International Financial Law Prof Blog

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

Wednesday, December 31, 2014

Kentucky Businessman Pleads Guilty in Manhattan Federal Court to $53 Million Tax Scheme and Massive Fraud That Involved the Bribery of Bank Officials

DojU.S. Attorney Preet Bharara for the Southern District of New York and Deputy Assistant Attorney General David A. Hubbert for the Tax Division of the Department of Justice announced that Wilbur Anthony Huff, a Kentucky businessman, pleaded guilty today in Manhattan federal court to various tax crimes that caused more than $50 million in losses to the Internal Revenue Service (IRS), and a massive fraud that involved the bribery of bank officials, the fraudulent purchase of an insurance company, and the defrauding of insurance regulators.  Huff pleaded guilty.

“Today’s guilty plea ensures that Wilbur Huff will be punished for perpetuating a vortex of fraud – complete with bribery, tax crimes that caused $53 million in losses to the IRS, the fraudulent purchase of a company, and the defrauding of insurance regulators,” said U.S. Attorney Bharara.  “Those who might be tempted to follow in Huff’s criminal footsteps should understand that this office and our law enforcement partners will aggressively pursue and root out fraud wherever we find it.”

Huff, 53, of Caneyville and Louisville, Kentucky, pleaded guilty to one count of corruptly endeavoring to obstruct and impede the due administration of the internal revenue laws, which carries a maximum penalty of three years in prison, one count of aiding and assisting with the preparation and presentation of false and fraudulent tax returns, which carries a maximum penalty of three years in prison, one count of failing and causing the failure to pay taxes to the IRS, which carries a maximum penalty of one year in prison, and one count of conspiracy to (a) commit bank bribery, (b) commit fraud on bank regulators and the board and shareholders of a publicly-traded company, and (c) fraudulently purchase an Oklahoma insurance company, which carries a maximum penalty of five years in prison.  

As part of his plea, Huff also agreed to forfeit $10.8 million to the United States and to provide restitution in the following amounts to victims of his crimes: $70,100,000 to the Receiver for Park Avenue Property and Casualty Insurance Company; $4,857,266.62 to the Federal Deposit Insurance Corporation (FDIC); $597,420.29 to Valley National Bank (the successor of Park Avenue Bank); and $53,094,219 to the IRS.

According to the information, plea agreement, and statements made during court proceedings:


Huff was a businessman who controlled numerous entities located throughout the United States (Huff-controlled entities).  Huff controlled the companies and their finances, using them to orchestrate a $53 million fraud on the IRS as well as other illegal schemes.  However, rather than exercise control of these companies openly, Huff concealed his control by installing other individuals to oversee the companies’ day-to-day functions and to serve as the companies’ titular owners, directors or officers.  Huff also maintained a corrupt relationship with Park Avenue Bank and its executives, Charles J. Antonucci Sr., the president and chief executive officer, and Matthew L. Morris, the senior vice president. 

Tax Crimes

From 2008 to 2010, Huff controlled O2HR, a professional employer organization (PEO) located in Tampa, Florida.  Like other PEOs, O2HR was paid to manage the payroll, tax, and workers’ compensation insurance obligations of its client companies.  However, instead of paying $53 million in taxes that O2HR’s clients owed the IRS, and instead of paying $5 million to Providence Property and Casualty Insurance Company (Providence P&C) – an Oklahoma-based insurance company – for workers’ compensation coverage expenses for O2HR clients, HUFF stole the money that his client companies had paid O2HR for those purposes.  Among other things, Huff diverted millions of dollars from O2HR to fund his investments in unrelated business ventures, and to pay his family members’ personal expenses.  The expenses included mortgages on Huff’s homes, rent payments for his children’s apartments, staff and equipment for Huff’s farm, designer clothing, jewelry, and luxury cars.

Conspiracy to Commit Bank Bribery, Defraud Bank Regulators, and Fraudulently Purchase an Oklahoma Insurance Company

From 2007 up to and including 2010, HUFF engaged in a massive multi-faceted conspiracy, in which he schemed to (i) bribe executives of Park Avenue Bank, (ii) defraud bank regulators and the board and shareholders of a publicly-traded company and (iii) fraudulently purchase an Oklahoma insurance company.  As described in more detail below, Huff paid bribes totaling hundreds of thousands of dollars in cash and other items to Morris and Antonucci, in exchange for their favorable treatment at Park Avenue Bank. 

As part of the corrupt relationship between Huff and the bank executives, Huff, Morris, Antonucci, and others conspired to defraud various entities and regulators during the relevant time period.  Specifically, Huff conspired with Morris and Antonucci to falsely bolster Park Avenue Bank’s capital, by orchestrating a series of fraudulent transactions to make it appear that Park Avenue Bank had received an outside infusion of $6.5 million, and engaged in a series of further fraudulent actions to conceal from bank regulators the true source of the funds. 

Huff further conspired with Morris, Antonucci, and others to defraud Oklahoma insurance regulators and others by making material misrepresentations and omissions regarding the source of $37.5 million used to purchase Providence Property and Casualty Insurance Company, an Oklahoma insurance company that provided workers’ compensation insurance for O2HR’s clients, and to whom O2HR owed a significant debt.

Bribery of Park Avenue Bank Executives

From 2007 to 2009, Huff paid Morris and Antonucci at least $400,000 in exchange for which they: (1) provided Huff with fraudulent letters of credit obligating Park Avenue Bank to pay an investor in one of Huff’s businesses $1.75 million if Huff failed to pay the investor back himself; (2) allowed the Huff-controlled entities to accrue $9 million in overdrafts; (3) facilitated intra-bank transfers in furtherance of Huff’s frauds; and (4) fraudulently caused Park Avenue Bank to issue at least $4.5 million in loans to the Huff-controlled entities.  

Fraud on Bank Regulators and a Publicly-Traded Company

From 2008 to 2009, Huff, Morris, and Antonucci engaged in a scheme to prevent Park Avenue Bank from being designated as “undercapitalized” by regulators – a designation that would prohibit the bank from engaging in certain types of banking transactions, and that would subject the bank to a range of potential enforcement actions by regulators.  Specifically, they engaged in a series of deceptive, “round-trip” financial transactions to make it appear that Antonucci had infused the bank with $6.5 million in new capital when, in actuality, the $6.5 million was part of the bank’s pre-existing capital.  Huff, Morris, and Antonucci funneled the $6.5 million from the bank through accounts controlled by Huff to Antonucci.  This was done to make it appear as though Antonucci was helping to stabilize the bank’s capitalization problem, so the bank could continue engaging in certain banking transactions that it would otherwise have been prohibited from doing, and to put the bank in a better posture to receive $11 million from the Troubled Asset Relief Program.  To conceal their unlawful financial maneuvering, Huff created, or directed the creation of, documents falsely suggesting that Antonucci had earned the $6.5 million through a bogus transaction involving another company Antonucci owned.  Huff, Morris, and Antonucci further concealed their scheme by stealing $2.3 million from General Employment Enterprises Inc., a publicly-traded temporary staffing company, in order to pay Park Avenue Bank back for monies used in connection with the $6.5 million transaction.

Fraud on Insurance Regulators and the Investment Firm

From July 2008 to November 2009, Huff, Morris, Antonucci, and Allen Reichman, an executive at an investment bank and financial services company headquartered in New York, New York (the “investment firm”), conspired to (i) defraud Oklahoma insurance regulators into allowing Antonucci to purchase the assets of Providence P&C – the Oklahoma insurance company that was owed $5 million by O2HR and (ii) defraud the investment firm into providing a $30 million loan to finance the purchase.  Specifically, HUFF and Antonucci devised a scheme in which Antonucci would purchase Providence P&C’s assets by obtaining a $30 million loan from the Investment Firm, which used Providence P&C’s own assets as collateral for the loan.  However, because Oklahoma insurance regulators had to approve any sale of Providence P&C, and because Oklahoma law forbade the use of Providence P&C’s assets as collateral for such a loan, Huff, Morris, Antonucci, and Reichman made, and conspired to make, a number of material misstatements and material omissions to the investment firm and Oklahoma insurance regulators concerning the true nature of the financing for Antonucci’s purchase of Providence P&C.  Among other things, Reichman directed Antonucci to sign a letter that provided false information regarding the collateral that would be used for the loan, and Huff, Morris, and Antonucci conspired to falsely represent to Oklahoma insurance regulators that Park Avenue Bank – not the investment firm – was funding the purchase of Providence P&C. 

