International Financial Law Prof Blog

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

Sunday, December 9, 2018

U.S. Seeks to Recover over $73 Million in Proceeds Traceable to Bank Fraud to Conceal the Involvement of Jho Taek Low

The Department of Justice announced the filing of a civil forfeiture action in the U.S. District Court for the District of Columbia seeking to forfeit and recover more than $73 million in funds associated with an international conspiracy to defraud U.S. financial institutions and to launder funds controlled by Jho Taek Low, also known as “Jho Low,” an individual who is the subject of an indictment filed in the Eastern District of New York, alleging that Low and others conspired to launder billions of dollars embezzled from 1Malaysia Development Berhad (1MDB), Malaysia’s investment development fund, and pay hundreds of millions of dollars in bribes to foreign officials, among other things.  Download Higginbotham_forfeiture_complaint_0

The announcement was made by Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, Assistant Director in Charge William F. Sweeney Jr. of the FBI New York Field Office, and Special Agent in Charge Keith A. Bonanno of the Department of Justice Office of the Inspector General (DOJ-OIG) Cyber Investigations Office.

As alleged in the forfeiture complaint, multiple bank accounts were opened at U.S. financial institutions by Prakazrel (“Pras”) Michel and former Justice Department employee George Higginbotham in 2017 to receive tens of millions of dollars in funds from overseas accounts controlled by Jho Low.  In opening these accounts, Michel and Higginbotham allegedly made false and misleading statements to U.S. financial institutions that housed the accounts in order to mislead these institutions about the source of the funds and to obscure Jho Low’s involvement in these transactions.  Michel and Higginbotham allegedly intended to use these funds to attempt to influence the Justice Department’s investigation of Jho Low and 1MDB.  As alleged in the complaint, Higginbotham, as a Justice Department employee, played no role in any aspect of the investigation and failed to influence any aspect of the Department’s investigation of Low or 1MDB.

“According to the allegations in the complaint, Michel and Higginbotham defrauded U.S. financial institutions and laundered millions of dollars into the United States as part of an effort to improperly influence the Department’s investigation into the massive embezzlement and bribery scheme involving 1MDB,” said Assistant Attorney General Benczkowski. “The Criminal Division and our law enforcement partners will do everything we can to trace, seize, and forfeit the proceeds of foreign corruption that flow through the U.S. financial system.”

“Corruption is often at the root of national security, terrorism, and criminal threats, and those who seek to take advantage of our financial systems to perpetuate fraud and abuse will not be tolerated,” said FBI Assistant Director in Charge Sweeney.  “The FBI is committed to investigating and uncovering corruption no matter where it occurs, in conjunction with our domestic and international partners.”

“Ensuring the integrity of Department of Justice employees is of paramount importance,” said DOJ-OIG Special Agent in Charge Bonanno.  “An employee who facilitates or participates in this type of illicit activity will be thoroughly investigated by the OIG, including situations where attempts are made to influence the Department’s independence.”

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

Saturday, December 8, 2018

BVI Government Plans Legislation to Address EU Concerns on Economic Substance

The Premier announced that the BVI Government has responded constructively to the European Union’s listing exercise and will take all reasonable steps to address EU concerns relating to ‘economic substance’.  The Premier also announced that Cabinet has approved a Bill to meet this commitment. It is planned that the House of Assembly will be asked to consider the new legislation at the Sitting on Thursday 13 December, with the intention that the legislation will be in force by 31 December 2018 – the deadline set by the European Union.

The EU is compiling a list of non-cooperative jurisdictions on the basis of certain criteria it has set covering tax transparency, fair taxation and compliance with the OECD’s Base Erosion and Profit Shifting (BEPS) requirements. As part of this process the EU screened 92 countries in 2017 – including large nations such as the US and China. The BVI Government engaged positively with the EU throughout the screening process.

Due to the damage caused by the September 2017 hurricanes, a number of countries/jurisdictions, including the BVI, were given more time to commit to meeting the EU’s concerns. The Council of the EU accepted BVI’s commitment in March 2018.   The BVI meets the EU’s criteria when it comes to transparency, anti-BEPS measures and the general principles of ‘fair taxation’. However, the EU required further assurances from the BVI and other low or zero corporate income tax jurisdictions including Bermuda, the Cayman Islands and the Crown Dependencies on the issue of ‘economic substance’, set out in criterion 2.2 under the heading of ‘fair taxation’.

The new legislation will introduce economic substance requirements for all companies and limited partnerships which are registered and tax resident in the BVI. Every Corporate Service Provider registering a company that falls under the scope of the legislation will have to know where the company or limited partnership is tax resident and must be ready to relay that information to the BVI’s competent authorities.  If a company or limited partnership is tax resident in the BVI, it must demonstrate ‘economic substance’. Companies and limited partnerships that are tax resident in the BVI will have the opportunity to upskill those who work in the financial services sector through providing value-added services and increased sophistication of the sector. Companies and limited partnerships which are tax resident in BVI must, in relation to any relevant activity, carry out core income generating activities in BVI.

Relevant activities are: banking business, insurance business, fund management business, finance and leasing business, headquarters business, shipping business, holding business, intellectual property business, and distribution and service centre business.

The BVI is not alone in facing these challenges. But in every challenge there is an opportunity and the Government will engage closely with the BVI’s international business and financial services sector to ensure that the jurisdiction continues to provide services that benefit the global economy. The BVI is resilient. And the BVI is united in ensuring that we continue to put in place the conditions to allow existing sectors, and new sectors, of our economy to prosper and grow.”

Background In December 1997, the Council of the European Union adopted a resolution on a Code of Conduct for business taxation with the objective of curbing harmful tax competition and established the Code of Conduct Group (COCG) to oversee its implementation. In 2016, the European Union adopted criteria covering tax transparency, fair taxation and anti-base erosion and profit shifting (BEPS) against which countries were assessed during a screening process conducted by the COCG during 2017. No concerns were raised by the COCG regarding the BVI’s standards of tax transparency and implementation of anti-BEPS measures. The BVI was also regarded by the EU as compliant with the general principles of fair taxation. Jurisdictions with low or zero rates of corporate income tax were also assessed against criterion 2.2 (under the “fair taxation heading) which states: “The jurisdiction should not facilitate offshore structures or arrangements aimed at attracting profits which do not reflect real economic activity in the jurisdiction.” Following the screening process the COCG expressed concerns about BVI’s possible compliance with the criteria regarding a “legal substance requirement for entities doing business in or through the jurisdiction”. The COCG also expressed concern that the lack of legal substance requirements in BVI “increases the risk that profits registered in a jurisdiction are not commensurate with economic activities and substantial presence.”

In response, the Government made a commitment to implement reforms by the end of 2018 to ensure that BVI businesses have sufficient economic substance. Other jurisdictions (including the Crown Dependencies, Bermuda and the Cayman Islands) made similar commitments. The BVI was placed in “Annex II” of the list of jurisdictions produced by the COCG and endorsed by the EU Economic and Financial Affairs Council. Annex II lists jurisdictions that were identified as raising concerns but had made appropriate commitments to resolve them. The Government has entered into dialogue with the European Commission both in plenary sessions (with other jurisdictions) and bilateral meetings. Discussions have also taken place with individual EU Member States and with the OECD. The EU is expected to review legislation passed by BVI and other criterion 2.2 jurisdictions in early 2019. It is then the EU’s intention to announce an updated list of non-cooperative tax jurisdictions by March 2019. The OECD has recently adopted substantial activities requirements to be applied to jurisdictions that levy low or (like BVI) zero corporate income tax. This means that substance rules will no longer be a EU standard but will be a global standard. The BVI has always adhered to global standards and will continue to do so.

Read more at: http://bvifinance.vg/language/en-GB/News-Resources/ArticleID/3001/BVI-Government-Plans-Legislation-to-Address-EU-Concerns-on-Economic-Substance

To learn more about the British Virgin Islands' financial services, visit BVI Finance. Connect with us on FacebookTwitter, and LinkedIn.

