrease in the services surplus of less than $0.1 billion to $19.5 billion.

Year-to-date, the goods and services deficit increased $28.3 billion, or 7.1 percent, from the same period in 2018. Exports decreased $3.2 billion or 0.2 percent. Imports increased $25.1 billion or 1.2 percent.

Three-Month Moving Averages 

The average goods and services deficit decreased $0.3 billion to $54.8 billion for the three months ending in August.

  • Average exports decreased $0.8 billion to $207.2 billion in August.
  • Average imports decreased $1.1 billion to $262.0 billion in August.

Year-over-year, the average goods and services deficit increased $3.2 billion from the three months ending in August 2018.

  • Average exports decreased $2.0 billion from August 2018.
  • Average imports increased $1.2 billion from August 2018.

Exports of goods increased $0.4 billion to $138.6 billion in August.

   Exports of goods on a Census basis increased $0.4 billion.

  • Industrial supplies and materials increased $1.5 billion.
    • Fuel oil increased $0.8 billion.
    • Nonmonetary gold increased $0.4 billion.
  • Foods, feeds, and beverages increased $0.5 billion.
    • Soybeans increased $0.3 billion.
  • Capital goods decreased $1.4 billion.
    • Civilian aircraft decreased $1.3 billion.

   Net balance of payments adjustments decreased $0.1 billion.

Exports of services increased $0.1 billion to $69.3 billion in August.

  • Financial services increased $0.1 billion.
  • Other business services increased $0.1 billion.
  • Transport decreased $0.1 billion.

Imports of goods increased $1.2 billion to $213.0 billion in August.

   Imports of goods on a Census basis increased $1.1 billion.

  • Consumer goods increased $1.9 billion.
    • Cell phones and other household goods increased $1.1 billion.
  • Capital goods increased $1.9 billion.
    • Semiconductors increased $0.8 billion.
    • Other industrial machines increased $0.4 billion.
  • Industrial supplies and materials decreased $1.5 billion.
    • Other petroleum products decreased $0.7 billion.
    • Crude oil decreased $0.5 billion.

   Net balance of payments adjustments increased $0.1 billion.

Imports of services increased $0.1 billion to $49.8 billion in August.

  • Insurance services increased $0.1 billion.

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

The real goods deficit increased $0.3 billion to $85.7 billion in August.

  • Real exports of goods increased $1.6 billion to $150.4 billion.
  • Real imports of goods increased $1.9 billion to $236.1 billion.

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

The August figures show surpluses, in billions of dollars, with South and Central America ($5.0), Hong Kong ($2.2), Brazil ($1.4), OPEC ($0.8), Singapore ($0.7), United Kingdom ($0.6), and Saudi Arabia ($0.3). Deficits were recorded, in billions of dollars, with China ($28.9), European Union ($15.6), Mexico ($8.4), Germany ($6.9), Japan ($6.1), Italy ($2.6), India ($2.4), Taiwan ($2.3), South Korea ($2.1), Canada ($1.6), and France ($1.5).

  • The deficit with Germany increased $0.7 billion to $6.9 billion in August. Exports increased $0.2 billion to $4.9 billion and imports increased $0.8 billion to $11.8 billion.
  • The deficit with South Korea increased $0.5 billion to $2.1 billion in August. Exports increased $0.1 billion to $4.8 billion and imports increased $0.7 billion to $6.9 billion.
  • The deficit with Canada decreased $1.4 billion to $1.6 billion in August. Exports increased $0.6 billion to $24.8 billion and imports decreased $0.8 billion to $26.4 billion.

*             *             *

Next release: November 5, 2019, at 8:30 A.M. EST

October 5, 2019 in Economics | Permalink | Comments (0)

Friday, October 4, 2019

U.S. And UK Sign Landmark Cross-Border Data Access Agreement to Combat Criminals and Terrorists Online

The United States and the United Kingdom entered into the world’s first ever CLOUD Act Agreement that will allow American and British law enforcement agencies, with appropriate authorization, to demand electronic data regarding serious crime, including terrorism, child sexual abuse, and cybercrime, directly from tech companies based in the other country, without legal barriers.

The current legal assistance process can take up to two years, but the Agreement will reduce this time period considerably, while protecting privacy and enhancing civil liberties.  The historic agreement was signed by U.S. Attorney General William P. Barr and UK Home Secretary Priti Patel at a ceremony at the British Ambassador’s residence in Washington, D.C.

Attorney General William Barr said: “This agreement will enhance the ability of the United States and the United Kingdom to fight serious crime -- including terrorism, transnational organized crime, and child exploitation -- by allowing more efficient and effective access to data needed for quick-moving investigations.  Only by addressing the problem of timely access to electronic evidence of crime committed in one country that is stored in another, can we hope to keep pace with twenty-first century threats.  This agreement will make the citizens of both countries safer, while at the same time assuring robust protections for privacy and civil liberties.”

Home Secretary Priti Patel said: “Terrorists and paedophiles continue to exploit the internet to spread their messages of hate, plan attacks on our citizens and target the most vulnerable.  As Home Secretary I am determined to do everything in my power to stop them. This historic agreement will dramatically speed up investigations, allowing our law enforcement agencies to protect the public.  This is just one example of the enduring security partnership we have with the United States and I look forward to continuing to work with them and global partners to tackle these heinous crimes.”

Both governments agreed to terms which broadly lift restrictions for a broad class of investigations, not targeting residents of the other country, and assure providers that disclosures through the Agreement are compatible with data protection laws.  Each also committed to obtain permission from the other before using data gained through the agreement in prosecutions relating to a Party’s essential interest—specifically, death penalty prosecutions by the United States and UK cases implicating freedom of speech. 

The novel US-UK Bilateral Data Access Agreement will dramatically speed up investigations by removing legal barriers to timely and effective collection of electronic evidence.  Under its terms, law enforcement, when armed with appropriate court authorization, may go directly to tech companies based in the other country to access electronic data, rather than going through governments, which can take years.  The current Mutual Legal Assistance (MLA) request process, which sees requests for electronic data from law enforcement and other agencies submitted and approved by central governments, can often take many months.  Once in place, the Agreement will see the timeline obtaining evidence significantly reduced.

The Agreement will accelerate dozens of complex investigations into suspected terrorists and pedophiles, such as Matthew Falder who was convicted in 2018 in the UK of 137 offenses after an eight-year campaign of online child sexual abuse, blackmail, forced labor and sharing of indecent images, which highlighted the need to speed up these investigations.

The United States will have reciprocal access, under a U.S. court order, to data from UK communication service providers.  All requests for access to data will be subject to independent judicial authorization or oversight.

In March 2018, Congress passed the CLOUD Act, which authorizes the United States to enter into bilateral executive agreements with rights-respecting partners that lift each party’s legal barriers to the other party’s access to electronic data for certain criminal investigations.  The Agreement was facilitated by the UK’s Crime (Overseas Production Orders) Act 2019, which received Royal Assent in February this year.  The Agreement will enter into force following a six-month Congressional review period mandated by the CLOUD Act, and the related review by UK’s Parliament. 

We anticipate releasing a copy of the agreement in the near future following Congressional and Parliamentary notification.

For more information on the CLOUD Act, go to: https://www.justice.gov/dag/page/file/1153466/download and https://www.justice.gov/dag/cloudact.

October 4, 2019 in AML | Permalink | Comments (0)

Thursday, October 3, 2019

Gross Domestic Product, Second Quarter 2019; Corporate Profits, Second Quarter 2019

Real gross domestic product (GDP) increased at an annual rate of 2.0 percent in the second quarter of 2019 (table 1), according to the "third" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 3.1 percent.