After deceiving Oklahoma regulators into approving the sale of Providence P&C, Huff took $4 million of the company’s assets, which he used to continue the scheme to defraud O2HR’s clients.  Ultimately, in November 2009, the insurance company became insolvent and was placed in receivership after Huff, Morris, and Antonucci had pilfered its remaining assets.

*                *                *

Charles Antonucci, who was charged separately by complaint on March 15, 2010, pleaded guilty to his role in the crimes described above on Oct. 8, 2010.  Matthew L. Morris and Allen Reichman were charged by Indictment with Huff on Oct. 1, 2012.  Morris pleaded guilty in connection with the case on Oct.17. 

Reichman is currently scheduled to go to trial March 2, 2015 before Judge Buchwald.  The charges against Reichman are allegations and he is presumed innocent unless and until proven guilty beyond a reasonable doubt. 

U.S. Attorney Bharara praised the investigative work of the Special Inspector General for the Troubled Asset Relief Program, the FBI, the IRS, the New York State Department of Financial Services, Immigration and Customs Enforcement (ICE)’s Homeland Security Investigations (HSI), and the Office of Inspector General of the FDIC.  Mr. Bharara also thanked the Department of Justice’s Tax Division and the U.S. Attorney’s Office for the Southern District of Florida for their assistance.

Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations.  Since the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit

December 31, 2014 | Permalink | Comments (0)

Tuesday, December 30, 2014

Last Minute FATCA Extensions Granted by IRS

Qualified Intermediary (QI) Agreement, Withholding Foreign Partnership (WP) Agreement, and Withholding Foreign Trust (WT) Agreement

IRS logoExtension of Time for QIs, WPs, and WTs to Apply Certain Requirements of the Joint Account Option under the QI Agreement, the WP Agreement, or the WT Agreement.

This email applies to certain entities that apply to enter into or have entered into the Qualified Intermediary (QI) Agreement published in Revenue Procedure 2014-39, 2014-29 I.R.B. 151, and certain entities that apply to enter into or have entered into the Withholding Foreign Partnership Agreement or Withholding Foreign Trust Agreement, published in Revenue Procedure 2014-47, 2014-35 I.R.B. 393.

Section 4.05 of the QI Agreement provides the requirements for a QI that applies the joint account option to a partnership or trust.  Section 9.01 of the WP Agreement and WT Agreement provides the requirements for a WP or WT that applies the joint account option to a partnership or trust. 

The IRS provided Notice that Section 4.05 of the QI Agreement and Section 9.01 of the WP Agreement and WT Agreement are modified to include the following with respect to a QI’s, WP’s, or WT’s application of the joint account option:

• For the period beginning on the effective date of the QI Agreement, and ending June 30, 2015, a QI that has entered into an agreement under section 4A.01 of the former QI Agreement (see Revenue Procedure 2003-64, 2003-2 C.B. 306, adding section 4A to the former QI agreement (published in Revenue Procedure 2000-12, 2000-1 C.B. 387), as amended by Revenue Procedure 2004-21, 2004-1 C.B. 702) with a partnership or trust to apply the joint account option before June 30, 2014, may continue to document the account consistent with section 4A.01 of the former QI Agreement. 

• For the period beginning on the effective date of the WP Agreement or WT Agreement, and ending June 30, 2015, a WP or WT that has entered into an agreement under section 10.01 of the former WP Agreement or WT Agreement (published in Revenue Procedure 2003-64 (as amended by Revenue Procedure 2004-21)) with a partnership or trust to apply the joint account option before June 30, 2014, may continue to document the account consistent with section 10.01 of the former WP Agreement or WT Agreement. 

• Notwithstanding the prior statements, a QI, WP, or WT is required to withhold under chapter 4 with respect to a partnership or trust to which it has applied the joint account option to the extent required under the QI, WP, or WT Agreement (for example, a QI, WP, or WT must withhold if it has actual knowledge that the partnership or trust is a nonparticipating FFI).

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December 30, 2014 | Permalink | Comments (0)

Will the Princess of Spain Go to Jail for Tax Fraud?

Reuters reports Cristina de Borbon, sister of Spain's King Felipe VI, is to stand trial on tax fraud charges.

AlJazeera reports that the sister of King Felipe VI, her husband Inaki Urdangarin, and 17 others will stand trial in the case involving his Noos Foundation charity.

Urdangarin is being investigated on suspicion of embezzling at least $7.4 million in public funds and using political connections to secure government contracts through the Noos Foundation... Urdangarin has been charged with breach of legal duty, embezzling public funds, fraud, influence-peddling and money-laundering. The princess is accused of two tax crimes. ...

The Associated Press reports that the charges include "suspected abuse of company funds to cover the couple's expenses from the Aizoon real estate and consulting firm Cristina co-owned with her husband, Castro compiled detailed lists of alleged examples — including purchases for their Barcelona mansion, salsa dancing classes and vacations at luxury hotels."

December 30, 2014 | Permalink | Comments (0)

Former FBI Special Agent Pleads Guilty to Bribery Scheme

DojA former FBI special agent pled guilty last week to bribery charges, admitting that he provided internal law enforcement documents and other confidential information about a prominent citizen of Bangladesh for use by a political rival in exchange for cash.

“Robert Lustyik discarded the FBI’s principles of ‘fidelity, bravery, and integrity,’ and sold his badge to the highest bidder,” said Assistant Attorney General Caldwell.  “Greed has no place in public service or law enforcement.  The Department of Justice will root out corruption wherever it takes hold, and hold accountable those who abuse the public’s trust for personal gain.” 

Robert Lustyik, 52, of Westchester County, New York, pled guilty to all five counts in the indictment against him, including conspiracy to engage in a bribery scheme, soliciting bribes by a public official, conspiracy to defraud the citizens of the United States and the FBI, theft of government property, and unauthorized disclosure of a Suspicious Activity Report.  Lustyik is scheduled to be sentenced by U.S. District Court Judge Vincent L. Briccetti of the Southern District of New York on April 30, 2015.

According to the complaint, indictment, court hearings, and today’s plea proceeding, Lustyik was an FBI special agent who worked on the counterintelligence squad in the White Plains Resident Agency.  Johannes Thaler was Lustyik’s friend, and Rizve Ahmed, aka, “Caesar,” was an acquaintance of Thaler.  From September 2011 through March 2012, Lustyik, Thaler and Ahmed engaged in a bribery scheme.  As part of the scheme, Lustyik and Thaler solicited payments from Ahmed, in exchange for Lustyik’s agreement to provide internal, confidential documents and other confidential information to which Lustyik had access by virtue of his position as an FBI special agent.  The documents and information pertained to a prominent citizen of Bangladesh (Individual 1), who Ahmed perceived as a political rival.  Ahmed sought, among other things, to obtain information about Individual 1, to locate and harm Individual 1 and others associated with Individual 1.

As part of the scheme, Lustyik and Thaler exchanged text messages, including messages about how to pressure Ahmed to pay them additional money in exchange for confidential information.  For example, in text messages, Lustyik told Thaler, “we need to push [Ahmed] for this meeting and get that 40 gs quick . . . . I will talk us into getting the cash . . . . I will work my magic . . . . We r sooooooo close.”  Thaler responded, “I know.  It’s all right there in front of us.  Pretty soon we’ll be having lunch in our oceanfront restaurant . . . .” 

As another example, in late January 2012, Lustyik, upon learning that Ahmed was considering using a different source to obtain confidential information about Individual 1, sent a text message to Thaler stating, “I want to kill C . . . . I hung my ass out the window n we got nothing? . . . . Tell [Ahmed], I’ve got [Individual 1’s] number and I’m pissed. . . . I will put a wire on n get [Ahmed and his associates] to admit they want [a Bangladeshi political figure] offed n we sell it to Individual 1].”  Lustyik further stated, “So bottom line.  I need ten gs asap.  We gotta squeeze C.”

Thaler and Ahmed previously pleaded guilty to bribery and conspiracy to commit fraud, and are scheduled to be sentenced on Jan. 23, 2015. 

