International Financial Law Prof Blog

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

Friday, July 31, 2015

Please Vote for the International Financial Law Professor Blog

The American Bar Association (ABA) is creating its annual list of the 100 best legal blogs, and wants your vote on which blogs it should include.

Go to > this link < to tell us about the International Financial Law Professor blog -[lawprofessors.typepad.com/intfinlaw]

The ABA  may include some of the best comments in our Blawg 100 coverage. But keep the remarks pithy— a 500-character remarks limit.

Friend-of-the-blawg briefs are due no later than 11:59 p.m. CT on Friday, Aug. 16, 2015.

Much obliged for your continued support and readership - Prof. William Byrnes (Texas A&M Law)

July 31, 2015 | Permalink | Comments (0)

Money laundering and terrorist financing associated with gold

Gold provides an alternative means for criminals to store or move their assets as regulators implement stronger anti-money laundering and counter terrorist financing measures to protect the formal financial sector from abuse. 

The joint FATF-Asia/Pacific Group on Money Laundering report, money laundering / terrorist FATF logofinancing vulnerabilities associated with gold, identifies the many features that make gold attractive to criminals to use as a vehicle for money laundering: it has a stable value, it is anonymous and easily transformable and interchangeable.  The highly lucrative gold market also presents proceed-generating opportunities for criminals at each stage, from mining to retailing.

Understanding what makes gold - like other precious metals and stones, such as diamonds - attractive to criminals to legitimise their assets and to generate profits is essential in identifying this sector’s money laundering and terrorist financing risks.

This report provides a series of case studies and red flag indicators to raise awareness of the key vulnerabilities of gold and the gold market, particularly with anti-money laundering/ countering the financing of terrorism practitioners, and companies involved in the gold industry.

 

July 31, 2015 | Permalink | Comments (0)

District Court tossed Olenicoff's Damages for His Tax Evasion Against UBS, UBS Sued to Recovery Its Costs - the Result

UBS, convicted of tax evasion, and its convicted former private wealth banker, Bradley Birkenfeld, brought a suit against convicted tax evader Igor Olenicoff for a recovery of $3 million in litigation costs stemming from Olenicoff's suit against UBS for damages partly stemming from his tax evasion (and partly from bad financial management, like churning).

Lexis' Law 360 reported in 2012

Olenicoff was sentenced to two years probation and ordered to pay $52 million in back taxes, fines and other penalties after pleading guilty in October 2007 to felony tax fraud for knowingly filing false tax returns that did not disclose his offshore accounts.  He sued UBS in 2008 claiming that the bank mismanaged his accounts and provided bad tax advice that led to his guilty plea, costing him up to $1.7 billion in damages.

excerpts from 2012 Summary Judgement of Olenicoff v UBS et al 

The old maxim, “two wrongs do not make a right,” aptly fits this case. Here, Plaintiff Igor Olenicoff (“Olenicoff”) plead guilty to knowingly and willfully failing to disclose off-shore accounts on his tax returns. Defendant UBS AG (“UBS”) also plead guilty to tax fraud. Their crime was helping U.S. clients hide from the IRS up to $20 billion in off-shore assets. UBS’ admission of guilt does not give Olenicoff the right to sue UBS for fraudulent tax advice.

Even assuming that UBS gave Olenicoff fraudulent tax advice, that makes UBS a co-conspirator, not a defendant in this litigation. Olenicoff has already sworn that he was not an innocent dupe. He even received a sentence reduction for assuming responsibility for his tax fraud. It is directly inconsistent for him to now claim that he unwittingly relied on UBS’ counsel. If Olenicoff wanted to claim he was misled by UBS, he had the option of pleading not guilty in the criminal proceedings. He plead guilty instead. Thus, his tax evasion claims against UBS are now barred. Olenicoff may not avoid the consequences of his own plea by getting UBS to indemnify him for his criminal acts.

Conclusion of Case (July 23, 2015)

Tax Analysts reports that Olenicoff received a favorable bench ruling in the Superior Court of California on July 23 on his "unclean hands" defense to UBS & Birkenfeld's suit for recovery of litigation costs. 2015 TNT 146-8 UBS, BIRKENFELD BARRED FROM PROCEEDING AGAINST OLENICOFF. (July 29, 2015).

--- hat tip from Howard Fisher --- keep the hat tips coming subscribers!

 

July 31, 2015 | Permalink | Comments (0)

Thursday, July 30, 2015

Jack Manhire Leaves IRS & Treasury To Join Texas A&M Law School

Dr. John T. (“Jack”) Manhire, Jr., former Chief of Legal Analysis for the IRS Office of Professional Treasury-Dept.-Seal-of-the-IRS
Responsibility and National Program Chair, Executive Education for the U.S. Treasury Executive Institute, has accepted a position as Director of Program Development at Texas A&M University School of Law.

read about Dr. Jack Manhire departure from Treasury at Professor Paul's Caron Tax Prof Blog

Last month Texas A & M announced that William H. Byrnes, IV, (co-editor of our International Financial Law Prof Blog) left Thomas Jefferson Law School and joined the faculty of Texas A&M Law.

Including Dr. Manhire and the new University President, Dr. Michael Young, Texas A&M Law has hired 13 significant hires for 2015, and two significant faculty visitors for Spring 2016 through the Texas A&M Institute of Advanced Studies.

