Sunday, December 16, 2018
The Bureau of Economic Analysis released prototype statistics for gross domestic product (GDP) by county for 2012-2015. Combined with BEA's county estimates of personal income, GDP by county offers a more complete picture of local area economic conditions. In conjunction with their release, BEA is requesting feedback and comments on these prototype statistics to assist in improving their quality, reliability and usefulness.
"This is the first time the Bureau of Economic Analysis is providing GDP statistics for each and every county in the United States," said Secretary of Commerce Wilbur Ross. "The prototype data addresses one of the last remaining gaps in economic knowledge, offering policymakers and businesses a new tool to inform their decision-making."
These prototype GDP statistics, which provide detail for 3,113 counties, include industry breakouts for private goods-producing industries, private services-producing industries, and the government and government enterprises industry group. These statistics represent another step forward in meeting BEA's long-standing goal of providing a more detailed geographic distribution of the nation's economic activity. County-level GDP statistics will assist analysts in the assessment of local economic performance and policymakers in the development of strategies to promote economic growth. They will also help answer important questions related to the size and condition of local area economies, industrial composition, and comparative growth trends.
GDP by county statistics provide a richer picture not only of the distribution of national economic output, but also of national economic trends and their manifestation at finer and alternative levels of geographic detail. They can be used to inform resource allocation decisions and support economic development strategies that target areas with the greatest need by identifying strengths and weaknesses of local economies. GDP by county statistics can also support research into understanding local economic dynamics, the longer-term impacts of different development strategies, and the effectiveness of incentive programs used to support these strategies.
In 2015, real (inflation adjusted) GDP increased in 1,931 counties, decreased in 1,159, and was unchanged in 23. Real GDP ranged from $4.6 million in Loving County, TX to $656.0 billion in Los Angeles County, CA.
Large County Highlights
- Of the 138 large counties, those with populations greater than 500,000, real GDP increased in 125 and decreased in 13 in 2015.
- Real GDP ranged from $13.9 billion in Volusia County, FL to $656.0 billion dollars in Los Angeles County, CA.
- Denton County, TX (12.2 percent) and Santa Clara County, CA (11.1 percent) had the largest increases in real GDP in 2015. Growth in both counties was led by increases in private services-producing industries.
- The largest decreases in real GDP in 2015 were in Marion County, IN (-4.2 percent) and Montgomery County, TX (-2.3 percent). The private goods-producing industries led declines in both counties.
Medium County Highlights
- Of the 461 medium-sized counties, those with populations between 100,000 and 500,000, real GDP increased in 336, decreased in 120, and was unchanged in 5 in 2015.
- Real GDP ranged from $1.7 billion in Flagler County, FL to $52.3 billion dollars in Morris County, NJ.
- Whatcom County, WA (26.9 percent) and Guadalupe County, TX (22.0 percent) had the largest increases in real GDP in 2015. Growth in Whatcom County, WA was led by increases in private services-producing industries, while growth in Guadalupe County, TX was led by increases in private goods-producing industries.
- The largest decreases in real GDP in 2015 were in Waukesha County, WI (-16.1 percent) and Tazewell County, IL (-13.4 percent). The private services-producing industries led declines in Waukesha County, WI, while private goods-producing industries led declines in Tazewell County, IL.
Small County Highlights
- Of the 2,514 small counties, those with populations less than 100,000, real GDP increased in 1,470, decreased in 1,026, and was unchanged in 18 in 2015.
- Real GDP ranged from $4.6 million in Loving County, TX to $8.7 billion dollars in St. Charles Parish, LA.
- Roberts County, TX (72.3 percent) and Briscoe County, TX (68.4 percent) had the largest increases in real GDP in 2015. Growth in both counties was led by increases in private services-producing industries.
- The largest decreases in real GDP in 2015 were in Slope County, ND (-37.8 percent) and Sanders County, MT (-34.9 percent). The private goods-producing industries led declines in Slope County, ND, while private services-producing industries led declines in Sanders County, MT.
Saturday, December 15, 2018
The United Kingdom's measures to fight money laundering and the financing of terrorism and proliferation
The United Kingdom has a well-developed and robust regime to effectively combat money laundering and terrorist financing. However, it needs to strengthen its supervision, and increase the resources of its financial intelligence unit.
The FATF has conducted an assessment of the United Kingdom’s anti-money laundering and counter terrorist financing (AML/CFT) system. The assessment is a comprehensive review of the effectiveness of the UK’s measures and their level of compliance with the FATF Recommendations.
The UK is the largest financial services provider in the world. As a result of the exceptionally large volume of funds that flows through its financial sector, the country also faces a significant risk that some of these funds have links to crime and terrorism. This is reflected in the country’s strong understanding of these risks, as well as national AML/CFT policies, strategies and proactive initiatives to address them.
The UK aggressively pursues money laundering and terrorist financing investigations and prosecutions, achieving 1400 convictions each year for money laundering. UK law enforcement authorities have powerful tools to obtain beneficial ownership and other information, including through effective public-private partnerships, and make good use of this information in their investigations. However, the UK financial intelligence unit needs a substantial increase in its resources and the suspicious activity reporting regime needs to be modernised and reformed.
The country is a global leader in promoting corporate transparency and it is using the results of its risk assessment to further strengthen the reporting and registration of corporate structures. Financial institutions as well as all designated non-financial businesses and professions such as lawyers, accountants and real estate agents are subject to comprehensive AML/CFT requirements. Strong features of the system include the outreach activities conducted by supervisors and the measures to prevent criminals or their associates from being professionally accredited or controlling a financial institution. However, the intensity of supervision is not consistent across all of these sectors and UK needs to ensure that supervision of all entities is fully in line with the significant risks the UK faces.
The UK has been highly effective in investigating, prosecuting and convicting a range of terrorist financing activity and has taken a leading role in designating terrorists at the UN and EU level. The UK is also promoting global implementation of proliferation-related targeted financial sanctions, as well as achieving a high level of effectiveness in implementing targeted financial sanctions domestically
The UK’s overall AML/CFT regime is effective in many respects. It needs to address certain areas of weakness, such as supervision and the reporting and investigation of suspicious transactions. However, the country has demonstrated a robust level of understanding of its risks, a range of proactive measures and initiatives to counter the significant risks identified and plays a leading role in promoting global effective implementation of AML/CFT measures.