December 30, 2014 | Permalink | Comments (0)

Monday, December 29, 2014

Cyber Crime 2014 Round Up - StealthGenie, Blackshades, Dark Market, Gameover Zeus

Excerpted remarks from Assistant Attorney General Leslie R. Caldwell speaking at the Cybercrime 2020 Symposium:

USCYBERCOM_LogoLast year, two cyber intrusions targeting the banking system inflicted $45 million in losses on the global financial system in a matter of hours.  Let me emphasize, that figure is not a speculative estimate or a projection.  That is the sum total of money that the perpetrators withdrew from banks around the world by breaking into bank computers and removing limits on the amount of money they could withdraw from ATM machines.  That crime dwarfed the biggest bank heists in U.S. history several times over, and the masterminds never had to worry about security guards, dye-packs, or silent alarms.  In fact, they never had to leave home. 

Our dependence on technology is also ushering in a new era of online breaches.  Ever larger networks are processing more consumer data in an effort to make our purchases simpler and less time consuming.  These networks transmit vast amounts of personal and financial data, and enterprising hackers are targeting them to produce data breaches that dwarf anything we’ve seen before.  Individual breaches regularly put at risk the financial information of tens of millions of consumers.  This threatens consumer confidence and has devastating consequences for companies who have fallen victim.    

We have also witnessed the rise of another type of intrusion that causes harms less simple to quantify.  Rather than stealing money or valuable financial data, these breaches have robbed people of their privacy.  Some hackers have become virtual home invaders, using malware to tap into personal webcams located in homes around the world so they can spy on our most intimate moments.  Other hackers have broken into online storage accounts and personal devices to snatch personal photos or communications for money or prurient thrills.

So, how is the Department responding to these new types of online threats and challenges?  In the case of the $45 million dollar cyber heist I mentioned, we were able to promptly find, arrest and prosecute some of those responsible.  Thus far, 13 defendants have been convicted for their participation in the scheme.  The Criminal Division and U.S. Attorneys’ Offices are bringing the lessons of this successful prosecution and others to the investigations of recent breaches that have been in the news.

While arrests and prosecutions are our primary goal, we recognize that it is increasingly common for sophisticated cyber criminals to base themselves overseas in countries where they are not so easily reached.  Consequently, we have adjusted our tactics in two significant ways.  We are engaging in larger, international law enforcement operations to target criminals around the globe.  And, we are acting up front to stop the harm that these cyber criminals are causing, even before we can get them into custody.  A prime example of this has been our approach to “botnets.”

“Botnets” are networks of computers that have been secretly infected by malware and controlled by criminals.  Some botnets are millions of computers strong.  Once created, they can be used without a computer owner’s knowledge to engage in a variety of criminal activities, including siphoning off personal and financial data, conducting disruptive cyber attacks, and distributing malware to infect other computers. 

One particularly destructive botnet—called Gameover Zeus—was used by criminals to steal millions of dollars from businesses and consumers and to extort additional millions of dollars in a “ransomware” scheme.  Ransomware is malware that secretly encrypts your hard drive and then demands payments to restore access to your own files and data.  Ransomware called “Cryptolocker” was distributed through the Gameover Zeus Botnet, which infected hundreds of thousands of computers, approximately half of which were located in the United States.  It generated more than $27 million in ransom payments for its creators, including Russian hacker Evgeniy Bogachev, in just the first two months after it emerged.

But through carefully choreographed international law enforcement coordination, we not only identified and obtained a 14-count indictment against Bogachev, but also obtained injunctions and court orders to dismantle the network of computers he used to orchestrate his scheme.  The Justice Department, U.S. law enforcement, numerous private sector partners, and foreign partners in more than 10 countries, as well as EC3, mounted court-authorized operations that allowed us to wrest control of the botnet away from the criminals, disable it, and start to repair the damage it caused. ...

In another international operation, just a few weeks ago, we targeted so-called “dark market” websites selling illegal goods and services online.  These websites were operating on the “Tor” network, a special network of computers on the Internet designed to conceal the locations of individuals who use it.  The websites we targeted traded in illegal narcotics; firearms; stolen credit card data; counterfeit currency; fake passports and other identification documents; and computer-hacking tools and services.  Using court-authorized legal process and mutual legal assistance treaty requests, the Department, the FBI, and international partners from approximately 16 foreign nations working under the umbrella of EC3 seized over 400 Tor addresses associated with dozens of websites, as well as multiple computer servers hosting these websites. ...

High-tech crimes are not new to the Criminal Division.  We have been investigating and prosecuting computer crimes since the Division created the Computer Crime and Intellectual Property Section, or “CCIPS,” in 1996.  As I have already described, CCIPS prosecutors have led complex computer crimes investigations for years, and this work will continue.  

Through CCIPS, the Criminal Division has also supported and expanded our U.S. Attorneys’ Offices’ expertise and capacity to tackle the most complex cybercrimes.  CCIPS has worked over the last 12 years to build the Computer Hacking and Intellectual Property or “CHIP” Network with U.S. Attorneys’ Offices across the nation, which is now over 270 prosecutors strong.  That network has fostered a close partnership between CCIPS and the U.S. Attorneys’ Offices in addressing the nation’s most sophisticated computer crimes.  In addition, over the last two years, the CHIP Network was used as the model for the National Security Cyber Specialists’ network, a partnership among the National Security Division, the U.S. Attorneys’ Offices, and CCIPS that focuses on cyber threats to national security.

As the threats increase daily, however, I want to make sure that cyber security is receiving the dedicated attention it requires.  It is important that we address cyber threats on multiple fronts, with both a robust enforcement strategy as well as a broad prevention strategy.  I am, therefore, announcing today the creation of the Cybersecurity Unit within CCIPS.  The Cybersecurity Unit will have responsibility on behalf of the Criminal Division for a variety of efforts we are undertaking to enhance public and private cyber security efforts.

Given the growing complexity and volume of cyber attacks, as well as the intricate rubric of laws and investigatory tools needed to thwart the attacks, the Cybersecurity Unit will play an important role in this field.  Prosecutors from the Cybersecurity Unit will provide a central hub for expert advice and legal guidance regarding the criminal electronic surveillance statutes for both U.S. and international law enforcement conducting complex cyber investigations to ensure that the powerful law enforcement tools are effectively used to bring the perpetrators to justice while also protecting the privacy of every day Americans.  The Cybersecurity Unit will work hand-in-hand with law enforcement and will also work with private sector partners and Congress.  This new unit will strive to ensure that the advancing cyber security legislation is shaped to most effectively protect our nation’s computer networks and individual victims from cyber attacks. 

As you know, the private sector has proved to be an increasingly important partner in our fight against all types of online crime, but particularly cyber security-related matters.  Prosecutors from the Cybersecurity Unit will be engaging in extensive outreach to facilitate cooperative relationships with our private sector partners.  This is a fight that the government cannot and will not wage alone. ...

We not only carefully consider privacy implications throughout our investigations, but we also dedicate significant resources to protecting the privacy of Americans from hackers who steal our financial and credit card information, online predators that stalk and exploit our children, and cyber thieves who steal the trade secrets of innovative American entrepreneurs.  As just an example our efforts, we recently announced the conviction of a Danish citizen who marketed and sold StealthGenie, a spyware application or “app” that could remotely monitor calls, texts, videos and other communications on mobile phones without detection.  This app was marketed to individuals who wanted to spy on spouses and lovers suspected of infidelity.

Additionally, earlier this year, the FBI and the U.S. Attorney for the Southern District of New York announced charges against the owner of “Blackshades,” which sold the Blackshades Remote Access Tool.  EC3 again played a substantial role in this worldwide takedown, which resulted in the arrests of more than 90 people across the globe.  The Blackshades tool was used by hackers to gain access to victims’ personal computers to secretly steal files and account information, browse personal photos, and even to monitor the victims through their own webcams.  This software tool illustrates one of the scariest capabilities of hackers to date, as the Blackshades product or a similar tool was used by one hacker to secretly capture naked photos of teens and young women, including Miss Teen USA.  The hacker then used the photos to extort his victims—with threats that he would post the photos on the Internet—into sending additional nude photos and videos. 

December 29, 2014 | Permalink | Comments (0)

Sunday, December 28, 2014

FATF Finds Significant Weaknesses for Norway Combatting Money Laundering

Norway has taken some good initiatives to combat money laundering and terrorist financing, but needs to establish overarching policies and strategies, and address significant weaknesses in a number of key areas, according to the mutual evaluation report of Norway.

Despite good legal foundations and sound institutions, the investigation and prosecution of money laundering is not a high priority for competent authorities in Norway, resulting in very few convictions for such offences.