The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was also 2.0 percent. Downward revisions to personal consumption expenditures (PCE) and nonresidential fixed investment were primarily offset by upward revisions to state and local government spending and exports. Imports, which are a subtraction in the calculation of GDP, were revised down (see "Updates to GDP" on page 2).

Real GDP: Percent change from preceding quarter

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

The deceleration in real GDP in the second quarter primarily reflected downturns in inventory investment, exports, and nonresidential fixed investment. These downturns were partly offset by accelerations in PCE and federal government spending.

Real gross domestic income (GDI) increased 1.8 percent in the second quarter, compared with an increase of 3.2 percent in the first quarter. The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, increased 1.9 percent in the second quarter, compared with an increase of 3.2 percent in the first quarter (table 1).

Current-dollar GDP increased 4.7 percent, or $241.5 billion, in the second quarter to a level of $21.34 trillion. In the first quarter, current-dollar GDP increased 3.9 percent, or $201.0 billion (tables 1 and 3).

The price index for gross domestic purchases increased 2.2 percent in the second quarter, compared with an increase of 0.8 percent in the first quarter (table 4). The PCE price index increased 2.4 percent, compared with an increase of 0.4 percent. Excluding food and energy prices, the PCE price index increased 1.9 percent, compared with an increase of 1.1 percent.

Updates to GDP

The second-quarter percent change in real GDP was the same as previously estimated. Downward revisions to PCE and nonresidential fixed investment were primarily offset by upward revisions to state and local government spending and exports, and a downward revision to imports. For more information, see the Technical Note. A detailed "Key Source Data and Assumptions" file is also posted for each release. For information on updates to GDP, see the "Additional Information" section that follows.

  Advance Estimate Second Estimate Third Estimate
(Percent change from preceding quarter)
Real GDP 2.1 2.0 2.0
Current-dollar GDP 4.6 4.6 4.7
Real GDI 2.1 1.8
Average of Real GDP and Real GDI 2.1 1.9
Gross domestic purchases price index 2.2 2.2 2.2
PCE price index 2.3 2.3 2.4

Corporate Profits

Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased $75.8 billion in the second quarter, in contrast to a decrease of $78.7 billion in the first quarter (table 10).

Profits of domestic financial corporations increased $2.5 billion in the second quarter, compared with an increase of $22.2 billion in the first quarter. Profits of domestic nonfinancial corporations increased $34.7 billion, in contrast to a decrease of $108.2 billion. Rest-of-the-world profits increased $38.7 billion, compared with an increase of $7.3 billion. In the second quarter, receipts increased $25.3 billion, and payments decreased $13.4 billion.

October 3, 2019 in Economics | Permalink | Comments (0)

Wednesday, October 2, 2019

IRS releases draft 2019 Forms 1065, 1120-S, and Schedules K-1

IR-2019-160: The IRS issued a draft of the tax year 2019 Form 1065, U.S. Return of Partnership Income (PDF), and its Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc (PDF). The changes to the form and schedule aim to improve the quality of the information reported by partnerships both to the IRS and the partners of such entities.

For example, among the changes is the addition of a checkbox that allows a taxpayer to indicate if certain grouping or aggregation elections have been made. The changes also reflect updates consistent with changes resulting from the Tax Cuts and Jobs Act.

The additional information requested in the draft Form 1065 and Schedule K-1 is intended to aid the IRS in assessing compliance risk and identifying potential noncompliance while ensuring that compliant taxpayers are less likely to be examined.  The IRS believes these changes to Form 1065 and Schedule K-1 will improve tax administration in the partnership arena, an area of critical importance to the IRS.

In addition, certain similar changes can be found in the draft of the tax year 2019 Form 1120-S, U.S. Income Tax Return for an S Corporation (PDF), and its Schedule K-1 , Shareholder’s Share of Income, Deductions, Credits, etc.,(PDF) which were also released today.

Over the past decade and a half, tax filings by partnerships have seen an increase. For calendar year 2004, about 2.5 million partnerships filed Form 1065; by calendar year 2017, that number had risen to more than 4 million, an increase of 59 percent. The rise in filings by partnerships was considerably greater than the rise in filing by C-corporations and S-corporations, combined, which rose about 14 percent over the same timeframe. This increase in filings reinforces the IRS’s need to improve the data available for its compliance selection processes. 

The draft 2019 Form 1065 and Schedule K-1, as well as the draft Form 1120-S and its Schedule K-1, are near-final forms. The drafts are intended to give tax practitioners a preview of the changes and software providers the information they need to update systems before the final version of the updated forms and schedules are released in December.

The IRS is now accepting comments until Oct 30 at IRS.gov/FormComments.

October 2, 2019 in Tax Compliance | Permalink | Comments (0)

Tuesday, October 1, 2019

Former City Of Detroit Building Authority Official Sentenced For Bribery Conspiracy In Connection With Hardest Hit Fund Demolition Program In Detroit

Aradondo Haskins, 48, the former Field Operations Manager for the City of Detroit Building Authority overseeing the demolition program in Detroit, was sentenced to one year in prison after having pleaded guilty to charges of conspiracy to commit bribery and honest services fraud in connection with the Detroit Demolition Program.

The Honorable Victoria Roberts sentenced Haskins to serve one year in federal prison following his conviction for conspiracy to commit honest services fraud by taking bribes while he was employed at Adamo Group and at the City of Detroit. Following his release from prison, Haskins will serve a two year term of supervised release. The Court also ordered that Haskins pay a $5,000 fine and that Haskins forfeit $26,500 for the bribes that he took while employed by Adamo and by the City.

“Anti-competitive corruption by city officials that award contracts in the Hardest Hit Fund’s Blight Elimination Program will be met by justice and accountability,” said Special Inspector General Christy Goldsmith Romero. “Defendant Haskins started taking bribes from subcontractors when he worked for lead contractor Adamo and continued his crimes as a city official. I commend U.S. Attorney Matthew Schneider and Assistant Attorney General for Antitrust Makan Delrahim for standing united with SIGTARP in fighting corruption in this TARP program.”

The United States Treasury Department created the Blight Elimination Program, which focused on helping communities demolish vacant houses. The program was paid for through the Hardest Hit Fund (HHF), a housing support program intended to protect home values, preserve home ownership, and promote economic growth. The City of Detroit was one of the recipients of this HHF money. Approximately $258,656,459 in Hardest Hits Funds have been allocated to the City of Detroit since October 7, 2013.

As stated during Haskins’s guilty plea, from January 2013 through April 2015, Haskins was employed as an “estimator” with Adamo. Adamo is a private, “for profit,” company which provides demolition services throughout the United States and Canada, including the City of Detroit. Haskins’s responsibilities at Adamo included assembling bid packages in response to “Requests for Proposals” (RFPs) issued by the City of Detroit. Adamo responded to the RFPs by submitting bids to the City hoping to secure demolition contracts by being the lowest bidder. In assembling the bid packages, Haskins contacted various subcontractors requesting bids for work to be included in Adamo’s submissions. “Contractor A” was one of the subcontractors who received Haskins’s invitation to bid. On several occasions, Contractor A paid Haskins money for disclosing confidential information about bids from Contractor A’s competitors. In return for these payments, Haskins disclosed confidential information about the lowest competitor bid which allowed Contractor A to submit an even lower bid, ensuring that Contractor A was awarded lucrative contracts. Haskins accepted bribes on at least eight occasions while he worked at Adamo totaling approximately $14,000.00.

