International Financial Law Prof Blog

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

Monday, August 31, 2015

FBME Bank Obtains Preliminary Injunction Against FinCEN

On July 29, 2015, FinCEN issued a final rule under Section 311 of the USA PATRIOT Act imposing a special measure involving FBME Bank Ltd. (FBME) with an effective date of August 28, 2015.

FBME filed suit on August 7, 2015 in the United States District Court for the District of Columbia; FBME also moved for a preliminary injunction.

On August 27, 2015, the Court granted the preliminary injunction and enjoined the rule from taking effect until a final judgment is entered. The Court further ordered the parties to meet and confer as to an expedited briefing schedule on the merits of FBME’s Complaint and to file a joint proposed briefing schedule, or separate schedules if mutual agreement cannot be reached.

On July 23, 2015 the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN)  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, ...


August 31, 2015 in FinCEN | Permalink | Comments (0)

Is FATCA chasing a leprechaun and his pot of gold?

Abstract from Cayman Financial Review

As of 2009, 125,000 to 150,000 U.S. taxpayers were probably criminally evading tax through offshore accounts. Their assets under management reasonably totaled $200 billion to $300 billion. In that the median non-compliant taxpayer had $12,748 tax understatement for the period 2003 through 2008, it is also likely that if 50,000 taxpayers currently remain non-compliant, with inflation and interest, another approximate $1.4 billion of tax revenue may be collected by 2020. ...

Thus, from tools already at Treasury’s disposal before FATCA, the period 2010-2020 will probably produce an annual average of approximately $250 million tax revenue, penalties and interest, excluding FBAR and FBAR like penalties on banks. ....

read the Cayman Financial Review

August 31, 2015 | Permalink | Comments (0)

IFA Congress Day One

Howdy from the 2015 IFA Congress, IFA's 69th Annual Congress since 1938!  2,000 international tax senior leaders from 100+ countries to discuss pertinent international tax challenges impacting global trade and investment.

Today's primary comparative tax study of 80+ countries is Subject I: TAX INCENTIVES ON RESEARCH AND DEVELOPMENT (R&D), followed by the Academic Luncheon

Research and development (R&D) to encourage “innovation” is generally regarded as a key element IFA2015_logo_Basel_246of economic growth. Many countries have adopted policies to encourage research and innovation, and as a companion seminar, the “Patent Boxes” discussion will investigate how countries have sought to institutionalize an R&D focus in different ways.

Increasingly, countries employ general and targeted R&D tax incentives to encourage R&D expenditure (“input incentives”) or reduce effective taxation on income from R&D activity (“output incentives”).

The discussion panel will first explore the policy objectives underlying tax incentives for R&D, with a focus on how R&D is defined for this purpose and the challenges of targeting any such exclusively at R&D which requires an incentive.

The panel will compare and contrast the different approaches used by countries to provide incentives, including input and output incentives, their effectiveness in serving the policy objectives and their compatibility with obligations under treaties, other international agreements and emerging standards of harmful or inappropriate tax competition.

Attention will also be directed towards constraints under EU law. The panel will use examples from countries’ experiences to determine whether experience to date can offer guidance as to when incentives are successful or unsuccessful in relation to policy objectives and to evaluate which incentives may give rise to action or counter-measures under emerging international standards for harmful tax practices.

General reporter: Robert Danon (Switzerland)
Chair: Prof. Stephen Shay (Harvard, USA)

August 31, 2015 in Academia | Permalink | Comments (0)

Sunday, August 30, 2015

Hypothekarbank Lenzburg AG Pays $560,000, Admits Guilt for US Clients

The Department of Justice announced today that Hypothekarbank Lenzburg AG (HBL) has reached a resolution under the department’s Swiss Bank Program.

According to the terms of the non-prosecution agreement signed today, HBL agrees to cooperate in Justice logo any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay penalties in return for the department’s agreement not to prosecute the bank for tax-related criminal offenses.