Norwegian authorities are taking appropriate action to detect and disrupt terrorist financing and have taken significant measures to implement proliferation financing sanctions. However, weaknesses exist in the implementation of targeted financial sanctions relating to terrorist financing and proliferation financing and the lack of supervision is a concern.

Limited action has been taken since 2009 to update laws and other measures. A priority for Norway is to update and supplement its laws and guidance for preventive measures. Basic measures are being implemented, but effectiveness is variable, with banking, accountant and audit, and real estate sectors being stronger than other sectors, including the legal sector and other parts of the financial sector. There is a need for a stronger application of the risk-based approach. The frequency, scope and intensity of supervision of these sectors is not sufficient and sanctioning powers for non-compliance are limited.

Norway takes an open and collaborative approach to international cooperation and there is a transparent set of national registers with information on the ownership and control of companies when they are owned by Norwegians. However, Norwegian authorities are not able to get timely access to beneficial ownership information on companies incorporated in Norway when these companies are owned by foreign entities.

The President of the FATF, Roger Wilkins, said: 

“The completion of a mutual evaluation report is a starting point for an assessed country to  strengthen its measures to combat money laundering and terrorist financing.  Norway’s mutual evaluation report identified areas where the authorities had established sound policies and institutions, but it also identified some significant weaknesses. The report gives clear recommendations to Norway on the priority actions it should take. Norway will now work towards addressing the identified weaknesses and I am confident that they will do so very successfully.”

The FATF is the global body responsible for setting and monitoring international standards on combatting money laundering and the financing of terrorism. A FATF Mutual Evaluation is a year-long peer-review conducted by an international panel of experts. The Mutual Evaluation Report provides a detailed and complete assessment of Norway’s system to combat money laundering and terrorist financing, and assesses Norway’s level of compliance with the FATF Recommendations. The report also includes recommendations to Norway on the improvements needed.

Norway’s evaluation, which looks at measures ranging from law enforcement to financial supervision, is the first comprehensive review of a country’s anti money laundering and terrorist financing system and the first to be completed using the revised FATF Recommendations adopted in 2012.

The full report is available at: 

December 28, 2014 | Permalink | Comments (0)

Saturday, December 27, 2014

International Fraud Scheme Involving Online Marketplaces Such as eBay Lands Promoter in Jail

Justice logoA Romanian man was sentenced today to serve 63 months in prison for his role in receiving and sending overseas approximately $690,000 in proceeds from an international fraud scheme involving online marketplace websites, as well as for the use of a fraudulent passport.

Razvan Caprarescu, 39, originally of Bucharest, Romania, was indicted in the Middle District of Tennessee in March 2014 for conspiracy to commit bank and wire fraud in connection with his participation in the online marketplace scheme.  In June 2014, the case was transferred to the Southern District of Florida, where Caprarescu had already been indicted in March 2013 for use and attempted use of a false, forged, and counterfeit Belgian passport.  Caprarescu pleaded guilty to both charges in August 2014.  In addition to his prison term, Caprarescu was ordered to pay $658,441 in restitution.

In connection with his guilty plea, Caprarescu admitted that his co-conspirators fraudulently listed vehicles for sale at online marketplaces such as eBay.  When victims expressed interest in purchasing the vehicles, the co-conspirators responded with emails directing the victims to wire payments to specified bank accounts.  These bank accounts were opened by Caprarescu and another co-conspirator using false identities and fraudulent documents, including counterfeit passports. 

Eighteen victims sent approximately $367,036 to accounts opened by Caprarescu between October 2011 and June 2012.  Another 17 victims sent approximately $321,389 to accounts opened by Caprarescu’s co-conspirator.  Caprarescu and his co-conspirator subsequently sent the bulk of the money to co-conspirators located overseas.  Caprarescu also admitted that he used a false Belgian passport bearing an alias to rent a mailbox at a U.S. Pak-n-Ship store located in Broward County, Florida. 

December 27, 2014 | Permalink | Comments (0)

Friday, December 26, 2014

Can't Convict at Federal? Try, Try Again (in State)

Chris Dometsch of Bloomberg reports that -

Sergey Aleynikov, a former programmer at Goldman Sachs Group Inc. (GS) whose federal conviction for stealing the bank’s high-speed trading code was thrown out on appeal, will go on trial April 1 on related charges in New York state court, his lawyer said.

Aleynikov was found guilty of stealing code by a federal court jury in Manhattan in December 2010 and was sentenced to eight years and one month in prison. He served about a year before an appeals court reversed the conviction and ordered him freed in February 2012.

Zweibel in April denied Aleynikov’s a bid to have the state charges thrown out on double-jeopardy grounds. The judge ruled the elements of the counts he faces now are different from those he faced in federal court.

Zweibel’s June ruling said Aleynikov’s arrest and search of his home were “presumptively unreasonable,” as the FBI didn’t get warrants, and that Special Agent Michael McSwain made a “mistake of law” in charging Aleynikov with two federal crimes.

McSwain mistakenly determined he could charge the programmer with violating the National Stolen Property Act because source code is intangible and the statute refers only to tangible property, the judge said.

McSwain also mistakenly concluded that Aleynikov had violated the Economic Espionage Act, which applies to products made specifically for use in interstate or foreign commerce such as manufactured goods, Zweibel said. Goldman Sachs had no intention of selling its high-frequency trading system or licensing it to anyone, according to the ruling.

The law was expanded after Aleynikov’s release from federal prison to cover products and services not intended for use in commerce, including computer code.

Read the full Bloomberg story here.

December 26, 2014 | Permalink | Comments (1)

Thursday, December 25, 2014

Bipartisan Bill to Provide Due Process Within 28 Days of IRS' Civil Asset Forfeitures

Hearing-default-bannerWays and Means Committee Chairman Dave Camp (R-MI) and Ranking Member Sander Levin (D-MI) introduced the Taxpayer Protections Against Abusive Seizures Act, legislation that provides taxpayers with protections against the inappropriate application of civil forfeiture laws.  These laws were enacted to curtail money laundering and terrorist activities, but a recent report in the New York Times indicates that they have also been used to seize funds from some small businesses, in some cases leaving them with no working capital to make payroll and maintain needed inventory. 

​The laws are designed to prevent a practice called “structuring,” the act of making small cash deposits to avoid the $10,000 bank-reporting threshold that is commonly used by drug dealers, money launderers, and terrorist entities to avoid detection by authorities.  The laws authorize the government to seize the funds of those found engaging in structuring, and in the instance reported in the New York Times, there were inadequate opportunities for the business owner to challenge the seizures.  

In announcing the legislation, Chairman Camp said, “In America, a citizen suspected of a crime is innocent until proven guilty.  All too often, however, our current laws allow the government to assume guilt without allowing the accused a speedy hearing, depriving them of much needed working capital.  This bill provides average American small business owners the ability to challenge powerful government agencies like the IRS, and guarantees them their day in court.”

Ranking Member Levin said, “This legislation would give law-abiding taxpayers – including small business owners – an opportunity to challenge a notice of seizure and ensure that the IRS is acting appropriately and within the law.  Taxpayers have the right to due process when their property is seized, and this bill protects that right.”

The legislation would provide that an affected person, within fourteen days of receiving a notice of a seizure, may request a court to hold a probable cause hearing within fourteen days of such request.  Additionally, the bill provides that if, within fourteen days of such request, no hearing is held, or if the government fails to show probable cause, the seized funds are automatically returned to the individual. 

BUT this is not a new issue.  In 1996,  the House Judiciary Committee considered the Civil Asset Forfeiture Reform Act for the same types of abuses that 18 years still persist:

According to one estimate, in more than 80 percent of civil asset forfeiture cases, the property owner is not charged witha crime. Nevertheless, Government officials usually keep the seized property. Furthermore, to justify its seizure, the 
Government need only present evidence of what its agents see as "probable cause." That is the same standard required to obtain a search warrant, but in that situation, police are permitted to seek evidence of a crime, not to permanently
take somebody's property. Even worse, under present law, the burden of proof is on the property owner, who must
establish by a preponderance of the evidence that his or her property has not been used in a criminal act or not
otherwise forfeitable. The uncharged victim must prove the negative.

The Government Spends $400,000 to Keep $9,000 Seized From a Landscaper Because He Bought His Airline Ticket With Cash

From the 1996 testimony -

Mr. Hyde. Well, tell me about your litigation. What kind of a suit did you file?