For 2016, the law school is seeking to hire several more equally distinguished law professors.  See he previous post  Texas A&M University School of Law 2016-17 Faculty Recruitment Areas of Interest

July 30, 2015 | Permalink | Comments (0)

Like Elliot Ness, the IRS Always Gets Its Man - 20 Years Later Tax Cheat Apprehended Overseas Using Alias

Irs_logo

A former New York businessman, Gideon Misulovin, 58, who disappeared the same day a federal jury sitting in the U.S. whose last known address was in New York City, was extradited from Greece to the United States to serve his 10-year prison sentence.    In August 2014, based on an Interpol Red Notice, Misulovin was detained in a Greek airport using an alias and traveling with an Israeli passport.  He was subsequently arrested pursuant to a U.S. request for a provisional arrest, and after contested extradition proceedings, was found extraditable in 2015.  

On March 7, 1996, a jury convicted Misulovin of conspiracy to impede and impair the Internal Revenue Service (IRS) in the ascertainment and collection of more than $6.5 million in federal motor fuel excise taxes, wire fraud and money laundering stemming from a scheme to conceal the unpaid diesel fuel excise taxes from state and federal tax authorities.

During trial, Misulovin was free on $500,000 bail and attended each day of the trial.  He failed to appear in court March 4, 1996, for the parties’ closing arguments.  U.S. Senior District Judge Dickinson R. Debevoise of the District of New Jersey in Newark issued a warrant for his arrest.  On June 25, 1997, Judge Debevoise sentenced Misulovin in absentia to serve 10 years in prison and a three-year term of supervised release, and to pay a $150,000 fine.  The court also ordered Misulovin to pay restitution in the amount of $200,000 to the United States and $100,000 to the state of New Jersey.

The evidence at trial established that from 1988 through Jan. 31, 1993, Misulovin and his co-conspirators sold untaxed diesel fuel in a series of paper transactions using wholesale companies.  Some of the companies were shams and called “burn” or “butterfly” companies.  As part of the scheme, the sham company would assume the federal and state tax liability and then vanish, allowing the conspirators to keep the excise taxes they collected from truck stops and service stations.

The case, part of a then-nationwide motor fuel excise tax enforcement effort, was investigated jointly by the Motor Fuel Task Force and the U.S. Attorney’s Office of the District of New Jersey.  In an effort to infiltrate the bootleg gasoline industry, task force agents set up an undercover business called RLJ Management that competed directly with the defendants’ operation.

At the conclusion of the undercover operation, in November 1992, federal agents seized Misulovin’s assets, including approximately $70,000 in cash from his residence and $277,000 from his business bank account. 

Misulovin’s co-defendant and co-conspirator, Arnold Zeidenfeld, of Brooklyn, New York, pleaded guilty prior to trial and testified for the government.  Gurmit Singh and Manbir Singh, of Matawan, New Jersey, who operated truck stops in southern New Jersey, also pleaded guilty for their roles in the scheme.

 

July 30, 2015 | Permalink | Comments (0)

Wednesday, July 29, 2015

FTC Announcement Against Romance and Work-At-Home Scams

You hear from us fairly often about imposter scams. In recent months, we’ve told you about IRS
imposters
, romance scams, and work-at-home scams. We always give you tips on how to spot and Ftc_logo_430avoid these scams. We tell you about the cases we’ve brought to shut down the scammers. But, as a civil law enforcement agency, we don’t often get to tell you about the criminal charges brought against the scammers. Until today.

The Department of Justice (DOJ) recently announced the extradition of six Nigerian nationals from South Africa to Mississippi to face a nine-count federal indictment for various Internet frauds. These six people join 15 others who were previously charged with, among other things, conspiracy to commit mail fraud, wire fraud, bank fraud, identity theft, and money laundering.

What were the scams? According to the indictment, the defendants found and reached out to their potential victims through online dating websites and work-at-home opportunities. In some cases, they carried on so-called romantic relationships with their targets, trying to get their victims to do things like re-ship merchandise purchased with stolen credit cards, deposit counterfeit checks, and send money to the defendants – whether via wiring money or sending prepaid debit cards.

Here’s where you come in. If you know someone who lost money or information to romance, reshipping, fake check, or work-at-home scammers, please tell them to visit DOJ’s announcement. Why? Because there’s a list of aliases and email addresses that the defendants allegedly used in carrying out these scams. If you recognize a name or email address, you could help in the investigation of these crimes.

It’s not every day you get to help lock up alleged bad guys. Unless, of course, you work at the Department of Justice, the US Postal Inspection Service, or Homeland Security Investigations – all of which had a hand in this case. Please check out the list and see if you might have information to share with the investigators.

July 29, 2015 | Permalink | Comments (0)

How Judges Decide Directors' Liability: A Jurimetrics Research

Abstract:  This paper examines how judges make decisions in the complex and unstructured legal SSRNdomain of directors’ liability. The research results show that in spite of the complex legal environment, courts’ decisions are highly consistent. This paper is the first to provide a log-linear multiple regression model for predicting directors’ liability under Dutch company law based on case factors.

 

Thy Pham, Eramus School of Law

Number of Pages in PDF File: 41

July 29, 2015 | Permalink | Comments (0)

Tuesday, July 28, 2015

Prof. Jeffery Kadet: Attack Profit Shifting - The Approach Everyone Forgets

Attacking Profit Shifting by Prof. Jeffery Kadet - In recent years the financial press has turned Jeffrey-M-Kadet-244x300increasing attention to MNCs that shift income to low taxed jurisdictions overseas in order to avoid US taxation. What’s generally missing from these discussions is any serious focus on possible IRS attacks on these companies, most of which are CFCs. There’s little apparent concern by anyone that the IRS will try to disallow the profit-shifting structures that have moved so much taxable income out of the US and other countries and into low-taxed foreign jurisdictions.
 