HBL was founded in 1868 and is headquartered in Lenzburg, Switzerland.  Its principal business, focused on the Canton of Aargau, Switzerland, is issuing mortgages on real property and lending to businesses.

HBL offered a variety of traditional Swiss banking services that it knew could assist, and that did assist, U.S. clients in the concealment of assets and income from the Internal Revenue Service (IRS).  For example, HBL, upon client request, did not send mail associated with some U.S.-related accounts to the United States.  In addition, HBL offered numbered accounts to its clients, a service by which access to information about an account, including the identity of the accountholder, was limited to only certain employees of HBL.  In a handful of instances, the accountholders of U.S.-related accounts who refused to provide a Form W-9 or who admitted that they were not tax compliant withdrew significant amounts of cash or physical assets when HBL forced these accounts to be closed.

In or about 2008, Swiss bank UBS AG publicly announced that it was the target of a criminal investigation by the IRS and the department, and that it would be exiting and no longer accepting certain U.S. clients.  In a later deferred prosecution agreement, UBS admitted that its cross-border banking business used Swiss privacy law to aid and assist U.S. clients in opening accounts and maintaining undeclared assets and income from the IRS.  HBL opened one account for a U.S. person who exited UBS.  For another long-standing holder of a U.S.-related account, HBL received a transfer of funds from an account held at UBS into a pre-existing account at HBL.

Another accountholder who resided in the United States for many years had two accounts, one of which was a numbered account.  In 2012, the accountholder’s relationship manager requested a Form W-9 for the numbered account and the accountholder refused to provide one.  As a result, the relationship manager directed the accountholder to close the numbered account.  Thereafter, the accountholder came to Lenzburg to close the numbered account.  The accountholder withdrew 240,000 Swiss francs and 12,000 euros and purchased precious metals in the amount of 318,000 Swiss francs.

Since Aug. 1, 2008, HBL had 96 U.S.-related accounts with an aggregate value of $69.8 million.  HBL’s average annual revenue attributable to U.S.-related accounts in the form of fees, commissions and earnings on client funds that were loaned out by HBL was $198,000, or a total of $1.2 million since Aug. 1, 2008.  HBL will pay a penalty of $560,000.

August 30, 2015 in Tax Compliance | Permalink | Comments (0)

Saturday, August 29, 2015

Indiana hiring Director for Graduate Programs

Indiana University McKinney School of Law is conducting a national search for a Director of Graduate Programs.  A link to the application site is here:

Director of Graduate Programs

The Director provides administrative leadership to all of the law school’s graduate degree programs: Master of Laws (LL.M), Master of Jurisprudence (MJ), and Doctor of Juridical Science (SJD) degree programs. The Director has overall responsibility for recruitment, administration, student services and advising with respect to all non-JD degree programs. The Director will report to the Associate Dean for Graduate Studies and International Affairs and to the Director of the Master of Jurisprudence, as applicable. 

In collaboration with the Associate Dean for Graduate Studies and International Affairs, the Director takes the lead in formulating a strategic plan to market the law school’s non-JD degree programs, and in raising the national and international profile of the school and the programs. The Director will identify and develop new markets for the non-JD degree programs, while building and maintaining existing relationships. 

The Director will design and implement support systems for non-JD students, including orientation, onboarding, admissions, financial aid, and professional development. The Director will work with the faculty track directors of the LL.M programs, with faculty supervising SJD students, and with the director of the MJ program. 

Candidates will have ongoing substantial interaction with international students, faculty, university administration, and other law school departments; and must have strong speaking, writing, and interpersonal skills. Candidates must be able to undertake international travel several times each year. 

The successful candidate should possess the ability to understand existing IU academic policies and operating procedures as well as admissions and recruiting policies and procedures and understand how to apply these policies and procedures to accommodate individual student situations, especially as they apply to international students. Excellent oral and written communication skills; demonstrated ability to work as part of a team. Ability to interact professionally with students, faculty, staff, and the public, experience in cross-cultural and international communications; Ability to work with people from diverse backgrounds and cultures. Availability for substantial international travel.