Copyright © BVIFinance

December 8, 2018 in BEPS | Permalink | Comments (0)

Friday, December 7, 2018

process for all voluntary disclosures (domestic and offshore) following the closing of the Offshore Voluntary Disclosure Program (2014 OVDP) on September 28, 2018

Background and Overview of Updated Procedures

The 2014 OVDP began as a modified version of the OVDP launched in 2012, which followed voluntary disclosure programs offered in 2011 and 2009. These programs were designed for taxpayers with exposure to potential criminal liability or substantial civil penalties due to a willful failure to report foreign financial assets and pay all tax due in respect of those assets. They provided taxpayers with such exposure potential protection from criminal liability and terms for resolving their civil tax and penalty obligations. Taxpayers with unfiled returns or unreported income who had no exposure to criminal liability or substantial civil penalties due to willful noncompliance could come into compliance using the Streamlined Filing Compliance Procedures (SFCP), the delinquent FBAR submission procedures, or the delinquent international information
return submission procedures. Although they could be discontinued at any time, these other programs are still available.

Procedures in this memo will be effective for all voluntary disclosures received after the closing of the 2014 OVDP on September 28, 2018. All offshore voluntary disclosures conforming to the requirements of “Closing the 2014 Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers” FAQ 3 received or postmarked by September 28, 2018 will be handled under the procedures of the 2014 OVDP. For all other voluntary disclosures (non-offshore) received on or before September 28, 2018, the Service has the discretion to apply the procedures outlined in this memorandum.

The objective of the voluntary disclosure practice is to provide taxpayers concerned that their conduct is willful or fraudulent, and that may rise to the level of tax and tax-related criminal acts, with a means to come into compliance with the law and potentially avoid criminal prosecution. Download Ovdp 2018 onward

Proper penalty consideration is important in these cases. A timely voluntary disclosure
may mitigate exposure to civil penalties. Civil penalty mitigation occurs by focusing on a
specific disclosure period and the application of examiner discretion based on all
relevant facts and circumstances including prompt and full cooperation (see IRM
9.5.11.9.4) during the civil examination of a voluntary disclosure. Managers must ensure
that penalties are applied consistently, fully developed, and documented in all cases.
The terms outlined in this memorandum are only applicable to taxpayers that make
timely voluntary disclosures and who fully cooperate with the Service.

 

December 7, 2018 in GATCA, Tax Compliance | Permalink | Comments (0)

Thursday, December 6, 2018

Four Defendants Charged in Panama Papers Investigation for Their Roles in Panamanian-Based Global Law Firm’s Decades-Long Scheme to Defraud the United States

Four individuals have been charged in an indictment unsealed in the Southern District of New York with wire fraud, tax fraud, money laundering and other offenses in connection with their alleged roles in a decades-long criminal scheme perpetrated by Mossack Fonseca & Co. (“Mossack Fonseca”), a Panamanian-based global law firm, and related entities.  Download Ramses Owens et al Indictment

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Geoffrey S. Berman for the Southern District of New York, Chief Don Fort of IRS Criminal Investigation (IRS-CI), and Special Agent in Charge Angel M. Melendez of U.S. Immigrations and Customs Enforcement’s Homeland Security Investigations (HSI) New York made the announcement today.

Ramses Owens, 50, a Panamanian citizen; Dirk Brauer, 54, a German citizen; Richard Gaffey, 74, a U.S. citizen, of Medfield, Massachusetts; and Harald Joachim Von Der Goltz, 81, a German citizen, have been charged in an 11-count indictment.  Owens, Gaffey and Von Der Goltz are charged with one count of conspiracy to commit tax evasion, one count of wire fraud, and one count of money laundering conspiracy.  Owens and Brauer have been charged with one count of conspiracy to defraud the United States and one count of conspiracy to commit wire fraud.  Gaffey and Von Der Goltz are additionally charged with four counts of willful failure to file an FBAR.  Von Der Goltz has been additionally charged with two counts of making false statements.

Three of the four defendants named in the indictment have been arrested.  Brauer, who worked as an investment manager for Mossfon Asset Management, S.A. (“Mossfon Asset Management”), an asset management company closely affiliated with Mossack Fonseca, was arrested in Paris, France, on Nov. 15.  Von Der Goltz, a former U.S. resident and taxpayer, was arrested in London, United Kingdom, on Dec. 3.  Gaffey, a U.S.-based accountant, was arrested in Boston, Massachusetts earlier today.  Owens, a Panamanian attorney who worked for Mossack Fonseca, remains at large.   

“Law firms, asset managers, and accountants play key roles enabling entry into the global financial system,” said Assistant Attorney General Benczkowski.  “The charges announced today demonstrate our commitment to prosecute professionals who facilitate financial crime across international borders and the tax cheats who utilize their services.” 

"As alleged, these defendants went to extraordinary lengths to circumvent U.S. tax laws in order to maintain their wealth and the wealth of their clients,” said Manhattan U.S. Attorney Berman.  “For decades, the defendants, employees and a client of global law firm Mossack Fonseca allegedly shuffled millions of dollars through offshore accounts and created shell companies to hide fortunes.  In fact, as alleged, they had a playbook to repatriate un-taxed money into the U.S. banking system.  Now, their international tax scheme is over, and these defendants face years in prison for their crimes.”

“The unsealing of this indictment sends a clear message that IRS-CI is actively engaged in international tax enforcement, and more investigations are on the way,” said IRS-CI Chief Don Fort.  “IRS-CI specializes in unraveling these intricate offshore tax schemes and following the money around the globe wherever it may lead.  Cases like this help maintain the public’s confidence in our tax system by letting them know that we investigate and prosecute those who evade their tax obligation.”

“Today we announce the indictment of four individuals who allegedly defrauded the U.S. government through a large scale, intercontinental money laundering and wire fraud scheme, associated with Mossack Fonseca and its affiliates,” said HSI Special Agent-in-Charge Angel M. Melendez.  “HSI’s El Dorado Task Force, together with the IRS, built a case that uncovered an alleged complex trail of offshore shell corporations and bogus foundations used to disguise the beneficial ownership of huge amounts of money.  These efforts reflect the commitment of U.S. law enforcement to follow that trail and apprehend these criminals regardless of where they are in the world.”

According to the indictment, from at least in or about 2000 through in or about 2017, Owens and Brauer conspired with others to help U.S. taxpayer clients of Mossack Fonseca conceal assets and investments, and the income generated by those assets and investments, from the IRS through fraudulent, deceitful, and dishonest means.  To conceal their clients’ assets and income from the IRS, Owens and Brauer allegedly worked to establish and manage opaque offshore trusts and undeclared bank accounts on behalf of U.S. taxpayers who were clients of Mossack Fonseca.  Owens and Brauer allegedly marketed, created, and serviced sham foundations and shell companies formed under the laws of countries such as Panama, Hong Kong, and the British Virgin Islands, to conceal from the IRS and others the ownership by U.S. taxpayers of accounts established at overseas banks, as well as the income generated in those accounts.  As structured by Mossack Fonseca, the sham foundations typically “owned” the shell companies that nominally held the undeclared assets on behalf of the U.S. taxpayer clients of Mossack Fonseca.  The names of Mossack Fonseca’s clients generally did not appear anywhere on the incorporation paperwork for the sham foundations or related shell companies, although the clients in fact beneficially owned, and had complete access to, the assets of those sham entities and accounts.

In furtherance of the scheme, and in exchange for additional fees, Owens and Brauer allegedly provided support to clients who had purchased the sham foundations and related shell companies by providing corporate meeting minutes, resolutions, mail forwarding, and signature services.  Moreover, Owens and Brauer are alleged to have purposefully established the bank accounts in locations with strict bank secrecy laws, which impeded the ability of the United States to obtain bank records for the accounts.  Owens and Brauer also allegedly instructed U.S. taxpayer clients of Mossack Fonseca about how to repatriate funds to the United States from their offshore bank accounts in a manner designed to keep the undeclared bank accounts concealed.  Among other things, Owens and Brauer instructed clients to use debit cards and fictitious sales to repatriate their funds covertly, the indictment alleges.

Von Der Goltz was allegedly one of Mossack Fonseca’s U.S. taxpayer clients.  At all relevant times, Von Der Goltz was a U.S. resident and was subject to U.S. tax laws, which required him to report and pay income tax on worldwide income, including income and capital gains generated in domestic and foreign bank accounts.  U.S. citizens, resident aliens, and permanent legal residents with a foreign financial interest in or signatory authority over a foreign financial account worth more than $10,000 are required to file a Report of Foreign Bank and Financial Accounts, commonly known as an FBAR, disclosing the account.  Von Der Goltz is alleged to have evaded his tax reporting obligations by setting up a series of shell companies and bank accounts, and hiding his beneficial ownership of the shell companies and bank accounts from the IRS.  These shell companies and bank accounts allegedly made investments totaling tens of millions of dollars.  According to the indictment, Von Der Goltz was assisted in this scheme by Owens and by Gaffey, a partner at a U.S.-based accounting firm.  In furtherance of Von Der Goltz’s fraudulent scheme, Von Der Goltz, Gaffey, and Owens are alleged to have falsely claimed that Von Der Goltz’s elderly mother was the sole beneficial owner of the shell companies and bank accounts at issue because, at all relevant times, she was a Guatemalan citizen and resident, and — unlike Von Der Goltz — was not a U.S. taxpayer. 