FATF adopted this report at its Plenary meeting in October 2018.
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Friday, December 14, 2018
Affordable Care Act Found Unconstitutional By Federal Court Because TCJA Repealed Individual Mandate Tax
The Plaintiffs allege that, following passage of the Tax Cuts and Jobs Act of 2017 (TCJA), the Individual Mandate in the Patient Protection and Affordable Care Act (ACA) is unconstitutional. They say it is no longer fairly readable as an exercise of Congress’s Tax Power and continues to be unsustainable under the Interstate Commerce Clause. They further urge that, if they are correct, the balance of the ACA is untenable as inseverable from the Invalid Mandate.
Resolution of these claims rests at the intersection of the ACA, the Supreme Court’s decision in NFIB, and the TCJA. In NFIB, the Supreme Court held the Individual Mandate was unconstitutional under the Interstate Commerce Clause but could fairly be read as an exercise of Congress’s Tax Power because it triggered a tax. The TCJA eliminated that tax. The Supreme Court’s reasoning in NFIB—buttressed by other binding precedent and plain text—thus compels the conclusion that the Individual Mandate may no longer be upheld under the Tax Power. And because the Individual Mandate continues to mandate the purchase of health insurance, it remains unsustainable under the Interstate Commerce Clause—as the Supreme Court already held.
Finally, Congress stated many times unequivocally—through enacted text signed by the President—that the Individual Mandate is “essential” to the ACA. And this essentiality, the ACA’s text makes clear, means the mandate must work “together with the other provisions” for the Act to function as intended. All nine Justices to review the ACA acknowledged this text and Congress’s manifest intent to establish the Individual Mandate as the ACA’s “essential” provision. The current and previous Administrations have recognized that, too. Because rewriting the ACA without its “essential” feature is beyond the power of an Article III court, the Court thus adheres to Congress’s textually expressed intent and binding Supreme Court precedent to find the Individual Mandate is inseverable from the ACA’s remaining provisions.
For the reasons stated above, the Court grants Plaintiffs partial summary judgment and declares the Individual Mandate, 26 U.S.C. § 5000A(a), UNCONSTITUTIONAL. Further, the
Court declares the remaining provisions of the ACA, Pub. L. 111-148, are INSEVERABLE and therefore INVALID. The Court GRANTS Plaintiffs’ claim for declaratory relief in Count I of the Amended Complaint.
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Notice 2019-01 [IRB 2019-03, dated 1/14/2019] announces that the IRS intends to issue regulations addressing certain issues arising from the enactment of the Tax Cuts and Jobs Act [Pub. L. 115-97 (2017)] with respect to foreign corporations with previously taxed earnings and profits (“PTEP”). The notice describes regulations that the Treasury Department intenda to issue including:
(i) rules relating to the maintenance of PTEP in annual accounts and within certain groups;
(ii) rules relating to the ordering of PTEP upon distribution and reclassification; and
(iii) rules relating to the adjustment required when an income inclusion exceeds the earnings and profits of a foreign corporation.
It is anticipated that the regulations announced in the notice will apply to taxable years of U.S. shareholders ending after the date of release of the notice and to taxable years of foreign corporations ending with or within such taxable years.
The term PTEP refers to earnings and profits (“E&P”) of a foreign corporation attributable to amounts which are, or have been, included in the gross income of a United States shareholder (as defined under IRC Section 951(b)) (“U.S. shareholder”) under IRC Section 951(a) or under IRC Section 1248(a).
Under IRC Section 959(a)(1), distributions of PTEP are excluded from the U.S. shareholder’s gross income, or the gross income of any other U.S. person who acquires the U.S. shareholder’s interest (or a portion thereof) in the foreign corporation (such U.S. person, a “successor in interest”). IRC Section 959(a)(2) further excludes PTEP from a U.S. shareholder’s gross income if such E&P would be included in the gross income of the U.S. shareholder or successor in interest under IRC Section 951(a)(1)(B) as an amount determined under IRC Section 956. Distributions of PTEP to a U.S. shareholder or successor in interest generally are not treated as dividends except that such distributions immediately reduce the E&P of the foreign corporation.
IRC Section 959(c) ensures that distributions from a foreign corporation are first attributable to PTEP described in IRC Section 959(c)(1) (“section 959(c)(1) PTEP”) and then to PTEP described in IRC Section 959(c)(2) (“IRC Section 959(c)(2) PTEP”), and finally to nonpreviously taxed E&P (“IRC Section 959(c)(3) E&P”). In addition, IRC Section 959(f) ensures that, in determining the amount of any inclusion under IRC Sections 951(a)(1)(B) and 956 with respect to a foreign corporation, PTEP attributable to IRC Section 951(a)(1)(A) inclusions remaining after any distributions during the year are taken into account before non-previously taxed E&P described in IRC Section 959(c)(3).
Under proposed §1.959-3(b), shareholders must account for PTEP with respect to their stock in a foreign corporation, and foreign corporations must account for the aggregate amount of PTEP of all shareholders, as well as IRC Section 959(c)(3) E&P.
Under the provisions of the Tax Cuts and Jobs Act (“TCJA”), the portion of a U.S. shareholder’s global intangible low-taxed income (“GILTI”) included in gross income under IRC Section 951A(a) that is allocated to a controlled foreign corporation (as defined in IRC Section 957) (“CFC”) under IRC Section 951A(f)(2) and proposed §1.951A-6(b)(2) is treated as an amount included in the gross income of a U.S. shareholder under IRC Section 951(a)(1)(A) for purposes of IRC Section 959.
Likewise, amounts determined under IRC Section 965(a), as amended by the TCJA, with respect to certain foreign corporations are treated as increases to subpart F income, and a U.S. shareholder with respect to such a foreign corporation generally includes in gross income under IRC Section 951(a)(1)(A) its pro rata share of such amounts, subject to reduction under IRC Section 965(b) for certain deficits attributable to stock in another foreign corporation owned by the U.S. shareholder. Amounts of a U.S. shareholder’s inclusions under IRC Section 965(a) that are reduced by deficits attributable to stock of another foreign corporation under IRC Section 965(b) are treated as amounts included in the shareholder’s gross income under IRC Section 951(a) for purposes of IRC Section 959.
Additionally, IRC section 245A(e)(2) treats certain hybrid dividends received by a CFC as subpart F income for purposes of IRC section 951(a)(1)(A).
