International Financial Law Prof Blog

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

Monday, August 19, 2019

IRS has begun sending letters to virtual currency owners advising them to pay back taxes, file amended returns; part of agency's larger efforts

he Internal Revenue Service has begun sending letters to taxpayers with virtual currency transactions that potentially failed to report income and pay the resulting tax from virtual currency transactions or did not report their transactions properly.

"Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest and penalties," said IRS Commissioner Chuck Rettig. "The IRS is expanding our efforts involving virtual currency, including increased use of data analytics. We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations."

The IRS started sending the educational letters to taxpayers last week. By the end of August, more than 10,000 taxpayers will receive these letters. The names of these taxpayers were obtained through various ongoing IRS compliance efforts.

For taxpayers receiving an educational letter, there are three variations: Letter 6173, Letter 6174 or Letter 6174-A, all three versions strive to help taxpayers understand their tax and filing obligations and how to correct past errors.

Taxpayers are pointed to appropriate information on IRS.gov, including which forms and schedules to use and where to send them.

Last year the IRS announced a Virtual Currency Compliance campaign to address tax noncompliance related to the use of virtual currency through outreach and examinations of taxpayers. The IRS will remain actively engaged in addressing non-compliance related to virtual currency transactions through a variety of efforts, ranging from taxpayer education to audits to criminal investigations.

Virtual currency is an ongoing focus area for IRS Criminal Investigation.

IRS Notice 2014-21 (PDF) states that virtual currency is property for federal tax purposes and provides guidance on how general federal tax principles apply to virtual currency transactions. Compliance efforts follow these general tax principles. The IRS will continue to consider and solicit taxpayer and practitioner feedback in education efforts and future guidance.

The IRS anticipates issuing additional legal guidance in this area in the near future.

Taxpayers who do not properly report the income tax consequences of virtual currency transactions are, when appropriate, liable for tax, penalties and interest. In some cases, taxpayers could be subject to criminal prosecution.

August 19, 2019 in Tax Compliance | Permalink | Comments (0)

Saturday, August 17, 2019

Will Amazon and Altera Lead to an En Banc Redux?

A Ninth Circuit panel handed down the Amazon[1] decision on Friday (August 16) in favor of Amazon. On June 7, a different Ninth Circuit panel handed down Altera[2] in favor of the IRS.

Let's take ‘it must be the politics of the judges’ off the table.  Altera’s panel included the majority decision by two President Bill Clinton appointees and a vigorous dissent by a President Barack Obama appointee.  Amazon’s three-judge unanimous decision panel includes an appointee each of President’s Clinton and Obama, and a President George W. Bush appointee who wrote it (and received a unanimous Senate confirmation vote).  

The salient issue of both cases, and the cost sharing arrangement (CSA) cases that precede them, is whether the IRS’ can disregard the behavior of third-party comparable transactions and if so, then which U.S. inputs may the IRS insist be included.   

In Altera (i.e. the 2003 CSA regulations version), based on its re-do of the 1995 CSA regulations applicable to Amazon, the IRS sought to include the sharing of the stock-based compensation (SBC) costs incurred by the U.S. corporation.  In Amazon, the IRS doubled down and required Amazon’s foreign subsidiary, for the privilege of building out Amazon throughout Europe, to pay for Amazon’s U.S. intangible assets of value, including “residual-business assets” such as Amazon’s culture of innovation, the value of Amazon’s workforce in place, Amazon’s going concern value, goodwill, and growth options. 

The Amazon Ninth Circuit panel stated:

The dispositive issue in this case is whether, under the 1994/1995 regulations, the “buy-in” required for “pre-existing intangible property” must include compensation for residual-business assets. To answer this legal question, we consider the regulatory definition of an “intangible,” the overall transfer pricing regulatory framework, the rulemaking history of the regulations, and whether the Commissioner’s position is entitled to deference under Auer v. Robbins, 519 U.S. 452 (1997). We agree with the tax court that the definition of an “intangible” in § 1.482-4(b) was not intended to embrace residual-business assets.

Today’s Amazon decision and June’s Altera decision are incongruent and certainly will lead the full Ninth Circuit en banc to reconsider these cases and establish judicial consistency.  This is not a matter of distinguishing decisions because Amazon was determined under 1995 cost sharing regulations versus Altera under the 2003 regulations.  The fundamental issue is whether the IRS is allowed to disregard its own regulations about the arm’s length standard, ignoring evidence of third-party comparable transactions, when it does not like the outcome. The Ninth Circuit called the IRS out when it stated:

“The Commissioner’s reliance on Xilinx thus suffers the same defect as his “made available” argument based on § 1.482-7A(g)—he assumes the very conclusion he’s aiming to prove. Although the regulatory provisions the Commissioner cites are consistent with his position, they do not provide independent support and they are likewise consistent with Amazon’s view.”

In Xilinx, the Ninth Circuit relied upon the arm’s length standard to determine the intragroup cost allocation.  Xilinx was more similar to Altera in that the IRS position hinged on the sharing of the employee stock option costs. In Xilinx, the Ninth Circuit held that that employee stock option (“ESO”) expenses in cost-sharing agreements related to developing intangible property are not subject to reallocation under the applicable CSA pre-2003 regulations.  The Court concluded that third parties jointly developing intangibles and transacting on an arm’s length basis would not include ESO expenses in a cost sharing agreement.  The IRS issued an Action on Decision whereby the IRS acquiesced in the Xilinx outcome but with two caveats.[3]  The acquiescence only applied for taxable years prior to August 26, 2003 and the IRS did not acquiesce to the Court’s analysis of why the IRS lost. The IRS explained its acquiescence

“The Service acquiesces in the result only for such ESOs because the significance of the Ninth Circuit’s opinion is mooted by the 2003 amendments…”

I think that the IRS arguments in Amazon are more of a stretch than it made in Xilinx and I do not think that its 2003 amended regulations mooted the Xilinx issue, much less the Amazon one. I appreciate that the IRS attorneys are doing what good litigators do (I am not a litigator, just a transfer pricing academic): generate innovative arguments and keep probing when the law and the facts don’t support the client’s position. I like the IRS’ proposals for accounting for the value of the residual business assets of Amazon. It makes business sense from an integrated group, managerial economics, perspective.  But not from a transfer pricing tax-regulatory framework perspective that purports to measure itself by an arm’s length reflection of 3rd party transactions. At least, not for the years in question in either case.

To come back to the title of this post, will Amazon and Altera be left to stand side-by-side, the appearance of a split intra-circuit? Or will these two cases be onward distinguished by other panels based on the date of the applicable regulations?  The Amazon panel, in a footnote at page 6, might appear to favor the appearance of harmony:

This case is governed by regulations promulgated in 1994 and 1995. In 2009, more than three years after the tax years at issue here, the Department of Treasury issued temporary regulations broadening the scope of contributions for which compensation must be made as part of the buy-in payment. … In 2017, Congress amended the definition of “intangible property” …. If this case were governed by the 2009 regulations or by the 2017 statutory amendment, there is no doubt the Commissioner’s position would be correct.

However, Altera is a 2003 CSA regulation case, and thus not meant to be included in the pronouncement of the footnote.

Amazon @ Tax Court Level

In a 207 page opinion the Tax Court ruled March 23, 2017 that the IRS’s adjustment with respect to Amazon.Inc buy-in payment for an intragroup cost-sharing agreement (CSA) is arbitrary, capricious, and unreasonable.[1] Not a surprising loss given the decisions against the IRS on CSAs: VERITAS[2] in 2009 and the following year Xilinx[3]  The Tax Court held that Amazon’s choice of the comparable uncontrolled transaction (CUT) method with appropriate upward adjustments in several respects is the best method to determine the requisite buy-in payment.  Moreover, the Court found that the IRS abused its discretion in determining that 100 percent of Technology and Content costs constitute Intangible Development Costs (IDCs), and that Amazon’s cost-allocation method with adjustments supplies a reasonable basis for allocating costs to IDCs.

The Court found that the IRS committed a series of errors in calculating the buy-in value of the preexisting intangibles. Amazon’s valuation was based upon a limited useful life of seven years or less for the preexisting intangibles whereas the IRS’ commissioned Horst Frisch Report assumed that the intangibles have a perpetual useful life.  Under Amazon’s approach, after decaying or “ramping down” in value over a seven-year period, Amazon’s website technology as it existed in January 2005 would have had relatively little value left by year-end 2011. But approximately 58 percent of the Horst Frisch Report proposed buy-in payment, or roughly $2 billion, is attributable to cash flows beginning in 2012 and continuing in perpetuity.

One does not need a Ph.D. in economics to appreciate the essential similarity between the DCF methodology that Dr. Hatch employed in Veritas and the DCF methodology that Dr. Frisch employed here. (Amazon.com Inc., Tax Court 2017 at 76.)

Amazon cited the court’s decision in VERITAS[6] as one of the basis that the IRS’ adjustment with respect to the buy-in payment was arbitrary, capricious, and unreasonable.  Like in VERITAS, in Amazon.com Inc the Tax Court again rejected the IRS’ approach of “aggregation” of the intangibles to determine valuation, holding it neither yields a reasonable means nor the most reliable one.[7]   Specifically, the Court rejected the business-enterprise approach of aggregating pre-existing intangibles which are subject to the buy-in payment and subsequently developed intangibles which are not. Secondly, the Court noted that the business-enterprise approach improperly aggregates compensable “intangibles” such as software programs and trademarks with residual business assets such as workforce in place and growth options that do not constitute “pre-existing intangible property” under the cost-sharing regulations in effect during 2005-2006.  Finally, in this regard, the Court stated that the IRS ignored its own regulations whereby even if the IRS determines that a realistic alternative exists, the Commissioner “will not restructure the transaction as if the alternative had been adopted by the taxpayer,” so long as the taxpayer’s actual structure has economic substance.[8]

Amazon.com Inc. (2017), VERITAS, Xilinx, Altera, and Medtronic involved restructurings that transferred ownership of intellectual property and technology intangibles from a United States parent to a foreign subsidiary.  VERITAS granted its Ireland subsidiary the right to use certain preexisting intangibles in Europe, the Middle East, Africa, and Asia pursuant to its intragroup CSA. As consideration for the transfer of preexisting intangibles, its Ireland subsidiary made a $166 million buy-in payment to VERITAS based upon a CUT to calculate the payment.  The IRS in a notice of deficiency chose a discounted cash flow income method with a resulting buy-in payment adjustment of $2.5 billion.  Moreover, the IRS argued that the buy-in payment must take into account access to VERITAS’ research and development team, marketing team, distribution channels, customer lists, trademarks, trade names, brand names, and sales agreements.  The Tax Court found the IRS’s determinations arbitrary, capricious, and unreasonable, and that instead VERITAS’ CUT method with appropriate adjustments is the best method to determine the requisite buy-in payment. The Tax Court found that the IRS’ discounted cash flow method was improperly used when the IRS valued the buy-in payment as if the intangibles had a perpetual useful life.  The IRS issued an ‘action on decision’ that it disagreed with the Court’s factual determination and reasoning and thus would disregard the decision.[9]

How Do 3rd Parties Transact?

In Altera I, the Tax Court held that Treasury failed to support its belief with any evidence in the administrative record that third parties would share ESO costs, failed to articulate why all CSAs should be treated identically, and failed to respond to significant comments from the industry received during the regulatory drafting process.  Thus the Court held that Treasury’s final CSA regulations invalid because these failed to satisfy the U.S. Administrative Procedural Act required ‘reasoned decision making’ standard.[11]

The Court in Altera reported the following regarding 3rd party transactions:

Several of the commentators informed Treasury that they knew of no transactions between unrelated parties, including any cost-sharing arrangement, service agreement, or other contract, that required one party to pay or reimburse the other party for amounts attributable to stock-based compensation.