REQUIRED: Juris Doctor (JD) or Master of Laws (LLM) degree or equivalent from an accredited institution, plus 3 years administrative experience required. Substantial experience working with non-US lawyers or law students and substantial administrative experience, preferably in an academic setting are highly preferred. 

***In order to be considered for this position, applicants must attach both a cover letter and a resume when applying. ***

August 29, 2015 in Education | Permalink | Comments (0)

Friday, August 28, 2015

FinCEN Proposes AML Regulations for Investment Advisers

The Financial Crimes Enforcement Network (FinCEN) proposed a rule requiring certain investment advisers to establish anti-money laundering (AML) programs and report suspicious activity to FinCEN pursuant to the Bank Secrecy Act (BSA). FinCEN also proposed to include investment advisers in the general definition of “financial institution,” which, among other things, would require them to file Currency Transaction Reports (CTRs) and keep records relating to the transmittal of funds.

 The Financial Crimes Enforcement Network (FinCEN) proposed a rule requiring certain investment advisers to establish anti-money laundering (AML) programs and report FINCEN suspicious activity to FinCEN pursuant to the Bank Secrecy Act (BSA). FinCEN also proposed to include investment advisers in the general definition of “financial institution,” which, among other things, would require them to file Currency Transaction Reports (CTRs) and keep records relating to the transmittal of funds. “Investment advisers are on the front lines of a multi-trillion dollar sector of our financial system,” said FinCEN Director Jennifer Shasky Calvery.

“If a client is trying to move or stash dirty money, we need investment advisers to be vigilant in protecting the integrity of their sector.” This proposed rulemaking would address money laundering vulnerabilities in the U.S. financial system. Presently, illicit actors seeking to access the financial system may attempt to gain such access through an investment adviser as a means to avoid detection of their activity which might otherwise occur in dealings with financial institutions that have AML programs and suspicious activity reporting requirements.

Requiring investment advisers to establish AML programs and file reports of suspicious activity would bring them under similar regulations as other financial institutions subject to the BSA, such as mutual funds, broker-dealers in securities, banks, and insurance companies. Requiring investment advisers to file CTRs and comply with the recordkeeping requirements of the BSA may also deter illicit actors from using them as conduits.The proposal would apply to investment advisers that are required to be registered with the U.S. Securities and Exchange Commission (SEC), including advisers to certain hedge funds, private equity funds, and other private funds. FinCEN would delegate its authority to examine investment advisers for compliance with these requirements to the SEC.

News Release:

 Proposed Rule:

August 28, 2015 in FinCEN | Permalink | Comments (0)

FATCA FFI Registration System Updates for late 2015

FATCA Online Registration System

We will add new features to the FATCA Online Registration System in late 2015.  

The updated FATCA Registration Online User Guide and Frequently Asked Questions will have more detailed information. Updated features will include:

  • New account options to allow certain financial institutions (FI) to change their FI Type, or member FIs to transfer to another expanded affiliated group (EAG), without having to cancel their current agreement and re-register.  Learn more

  • New account options to allow FIs to update their registration information without having to always begin with Question 1.

  • A new account option to download all registration tables from a single location.

  • A new feature to allow sponsoring entity FIs to add sponsored entities and sponsored subsidiary branches to their FATCA account either individually, or by submitting a file containing multiple records.  Learn more

    • The updated  GIIN Composition Information will include GIIN format for sponsored entities and sponsored subsidiary branches.

  • Addition of new registration questions:

    • Question 3B – country/jurisdiction tax ID

    • Questions 13A and 13B – information on common parent entity

  • Updated country/jurisdiction list. Learn more

Back to Top

FFI List Search and Download Tool

We will deploy a new release of the FFI List Search and Download Tool in late 2015.