According to the plea, due in large part to his experience at Adamo, Haskins was hired by the City of Detroit Building Authority (DBA) as a “Field Operations Manager” for its demolition program. As an official of the City of Detroit, Haskins was the primary point of contact for demolition contractors and he opened and read bids contractors submitted in response to RFPs. Contractor A, knowing that Haskins was still in a position to influence the demolition contract bidding process, continued to pay Haskins to use his official authority to influence the awarding of demolition related contracts to Contractor A. Haskins accepted the cash bribe payments from Contractor A in exchange for providing Contractor A confidential information about bids submitted to the DBA. With the confidential information, Contractor A was able to submit bids low enough to ensure that Contractor A was awarded City of Detroit demolition related contracts. In total, Haskins accepted approximately $11,500 in bribes from Contractor A. After his employment with the City of Detroit, Haskins accepted an additional approximately $1,000 from Contractor A for information Contractor A received while Haskins was employed with the City.

October 1, 2019 in AML | Permalink | Comments (0)

Monday, September 30, 2019

New Leak of its "Bribery Department" Documents Sparks Questions Over Odebrecht’s U.S. Plea Deal

  • New leak reveals hundreds of millions of dollars in secret payments by an Odebrecht division created primarily to manage the company’s bribes
  • More than $39 million in hidden payments linked to the massive Punta Catalina coal power plant in the Dominican Republic, despite two official investigations finding no irregularities
  • More than $3 million in hidden payments linked to the Gasoducto Sur pipeline in Peru, including payments to a company owned by the Vice-Governor of the region of Callao
  • Hidden payments connected to other major infrastructure projects including the subway systems in Quito, Ecuador; Panama City, Panama; and Caracas, Venezuela

Read all about it on ICIJ

Odebrecht has admitted that it started to systematically bribe officials around 2001.  Five years later, it created an entire division – the Division of Structured Operations –  primarily dedicated to making corrupt payments.  Prosecution statements and court documents show that the division functioned as a stand-alone bribery unit within Odebrecht. The division reported to the company’s highest levels. To conceal its activities, it used an entirely separate and off-book communications and payment system called Drousys. Operators and co-conspirators discussed bribes using secure emails, code names and passwords. read this ICIJ story here

Who are some of the big names implicated in the Odebrecht scandal?

  • Currently jailed, former Brazilian President Luiz Inácio Lula da Silva has been convicted twice of taking Odebrecht bribes. Dozens of Brazilian politicians have been investigated because of the scandal.
  • Former Salvadoran President Mauricio Funes is suspected of embezzling $351 million.
  • Former Panamanian President Ricardo Martinelli and several people close to him are suspected of receiving Odebrecht bribes.
  • Former Ecuadorian Vice President Jorge Glas is in jail because of his links to Odebrecht corruption.
  • Former Peruvian President Alan Garcia committed suicide in April when police went to his home to arrest him on charges related to Odebrecht. Peruvian President Martin Vizcarra and three former presidents, Pedro Pablo Kuczynski, Ollanta Humala and Alejandro Toledo, are all under investigation in connection with the Odebrecht scandal. Humala has been indicted on corruption charges.
  • Politicians in Guatemala and Colombia have been engulfed, too.

Read all about it here

September 30, 2019 in AML | Permalink | Comments (0)

Sunday, September 29, 2019

Relief Procedures for Certain Former Citizens: Six Years Tax Filing BUT No Need to Actually Pay the Tax

Introduction

The IRS announced procedures for certain persons who have relinquished, or intend to relinquish, their United States (U.S.) citizenship and who wish to come into compliance with their U.S. income tax and reporting obligations and avoid being taxed as a “covered expatriate” under section 877A of the U.S. Internal Revenue Code (IRC).  Please read all information for these procedures including the Frequently Asked Questions and Answers (FAQs) to determine eligibility. Relinquishing U.S. citizenship and the tax impacts of relinquishing U.S. citizenship are serious matters that involve irrevocable decisions. Consider consulting legal counsel before making any decisions about relinquishing U.S. citizenship.

The Department of the Treasury, the Department of State, the Internal Revenue Service, and the Social Security Administration have prepared a brief “frequently asked questions” document on obtaining social security numbers, expatriation, and tax implications of expatriation.

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Background

The 14th Amendment to the United States Constitution provides that “all persons born or naturalized in the United States” are citizens of the United States.  With very limited exceptions for individuals born in the United States with diplomatic agent level immunity, all persons born in the United States acquire U.S. citizenship at birth. A person born abroad to a U.S. citizen parent or parents acquires U.S. citizenship at birth if the parent or parents meet conditions specified in the U.S. Immigration and Nationality Act (Section 301 and following sections).

Some U.S. citizens, born in the United States to foreign parents or born outside the United States to U.S. citizen parents, may be unaware of their status as U.S. citizens or the consequences of such status.  By law, U.S. citizens, regardless of whether they live in the United States or abroad, are required to report and pay to the Internal Revenue Service (IRS) all applicable taxes on their worldwide income, including on their income from foreign financial assets.

With the passage of the Foreign Account Tax Compliance Act (FATCA) on March 18, 2010, foreign financial institutions are generally required to determine whether their customers are U.S. citizens and, if so, report certain information about the customer’s account. Depending on when the account is opened, the customer may be identified by the financial institution as a U.S. citizen based on certain indicia, such as a place of birth in the United States. A customer who is identified as a U.S. citizen based on U.S. indicia must provide to the financial institution either his or her Social Security Number (SSN), or if the customer is no longer a U.S. citizen, documentation to rebut the determination, such as proof of loss of U.S. citizenship. A customer opening a new account with a foreign financial institution is generally required to provide a self-certification upon account opening, which includes the customer’s name, address, and SSN.

An adult U.S. citizen may relinquish U.S. citizenship consistent with requirements under Section 349 of the Immigration and Nationality Act, 8 U.S.C. 1481. See U.S. Citizenship laws and policies. The process of relinquishing U.S. citizenship abroad is administered by the Department of State. Citizens wishing to relinquish their U.S. citizenship abroad must commit one of the potentially expatriating acts, listed at 8 U.S.C. 1481(a)(1)-(5), voluntarily and with intent to relinquish U.S. citizenship.  One such expatriating act is taking an oath of renunciation of U.S. citizenship under 8 U.S.C. 1481(a)(5).  In accordance with the relevant statutes and regulations, such persons must appear in person before a U.S. diplomatic or consular officer at a U.S. Embassy or Consulate in a foreign country to complete the required steps.  The persons renouncing their U.S. citizenship must then take the prescribed oath of renunciation before the U.S. diplomatic or consular officer. See Renunciation of U.S. Nationality Abroad.

Set by the Department of State, the U.S. consular fee for “Administrative Processing of Request for Certificate of Loss of Nationality” is $2,350, and the fee cannot be waived.  Compliance with all U.S. income tax filings or obtaining a Social Security number is not a pre-condition to relinquishing citizenship under the Immigration and Nationality Act.

Individuals who seek to renounce or relinquish U.S. citizenship should be aware that expatriating may have U.S. tax consequences. To comply with existing tax law and to avoid significant tax liability under the U.S. Internal Revenue Code, U.S. citizens who renounce or otherwise relinquish their citizenship must comply with Federal tax requirements for the year of expatriation and for the five tax years prior to their expatriation, which includes using their SSN as their identification number on Federal Tax Returns.  IRC 877A contains a special set of rules for U.S. citizens who relinquish their U.S. citizenship, whether by taking an oath of renunciation or otherwise.  Under IRC 877A, individuals who are “covered expatriates” are treated as having disposed of all worldwide assets on the day before their expatriation date, are required to pay a mark-to-market exit tax on the gain (subject to an exclusion amount) resulting from the deemed disposition of their worldwide assets, and are subject to additional tax consequences with respect to certain deferred compensation items and trust distributions. With some exceptions that are not applicable in the context of these procedures, IRC 877(a)(2) will treat an individual as a “covered expatriate” if:

  1. The individual has an average annual net income tax liability of the five years preceding the year of expatriation that exceeds a specified amount adjusted for inflation (for example, $161,000 for 2016, $162,000 for 2017, $165,000 for 2018, and $168,000 for 2019) (“average income tax liability test”),
  2. The individual has a net worth of $2 million or more as of the expatriation date (“net worth test”), or
  3. The individual cannot certify, under penalties of perjury, on Form 8854, Initial and Annual Expatriation Statement, that the individual is compliant with all Federal tax obligations for the five tax years preceding the tax year that includes the expatriation date (“certification test”). 