As alleged in the indictment, Gaffey, in addition to assisting Von Der Goltz evade U.S. income taxes and reporting requirements, also worked closely with Owens to help another U.S. taxpayer client (“Client-1”) of Mossack Fonseca defraud the IRS.  Client-1 allegedly maintained a series of offshore bank accounts, which Mossack Fonseca helped Client-1 conceal from the IRS for years.    The indictment further alleges that, upon the advice of Owens and Gaffey, Client-1 covertly repatriated approximately $3 million of Client-1’s offshore money to the United States by falsely stating on Client-1’s federal tax return that the money represented proceeds from the sale of a company.  After Client-1 repatriated approximately $3 million in this manner, approximately $1 million still remained in Client-1’s offshore account, the existence of which remained hidden from the IRS.  

The charges in the indictment are merely allegations, and the defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law. 

The investigation was conducted by IRS-CI and HSI with significant assistance by the Justice Department’s Tax Division and the FBI.  The Justice Department’s Office of International Affairs and law enforcement partners in France and the United Kingdom secured the arrests of the defendants located overseas.                                                                                                                                                                                                                                                     

December 6, 2018 in AML | Permalink | Comments (0)

Wednesday, December 5, 2018

Latin American Ministers launch regional initiative to combat tax evasion and corruption

Uruguay’s Minister of Economy and Finance Danilo Astori hosted  a discussion with Ministers, high level representatives and senior officials from Latin America on how to strengthen regional efforts to combat tax fraud and corruption. The meeting concluded with the signing of  the  the Punta del Este Declaration in which the Ministers and Deputy Ministers of Uruguay, Argentina, Panama and Paraguay agreed to:

  • Establish a Latin American initiative to maximise the effective use of the information exchanged under the international tax transparency standards to tackle tax evasion, corruption and other financial crimes.
  • Explore further means of cooperation including wider use of the information provided through exchange of tax information channels for other law enforcement purposes as permitted under the multilateral Convention on Mutual Administrative Assistance in Tax Matters and domestic laws, and also effective and real-time access to beneficial ownership information.
  • Establish national action plans to further the cooperation objectives and have representatives report on the progress made at the next plenary meeting of the Global Forum.

At the meeting, hosted by Uruguay in the margins of the 11th Global Forum Plenary, the gathered officials also encouraged other interested jurisdictions to join the regional initiative, with additional signatures anticipated in the near future. 

December 5, 2018 in BEPS, OECD, Tax Compliance | Permalink | Comments (0)

Tuesday, December 4, 2018

Irish Finance Minister announces agreement between Revenue Commissioners & Maltese tax authority to prevent ‘Single Malt’ structure

The Minister for Finance and Public Expenditure and Reform, Paschal Donohoe TD, today (Tuesday) welcomed the publication by the Revenue Commissioners of a Competent Authority Agreement that has been reached with the Maltese authorities. 

The Competent Authority Agreement outlines the shared understanding of the authorities in Ireland and Malta that the BEPS Multilateral Convention on Tax Treaties will, once it is in effect in both jurisdictions, make clear that it is not the purpose of the bilateral Ireland-Malta Tax Treaty to enable an aggressive tax planning structure referred to as the ‘Single Malt’. This Agreement will ensure that the Treaty does not enable that aggressive structure.  
 

Commenting on the Agreement, Minister Donohoe said: ‘While I am confident that US tax reform has already significantly reduced the concerns around the Single Malt structure, I had asked officials to examine any further bilateral action that may be needed.  I am pleased that this agreement has been reached which should eliminate any remaining concerns about such structures. This is another sign of Ireland’s commitment to tackling aggressive tax planning, as set out in Ireland’s Corporation Tax Roadmap’.

The Competent Authority Agreement will be effective as soon as the BEPS Multilateral Convention is in effect for both Ireland and Malta.  Ireland is taking the last legislative steps to ratify this Convention in the Finance Bill 2018 and intends to deposit the final documents with the OECD in early January. 

Ireland remains committed to tax reform implemented at the international level, to address mismatches between jurisdictions and to continue the implementation of new robust global standards that are sustainable in the long run.

Notes for Editors

Concerns have been raised about an aggressive tax planning structure which may have involved some multinationals using a company incorporated in Ireland but tax-resident in Malta.  While US tax reforms introduced at the end of 2017 should have substantially reduced the benefits of operating this type of structure, Minister Donohoe asked officials to investigate what action was needed domestically or bilaterally to resolve any remaining concerns.

Discussions with Malta have been ongoing and have now resulted in a Competent Authority Agreement being reached.  A Competent Authority Agreement is an agreement between the tax authorities in two countries on the interpretation or application of a tax treaty between those countries, which is a treaty intended to avoid double taxation arising. Typically, the Mutual Agreement Procedure Article of such a bilateral tax treaty facilitates entering into this type of agreement.

Competent Authority Agreement between Ireland and Malta

A new Tax and Duty Manual Part 35-01-10 has been created which sets out a Competent Authority Agreement entered into by the Irish and Maltese Competent Authorities under Article 24 (Mutual Agreement Procedure) of the Ireland-Malta Double Taxation Convention.

Revenue, as Competent Authority with respect to the Convention between Ireland and Malta for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (‘Double Taxation Convention’), has signed a Competent Authority Agreement with the Maltese Competent Authority.

The Competent Authorities have agreed that, in relation to the structure outlined in the Competent Authority Agreement, the Double Taxation Convention’s deeming of a company – incorporated in Ireland but managed and controlled in Malta – to be resident in Malta only, does not serve the purposes of the Double Taxation Convention and is not “for those purposes”.

Accordingly, under Section 23A of the Taxes Consolidation Act 1997, such an Irish-incorporated company will be resident in Ireland and the relevant payments to it will come within the charge to Irish corporation tax.

This Competent Authority Agreement will have effect for taxable periods beginning on or after the expiration of a period of six months from the later of the dates on which the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting enters into force for Ireland and Malta.

December 4, 2018 in Tax Compliance | Permalink | Comments (0)

Monday, December 3, 2018

TaxFacts Intelligence Weekly (Dec. 3)

TAX DEVELOPMENTS

SEC Announces New Disclosure Requirements for Variable Annuities and Life Insurance 
The SEC recently proposed a rule change designed to improve disclosures with respect to variable annuities and variable life insurance contracts. The new disclosure obligations would help investors understand the features, fees and risks to these types of products in an effort to allow investors to make more informed investment decisions. Under the proposal, annuity and life insurance carriers would be entitled to provide information to investors in a summary prospectus form that would provide a more concise summary of the terms of the contract. For more information on variable annuities, visit Tax Facts Online and Read More.

Digging Into the Details of Hardship Distributions for Primary Residence Purchases
Qualified plans can to allow participants to take hardship distributions to help with the purchase of a primary residence. The distribution must be directly taken to purchase the residence--items such as renovations made prior to move-in do not qualify. Despite this, the distribution can cover more than just the purchase price of the residence itself. Closing costs would also qualify, as would the cost of a piece of land upon which the primary residence would be built. If a participant buys out a former spouse's interest in a jointly-owned home pursuant to divorce, the distribution would also qualify. For more information on the hardship distribution rules, visit Tax Facts Online and Read More.

Avoiding Gift Tax Traps This Holiday Season
Most taxpayers believe that they are not required to file a gift tax tax return if they do not owe gift taxes--as many will not because of the current $11.18 million gift tax exemption will shield most donors from gift tax liability. Despite this, each gift made during a donor's lifetime serves to reduce that $11.18 million amount, which applies both to lifetime gifts and transfers made at death. Taxpayers must file Form 709 to report taxable gifts in excess of the annual exclusion amount to avoid potential IRS penalties for failure to file a return. The form is required not because gift taxes are owed, but to provide the IRS with a mechanism for tracking any given taxpayer's use of the exemption amount during life. For more information on the gift tax filing requirements, visit Tax Facts Online and Read More.