Finally, IRC section 964(e)(4) treats a certain portion of gain on the disposition of CFC stock as subpart F income of the selling CFC for purposes of IRC Section 951(a)(1)(A). Accordingly, after the TCJA, IRC Section 959(c)(2) PTEP may arise from income inclusions under IRC Section 951(a)(1)(A) (including by reason of IRC Sections 245A(e)(2), 951A(f)(1), 959(e), 964(e)(4), or 965(a)) or by reason of the application of IRC Section 965(b)(4)(A).
IRC Section 965 and proposed regulations under that section provide special foreign tax credit and deduction rules, and proposed regulations under IRC Section 986 provide special foreign currency gain or loss rules, for distributions of PTEP attributable to income inclusions arising from the application of IRC Section 965(a) and PTEP attributable to the application of IRC Section 965(b)(4)(A) (collectively, “IRC Section 965 PTEP”). IRC Section 245A(e)(3) applies the disallowance of foreign tax credits in IRC Section 245A(d) with respect to any amount included in the income of a U.S. shareholder pursuant to IRC Section 245A(e)(2).
In addition, proposed regulations under IRC Section 960 establish, for purposes of determining the amount of foreign income taxes deemed paid, a system of accounting for PTEP in annual accounts for each separate category of income as defined in proposed §1.904-5(a)(4)(v) (“IRC Section 904 category”) and further segregate each annual account among ten PTEP groups. The groups correspond to various types of income inclusions under IRC Section 951(a) (including amounts treated as giving rise to an income inclusion under IRC Section 951(a) for purposes of IRC Ssection 959) and PTEP reclassifications that can arise after the Act.
Finally, certain provisions of the TCJA provide for a deduction with respect to certain amounts that are included in the income of a domestic corporation and treated as IRC section 951(a)(1)(A) inclusions for purposes of IRC section 959. IRC Sections 245A and 1248(j) generally allow a deduction with respect to gain on the sale of stock of a foreign corporation treated as a dividend under IRC Section 1248. In the case of gain treated as a dividend under IRC Section 964(e)(1) upon the sale or exchange by a CFC of stock of a lower tier foreign corporation and included in the CFC’s subpart F income under IRC Section 964(e)(4), IRC Section 964(e)(4) generally allows a deduction under IRC Section 245A with respect to a domestic corporation’s pro rata share of the subpart F income that it includes in gross income as a dividend pursuant to IRC Section 964(e)(4).
 IRC § 959(d).
 IRC § 951A(f)(1).
 IRC § 965(b)(4)(A).
 See proposed §§1.965-5 and 1.986(c)-1.
 Proposed §1.960-3(c).
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Israel is achieving good results in identifying and responding to its money-laundering and terrorist financing risks, but needs more focus on supervision and preventive measures.
The FATF and FATF-Style Regional Body MONEYVAL jointly assessed Israel’s anti-money laundering and counter terrorist financing (AML/CFT) system. The assessment is a comprehensive review of the effectiveness of Israel’s measures and their level of compliance with the FATF Recommendations.
Due to its geographic location, Israel faces a particularly high terrorist financing risk from sources outside Israel, while fraud, tax offences, organised crime, public sector corruption and the use of cash are among the sources of money laundering risk for the country. Israel has successfully identified and understood these risks, which is reflected in the country’s anti-money laundering and counter terrorist financing (AML/CFT) policies and activities.
Israel has demonstrated its ability to identify, investigate and disrupt terrorist financing activity at an early stage using a wide range of effective instruments and mechanisms, as well as effectively prosecuting, and convicting those involved. However, it must improve its coordination on preventing the misuse of non-profit organisations for terrorist financing, in particular by increasing its resources to register and supervise these organisations.
Israeli authorities, including the financial intelligence unit and law enforcement, are successfully co-operating and using financial intelligence and other information to pursue money laundering and terrorist financing investigations and prosecutions. Authorities also co-operate well with international counterparts, given that most of the large domestic money laundering cases have international links and the country faces a high terrorist financing threat from abroad. Israel actively makes and responds to requests for international cooperation although some issues have arisen with delays to execute such requests.
Israel has made it a high-level priority to deprive criminals of their illicit gains and has demonstrated that it is doing so effectively with an average of over EUR 24 million per year in confiscations.
Financial institutions and their supervisors have a good understanding of the money laundering and terrorist financing risks they face, but this understanding is weaker in the money service business sector. However, there has recently been a significant increase in this sector’s reporting of unusual activity. Financial supervisors generally have not yet developed a full risk-based AML/CFT-specific supervision. Israel has not included real estate agents, dealers in precious metals, and trust and company service providers in its AML/CFT system, and lawyers and accountants are not required to report suspicious transactions. The supervisors of designated non-financial businesses and professions are at an early stage in the development of a risk-based model for supervision.
Israel has developed an AML/CFT system that is sound and effective in many areas, and achieves good results in tackling money laundering and terrorist financing. The country has also achieved good results in understanding the risks it is exposed to, investigating and prosecuting money laundering and terrorist financing, including through the effective use of financial intelligence, depriving criminals of the proceeds of crime, and depriving terrorists and terrorist organisations of assets and instrumentalities. However, Israel needs to introduce major improvements to strengthen supervision and implementation of preventive measures.
With the publication of this assessment, Israel has met the FATF’s membership requirements and has become an official member of the FATF with immediate effect.
FATF adopted this report at its Plenary meeting In October 2018. MONEYVAL adopted the report at its meeting in December 2018.
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Thursday, December 13, 2018
IRS Issues Proposed FATCA Regulations Impacting WIthholding on Gross Proceeds and Insurance Premiums. Kicks the Can on Passthru Withholding.
The Treasury released 50 pages of FATCA proposed regulation changes today.
For an in-depth discussion, see the 2,500 page Analytical Treatise for FATCA and CRS Compliance here. The Guide to FATCA & CRS Compliance provides 2,500 of analysis and a framework for meaningful interactions among enterprise stakeholders, and between the FATCA/CRS Compliance Officer and the FATCA/CRS advisors/vendors. Analysis of the complicated regulations, recognition of overlapping complex regime and intergovernmental agreement requirements (e.g. FATCA, CRS, Qualified Intermediary, source withholding, national and international information exchange, European Union tax information exchange, information confidentiality laws, money laundering prevention, risk management, and the application of an IGA) is balanced with substantive analysis and descriptive examples. The contributors hail from several countries and an offshore financial center and include attorneys, accountants, information technology engineers, and risk managers from large, medium and small firms and from large financial institutions. Thus, the challenges of the FATCA / CRS Compliance Officer are approached from several perspectives and contextual backgrounds.