The updated FFI List Search and Download Tool User Guide and Frequently Asked Questions will have more detailed information. The new release will have the following new and updated features:

  • Additional sponsored entities and sponsored subsidiary branches on the published FFI list

  • Updated financial institution names for branches, which will include the financial institution’s name under which the branch is listed

  • Inclusion of two or more valid GIINs for the same financial institution for a short period of time, as a result of FATCA Registration account updates. Learn more

  • Updated FFI List schema and test files, which will include sponsored entities and sponsored subsidiary branches

August 28, 2015 | Permalink | Comments (0)

New Release of the Foreign Account Tax Compliance Act (FATCA) International Compliance Management Model (ICMM)

The Internal Revenue Service (IRS) deployed an updated version of FATCA ICMM on August 8, FATCA_roll2015. The updated release validates record-level processing of FATCA 8966 XML Report files, including files that were submitted before August 8, 2015.  The record level processing identified errors within the files and issued new notifications to filers that reflect the outcomes of the validation.  The IRS discovered an issue related to the processing of files submitted between January 12th and August 8th of 2015 that resulted in two erroneous field level error messages.  These are as follows:

• “Account Holder Type Not Valid” error for an individual filer for whom an entity type is not required. This is for Account Reports in which the account holder is an “Individual”. 

• “Pooled Reporting Type Not Populated” error.  The issue applied to Pooled Reports.

The two error messages referenced do not require a response or correction by the filer in the situations described above.  The IRS is correcting this issue and will resend notifications for files that are impacted.  For additional information regarding these two field-level error messages please refer to “Q1” and “Q2” under the “Field Level Errors” category of the Frequently Asked Questions (FAQs).

August 28, 2015 | Permalink | Comments (0)

Thursday, August 27, 2015

Will Herve Falciana Face His Day in Court?

Europe Online Magazine reports that: The Swiss Federal Criminal Court will start a trial against former HSBC bank employee Herve Falciani on October 12, on charges that his leaking of client data amounted to economic espionage, violation of bank secrecy laws, among other criminal charges.

Herve Falciani fled Switzerland in 2008 after leaking 100,000 HSBC's customers' financial information unto the Internet and into the hands of various foreign governments and other organizations.  He is reported to have been paid millions of dollars for the financial information.  See HSBC's Whistleblower Leaked Client Information Via Internet 

The high net wealth customer included a portion of tax evaders, money launderers, and politicians.  It is unclear what portion fell into the category of non-compliant and/or criminality and those that were collateral damage.

The case will be closely watched as it brings into question the balancing of many interests, by two examples: the protection of personal and financial data versus the disclosure of noncompliance and nefarious activities; protection against espionage versus whistleblowing.

Although it is reported that Herve Falciana states that he will appear in Court, it is unlikely given the severity of the criminal charges and the unlikelihood that countries that purchased the stolen financial data will extradite him to Switzerland.

August 27, 2015 | Permalink | Comments (1)

Wednesday, August 26, 2015

Is Bahamas FATCA compliant? OECD "Oui", EU "We Don't Care".

The Bahamas Weekly reports that the OECD has found Bahamas "largely compliant" with the Oecdinformation due diligence, collection, and exchange standards necessary to implement effectively the U.S.' FATCA regime, and flush out U.S. non compliant account holders of Bahamian financial institutions.  The Bahamas is also able to comply with the automatic exchange of information system required by the OECD Common Reporting Standards (CRS, a.k.a. GATCA).

The EU Commission on the other hand, and several EU member states, include Bahamas as a black listed country, which may require heightened compliance diligence or loss of tax benefits, like deductions, for intra group transactions involving Bahamas.  The EU has not yet enacted sanctions against the countries, like Bahamas, that it has included on its blacklist, which the EU established based amalgamating its member states blacklists.  The EU Commission, in its communique, stated that its blacklist "can be used to screen non-cooperative tax jurisdictions and develop a common EU strategy to deal with them."  