To meet the requirements of the certification test, individuals must file a Form 8854, Initial and Annual Expatriation Statement, with their tax return for the year of expatriation and certify compliance for the prior five tax years. Certifying compliance for the prior five tax years requires that all Federal tax returns for the five tax years before the year of expatriation were properly filed, complete, and accurate. For more information, see Expatriation Tax and Instructions for Form 8854.

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Relief Procedures

Under the Relief Procedures for Certain Former Citizens (“these procedures”), the IRS is providing an alternative means for satisfying the tax compliance certification process for citizens who expatriate after March 18, 2010. These procedures are only available to U.S. citizens with a net worth of less than $2 million (at the time of expatriation and at the time of making their submission under these procedures), and an aggregate tax liability of $25,000 or less for the taxable year of expatriation and the five prior years.  If these individuals submit the information set forth below and meet the requirements of these procedures, they will not be “covered expatriates” under IRC 877A, nor will they be liable for any unpaid taxes and penalties for these years or any previous years.

These procedures may only be used by taxpayers whose failure to file required tax returns (including income tax returns, applicable gift tax returns, information returns (including Form 8938, Statement of Foreign Financial Assets), and Report of Foreign Bank and Financial Accounts (FinCEN Form 114, formerly Form TD F 90-22.1)) and pay taxes and penalties for the years at issue was due to non-willful conduct. Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.

September 29, 2019 | Permalink | Comments (0)

Saturday, September 28, 2019

Belizean Bank to Pay $23 Million and Cease Operations to Settle FTC Charges It Provided Substantial Assistance to the Sanctuary Belize Real Estate Scam

Under a proposed consent order, Belize’s Atlantic International Bank Limited (AIBL) will pay $23 million, representing approximately all of its U.S.-based assets, to settle Federal Trade Commission charges that it assisted various related entities (the Sanctuary Belize Enterprise, or SBE) in deceiving U.S. consumers as part of a scheme to sell property in Sanctuary Belize.

Sanctuary Belize (also known as Sanctuary Bay and The Reserve) is a massive planned community approximately the size of Manhattan located in remote southern Belize. The FTC will use the money to provide redress to more than 1,000 consumers injured by the Sanctuary Belize scheme.

In November 2018, the Commission announced that it obtained a federal court order temporarily halting the massive real estate scam. According to the FTC, the scheme took in more than $100 million, mostly from American consumers, marketing lots in Sanctuary Belize. The Sanctuary Belize Enterprise duped consumers into buying Sanctuary Belize lots by making false promises, including that the development would have luxury amenities and be completed soon, and that the lots would rapidly appreciate and serve as low-risk investments. Following a two-week hearing, the district court found the FTC was likely to prevail on its claims against various defendants involved with SBE.

With respect to AIBL, the FTC’s amended complaint alleged that AIBL illegally assisted and facilitated the Sanctuary Belize scheme SBE perpetrated. AIBL representatives visited SBE’s California offices and coached SBE’s telemarketers about the services the bank could provide U.S. consumers interested in Sanctuary Belize lots, including lower interest rates and relaxed underwriting for buyers wishing to finance Sanctuary Belize home construction. AIBL urged the telemarketers to sell its banking services to American consumers as part of the Sanctuary Belize sales pitch.

Based on this conduct, the amended complaint charges AIBL with participating in deceptive acts or practices in violation of the FTC Act, as well the agency’s Telemarketing Sales Rule (TSR), by providing “substantial assistance or support” to the Sanctuary Belize scam, while knowing—or consciously avoiding knowing—that SBE was violating the TSR.

Notably, AIBL filed multiple unsuccessful motions to dismiss the FTC’s case based on alleged lack of personal jurisdiction because, like many offshore banks that assist and facilitate domestic deceptive practices, AIBL had no offices, employees, or operations within the United States. The FTC responded with evidence that SBE and AIBL jointly marketed both AIBL’s banking services and SBE’s Sanctuary Belize lots to U.S.-based consumers.

For instance, SBE principal Luke Chadwick filmed a marketing video endorsing AIBL at the bank’s request, and the bank provided financial services to SBE. Similarly, AIBL’s logo appeared on SBE marketing materials provided to U.S. consumers. AIBL representatives also marketed to consumers directly during Sanctuary Belize tours, lending support and legitimacy to the sales process, while offering banking services to U.S.-based consumers.

Additionally, the FTC presented evidence that AIBL assisted SBE by providing Belizean banking services both for SBE itself and for U.S consumers the scheme targeted, all with knowledge that U.S.-based consumers were SBE’s primary targets. Furthermore, AIBL provided many of these banking services through correspondent banks in the United States.

The proposed court order, to which the defendant has agreed, settles the FTC’s charges against AIBL. The order requires AIBL to cease all business activities permanently, aside from those involved with its liquidation. In addition, after the bank is liquidated, the order prohibits the liquidator or anyone else from seeking to re-license and operate AIBL’s business.

The order also imposes a $23 million judgment against AIBL and details how AIBL must transfer the money to the FTC. It explains that the FTC will use the money to provide equitable relief, including consumer redress, to consumers injured by AIBL’s illegal conduct. Finally, the order appoints a receiver to collect the financial judgment from the bank, and assigns to the receiver AIBL’s rights in certain property (also to be used for consumer redress).

Serial scammer Andris Pukke, others charged with deceiving Americans out of more than $100 million by deceptively marketing property in Belize

Map of Belize showing location of Sanctuary Belize on the coast, just north of Placencia and Placencia International Airport. Belmopan is to the northwest, and Belize City is to the north.

(NOTE TO MEDIA: Please see related press kit with maps, video, and audio.)

At the Federal Trade Commission’s request, a federal district court in Maryland issued an order temporarily shutting down the largest overseas real estate investment scam the FTC has ever targeted.

According to the FTC, the scam was established by Andris Pukke, a recidivist scammer currently living in California, and he perpetuated it even while serving a prison sentence for obstruction of justice.

The alleged scheme took in more than $100 million, marketing lots in what supposedly would become a luxury development in Central America known by several names, including Sanctuary Belize, Sanctuary Bay, and The Reserve. According to the FTC, the defendants duped consumers into buying Sanctuary Belize lots by falsely promising that the development would include luxury amenities and be completed soon, and that the value of the lots would rapidly appreciate.

In filing the complaint against Pukke and a range of other defendants, the FTC is seeking to permanently stop the scheme and obtain a court order requiring them to turn over hundreds of millions of dollars to compensate deceived U.S. investors.

“The defendants in this case operated a sophisticated international real estate investment scheme that cheated consumers out of millions of dollars of their hard-earned retirement savings,” said FTC Chairman Joe Simons. “The FTC is committed to stopping this outrageous behavior and compensating the hundreds of victims.”

The Sanctuary Belize Scheme

According to the FTC, the defendants operated a set of interrelated businesses (the Sanctuary Belize Enterprise or SBE) and ran commercials on Fox News and Bloomberg News advertising parcels of land that were part of a luxury development in Belize. They also advertised the property through infomercials. Consumers who expressed interest in buying property would receive a call from California-based telemarketers who identified themselves as “property consultants” or “investment consultants.”