- Elimination of Withholding on Payments of Gross Proceeds from the Sale or Other Disposition of Any Property of a Type Which Can Produce Interest or Dividends from Sources Within the United States
Under IRC Sections 1471(a) and 1472, withholdable payments made to certain foreign financial institutions (FFIs) and certain non-financial foreign entities (NFFEs) are subject to withholding under Chapter 4. IRC Section 1473(1) states that the term “withholdable payment” means: (i) Any payment of interest (including any original issue discount), dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodical gains, profits, and income, if such payment is from sources within the United States; and (ii) any gross proceeds from the sale or other disposition of any property of a type which can produce interest or dividends from sources within the United States.
The 2017 Chapter 4 regulations provide that such withholding will begin on January 1, 2019. Many U.S. and foreign financial institutions, foreign governments, the Treasury Department, the IRS, and other stakeholders have devoted substantial resources to implementing FATCA withholding on withholdable payments. At the same time, 87 jurisdictions have an IGA in force or in effect and 26 jurisdictions are treated as having an IGA in effect because they have an IGA signed or agreed in substance, which allows for international cooperation to facilitate FATCA implementation. The Treasury Department determined that the current withholding requirements under chapter 4 on U.S. investments already serve as a significant incentive for FFIs investing in U.S. securities to avoid status as nonparticipating FFIs, and that withholding on gross proceeds is no longer necessary in light of the current compliance with FATCA.
The 2019 proposed regulations eliminate withholding on gross proceeds by removing gross proceeds from the definition of the term “withholdable payment” in §1.1473-1(a)(1) and by removing certain other provisions in the Chapter 4 regulations that relate to withholding on gross proceeds. As a result of these proposed changes to the Chapter 4 regulations, only payments of U.S. source FDAP that are withholdable payments under §1.1473-1(a) and that are not otherwise excepted from withholding under §1.1471-2(a) or (b) would be subject to withholding under sections 1471(a) and 1472.
2. Deferral of Withholding on Foreign Passthru Payments
An FFI that has an agreement described in IRC Section 1471(b) in effect with the IRS is required to withhold on any passthru payments made to its recalcitrant account holders and to FFIs that are not compliant with chapter 4 (nonparticipating FFIs). IRC Section 1471(d)(7) defines a “passthru payment” as any withholdable payment or other payment to the extent attributable to a withholdable payment.
The 2017 chapter 4 regulations provide that such withholding will not begin until the later of January 1, 2019, or the date of publication in the Federal Register of final regulations defining the term “foreign passthru payment.” 2018’s proposed regulation §1.1471-4(b)(4), a participating FFI will not be required to withhold tax on a foreign passthru payment made to a recalcitrant account holder or nonparticipating FFI before the date that is two years after the date of publication in the Federal Register of final regulations defining the term “foreign passthru payment.” The proposed regulations also make conforming changes to other provisions in the Chapter 4 regulations that relate to foreign passthru payment withholding.
Notwithstanding these proposed amendments, the Treasury Department remains concerned about the long-term omission of withholding on foreign passthru payments. Withholding on foreign passthru payments serves important purposes. First, it provides one way for an FFI that has entered into an FFI agreement to continue to remain in compliance with its agreement, even if some of its account holders have failed to provide the FFI with the information necessary for the FFI to properly determine whether the accounts are U.S. accounts and perform the required reporting, or, in the case of account holders that are FFIs, have failed to enter into an FFI agreement. Second, withholding on foreign passthru payments prevents nonparticipating FFIs from avoiding FATCA by investing in the United States through a participating FFI “blocker.” For example, a participating FFI that is an investment entity could receive U.S. source FDAP income free of withholding under Chapter 4 and then effectively pay the amount over to a nonparticipating FFI as a corporate distribution. Despite being attributable to the U.S. source payment, the payment made to the nonparticipating FFI may be treated as foreign source income and therefore not a withholdable payment subject to Chapter 4 withholding. Accordingly, the Treasury Department continues to consider the feasibility of a system for implementing withholding on foreign passthru payments.
3. Elimination of Withholding on Non-Cash Value Insurance Premiums Under Chapter 4
The 2019 proposed regulations provide that premiums for insurance contracts that do not have cash value (as defined in §1.1471-5(b)(3)(vii)(B)) are excluded nonfinancial payments and, therefore, not withholdable payments.
4. Clarification of Definition of Investment Entity
The clarification in these proposed regulations is similar to the guidance published by the OECD interpreting the definition of a “managed by” investment entity under the Common Reporting Standard.
5. Modifications to Due Diligence Requirements of Withholding Agents Under Chapters 3 and 4
These proposed regulations include several changes to the rules on treaty statements provided with documentary evidence.
- Extend the time for withholding agents to obtain treaty statements with the specific LOB provision identified for preexisting accounts until January 1, 2020 (rather than January 1, 2019).
- Add exceptions to the three-year validity period for treaty statements provided by tax exempt organizations (other than tax-exempt pension trusts or pension funds), governments, and publicly traded corporations, entities whose qualification under an applicable treaty is unlikely to change.
- Correct an inadvertent omission of the actual knowledge standard for a withholding agent’s reliance on the beneficial owner’s identification of an LOB provision on a treaty statement provided with documentary evidence, the same as the standard that applies to a withholding certificate used to make a treaty claim.
These three proposed amendments will also be incorporated into the 2017 QI agreement and 2017 WP and WT agreements, and a QI, WP, or WT may rely upon these proposed modifications until such time.
Permanent residence address subject to hold mail instruction for Chapters 3 and 4
The proposed regulations provide that the documentary evidence required in order to treat an address that is provided subject to a hold mail instruction as a permanent residence address is documentary evidence that supports the person’s claim of foreign status or, for a person claiming treaty benefits, documentary evidence that supports the person’s residence in the country where the person claims treaty benefits.
Regardless of whether the person claims treaty benefits, the documentary evidence on which a withholding agent may rely is the documentary evidence described in §1.1471- 3(c)(5)(i), without regard to the requirement that the documentation contains a permanent residence address.