This is changing. Early this year Caterpillar Inc. in an SEC filing disclosed that the IRS had issued a Revenue Agent’s Report to currently tax certain income earned by one of its Swiss entities. Presumably this is income earned as a result of a certain restructuring conducted in the late 1990s and referred to as the Swiss Tax Strategy when examined in 2014 in hearings held by the Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations (PSI). 

The IRS basis for its RAR, as disclosed by Caterpillar, is application of the ‘substance-over-form’ or ‘assignment-of-income’ judicial doctrines. This, however, is not the only approach that the IRS might have chosen to impose taxation on the shifted profits.

Various Congressional hearing documents, the work of investigative journalists, and other sources (all publicly available) provide evidence that the businesses within some profit-shifting structures continue to be managed and substantially conducted from the U.S. and not from any business locations outside the U.S. Where this is the case, the IRS may have a strong case for imposing direct taxation on the effectively connected income (ECI) of these low-taxed foreign subsidiaries.

Just the threat of imposing direct taxation may cause many MNCs to consider scaling back their profit shifting and for them and their outside auditors to start worrying about exposure on prior years. If the IRS were to sustain such direct taxation, it would mean: 

·      The regular up-to-35% corporate tax,
·      The ‘branch profits tax’ applied at a flat 30% rate (unless lower by treaty),
·      A loss of deductions and credits for any tax year if the foreign corporation has not filed Form 1120-F for that year, and
·      An open statute of limitations on IRS assessment of tax for any tax year if the foreign corporation has never filed a US tax return on Form 1120-F for that year.
 
The combined effect of the above is a 54.5% or higher effective tax rate (lower if tax treaty coverage reduces the 30% branch profits tax rate).

Considering these terribly high effective tax rate percentages, where the IRS chooses to examine for possible ECI and develops a credible case, they can use the high effective tax rate as strong leverage to secure agreement for reversal of profit shifting structures. Such agreements would presumably see MNCs agreeing to current taxation within U.S. group members of the shifted profits that had originally been booked in low-taxed foreign subsidiaries.

To demonstrate how significant ECI likely exists within many MNCs that have conducted profit-shifting planning, this article includes a number of realistic examples inspired by the above-mentioned publicly available information on MNC profit-shifting structures.

Recognizing that it can sometimes be a challenge to apply the very old existing regulations to current business models, the article strongly encourages Treasury to prioritize the issuance of modernized income sourcing and ECI regulations that reflect the business models and structures now commonly used and that are often found in profit-shifting structures.

SSRN - Attacking Profit Shifting by Prof. Jeffery Kadet

July 28, 2015 | Permalink | Comments (0)

Cynthia Bond's "Popular Culture in the Classroom" Survey

Greetings Law Teacher Colleagues:

I am working on an article this summer on uses of popular culture in the law school classroom.  I am defining popular culture broadly to include mass culture texts like movies, TV shows, popular music, images which circulate on the internet, etc, and also any current events that you may reference in the classroom which are not purely legal in nature (i.e. not simply a recent court decision).

To support this article, I am doing a rather unscientific survey to get a sense of what law professors are doing in this area.  If you are a law professor and you use popular culture in your class, I would be most grateful if you could answer this quick, anonymous survey I have put together:

https://www.surveymonkey.com/s/QH3GBZK

Thanks in advance for your time and have a wonderful rest of summer!

Cynthia Bond

The John Marshall Law School

Chicago, IL

July 28, 2015 | Permalink | Comments (0)

Monday, July 27, 2015

What Regulatory Competition Can Teach About Tax Competition

Tax competition is usually portrayed as a competition over rates.

Critics argue that such competition leads inevitably to a “race to the bottom,” with the result of OECDreducing tax rates and revenue everywhere. They also decry “secrecy” jurisdictions that allow owners of entities to conceal their identities, suggesting that the only reasons for confidentiality can be to cheat tax authorities somewhere out of their due.

But as anyone who has ever filled out a tax return knows, tax rates are just one facet of tax competition. Jurisdictions can compete over a wide range of tax system attributes – all the way from the complexity of the system to special provisions designed to advantage particular forms of investment to general depreciation rules.

Lower rates can attract taxpayers, but allowing more rapid depreciation of capital investment might trump lowering rates for capital-intensive industries, while an honest and efficient revenue agency may matter more than nominal rates for total revenue collections.

Read this article at Competing For Captives: What Regulatory Competition Can Teach About Tax Competition  by authors Dr. Andrew P. Morriss, Dean & Anthony G. Buzbee Dean’s Endowed Chairholder, Texas A&M University School of Law; and Drew Estes, a JD/MBA Candidate, Class of 2016, University of Alabama.

July 27, 2015 | Permalink | Comments (0)

22 Primary Dealer Class Action by Pension Fund for Collusion in Treasuries Pricing

Reuters reports that the State-Boston Retirement System, the pension fund for Boston public Federal_Reserveemployees, sued 22 banks that have been the primary dealer for US Treasuries.  The retirement system discovered that the primary dealers, otherwise known as the market makers, were colluding for years to inflate the price of treasuries paid by dealers' customers, and deflate the price when customers sought to sell.   Basically, the primary dealers took a "pay to play" attitude over and above their normal fees with their customers, because the primary market is closed access but for these dealers.

How did the retirement system stumble upon this discovery?  According to Reuters

The pension fund said its "expert economists" observed wide gaps between when-issued and auction prices around December 2012, but that these gaps narrowed significantly as the U.S. Department of Justice and other regulators began probing alleged manipulation of the London interbank offered rate, a benchmark used to set interest rates for trillions of dollars worth of loans around the world.

Read Reuters full story here.