These telemarketers allegedly made six false claims in their pitches to sell lots in the development, including that:

  • SBE uses a “no-debt” business model, which makes buying a lot in Sanctuary Belize less-risky than a real estate investment in which the developer must make payments to creditors like banks;
  • Every dollar SBE collects from lot sales goes back into the development;
  • This continual funding stream means that SBE will finish development quickly -- within two to five years;
  • The development will include impressive amenities, such as a hospital staffed with American doctors, an emergency medical center near the downtown “Marina Village,” a championship-caliber golf course, an airstrip, and a new international airport with direct flights to the United States;
  • These amenities will ensure that property values will double or even triple in two to three years; and
  • It will be easy for buyers to resell their lots.

The FTC alleges that SBE representatives in Belize made the same deceptive claims when they met with prospective buyers visiting the property before purchasing lots.

The FTC also contends that relying on the defendants’ deceptive claims, consumers purchased lots that typically cost between $150,000 and $500,000 outright, or made large down payments followed by sizeable monthly payments, in addition to paying monthly homeowners association (HOA) fees. However, because the defendants’ claims are not true, consumers either have lost, or will lose, some or all of their investments.

According to the FTC, a no-debt model actually increases risk for purchasers, and the defendants used consumers’ payments to fund their own high-end lifestyles instead of investing the money in the development. The FTC contends that the development and the amenities will not be completed in the promised timeline, the value of the lots has not appreciated, and there is no resale market for the lots.

Based on these claims, the FTC charges the defendants with violating the FTC Act and the Telemarketing Sales Rule. In addition, the FTC charges Belize’s Atlantic International Bank with assisting and facilitating the Sanctuary Belize scam.

The complaint also names Angela Chittenden, Beach Bunny Holdings, LLC, The Estate of John Pukke (Andris Pukke’s late father), John Vipulis, and Deborah Connelly as relief defendants who received funds from SBE’s deceptive and illegal conduct.

Related Contempt Motions Announced Today

In addition to the Sanctuary Belize complaint announced today, the FTC has filed three contempt motions against several of the individual defendants, including Andris Pukke, who has a long history with the Commission. In 2003, the FTC sued Pukke, AmeriDebt, and DebtWorks, alleging they deceptively sold financially strapped consumers debt management plans while pretending to be a “non-profit” credit counseling organization. Pukke and DebtWorks agreed to an order settling the FTC’s complaint in 2006.

The 2006 order barred Pukke from violating the Telemarketing Sales Rule and imposed a $172 million judgment, of which $137 million would be suspended if Pukke cooperated in efforts to recover another $35 million. The order also required Pukke to turn over certain assets, including the Sanctuary Belize parcel. In 2007, however, the court held Pukke and co-defendant Peter Baker in contempt for refusing to turn over the assets, including the land parcel in Belize.

In 2010, Pukke pleaded guilty to obstructing justice after he admitted obstructing the AmeriDebt receivership the order put in place and refusing to turn over the required assets. As a result, the court sentenced him to 18 months in prison. Between 2008 and 2014, the FTC returned nearly $7 million to consumers deceived through the AmeriDebt scheme. Pukke and Baker never relinquished control of the land parcel, however, and allegedly continued marketing it as part of the Sanctuary Belize scheme in the same way they had since 2005, even while Pukke was in jail.

The FTC has now filed a contempt motion against Pukke, Baker, and defendant John Usher related to Sanctuary Belize; a second contempt motion against Pukke and relief defendant John Vipulis seeking money Pukke owes the Commission; and a third contempt motion against Pukke, Baker, and Usher seeking to unwind a prior real estate transfer to enable the FTC to secure the unsold portions of the Belize land parcel.

FTC Seeking Information from Affected Consumers

To aid its lawsuit, the FTC is seeking information from consumers who have done business with the defendants or bought property in Sanctuary Belize. Over the course of the alleged scheme, the defendants have used other names in marketing the development, including Global Property Alliance, Buy Belize, Buy International, Eco Futures, Sittee River Wildlife Reserve, Sanctuary Bay, The Reserve, and The Marina at the Reserve.

The Commission has set up a website where consumers are urged to submit any information related to their dealings with the defendants, including documents, videos, photographs, audio recordings, or any other type of file related to the allegations in the complaint.

The FTC will encrypt all information it collects, and will take steps to ensure that it does not disclose consumers’ personal information. The FTC also may follow up with consumers who submit information relevant to its case.

The Commission voted 5-0 to authorize staff to file: 1) the complaint seeking a temporary restraining order and preliminary injunction against the Sanctuary Belize defendants; 2) a contempt motion against Andris Pukke, Peter Baker, and John Usher; 3) a contempt motion against Pukke and John Vipulis; and 4) a contempt motion against Pukke, Baker, and Usher seeking to unwind a real estate transfer.

The documents were filed in the U.S. District Court for the District of Maryland under seal, and the seal has now been lifted in part. A complete list of the 23 individual and corporate defendants named in the case can be found in the Commission’s complaint.

September 28, 2019 in AML | Permalink | Comments (0)

Friday, September 27, 2019

Iranian Citizen Sentenced for Conspiring to Facilitate the Illegal Export of Technology to Iran

According to the defendant’s guilty plea, Ghodskani assisted in establishing and operating Green Wave Telecommunication, Sdn Bhn, (Green Wave) a Malaysian company located in Kuala Lumpur, Malaysia. Since its incorporation in 2009, Green Wave operated as a front company for Fanavar Moj Khavar (Fana Moj), an Iran-based company that specializes in both broadcast communications, microwave communications as well as in the production of digital video broadcasting equipment. Fana Moj supplies microwave radio systems and wireless broadband access in Iran. Fana Moj’s principal customer was the Islamic Republic of Iran Broadcasting (IRIB), which is owned by the Government of Iran.

According to the defendant’s guilty plea and documents filed in court, from 2008 until 2011, Ghodskani, who was based in Tehran, falsely represented herself as an employee of Green Wave to U.S. Companies in order to acquire unlawfully sensitive export controlled technology from the United States on behalf of Fana Moj. In order to accomplish these acquisitions, Ghodskani and her co-conspirators concealed the ultimate unlawful destination and end users of the exported technology through false statements, unlawful financial transactions, and other means. Further, as part of the conspiracy, the defendant’s co-conspirators would contact producers and distributors of the sought-after technology, solicit purchase agreements, and negotiate the purchase and delivery of the goods with the seller.

Both the IRIB and Fana Moj have been designated by the United States Department of the Treasury as a Specially Designated National for providing financial, material, technological or other support for, or goods or services in support of, the Islamic Republic of Iran Broadcasting (IRGC).    

September 27, 2019 | Permalink | Comments (0)

Thursday, September 26, 2019

Former Intelligence Officer Convicted of Attempted Espionage Sentenced to 10 Years in Federal Prison

A former Defense Intelligence Agency (DIA) officer, who pleaded guilty in March to attempting to communicate, deliver, or transmit information involving the national defense of the United States to the People’s Republic of China, will serve 10 years in federal prison.  U.S. District Judge Dee Benson imposed the sentence Tuesday afternoon in Salt Lake City.

Ron Rockwell Hansen, 60, of Syracuse, Utah, was arrested June 2, 2018, on his way to the Seattle-Tacoma International Airport in Seattle, Washington, as he was preparing to board a flight to China while in possession of SECRET military information. 

“One of three ex-US intelligence officers recently convicted of acting on behalf of the People’s Republic of China, Ron Rockwell Hansen received hundreds of thousands of dollars for betraying his country and former colleagues,” said Assistant Attorney General of National Security John C. Demers.  “These cases show the breadth of the Chinese government’s espionage efforts and the threat they pose to our national security.  Our intelligence professionals swear an oath to protect our country’s most closely held secrets and the National Security Division will continue to relentlessly pursue justice against those who violate this oath.”