Mr. Edwards. We filed a civil rights action under section 1983 against the three officers who seized his money. And incidentally, although they were operating under the leadership direction of the DEA, they were actually local officers. The DEA in Nashville, as occurs all over the country, had formed a joint task force by contract. We actually obtained a copy of the contract and put it into evidence in his trial, whereby the Metropolitan Police Force of

Nashville provided a certain number of officers. The Air Force — I am sorry. The airport police department provided a certain number of officers, and the DEA provided one agent to supervise. And that is how this interdiction unit at the Nashville airport was composed.

The three officers we sued consisted of one Metro Nashville Police sergeant, who was on leave from the drug squad to this interdiction unit, and two airport officers. And we sued the three of them. We could not ask for damages — or at least we made the decision not to, because of the doctrine of qualified immunity. Had we asked for damages against the officers for taking — for stopping Mr. Jones and taking his money, the lawsuit instead of taking 2 years probably would have taken 3 or 4, and we would have run the risk that the case would have been dismissed on the basis of immunity.

But because we asked only for his money back, they could not use qualified immunity as a defense.

The first — there were actually two trials, Mr. Chairman. The first trial was in response to the government's position that a U.S. district court could not review the decision of the Asset Forfeiture Office of the Justice Department in refusing to waive Mr. Jones' bond. In other words, they wouldn't let him into court, and their position was a district — a U.S. district judge couldn't pass judgment on their decision.

Mr. Hyde. And because your client didn't have the $900 to post a bond, you couldn't proceed under the asset forfeiture process? You had to file a civil rights suit?

Mr. Edwards. That's exactly right. We couldn't afford to pay our way into court, so we couldn't get a day in court for Willie Jones without suing the Grovernment because they wouldn't waive the bond requirement.

Mr. Hyde. The U.S. Attorney's Office defended this lawsuit?

Mr. Edwards. Yes, sir.

Mr. Hyde. And they persisted in withholding Mr. Jones' money?

Mr. Edwards. Well, that is a very interesting question, Mr. Chairman. A few weeks after we filed the lawsuit under section 1983 as a civil rights case on behalf of Mr. Jones, I had a conference with an assistant U.S. attorney in Nashville, and we talked about the case, and I explained just how clean Mr. Jones was and just how egregious the seizure of his money was, and the AUSA thought that it would make a lot of sense, if we were willing, to rethink refusing to waive his bond. And I told him that we would agree to drop the civil rights case if the Government would agree to waive the bond and let us go back into the normal forfeiture process and get a trial under the court's jurisdiction to hear forfeiture cases.

So we had a private agreement to do that, but he had to talk to main Justice before we could solidify that understanding, and he came back to me a few days later and said, main Justice wouldn't go along with that.

Mr. Hyde. What year was this? 

Mr. Edwards. This was in 1991. The lawsuit as filed, I believe, 1 or 2 days before the Fourth of July of that year. The seizure, of course, was on February 27, earlier in that year.

Mr. Hyde. Did you deal with the Department of Justice other than the U.S. attorney there?

Mr. Edwards. No, sir. I did not deal directly with anyone in Main Justice.

Mr. Hyde. You don't know who was responsible for making that decision?

Mr. Edwards. No, I am afraid I don't.

Mr. Hyde. What enlightened member of the Justice Department?

Mr. Edwards. Yes, sir.

Mr. Hyde. All right. So you proceed with the civil rights lawsuit. Did you go to trial?

Mr. Edwards. The first trial resulted in the district judge, Thomas Wiseman, holding that the Asset Forfeiture Office had acted in bad faith in refusing to waive the bond, and he ordered the bond waived and ordered an immediate trial with respect to the seizure.

The Government asked for more time and after some argument was granted additional time, and we finally had a trial, as I recall, in late 1992. During that trial, the Government was flying DEA agents from Nashville to Houston and Houston agents from Houston to Nashville. I mean, it may very well be a modest conservative estimate when I say the Government spent over $300,000 trying to defend this seizure. But at any rate, I think it is certainly fair to say that the Government did everything that they could think of to try to prove that Willie Jones was a drug dealer. But they were facing an insurmountable problem: The truth, because he wasn't and never has been.

So ultimately, the judge held that the stop of Mr. Jones in the airport was in violation of his fourth amendment rights; that the money should never have been seized long before the dog sniff occurred.

He further found, based on documents that I was able to obtain showing that DEA lab technicians had long — had much earlier advised against using dog sniffs to establish proof with respect to currency, because the American money supply is so tainted with trace cocaine, he decided that and held that there was no basis for the seizure; there was no basis for a forfeiture, and he ordered the Government to return Mr. Jones' money.

Mr. Hyde. Why didn't he get interest back?

Mr. Edwards. Because of the same problem. We were concerned about giving the Government an opportunity to raise the issue of qualified immunity.

Mr. Hyde. To escape altogether, yes.

Mr. Edwards. There have been some decisions in Federal court since Mr. Jones' case has ended that suggested — or that suggest that perhaps he would have been entitled to obtain interest on his money had we pressed that issue.

Mr. Hyde. How about your attorney's fees, did they get allowed, or did Mr. Jones have to pay those?

Mr. Edwards. Well, that is very interesting. Had the Government waived the $900 bond requirement and let Mr. Jones have his day in court, I would have not been entitled to attorney's fees, and Mr. Jones would have had to pay whatever fee I got paid out of the money he got back. But because they refused to do that and were acting in bad faith in refusing, that left us with the only alternative of suing under the civil rights statute. By virtue of prevailing as a plaintiff in a civil rights case, I was entitled to an award of attorney's fees. So I was ultimately paid in the neighborhood of $80 to $85,000 — I don't remember the exact amount — for the work I did over 2V2 years representing Mr. Jones.

Had the Government waived the bond, I would have been paid nothing, and Mr. Jones would have been stuck with the fee, which is another reason that forfeiture can be so unjust. A reasonable attorney's fee, even in a modest, simple forfeiture case in Federal court, is going to cost $20,000, $25,000, $30,000 in legal fees just because of the time and attorney effort required. So when the amount seized is a relatively modest sum, the property owner isgoi ng to lose anyway, no matter what he does. 

December 25, 2014 | Permalink | Comments (0)

Regulator Investigates Whether Barclays and Deutsche Bank Use Algorithms to Fix FX Pricing?

Greg Farrell of Bloomberg reports that New York regulators have found evidence that Barclays and Deutsche Bank may have used algorithms on their trading platforms to manipulate foreign-exchange rates.  read his full investigative story at Bloomberg


December 25, 2014 | Permalink | Comments (0)

Wednesday, December 24, 2014

New FATCA Q&A for IGA FFIs Registration

FATCA IGA Question 8 Announcement 2014-38 provides that a jurisdiction that is treated as if it has an IGA in effect, but that has not yet signed an IGA, retains such status beyond December 31, 2014, provided that the jurisdiction continues to demonstrate firm resolve to sign the IGA that was agreed in substance.  Given this additional time to sign the IGA, does a reporting Model 1 FFI in such a jurisdiction need to register and obtain a GIIN before January 1, 2015?

Answer: Announcement 2014-38 does not change the requirement in the chapter 4 regulations that for payments made on or after January 1, 2015, in order for withholding not to apply, a withholding agent may treat a reporting Model 1 FFI as a registered deemed-compliant FFI only if the withholding agent has a withholding certificate identifying the payee as a registered deemed-compliant FFI and the withholding certificate contains a GIIN for the payee that is verified in the manner described in those regulations.  Thus, to avoid withholding on certain payments made on or after January 1, 2015, a reporting Model 1 FFI should register and obtain a GIIN to properly certify its status to a withholding agent required to document the FFI for chapter 4 purposes.   

A reporting Model 1 FFI that has registered but not yet obtained a GIIN should indicate to its withholding agent that its GIIN is "applied for," and in such case, the withholding agent will have 90 days from the date it receives the Form W-8 to obtain a GIIN and to verify the accuracy of the GIIN against the published IRS FII list before it has reason to know that the payee is not a registered deemed-compliant FFI.

Announcement 2014-38 similarly does not change the timing of any other due diligence and reporting requirements in the chapter 4 regulations.  

December 24, 2014 | Permalink | Comments (2)

Congressman Michael Grimm (R Staten Is.) Pleads Guilty to Causing the Filing of a False and Fraudulent Tax Return

DojUnited States Congressman Michael Grimm pled guilty at the federal courthouse in Brooklyn, New York, to aiding and assisting the preparation of a false tax return.