Proposed §1.1471-1(b)(62) adds a definition of a hold mail instruction to clarify that a hold mail instruction does not include a request to receive all correspondence (including account statements) electronically.
Revisions Related to Credits and Refunds of Overwithheld Tax
- Withholding and reporting in a subsequent year
- Adjustments to overwithholding under the reimbursement and set-off procedures
- Reporting of withholding by nonqualified intermediaries
 See proposed § 1.1441-1(e)(4)(ii)(A)(2).
 See proposed § 1.1441-6(c)(5)(i).
The Internal Revenue Service issued 193 pages of proposed regulations today on the IRC section 59A base erosion and anti-abuse tax ("BEAT"). New Internal Revenue Code (IRC) section 59A imposes a tax equal to the base erosion minimum tax amount for certain taxpayers beginning in tax year 2018.
The Base Erosion and Anti-Avoidance Tax targets companies that potentially reduce their U.S. federal income tax liability through cross-border payments to their foreign affiliates. Under BEAT, an applicable taxpayer is required to pay a tax equal to the base erosion minimum tax amount for the taxable year on base erosion payments that are deductible payments made by certain corporations to their non-U.S. affiliates.
The base erosion percentage is determined for any taxable year by dividing the deductions taken by the applicable taxpayer with respect to its “base erosion payments” by the overall amount of deductions taken by the corporation (including deductions taken with respect to “base erosion payments,” but excluding net operating loss carrybacks and carryforwards, deductions for dividends attributable to foreign earnings, deductions in connection with GILTI and FDII, deductions for payments for certain services and deductions for “qualified derivative payments”. If the base erosion percentage is at least three percent (or two percent in the case of a bank or security dealer), then the taxpayer may be subject to BEAT.
The base erosion minimum tax amount is equal to the excess of (a) the product of the applicable base erosion tax rate and an applicable taxpayer’s modified taxable income, over (b) the applicable taxpayer’s regular tax liability reduced by certain credits. Credits cannot be applied against the base erosion minimum tax amount.6 BEAT is a five percent rate in 2018, a 10 percent rate from 2019 until 2025, and a 12.5 percent rate for all years thereafter. Banks or a registered securities dealer endure one percent higher BEAT rate than regular applicable taxpayers.
Impact of Income Tax Treaties On U.S. Permanent Establishments
Certain U.S. income tax treaties provide alternative approaches for the allocation or attribution of business profits of an enterprise of one contracting state to its permanent establishment in the other contracting state on the basis of assets used, risks assumed, and functions performed by the permanent establishment. The use of a treaty-based expense allocation or attribution method does not, in and of itself, create legal obligations between the U.S. permanent establishment and the rest of the enterprise. These proposed regulations recognize that as a result of a treaty-based expense allocation or attribution method, amounts equivalent to deductible payments may be allowed in computing the business profits of an enterprise with respect to transactions between the permanent establishment and the home office or other branches of the foreign corporation (“internal dealings”). The deductions from internal dealings would not be allowed under the Code and regulations, which generally allow deductions only for allocable and apportioned costs incurred by the enterprise as a whole. The proposed regulations require that these deductions from internal dealings allowed in computing the business profits of the permanent establishment be treated in a manner consistent with their treatment under the treaty-based position and be included as base erosion payments.
The proposed regulations include rules to recognize the distinction between the allocations of expenses. In the first instance, the allocation and apportionment of expenses of the enterprise to the branch or permanent establishment is not itself a base erosion payment because the allocation represents a division of the expenses of the enterprise, rather than a payment between the branch or permanent establishment and the rest of the enterprise. In the second instance, internal dealings are not mere divisions of enterprise expenses, but rather are priced on the basis of assets used, risks assumed, and functions performed by the permanent establishment in a manner consistent with the arm’s length principle. The approach in the proposed regulations creates parity between deductions for actual regarded payments between two separate corporations (which are subject to IRC Section 482), and internal dealings (which are generally priced in a manner consistent with the applicable treaty and, if applicable, the OECD Transfer Pricing Guidelines). The rules in the proposed regulations applicable to foreign corporations using this approach apply only to deductions attributable to internal dealings, and not to payments to entities outside of the enterprise, which are subject to the general base erosion payment rules as provided in proposed §1.59A-3(b)(4)(v)(A).
Exception from BEAT Payment with Respect to Services Cost Method
The SCM exception described in IRC Section 59A(d)(5) provides that IRC Section 59A(d)(1) (which sets forth the general definition of a base erosion payment) does not apply to any amount paid or accrued by a taxpayer for services if (A) the services are eligible for the services cost method under IRC Section 482 (determined without regard to the requirement that the services not contribute significantly to fundamental risks of business success or failure) and (B) the amount constitutes the total services cost with no markup component.
The Treasury Department and the IRS interpret “services cost method” to refer to the services cost method described in §1.482-9(b), interpret the requirement regarding “fundamental risks of business success or failure” to refer to the test in §1.482-9(b)(5) commonly called the business judgment rule, and interpret “total services cost” to refer to the definition of “total services costs” in §1.482-9(j). IRC Section 59A(d)(5) is ambiguous as to whether the SCM exception applies when an amount paid or accrued for services exceeds the total services cost, but the payment otherwise meets the other requirements for the SCM exception set forth in IRC Section 59A(d)(5). Under one interpretation of IRC Section 59A(d)(5), the SCM exception does not apply to any portion of a payment that includes any mark-up component. Under another interpretation of IRC Section 59A(d)(5), the SCM exception is available if there is a markup, but only to the extent of the total services costs. Under the former interpretation, any amount of markup would disqualify a payment, in some cases resulting in dramatically different tax effects based on a small difference in charged costs. In addition, if any markup were required, for example because of a foreign tax law or non-tax reason, a payment would not qualify for the SCM exception. Under the latter approach, the services cost would continue to qualify for the SCM exception provided the other requirements of the SCM exception are met. The latter approach to the SCM exception is more expansive because it does not limit qualification to payments made exactly at cost.
The proposed regulations provide that the SCM exception is available if there is a markup (and if other requirements are satisfied), but that the portion of any payment that exceeds the total cost of services is not eligible for the SCM exception and is a base erosion payment. The Treasury Department has determined that this interpretation is more consistent with the text of IRC Section 59A(d)(5). Rather than require an all-or-nothing approach to service payments, section 59A(d)(5) provides an exception for “any amount” that meets the specified test. This language suggests that a service payment may be disaggregated into its component amounts, just as the general definition of base erosion payment applies to the deductible amount of a foreign related party payment even if the entire payment is not deductible.