“The Chinese government continues to attempt to identify and recruit current and former members of the United States intelligence community.  This is a very troubling trend. These individuals must remain vigilant and immediately report any suspicious activity. The Hansen case is an example of what will happen to those who violate the public’s trust and risk our national security by disclosing classified information,” said U.S. Attorney John W. Huber for the District of Utah.

“Ron Hansen was willing to betray his oath and his country for financial gain,” said Special Agent in Charge Paul Haertel of the FBI’s Salt Lake City Field Office.  "This case brings to light that not all spies are foreign adversaries.  Insider threats pose a significant national security risk, and the FBI will continue to aggressively investigate those who put our country and citizens at risk.”

Hansen retired from the U.S. Army as a Warrant Officer with a background in signals intelligence and human intelligence.  He speaks fluent Mandarin-Chinese and Russian, according to court documents. Upon retiring from active duty, DIA hired Hansen as a civilian intelligence case officer in 2006. Hansen held a Top Secret clearance for many years, and signed several non-disclosure agreements during his tenure at DIA and as a government contractor. 

As Hansen admitted in the plea agreement, in early 2014, agents of a Chinese intelligence service targeted him for recruitment, and he began meeting with them regularly in China.  During these meetings, the agents described to Hansen the type of information that would interest Chinese intelligence.  Hansen stipulated that during the course of his relationship with Chinese intelligence, he received hundreds of thousands of dollars in compensation for information he provided them.

Between May 24, 2016, and June 2, 2018, Hansen admitted he solicited national security information from an intelligence case officer working for the DIA.  Hansen admitted knowing that the Chinese intelligence services would find the information valuable, and he agreed to act as a conduit to sell that information to the Chinese.  He advised the DIA case officer how to record and transmit classified information without detection, and how to hide and launder any funds received as payment for classified information.  He admitted he now understands that the DIA case officer reported his conduct to the DIA and subsequently acted as a confidential human source for the FBI.

Hansen admitted meeting with the DIA case officer on June 2, 2018, and receiving individual documents containing national defense information that he had previously solicited.  The documents he received were classified. The documents included national security information related to U.S. military readiness in a particular region -- information closely held by the federal government. Hansen did not possess a security clearance nor did he possess a need to know the information contained in the materials. 

As a part of his plea agreement, Hansen admitted he reviewed the documents, queried the case officer about their contents, and took written notes which contained information determined to be classified.  He advised the DIA case officer that he would remember most of the details about the documents he received that day and would conceal notes about the material in the text of an electronic document he would prepare at the airport before leaving for China.  He admitted he intended to provide the information he received to the agents of the Chinese Intelligence Service with whom he had been meeting.  He also admitted knowing that the information was to be used to the injury of the United States and to the advantage of a foreign nation.

As a part of the plea agreement, Hansen has agreed to forfeit property acquired from or traceable to his offense, including property used to facilitate the crime.

September 26, 2019 | Permalink | Comments (0)

Wednesday, September 25, 2019

Starbucks and Netherlands APA Upheld by European Court of Justice

The General Court annuls the Commission’s decision on the aid measure implemented by the Netherlands in favor of Starbucks (released by the Court)

For William Byrnes analysis of this State Aid controversy, see    

The Commission was unable to demonstrate the existence of an advantage in favor of Starbucks

In 2008, the Netherlands tax authorities concluded an advance pricing arrangement (APA) with Starbucks Manufacturing EMEA BV (SMBV), part of the Starbucks group, which, inter alia, roasts coffees. The objective of that arrangement was to determine SMBV’s remuneration for its production and distribution activities within the group. Thereafter, SMBV’s remuneration served to determine annually its taxable profit on the basis of Netherlands corporate income tax. In addition, the APA endorsed the amount of the royalty paid by SMBV to Alki, another entity of the same group, for the use of Starbucks’ roasting IP. More specifically, the APA provided that the amount of the royalty to be paid to Alki corresponded to SMBV’s residual profit. The amount was determined by deducting SMBV’s remuneration, calculated in accordance with the APA, from SMBV’s operating profit.

In 2015, the Commission found that the APA constituted aid incompatible with the internal market and ordered the recovery of that aid.

The Netherlands and Starbucks brought an action before the General Court for annulment of the Commission’s decision. They principally dispute the finding that the APA conferred a selective advantage on SMBV.

More specifically, they criticize the Commission for (1) having used an erroneous reference system for the examination of the selectivity of the APA; (2) having erroneously examined whether there was an advantage in relation to an arm’s length principle particular to EU law and thereby violated the Member States’ fiscal autonomy; (3) having erroneously considered the choice of the transactional net margin method (TNMM) for determining SMBV’s remuneration to constitute an advantage; and (4) having erroneously considered the detailed rules for the application of that method as validated in the APA to confer an advantage on SMBV.

In today’s judgment, the General Court annuls the Commission’s decision.

First, the Court examined whether, for a finding of an advantage, the Commission was entitled to analyze the tax ruling at issue in the light of the arm’s length principle as described by the Commission in the contested decision.

In that regard, the Court notes in particular that, in the case of tax measures, the very existence of an advantage may be established only when compared with ‘normal’ taxation and that, in order to determine whether there is a tax advantage, the position of the recipient as a result of the application of the measure at issue must be compared with his position in the absence of the measure at issue and under the normal rules of taxation.

The Court goes on to note that the pricing of intra-group transactions is not determined under market conditions. It states that where national tax law does not make a distinction between integrated undertakings and stand-alone undertakings for the purposes of their liability to corporate income tax, that law is intended to tax the profit arising from the economic activity of such an integrated undertaking as though it had arisen from transactions carried out at market prices. The Court holds that, in those circumstances, when examining, pursuant to the power conferred on it by Article 107(1) TFEU, a fiscal measure granted to such an integrated company, the Commission may compare the fiscal burden of such an integrated undertaking  resulting from the application of that fiscal measure with the fiscal burden resulting from the application of the normal rules of taxation under the national law of an undertaking placed in a comparable factual situation, carrying on its activities under market conditions.

The Court makes clear that the arm’s length principle as described by the Commission in the contested decision is a tool that allows it to check that intra-group transactions are remunerated as if they had been negotiated between independent companies. Thus, in the light of Netherlands tax law, that tool falls within the exercise of the Commission’s powers under Article 107 TFEU. The Commission was therefore, in the present case, in a position to verify whether the pricing for intragroup transactions accepted by the APA corresponds to prices that would have been negotiated under market conditions.

The Court therefore rejects the claim that the Commission erred in identifying an arm’s length principle as a criterion for assessing the existence of State aid.

Second, the Court reviewed the merits of the various lines of reasoning set out in the contested decision to demonstrate that, by endorsing a method for determining transfer pricing that did not result in an arm’s length outcome, the APA conferred an advantage on SMBV.

The Court began by examining the dispute as to the Commission’s principal reasoning. It notes that, in the context of its principal reasoning, the Commission found that the APA had erroneously endorsed the use of the TNMM. The Commission first stated that the transfer pricing report on the basis of which the APA had been concluded did not contain an analysis of the royalty which SMBV paid to Alki or of the price of coffee beans purchased by SMBV from SCTC, another entity of the group. Next, in examining the arm’s length nature of the royalty, the Commission applied the comparable uncontrolled price method (CUP method). As a result of that analysis, the Commission considered that the amount of the royalty should have been zero. Last, the Commission considered, on the basis of SCTC’s financial data, that SMBV had overpaid for the coffee beans in the period between 2011 and 2014.

The Court holds that mere non-compliance with methodological requirements does not necessarily lead to a reduction of the tax burden and that the Commission would have had to demonstrate that the methodological errors identified in the APA did not allow a reliable approximation of an arm’s length outcome to be reached and that they led to a reduction of the tax burden.