AeA provided to Treasury the results of a survey of its members. AeA member companies reviewed their arm's-length codevelopment and joint venture agreements and found none in which the parties shared stock-based compensation. For those agreements that did not explicitly address the treatment of stock-based compensation, the  [companies reviewed their accounting records and found none in which any costs associated with stock-based compensation were shared.

AeA and PwC represented to Treasury that they conducted multiple searches of the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system and found no cost-sharing agreements between unrelated parties in which the parties agreed to share either the exercise spread or grant date value of stock-based compensation.

Several commentators identified arm's-length agreements in which stock-based compensation was not shared or reimbursed. For example, (1) AeA identified, and PwC provided, a 1997 collaboration agreement between Amylin Pharmaceuticals, Inc., and Hoechst Marion Roussel, Inc. (Amylin-HMR collaboration agreement), that did not include stock options in the pool of costs to be shared; (2) PwC identified a joint development agreement between the biotechnology company AgraQuest, Inc., and Rohm & Haas under which only "out-of-pocket costs" would be shared; (3) PwC identified a 1999 cost-sharing agreement between software companies Healtheon Corp. and Beech Street Corp. that expressly excluded stock options from the pool of expenses to be shared. Additionally, in written comments, and again at the November 20, 2002, hearing, Ms. Hurley offered to provide Treasury with more detailed information regarding several agreements involving AeA member companies, provided that the companies received adequate assurances that their proprietary information would not be disclosed.

FEI submitted model accounting procedures from the Council of Petroleum Accountant Societies (COPAS) for sharing costs among joint operating agreement partners in the petroleum industry. FEI noted that COPAS recommends that joint operating agreements should not allow stock  options to be charged against the joint account because they are difficult to accurately value.

AeA, SoFTEC, KPMG, and PwC cited the practice of the Federal Government, which regularly enters into cost-reimbursement contracts at arm's length. They noted that Federal acquisition regulations prohibit reimbursement of amounts attributable to stock-based compensation.

AeA, Global, and PwC explained that, from an economic perspective, unrelated parties would not agree to share or reimburse amounts related to stock-based compensation because the value of stock-based compensation is speculative, potentially large, and completely outside the control of the parties. SoFTEC provided a detailed economic analysis from economists William Baumol and Burton Malkiel reaching the same conclusion.

Finally, the Baumol and Malkiel analysis concluded that there is no net economic cost to a corporation or its shareholders from the issuance of stock-based compensation. Similarly, Mr. Grundfest asserted that a company's "decision to grant options to employees * * * does not change its operating expenses" and does not factor into its pricing decisions.

AeA, SoFTEC, KPMG, and PwC cited regulations that prohibit contractors from charging the Federal Government for stock-based compensation. Treasury responded to this evidence by stating that "[g]overnment contractors that are entitled to reimbursement for services on a cost-plus basis under government procurement law assume substantially less entrepreneurial risk than that assumed by service providers that participate in QCSAs". ... However, this distinction rings hollow in the face of other evidence submitted by commentators that showed that even parties to agreements in which the parties assume considerable entrepreneurial risk do not share stock-based compensation costs.

AeA, Global, and PwC explained that, from an economic perspective, unrelated parties would be unwilling to share stock-based compensation costs because the value of stock-based compensation is speculative, potentially large, and completely outside the control of the parties. SoFTEC submitted Baumol and Malkiel's detailed economic analysis reaching the same conclusion. We found similar evidence to be relevant in Xilinx. See Xilinx Inc. v. Commissioner, 125 T.C. at 61. Treasury never directly responded to this evidence. Instead, Treasury construed these comments as objections to Treasury's selection of the exercise spread method and the grant date method as the only available valuation methods. ... Treasury responded that these methods are consistent with the arm's-length standard and are administrable. See id. Treasury, however, never explained how these methods could be consistent with the arm's-length standard if unrelated parties would not share them or why unrelated parties would share stock-based compensation costs in any other way.

The Baumol and Malkiel analysis also concluded that there is no net economic cost to a corporation or its shareholders from the issuance of stock-based compensation. Treasury identified  this evidence in the preamble to the final rule but did not directly respond to it. ... Instead, the preamble states that "[t]he final regulations provide that stock-based compensation must be taken into account in the context of QCSAs because such a result is consistent with the arm's length standard." Treasury, however, never explained why unrelated parties would share  stock-based compensation costs--or how the commensurate-with-income standard could justify the final rule--if stock-based compensation is not an economic cost to the issuing corporation or its shareholders. 

History of Cost Sharing Arrangement Regulations

Multinational groups share intellectual property (“IP”) within the group through license agreements or a cost sharing arrangement.  A cost sharing arrangement involves related parties (the “controlled participants”) sharing among themselves the costs and risks associated with efforts to develop intangible property in return for each having an interest in any intangible property that may be produced (referred to in the 1995 QCSA Regulations, amended in 2003, as covered intangibles and in the 2009 Temporary Regulations and 2011 Final Regulations as cost shared intangibles.  The QCSA Regulations were issued in 1995 and liberalized in 1996. The QCSA regulations were tightened with respect to stock-based compensation in 2003, proposed regulations to replace the QCSA Regulations were issued in 2005, and a CSA-Audit Checklist was issued for existing CSAs which effectively required increased buy-in payments for pre-existing intangibles.[12] The tightening process continued with the CSA-CIP issued in September 2007 (withdrawn), the Temporary Regulations effective January 5, 2009, and the Final Regulations effective December 16, 2011.  The CSA-CIP provided that certain transfer pricing methods (the Income Method and the Acquisition Price Method) which are similar to the specified transfer pricing methods, set forth in the Temporary Regulations and the Final Regulations would typically be the best methods under the QCSA Regulations, even though they constituted unspecified methods under the QCSA Regulations.

>My comments about the Nike case here<

[1] Amazon.Com, Inc. v. Comm’r, No. 17-72922 (9th Cir. Aug. 16, 2019). Available at http://cdn.ca9.uscourts.gov/datastore/opinions/2019/08/16/17-72922.pdf (accessed Aug. 16, 2019).

[2] Altera Corp. v Commr, __ F.3d. __ (9th Cir., June 7, 2019) (case no. 16-70496) [hereafter “Altera II”] reversing Altera Corp. v. Commr, 145 TC No 3 (July 27, 2015) [hereafter “Altera I”]. Available at http://cdn.ca9.uscourts.gov/datastore/opinions/2019/06/07/16-70496.pdf (accessed Aug. 16, 2019).

[3] IRS AOD 2010-03 (July 28, 2010). Available at https://www.irs.gov/pub/irs-aod/aod201003.pdf (accessed Aug. 16, 2019).

[1] Amazon.Com, Inc. v. Comm’r, 148 T.C. No. 8, Docket No. 31197-12, (March 23, 2017).  Available at https://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=11148 (accessed March 23, 2017).  (Hereafter Amazon.com Inc. (2017)).

[2] Veritas Software Corp. v. Commissioner, 133 T.C. 297 (2009).

[3] Xilinx v. Comm’r, 598 F.3d 1191 (9th Cir. 2010).

[4] Altera v. Comm’r, 145 T.C. No. 3, Docket Nos. 6253-12, 9963-12 (July 27, 2015).

[5] Medtronic v. Comm’r, T.C. Memo. 2016-112, Docket No. 6944-11 (June 9, 2016).

[6] Veritas Software Corp. v. Commissioner, 133 T.C. 297 (2009).

[7] Amazon.com Inc. (2016) at 84.

[8] Amazon.com Inc. (2017)) at 84 referring to Sec. 1.482-1(f)(2)(ii)(A).

[9] IRS AOD 2010-05 (December 6, 2010). Available at https://www.irs.gov/pub/irs-aod/aod201005.pdf (accessed March 23, 2017).

[10] IRS AOD 2010-03 (July 28, 2010). Available at https://www.irs.gov/pub/irs-aod/aod201003.pdf (accessed March 23, 2017).

[11] Motor Vehicles Manufacturers Association v. State Farm, 463 U.S. 29 (1983).

[12] CSA-Audit Checklist is available at https://www.irs.gov/pub/irs-utl/tierisec482.pdf (accessed March 23, 2017).

August 17, 2019 in Tax Compliance | Permalink | Comments (0)

Friday, August 16, 2019

Will London Legal Services Market Lose its Cache Post Brexit?

Britain’s legal sector set for significant slowdown in event of no-deal Brexit

Britain – Europe’s biggest international provider of legal services and number two in the world – could take a £3.5bn hit from a no deal Brexit, solicitors' leaders warned today.

“According to our estimates, the volume of work in legal services would be down £3.5bn* – nearly 10% lower than under an orderly Brexit,” said Law Society of England and Wales president Simon Davis as the Law Society launched its UK-EU future partnership - legal services sector report.

“Our sector contributed £27.9 billion to the UK in 2018 – 1.4% of GDP – and in 2017 posted a trade surplus of £4.4 billion, according to the Office for National Statistics (ONS). Much of this balance of payments surplus is down to access provided by EU Lawyers’ Directives.

“In general, we have a trade surplus with the EU27 when it comes to services. We have a trade deficit when it comes to manufacturing.

“And in 2018 the total tax contribution of legal and accounting activities was estimated to be £19.1 billion – potentially funding the salaries of doctors, nurses, teachers and police officers.

“That is why we are urging the UK government to negotiate a future agreement that enables broader access for legal services so that English and Welsh solicitors can maintain their right to practise in the EU.

“Such an agreement should replicate the Lawyers’ Directives, which provide EU-wide rights on services and establishment, as other models are unlikely to deliver the comprehensive practice rights that have substantially contributed to the UK legal sector’s large export surplus of £4.4bn as of 2017.

“There are precedents for such agreements providing necessary in-depth frameworks on legal services: the EU has association agreements through the EEA with Norway, Liechtenstein and Iceland and with Switzerland. These extend the application of the Lawyers’ Directives to EFTA countries.

"The UK legal system is globally respected and the liberalisation of services in the EU has directly contributed to its success."

Notes to editors

*Using constant 2017 prices, the Law Society research unit estimates that the volume of work in the legal services sector would be down £3.5 billion in a no-deal Brexit scenario.

The Law Society’s UK-EU future partnership and legal services report outlines with case studies some of the practical challenges of leaving the EU without a deal or with a deal that pays no attention to professional and business services.

At present, the EU legal services framework allows solicitors in England and Wales to:

  1. advise their clients across the EU on all matters of concern to them and in all types of law, including English law, EU law and the law of the host state
  2. have their qualifications recognised and requalify under EU rules with few barriers compared to non-EU lawyers
  3. to employ local lawyers in a different member state and retain the ability to form partnerships with lawyers from all EU member states (provided the jurisdiction in question allows the employment of lawyers)
  4. be employed by EU law firms and companies (provided the jurisdiction in question allows the employment of lawyers)
  5. retain their freedom to establish a permanent presence in EU states, and extends this to English and Welsh law firms
  6. have all communications with their EU clients and vice versa protected by the EU legal professional privilege (LPP) at EU level, i.e. they cannot be disclosed without the permission of the client
  7. represent their clients in the Court of Justice of the European Union (CJEU), domestic courts and other fora (such as arbitral proceedings and alternative dispute resolution mechanisms)

For more information, the Law Society’s August 2018 Legal sector forecast report includes our most recent estimates of the effects of Brexit on the legal sector.

If you are a legal services business owner in the UK or the EU you need to make sure you can continue to practise after a no-deal Brexit.

If you are a UK lawyer with ownership interests in the EU, Norway, Iceland or Liechtenstein (EEA-EFTA) you need to contact the local regulator for specific advice.