See my previous post EU Commission Publishes Black List of Tax Havens, Demands EU Tax Harmonization.

August 26, 2015 | Permalink | Comments (0)

Tuesday, August 25, 2015

Citizens Bank of Pennsylvania Settles Unfair and Deceptive Practices for $8.8 Million Fine and Restitution

The Federal Deposit Insurance Corporation (FDIC) announced a settlement with Citizens Bank of FDIC logoPennsylvania, Philadelphia, Pennsylvania (CBPA), for unfair and deceptive practices in violation of Section 5 of the Federal Trade Commission Act. Under the settlement, CBPA agreed to an Order for Restitution and Order to Pay Civil Money Penalty (Order). The Order requires CBPA to pay a civil money penalty of $3 million and provide restitution of approximately $5.8 million to consumers and businesses who held more than 475,000 accounts affected by the violations.

The FDIC determined that CBPA engaged in unfair and deceptive practices related to the processes by which the bank reconciled deposit discrepancies, specifically the procedures for reconciling discrepancies between the amount of a deposit as stated on an account holder's deposit slip and the actual amount of the deposit. In some cases, CBPA's procedures resulted in consumers and businesses not receiving the full amount of their actual deposits. The Order requires CBPA to correct the violations of law, ensure future compliance with Section 5, and develop and implement a comprehensive restitution plan for all consumers and businesses adversely impacted by the violations. The Order requires CBPA to make restitution to affected consumers and businesses for deposit underpayments that occurred between January 2008 and November 2013. CBPA will provide restitution without requiring any action by those who were affected.

The FDIC is taking this action in coordination with separate actions by the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC). The CFPB's action is against Citizens Financial Group, Inc., Citizens Bank, N.A., and CBPA. The OCC's action is against Citizens Bank, N.A. Each action relates to similar unfair and deceptive practices.

August 25, 2015 in Financial Regulation | Permalink | Comments (0)

Meet us at International Fiscal Association in Basel?

Dr. Andrew Morriss (Dean, Texas A&M & international tax economist) and I look forward to Logo_IFA_Basel_2015meeting other academics and professionals at international tax 69th IFA Congress held in the city of Basel  from Sunday, August 30 to Thursday, September 3.  

Email me so that we can link up at the Congress.

The International Fiscal Association (IFA) was established in 1938 with its headquarters in the Netherlands. It is the only non-governmental and non-sectoral international organisation dealing with fiscal matters.   Government officials, MNE counsel, senior partners, and academics from 111 countries:

Its objects are the study and advancement of international and comparative law in regard to public finance, specifically international and comparative fiscal law and the financial and economic aspects of taxation.















August 25, 2015 in OECD | Permalink | Comments (0)

Monday, August 24, 2015

Howdy Aggie 1Ls!

12th Man SIgned TshirtAggie Law’s orientation week just wrapped up – and mine as well as one of the 11 new Texas A&M law faculty.  The Dean, Andy Morriss, hosted an incoming Aggie BBQ - and Texas BBQ is good BBQ.

139 new Texas Aggies hailing from more than 60 universities, already greeting me in the ‘Howdy’ tradition at every turn. 

I’m looking forward to engaging with Aggie diversity - one-fifth the first member of the family to graduate from college, quarter ethnically diverse, and majority female.    

Just watched the Aggie incoming student interviews.  Quotes like “Aggie land is home”, “I feel like I could walk up to anyone and start a conversation with them” and “It’s like a big family here” - think I am going to like it here – a lot.

Especially after my first Aggie football game - against the Arkansas Razorbacks - Sept 26th.

Howdy Aggie 1Ls and GigEm!