Since 2011, Grimm has served as a member of the United States House of Representatives representing New York’s 11th Congressional District, which includes the borough of Staten Island and parts of the borough of Brooklyn, in New York City.  When sentenced, Grimm faces a prison term of up to three years.  In connection with his guilty plea, Grimm also agreed to pay restitution to the Internal Revenue Service (IRS), the New York State Department of Taxation and Finance, and the New York State Insurance Fund (NYSIF). 


“With today’s guilty plea, Michael Grimm has admitted that while running his business he chose lies and deception over honest dealings with federal and state authorities as well as his own employees.  In addition to pleading guilty to causing the filing of a false tax return for his restaurant, Grimm has signed a statement admitting to the conduct underlying every charge filed against him.  Michael Grimm has now publicly admitted that he hired unauthorized workers whom he paid “off the books” in cash, took deliberate steps to obstruct the federal and state governments from collecting taxes he properly owed, cheated New York State out of workers’ compensation insurance premiums, caused numerous false business and personal tax returns to be filed for several years, and lied under oath to cover up his crimes.  He will now be held to account for all of his actions that led to those charges,” said U.S. Attorney Lynch.  “This guilty plea makes clear that we and our partners in the FBI and the IRS will vigorously investigate and prosecute fraud wherever we find it, and that no one is above the law.”  

FBI Assistant Director-in-Charge Venizelos stated, “As an elected official, Grimm was responsible for deciding how taxpayers' money should be spent, yet he chose not to pay his fair share of taxes while operating his business.  Adding insult to injury, while serving as a Member of Congress, Grimm lied under oath in an effort to conceal his criminal activity.  The public expects their elected officials at all levels of government to behave honorably, or at a minimum, lawfully.  As his guilty plea demonstrates, Grimm put self-interest above public service.”

Richard Weber, Chief, IRS-Criminal Investigation stated, “The public expects their elected officials to meet their tax obligations before they take office, while they hold office and when they leave office.  Today, Mr. Grimm admitted to breaching the public's trust by fraudulently underreporting $900,000 in restaurant gross receipts and lowering payroll taxes through 'off-the-book' payments.  As the only law enforcement agency with the authority to investigate federal tax crimes, IRS-Criminal Investigation is committed to ensuring that everyone pays their fair share. In the eyes of the law, public officials are not above the citizens they serve.”

In connection with his guilty plea, Grimm entered into a stipulation of facts, filed with the Court today, that acknowledged the scope of his criminal conduct.  As part of that stipulation of facts, Grimm admitted that:

  • From 2007 through 2009, Grimm was a member in Healthalicious, a restaurant located in Manhattan.During that time period, Grimm oversaw the day-to-day operations of the restaurant, which included the reporting and distribution of the restaurant’s payroll. 

  • Grimm under-reported the true amount that Healthalicious earned, using a portion of those unreported receipts to pay the restaurant’s workers “off the books” in cash.With Grimm’s knowledge, the restaurant employed those who were not lawfully admitted to the United States and who were not authorized to work in this country. 

  • In total, Grimm concealed over $900,000 in Healthalicious’ gross receipts from the accountant who prepared and filed the restaurant’s tax returns.That accountant used the false information provided by Grimm to prepare and file false federal and state tax returns for Healthalicious. 

  • Grimm also failed to report the “off the books” cash wages he was paying to Healthalicious workers, which resulted in the restaurant paying lower federal and state payroll taxes.Some Healthalicious employees received at least half of their wages in cash, while other workers were paid entirely in cash. Grimm tracked these payments in electronic spreadsheets, but failed to provide accurate information about the restaurant’s payroll to the payroll processing companies employed by the restaurant.As a result, Grimm caused the payroll processing companies to report to the IRS and the NYS Tax Department less than half of the wages Healthalicious actually paid its employees. 

  • Additionally, Grimm under-reported Healthalicious’ payroll to the New York State Insurance Fund (“NYSIF”), lowering the monthly workers’ compensation premium the restaurant paid to NYSIF. 

  • As part of his scheme, Grimm caused numerous false documents to be filed with federal and state tax authorities between 2007 and 2010, including: (1) Form 941 Employer’s Quarterly Federal Tax Returns for Healthalicious; (2) Form 1065 U.S. Return of Partnership Income tax returns for Healthalicious; (3) Forms W-2 reported annual wages of Healthalicious employees; (4) his Form 1040 U.S. Individual Income Tax Returns and Form IT-201 Resident Income Tax Returns; and (5) New York State Form ST-100 Quarterly Sales and Use Tax Returns. 

  • In total, Grimm’s conduct caused federal and New York State tax and NYSIF premium losses between $80,000 and $200,000.

Moreover, while a Member of Congress in January 2013, Grimm was deposed under oath by the attorney of a former employee in connection with a civil lawsuit relating to the labor practices at Healthalicious in which Grimm was a defendant.  The lawsuit was pending in the United States District Court for the Southern District of New York.  Today, as part of the stipulation of facts, Grimm admitted to testifying during the deposition to things that, at the time, he knew to be false. 

Specifically, Grimm testified during the deposition that Healthalicious employees had not been paid in cash, when he knew that restaurant employees had in fact been paid “off the books” in cash.  Similarly, Grimm testified that, to the extent he used email in operating Healthalicious, he used a Yahoo account to which he no longer had access.  Today, Grimm admitted that, at the time of the deposition, he in fact had access to an AOL account which he had used for Healthalicious related business and which contained many emails related to the restaurant.

December 24, 2014 | Permalink | Comments (0)

OECD Releases 4 More BEPS Draft Reports For Comment

The OECD has released four additional discussion drafts for public comment:

Action 14 of the BEPS Action Plan - Dispute resolution: Deadline for comments: 16 January 2015

Action 4 of the BEPS Action Plan - Interest deductions: Deadline for comments: 6 February 2015

BEPS Actions 8-10: Revisions to Chapter I of the Transfer Pricing Guidelines (Including risk, recharacterisation and special measures): Deadline for comments: 6 February 2015

Two new elements of the OECD International VAT/GST Guidelines: Deadline for comments: 20 February 2015

The complete timetable for stakeholder input is available on line with the dates when all discussion drafts will be published and public consultations held in relation to the 2015 BEPS outputs and other OECD tax work.Drafts


December 24, 2014 | Permalink | Comments (0)

Tuesday, December 23, 2014

Bank Leumi Admits to Assisting U.S. Taxpayers in Hiding Assets in Offshore Bank Accounts

Treasury-Dept.-Seal-of-the-IRSA major Israeli international bank admitted that it conspired to aid and assist U.S. taxpayers to prepare and present false tax returns to the Internal Revenue Service (IRS) by hiding income and assets in offshore bank accounts in Israel and elsewhere around the world. 

A deferred prosecution agreement between the Bank Leumi Group and the Department of Justice was filed [yesterday] in the Central District of California that defers prosecution on a criminal information charging the bank with conspiracy to aid and assist in the preparation and presentation of false tax returns and other documents to the Internal Revenue Service.  This unprecedented agreement marks the first time an Israeli bank has admitted to such criminal conduct which spanned over a 10 year period and included an array of services and products designed to keep U.S. taxpayer accounts concealed at Bank Leumi Group’s locations in Israel, Switzerland, Luxembourg and the United States.

The Bank Leumi Group’s parent company is Bank Leumi le-Israel, B.M.  Bank Leumi le-Israel is one of Israel’s largest banks, with subsidiaries in seven countries and more than 13,000 employees.  Other subsidiary banks entering into this deferred prosecution agreement include The Bank Leumi le-Israel Trust Company Ltd., the oldest and largest of all bank trust companies in Israel; Leumi Private Bank S.A., a Switzerland-based subsidiary; Bank Leumi (Luxembourg) S.A., a Luxembourg-based subsidiary; and Bank Leumi USA, a FDIC-insured, full-service commercial bank with offices in California, Florida, Illinois and New York.

According to documents filed in the case, to account for their criminal conduct, Bank Leumi Group will pay the United States a total of $270 million (and $130 million to the State of New York Department of Financial Services). Of this total payment, $157 million represents a penalty for U.S. taxpayer accounts held at Leumi Private Bank in Switzerland.  This $157 million penalty is consistent with the department’s Swiss Bank Program, which permits certain Swiss Banks to avoid prosecution by making a full and complete disclosure of their U.S. taxpayer-held accounts and paying substantial penalties.  The agreement further provides that Bank Leumi Luxembourg and Leumi Private Bank will cease to provide banking and investment services for all accounts held or beneficially owned by U.S. taxpayers.