As regards the error identified by the Commission in respect of the choice of the TNMM and not of the CUP method, the Court finds that the Commission did not invoke any element to support as such the conclusion that that choice had necessarily led to a result that was too low, without a comparison being carried out with the result that would have been obtained using the CUP method. The Commission therefore wrongly found that the mere choice of the TNMM, in the present case, conferred an advantage on SMBV.

Likewise, the Court states that the mere finding by the Commission that the APA did not analyze the royalty does not suffice to demonstrate that that royalty was not actually in conformity with the arm’s length principle.

As regards the amount of the royalty paid by SMBV to Alki, according to an analysis of SMBV’s functions in relation to the royalty and an analysis of comparable roasting agreements considered by the Commission in the contested decision, the Court finds that the Commission failed to demonstrate that the level of the royalty should have been zero or that it resulted in an advantage within the meaning of the Treaty.

As regards the price of green coffee beans, the Court notes that the price of those beans was an element of SMBV’s costs that was outside the scope of the APA and that, in any event, the Commission’s findings did not suffice to demonstrate the existence of an advantage within the meaning of Article 107 TFEU. The Court notes, in particular, that the Commission was not entitled to rely on matters subsequent to the conclusion of the APA.

The Court then examined the dispute as to the Commission’s subsidiary reasoning whereby the APA allegedly conferred an advantage on SMBV because the detailed rules for the application of the TNMM, as endorsed by the APA, were erroneous.

It finds that the Commission did not demonstrate that the various errors it identified in the detailed rules for the application of the TNMM conferred an advantage on SMBV, whether as regards the validation by the APA of the identification of SMBV as the tested entity for the purposes of the application of the TNMM, the choice of profit level indicator or the working capital adjustment and the exclusion of the costs of the unaffiliated manufacturing company.

Consequently, according to the Court, the Commission has not managed to demonstrate the existence of an economic advantage within the meaning of Article 107 TFEU.

For William Byrnes analysis of this State Aid controversy, see    

September 25, 2019 in BEPS | Permalink | Comments (0)

Tuesday, September 17, 2019

Houston Attorney Convicted of Offshore Tax Evasion Scheme

Conspired to Repatriate More Than $18 Million in Untaxed Money Held in Foreign Banks

A Houston, Texas, attorney was convicted today of one count of conspiracy to defraud the United States and three counts of tax evasion, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Department of Justice’s Tax Division and U.S. Attorney Ryan K. Patrick for the Southern District of Texas.

According to the evidence presented at trial, Jack Stephen Pursley, also known as Steve Pursley, conspired with a former client to repatriate more than $18 million in untaxed income that the client had earned through his company, Southeastern Shipping. Knowing that his client had never paid taxes on these funds, Pursley designed and implemented a scheme whereby the untaxed funds were transferred from Southeastern Shipping’s business bank account, located in the Isle of Man, to the United States. Pursley helped to conceal the movement of funds from the Internal Revenue Service (IRS) by disguising the transfers as stock purchases in United States corporations owned and controlled by Pursley and his client.

At trial, the government proved that Pursley received more than $4.8 million and a 25% ownership interest in the co-conspirator’s ongoing business for his role in the fraudulent scheme. For tax years 2009 and 2010, Pursley evaded the assessment of and failed to pay the income taxes he owed on these payments by, among other means, withdrawing the funds as purported non-taxable loans and returns of capital. The government showed at trial that Pursley used the money he garnered from the fraudulent scheme for personal investments, and to purchase assets for himself, including a vacation home in Vail, Colorado and property in Houston, Texas.

September 17, 2019 in GATCA | Permalink | Comments (0)

Monday, September 16, 2019

Current and Former Precious Metals Traders Charged with Multi-Year Market Manipulation Racketeering Conspiracy

Two current precious metals traders and one former trader in the New York offices of a U.S. bank (Bank A) were charged in an indictment unsealed today for their alleged participation in a racketeering conspiracy and other federal crimes in connection with the manipulation of the markets for precious metals futures contracts, which spanned over eight years and involved thousands of unlawful trading sequences.

Charged in the indictment are:

  • Gregg Smith, 55, of Scarsdale, New York.  Smith was an executive director and trader on Bank A’s precious metals desk in New York.  He joined Bank A in May 2008 after it acquired another U.S. bank (Bank B).
  • Michael Nowak, 45, of Montclair, New Jersey.  Nowak was a managing director and ran Bank A’s global precious metals desk.  He joined Bank A in July 1996.
  • Christopher Jordan, 47, of Mountainside, New Jersey.  Jordan joined Bank A in March 2006 and was an executive director and trader on Bank A’s precious metals desk in New York.  Jordan left Bank A in December 2009 and worked as a precious metals trader at a Swiss bank (Bank C) in New York from March 2010 until August 2010.  From June 2011 until October 2011, Jordan traded precious metals futures contracts as an employee of a financial service company (Company D) in New York.

“The defendants and others allegedly engaged in a massive, multiyear scheme to manipulate the market for precious metals futures contracts and defraud market participants,” said Assistant Attorney General Brian A. Benczkowski.  “These charges should leave no doubt that the Department is committed to prosecuting those who undermine the investing public’s trust in the integrity of our commodities markets.”

“Smith, Nowak, Jordan, and their co-conspirators allegedly engaged in a complex scheme to trade precious metals in a way that negatively affected the natural balance of supply-and-demand,” said FBI Assistant Director in Charge William F. Sweeney Jr. of the FBI’s New York Field Office. “Not only did their alleged behavior affect the markets for precious metals, but also correlated markets and the clients of the bank they represented. For as long as we continue to see this type of illegal activity in the marketplace, we’ll remain dedicated to investigating and bringing to justice those who perpetrate these crimes.”  

Each of the three defendants was charged with one count of conspiracy to conduct the affairs of an enterprise involved in interstate or foreign commerce through a pattern of racketeering activity (more commonly referred to as RICO conspiracy); one count of conspiracy to commit wire fraud affecting a financial institution, bank fraud, commodities fraud, price manipulation and spoofing; one count of bank fraud and one count of wire fraud affecting a financial institution.  In addition, Smith and Nowak were each charged with one count of attempted price manipulation, one count of commodities fraud and one count of spoofing.

Smith is expected to make an initial appearance in the Southern District of New York before U.S. Magistrate Judge Judith C. McCarthy, and Nowak and Jordan are expected to make their initial appearances in the District of New Jersey before U.S. Magistrate Judge Michael A. Hammer.  The case was indicted in the Northern District of Illinois and has been assigned to U.S. District Judge Edmond E. Chang.

As alleged in the indictment, between approximately May 2008 and August 2016, the defendants and their co-conspirators were members of Bank A’s global precious metals trading desk in New York, London and Singapore with varying degrees of seniority and supervisory responsibility over others on the desk.  As it relates to the RICO conspiracy, the defendants and their co-conspirators were allegedly members of an enterprise—namely, the precious metals desk at Bank A—and conducted the affairs of the desk through a pattern of racketeering activity, specifically, wire fraud affecting a financial institution and bank fraud.

The indictment alleges that the defendants engaged in widespread spoofing, market manipulation and fraud while working on the precious metals desk at Bank A through the placement of orders they intended to cancel before execution (Deceptive Orders) in an effort to create liquidity and drive prices toward orders they wanted to execute on the opposite side of the market.  In thousands of sequences, the defendants and their co-conspirators allegedly placed Deceptive Orders for gold, silver, platinum and palladium futures contracts traded on the New York Mercantile Exchange Inc. (NYMEX) and Commodity Exchange Inc. (COMEX), which are commodities exchanges operated by CME Group Inc.  By placing Deceptive Orders, the defendants and their co-conspirators allegedly intended to inject false and misleading information about the genuine supply and demand for precious metals futures contracts into the markets, and to deceive other participants in those markets into believing something untrue, namely that the visible order book accurately reflected market-based forces of supply and demand.  This false and misleading information was intended to, and at times did, trick other market participants into reacting to the apparent change and imbalance in supply and demand by buying and selling precious metals futures contracts at quantities, prices and times that they otherwise likely would not have traded, the indictment alleges.