Lawyers with qualifications from EU, Norway, Iceland or Liechtenstein (EEA-EFTA) and Registered European Lawyers (RELs) need to take one or more of the following actions to continue to own, or part own, a legal services business in England, Wales or Northern Ireland after Brexit:

  • requalify in England, Wales or Northern Ireland
  • become a Registered Foreign Lawyer
  • make the necessary changes to their practice or business structure to comply with the new regulatory arrangements

This will need to be done before Brexit for lawyers who are not RELs, and the end of December 2020 for RELs.

EU lawyers and Registered European Lawyers (RELs) who own or part own regulated legal services firms in England, Wales or Northern Ireland should contact their UK regulator for specific advice.

Registered European Lawyers (RELs) may also own unregulated legal businesses.

3. Employing lawyers from the EU, EEA and Switzerland after Brexit

There will be no change to the way EU, EEA and Swiss citizens prove their right to work until 1 January 2021. This remains the case in a no-deal Brexit. Irish citizens will continue to have the right to work in the UK and prove their right to work as they do now, for example by using their passport.

You can find more information in the guidance on employing EU, EEA and Swiss citizens.

EU and EEA-EFTA businesses in England, Wales or Northern Ireland employing EU, and/or EEA-EFTA lawyers should contact their relevant UK regulator for specific advice.

4. Scotland

Legal services business owners in Scotland should contact the relevant Scottish regulators - see further information for specific advice.

5. Further information

August 16, 2019 in Financial Regulation | Permalink | Comments (0)

Thursday, August 15, 2019

Financial Conduct Authority (FCA) provides clarity on current cryptoassets regulation

The FCA is today publishing Final Guidance which sets out the cryptoasset activities it regulates. This is in response to the FCA’s consultation published earlier this year.

The Guidance will help firms understand whether their cryptoasset activities fall under FCA regulation. This will allow firms to have a better understanding of whether they need to be authorised and what they need to do to ensure they are compliant.

Christopher Woolard, executive director of Strategy and Competition at the FCA, commented:

'This is a small, complex and evolving market covering a broad range of activities. Today’s guidance will help clarify which cryptoasset activities fall inside our regulatory perimeter.'

The majority of respondents supported the proposals outlined in the consultation. The FCA is therefore publishing the Final Guidance as consulted on with some amendments to provide greater clarity on what is and isn’t regulated. This includes making the important distinction as to which cryptoassets fall inside the regulatory perimeter clearer.

Consumers should be mindful of the absence of certain regulatory protections when considering purchasing unregulated cryptoassets. Unregulated cryptoassets (e.g. Bitcoin, Ether, XRP etc.) are not covered by the Financial Services Compensation Scheme and consumers do not have recourse to the Financial Ombudsman Service.

Consumers should be cautious when investing in such cryptoassets and should ensure they understand and can bear the risks involved with assets that have no intrinsic value.

Notes to editors

  1. PS19/22: Guidance on Cryptoassets
  2. CP19/3: Guidance on Cryptoassets
  3. This consultation follows the Cryptoasset Taskforce report(link is external) published in October 2018 that laid out a broad overview of the benefits and risks of cryptoassets and distributed ledger technology (DLT), as well as the UK’s policy and regulatory approach. The Taskforce report committed the FCA to consult on guidance in relation to existing regulatory perimeter.
  4. Find out more information about the FCA.

August 15, 2019 in AML | Permalink | Comments (0)

Sunday, August 11, 2019

Lebanese Businessman Tied by Treasury Department to Hezbollah is Sentenced to Prison for Money Laundering Scheme Involving the Evasion of U.S. Sanctions

The operator of a network of businesses in Lebanon and Africa whom the U.S. Department of the Treasury designated as a financier of  Hezbollah, the Lebanon-based terrorist group, was sentenced to five years in prison and ordered to forfeit $50 million by U.S. District Judge Reggie B. Walton of the District of Columbia.

Kassim Tajideen, 63, had previously pleaded guilty to one count of conspiracy to launder monetary instruments in furtherance of violating the International Emergency Economic Powers Act (IEEPA).  In 2009, the U.S. Department of the Treasury designated Tajideen as a Specially Designated Global Terrorist based on his tens of millions of dollars of financial support of Hezbollah.  The designation prohibited Tajideen from being involved in, or benefiting from, transactions involving U.S. persons or companies without a license from the Department of the Treasury.

“This defendant knowingly violated sanctions and put our nation’s security at risk,” said Assistant Attorney General Brian A. Benczkowski of the Criminal Division.  “His sentencing and the $50 million forfeiture in this case are just the latest public examples of the Department of Justice’s ongoing efforts to disrupt and dismantle Hezbollah and its support networks.”

“Today’s sentencing highlights our efforts to prosecute those who violate sanctions meant to stem the flow of money to terrorists groups,” said U.S. Attorney Jessie K. Liu for the District of Columbia. “Our message to those who violate sanctions is that you will be found, and you will be prosecuted to the full extent of the law.”

“This is the latest example of DEA’s success against Hezbollah’s global criminal support network and our commitment to interagency collaboration in combatting the overall threat posed by this transnational criminal organization,” said Acting Special Agent in Charge of DEA’s Special Operations Division Michael J. Machak.

According to the statement of facts signed by Tajideen in conjunction with his plea, after his designation, Tajideen conspired with at least five other persons to conduct over $50 million in transactions with U.S. businesses that violated these prohibitions.  In addition, Tajideen and his co-conspirators knowingly engaged in transactions outside of the United States, which involved transmissions of as much as $1 billion through the United States financial system from places outside the United States.

Tajideen’s case falls under DEA’s Project Cassandra, which targets Hezbollah’s global criminal support network, which operates as a logistics, procurement and financing arm for Hezbollah.  This investigation and others are part of the Department of Justice’s Hezbollah Financing and Narcoterrorism Team (HFNT).  The HFNT was formed in January 2018 to ensure an aggressive and coordinated approach to prosecutions and investigations, including Project Cassandra cases, targeting the individuals and networks supporting Hezbollah.  Comprised of experienced international narcotics trafficking, terrorism, organized crime, and money laundering prosecutors and investigators, the HFNT works closely with partners like the DEA, the Department of the Treasury, and the FBI, among others, to advance and facilitate prosecutions of Hezbollah and its support network in appropriate cases.

This case was investigated by DEA SOD’s Counter Narcoterrorism Operations Center (CNTOC) and the DEA New Jersey Field Division, with support from the CPB’s National Targeting Center/Counter Network Division, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and Office of Foreign Assets Control (OFAC), the Criminal Division’s Office of International Affairs, and the Counterintelligence and Export Control Section of the National Security Division.

August 11, 2019 in AML | Permalink | Comments (0)

Saturday, August 10, 2019

Former CEO of Israeli Company Found Guilty of Orchestrating $145 Million Binary Options Fraud Scheme

The former CEO of the Israel-based company Yukom Communications, a purported sales and marketing company, was found guilty yesterday for orchestrating a scheme to defraud investors in the United States and worldwide by fraudulently marketing approximately $145 million in financial instruments known as “binary options.”

Lee Elbaz, 38, a citizen of Israel, was found guilty after a three-week jury trial of one count of conspiracy to commit wire fraud and three counts of wire fraud.  Sentencing is scheduled for Dec. 9, 2019, before U.S. District Judge Theodore D. Chuang of the District of Maryland, who presided over the trial.  Elbaz was arrested on a criminal complaint in September 2017 and indicted in March 2018.

“This verdict demonstrates that the Department will hold accountable those who deceive American investors with false claims and rates of returns,” said Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division.  “We are committed to prosecuting financial fraud, even when perpetrated from abroad.”

“I would like to commend the FBI agents, analysts and our DOJ colleagues for their hard work to seek justice for the victims of Lee Elbaz’s fraud,” said Acting Assistant Director in Charge of the FBI's Washington Field Office, John P. Selleck.   “We would not be successful in our work if not for our partners around the world; and this investigation demonstrates that no matter where fraudsters and criminals try to hide, we will work tirelessly to locate them.”

According to the evidence presented at trial, the defendant and her co-conspirators fraudulently sold and marketed binary options to investors located in the United States and throughout the world through two websites, known as BinaryBook and BigOption.  The evidence showed that in her role as CEO of Yukom, Elbaz, along with her co-conspirators and subordinates, misled investors using BinaryBook and BigOption by falsely claiming to represent the interests of investors when, in fact, the owners of BinaryBook and BigOption profited when investors lost money; by misrepresenting the suitability of and expected return on investments through BinaryBook and BigOption; by providing investors with false names and qualifications and falsely claiming to be working from London; and by misrepresenting whether and how investors could withdraw funds from their accounts.  Representatives of BinaryBook and BigOption, working under Elbaz’s supervision, misrepresented the terms of so-called “bonuses,” “risk free trades” and “insured trades,” and deceptively used these supposed benefits in a manner that in fact harmed investors, the evidence showed.  

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

Friday, August 9, 2019

Justice Department Announces Resolution with LLB Verwaltung (Switzerland) AG

Assistance to U.S. Taxpayers to Commit Tax Evasion Results in $10.6 Million Penalty

LLB Verwaltung (Switzerland) AG, formerly known as “Liechtensteinische Landesbank (Schweiz) AG” (LLB-Switzerland), a Swiss-based private bank, reached a resolution with the United States Department of Justice, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division today. As part of the agreement, LLB-Switzerland will pay a penalty of $10,680,554.64 to the United States.

“This resolution is another step forward in the Department of Justice’s pursuit of tax evaders, who use foreign bank accounts to commit criminal activity, and those institutions, who enable such criminal tax activity,” said Principal Deputy Assistant Attorney General Zuckerman. “The Department is dedicated to holding both financial institutions and individual offenders accountable for tax evasion.”

According to the terms of the non-prosecution agreement, in addition to paying a penalty, LLB-Switzerland has agreed to cooperate in any related criminal or civil proceedings in return for the Department’s agreement not to prosecute the company for tax-related criminal offenses committed by LLB-Switzerland.

According to the statement of facts agreed to by the parties, LLB-Switzerland and some of its employees, including members of the bank’s management, conspired with a Swiss asset manager and U.S. clients to conceal those U.S. clients’ assets and income from the Internal Revenue Service (IRS) through various means, including using Swiss bank secrecy protections and nominee companies set up in tax haven jurisdictions. At its peak, LLB-Switzerland had approximately one hundred U.S. clients holding nearly $200 million in assets. The majority of those accounts were in the names of nominee entities.

In 1997, Liechtensteinische Landesbank AG (LLB-Vaduz), a bank headquartered in Liechtenstein, acquired LLB-Switzerland (LLB-Vaduz reached a separate agreement with the Justice Department in 2013 that excluded LLB-Switzerland from the resolution). At that time, LLB-Switzerland provided banking and asset management services to individuals and entities, including citizens and residents of the United States, principally through private bankers based in Zurich, Geneva and Lugano, Switzerland. LLB-Switzerland also acted as a custodian of assets managed by third-party external investment advisers.

In 2003, LLB-Switzerland began a relationship with a Swiss asset manager. The asset manager offered to create nominee structures, including corporations, foundations, and trusts, to conceal accounts owned by his U.S. clients at Swiss financial institutions. LLB-Switzerland delegated to the Swiss asset manager the authority to prepare account opening and “know your customer” (KYC) documents. 

The Swiss asset manager provided prospective customers with a sales letter, pitching his ability to conceal a client’s assets and income from taxing authorities through the use of multiple layers of sham offshore entities and nominee directors in countries or regions that the Swiss asset manager thought would resist requests for information and assistance from foreign law enforcement, including law enforcement in the United States. LLB-Switzerland and its management knew that the Swiss asset manager was marketing structures to clients as a means of tax evasion as the bank kept a copy of the manager’s sales letter in the bank’s files.