December 3, 2018 in Tax Compliance | Permalink | Comments (0)

Friday, November 30, 2018

Former Charter Airline Executive Sentenced to Nearly Eight Years in Prison for Orchestrating Multimillion Dollar Scheme to Steal Passenger Money from Escrow

The former vice president of a now-bankrupt public air charter operator was sentenced to 94 months in prison for her role in a scheme to steal millions of dollars in passenger money for future travel from an escrow account, announced Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division and Regional Special Agent in Charge Douglas Shoemaker of the U.S. Department of Transportation Office of the Inspector General’s (DOT-OIG).

Kay Ellison, 58, of Edenton, North Carolina, was sentenced by U.S. District Judge Susan D. Wigenton of the District of New Jersey, who presided over the trial.  Judge Wigenton also ordered the defendant to pay $19.6 million in restitution.  Ellison and her co-defendant, Judy Tull, 73, also of Edenton, were both convicted on March 28, after a seven-day trial, of one count of conspiracy to commit wire fraud affecting financial institutions and to commit bank fraud, four counts of wire fraud affecting financial institutions and three counts of bank fraud.  Ellison is the former vice president and managing partner of Myrtle Beach Direct Air and Tours (Direct Air), which was headquartered in Myrtle Beach, South Carolina, with operations in Daniels, West Virginia, and Tull is its former CEO.  Tull is scheduled to be sentenced at a later date.

“Kay Ellison stole tens of millions of dollars of passenger money in a brazen scheme that put a veneer of success on a failing company, and left others holding the bag—until today,” said Assistant Attorney General Benczkowski.  “Her sentence sends a powerful deterrent message—especially to corporate executives—and demonstrates the commitment of the Criminal Division and its law enforcement partners to uncovering and vigorously prosecuting corporate fraud wherever it is found.”

“The sentencing in this investigation demonstrates that the Department of Transportation Office of Inspector General is committed to stopping charter flight operators who intentionally mislead and defraud the traveling public for personal gain,” said DOT-OIG Regional Special Agent in Charge Shoemaker.  “Together with the Department of Justice, we will continue to vigorously pursue and prosecute fraud that erodes consumer confidence in the integrity of transportation-related goods and services.”

According to evidence presented at trial, from October 2007 through March 2012, Ellison and Tull engaged in a scheme to steal passengers’ money for future travel from an escrow account by artificially inflating the amount of money that the defendants claimed they were entitled to receive, and by sending this falsified amount in a letter to the escrow bank telling the escrow bank to release the money.  The evidence further established that to cover up their fraud, the defendants falsified profit and loss statements to make the company look like it was making money rather than losing money, and sent these falsified documents to credit card companies and banks to trick them into continuing to do business with the company.

Testimony at trial established that two financial institutions incurred losses of nearly $30 million for having to refund thousands of passengers their money that should have been held for them in escrow, but was actually stolen by the defendants as part of their fraud.

Robert Keilman, 73, of Marlboro, New Jersey, Direct Air’s former chief financial officer, pleaded guilty to charges stemming from his role in this scheme and will be sentenced separately. 

This case was investigated by DOT-OIG.  Trial Attorneys Cory E. Jacobs and Michael T. O’Neill of the Criminal Division’s Fraud Section are prosecuting the case. 

November 30, 2018 in AML | Permalink | Comments (0)

Thursday, November 29, 2018

IRS issues proposed regulations on foreign tax credits

 The Internal Revenue Service issued proposed regulations yesterday on foreign tax credits for businesses and individuals.

The 2017 Tax Cuts and Jobs Act (TCJA), legislation passed in December 2017, made major changes to the way the U.S. taxes foreign activities. Significant new provisions include a dividends-received deduction for dividends from foreign subsidiaries and the addition of Global Intangible Low-Taxed Income rules, which subject to current U.S. taxation certain foreign earnings that would have been deferred under previous law.   
   
The TCJA also modified the foreign tax credit rules, which allow U.S. taxpayers to offset their taxes by the amount of foreign income taxes paid or accrued, in several important ways to reflect the new international tax rules. These changes include repeal of rules for computing deemed-paid foreign tax credits on dividends on the basis of foreign subsidiaries’ cumulative pools of earnings and foreign taxes, and the addition of two separate foreign tax credit limitation categories for foreign branch income and amounts includible under the new Global Intangible Low-Taxed Income provisions. The TCJA also modified how taxable income is calculated for the foreign tax credit limitation by disregarding certain expenses related to income eligible for the dividends-received deduction and repealing the use of the fair market value method for allocating interest expense. The new foreign tax credit rules apply to 2018 and future years.  

Treasury and IRS welcome public comments on these proposed regulations. For details on submitting comments, see the proposed regulations.

Updates on the implementation of the TCJA can be found on the Tax Reform page of IRS.gov.

November 29, 2018 in Tax Compliance | Permalink | Comments (0)

Wednesday, November 28, 2018

Call for International Tax Teaching and Research Associate for Vienna University

We are pleased to remind you once more that the Institute for Austrian and International Tax Law is offering a position as teaching and research associate. The deadline for applications is December 05, 2018.
 
We would be delighted if you decide to apply for this position or if you could kindly distribute this announcement to other qualified colleagues.
 
For more information on the position, please see our website under Further Information:www.wu.ac.at/taxlaw. If you would like to apply, or you know somebody who may be interested, please send your application to Ms. Theodora Stergidou (jobtaxlaw@wu.ac.at).


Kind regards,

Michael Lang / Alexander Rust / Josef Schuch / Claus Staringer / Pasquale Pistone / Alfred Storck / Jeffrey Owens / Maria Wimmer

November 28, 2018 in Academia | Permalink | Comments (0)

Tuesday, November 27, 2018

EU Parliament Wants European Citizenship by Investment (CBI) and Residency by Investment (RBI) programs abolished

The European Union Parliament states - 

  • Observes that a majority of Member States have adopted citizenship by investment (CBI) or residency by investment (RBI) schemes, generally known as visa or investor programmes, by which citizenship or residence is granted to non-EU citizens in exchange for financial investment; observes that these programmes do not necessarily require applicants to spend time on the territory in which the investment is made
  • 18 Member States have some form of RBI scheme in place, including four Member States that operate CBI  schemes in addition to RBI schemes: Bulgaria, Cyprus, Malta, Romania. 10 member States have no such schemes: Austria, Belgium, Denmark, Finland, Germany, Hungary, Poland, Slovakia, Slovenia and Sweden. Source: study entitled ‘Citizenship by investment (CBI) and residency by investment (RBI) schemes in the EU‘, EPRS, October 2018, PE: 627.128; ISBN: 978-92-846-3375-3.
  • Observes that at least 5 000 non-EU citizens have obtained EU citizenship through citizenship by investment schemes
  • Stresses that CBI and RBI schemes carry significant risks, including a devaluation of EU citizenship and the potential for corruption, money laundering and tax evasion; reiterates its concern that citizenship or residence could be granted through these schemes without proper or indeed any customer due diligence (CDD) having been carried out; notes that several formal investigations into corruption and money laundering have been launched at national and EU level directly related to CBI and RBI schemes; underlines that, at the same time, the economic sustainability and viability of the investments provided through these schemes remain uncertain
  • Concludes that the potential economic benefits of CBI and RBI schemes do not offset the serious money laundering and tax evasion risks they present; calls on Member States to phase out all existing CBI or RBI schemes as soon as possible; stresses that, in the meantime, Member States should properly ensure that enhanced CDD on applicants for citizenship or residence through these schemes is duly carried out, as required by AMLD5; calls on the Commission to monitor rigorously and continuously the proper implementation and application of CDD within the framework of CBI and RBI schemes until they are repealed in each Member State;

Download TAX3 Final draft report

November 27, 2018 in AML | Permalink | Comments (0)

Former Venezuelan National Treasurer Sentenced to 10 Years in Prison for Money Laundering Conspiracy Involving Over $1 Billion in Bribes

A former Venezuelan national treasurer was sentenced today for his role in a billion-dollar currency exchange and money laundering scheme.

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Ariana Fajardo Orshan of the Southern District of Florida, Special Agent in Charge Mark Selby of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI) Miami Field Office, Special Agent in Charge Mark B. Dawson of HSI Houston Field Office, Special Agent in Charge George L. Piro of the FBI Miami Field Office and Inspector General Jay N. Lerner of the Federal Deposit Insurance Corporation’s (FDIC) Washington, D.C. Office made the announcement.