July 27, 2015 | Permalink | Comments (0)

Citigroup to Close Banamex for Money Laundering Violation, Pay $180 Million in Fines

The Federal Deposit Insurance Corporation (FDIC) announced the assessment of a civil money penalty of $140 million against Banamex USA, Century City, California, for violations of the Bank Secrecy Act (BSA) and anti-money laundering (AML) laws and regulations.

In a concurrent action, the California Department of Business Oversight (CDBO) assessed a civil money penalty of $40 million. The FDIC's penalty of $140 million will be satisfied in part by the CDBO's penalty. The FDIC's penalty will be paid to the United States Department of the Treasury.

In taking this action, the FDIC determined that the bank failed to implement an effective BSA/AML 640px-FdicLogoCompliance Program over an extended period of time. The institution failed to retain a qualified and knowledgeable BSA officer and sufficient staff, maintain adequate internal controls reasonably designed to detect and report illicit financial transactions and other suspicious activities, provide sufficient BSA training, and conduct effective independent testing.

Attachment: Joint Order to Pay Civil Money Penalty

July 27, 2015 | Permalink | Comments (0)

Sunday, July 26, 2015

FinCEN Advisory on the FATF-Identified Jurisdictions with AML/CFT Deficiencies

FinCEN Issues Advisory on the FATF-Identified Jurisdictions with AML/CFT Deficiencies

The Financial Crimes Enforcement Network (FinCEN) today issued an advisory to financial FATF logoinstitutions regarding the Financial Action Task Force’s (FATF) updated list of jurisdictions with strategic anti-money laundering/counter-terrorist financing (AML/CFT) deficiencies. These changes may affect U.S. financial institutions’ obligations and risk-based approaches regarding relevant jurisdictions. A summary of the changes to the FATF lists follows: 

  •  Indonesia has been removed from the FATF listing and monitoring process.
  •  Ecuador has been removed from the “FATF Public Statement” and included in FATF’s “Improving Global AML/CFT Compliance: On-going Process” document.
  •  Bosnia and Herzegovina has been added to FATF’s “Improving Global AML/CFT Compliance: On-going Process” document.

FinCEN’s advisory can be viewed at http://www.fincen.gov/statutes_regs/guidance/pdf/FIN-2015-A002.pdf

July 26, 2015 | Permalink | Comments (0)

Saturday, July 25, 2015

Investment Treaties and Shareholder Claims for Reflective Loss: Insights from Advanced Systems of Corporate Law

David Gaukrodger, Investment Division, OECD

Abstract:  Corporate law in advanced domestic legal systems on the one hand, and typical treaties SSRNfor the protection of foreign investment on the other hand, treat claims for damages by company shareholders differently. Advanced domestic systems generally bar shareholders from claiming for reflective loss – loss that arises from injury to "their" company (such as a decline in the value of shares).

The claim for the loss belongs to the injured company and not to its shareholders. In contrast, shareholder claims for reflective loss have been widely permitted under typical investment treaties over the last 10 years. Ongoing OECD-hosted inter-governmental dialogue on investment law is considering whether there are policy reasons justifying the different approaches to shareholder claims for reflective loss. 

This paper examines shareholder claims for reflective loss under investment treaties in light of comparative analysis of advanced systems of corporate law. It considers the impact of allowing shareholder claims for reflective loss on key characteristics of the business corporation. It also explores possible responses by different categories of investors to the availability of shareholder claims for reflective loss under investment treaties. The paper has been discussed by governments participating in an OECD-hosted investment roundtable.

Number of Pages in PDF File: 33

July 25, 2015 | Permalink | Comments (0)

Friday, July 24, 2015

U.S. Seeks to Recover $12.5 Million Obtained from High-Level Corruption in the Philippines

The Department of Justice filed a civil forfeiture complaint seeking to recover approximately Justice logo$12.5 million in assets found in the United States that derive from bribery and kickback schemes in the Philippines spanning nearly a decade.

“Over nearly a decade, Janet Napoles allegedly stole millions of dollars in funds entrusted to her for development assistance and disaster relief for the people of the Philippines,” said Assistant Attorney General Caldwell.  “In an effort to disguise and enjoy her ill-gotten gains, Napoles purchased properties and other assets in the United States for herself and her family members, including a condominium at the Ritz and a Porsche.  The Justice Department will not allow the United States to become a playground for the corrupt or a place to hide and invest stolen riches.”

As alleged in the complaint, from approximately 2004 to 2012, Philippine businesswoman Janet Napoles, 51, paid tens of millions of dollars in bribes and kickbacks to Philippine politicians and other government officials in exchange for over $200 million in funding for purported development assistance and disaster relief. 

Napoles’ non-governmental organizations (NGOs), however, then either failed to provide, or under-delivered on, the promised support.  The complaint further alleges that Napoles also diverted NGO funds for her own personal use and benefit, often draining accounts within days of government disbursements.  For this conduct, the Philippines’ Office of the Ombudsman has charged Napoles, two of her children and numerous current and former Philippine politicians and other government officials in connection with what has been nicknamed the “pork barrel scam.”

The complaint alleges that Napoles transferred over $12 million in Philippine government-awarded funds to bank accounts in the United States in the names of, or controlled by, her family members.  According the complaint, Napoles used the money to purchase numerous assets, including a condominium at the Ritz-Carlton in Los Angeles for her 21-year-old daughter.  The complaint seeks to forfeit the proceeds from the sale of the Los Angeles condominium, along with several other assets, including a motel near Disneyland in Anaheim, California; properties in Covina and Irvine, California; a 19 percent stake in a California-based consulting company; and a Porsche Boxster that was purchased for another daughter.

Napoles is currently serving a sentence of life in prison in the Philippines for her role in the kidnapping and detention of her cousin, Benhur Luy, who served as Napoles’s finance officer and tracked her schemes.