In 2008, after it became publicly known that UBS AG, Switzerland’s largest bank, was the target of a U.S. criminal investigation focusing on tax and other violations, the amounts that LLB-Switzerland held for U.S. clients swelled. At the end of 2007, the Bank had 72 U.S. clients with almost $80 million in assets. By the end of the next year, the number of U.S. clients increased to 107, but the assets more than doubled to over $176 million. LLB-Switzerland’s management knew that many of the U.S. clients coming to LLB‑Switzerland were bringing undeclared funds with them. 

Although LLB-Switzerland’s management monitored the United States’ investigation of UBS, LLB-Switzerland failed to take actions to cease assisting U.S. taxpayers to evade their taxes. While in August 2008, LLB-Vaduz prohibited U.S. persons from becoming clients of the Liechtenstein bank, LLB-Switzerland did not implement a similar policy. Despite press reports, indicating the Swiss asset manager was under investigation for helping clients evade U.S. taxes, LLB-Switzerland waited two years – until a grand jury had indicted the Swiss asset manager - to close the accounts he managed. 

LLB-Switzerland’s remediation efforts since 2012 have been comprehensive. It halted and terminated all U.S. cross-border business with U.S. clients. All of LLB-Switzerland’s U.S. clients and its relationship with the Swiss asset manager ended. It also dismissed its managers and employees implicated in the Department’s investigation of the bank’s U.S. cross-border business, and LLB-Vaduz has shut down the operations of LLB-Switzerland. In 2013, LLB-Vaduz closed LLB-Switzerland and returned LLB-Switzerland’s banking license to the Swiss Financial Market Supervisory Authority.

Principal Deputy Assistant Attorney General Zuckerman thanked Senior Litigation Counsel Mark F. Daly and Assistant Chief Jason Poole of the Tax Division, who served as counsel on this matter. Zuckerman also thanked the Internal Revenue Service for its assistance.

Additional information about the Tax Division and its enforcement efforts may be found on the division’s website.

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

Thursday, August 8, 2019

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

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced today that the goods and services deficit was $55.2 billion in June, down $0.2 billion from $55.3 billion in May, revised.

U.S. International Trade in Goods and Services Deficit
Deficit: $55.2 Billion -0.3%°
Exports: $206.3 Billion -2.1%°
Imports: $261.5 Billion -1.7%°

Next release: September 4, 2019

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

Source: U.S. Census Bureau, U.S. Bureau of Economic Analysis; U.S. International Trade in Goods and Services, August 2, 2019

Exports, Imports, and Balance (exhibit 1)

June exports were $206.3 billion, $4.4 billion less than May exports. June imports were $261.5 billion, $4.6 billion less than May imports.

The June decrease in the goods and services deficit reflected a decrease in the goods deficit of $0.8 billion to $75.1 billion and a decrease in the services surplus of $0.6 billion to $20.0 billion.

Year-to-date, the goods and services deficit increased $23.2 billion, or 7.9 percent, from the same period in 2018. Exports increased $0.5 billion or less than 0.1 percent. Imports increased $23.8 billion or 1.5 percent.

Three-Month Moving Averages (exhibit 2)

The average goods and services deficit increased $1.1 billion to $53.9 billion for the three months ending in June.

  • Average exports decreased $1.7 billion to $207.8 billion in June.
  • Average imports decreased $0.6 billion to $261.7 billion in June.

Year-over-year, the average goods and services deficit increased $7.2 billion from the three months ending in June 2018.

  • Average exports decreased $3.3 billion from June 2018.
  • Average imports increased $4.0 billion from June 2018.

Exports (exhibits 3, 6, and 7)

Exports of goods decreased $3.9 billion to $137.1 billion in June.

   Exports of goods on a Census basis decreased $3.8 billion.

  • Consumer goods decreased $1.9 billion.
    • Gem diamonds decreased $0.8 billion.
    • Pharmaceutical preparations decreased $0.5 billion.
    • Jewelry decreased $0.4 billion.
  • Capital goods decreased $1.2 billion.
    • Computer accessories decreased $0.4 billion.
    • Other industrial machinery decreased $0.2 billion.
    • Telecommunications equipment decreased $0.2 billion.
  • Automotive vehicles, parts, and engines decreased $0.5 billion.

   Net balance of payments adjustments decreased $0.1 billion.

Exports of services decreased $0.5 billion to $69.2 billion in June.

  • Travel (for all purposes including education) decreased $0.4 billion.
  • Transport decreased $0.1 billion.

Imports (exhibits 4, 6, and 8)

Imports of goods decreased $4.7 billion to $212.3 billion in June.

   Imports of goods on a Census basis decreased $4.4 billion.

  • Industrial supplies and materials decreased $3.2 billion.
    • Crude oil decreased $1.4 billion.
    • Other petroleum products decreased $1.0 billion.
    • Fuel oil decreased $0.3 billion.
  • Consumer goods decreased $0.9 billion.
    • Cell phones and other household goods decreased $1.4 billion.
    • Pharmaceutical preparations increased $0.6 billion.

   Net balance of payments adjustments decreased $0.2 billion.

Imports of services increased $0.1 billion to $49.2 billion in June, reflecting small (less than $50 million) changes in all major service categories.

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

The real goods deficit decreased $0.3 billion to $86.1 billion in June.

  • Real exports of goods decreased $2.8 billion to $148.1 billion.
  • Real imports of goods decreased $3.1 billion to $234.2 billion.

Revisions

Revisions to May exports

  • Exports of goods were revised up $0.2 billion.
  • Exports of services were revised down $0.1 billion.

Revisions to May imports

  • Imports of goods were revised down less than $0.1 billion.
  • Imports of services were revised down $0.1 billion.

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

The June figures show surpluses, in billions of dollars, with South and Central America ($4.8), Hong Kong ($2.3), Brazil ($1.3), and United Kingdom ($0.1). Deficits were recorded, in billions of dollars, with China ($30.2), European Union ($15.9), Mexico ($9.2), Japan ($6.2), Germany ($5.2), Canada ($3.3), Italy ($2.6), France ($1.9), Taiwan ($1.7), India ($1.6), South Korea ($1.4), OPEC ($0.3), Saudi Arabia ($0.3), and Singapore ($0.1).

  • The deficit with the European Union decreased $1.0 billion to $15.9 billion in June. Exports decreased $0.5 billion to $26.7 billion and imports decreased $1.5 billion to $42.7 billion.
  • The surplus with Brazil increased $0.8 billion to $1.3 billion in June. Exports increased $0.3 billion to $3.9 billion and imports decreased $0.5 billion to $2.6 billion.
  • The balance with Singapore shifted from a surplus of $0.6 billion to a deficit of $0.1 billion in June. Exports decreased $0.2 billion to $2.5 billion and imports increased $0.4 billion to $2.6 billion.

Next release: September 4, 2019: U.S. International Trade in Goods and Services, July 2019

August 8, 2019 in Economics | Permalink | Comments (0)

Wednesday, August 7, 2019

Tuition Waiver for International Tax online curriculum starting August 26, 2019 - 2 weeks left to apply

Texas A&M University School of Law will launch August 26, 2019 an International Tax online curriculum for graduate degree candidates. Admissions is open for the inaugural cohort of degree candidates to pilot the launch of the Fall semester introductory courses of international taxation and tax treaties, and provide weekly feedback on content, support, and general experience in exchange for waiving the tuition and providing the books free.

What is the tuition waiver offer?

For new degree candidates who apply and enroll for this inaugural Fall semester of the international tax curriculum 2019 semester, Texas A&M University will waive the tuition for this Fall 2019 semester in exchange for the candidates providing weekly feedback and engagement to improve the Fall courses and learning experience. Moreover, the Fall semester textbook and companion study guide are provided free.

Normal Texas A&M University tuition and available financial aid applies after the Fall term and is available at https://law.tamu.edu/llm-mjur-programs/tuition Texas A&M University is a public university of the state of Texas and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018). 

How do I apply for the inaugural cohort?

Only for this inaugural cohort, completed applications may be submitted directly, via the below-expedited process, to the law school’s admission office until noon central daylight time (CDT – Dallas) on August 22, 2019.   A completed Fall application must include four items:

(1) the completed and signed law school application (application fees and letters of recommendation are waived for Fall 2019 international tax);

(2) statement of interest for the international tax program that includes mention of prior tax or related experience.

(3) resume/CV reflecting at least three years of employment as a tax advisor or five years employment in a related field; and

(4) an official transcript from the highest academic degree awarded by an accredited University sent to Texas A&M University: Official electronic transcripts can be sent to law-admissions@law.tamu.edu  FedEx, UPS, DHL express mail can be sent to Attn: Office of Graduate Admissions 1515 Commerce Street Fort Worth, TX 76102-6509

To apply for the inaugural cohort opportunity, contact Jeff Green, Graduate Programs Coordinator, T: +1 (817) 212-3866, E: jeffgreen@law.tamu.edu or contact David Dye, Assistant Dean of Graduate Programs, T (817) 212-3954, E: ddye@law.tamu.edu.

What is the proposed curriculum of 12 international tax courses?

International Taxation & Treaties I (3 credits)                  International Taxation & Treaties II (3 credits)

Transfer Pricing I (3 credits)                                          Transfer Pricing II (3 credits)

Tax Risk Management (3 credits)                                  FATCA & CRS (3 credits)

International Tax Planning (3 credits)                             Country Tax Systems (3 credits)

U.S. Int’l Tax (3 credits)                                                 EU Taxation (3 credits)

VAT/GST/Sales (3 credits)                                            Customs & Excises (3 credits)

Ethics in Decision Making (1 credit required to graduate)

What distinguishes Texas A&M’s International Tax curriculum?

Since the original 1994 curriculum focus on tax risk management and methodology, the curriculum and the program operational structure continue to evolve based on in-depth industry research. “The central function of the tax office has evolved from strategy and planning into risk management”, says William Byrnes, professor of law and associate dean at Texas A&M University. “This evolution has been accelerated by trends — primarily globalization, transparency and regulatory reform — and by the OECD (through the project on Base Erosion and Profit Shifting, or BEPS), the United States (through the Foreign Account Tax Compliance Act) and the European Union.”

In 2019, Hanover Research on behalf of Texas A&M undertook an extensive long-form survey, including interviews, of 146 tax executives about the needs and value-added of Texas A&M’s new international tax curriculum. The surveys 2019 tax professionals included: 29% U.S. and 71% foreign resident. Half the participants were tax professionals of AmLaw 100 firms (27%) or of Big 4 accounting (21%). The other half of participants were tax professionals of large multinational tax departments in the following industries: Finance / Banking / Insurance; Consulting; Business / Professional Services; Computers (Hardware, Desktop Software); Telecommunications; Aerospace / Aviation / Automotive; Healthcare / Medical; Manufacturing; Food Service; Internet; Mining; Pharmaceutical / Chemical; Real Estate; and Transportation / Distribution. Four percent of survey participants were executive-level government tax authority staff.

Besides the actual design of the course curriculum, two interesting outcomes from the industry interviews are:

  • The faculty and graduate degree candidates must be multidisciplinary, including both tax lawyers and non-lawyer tax professionals (e.g. accountants, finance executives, and economists) engaged together in learning teams with practical case studies and projects that are “applicable in a real-world context”.
  • The curriculum must include the perspectives of tax mitigation and of tax-risk management with exposure to state-of-the-industry data analytics.

In its Tax Insights magazine that is distributed globally to clients, the Big 4 firm EY stated: “Texas A&M University is among the pioneers of change in tax education”.

Texas A&M professor William Byrnes explains: “A risk management approach to tax means that the new model will by definition be multidisciplinary. Financial and managerial accounting– and law– will still be important, of course. But students will also need new “hard” skills involving big data and communications technologies and “soft” skills geared to working in multicultural settings both at home and abroad.” Says Byrnes, “You don’t want to have people who are living in the ‘Stone Age’ (pre-2015) trying to work in a 2016-onward world.” 