“The Bank Leumi Group recognized that the writing is on the wall for offshore banking, and cooperating with the government’s investigation was the only way to proceed,” said Deputy Attorney General James M. Cole.  “This deferred prosecution agreement demonstrates both that the Justice Department will hold financial institutions accountable for their crimes, and that we will be fair in recognizing extraordinary cooperation.”

According to the filed statement of facts, from at least 2000 until early 2011, the Bank Leumi Group took affirmative and extensive steps to assist U.S. clients in concealing their assets offshore, including:

  • surreptiously sending private bankers from Israel and elsewhere around the world to the United States to meet secretly with U.S. clients at hotels, parks and coffee shops to discuss their offshore account activity;

  • assisting U.S. clients in using nominee corporate entities created in Belize and other foreign jurisdictions to hide their undeclared accounts by concealing the U.S. client as the true beneficial owner of the account;

  • using the Bank Leumi le-Israel Trust Company as a nominee account holder for U.S. clients with accounts in Israel to conceal the U.S. client as the true beneficial owner of the account;

  • maintaining U.S. clients’ undeclared offshore accounts under assumed names or numbered accounts to conceal the U.S. client as the true beneficial owner of the account;

  • providing hold mail services so that correspondence and other account information would not go directly to the U.S. client to make it more difficult to connect the client to the secret offshore account;

  • extending loans to U.S. clients from Bank Leumi USA that were collateralized by the assets in those clients’ offshore accounts, so that the clients could leverage their offshore assets to obtain and use capital in the United States while keeping their foreign accounts secret and undetected from the U.S. government; and

  • after the department’s investigation into UBS and other Swiss banks’ criminal conduct in aiding U.S. taxpayers to evade their taxes became public, the Bank Leumi Group opened and maintained accounts for U.S. taxpayers who left UBS and other Swiss banks due to the investigation in an effort to continue to avoid detection by the U.S. government.

“The Bank Leumi Group’s admission of guilt to knowingly conspiring to assist U.S. taxpayers in filing false income tax returns and other documents with the Internal Revenue Service (IRS) represents the Department of Justice’s next step in its worldwide efforts to hold banks and other financial institutions responsible for their criminal conduct,” said the Tax Division’s Acting Deputy Assistant Attorney General Larry J. Wszalek.  “Those institutions that have engaged, or continue to engage, in conduct similar to that of Bank Leumi Group are well advised that the Tax Division will continue to extend its global reach in enforcing this nation’s criminal tax laws.”

According to documents filed in the case, as part of its agreement with the department, the Bank Leumi Group provided the names of more than 1,500 of its U.S. account holders.  As part of the agreement, the Bank Leumi Group will continue to disclose information to the government regarding its cross-border business and provide testimony and information regarding other investigations. 

“There are many provisions of federal law that can benefit taxpayers, but maintaining secret offshore accounts to conceal assets is not a legal method of lowering one’s tax liability,” said Acting U.S. Attorney Stephanie Yonekura for the Central District of California.  “Any financial institution – no matter where it operates – will be held accountable if it helps U.S. residents dodge their tax responsibilities.  This agreement with Leumi Bank is the latest notice to American taxpayers who might flout the law that we can and will uncover your hidden assets.”

“Today’s deferred prosecution announcement against Leumi Bank is yet another historical event in the international tax arena,” said Commissioner John Koskinen of the IRS.  “IRS will not tolerate the use of offshore accounts to illegally escape paying taxes and we will continue to focus on this priority area.”

“This case shows that banks who promote the use of offshore tax schemes against the United States will be held accountable and face substantial fines and penalties,” said Chief Richard Weber of IRS-Criminal Investigation.  “This investigation involved untangling a complex web of financial transactions where Bank Leumi assisted U.S. taxpayers in concealing undeclared bank accounts.  As the premier financial investigators in the world, and the only law enforcement agency to investigate tax cases, our special agents will continue to investigate banks and individuals who violate the U.S. tax laws no matter where they reside.”

December 23, 2014 | Permalink | Comments (0)

Islamic Banking Regulation

IMF_Text_Logo* Working Paper No. 14/219: Regulation and Supervision of Islamic Banks Author/Editor: Aledjandro Lopez Mejia ; Suliman Aljabrin ; Rachid Awad ; Mohamed Norat ; Inwon Song Summary: This paper aims at developing a better understanding of Islamic banking (IB) and providing policy recommendations to enhance the supervision of Islamic banks (IBs). It points out and discusses similarities and differences of IBs with conventional banks (CBs) and reviews whether the IBs are more stable than CBs. Given the risks faced by IBs, the paper concludes that they need a legal, corporate and regulatory framework as much as CB does. The paper also argues that it is important to ensure operational independence of the supervisory agency, which has to be supported by adequate resources, a sound legal framework, a well designed governance structure, and robust accountability practices. 

* Working Paper No. 14/220: Islamic Banking Regulation and Supervision: Survey Results and Challenges Author/Editor: Inwon Song ; Carel Oosthuizen Summary: The growing presence of Islamic banking needs to be accompanied by the development of effective regulation and supervision. This paper examines the results of the survey conducted by the International Monetary Fund to document international experiences and country practices related to legal and prudential frameworks governing Islamic banking activities. Although a number of countries have made considerable progress in creating legal, regulatory, and supervisory frameworks that accommodate Islamic banking, there are substantial differences. This paper also identifies a number of challenges faced by regulatory and supervisory agencies regarding Islamic banking. 


December 23, 2014 | Permalink | Comments (0)

Monday, December 22, 2014

Dallas Airmotive Admits Bribing Brazilian, Peruvian and Argentinian Government Officials, Pays $14 Million Criminal Penalty

Justice logoDallas Airmotive Inc., a provider of aircraft engine maintenance, repair and overhaul services based in Grapevine, Texas, has admitted to violations of the Foreign Corrupt Practices Act (FCPA) and agreed to pay a $14 million criminal penalty to resolve charges that it bribed Latin American government officials in order to secure lucrative government contracts.

According to Dallas Airmotive’s detailed admissions in the statement of facts accompanying the deferred prosecution agreement, between 2008 and 2012, the company bribed officials of the Brazilian Air Force, the Peruvian Air Force, the Office of the Governor of the Brazilian State of Roraima, and the Office of the Governor of the San Juan Province in Argentina. 

Dallas Airmotive used various methods to convey the bribe payments, including by entering into agreements with front companies affiliated with foreign officials, making payments to third-party representatives with the understanding that funds would be directed to foreign officials, and directly providing things of value, such as paid vacations, to foreign officials.

December 22, 2014 | Permalink | Comments (0)

Sunday, December 21, 2014

The Effects of Monetary Policy on Mortgage Rates

SSRNThe Effects of Monetary Policy on Mortgage Rates Free Download 
FHFA Working Paper 14-2

SATY PATRABANSHFederal Housing Finance Agency; WILLIAM M. DOERNERFederal Housing Finance Agency; SAMUEL ASINFederal Housing Finance Agency

Economic events over the past decade have changed central bank policies in the United States and around the world. The housing and financial markets experienced significant changes as the markets first surpassed historical highs and then underwent a recession grave enough to draw comparison with the Great Depression.  To spur recovery, the Federal Reserve first lowered short-term interest rates to near-zero and eventually embarked on several phases of large-scale asset purchases (LSAPs) to lower long-term interest rates and mortgage rates.

This paper describes the evolution of the LSAP program and analyzes how interest rates and mortgage rates changed during that time. Both the long-term interest rates and mortgage rates reached historical lows in the post crisis period, primarily due to the Federal Reserve Board's accommodative policies.

Two econometric approaches — an event study and a time series model — estimate the market response during each phase of the LSAP program and provide projections of mortgage rates under different shock assumptions. Results suggest that early tapering announcements helped reset interest rates and mortgage rates upwards and any rise in long-term interest rates resulting from unanticipated events (whether related to tapering or not) could lead to further increases in mortgage rates.