Napoles Complaint

July 24, 2015 | Permalink | Comments (0)

FinCEN Cuts FBME Bank from Access to U.S. Financial System

The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) yesterday issued a final rule, pursuant to Section 311 of the USA PATRIOT Act, which imposes “special FINCENmeasure five” against FBME Bank Ltd. (FBME), formerly known as the Federal Bank of the Middle East. Special measure five prohibits U.S. financial institutions from opening or maintaining correspondent accounts or payable through accounts for or on behalf of FBME.

What is FBME bank?

FBME was established in 1982 in Cyprus as the Federal Bank of the Middle East, Ltd., a subsidiary of the private Lebanese bank, Federal Bank of Lebanon. Both FBME and the Federal Bank of Lebanon are owned by Ayoub-Farid M. Saab and Fadi M. Saab.

Who regulates FBME bank?

FBME, via its Cypriot branches, are licensed and regulated by the Cyprus Central Bank.  According to a Wall Street Journal report of March 4, 2013, FBME acquired €240 million of Cypriot government junk bonds at the height of the 2011 Cypriot financial crisis, representing 13% of FBME's balance sheet.  In 2012, on the day of Parliament's announcement of the Cyprus financial system bailout WJS noted, FBME coincidently moved its headquarters to Cyprus and applied for a full banking license that would allow it EU wide distribution.

18 months later, in November 2013, the Cyprus Central Bank stated that FBME may be subject to sanctions and a fine of up to €240 million for alleged violations of Cypriot capital controls put in place with the bailout.  

On July 18, the Cyprus Central Bank took control of FMBE's Cypriot branch operations.   FMBE responded that it welcomed this takeover by its regulator that FBME may clear itself from the allegations of facilitating money laundering.   For a detailed look at Cyprus AML controls, see Special Assessment of the Effectiveness of Customer Due Diligence Measures in the Banking Sector in Cyprus of April 24, 2013.

What money laundering activities are FBME accused of facilitating?

FINCEN alleges that in just the year from April 2013 through April 2014, FBME conducted at least $387 million in wire transfers through the U.S. financial system that exhibited indicators of high-risk money laundering typologies, including widespread shell company activity, short-term “surge” wire activity, structuring, and high-risk business customers.  FBME was involved in at least 4,500 suspicious wire transfers through U.S. correspondent accounts that totaled at least $875 million between November 2006 and March 2013.

FINCEN alleges:

  • In 2008, an FBME customer received a deposit of hundreds of thousands of dollars from a financier for Lebanese Hezbollah.
  • As of 2008, a financial advisor for a major transnational organized crime figure who banked entirely at FBME in Cyprus maintained a relationship with the owners of FBME.
  • FBME facilitated transactions for entities that perpetrate fraud and cybercrime against victims from around the world, including in the United States. For example, in 2009, FBME facilitated the transfer of over $100,000 to an FBME account involved in a High Yield Investment Program (“HYIP”) fraud against a U.S. person.
  • In September 5 2010, FBME facilitated the unauthorized transfer of over $100,000 to an FBME account from a Michigan-based company that was the victim of a phishing attack.
  • Since at least early 2011, the head of an international narcotics trafficking and money laundering network has used shell companies’ accounts at FBME to engage in financial activity.
  • Several FBME accounts have been the recipients of the proceeds of cybercriminal activity against U.S. victims. For example, in October 2012, an FBME account holder operating as a shell company was the intended beneficiary of over $600,000 in wire transfers generated from a fraud scheme, the majority of which came from a victim in California.
  • FBME facilitates U.S. sanctions evasion through its extensive customer base of shell companies. For example, at least one FBME customer is a front company for a U.S.-sanctioned Syrian entity, the Scientific Studies and Research Center (“SSRC”), which has been designated as a proliferator of weapons of mass destruction

What is FMBE's response to FINCEN's allegations?

FMBE, denying the FINCEN allegations, responded

FBME Bank commissioned a detailed assessment by the German office of a leading international accountancy firm into its operations and practices, which found that the Bank’s services are indeed in compliance with applicable AML rules of the Central Bank of Cyprus and the European Union.

FBME Bank welcomes the involvement of its regulator, is cooperating fully with it and reiterates its absolute continued commitment to full compliance with applicable laws and regulations.

FBME Bank continues to comply with European Capital Adequacy and Liquidity Standards and other healthy balance sheet ratios.

If FBME makes available its AML "assessment of the leading international accountancy firm", then I will post a follow up to this unfolding story with a link to that assessment.

What did FINCEN previously announce about FBME?

Director Jennifer Shasky Calvery stated in FINCEN's July 17, 2014 announcement:

“FBME promotes itself on the basis of its weak Anti-Money Laundering (AML) controls in order to attract illicit finance business from the darkest corners of the criminal underworld.” ... “Unfortunately, this business plan has been far too successful. But today’s action, effectively shutting FBME off from the U.S. financial system, is a necessary step to disrupt the bank’s efforts and send the message that the United States will not stand by while financial institutions help those who intend to harm or threaten Americans.”

In its Notice of Finding, FINCEN stated "FBME is used by its customers to facilitate money laundering, terrorist financing, transnational organized crime, fraud, sanctions evasion, and other illicit activity internationally and through the U.S. financial system."

FINCEN Proposed Shutting FBME Out of US Financial System

In its Notice of Proposed Rulemaking, FINCEN stated that it intended to impose the fifth, special measure allowed by Section 311 of the USA PATRIOT Act (“Section 311”).  FINCEN's Director has the authority, upon finding that reasonable grounds exist for concluding that a foreign jurisdiction, institution, class of transaction, or type of account is of “primary money laundering concern,” to require domestic financial institutions and financial agencies to take certain “special measures” to address the primary money laundering concern.