What is the proposed course schedule during an academic year?

Fall 2019 Part A (6 week term)                                    Fall 2019 Part B (6 week term)     

International Taxation & Treaties I                                  International Taxation & Treaties II 

Spring 2020 Part A (6 week term)                              Spring 2020 Part B (6 week term)

Transfer Pricing I                                                             Transfer Pricing II

Summer 2020 concurrent 6 week term

Tax Risk Management & Data Analytics             FATCA & CRS

Fall 2020 Part A                                                           Fall 2020 Part B

International Tax Planning                                             Country Tax Systems

International Taxation & Treaties I                                  International Taxation & Treaties II

Spring 2021 Part A                                                      Spring 2021 Part B

U.S. Int’l Tax                                                                 EU Taxation

Transfer Pricing I                                                           Transfer Pricing II

Summer 2021 concurrent term

VAT/GST/Sales             Customs & Excises

Tax Risk Management               FATCA & CRS

When are the semesters?

Fall:                 August 26 until December 14, 2019

Spring:             January 9 until April 30, 2020

Summer:          May 18 until July 11, 2020

Who is leading and creating this International Tax curriculum?

The International Tax curriculum has been developed and is led by Professor William Byrnes (Texas A&M University Law).  In 1994, Professor William Byrnes founded the first international tax program leveraging online education and in 1998 founded the first online international tax program to be acquiesced by the American Bar Association and the Southern Association of Colleges and Schools.  He is recognized globally as an online education pioneer focused on learner outcomes and best practices leveraging state of the art educational technology.  William Byrnes is also an international tax authority as LexisNexis’ leading published author of nine international tax treatises and compendium, annually updated, and a 10 volume service published by Wolters Kluwer.  His LinkedIn group International Tax Planning Professionals has over 25,000 members and is the largest international tax network on LinkedIn.

How much time per week does a course require?

Each course unfolds over six weeks, designed to require 15 to 20 hours of input each week. This weekly input includes reviewing materials, listening to podcasts, watching video content, participating in discussion forums, engaging in live class sessions, and working with classmates on team-based learning projects. Working with colleague groups on real-world case studies is critical to the educational experience.  Potential applicants must have available three to five hours per week to spend developing and working with colleagues on group case studies using communications technologies like Zoom video.

What is the title of this graduate degree?

For lawyers, it is a Master of Laws (LL.M.) and for accountants, tax professionals and economists, it is a Master of Jurisprudence (M.J.).  The degree is awarded by Texas A&M University via the School of Law. Completion of a curriculum, which is like a ‘major’ for university studies, is also recognized with a frameable certificate issued by the School of Law.

What are the minimum requirements of the application for each degree?

  • All applicants must have previous domestic tax or accounting professional experience reflected on the CV of work experience.
  • The Master of Laws (LL.M.) is awarded to successful graduates who hold a law degree from a law school or faculty of law that is accredited by the American Bar Association or if a foreign law degree then accredited by a governmental accreditation body and that allows the graduate eligibility for that country’s practice of law.
  • The Master of Jurisprudence (M.J.) is awarded to all other successful graduates. Applicants for the Master of Jurisprudence must hold a prior degree from an accredited academic institution in business, accounting, finance, economics, or related business field.

What are the program requirements to graduate?

The Master of Laws candidates must complete at least 24 credits to be eligible to graduate.  The Master of Jurisprudence candidates must complete at least 30 credits to be eligible to graduate.

All candidates must complete the Ethics in Decision Making course to be eligible to graduate, which presents networking opportunities with candidates of the Risk management and Wealth Management curricula. Master of Jurisprudence candidates must also complete an Introduction to U.S. Law course which will include networking among all law graduate curricula.

Candidates must complete at least six courses specific to a curriculum in order to be eligible for a degree. Without permission, candidates are allowed to enroll in up to two courses from another curriculum.

How many months to graduate?

Normally, candidates will enroll in two courses during Fall and Spring semester, focusing on one course each term (Fall and Spring have two terms of six weeks each).  Candidates may enroll in one or two courses for the Summer semester, which is only one six-week term.  Thus, most candidates will reach eligibility to graduate within two years.  Candidates have the flexibility as to how many or few courses to enroll each term, subject to university graduate program rules. Candidates may complete the program in one year to as long as four years.  Each course in a curriculum is offered once per year.

Are these degrees eligible for the Aggie Ring and membership in the Texas A&M Former Student Network (Texas A&M alumni)?

Yes, all international tax graduates will become a member of the Texas A&M family.  Texas A&M is renown for the loyalty and engagement among its former students within the Texas Aggie clubs established throughout the world. Texas A&M has graduated over 500,000 “Aggies” who are eligible to wear the Texas A&M ring to identify each other throughout the world. See https://www.aggienetwork.com/

Will there be on-campus opportunities?

Yes.  Graduation, with on-campus activities hosted at the law school, is May 1, 2020.  October 24-25, 2019 is a networking conference of the risk, wealth, and international tax graduate students piggybacking on Texas A&M’s Financial Planning conference: Thursday night networking banquet and Friday conference activities. See https://financialplanning.tamu.edu/events/conference/  Saturday, October 26, 2019 is a Texas A&M football game at the on-campus Kyle stadium that two years ago underwent a $485 million renovation. The graduate program office has inquired about a block of tickets in the same section for students interested in purchasing a ticket and staying over for the game.  Texas A&M football games are sold out with a capacity of over 100,000 seats and thus, Friday night hotel reservations in College Station should be made ASAP.  Other opportunities will be announced during the program year.

What is Texas A&M University?

Texas A&M, the second-largest U.S. public university, is one of the only 60 accredited U.S. members of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity), and one of the only 17 U.S. universities that hold a triple U.S. federal designation (Land, Sea, and Space).  As one of the world’s leading research institutions, Texas A&M is at the forefront in making significant contributions to scholarship and discovery: research conducted in fiscal year 2017 at Texas A&M represented an annual expenditure of more than $900 million.  The Texas A&M University system’s operating budget exceeds $4.6 billion and Texas A&M’s combined endowments are 7th largest among universities in the world.

Texas A&M is ranked 1st among national public universities for a superior education at an affordable cost (Fiske, 2018); ranked 1st of Texas public universities for best value (Money, 2018); and ranked 1st in nation for most graduates serving as CEOs of Fortune 500 companies (Fortune, 2019).  During the program, a candidate learns Texas A&M’s traditions and six core values that are grounded in its history as one of the six U.S. senior military colleges: Loyalty, Integrity, Excellence, Leadership, Respect, and Selfless Service.

Which government and professional organizations accredit Texas A&M University?

For the complete list, see https://www.tamu.edu/statements/accreditation.html

What are the other curricula’s courses that are available to international tax candidates? 

Risk Curriculum                                              Wealth Curriculum

Enterprise Risk & Data Analytics                        Taxation of Business Associations

Information Security Management Systems        Securities Regulations

Counter-Terrorism Risk Management                 Financial & Portfolio Management

Cybersecurity                                                   Income Tax Financial Planning

Anti-Money Laundering & Bank                          Principles of Wealth Management

Principles of Risk Management                          Estate Planning, Insurance, and Annuities

Foreign Corrupt Practices Act                            Advanced Wealth Management

Fiduciary & Risk Management                            Non-Profit & Fiduciary Administration

White-Collar Crime                                            Retirement & Benefits

Legal Risk Management                                    Insurance Law (& Alternative Risk Transfer)

Financial Innovations

August 7, 2019 in Education | Permalink | Comments (0)

Latest Artefact Trafficking Sting Seizes 18,000 Items, Arrests 59

Authorities in 29 countries joined forces and seized 18,000 items and arrested 59 people involved in the trafficking of cultural goods, Europol said on Monday.

Read the investigative news story at Organized Crime and Corruption Reporting Project (OCCRP)

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

Tuesday, August 6, 2019

Micronesian Government Official Sentenced to Prison for Role in Money Laundering Scheme Involving FCPA Violations

A Micronesian government official was sentenced to 18 months in prison followed by three years of supervised release yesterday for his participation in a money-laundering scheme involving bribes made to corruptly secure engineering and project management contracts from the government of the Federated States of Micronesia (FSM), in violation of the Foreign Corrupt Practices Act (FCPA), announced Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division and Special Agent in Charge Eli S. Miranda of the FBI’s Honolulu Field Office.

Master Halbert, 44, a Micronesian citizen, was sentenced in Honolulu by U.S. District Judge Susan O. Mollway of the District of Hawaii.  Halbert pleaded guilty on April 2 to a one-count information filed in the District of Hawaii charging him with conspiracy to commit money laundering. 

According to admissions made as part of his plea agreement, Halbert was a government official in the FSM Department of Transportation, Communications and Infrastructure who administered FSM’s aviation programs, including the management of its airports.  Halbert admitted that between 2006 and 2016, a Hawaii-based engineering and consulting company owned by Frank James Lyon paid bribes to FSM officials, including Halbert, to obtain and retain contracts with the FSM government valued at nearly $8 million, in violation of the FCPA.  Lyon and Halbert agreed that these bribe payments would be transported from the United States to the FSM.

Lyon, 53, of Honolulu, Hawaii, pleaded guilty on Jan. 22 to a one-count information filed in the District of Hawaii charging him with conspiracy to violate the anti-bribery provisions of the FCPA and to commit federal program fraud.  Lyon was sentenced to serve 30 months in prison on May 13. 

August 6, 2019 in AML | Permalink | Comments (0)

Monday, August 5, 2019

BEA News: Gross Domestic Product, Second Quarter 2019 (Advance Estimate) and Annual Update

Real gross domestic product (GDP) increased at an annual rate of 2.1 percent in the second quarter of 2019 (table 1), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 3.1 percent.

The Bureau's second-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see "Source Data for the Advance Estimate" on page 2). The "second" estimate for the second quarter, based on more complete data, will be released on August 29, 2019.

Real GDP: Percent change from preceding quarter, Q2 2019 Adv

The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures (PCE), federal government spending, and state and local government spending that were partly offset by negative contributions from private inventory investment, exports, nonresidential fixed investment and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased (table 2).

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

Current-dollar GDP increased 4.6 percent, or $239.1 billion, in the second quarter to a level of $21.34 trillion. In the first quarter, current-dollar GDP increased 3.9 percent, or $201.0 billion (table 1 and table 3).

The price index for gross domestic purchases increased 2.2 percent in the second quarter, compared with an increase of 0.8 percent in the first quarter (table 4). The PCE price index increased 2.3 percent, compared with an increase of 0.4 percent. Excluding food and energy prices, the PCE price index increased 1.8 percent, compared with an increase of 1.1 percent.

Personal Income (table 8)

Current-dollar personal income increased $244.2 billion in the second quarter, compared with an increase of $269.8 billion in the first quarter. Decelerations in compensation and in personal current transfer receipts were partly offset by an upturn in personal income receipts on assets and a deceleration in contributions for government social insurance (a subtraction in the calculation of personal income).

Disposable personal income increased $193.4 billion, or 4.9 percent, in the second quarter, compared with an increase of $190.6 billion, or 4.8 percent, in the first quarter. Real disposable personal income increased 2.5 percent, compared with an increase of 4.4 percent.

Personal saving was $1.32 trillion in the second quarter, compared with $1.37 trillion in the first quarter. The personal saving rate -- personal saving as a percentage of disposable personal income -- was 8.1 percent in the second quarter, compared with 8.5 percent in the first quarter.

Source Data for the Advance Estimate

Information on the source data and key assumptions used for unavailable source data in the advance estimate is provided in a Technical Note that is posted with the news release on BEA's Web site. A detailed "Key Source Data and Assumptions" file is also posted for each release. For information on updates to GDP, see the "Additional Information" section that follows.