As also alleged in the indictment, the defendants and their co-conspirators defrauded Bank A’s clients who had bought or sold “barrier options” by trading precious metals futures contracts in a manner that attempted to push the price towards a price level at which Bank A would make money on the option (barrier-running), or away from a price level at which Bank A would lose money on the option (barrier-defending).  Namely, when barrier-running, the defendants and their co-conspirators would allegedly place orders for precious metals futures contracts in a way that was intended to deliberately trigger the barrier option held by Bank A.  Conversely, when barrier-defending, the defendants and their co-conspirators would allegedly place orders for precious metals futures contracts in a way that was intended to deliberately avoid triggering the barrier option held by clients of Bank A.

The indictment also identifies two former Bank A precious metals traders, John Edmonds and Christian Trunz, as being among the defendant’s co-conspirators.  Edmonds worked at Bank A from 2004 to 2017 and was a trader on Bank A’s precious metals desk, leaving as a vice president.  On Oct. 9, 2018, Edmonds pleaded guilty in the District of Connecticut to an information charging him with one count of commodities fraud and one count of conspiracy to commit wire fraud, commodities fraud, price manipulation and spoofing.  Trunz is a former precious metals trader at Bank A who worked at the bank from 2007 to August 20, 2019, leaving as an executive director.  On Aug. 20, 2019, Trunz pleaded guilty in the Eastern District of New York to an information charging him with one count of conspiracy to engage in spoofing and one count of spoofing.

This case is the result of an ongoing investigation by the FBI’s New York Field Office. The Commodity Futures Trading Commission’s Division of Enforcement provided assistance in this case.  Trial Attorneys Avi Perry and Matthew F. Sullivan of the Criminal Division’s Fraud Section are prosecuting the case.

September 16, 2019 in AML | Permalink | Comments (0)

Sunday, September 15, 2019

U.S. International Trade in Goods and Services, July 2019

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced today that the goods and services deficit was $54.0 billion in July, down $1.5 billion from $55.5 billion in June, revised.

U.S. International Trade in Goods and Services Deficit
Deficit: $54.0 Billion -2.7%°
Exports: $207.4 Billion +0.6%°
Imports: $261.4 Billion -0.1%°

Next release: October 4, 2019

(°) Statistical significance is not applicable or not measurable. Data adjusted for seasonality but not price changes

Source: U.S. Census Bureau, U.S. Bureau of Economic Analysis; U.S. International Trade in Goods and Services, September 4, 2019

Goods and Services Trade Deficit, Seasonally Adjusted

Exports, Imports, and Balance (exhibit 1)

July exports were $207.4 billion, $1.2 billion more than June exports. July imports were $261.4 billion, $0.4 billion less than June imports.

The July decrease in the goods and services deficit reflected a decrease in the goods deficit of $1.6 billion to $73.7 billion and a decrease in the services surplus of $0.1 billion to $19.7 billion.

Year-to-date, the goods and services deficit increased $28.2 billion, or 8.2 percent, from the same period in 2018. Exports decreased $3.4 billion or 0.2 percent. Imports increased $24.9 billion or 1.4 percent.

Three-Month Moving Averages (exhibit 2)

The average goods and services deficit increased $0.7 billion to $55.1 billion for the three months ending in July.

  • Average exports increased $0.5 billion to $208.0 billion in July.
  • Average imports increased $1.2 billion to $263.1 billion in July.

Year-over-year, the average goods and services deficit increased $7.0 billion from the three months ending in July 2018.

  • Average exports decreased $3.0 billion from July 2018.
  • Average imports increased $4.0 billion from July 2018.

Exports (exhibits 3, 6, and 7)

Exports of goods increased $1.2 billion to $138.2 billion in July.

   Exports of goods on a Census basis increased $1.2 billion.

  • Consumer goods increased $1.5 billion.
    • Pharmaceutical preparations increased $1.2 billion.
  • Capital goods increased $0.8 billion.
  • Automotive vehicles, parts, and engines increased $0.6 billion.
  • Industrial supplies and materials decreased $1.7 billion.
    • Crude oil decreased $0.5 billion.
    • Metallurgical grade coal decreased $0.2 billion.
    • Fuel oil decreased $0.2 billion.
    • Other petroleum products decreased $0.2 billion.

   Net balance of payments adjustments increased $0.1 billion.

Exports of services decreased $0.1 billion to $69.2 billion in July.

  • Transport decreased $0.1 billion.
  • Charges for the use of intellectual property decreased $0.1 billion.
  • Other business services, which includes research and development services; professional and management services; and technical, trade-related, and other services, increased $0.1 billion.

Imports (exhibits 4, 6, and 8)

Imports of goods decreased $0.4 billion to $211.8 billion in July.

   Imports of goods on a Census basis decreased $0.6 billion.

  • Capital goods decreased $1.5 billion.
    • Computers decreased $1.4 billion.
  • Industrial supplies and materials increased $0.9 billion.
    • Other petroleum products increased $1.0 billion.

   Net balance of payments adjustments increased $0.1 billion.

Imports of services increased $0.1 billion to $49.6 billion in July.

  • Insurance services increased $0.1 billion.
  • Other business services increased $0.1 billion.
  • Transport decreased $0.1 billion.

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

The real goods deficit decreased $0.7 billion to $85.5 billion in July.

  • Real exports of goods increased $0.6 billion to $148.7 billion.
  • Real imports of goods decreased $0.1 billion to $234.2 billion

September 15, 2019 in Economics | Permalink | Comments (0)

Saturday, August 31, 2019

Activities of U.S. Multinational Enterprises, 2017

Worldwide employment by U.S. multinational enterprises (MNEs) increased 0.4 percent to 42.5 million workers in 2017 from 42.3 million in 2016, according to statistics released by the Bureau of Economic Analysis on the operations and finances of U.S. parent companies and their foreign affiliates.

Employment in the United States by U.S. parents increased 0.2 percent to 28.1 million workers in 2017. U.S. parents accounted for 66.1 percent of worldwide employment by U.S. MNEs, down from 66.3 percent in 2016. Employment abroad by majority-owned foreign affiliates (MOFAs) of U.S. MNEs increased 0.9 percent to 14.4 million workers and accounted for 33.9 percent of employment by U.S. MNEs worldwide.

Employment by U.S. MNEs

U.S. parents accounted for 22.0 percent of total private industry employment in the United States. Employment by U.S. parents was largest in manufacturing and retail trade. Employment abroad by MOFAs was largest in China, United Kingdom, Mexico, India, and Canada.

Worldwide current-dollar value added of U.S. MNEs increased 2.0 percent to $5.3 trillion. Value added by U.S. parents, a measure of their direct contribution to U.S. gross domestic product, was nearly unchanged at $3.9 trillion, representing 22.9 percent of total U.S. private-industry value added. MOFA value added increased to $1.4 trillion. Value added by MOFAs was largest in the United Kingdom, Canada, and Ireland.

Worldwide expenditures for property, plant, and equipment of U.S. MNEs increased 2.0 percent to $853.2 billion. Expenditures by U.S. parents accounted for $653.6 billion and MOFA expenditures for $199.6 billion.

Worldwide research and development expenditures of U.S. MNEs increased 3.3 percent to $354.9 billion. U.S. parents accounted for expenditures of $298.3 billion and MOFAs for $56.6 billion.

Activities of U.S. MNEs

August 31, 2019 in Economics | Permalink | Comments (0)