The fifth special measure prohibits covered financial institutions from opening or maintaining correspondent accounts for or on behalf of FBME  Currently, only one U.S. covered financial institution maintains an account for FBME (FBME lists three U.S. correspondent relationships on its website).  FINCEN's fifth measure entails as follows:

Covered financial institutions also would be required to take reasonable steps to apply special due diligence .. to all of their correspondent accounts to help ensure that no such account is being used to provide services to FBME.  For direct correspondent relationships, this would involve a minimal burden in transmitting a one-time notice to certain foreign correspondent account holders concerning the prohibition on processing transactions involving FBME through the U.S. correspondent account.

U.S. financial institutions generally apply some level of screening and, when required, conduct some level of reporting of their transactions and accounts, often through the use of commercially-available software such as that used for compliance with the economic sanctions programs administered by the Office of Foreign Assets Control (“OFAC”) of the Department of the Treasury and to detect potential suspicious activity.  To ensure that U.S. financial institutions are not being used unwittingly to process payments for or on behalf of FBME, directly or indirectly, some additional burden will be incurred by U.S. financial institutions to be vigilant in their suspicious activity monitoring procedures. ...

A covered financial institution may satisfy the notification requirement by transmitting the following notice to its foreign correspondent account holders that it knows or has reason to know provide services to FBME:

Notice: Pursuant to U.S. regulations issued under Section 311 of the USA PATRIOT Act, see 31 CFR 1010.661, we are prohibited from establishing, maintaining, administering, or managing a correspondent account for or on behalf of FBME Bank Ltd. The regulations also require us to notify you that you may not provide FBME Bank Ltd. or any of its subsidiaries with access to the correspondent account you hold at our financial institution. If we become aware that the correspondent account you hold at our financial institution has processed any transactions involving FBME Bank Ltd. or any of its subsidiaries, we will be required to take appropriate steps to prevent such access, including terminating your account.

The special due diligence would also include implementing risk-based procedures designed to identify any use of correspondent accounts to process transactions involving FBME. A covered financial institution would be expected to apply an appropriate screening mechanism to identify a funds transfer order that on its face listed FBME as the financial institution of the originator or beneficiary, or otherwise referenced FBME in a manner detectable under the financial institution’s normal screening mechanisms. An appropriate screening mechanism could be the mechanism used by a covered financial institution to comply with various legal requirements, such as the commercially available software programs used to comply with the economic sanctions programs administered by OFAC.

A covered financial institution would also be required to implement risk-based procedures to identify indirect use of its correspondent accounts, including through methods used to hide the beneficial owner of a transaction. Specifically, FinCEN is concerned that FBME may attempt to disguise its transactions by relying on types of payments and accounts that would not explicitly identify FBME as an involved party. A financial institution may develop a suspicion of such misuse based on other information in its possession, patterns of transactions, or any other method available to it based on its existing systems. Under the proposed rule, a covered financial institution that suspects or has reason to suspect use of a correspondent account to process transactions involving FBME must take all appropriate steps to attempt to verify and prevent such use, ...

23 July 2015 News Release: http://www.fincen.gov/news_room/other/pdf/20150723.pdf

Final Rule: http://www.fincen.gov/statutes_regs/patriot/pdf/FBMEFinalRule20150723.pdf

 

 

July 24, 2015 | Permalink | Comments (0)

Thursday, July 23, 2015

Texas A&M University School of Law 2016-17 Faculty Recruitment Areas of Interest

In 2015, Texas A&M University School of Law hired 11 new faculty members (12 if counting Texas A&M University's new President, Dr. Michael Young, who is a member of the law faculty).  Below is Texas A&M Law's announcement for faculty recruitment for the 2016-17 academic year.

TEXAS A&M UNIVERSITY SCHOOL OF LAW seeks to expand its academic program and its strong commitment to scholarship by hiring multiple exceptional faculty candidates for tenure-track or tenured positions, with rank dependent on qualifications and experience.  Candidates must have a J.D. degree or its equivalent.  Preference will be given to those with demonstrated outstanding scholarly achievement and strong classroom teaching skills.  Successful candidates will be expected to teach and engage in research and service.  While the law school welcomes applications in all subject areas, it particularly invites applications from:

1)    Candidates who are interested in building synergies with Texas A&M University’s Mays Business School, with an emphasis on scholars engaged in international business law who focus on cross-border transactions, trade, and economic law (finance, investments, dispute resolution, etc.);

2)    Candidates who are interested in building synergies with the broad mission of Texas A&M University’s College of Agricultural and Life Sciences, which include but are not limited to scholars engaged in agricultural law (including regulatory issues surrounding agriculture), rural law, community development law, food law, ecosystem sciences, and forensic evidence; and

3)    Visionary leaders in experiential education interested in guiding our existing Intellectual Property and Technology Law Clinic (with concentrations in both trademarks and patents), Entrepreneurship Law Clinic, Family Law and Benefits Clinic, Employment Mediation Clinic, Wills & Estates Clinic, Innocence Clinic, Externship Program, Equal Justice/Pro Bono Program, and Advocacy Program, with a particular emphasis on candidates who may have an interest in participating in our Intellectual Property and Technology Law Clinic or developing an Immigration Law Clinic.

Texas A&M University is a tier one research institution and American Association of Universities member.  The university consists of 16 colleges and schools that collectively rank among the top 20 higher education institutions nationwide in terms of research and development expenditures.  As part of its commitment to continue building on its tradition of excellence in scholarship, teaching, and public service, Texas A&M acquired the law school from Texas Wesleyan University in August of 2013.  Since that time, the law school has embarked on a program of investment that increased its entering class credentials and financial aid budgets, while shrinking the class size; hired eleven new faculty members, including nine prominent lateral hires; improved its physical facility; and substantially increased its career services, admissions, and student services staff. 