Annual Update of the National Income and Product Accounts

The estimates released today also reflect the results of the Annual Update of the National Income and Product Accounts (NIPAs). The update covers the first quarter of 2014 through the first quarter of 2019.

With today's release, most NIPA tables are available through BEA's Interactive Data application on the BEA Web site (www.bea.gov). See "Information on Updates to the National Income and Product Accounts" for the complete table release schedule and a summary of results for 2014 through 2018, which includes a discussion of  methodology changes. A table showing the major current‑dollar revisions and their sources for each component of GDP, national income, and personal income is also provided. The August 2019 Survey of Current Business will contain an article describing the update in more detail.

Previously published estimates, which are superseded by today's release, are found in BEA's archives.

Updates for the first quarter of 2019

For the first quarter of 2019, real GDP is estimated to have increased 3.1 percent (table 1), the same as previously published. Downward revisions to exports, state and local government spending, and private inventory investment were offset by upward revisions to PCE and federal government spending.

For the period of expansion from the second quarter of 2009 to the first quarter of 2019, real GDP increased at an annual rate of 2.3 percent, the same as previously published.

Real GDI is now estimated to have increased 3.2 percent in the first quarter (table 1); in the previously published estimates, first-quarter GDI was estimated to have increased 1.0 percent.

  First Quarter 2019
  Previous Estimate Revised
  Percent change from preceding quarter
Real GDP 3.1 3.1
Current-dollar GDP 3.8 3.9
Real GDI 1.0 3.2
Average of Real GDP and GDI 2.1 3.1
Gross domestic purchases price index 0.8 0.8
PCE price index 0.5 0.4

*         *         *

Next release, August 29, 2019 at 8:30 A.M. EDT

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

Sunday, August 4, 2019

Gross Domestic Product by State, First Quarter 2019

Real gross domestic product (GDP) increased in all 50 states and the District of Columbia in the first quarter of 2019, according to statistics released today by the U.S. Bureau of Economic Analysis. The percent change in real GDP in the first quarter ranged from 5.2 percent in West Virginia to 1.2 percent in Hawaii (table 1).

Chart: Percent Change in Real GDP by State, 2018:Q4-2019:Q1

Highlights

  • Finance and insurance, retail trade, and health care and social assistance were the leading contributors to the increase in real GDP nationally (table 2). These industries increased 9.5 percent, 11.9 percent, and 6.2 percent, respectively (GDP by Industry table 1), and contributed to growth in all 50 states and the District of Columbia.
  • Mining for the nation increased 26.5 percent, after increasing 38.0 percent in the fourth quarter. This industry was the leading contributor to growth in several states, including the three fastest growing states of West Virginia, Texas, and New Mexico.
  • The government sector decreased 1.1 percent nationally and slowed growth in most states, especially in the District of Columbia. The decrease was partly due to the partial federal government shutdown in January 2019.

August 4, 2019 in Economics | Permalink | Comments (0)

Saturday, August 3, 2019

Two Colombian Businessmen Charged With Money Laundering in Connection With Venezuela Bribery Scheme

Two Colombian businessmen were charged in an indictment returned today for their alleged roles in laundering the proceeds of violations of the Foreign Corrupt Practices Act (FCPA) in connection with a scheme to pay bribes to take advantage of Venezuela’s government-controlled exchange rate. Download Saab and Pulido Indictment Alex Nain Saab Moran (Saab), 47, and Alvaro Pulido Vargas (Pulido) 55, both citizens of Colombia, were each charged in an eight-count indictment returned in the Southern District of Florida with one count of conspiracy to commit money laundering and seven counts of money laundering.  The indictment also alleges and seeks forfeiture in excess of $350 million representing the amount of funds involved in the violation.

The indictment alleges that beginning in or around November 2011 and continuing until at least September 2015, Saab and Pulido conspired with others to launder the proceeds of an illegal bribery scheme from bank accounts located in Venezuela to and through bank accounts located in the United States.  According to the indictment, Saab and Pulido obtained a contract with the Venezuelan government in November 2011 to build low-income housing units.  The defendants and their co-conspirators then allegedly took advantage of Venezuela’s government-controlled exchange rate, under which U.S. dollars could be obtained at a favorable rate, by submitting false and fraudulent import documents for goods and materials that were never imported into Venezuela and bribing Venezuelan government officials to approve those documents.  The indictment alleges that the unlawful activity was a bribery scheme that violated the FCPA and involved bribery offenses against Venezuela.  It also alleges that meetings in furtherance of the bribe payments occurred in Miami and that Saab and Pulido wired money related to the scheme to bank accounts in the Southern District of Florida.  As a result of the scheme, Saab and Pulido transferred approximately $350 million out of Venezuela, through the United States, to overseas accounts they owned or controlled, the indictment alleges.

August 3, 2019 in AML | Permalink | Comments (0)

Friday, August 2, 2019

IRS Tax Data - Individual High Income Tax Returns

Individual High Income Tax Returns OneSheet, 2010 (PDF)
The OneSheet presents a project description, highlights of the data, and selected figures.

The Tax Reform Act of 1976 requires annual publication of data on individual income tax returns reporting income of $200,000 or more, including the number of such returns reporting no income tax liability and the importance of various tax provisions in making these returns nontaxable. The bulletin articles and related statistical tables present detailed data for these high income returns.


Statistical Tables

The following are available as Microsoft Excel® files. A free Excel viewer is available for download, if needed.

The tables are grouped into the following categories:

Returns With and Without U.S. Income Tax

 

Table 1 -- Number of Returns
Classified by: Size of Income Under Alternative Concepts
Tax Years: 2016 (XLS)  2015 (XLS)  2014 (XLS)  2013 (XLS)  2012 (XLS)  2011 (XLS)  2010 (XLS) 2009 (XLS)  2008 (XLS)  2007 (XLS)  2006 (XLS)  2005 (XLS)  2004 (XLS)  2003 (XLS)  2002 (XLS)  2001 (XLS)  2000 (XLS)  1999 (XLS)  1998 (XLS)  1997 (XLS)  1996 (XLS)  1995 (XLS)  1994 (XLS)  1993 (XLS)

 

Table 11 -- Number and Percentages of Returns
Classified by: Effective Tax Rate and Size of Income Under Alternative Concepts
Tax Years: 2016 (XLS)  2015 (XLS)  2014 (XLS)  2013 (XLS)  2012 (XLS)  2011 (XLS)  2010 (XLS) 2009 (XLS)  2008 (XLS)  2007 (XLS)  2006 (XLS)  2005 (XLS)  2004 (XLS)  2003 (XLS)  2002 (XLS)  2001 (XLS)  2000 (XLS)  1999 (XLS)  1998 (XLS)  1997 (XLS)  1996 (XLS)  1995 (XLS)  1994 (XLS)  1993 (XLS)
(Back to top)

Returns With and Without Worldwide Income Tax

Table 2 -- Number of Returns
Classified by: Size of Income Under Alternative Concepts
Tax Years: 2016 (XLS)  2015 (XLS)  2014 (XLS)  2013 (XLS)  2012 (XLS)  2011 (XLS)  2010 (XLS) 2009 (XLS)  2008 (XLS)  2007 (XLS)  2006 (XLS)  2005 (XLS)  2004 (XLS)  2003 (XLS)  2002 (XLS)  2001 (XLS)  2000 (XLS)  1999 (XLS)  1998 (XLS)  1997 (XLS)  1996 (XLS)  1995 (XLS)  1994 (XLS)  1993 (XLS)
Table 12 -- Number and Percentages of Returns
Classified by: Effective Tax Rate and Size of Income Under Alternative Concepts
Tax Years: 2016 (XLS)  2015 (XLS)  2014 (XLS)  2013 (XLS)  2012 (XLS)  2011 (XLS)  2010 (XLS) 2009 (XLS)  2008 (XLS)  2007 (XLS)  2006 (XLS)  2005 (XLS)  2004 (XLS)  2003 (XLS)  2002 (XLS)  2001 (XLS)  2000 (XLS)  1999 (XLS)  1998 (XLS)  1997 (XLS)  1996 (XLS)  1995 (XLS)  1994 (XLS)  1993 (XLS)
(Back to top)

Returns With and Without U.S. Income Tax and With Income of $200,000 or More Under Alternative Concepts

 

Table 3 -- Distribution of Returns
Classified by: Ratio of Adjusted Taxable Income to Income Per Concept
Tax Years: 2016 (XLS)  2015 (XLS)  2014 (XLS)  2013 (XLS)  2012 (XLS)  2011 (XLS)  2010 (XLS) 2009 (XLS)  2008 (XLS)  2007 (XLS)  2006 (XLS)  2005 (XLS)  2004 (XLS)  2003 (XLS)  2002 (XLS)  2001 (XLS)  2000 (XLS)  1999 (XLS)  1998 (XLS)  1997 (XLS)  1996 (XLS)  1995 (XLS)  1994 (XLS)  1993 (XLS)

 

Table 5 -- Income, Deductions, Credits, and Tax
Classified by: Tax Status
Tax Years: 2016 (XLS)  2015 (XLS)  2014 (XLS)  2013 (XLS)  2012 (XLS)  2011 (XLS)  2010 (XLS) 2009 (XLS)  2008 (XLS)  2007 (XLS)  2006 (XLS)  2005 (XLS)  2004 (XLS)  2003 (XLS)  2002 (XLS)  2001 (XLS)  2000 (XLS)  1999 (XLS)  1998 (XLS)  1997 (XLS)  1996 (XLS)  1995 (XLS)  1994 (XLS)  1993 (XLS)

 

Table 7 -- Number of Returns and Percentages
Classified by: Item With the Largest Tax Effect and Item With the Second Largest Tax Effect
Tax Years: 2016 (XLS)  2015 (XLS)  2014 (XLS)  2013 (XLS)  2012 (XLS)  2011 (XLS)  2010 (XLS) 2009 (XLS)  2008 (XLS) (XLS)  2007 (XLS)  2006 (XLS)  2005 (XLS)  2004 (XLS)  2003 (XLS)  2002 (XLS)  2001 (XLS)  2000 (XLS)  1999 (XLS)  1998 (XLS)  1997 (XLS)   1996 (XLS)  1995 (XLS)  1994 (XLS)  1993
(Back to top)

Returns Without U.S. Income Tax and With Income of $200,000 or More Under Alternative Concepts

 

Table 9 -- Number of Returns with Itemized Deductions, Credits, and Tax Preferences, as Percentages of Income
Tax Years: 2016 (XLS)  2015 (XLS)  2014 (XLS)  2013 (XLS)  2012 (XLS)  2011 (XLS)  2010 (XLS) 2009 (XLS)  2008 (XLS)  2007 (XLS)  2006 (XLS)  2005 (XLS)  2004 (XLS)  2003 (XLS)  2002 (XLS)  2001 (XLS)  2000 (XLS)  1999 (XLS)  1998 (XLS)  1997 (XLS)  1996 (XLS)  1995 (XLS)  1994 (XLS)  1993 (XLS)
(Back to top)

Returns With and Without Worldwide Income Tax and With Income of $200,000 or More Under Alternative Concepts

 

Table 4 -- Distribution of Returns
Classified by: Ratio of Adjusted Taxable Income to Income Per Concept
Tax Years: 2016 (XLS)  2015 (XLS)  2014 (XLS)  2013 (XLS)  2012 (XLS)  2011 (XLS)  2010 (XLS) 2009 (XLS)  2008 (XLS)  2007 (XLS)  2006 (XLS)  2005 (XLS)  2004 (XLS)  2003 (XLS)  2002 (XLS)  2001 (XLS)  2000 (XLS)  1999 (XLS)  1998 (XLS)  1997 (XLS)  1996 (XLS)  1995 (XLS)  1994 (XLS)  1993 (XLS)

 