Alejandro Andrade Cedeno (Andrade), 54, a Venezuelan citizen residing in Wellington, Florida and a former Venezuelan national treasurer, was sentenced today to 10 years in prison by U.S. District Judge Robin L. Rosenberg of the Southern District of Florida. Andrade pleaded guilty under seal on Dec. 22, 2017 to one count of conspiracy to commit money laundering.  As part of his guilty plea, Andrade admitted that he received over $1 billion in bribes from co-conspirator Raul Gorrin Belisario, 50, and other co-conspirators in exchange for using his position as Venezuelan national treasurer to select them to conduct currency exchange transactions at favorable rates for the Venezuelan government.  Andrade received cash as well as private jets, yachts, cars, homes, champion horses, and high-end watches from his co-conspirators.  As part of his plea agreement, Andrade agreed to a forfeiture money judgment of $1 billion and forfeiture of all assets involved in the corrupt scheme, including real estate, vehicles, horses, watches, aircraft and bank accounts. 

HSI Miami, HSI Houston, HSI Boston, FBI Miami, and the FDIC D.C. investigated this case.  This case is being prosecuted by Trial Attorneys Vanessa Sisti Snyder, Paul A. Hayden and John-Alex Romano of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Michael B. Nadler and Nalina Sombuntham of the Southern District of Florida’s Criminal Division.  The Criminal Division’s Office of International Affairs provided significant assistance in this matter.  The Policía Nacional (Spanish National Police) also provided significant assistance. 

The Fraud Section is responsible for investigating and prosecuting all FCPA matters.  Additional information about the department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.

November 27, 2018 in AML | Permalink | Comments (0)

Global Forum on Tax Transparency marks a dramatic shift in the fight against tax evasion with the widespread commencement of the automatic exchange of financial information

The Global Forum on Transparency and Exchange of Information for Tax Purposes held its annual meeting in Punta del Este, Uruguay on 20-22 November, bringing together over 200 delegates from more than 100 jurisdictions, international organizations and regional groups to strengthen further the international community’s fight against tax evasion.  

The meeting marked the widespread rollout of automatic exchange of financial account of information. Global Forum members took stock of the tremendous progress made in the implementation of the standard of automatic exchange of information (AEOI) with 4 500 successful bilateral exchanges having taken place under the new AEOI Standard in 2018 by 86 jurisdictions. Each exchange contains detailed information about the financial accounts each jurisdiction’s taxpayers hold abroad. Such widespread exchange was also facilitated by the use of the Common Transmission System managed by the Global Forum. Further details can be found in the 2018 AEOI Implementation Report.

Following its review of the legal frameworks, the Global Forum will move to assess the effectiveness of the AEOI Standard in practice. To this end, members adopted a detailed Terms of Reference for such reviews and a work plan further develop, test and refine its approach to conducting the reviews, which will commence in 2020.

The Global Forum also published a further  22 jurisdiction reviews this year in relation to the exchange of information on request (EOIR), which has only increased in relevance with the move to AEOI and transparency initiatives in relation to base erosion and profit shifting (BEPS).

In other developments at the meeting, Global Forum members commended the technical assistance work carried out to support jurisdictions in implementing the standards effectively. This work has grown enormously, and is a truly combined effort of the Global Forum, donors, other international organizations and regional groups, working together towards a common goal.

The Global Forum delegates also welcomed the Punta de Este Declaration which sets up a Latin American initiative to maximize the potential of the effective use of the information exchanged under the international tax transparency standards to not only tackle tax evasion, but also corruption and other financial crimes. This improved international tax cooperation will help counter practices contributing to all forms of financial crimes and improve direct access to information of common interest to all relevant agencies.

The next plenary meeting to be held in 2019 will mark the 10th anniversary of the Global Forum. This will be a key moment to reflect on the role it has played in the effective implementation of the tax transparency standards across the globe and its future direction.

November 27, 2018 in OECD, Tax Compliance | Permalink | Comments (0)

Monday, November 26, 2018

IRS issues proposed regulations on new business interest expense deduction limit

The Internal Revenue Service issued proposed regulations today for a provision of the Tax Cuts and Jobs Act, which limits the business interest expense deduction for certain taxpayers. Certain small businesses whose gross receipts are $25 million or less and certain trades or businesses are not subject to the limits under this provision.

For tax years beginning after Dec. 31, 2017, the deduction for business interest expense is generally limited to the sum of a taxpayer’s business interest income, 30 percent of adjusted taxable income and floor plan financing interest. Taxpayers will use new Form 8990, Limitation on Business Interest Expense Under Section 163(j), to calculate and report their deduction and the amount of disallowed business interest expense to carry forward to the next tax year.

This limit does not apply to taxpayers whose average annual gross receipts are $25 million or less for the three prior tax years. This amount will be adjusted annually for inflation starting in 2019.

Other exclusions from the limit are certain trades or businesses, including performing services as an employee, electing real property trades or businesses, electing farming businesses and certain regulated public utilities. Taxpayers must elect to exempt a real property trade or business or a farming business from this limit.

November 26, 2018 in Tax Compliance | Permalink | Comments (0)

IRS Postpones Updating Form W-4 Until 2020 But Provides New TCJA Withholding Guidance for Taxpayers

Notice 2018-92 relates to the Tax Cut and Jobs Act (P.L. 115-97) changes to sections 3402 and 3405, and the IRS’ and Treasury Department’s decision to delay an overhaul of the Form W-4 from 2019 to 2020.  This notice provides interim guidance for 2019 on income tax withholding, requests comments on certain withholding procedures, and indicates that regulations are planned to update the withholding regulations to reflect changes made by the TCJA. 

Specifically, this notice (1) announces that the 2019 Form W-4 will be similar to the 2018 Form W-4, (2) addresses new TCJA “withholding allowance” terminology, (3) continues until April 30, 2019 Notice 2018-14’s temporary suspension of the requirement to furnish new Forms W-4 within 10 days for changes resulting solely from the TCJA, (4) provides that, for 2019, the default rule when an employee fails to furnish a Form W-4 will continue to be single with zero withholding allowances, (5) allows taxpayers to take into account the qualified business income deduction under section 199A to reduce withholding under section 3402(m), (6) announces that the IRS and Treasury intend to update the regulations under section 3402 to explicitly allow taxpayers to use the online withholding calculator or Publication 505, Tax Withholding and Estimated Tax, in lieu of the worksheets to Form W-4, (7) requests comments on alternative withholding methods under section 3402(h) and announces that the IRS and the Treasury Department intend to eliminate the combined income tax withholding and employee FICA tax withholding tables under Treas. Reg. § 31.3402(h)(4)-1(b), (8) modifies notification requirements for the withholding compliance program, and (9) provides that, for 2019, withholding on annuities or similar periodic payments where no withholding certificate is in effect is based on treating the payee as a married individual claiming 3 withholding allowances  under § 3405(a)(4).

November 26, 2018 in Tax Compliance | Permalink | Comments (0)

Sunday, November 25, 2018

IRS Guarantees It Won't Claw Back Large Gifts When $10.2 Million Exemption Extension Expires 2026

Today the IRS announced that individuals taking advantage of the increased gift and estate tax exclusion amounts in effect from 2018 to 2025 will not be adversely impacted after 2025 when the exclusion amount is scheduled to drop to pre-2018 levels.

The Treasury Department and the IRS issued proposed regulations which implement changes made by the 2017 Tax Cuts and Jobs Act (TCJA). As a result, individuals planning to make large gifts between 2018 and 2025 can do so without concern that they will lose the tax benefit of the higher exclusion level once it decreases after 2025.

In general, gift and estate taxes are calculated, using a unified rate schedule, on taxable transfers of money, property and other assets. Any tax due is determined after applying a credit – formerly known as the unified credit – based on an applicable exclusion amount.

The applicable exclusion amount is the sum of the basic exclusion amount (BEA) established in the statute, and other elements (if applicable) described in the proposed regulations. The credit is first used during life to offset gift tax and any remaining credit is available to reduce or eliminate estate tax.

The TCJA temporarily increased the BEA from $5 million to $10 million for tax years 2018 through 2025, with both dollar amounts adjusted for inflation. For 2018, the inflation-adjusted BEA is $11.18 million. In 2026, the BEA will revert to the 2017 level of $5 million as adjusted for inflation.