The most logical interpretation is that a payment for a service that satisfies subparagraph (A) is excepted up to the qualifying amount under subparagraph (B), but amounts that do not qualify (i.e., the markup component) are not excepted. This interpretation is reinforced by the fact that IRC Section 59A(d)(5)(A) makes the SCM exception available to taxpayers that cannot apply the services cost method described in §1.482-9(b) (which permits pricing a services transaction at cost for IRC Section 482 purposes) because the taxpayer cannot satisfy the business judgment rule in §1.482-9(b)(5). Because a taxpayer in that situation cannot ordinarily charge cost, without a mark-up, for transfer pricing purposes, failing to adopt this approach would render the parenthetical reference in IRC Section 59A(d)(5)(A) a nullity. The interpretation the proposed regulations adopt gives effect to the reference to the business judgment rule in IRC Section 59A(d)(5). The Treasury Department and the IRS welcome comments on whether the regulations should instead adopt the interpretation of IRC Section 59A(d)(5) whereby the SCM exception is unavailable to a payment that includes any mark-up component.
To be eligible for the SCM exception, the proposed regulations require that all of the requirements of §1.482-9(b) must be satisfied, except as modified by the proposed regulations. Therefore, a taxpayer’s determination that a service qualifies for the SCM exception is subject to review under the requirements of §1.482-9(b)(3) and (b)(4), and its determination of the amount of total services cost and allocation and apportionment of costs to a particular service is subject to review under the rules of §1.482-9(j) and §1.482-9(k), respectively.
Although the proposed regulations do not require a taxpayer to maintain separate accounts to bifurcate the cost and markup components of its services charges to qualify for the SCM exception, the proposed regulations do require that taxpayers maintain books and records adequate to permit verification of, among other things, the amount paid for services, the total services cost incurred by the renderer, and the allocation and apportionment of costs to services in accordance with §1.482-9(k). Because payments for certain services that are not eligible for the SCM due to the business judgment rule or for which taxpayers select another transfer pricing method may still be eligible for the SCM exception to the extent of total services cost, the record-keeping requirements in the proposed regulations differ from the requirements in §1.482-9(b)(6). Unlike §1.482-9(b)(6), the proposed regulations do not require that taxpayers “include a statement evidencing [their] intention to apply the services cost method to evaluate the arm's length charge for such services,” but the proposed regulations do require that taxpayers include a calculation of the amount of profit mark-up (if any) paid for the services. For purposes of qualifying for the SCM exception under IRC Section 59A(d)(5), taxpayers are required to comply with the books and records requirements under these proposed regulations but not §1.482-9(b)(6).
The proposed regulations also clarify that the parenthetical reference in IRC Section 59A(d)(5) to the business judgment rule prerequisite for applicability of the services cost method -- “(determined without regard to the requirement that the services not contribute significantly to fundamental risks of business success or failure)” -- disregards the entire requirement set forth in §1.482-9(b)(5) solely for purposes of IRC Section 59A(d)(5).
 IRC § 59A(d)(1).
 Treas. Reg. §1.59A-3(b)(3)(i)(B)(2).
IRS issues proposed regulations on key new international provision, the base erosion and anti-abuse tax
The Internal Revenue Service issued 193 pages of proposed regulations today on the IRC section 59A base erosion and anti-abuse tax ("BEAT"). New Internal Revenue Code (IRC) section 59A imposes a tax equal to the base erosion minimum tax amount for certain taxpayers beginning in tax year 2018. When applicable, this tax is in addition to the taxpayer’s regular tax liability. This new provision will primarily affect corporate taxpayers with gross receipts averaging more than $500 million over a three-year period who make deductible payments to foreign related parties.
The Base Erosion and Anti-Avoidance Tax targets companies that potentially reduce their U.S. federal income tax liability through cross-border payments to their foreign affiliates.1 Under BEAT, an applicable taxpayer is required to pay a tax equal to the base erosion minimum tax amount for the taxable year on base erosion payments that are deductible payments made by certain corporations to their non-U.S. affiliates.
An “applicable taxpayer” is a corporation other than a regulated investment company (“RIC”), a real estate investment trust (“REIT”), or an S corporation, which has average annual gross receipts for a three taxable-year period of at least $500 million dollars, and the base erosion percentage is three percent (or two percent in the case of a bank or security dealer).2
The base erosion minimum tax amount is, for 2019 through 2025, the excess of 10 percent of the modified taxable income of the applicable taxpayer for the taxable year over an amount equal to the regular tax liability of the taxpayer for the taxable year reduced by the excess of allowable tax credits.3 The tax credits allowed are (a) the credit allowed under I.R.C. section 38 for the research credit, plus (b) the portion of the applicable I.R.C. section 38 credits not in excess of 80 percent of the lesser of the amount of such credits or the base erosion minimum tax amount.
“Base erosion payment” means (a) any amount paid or accrued by a taxpayer to a related foreign person and with respect to which a deduction is allowable; (b) any amount paid or accrued by the taxpayer to a related foreign person in connection with the acquisition by the taxpayer from such person of depreciable or amortizable property; (c) certain reinsurance premiums paid to a related party; and (d) certain payments to expatriated entities that are “surrogate foreign corporations” or their related foreign persons.4 Base erosion payments do not include “qualified derivative payments”, payments with respect to certain services, or payments for cost of goods sold.
The base erosion percentage is determined for any taxable year by dividing the deductions taken by the applicable taxpayer with respect to its “base erosion payments” by the overall amount of deductions taken by the corporation (including deductions taken with respect to “base erosion payments,” but excluding net operating loss carrybacks and carryforwards, deductions for dividends attributable to foreign earnings, deductions in connection with GILTI and FDII, deductions for payments for certain services and deductions for “qualified derivative payments”.5 If the base erosion percentage is at least three percent (or two percent in the case of a bank or security dealer), then the taxpayer may be subject to BEAT.