December 21, 2014 | Permalink | Comments (0)

Saturday, December 20, 2014

Volcker Rule, Ring-Fencing or Separation of Bank Activities - Comparison of Structural Reform Acts Around the World

SSRNVolcker Rule, Ring-Fencing or Separation of Bank Activities - Comparison of Structural Reform Acts Around the World Free Download 
LSE Legal Studies Working Paper No. 25/2014

MATTHIAS LEHMANNUniversity of Halle Wittenberg

One of the key issues in the on-going overhaul of the global financial system is the structural reform of banking systems. Legislatures in different states, e.g. the United States, France, Germany, and the United Kingdom, have all taken measures to protect individual depositors’ assets against losses from risky bank activities. On 29 January 2014, the European Commission joined the transnational effort by publishing its own proposal on the subject. This contribution shows how the same economic goal is implemented through different approaches by legislatures across the globe. It also analyses how this legal diversity will affect the level playing field in the competition for banking services and the consistency of global financial regulation.

December 20, 2014 | Permalink | Comments (0)

Friday, December 19, 2014

Tax revenues rebounding from the crisis but tax mix varying widely, OECD says

OECD_globe_10cm_HD_4cTax burdens and revenue collection in advanced economies are reaching record levels not seen since before the global financial crisis, but the tax mix continues varying widely across countries, according to new OECD research published.

Revenue Statistics 2014 shows that the average tax burden in OECD countries increased by 0.4 percentage points in 2013, to 34.1%, compared with 33.7% in 2012 and 33.3% in 2011.

The tax burden is the ratio of total tax revenues to GDP.

Historically, tax-to-GDP ratios rose through the 1990s, to a peak OECD average of 34.3% in 2000. They fell back slightly between 2001 and 2004, but then rose again between 2005 and 2007 before falling back following the crisis.

In 2013, the tax burden rose in 21 of the 30 countries for which data is available, and fell in the remaining 9. The number of countries with increasing and decreasing ratios was the same as that seen in 2012, indicating a continuing trend toward higher revenues.

The largest increases in 2013 occurred in Portugal, Turkey, Slovak Republic, Denmark and Finland. The largest falls were in Norway, Chile and New Zealand.

Detailed Country Notes provide further data on national tax burdens and the composition of the tax mix in OECD countries. 

A number of factors are behind the rise in tax ratios between 2012 and 2013.  About half of the increase is attributed to personal and corporate income taxes, which are typically designed so that revenues rise faster than GDP during periods of economic recovery. Discretionary tax changes have also played a role, as many countries raised tax rates and/or broadened tax bases.

The new data also show rising revenues in central, state and regional governments between 2011 and 2013, following declines over most of the 2008-10 period. The average tax ratio for local governments increased slightly but steadily since 2007.

Other Key Findings:

  • Denmark has the highest tax-to-GDP ratio among OECD countries (48.6% in 2013), followed by France (45%) and Belgium (44.6%). 
  • Mexico (19.7% in 2013) and Chile (20.2%) have the lowest tax-to-GDP ratios among OECD countries, followed by Korea (24.3%), and the United States (25.4%). 
  • The tax burden remains more than 3 percentage points below the 2007 (pre-recession) levels in three countries – Iceland, Israel and Spain. The biggest fall has been in Israel – from 34.7% in 2007 to 30.5% of GDP in 2013. 
  • The tax burden in Turkey increased from 24.1% to 29.3% between 2007 and 2013. Three other countries - Finland, France and Greece - showed increases of more than 2.5 percentage points over the same period. 
  • Revenues from personal and corporate income taxes are now recovering, after the sharp falls of 2008 and 2009. However, the 33.6% share of these taxes in total revenues seen in 2012 – the last year for which full data is available - remains below the 36% share in 2007. The share of social security contributions has increased by 1.6 percentage points, to an average 26.2% of total revenue.

Consumption Tax Trends 

The OECD has advocated shifting the tax mix away from more distortive taxes on labour and corporate income in many countries towards more ‘growth friendly’ sources of revenue, like consumption taxes and property taxes. VAT is an important source of revenue for OECD countries, representing on average approximately 20% of total tax revenues.       

Consumption Tax Trends 2014 highlights the strong increase in standard VAT rates over the past five years: the OECD average standard VAT rate reached an all-time high of 19.1% in January 2014, up from 17.6% in January 2009. Over the 2009-14 period, 21 countries raised their standard VAT rate at least once. The 21 OECD countries that are members of the European Union have an average standard VAT rate of 21.7%, which is significantly above the OECD average.

Country Notes provide further data on national consumption tax trends and the effectiveness of VAT/GST collection in OECD countries.  

While most OECD countries have increased their standard VAT rates, only a few have taken measures to broaden their VAT base. Many OECD countries continue to use reduced VAT rates and exemptions mainly for equity and social objectives. However, broadening the VAT base by limiting the use of reduced rates and exemptions may allow countries to increase revenue without raising the standard rate, and at the same time reduce compliance and administrative costs. A reduction of the standard rate may even be possible by broadening the tax base. 

The Distributional Effects of Consumption Taxes in OECD Countries 

The Distributional Effects of Consumption Taxes in OECD Countries shows that many of these reduced VAT rates actually benefit higher income households more than lower income households. This is particularly the case for reduced VAT rates on restaurant meals, hotel rooms and cultural goods, like books, theatre and cinema tickets.

This study, carried out in conjunction with the Korea Institute of Public Finance, suggests that a better way to achieve equity and social objectives would be to remove many of these reduced rates and replace them with better targeted relief measures, such as income-tested benefits and tax credits.

December 19, 2014 | Permalink | Comments (0)

US Automatic Exchange of Bank Information to 86 Foreign Countries in 2015

Treasury-Dept.-Seal-of-the-IRSRev. Proc. 2014-64: Update of Rev. Proc. 2012-24, Implementation of Nonresident Alien Deposit Interest Regulations

This revenue procedure lists the countries with which the United States has in effect an income tax or other convention or bilateral agreement relating to the exchange of information pursuant to which the United States agrees to provide, as well as receive, information. 

This revenue procedure also lists, in Section 4, the countries with which the Treasury Department and the IRS have determined that it is appropriate to have an automatic exchange relationship with respect to the information Sections 1.6049-4(b)(5) and 1.6049-8(a), as revised by TD 9584, require the reporting of certain deposit interest paid to nonresident alien individuals on or after January 1, 2013. Section 1.6049-4(b)(5) provides that in the case of interest aggregating $10 or more paid to a nonresident alien individual the payor is required to make an information return on Form 1042-S for the calendar year in which the interest is paid.


  1. Antigua & Barbuda
  2. Aruba
  3. Australia
  4. Austria
  5. Azerbaijan
  6. Bangladesh
  7. Barbados
  8. Belgium
  9. Bermuda
  10. Brazil
  11. British Virgin Islands
  12. Bulgaria
  13. Canada
  14. Cayman Islands
  15. China
  16. Colombia
  17. Costa Rica
  18. Croatia
  19. Curacao
  20. Cyprus
  21. Czech Republic
  22. Denmark
  23. Dominica
  24. Dominican Republic
  25. Egypt
  26. Estonia
  27. Finland
  28. France
  29. Germany
  30. Gibraltar
  31. Greece
  32. Grenada
  33. Guernsey
  34. Guyana
  35. Honduras
  36. Hong Kong
  37. Hungary
  38. Iceland
  39. India
  40. Indonesia
  41. Ireland
  42. Isle of Man
  43. Israel
  44. Italy
  45. Jamaica
  46. Japan
  47. Jersey
  48. Kazakhstan
  49. Korea (South)
  50. Latvia
  51. Liechtenstein
  52. Lithuania
  53. Luxembourg
  54. Malta
  55. Marshall Islands
  56. Mauritius
  57. Mexico
  58. Monaco
  59. Morocco
  60. Netherlands
  61. Netherlands island territories: Bonaire, Saba, and St. Eustatius
  62. New Zealand
  63. Norway
  64. Pakistan
  65. Panama
  66. Peru
  67. Philippines
  68. Poland
  69. Portugal
  70. Romania
  71. Russian Federation
  72. Slovak Republic
  73. Slovenia
  74. South Africa
  75. Spain
  76. Sri Lanka
  77. St. Maarten (Dutch part)
  78. Sweden
  79. Switzerland
  80. Thailand
  81. Trinidad and Tobago
  82. Tunisia
  83. Turkey
  84. Ukraine
  85. United Kingdom
  86. Venezuela


  1. Australia
  2. Canada
  3. Denmark
  4. Finland
  5. France
  6. Germany
  7. Guernsey
  8. Ireland
  9. Isle of Man
  10. Italy
  11. Jersey
  12. Malta
  13. Mauritius
  14. Mexico
  15. Netherlands
  16. Norway
  17. Spain
  18. United Kingdom

December 19, 2014 | Permalink | Comments (0)