To address concerns that an estate tax could apply to gifts exempt from gift tax by the increased BEA, the proposed regulations provide a special rule that allows the estate to compute its estate tax credit using the higher of the BEA applicable to gifts made during life or the BEA applicable on the date of death.

Treasury and IRS welcome public comment, and the proposed regulations provide details on how to submit comments.

26 CFR Part 20 [REG-106706-18] RIN 1545-B072 Estate and Gift Taxes; Difference in the Basic Exclusion Amount

November 25, 2018 in Tax Compliance | Permalink | Comments (0)

Saturday, November 24, 2018

Report on U.S. Portfolio Holdings of Foreign Securities at End-Year

The findings from the annual survey of U.S. portfolio holdings of foreign securities at year-end 2017 were released today and posted on the Treasury web site at https://www.treasury.gov/resource-center/data-chart-center/tic/Pages/fpis.aspx.

The survey was undertaken jointly by the U.S. Department of the Treasury, the Federal Reserve Bank of New York, and the Board of Governors of the Federal Reserve System. 

A complementary survey measuring foreign holdings of U.S. securities is also conducted annually.  Data from the most recent such survey, which reports on securities held at end-June 2018, are currently being processed.  Preliminary results are expected to be reported on February 28, 2019.  See for historical data: http://www.treasury.gov/resource-center/data-chart-center/tic/Pages/index.aspx

Overall Results

This survey measured the value of U.S. portfolio holdings of foreign securities at year-end 2017 as approximately $12.4 trillion, with $9.1 trillion held in foreign equity, $2.8 trillion held in foreign long-term debt securities (original term-to-maturity in excess of one year), and $0.5 trillion held in foreign short-term debt securities.  The previous such survey, conducted as of year-end 2016, measured U.S. holdings of approximately $9.9 trillion, with $7.1 trillion held in foreign equity, $2.4 trillion held in foreign long-term debt securities, and $0.3 trillion held in foreign short-term debt securities.  The increase during 2017 occurred mainly in equity.

U.S. portfolio holdings of foreign securities by country at the end of 2017 were the largest for the Cayman Islands ($1.77 trillion), followed by the United Kingdom ($1.47 trillion), Japan ($1.13 trillion), and Canada ($996 billion) (see Table 2).  These four countries attracted 43 percent of total U.S. portfolio investment, versus 43 percent the previous year.

The surveys are part of an internationally coordinated effort under the auspices of the International Monetary Fund (IMF) to improve the measurement of portfolio asset holdings.

Table 1.  U.S. holdings of foreign securities, by type of security, as of survey dates [1]

(Billions of dollars)

 

Type of Security

Dec. 31, 2016

Dec. 31, 2017

 

 

 

Long-term Securities

9,583

11,953

            Equity

7,146

9,118

            Long-term debt

2,436

2,835

Short-term debt securities

308

456

Total

9,891

12,409

 

U.S. Portfolio Investment by Country

 

Table 2.  Market value of U.S. portfolio holdings of foreign securities, by country and type of security, for countries attracting the most U.S. investment, as of December 31, 2017 [1]

(Billions of dollars)

Country or category

Total

Equity

Debt

Total

Long-term

Short-term

Cayman Islands

1,767

1,362

405

403

2

United Kingdom

1,473

1,091

382

336

46

Japan

1,132

902

230

123

107

Canada

996

512

484

381

102

France

605

442

163

134

29

Netherlands

538

345

193

185

8

Switzerland

506

477

29

26

2

Ireland

495

421

74

70

4

Germany

494

400

94

83

11

Australia

355

197

158

114

44

Bermuda

263

229

34

34

*

Korea, South

263

242

21

20

1

India

194

181

14

13

1

Brazil

182

148

34

34

*

Taiwan

178

178

*

*

0

Sweden

172

107

65

43

23

Singapore

171

143

28

11

17

Hong Kong [2]

164

155

8

4

4

Mexico

163

67

96

94

2

China, mainland [2]

162

158

4

3

1

Rest of world

2,135

1,361

774

723

51

Total

12,409

9,118

3,291

2,835

456

*     Greater than zero but less than $500 million.

Items may not sum to totals due to rounding.

[1] The stock of foreign securities for December 31, 2017, reported in this survey may not, for a number of reasons, correspond to the stock of foreign securities on December 31, 2016, plus cumulative flows reported in Treasury’s transactions reporting system.  An analysis of the relationship between the stock and flow data is available in Table 4 and the associated text of the “Report on U.S. Portfolio Holdings of Foreign Securities at end-year 2017.”

[2] China, Hong Kong, and Macau are all reported separately.

November 24, 2018 in Economics | Permalink | Comments (0)

Friday, November 23, 2018

Societe Generale reaches agreements with U.S. authorities to resolve U.S. Economic sanctions and AML investigations

Société Générale has reached settlement agreements with certain U.S. authorities, resolving their investigations relating to certain U.S. dollar transactions processed by Société Générale involving countries, persons or entities that are the subject of U.S. economic sanctions and implicating New York State laws.  Download SocGen settlement

  • Société Générale has agreed to pay penalties totaling approximately $1.3 billion (€1.2 billion) to the U.S. Authorities.  This amount is entirely covered by the provision for disputes booked in Société Générale's accounts.  These agreements will not have an additional impact on the Bank’s results for 2018.  Download SocGen OFAC Penalty Calculations
  • The Bank has signed deferred prosecution agreements with the U.S Attorney's Office of the Southern District of New York ("SDNY") and the New York County District Attorney's Office, which provide that, following a three-year probation period, the Bank will not be prosecuted if it abides by the terms of the agreements, to which Société Générale is fully committed.  The deferred prosecution agreement with SDNY will be subject to court approval in the United States.
  • The Bank has also committed, beyond the extensive actions it has already taken to date, to enhance its compliance program to prevent and detect potential violations of U.S. economic sanctions regulations and New York state laws, and to enhance corporate oversight of its sanctions compliance program.  The Bank has also agreed with the Board of Governors of the Federal Reserve System to retain an independent consultant that will evaluate the Bank's progress on the implementation of enhancements to its sanctions compliance program.
  • In addition, the Bank has reached a separate agreement with the New York State Department of Financial Services relating to the Bank’s anti-money-laundering compliance program in the New York Branch. The Bank has agreed to pay an additional penalty of $95 million (€82 million) in connection with this agreement, which amount is likewise entirely covered by the provision for disputes booked in Société Générale's accounts.

******

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) today announced a $53,966,916.05 settlement with Société Générale S.A. to settle potential civil liability for apparent violations of U.S. sanctions.  The settlement resolves OFAC’s investigation into Société Générale S.A.’s processing of transactions to or through the United States or U.S. financial institutions in a manner that removed, omitted, obscured, or otherwise failed to include references to OFAC-sanctioned parties in the information sent to U.S. financial institutions that were involved in the transactions.  Société Générale S.A. processed 1,077 transactions totaling $5,560,452,994.36 in apparent violation of the Cuban Assets Control Regulations, 31 C.F.R. part 515; the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560; and the Sudanese Sanctions Regulations, 31 C.F.R. part 538.  This settlement with OFAC is part of a global settlement among Société Générale S.A., OFAC, the Board of Governors of the Federal Reserve System, the U.S. Department of Justice, the New York County District Attorney’s Office, the U.S. Attorney for the Southern District of New York, and the New York State Department of Financial Services.

Société Générale has reached settlement agreements with the Office of Foreign Assets Control of the U.S. Department of the Treasury ("OFAC"), the U.S. Attorney's Office of the Southern District of New York ("SDNY"), the New York County District Attorney's Office ("DANY"), the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York (together , the "Federal Reserve"), and the New York State Department of Financial Services ("DFS") (collectively, the "U.S. Authorities"), resolving their investigations relating to certain U.S. dollar transactions processed by Société Générale involving countries, persons, or entities that are the subject of U.S. economic sanctions and implicating New York State laws

The vast majority by value of the sanctions violations involved in the settlements related to Cuba, and stem from a single revolving credit facility extended in 2000.  The remaining transactions involved other countries that are the target of U.S. economic sanctions, including Iran.

Under the terms of these agreements, Société Générale has agreed to pay penalties totaling approximately $1.3 billion (€1.2 billion) to the U.S. Authorities, including $53.9 million to OFAC, $717.2 million to SDNY, $162.8 million to DANY, $81.3 million to the Federal Reserve, and $325 million to DFS.

This amount is entirely covered by the provision for disputes booked in Société Générale’s accounts.  These agreements will not have an additional impact on the Bank's results for 2018.