Texas A&M School of Law is located in the heart of downtown Fort Worth, one of the largest and fastest growing cities in the country.  The Fort Worth/Dallas area, with a total population in excess of six million people, offers a low cost of living, a strong economy, and access to world-class museums, restaurants, entertainment, and outdoor activities.

As an Equal Opportunity Employer, Texas A&M welcomes applications from a broad spectrum of qualified individuals who will enhance the rich diversity of the university’s academic community. Applicants should email a résumé and cover letter indicating research and teaching interests to Professor Timothy Mulvaney, Chair of the Faculty Appointments Committee, at appointments@law.tamu.edu.  Alternatively, résumés can be mailed to Professor Mulvaney at Texas A&M University School of Law, 1515 Commerce Street, Fort Worth, Texas 76102-6509.

July 23, 2015 | Permalink | Comments (2)

Individual Retirement Arrangements (IRA) Education and Taxpayers Notification Improvements Necessary for Compliance With Required Minimum Distribution (RMD)

IMPACT ON TAXPAYERS

Individual Retirement Arrangements (IRA) are a key method for individuals to save for retirement.  TigtasealSome types of IRAs require taxpayers to begin withdrawing a minimum amount when they reach age 70½.  When taxpayers do not make these withdrawals, there is a loss of revenue to the Government because taxpayers are sheltering IRA funds from taxation.

WHY TIGTA DID THE AUDIT

As a result of previous audits, TIGTA recommended that the IRS develop a strategy to address retirement provision noncompliance.  In addition, there is congressional interest in educating taxpayers with respect to IRA provisions and not unreasonably penalizing them for innocent mistakes.  The overall objective of this audit was to determine whether IRS processes provide reasonable assurance that taxpayers are complying with provisions for taking required minimum distributions from their IRAs. 

WHAT TIGTA FOUND

In response to prior TIGTA recommendations, the IRS developed a broad-based strategy that focuses on educating tax preparers and individuals about IRA rules and notifying potentially noncompliant taxpayers of the minimum distribution requirement.  This is a significant improvement from our prior reporting.  However, the IRS could also take steps to improve its strategy.

As part of its strategy, the IRS developed educational materials for taxpayers and tax preparers.  However, TIGTA believes taxpayers required to take distributions could benefit from more direct methods of communication.  For example, informing taxpayers when they reach the age of 70½ that they are required to take a distribution could raise awareness and prevent significant penalties associated with noncompliance.

As part of its strategy, the IRS also sent notices to nearly 1,500 potentially noncompliant taxpayers.  The IRS is still in the process of evaluating the results of the sample of notices it distributed.  If the IRS expands its notice program, TIGTA found that the IRS could enhance the methodology it uses and identify substantially more potentially noncompliant taxpayers.  Expanding the number of taxpayers notified could increase revenue to the Federal Government.

WHAT TIGTA RECOMMENDED

TIGTA recommended that, when evaluating the IRA strategy going forward, the Commissioner, Wage and Investment Division, should consider 1) directly communicating with taxpayers required to take a distribution and informing them about the distribution rules using easily understood language and 2) if the notice program is expanded, modifying the methodology for the required minimum distribution notices to identify additional noncompliant individuals.

In its response, the IRS partially agreed with the first recommendation and agreed with the second recommendation.  The IRS stated that it recently added small business IRAs to its sample notice population.  However, due to budget limitations, the IRS is not expanding its use of notices.  In addition, the IRS agreed that direct communication with taxpayers reaching the age of 70½ would be helpful, but it is not implementing this program due to budget constraints.  The IRS did not agree to inform estates of distribution rules associated with IRA inheritances.  TIGTA continues to believe it would be beneficial to inform estates of inherited distribution requirements.

full TIGTA report

July 23, 2015 | Permalink | Comments (0)

Wednesday, July 22, 2015

Why Does FTC Allege LifeLock's Online Identity Protection Is A Scam Against Consumers?

FTC Asserts LifeLock Failed to Institute Security Program And Misled Consumers About Its Identity Protection Services - see cases filed here

The Federal Trade Commission asserted that LifeLock violated a 2010 settlement with the agency and 35 state attorneys general by continuing to make deceptive claims about its identity theft protection services, and by failing to take steps required to protect its users’ data.

In documents filed with the U.S. District Court for the District of Arizona, the FTC charged that Ftc_logo_430LifeLock failed to live up to its obligations under the 2010 settlement, whereby it paid a $12 million penalty, and asked the court to impose an order requiring LifeLock to provide full redress to all consumers affected by the company’s order violations.

“It is essential that companies live up to their obligations under orders obtained by the FTC,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “If a company continues with practices that violate orders and harm consumers, we will act.”

The 2010 settlement stemmed from previous FTC allegations that LifeLock used false claims to promote its identity theft protection services. The settlement barred the company and its principals from making any further deceptive claims; required LifeLock to take more stringent measures to safeguard the personal information it collects from customers; and required LifeLock to pay $12 million for consumer refunds.

The FTC charged today that in spite of these promises, from at least October 2012 through March 2014, LifeLock violated the 2010 Order by: 1) failing to establish and maintain a comprehensive information security program to protect its users’ sensitive personal data, including credit card, social security, and bank account numbers; 2) falsely advertising that it protected consumers’ sensitive data with the same high-level safeguards as financial institutions; and 3) failing to meet the 2010 order’s record keeping requirements.