The base erosion minimum tax amount is equal to the excess of (a) the product of the applicable base erosion tax rate and an applicable taxpayer’s modified taxable income, over (b) the applicable taxpayer’s regular tax liability reduced by certain credits. Credits cannot be applied against the base erosion minimum tax amount.6 BEAT is a five percent rate in 2018, a 10 percent rate from 2019 until 2025, and a 12.5 percent rate for all years thereafter. Banks or a registered securities dealer endure a one percent higher BEAT rate than regular applicable taxpayers.7
The proposed regulations provide detailed guidance regarding which taxpayers will be subject to section 59A, the determination of what is a base erosion payment, the method for calculating the base erosion minimum tax amount, and the required base erosion and anti-abuse tax resulting from that calculation. The proposed regulations include an explanation of the new provisions as follows:
- Part II describes the rules in proposed §1.59A-2 for determining whether a taxpayer is an applicable taxpayer on which the BEAT may be imposed.
- Part III describes the rules in proposed §1.59A-3(b) for determining the amount of base erosion payments.
- Part IV describes the rules in proposed §1.59A-3(c) for determining base erosion tax benefits arising from base erosion payments.
- Part V describes the rules in proposed §1.59A-4 for determining the amount of modified taxable income, which is computed in part by reference to a taxpayer’s base erosion tax benefits and base erosion percentage of any net operating loss deduction.
- Part VI describes the rules in proposed §1.59A-5 for computing the base erosion minimum tax amount, which is computed by reference to modified taxable income.
- Part VII describes general rules in proposed §1.59A-7 for applying the proposed regulations to partnerships.
- Part VIII describes certain rules in the proposed regulations that are specific to banks and registered securities dealers.
- Part IX describes certain rules in the proposed regulations that are specific to insurance companies.
- Part X describes the anti-abuse rules in proposed §1.59A-9.
- Parts XI-XIII address rules in proposed §1.1502-59A regarding the general application of the BEAT to consolidated groups.
- Part XIV addresses proposed amendments to §1.383-1 to address limitations on a loss corporation’s items under section 382 and 383 in the context of the BEAT. P
- art XV describes reporting and record keeping requirements.
1 IRC § 59A.
2 IRC § 59A(e).
3 IRC § 59A(b).
4 IRC § 59A(d).
5 IRC § 59A(c)(4).
6 IRC § 59A(b).
7 IRC § 59A(b)(3).
Tax revenues continue increasing as the tax mix shifts further towards corporate and consumption taxes
Tax revenues in advanced economies have continued to increase, with taxes on companies and personal consumption representing an increasing share of total tax revenues, according to new OECD research.
The 2018 edition of the OECD’s annual Revenue Statistics publication shows that the OECD average tax-to-GDP ratio rose slightly in 2017, to 34.2%, compared to 34.0% in 2016. The OECD average is now higher than at any previous point, including its earlier peaks of 33.8% in 2000 and 33.6% in 2007.
An increase in tax-to-GDP levels was seen in 19 of the 34 OECD countries that provided preliminary data for 2017, while tax-to-GDP levels fell in the remaining 15 countries. Tax-to-GDP levels are now higher than their pre-crisis levels in 21 countries, and all but eight (Canada, Estonia, Hungary, Ireland, Lithuania, Norway, Slovenia and Sweden) have experienced an increase in their tax-to-GDP ratio since 2009.
|Revenue Statistics 2018 shows that the OECD average tax-to-GDP ratio rose slightly in 2017, to 34.2%, compared to 34.0% in 2016. The OECD average is now higher than at any previous point, including its earlier peaks of 33.8% in 2000 and 33.6% in 2007.|
Consumption Tax Trends 2018 highlights that value-added tax (VAT) revenues continue to be the largest source of consumption tax revenues in the OECD, and have now reached an all-time high of 6.8% of GDP, representing 20.2% of total tax revenue, on average in 2016.
After experiencing an upward trend since the economic crisis, standard VAT rates stabilised at 19.3% on average in 2014 and have remained at this level since. Ten countries now have a standard VAT rate above 22%, against only four in 2008. Two countries (Greece and Luxembourg) increased their standard VAT rate between January 2015 and January 2018, while two countries (Iceland and Israel) reduced their standard VAT rate over this period.
With less scope to raise already relatively high standard VAT rates, countries are increasingly implementing or considering base broadening measures to protect or increase VAT revenues. This includes increasing some reduced VAT rates, limiting or narrowing their scope and curbing VAT exemptions. A growing number of tax authorities have implemented or are considering implementation of measures to tackle the challenges of collecting VAT on the ever-rising volume of digital sales, including sales by offshore vendors, in line with new OECD standards.
Revenue statistics also contains a Special Feature that measures the convergence of tax levels and tax structures in OECD countries between 1995 and 2016. The Special Feature highlights ongoing convergence across the OECD toward higher tax levels, with greater reliance on corporate income tax (CIT), VAT and social security contributions, and a slight downward shift in personal income taxes.
The latest data confirms this convergence, with CIT, as a share of total taxes, now reaching its highest levels since the global economic and financial crisis, increasing on average from 8.8% in 2015 to 9.0% in 2016. CIT revenues are still lower than their peak in 2007 (11.1% of total revenues), but are now higher than at any point since 2009 (8.7%). Between 2015 and 2016, personal income tax revenues decreased from 24.1% to 23.8% of total tax revenues.
The increase in the average share of CIT was driven by increases in revenues from CIT in 23 countries in 2016, while the fall in personal income tax was seen in 20 countries.
In 2017, the largest increases in the overall tax-to-GDP ratio relative to 2016 were seen in Israel (1.4 percentage points, due to tax reforms which increased revenues from taxes on income) and in the United States (1.3 percentage points; due to the one-off deemed repatriation tax on foreign earnings, which increased revenues from property taxes). Nineteen countries had increases but no other country had an increase of more than one percentage point.
Ten OECD countries decreased their tax-to-GDP ratios in 2016, relative to 2015, with the largest decreases observed in Austria and Belgium. There were no decreases of more than one percentage point.
Wednesday, December 12, 2018
Texas Businessman Pleads Guilty to Conspiracy to Obstruct Justice in Connection with Venezuela Bribery Scheme
A former procurement officer of Venezuela’s state-owned and state-controlled energy company, Petroleos de Venezuela S.A. (PDVSA), pleaded guilty for his role in a scheme to obstruct an investigation relating to bribes paid by the owner of U.S.-based companies to Venezuelan government officials in exchange for securing additional business with PDVSA and payment priority on outstanding invoices.
Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Ryan K. Patrick of the Southern District of Texas and Special Agent in Charge Mark Dawson of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI) in Houston made the announcement.