Table 6 -- Income, Deductions, Credits, and Tax
Classified by: Tax Status
Tax Years: 2016 (XLS)  2015 (XLS)  2014 (XLS)  2013 (XLS)  2012 (XLS)  2011 (XLS)  2010 (XLS) 2009 (XLS)  2008 (XLS)  2007 (XLS)  2006 (XLS)  2005 (XLS)  2004 (XLS)  2003 (XLS)  2002 (XLS)  2001 (XLS)  2000 (XLS)  1999 (XLS)  1998 (XLS)  1997 (XLS)  1996 (XLS)  1995 (XLS)  1994 (XLS)  1993 (XLS)

 

Table 8 -- Number of Returns and Percentages
Classified by: Item With the Largest Tax Effect and Item With the Second Largest Tax Effect
Tax Years: 2016 (XLS)  2015 (XLS)  2014 (XLS)  2013 (XLS)  2012 (XLS)  2011 (XLS)  2010 (XLS) 2009 (XLS)  2008 (XLS)  2007 (XLS)  2006 (XLS)  2005 (XLS)  2004 (XLS)  2003 (XLS)  2002 (XLS)  2001 (XLS)  2000 (XLS)  1999 (XLS)  1998 (XLS)  1997 (XLS)  1996 (XLS)  1995 (XLS)  1994 (XLS)  1993 (XLS)
(Back to top)

Returns Without Worldwide Income Tax and With Income of $200,000 or More Under Alternative Concepts

 

Table 10 -- Number of Returns with Itemized Deductions, Credits, and Tax Preferences, as Percentages of Income
Tax Years: 2016 (XLS)  2015 (XLS)  2014 (XLS)  2013 (XLS)  2012 (XLS)  2011 (XLS)  2010 (XLS) 2009 (XLS)  2008 (XLS)  2007 (XLS)  2006 (XLS)  2005 (XLS)  2004 (XLS)  2003 (XLS)  2002 (XLS)  2001 (XLS)  2000 (XLS)  1999 (XLS)  1998 (XLS)  1997 (XLS)  1996 (XLS)  1995 (XLS)  1994 (XLS)  1993 (XLS)
(Back to top)

Bulletin Articles

The Bulletin articles are in PDF format.  A free Adobe® reader is available for download, if needed.

High Income Tax Returns 
2016 (PDF)  2014 (PDF)  2013 (PDF)  2012 (PDF)  2011 (PDF)  2010 (PDF)  2009 (PDF)  2008 (PDF)  2007 (PDF)  2006  2005 (PDF)  2004  2003 (PDF)  2002  2001 (PDF)  2000  1999 (PDF)  1998 (PDF)  1997 (PDF)  1996 (PDF)  1995 (PDF)  1994 (PDF)  1993 (PDF)

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

Thursday, August 1, 2019

Cryptocurrency Criminal Tax Cases of Coinbase Customers Coming Soon, announces Caplin & Drysdale

IRS Criminal Investigation Chief Don Fort recently announced that details on new criminal tax cases involving cryptocurrency will be publicized soon. This news should come as no surprise to those following cryptocurrency developments since Coinbase informed approximately 13,000 of its customers in February 2018 that it was providing the IRS with their taxpayer ID, name, birthdate, address, and historical transaction records during 2013-2015. The production of Coinbase client information to the IRS is the result of an IRS "John Doe" summons that was served on Coinbase in 2016.

read Caplin & Drysdale's analysis of the forthcoming criminal IRS prosecutions of Coinbase clients.

Caplin & Drysdale's attorneys Scott Michel and Zhana Ziering are authors for Lexis' Guide for FATCA and CRS Compliance.   

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

Wednesday, July 31, 2019

FTC Sues Cambridge Analytica, Settles with Former CEO and App Developer

The Federal Trade Commission filed an administrative complaint against data analytics company Cambridge Analytica, and filed settlements for public comment with Cambridge Analytica’s former chief executive and an app developer who worked with the company, alleging they employed deceptive tactics to harvest personal information from tens of millions of Facebook users for voter profiling and targeting.

As part of a proposed settlement with the FTC, two of the defendants—app developer Aleksandr Kogan and former Cambridge Analytica CEO Alexander Nix—have agreed to administrative orders restricting how they conduct any business in the future, and requiring them to delete or destroy any personal information they collected. Cambridge Analytica has filed for bankruptcy and has not settled the FTC’s allegations.

The FTC alleges that Cambridge Analytica, Nix, and Kogan deceived consumers by falsely claiming they did not collect any personally identifiable information from Facebook users who were asked to answer survey questions and share some of their Facebook profile data. The FTC separately announced that Facebook will pay a record-breaking $5 billion penalty and submit to new restrictions that will hold the company accountable for the decisions it makes about its users’ privacy as part of a settlement resolving allegations that the company violated a 2012 FTC privacy order.

Kogan is the developer of a Facebook application called the GSRApp—sometimes referred to as the “thisisyourdigitallife” app. The GSRApp asked its users to answer personality and other questions, and collected information such as the “likes” of public Facebook pages by the app’s users and by the “friends” in their social network. During the summer of 2014, the FTC alleges, Kogan, together with Cambridge Analytica and Nix, developed, used, and analyzed data obtained from the GSRApp. The information was used to train an algorithm that then generated personality scores for the app users and their Facebook friends. Cambridge Analytica, Kogan, and Nix then matched these personality scores with U.S. voter records. The company used these matched personality scores for its voter profiling and targeted advertising services.

For this project, Kogan was able to re-purpose an existing app he had on the Facebook platform, which allowed the app to harvest Facebook data from app users and their Facebook friends. In April 2014, Facebook announced it would no longer allow app developers to access data from an app user’s Facebook friends. Facebook, however, allowed developers with existing apps on the Facebook platform to access this data for another year. The FTC alleges that the GSRApp was able to take advantage of this access to collect Facebook profile data from 250,000 to 270,000 users of the GSRApp located in the United States, as well as 50 million to 65 million of those users’ Facebook friends, including at least 30 million identifiable U.S. consumers.

The app users were paid a nominal fee to take the GSRApp survey. Almost half of the app users, however, originally refused to provide their Facebook profile information. To address this issue, the GSRApp began telling app users that it would not “download your name or any other identifiable information—we are interested in your demographics and likes.”

The FTC alleges, however, that this was false, and that the GSRApp in fact collected users’ Facebook User ID, which connects individuals to their Facebook profiles, as well as other personal information such as their gender, birthdate, location, and their Facebook friends list.

In addition, the FTC alleges that Cambridge Analytica falsely claimed until at least November 2018 that it was a participant in the EU-U.S. Privacy Shield framework, even though the company allowed its certification to lapse in May 2018. The Privacy Shield establishes a process to allow companies to transfer consumer data from European Union countries to the United States in compliance with EU law. The FTC also alleges that the company failed to adhere to the Privacy Shield requirement that companies that cease participation in the Privacy Shield affirm to the Department of Commerce, which maintains the list of Privacy Shield participants, that they will continue to apply the Privacy Shield protections to personal information collected while participating in the program.

As part of the proposed settlement with the FTC, Kogan and Nix are prohibited from making false or deceptive statements regarding the extent to which they collect, use, share, or sell personal information, as well as the purposes for which they collect, use, share, or sell such information. In addition, they are required to delete or destroy any personal information collected from consumers via the GSRApp and any related work product that originated from the data.

The Commission vote to issue the proposed administrative complaint against Cambridge Analytica, and to accept the proposed consent agreements with Kogan and Nix, was 5-0. The FTC will publish a description of the consent agreement packages in the Federal Register soon. The agreements will be subject to public comment for 30 days after publication in the Federal Register after which the Commission will decide whether to make the proposed consent orders final. Once processed, comments will be posted on Regulations.gov.

NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $42,530.

The FTC acknowledges the cooperation of the United Kingdom’s Information Commissioner’s Office. To facilitate international cooperation in this case, the FTC relied on key provisions of the U.S. SAFE WEB Act, which allows the FTC to share information with foreign counterparts to combat deceptive and unfair practices.

July 31, 2019 in Financial Regulation | Permalink | Comments (0)

Tuesday, July 30, 2019

FTC Imposes $5 Billion Penalty and Sweeping New Privacy Restrictions on Facebook

Facebook, Inc. will pay a record-breaking $5 billion penalty, and submit to new restrictions and a modified corporate structure that will hold the company accountable for the decisions it makes about its users’ privacy, to settle Federal Trade Commission charges that the company violated a 2012 FTC order by deceiving users about their ability to control the privacy of their personal information. Watch archival video of the press conference.

Highest Penalties in Privacy Enforcement Actions - $148 million States vs. Uber, $230 million British Authority vs. British Airways (proposed), $275 million CFPB and States vs. Equifax, $5 billion FTC vs. Facebook.  Source: Federal Trade Commission. FTC.govThe $5 billion penalty against Facebook is the largest ever imposed on any company for violating consumers’ privacy and almost 20 times greater than the largest privacy or data security penalty ever imposed worldwide. It is one of the largest penalties ever assessed by the U.S. government for any violation.

The settlement order announced today also imposes unprecedented new restrictions on Facebook’s business operations and creates multiple channels of compliance. The order requires Facebook to restructure its approach to privacy from the corporate board-level down, and establishes strong new mechanisms to ensure that Facebook executives are accountable for the decisions they make about privacy, and that those decisions are subject to meaningful oversight.

“Despite repeated promises to its billions of users worldwide that they could control how their personal information is shared, Facebook undermined consumers’ choices,” said FTC Chairman Joe Simons. “The magnitude of the $5 billion penalty and sweeping conduct relief are unprecedented in the history of the FTC. The relief is designed not only to punish future violations but, more importantly, to change Facebook’s entire privacy culture to decrease the likelihood of continued violations. The Commission takes consumer privacy seriously, and will enforce FTC orders to the fullest extent of the law.”

“The Department of Justice is committed to protecting consumer data privacy and ensuring that social media companies like Facebook do not mislead individuals about the use of their personal information,” said Assistant Attorney General Jody Hunt for the Department of Justice’s Civil Division. “This settlement’s historic penalty and compliance terms will benefit American consumers, and the Department expects Facebook to treat its privacy obligations with the utmost seriousness.”

More than 185 million people in the United States and Canada use Facebook on a daily basis. Facebook monetizes user information through targeted advertising, which generated most of the company’s $55.8 billion in revenues in 2018. To encourage users to share information on its platform, Facebook promises users they can control the privacy of their information through Facebook’s privacy settings.

Following a yearlong investigation by the FTC, the Department of Justice will file a complaint on behalf of the Commission alleging that Facebook repeatedly used deceptive disclosures and settings to undermine users’ privacy preferences in violation of its 2012 FTC order. These tactics allowed the company to share users’ personal information with third-party apps that were downloaded by the user’s Facebook “friends.” The FTC alleges that many users were unaware that Facebook was sharing such information, and therefore did not take the steps needed to opt-out of sharing.

In addition, the FTC alleges that Facebook took inadequate steps to deal with apps that it knew were violating its platform policies.

In a related, but separate development, the FTC also announced today separate law enforcement actions against data analytics company Cambridge Analytica, its former Chief Executive Officer Alexander Nix, and Aleksandr Kogan, an app developer who worked with the company, alleging they used false and deceptive tactics to harvest personal information from millions of Facebook users. Kogan and Nix have agreed to a settlement with the FTC that will restrict how they conduct any business in the future.

New Facebook Order Requirements

To prevent Facebook from deceiving its users about privacy in the future, the FTC’s new 20-year settlement orderoverhauls the way the company makes privacy decisions by boosting the transparency of decision making and holding Facebook accountable via overlapping channels of compliance.