The Bank has signed deferred prosecution agreements with SDNY and DANY, which provide that, following a three-year probation period, the Bank will not be prosecuted if it abides by the terms of the agreements, to which Société Générale is fully committed.

Société Générale received significant credit from the U.S. Authorities for its cooperation during the investigation.  The Bank will continue to cooperate with the U.S. Authorities in the future, pursuant to the agreements.

The Bank has also committed to continue to enhance its compliance program to prevent and detect potential violations of U.S. economic sanctions laws and New York state laws. The Bank also agreed to enhance its oversight of its sanctions compliance program.  The Bank has also agreed with the Federal Reserve to retain an independent consultant that will evaluate the Bank's progress on the implementation of enhancements to its sanctions compliance program.

In this regard, in recent years, the Bank has already taken several actions, which include:

  • Disseminating enhanced policies related to complying with regulations regarding sanctions and embargoes to all employees, emphasizing their importance, and in parallel, initiating an ambitious training program in the matter.
  • Recruiting additional compliance officers working on financial crime, at the Group level and in the relevant business lines, and reinforcing the centralized Group-level sanctions and embargoes alert management teams.
  • Reorganizing the hierarchical structure of the teams responsible for sanctions and embargoes compliance, and enhancing escalation procedures. 

These specific actions supplement important measures that the Bank has already taken regarding the organization and operation of its compliance program.  Notably, they include a vast multi-year compliance transformation program, the implementation of a centralized and independent compliance role directly supervised by General Management, and the deployment of a worldwide “Culture & Conduct” program.  The Bank is fully committed to complying with all remediation program requirements set forth in the agreements.

In addition, the Bank has agreed to a Consent Order with DFS relating to components of the Bank’s anti-money-laundering (“AML”) compliance program in the New York Branch.  The Consent Order requires the Bank to pay a civil money penalty of $95 million (€82 million) in light of deficiencies noted by DFS, which amount is likewise entirely covered by the provision for disputes booked in Société Générale's accounts.  The Consent Order requires the Bank to continue a series of enhancements to its New York branch’s AML compliance program.  After a period of 18 months, an independent consultant will conduct an assessment of the Branch’s progress on the implementation of its AML compliance program.

Frédéric Oudéa, Chief Executive Officer of Société Générale, stated: "We acknowledge and regret the shortcomings that were identified in these settlements, and have cooperated with the U.S. Authorities to resolve these matters.  Société Générale has already taken a number of significant steps in recent years and dedicated substantial resources to enhance its sanctions and AML compliance programs.  More broadly, these resolutions, following on the heels of the resolution of other investigations earlier this year, allow the Bank to close a chapter on our most important historical disputes.  Looking to the future, we aim to be a trusted partner.  Anchoring a culture of responsibility in the way we conduct and develop our activities is a priority of our 'Transform to Grow' strategic plan.  We aim to meet the highest standards of compliance and ethics, in the best interest of our clients and of all of our stakeholders."

Société Générale S.A. Agrees to Pay $860 Million in Criminal Penalties for Bribing Gaddafi-Era Libyan Officials and Manipulating LIBOR Rate

Bank admits to making over $90 million in corrupt payments; Acknowledges manipulation of global benchmark interest rate, impacting financial products traded worldwide

Société Générale S.A. (Société Générale), a global financial services institution based in Paris, France, and its wholly owned subsidiary, SGA Société Générale Acceptance N.V., have agreed to pay a combined total penalty of more than $860 million to resolve charges with criminal authorities in the United States and France, including $585 million relating to a multi-year scheme to pay bribes to officials in Libya and $275 million for violations arising from its manipulation of the London InterBank Offered Rate (LIBOR), one of the world’s leading benchmark interest rates.  SGA Société Générale Acceptance N.V. will plead guilty in the Eastern District of New York in connection with the resolution of the foreign bribery case.  Together with approximately $475 million in regulatory penalties and disgorgement that Société Générale has agreed to pay to the Commodity Futures Trading Commission (CFTC) in connection with the LIBOR scheme, the total penalties to be paid by the bank exceed $1 billion. 

In related proceedings, Société Générale reached a settlement with the Parquet National Financier (PNF) in Paris relating to the Libya corruption scheme.  The United States will credit $292,776,444 that Société Générale will pay to the PNF under its agreement, equal to 50 percent of the total criminal penalty otherwise payable to the United States.  This is the first coordinated resolution with French authorities in a foreign bribery case.

Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division, U.S. Attorney Richard P. Donoghue of the Eastern District of New York, Special Agent in Charge Matthew J. DeSarno of the FBI Washington Field Office's Criminal Division, Assistant Director in Charge William F. Sweeney Jr. of the FBI New York Field Office and Deputy Chief Eric Hylton of IRS Criminal Investigation made the announcement.

“For years, Société Générale undermined the integrity of global markets and foreign institutions by issuing false financial data and by fraudulently securing contracts through bribery,” said Acting Assistant Attorney General Cronan.  “Today’s resolution – which marks the first coordinated resolution with France in a foreign bribery case – sends a strong message that transnational corruption and manipulation of our markets will be met with a global and coordinated law enforcement response.”

“The resolution announced today by the Department with Societe Generale and a subsidiary, which includes a guilty plea, admissions of wrongdoing, significant corrective measures and hundreds of millions of dollars in penalties, sends a powerful message to financial institutions that engage in corruption and manipulation in the financial markets that they will be held accountable,” said U.S. Attorney Donoghue.  “The United States will vigorously protect the integrity of financial markets by holding responsible to the full extent of the law those banks, corporations and individuals who seek to corrupt government officials to enrich themselves.” 

“Today’s resolution demonstrates that fraudulently manipulating LIBOR and deceiving the financial market has severe consequences, and the FBI will not tolerate this type of criminal activity,” said FBI Special Agent in Charge DeSarno. “The FBI remains committed to holding institutions accountable for their actions in breaking the law and manipulating the global benchmark interest rate. The personnel of the FBI Washington Field Office have dedicated significant time and resources to investigating complex financial fraud schemes such as this one, and I want to thank them for their tireless efforts as well as our colleagues at the Department of Justice Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Eastern District of New York for their hard work.”

“When financial institutions convince foreign officials to accept bribes in return for lucrative business deals, their actions directly threaten the international free market system, not to mention our national security," said FBI Assistant Director in Charge Sweeney. "But being geographically out of sight doesn’t mean you’re out of reach from prosecution. No matter who you are, where you are, or how much money you have, the FBI will continue to use all resources at our disposal to find you, uncover your crimes, and reveal them for what they really are. Many thanks to the hardworking men and women of the FBI’s New York Field Office for leading the effort to expose this scheme and bring its perpetrators to justice.”

“Today’s announcement resulted from the unraveling of international financial transactions orchestrated by Société Générale and its agents to facilitate illegal payments to foreign government officials in Libya,” said IRS-CI Deputy Chief Hylton. “IRS-CI is a trusted partner in pursuit of those who use pervasive bribery schemes to circumvent the law. We are committed to maintaining fair competition, free of corrupt practices, through global teamwork and our robust financial investigative talents.”                                             

The FCPA Case

According to the companies’ admissions, between 2004 and 2009, Société Générale paid bribes through a Libyan “broker” in connection with 14 investments made by Libyan state-owned financial institutions.  For each transaction, Société Générale paid the Libyan broker a commission of between one and a half and three percent of the nominal amount of the investments made by the Libyan state institutions.  In total, Société Générale paid the Libyan Intermediary over $90 million, portions of which the Libyan broker paid to high-level Libyan officials in order to secure the investments from various Libyan state institutions for Société Générale.  As a result of the corrupt scheme, Société Générale obtained 13 investments and one restructuring from the Libyan state institutions worth a total of approximately $3.66 billion, and earned profits of approximately $523 million.

Société Générale will enter into a deferred prosecution agreement in connection with a criminal information charging the company with one count of conspiracy to violate the anti-bribery provisions of the FCPA and one count of transmitting false commodities reports.  Additionally, Société Générale’s subsidiary, SGA Société Générale Acceptance N.V., will plead guilty to a one-count criminal information filed today in the Eastern District of New York charging the company with a conspiracy to violate the anti-bribery provisions of the FCPA.  Pursuant to its agreement with the Department, Société Générale agreed to pay a total criminal penalty of $585 million to the Department.  Société Générale also agreed to continue to cooperate with the Department’s investigation and adopt and maintain enhanced compliance procedures.  The guilty plea is scheduled to take place on Tuesday, June 5, before U.S. District Judge Dora L. Irizarry of the Eastern District of New York.                                                                                                                  

The Department entered into this resolution in part due to Société Générale’s failure to voluntarily self-disclose the companies’ misconduct to the Department; the seriousness of the companies’ conduct, including the high value of the bribes paid to foreign officials; the company’s substantial, though not full, cooperation with the Department; and the company’s significant remediation which, together with the company’s risk profile and ongoing monitoring by L’Agence Française Anticorruption, resulted in the Department determining that a monitor was not necessary in this case.