Alfonso Eliezer Gravina Munoz (Gravina), 56, of Katy, Texas, who previously worked for PDVSA in Houston, Texas, pleaded guilty before U.S. District Judge Kenneth M. Hoyt of the Southern District of Texas in Houston to one count of conspiracy to obstruct an official proceeding. Gravina is scheduled to be sentenced on Feb. 19, 2019 before Judge Gary H. Miller. He was charged by indictment on Nov. 15.
Gravina pleaded guilty on Dec. 10, 2015 to one count of conspiracy to launder money and one count of making false statements on his federal income tax return. Gravina’s plea agreement in that case was a cooperation plea agreement, and it contemplated the possibility that the United States would make a motion to reduce his sentence based on his cooperation. Under the terms of the plea agreement, Gravina agreed to participate in interviews as requested by the United States, and to provide “truthful, complete and accurate information” to government agents and attorneys.
According to admissions made in connection with Gravina’s plea in this case, after his plea in December 2015, Gravina met periodically with HSI special agents to provide information regarding corruption at PDVSA. Despite knowing that U.S. government authorities were investigating corruption at PDVSA, and, specifically, that at the beginning of 2018 the government was focusing on bribes paid by companies controlled by an individual referred to as Co-Conspirator 1 in the indictment in this case, Gravina concealed facts about Co-Conspirator 1’s bribe payments to PDVSA officials in his interviews with the government. In addition, Gravina informed Co-Conspirator 1 that U.S. government authorities were investigating Co-Conspirator 1, and provided Co-Conspirator 1 with information about the investigation, including the topics discussed in Gravina’s meetings with the government. This passing of information led to the destruction of evidence by Co-Conspirator 1 and others, and to Co-Conspirator 1’s attempt to flee the country in July 2018.
Gravina becomes the latest individual to plead guilty as part of a larger, ongoing investigation by the U.S. government into bribery at PDVSA. Including Gravina, the Justice Department has announced the guilty pleas of a total of 15 individuals in connection with the investigation.
Tuesday, December 11, 2018
Marriott International says that a breach of its Starwood guest reservation database exposed the personal information of up to 500 million people. If your information was exposed, there are steps you can take to help guard against its misuse.
According to Marriott, the hackers accessed people’s names, addresses, phone numbers, email addresses, passport numbers, dates of birth, gender, Starwood loyalty program account information, and reservation information. For some, they also stole payment card numbers and expiration dates. Marriott says the payment card numbers were encrypted, but it does not yet know if the hackers also stole the information needed to decrypt them.
The hotel chain says the breach began in 2014 and anyone who made a reservation at a Starwood property on or before September 10, 2018 could be affected. Starwood brands include W Hotels, St. Regis, Sheraton Hotels & Resorts, Westin Hotels & Resorts, Le Méridien Hotels & Resorts, and other hotel and timeshare properties.
The company set up an informational website, https://answers.kroll.com, and a call center, 877-273-9481, to answer questions. It says affected customers also can sign up for a year of free services that will monitor websites that criminals use to share people’s personal information. Marriott says the service will alert customers if their information shows up on the websites, and will also include fraud loss reimbursement and other services.
If your information was exposed, take advantage of the free monitoring service, and consider taking these additional steps:
- Check your credit reports from Equifax, Experian, and TransUnion — for free — by visiting annualcreditreport.com. Accounts or activity that you don’t recognize could signal identity theft. Visit IdentityTheft.gov to find out what to do.
- Review your payment card statements carefully. Look for credit or debit card charges you don’t recognize. If you find fraudulent charges, contact your credit card company or bank right away, report the fraud, and request a new payment card number.
- Place a fraud alert on your credit files. A fraud alert warns creditors that you may be an identity theft victim and that they should verify that anyone seeking credit in your name really is you. A fraud alert is free and lasts a year.
- Consider placing a free credit freeze on your credit reports.A credit freeze makes it harder for someone to open a new account in your name. Keep in mind that it won’t stop a thief from making charges to your existing accounts.
Marriott says it will send some customers emails with a link to its informational website. Often, phishing scammers try to take advantage of situations like this. They pose as legitimate companies and send emails with links to fake websites to try to trick people into sharing their personal information. Marriott says its email will not have any attachments or request any information. Still, the safest bet is to access the informational website by typing in the address, https://answers.kroll.com.
To learn more about protecting yourself after a data breach, visit IdentityTheft.gov/databreach.
Monday, December 10, 2018
Former Justice Department Employee Pleads Guilty to Conspiracy to Deceive U.S. Banks about Millions of Dollars in Foreign Lobbying Funds
A former employee with the U.S. Department of Justice pleaded guilty for his role in a conspiracy to deceive banks in the United States about the source and purpose of millions of dollars sent from overseas to finance a lobbying campaign on behalf of foreign interests, announced Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division.
George Higginbotham, 46, of Washington, D.C., who was employed at the Justice Department as a Senior Congressional Affairs Specialist from July 2016 to August 2018, pleaded guilty to one count of conspiracy to make false statements to a bank before U.S. District Judge Colleen Kollar-Kotelly of the District of Columbia.
According to admissions made in connection with his plea, in 2017 Higginbotham helped facilitate the transfer of tens of millions of dollars from foreign bank accounts to accounts in the United States to finance a lobbying campaign to resolve civil and criminal matters related to the Department of Justice’s investigation of the embezzlement and bribery scheme concerning 1Malaysia Development Berhad (1MDB). Higginbotham admitted that the foreign principal behind the lobbying campaign was alleged to be the primary architect of the 1MDB scheme. 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 1MDB. Higginbotham further admitted that another purpose of the lobbying campaign was an attempt to persuade high-level U.S. government officials to have a separate foreign national, who was residing in the United States on a temporary visa at the time, removed from the United States and sent back to his country of origin.
In order to conceal the identity of the foreign principal behind the lobbying campaign, Higginbotham admitted to conspiring to make false statements to financial institutions in the United States concerning the source and purpose of the funds. Higginbotham also admitted to working on various fake loan and consulting documents in order to deceive banks and other regulators about the true source and purpose of the money.
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.”
Saturday, December 8, 2018
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.
Copyright © BVIFinance
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
126.96.36.199.4) 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.
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.
Wednesday, December 5, 2018
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.
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.
Monday, December 3, 2018
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.