The FTC also asserts that from at least January 2012 through December 2014, LifeLock falsely claimed it protected consumers’ identity 24/7/365 by providing alerts “as soon as” it received any indication there was a problem.

Details of the FTC’s action against the company were filed under seal. The court will determine which portions of the case will be unsealed.

Previous $12 Million Penalty 

In 2010, LifeLock, Inc. agreed to pay $11 million to the Federal Trade Commission and $1 million to a group of 35 state attorneys general to settle charges that the company used false claims to promote its identity theft protection services, which it widely advertised by displaying the CEO’s Social Security number on the side of a truck.  See FTC Press Release here - 

In one of the largest FTC-state coordinated settlements on record, LifeLock and its principals are barred from making deceptive claims and required to take more stringent measures to safeguard the personal information they collect from customers.

“While LifeLock promised consumers complete protection against all types of identity theft, in truth, the protection it actually provided left enough holes that you could drive a truck through it,” said FTC Chairman Jon Leibowitz.

“This agreement effectively prevents LifeLock from misrepresenting that its services offer absolute prevention against identity theft because there is unfortunately no foolproof way to avoid ID theft,” Illinois Attorney General Lisa Madigan said. “Consumers can take definitive steps to minimize the chances of having their personal information stolen, and this settlement will help them make more informed decisions about whether to enroll in ID theft protection services.”

Since 2006, LifeLock’s ads have claimed that it could prevent identity theft for consumers willing to sign up for its $10-a-month service.

According to the FTC’s complaint, LifeLock has claimed:

  • “By now you’ve heard about individuals whose identities have been stolen by identity thieves . . . LifeLock protects against this ever happening to you. Guaranteed.”
  • “Please know that we are the first company to prevent identity theft from occurring.”
  • “Do you ever worry about identity theft? If so, it’s time you got to know LifeLock. We work to stop identity theft before it happens.”

The FTC’s complaint charged that the fraud alerts that LifeLock placed on customers’ credit files protected only against certain forms of identity theft and gave them no protection against the misuse of existing accounts, the most common type of identity theft. It also allegedly provided no protection against medical identity theft or employment identity theft, in which thieves use personal information to get medical care or apply for jobs. And even for types of identity theft for which fraud alerts are most effective, they do not provide absolute protection. They alert creditors opening new accounts to take reasonable measures to verify that the individual applying for credit actually is who he or she claims to be, but in some instances, identity thieves can thwart even reasonable precautions.

New account fraud, the type of identity theft for which fraud alerts are most effective, comprised only 17 percent of identity theft incidents, according to an FTC survey released in 2007.

The FTC’s complaint further alleged that LifeLock also claimed that it would prevent unauthorized changes to customers’ address information, that it constantly monitored activity on customer credit reports, and that it would ensure that a customer always would receive a telephone call from a potential creditor before a new account was opened. The FTC charged that those claims were false.

In addition to its deceptive identity theft protection claims, LifeLock allegedly made claims about its own data security that were not true. According to the FTC, LifeLock routinely collected sensitive information from its customers, including their social security numbers and credit card numbers. The company claimed:

  • “Only authorized employees of LifeLock will have access to the data that you provide to us, and that access is granted only on a ‘need to know’ basis.”
  • “All stored personal data is electronically encrypted.”
  • “LifeLock uses highly secure physical, electronic, and managerial procedures to safeguard the confidentiality and security of the data you provide to us.”

The FTC charged that LifeLock’s data was not encrypted, and sensitive consumer information was not shared only on a “need to know” basis. In fact, the agency charged, the company’s data system was vulnerable and could have been exploited by those seeking access to customer information.

The FTC and state settlements with LifeLock bar deceptive claims, and prohibit the company from misrepresenting the “means, methods, procedures, effects, effectiveness, coverage, or scope of any identity theft protection service.” They also bar misrepresentations about the risk of identity theft, and the manner and extent to which LifeLock protects consumers’ personal information. In addition, the settlements require LifeLock to establish a comprehensive data security program and obtain biennial independent third-party assessments of that program for twenty years.

The Attorneys General of Alaska, Arizona, California, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan, Missouri, Mississippi, Montana, Nebraska, Nevada, New Mexico, New York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Vermont, Virginia, Washington, and West Virginia participated in this settlement.

In addition to LifeLock, the FTC complaint named co-founders Richard Todd Davis and Robert J. Maynard, Jr., who will be barred from the same misrepresentations as LifeLock.

The Commission vote to authorize staff to file the complaint and the settlement with LifeLock and Richard Todd Davis was 4-0. The Commission vote to authorize staff to file the settlement with Robert J. Maynard, Jr. was 3-1, with Commissioner J. Thomas Rosch dissenting. The documents were filed in the U.S. District Court for the District of Arizona.

The FTC will use the $11 million it receives from the settlements to provide refunds to consumers. It will be sending letters to the current and former customers of LifeLock who may be eligible for refunds under the settlement, along with instructions for applying. Customers do not have to contact the FTC to be eligible for refunds.

Up-to-date information at www.ftc.gov/lifelock.

July 22, 2015 | Permalink | Comments (0)

Tuesday, July 21, 2015

Panama Seeks to Placate FATF by Implementing New Money Laundering Prevention Regime

Nueva Intendencia de Supervisión de Sujetos No Financieros

Implementation of Law No. 23 of April 27, 2015 for the prevention of Money Laundering and FATF logoFinancing of Terrorism Financing Proliferation of Weapons of Mass Destruction, which in Article 13 provides for the creation of this new Administration as supervisory authority for non-financial subjects. 

The government stated that Panama has already completed 90% of the action plan agreed with the Financial Action Task Force (FATF).

July 21, 2015 | Permalink | Comments (0)