New Facebook Privacy Compliance System - A multilayered incentive structure of accountability, transparency, and oversight - Source: Federal Trade Commission. FTC.govThe order creates greater accountability at the board of directors level. It establishes an independent privacy committee of Facebook’s board of directors, removing unfettered control by Facebook’s CEO Mark Zuckerberg over decisions affecting user privacy. Members of the privacy committee must be independent and will be appointed by an independent nominating committee. Members can only be fired by a supermajority of the Facebook board of directors.

The order also improves accountability at the individual level. Facebook will be required to designate compliance officers who will be responsible for Facebook’s privacy program. These compliance officers will be subject to the approval of the new board privacy committee and can be removed only by that committee—not by Facebook’s CEO or Facebook employees. Facebook CEO Mark Zuckerberg and designated compliance officers must independently submit to the FTC quarterly certifications that the company is in compliance with the privacy program mandated by the order, as well as an annual certification that the company is in overall compliance with the order. Any false certification will subject them to individual civil and criminal penalties.

The order also strengthens external oversight of Facebook. The order enhances the independent third-party assessor’s ability to evaluate the effectiveness of Facebook’s privacy program and identify any gaps. The assessor’s biennial assessments of Facebook’s privacy program must be based on the assessor’s independent fact-gathering, sampling, and testing, and must not rely primarily on assertions or attestations by Facebook management. The order prohibits the company from making any misrepresentations to the assessor, who can be approved or removed by the FTC. Importantly, the independent assessor will be required to report directly to the new privacy board committee on a quarterly basis. The order also authorizes the FTC to use the discovery tools provided by the Federal Rules of Civil Procedure to monitor Facebook’s compliance with the order.

As part of Facebook’s order-mandated privacy program, which covers WhatsApp and Instagram, Facebook must conduct a privacy review of every new or modified product, service, or practice before it is implemented, and document its decisions about user privacy. The designated compliance officers must generate a quarterly privacy review report, which they must share with the CEO and the independent assessor, as well as with the FTC upon request by the agency. The order also requires Facebook to document incidents when data of 500 or more users has been compromised and its efforts to address such an incident, and deliver this documentation to the Commission and the assessor within 30 days of the company’s discovery of the incident.

Additionally, the order imposes significant new privacy requirements, including the following:

  • Facebook must exercise greater oversight over third-party apps, including by terminating app developers that fail to certify that they are in compliance with Facebook’s platform policies or fail to justify their need for specific user data;
  • Facebook is prohibited from using telephone numbers obtained to enable a security feature (e.g., two-factor authentication) for advertising;
  • Facebook must provide clear and conspicuous notice of its use of facial recognition technology, and obtain affirmative express user consent prior to any use that materially exceeds its prior disclosures to users;
  • Facebook must establish, implement, and maintain a comprehensive data security program;
  • Facebook must encrypt user passwords and regularly scan to detect whether any passwords are stored in plaintext; and
  • Facebook is prohibited from asking for email passwords to other services when consumers sign up for its services.

FTC Settlement with Facebook. $5 billion unprecedented penalty. New privacy structure at Facebook. New tools for FTC to monitor Facebook.  Source: Federal Trade Commission. FTC.gov

 

Alleged Violations of 2012 Order

The settlement stems from alleged violations of the FTC’s 2012 settlement order with Facebook. Among other things, the 2012 order prohibited Facebook from making misrepresentations about the privacy or security of consumers’ personal information, and the extent to which it shares personal information, such as names and dates of birth, with third parties. It also required Facebook to maintain a reasonable privacy program that safeguards the privacy and confidentiality of user information.

The FTC alleges that Facebook violated the 2012 order by deceiving its users when the company shared the data of users’ Facebook friends with third-party app developers, even when those friends had set more restrictive privacy settings.

In May 2012, Facebook added a disclosure to its central “Privacy Settings” page that information shared with a user’s Facebook friends could also be shared with the apps used by those friends. The FTC alleges that four months after the 2012 order was finalized in August 2012, Facebook removed this disclosure from the central “Privacy Settings” page, even though it was still sharing data from an app user’s Facebook friends with third-party developers.

Additionally, Facebook launched various services such as “Privacy Shortcuts” in late 2012 and “Privacy Checkup” in 2014 that claimed to help users better manage their privacy settings. These services, however, allegedly failed to disclose that even when users chose the most restrictive sharing settings, Facebook could still share user information with the apps of the user’s Facebook friends—unless they also went to the “Apps Settings Page” and opted out of such sharing. The FTC alleges the company did not disclose anywhere on the Privacy Settings page or the “About” section of the profile page that Facebook could still share information with third-party developers on the Facebook platform about an app users Facebook friends.

Facebook announced in April 2014 that it would stop allowing third-party developers to collect data about the friends of app users (“affected friend data”). Despite this promise, the company separately told developers that they could collect this data until April 2015 if they already had an existing app on the platform. The FTC alleges that Facebook waited until at least June 2018 to stop sharing user information with third-party apps used by their Facebook friends.

In addition, the complaint alleges that Facebook improperly policed app developers on its platform. The FTC alleges that, as a general practice, Facebook did not screen the developers or their apps before granting them access to vast amounts of user data. Instead, Facebook allegedly only required developers to agree to Facebook’s policies and terms when they registered their app with the Facebook Platform. The company claimed to rely on administering consequences for policy violations that subsequently came to its attention after developers had already received data about Facebook users. The complaint alleges, however, that Facebook did not enforce such policies consistently and often based enforcement of its policies on whether Facebook benefited financially from its arrangements with the developer, and that this practice violated the 2012 order’s requirement to maintain a reasonable privacy program.

The FTC also alleges that Facebook misrepresented users’ ability to control the use of facial recognition technology with their accounts. According to the complaint, Facebook’s data policy, updated in April 2018, was deceptive to tens of millions of users who have Facebook’s facial recognition setting called “Tag Suggestions” because that setting was turned on by default, and the updated data policy suggested that users would need to opt-in to having facial recognition enabled for their accounts.

In addition to these violations of its 2012 order, the FTC alleges that Facebook violated the FTC Act’s prohibition against deceptive practices when it told users it would collect their phone numbers to enable a security feature, but did not disclose that it also used those numbers for advertising purposes.

The Commission vote to refer the complaint and stipulated final order to the Department of Justice for filing was 3-2. The Department will file the complaint and stipulated final order in the U.S. District Court for the District of Columbia. Chairman Simons along with Commissioners Noah Joshua Phillips and Christine S. Wilson issued a statement on this matter. Commissioners Rohit Chopra and Rebecca Kelly Slaughter issued separate statements on this matter.

July 30, 2019 in Financial Regulation | Permalink | Comments (0)

Monday, July 29, 2019

Call for AALS Speaker/Participants: Online & Hybrid Learning Pedagogy Best Practices and Development of Standards

The most unique session format at the AALS Annual Meeting, discussion group programs provide an opportunity for a small group of invited participants to engage in a focused discussion on a specific topic. If you are interested in participating, please submit an abstract by August 23rd, 2019.

This AALS Discussion Group will review the existing Model Standards for online law school programs and develop updated standards and best practices. This Discussion Group requests the submission of Discussion White Papers based on evolving and improving aspects of the Model Standards for online programs that are available under the “Online & Hybrid Learning Pedagogy Model Standards Development” information. We will examine, discuss and update the 2015 Model Standards, and discuss how these standards might be deployed, and who might be responsible for applying the standards as in an advisory manner or as an accreditor. As time allows, we will also discuss updating the 2015 Recommended Practices and examine how schools may propel their programs toward these loftier goals. 

https://am.aals.org/proposals/discussion/

July 29, 2019 in Education | Permalink | Comments (0)

Sunday, July 28, 2019

Four Chinese Nationals and Chinese Company Indicted for Conspiracy to Defraud the United States and Evade Sanctions

A federal grand jury has charged four Chinese nationals and a Chinese company with violating the International Emergency Economic Powers Act (IEEPA), conspiracy to violate IEEPA and defraud the United States; conspiracy to violate, evade and avoid restrictions imposed under the Weapons of Mass Destruction Proliferators Sanctions Regulations (WMDPSR); and conspiracy to launder monetary instruments.

The indictment returned yesterday by a federal grand jury in Newark, New Jersey charges Ma Xiaohong (Ma); her company, Dandong Hongxiang Industrial Development Co. Ltd. (DHID); and three of DHID’s top executives – general manager Zhou Jianshu (Zhou), deputy general manager Hong Jinhua (Hong) and financial manager Luo Chuanxu (Luo) – with violating IEEPA, conspiracy to violate IEEPA and to defraud the United States and conspiracy to launder monetary instruments. Download us_v._dhid_et_al._indictment.pdf

“Through the use of more than 20 front companies, the defendants are alleged to have sought to obscure illicit financial dealings on behalf of sanctioned North Korean entities that were involved in the proliferation of weapons of mass destruction,” said Assistant Attorney General John Demers.  “But through the tireless efforts of federal law enforcement, we were able to shine a light on their lawless conduct and take the first step in bringing them to justice.”

“Any Chinese company conspiring to do business with sanctioned WMD proliferators through the U.S. banking system should think twice,” said Assistant Attorney General Benczkowski. “This indictment shows the Department’s resolve to use every tool of criminal prosecution to detect illicit financial transactions and enforce U.S. sanctions.”

“Ma, her company, and her employees tried to defraud the United States by evading sanctions restrictions and doing business with proliferators of weapons of mass destruction,” said U.S. Attorney Carpenito.  “We will continue to work closely with our partners in the National Security and Criminal Divisions in order to identify and prosecute defendants like these, in order to preserve a safer and more fair environment for all.”

According to the indictment, DHID was a Chinese company whose core business was trade with North Korea.  DHID allegedly openly worked with North Korea-based Korea Kwangson Banking Corporation (KKBC) prior to Aug. 11, 2009, when the Office of Foreign Assets Control (OFAC) designated KKBC as a Specially Designated National (SDN) for providing U.S. dollar financial services for two other North Korean entities, Tanchon Commercial Bank (Tanchon) and Korea Hyoksin Trading Corporation (Hyoksin).  President Bush identified Tanchon as a weapons of mass destruction proliferator in June 2005, and OFAC designated Hyoksin as an SDN under the WMDPSR in July 2009.  Tanchon and Hyoksin were identified and designated because of their ties to Korea Mining Development Trading Company (KOMID), which OFAC has described as North Korea’s premier arms dealer and main exporter of goods and equipment related to ballistic missiles and conventional weapons.

Beginning after the designation of KKBC as an SDN in August 2009, Ma allegedly conspired with Zhou, Hong and Luo to create or acquire numerous front companies to conduct U.S. dollar transactions designed to evade U.S. sanctions. The indictment alleges that from December 2009 to September 2015, the defendants established front companies in offshore jurisdictions such as the British Virgin Islands, the Seychelles, Hong Kong, Wales, England, and Anguilla, and opened Chinese bank accounts held in the names of the front companies at banks in China that maintained correspondent accounts in the United States.  The defendants used these accounts to conduct U.S. dollar financial transactions through the U.S. banking system when completing sales to North Korea. These sales transactions were allegedly financed or guaranteed by KKBC.  These front companies facilitated the financial transactions to hide KKBC’s presence from correspondent banks in the United States, including a bank processing center in Newark, New Jersey, according to the allegations in the indictment.  As a result of the defendants’ alleged scheme, KKBC was able to cause financial transactions in U.S. dollars to transit through the U.S. correspondent banks without being detected by the banks and, thus, were not blocked under the WMDPSR program.

Ma, Zhou, Hong and Luo face a statutory maximum sentence of 20 years in prison and a $1 million fine on the charge of violating IEEPA, a maximum of five years in prison and a $250,000 fine on conspiracy to violate IEEPA and to defraud the United States, and a maximum of 20 years in prison and a $500,000 fine on the charge of conspiracy to launder monetary instruments.  The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendants will be determined by a judge. 

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