The LIBOR Case

As admitted by the company, between May 2010 and at least October 2011, Société Générale promulgated falsely deflated U.S. Dollar (USD) LIBOR submissions to make it look as though Société Générale was able to borrow money at more favorable interest rates than it was actually able to do.  This downward manipulation allowed Société Générale to create the appearance that it was stronger and more creditworthy than it was. 

The USD LIBOR manipulation scheme was ordered by senior executives of Société Générale, who tasked the managers of the company’s Treasury Department with overseeing the execution of the deflation effort.  Several employees within Société Générale’s Treasury Department ensured that the company’s USD LIBOR submissions were altered in accordance with the deflation directive.  Société Générale’s misconduct frequently altered the daily rate at which USD LIBOR was set, which affected financial products worldwide, including interest rate swaps, futures contracts and other derivative financial products.

Further, in 2006, certain Société Générale employees in London and Tokyo worked together to manipulate Société Générale’s Japan Yen (JPY) LIBOR submissions.  These employees endeavored to manipulate JPY LIBOR in order to benefit the trading positions of a Société Générale employee.  This employee had numerous deals tied to JPY LIBOR, and manipulation of JPY LIBOR improved the profitability of the employee’s trading book.

By the terms of the agreement, Société Générale will pay a fine of $275 million to resolve the LIBOR misconduct matter.  Additionally, in August 2017, two individuals—former Société Générale Global Treasury Head Danielle Sindzingre and former Paris Treasury Head Muriel Bescond—were indicted for their roles in the scheme.  Both individuals remain at large.  An indictment is merely an allegation and all defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law. 

The deferred prosecution agreement and the plea agreement are subject to court approval.

The FBI’s Washington and New York Field Offices and IRS-Criminal Investigation’s New York office are investigating the case.  Trial Attorneys Gerald M. Moody Jr. and Dennis R. Kihm of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys David C. Pitluck and James P. McDonald of the Eastern District of New York are prosecuting the FCPA case.  Assistant Chief Carol Sipperly, Trial Attorneys Timothy A. Duree and Gary A. Winters of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Matthew S. Amatruda of the Eastern District of New York are prosecuting the LIBOR case.  The Criminal Division’s Office of International Affairs provided significant assistance in this matter.

The Department appreciates the significant cooperation and assistance provided by the U.S. Securities and Exchange Commission and the CFTC in this matter.  The PNF, the United Kingdom’s Serious Fraud Office, the Federal Office of Justice in Switzerland and the Office of the Attorney General in Switzerland also provided significant cooperation.

The Criminal Division’s Fraud Section is responsible for investigating and prosecuting all FCPA matters.  Additional information about the Justice Department’s Fraud Section FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.

November 23, 2018 in AML | Permalink | Comments (0)

Thursday, November 22, 2018

OECD invites taxpayer input on seventh batch of Dispute Resolution peer reviews

Improving the tax treaty dispute resolution process is a top priority of the BEPS Project. The Mutual Agreement Procedure (MAP) peer review and monitoring process under Action 14 of the BEPS Action Plan was launched in December 2016 with the peer review process now well underway.

The peer review process is conducted in two stages. Under Stage 1, implementation of the Action 14 minimum standard is evaluated for Inclusive Framework members, according to the schedule of review. Stage 2 focuses on monitoring the follow-up of the recommendations resulting from jurisdictions' Stage 1 report. To date, four rounds of Stage 1 peer review reports covering 29 jurisdictions have been released.

The OECD is now gathering input for the Stage 1 peer reviews of Brazil, Bulgaria, China (People's Republic of), Hong Kong (China), Indonesia, Papua New Guinea, Russian Federation and Saudi Arabia, and invites taxpayers to submit input on specific issues relating to access to MAP, clarity and availability of MAP guidance and the timely implementation of MAP agreements for each of these jurisdictions using the taxpayer input questionnaire. As taxpayers are the main users of the MAP this input is key for the review process and we encourage taxpayers and associations of taxpayers (e.g. business and industry associations) to complete the questionnaire and return it to fta.map@oecd.org (in Word format) by 13 December 2018 at the latest.

For more information on the BEPS Action 14 peer review and monitoring process, visit: www.oecd.org/tax/beps/beps-action-14-peer-review-and-monitoring.htm

November 22, 2018 in BEPS, OECD | Permalink | Comments (0)

Venezuelan Billionaire News Network Owner, Former Venezuelan National Treasurer and Former Owner of Dominican Republic Bank Charged in Money Laundering Conspiracy Involving Over $1 Billion in Bribes

A Venezuelan billionaire who owns Globovision news network was charged in an indictment unsealed yesterday for his role in a billion-dollar currency exchange and money laundering scheme.  A former Venezuelan national treasurer and a former owner of Banco Peravia bank in the Dominican Republic each pleaded guilty in proceedings unsealed today for their roles in the scheme.

Raul Gorrin Belisario (Gorrin), 50, a Venezuelan citizen with a residence in Miami, Florida, was charged in an indictment filed on Aug. 16, 2018 in the Southern District of Florida with one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA), one count of conspiracy to commit money laundering and nine counts of money laundering.  The case has been assigned to U.S. District Judge William P. Dimitrouleas of the Southern District of Florida.  Alejandro Andrade Cedeno (Andrade), 54, a Venezuelan citizen residing in Wellington, Florida and a former Venezuelan national treasurer, pleaded guilty under seal on Dec. 22, 2017 before U.S. District Judge Robin L. Rosenberg of the Southern District of Florida to one count of conspiracy to commit money laundering.  Gabriel Arturo Jimenez Aray (Jimenez), 50, a Venezuelan citizen residing in Chicago, Illinois and former owner of Banco Peravia bank, pleaded guilty under seal on March 20, 2018 in the Southern District of Florida before Judge Rosenberg to one count of conspiracy to commit money laundering.  Charges against Andrade and Jimenez were unsealed today. 

The indictment alleges that Gorrin paid millions of dollars in bribes to two high-level Venezuelan officials, including Andrade, to secure the rights to conduct foreign currency exchange transactions at favorable rates for the Venezuelan government.  In addition to wiring money to and for the officials, Gorrin allegedly purchased and paid expenses for them related to private jets, yachts, homes, champion horses, high-end watches and a fashion line.  To conceal the bribe payments, Gorrin made payments through multiple shell companies.  Gorrin allegedly partnered with Jimenez to acquire Banco Peravia, a bank in the Dominican Republic, to launder bribes paid to Venezuelan officials and proceeds of the scheme. 

As part of his guilty plea, Andrade admitted that he received over $1 billion in bribes from Gorrin and other co-conspirators in exchange for using his position as Venezuelan national treasurer to select them to conduct currency exchange transactions for the Venezuelan government.  As part of his plea agreement, Andrade agreed to a forfeiture money judgment of $1 billion and forfeiture of all assets involved in the corrupt scheme, including real estate, vehicles, horses, watches, aircraft and bank accounts.  His sentencing is scheduled for Nov. 27.

As part of his guilty plea, Jimenez admitted that, as part of the scheme, he conspired with Gorrin and others to acquire Banco Peravia, through which he helped launder bribe money and scheme proceeds.  His sentencing is scheduled for Nov. 29.

HSI Miami, HSI Houston, HSI Boston, FBI Miami, and the FDIC D.C. investigated this case.  This case is being prosecuted by Trial Attorneys Vanessa Sisti Snyder, Paul A. Hayden and John-Alex Romano of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Michael B. Nadler and Nalina Sombuntham of the Southern District of Florida’s Criminal Division.  The Criminal Division’s Office of International Affairs provided significant assistance in this matter.  The Policía Nacional (Spanish National Police) also provided significant assistance. 

The Fraud Section is responsible for investigating and prosecuting all FCPA matters.  Additional information about the department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.

November 22, 2018 in AML | Permalink | Comments (0)