GigEm Week Events and Schedule

August 24, 2015 in Education | Permalink | Comments (0)

Cuba Update - Tourist Travel Still Illegal

On July 22, 2015, the Bureau of Industry and Security (BIS) published a rule in the Federal
 to implement the rescission of Cuba’s State Sponsor of Terrorism designation. The rule BureauOfIndustryAndSecurity-Seal.svgremoved anti-terrorism (AT) license requirements from Cuba and eliminated references to Cuba as a State Sponsor of Terrorism in the Export Administration Regulations (EAR), while maintaining preexisting license requirements for all items subject to the EAR unless authorized by a license exception. The rule also removed Cuba from Country Group E:1 (terrorist supporting countries) in Supplement No. 1 to Part 740 of the EAR , making Cuba eligible for a general 25 percent de minimis level and portions of four license exceptions.

However, the United States continues to maintain a comprehensive embargo on trade with Cuba. The export and reexport to Cuba of all items subject to the EAR still requires a BIS license, unless authorized by a license exception specified in § 746.2(a)(1) of the EAR.

Licensing Policy

There is a general policy of denial for exports and reexports to Cuba of items subject to the Export Administration Regulations (EAR), as described in Section 746.2(b) of the EAR. However, there are exceptions to the general policy of denial, some of which are listed below:

  • Medicines and medical devices, whether sold or donated, are generally approved.
  • Vessels and aircraft on temporary sojourn to Cuba are reviewed on a case-by-case basis when they are used to deliver humanitarian goods or services or when their use is consistent with the foreign policy interests of the United States.
  • Items necessary for the environmental protection of U.S. and international air quality, waters and coastlines, including items related to renewable energy or energy efficiency, are generally approved.

In addition to authorization provided under licenses, there is authorization provided by license exception.

Other U.S. Government Agencies

Please be aware that other U.S. Government agencies administer regulations that could also impact your export or reexport transaction. For example, the Department of the Treasury’s Office of Foreign Assets Control (OFAC)maintains certain Cuba-related sanctions. Exporters and reexporters are responsible for complying with all applicable regulatory requirements.

Related to Travel Between the United States and Cuba

August 24, 2015 in OFAC | Permalink | Comments (0)

Sunday, August 23, 2015

US Post Office Breaks Up Costa Rican Based Business Opportunity Fraud Targeting Americans

A U.S. citizen charged in connection with the operation of a series of fraudulent business opportunities based in Costa Rica was sentenced to prison in Miami.

John White, aka Gregory Garrett, was sentenced by U.S. District Court Judge Patricia A. Seitz of the Post office logo
Southern District of Florida to serve 70 months in prison and five years of supervised release.  White was also ordered to pay $6,412,006.19 in restitution.  White is one of 12 defendants charged in connection with a series of business opportunity fraud ventures that operated in Costa Rica.  Nine of those other defendants have been convicted in the United States with sentences ranging from three to 16 years in prison and the two remaining defendants are not yet in the custody of the United States.

“The defendants in this scheme promised victims the American dream while knowing they in fact were being ripped off,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “We will continue to prosecute those who would deprive Americans of their savings just so they can make a quick buck.” 

White was indicted by a federal grand jury in Miami on Nov. 29, 2011, arrested in Costa Rica in 2012, extradited to the United States in 2015 and pleaded guilty on April 29, 2015, to one count of conspiracy to commit mail and wire fraud in connection with the business opportunity scheme. 

As part of his guilty plea, White admitted that from 2005 to 2008, he and his co-conspirators fraudulently induced individuals in the United States to buy business opportunities in USA Beverages Inc., Twin Peaks Gourmet Coffee Inc., Cards-R-Us Inc., Premier Cards Inc. and The Coffee Man Inc.  White and his co-conspirators claimed that these opportunities would allow purchasers to sell coffee or greeting cards from display racks located at other retail establishments.  The business opportunities cost thousands of dollars each, with most purchasers paying at least $10,000.  Each company operated for several months and after one company closed, the next opened.

White admitted that the conspiracy used various means to make it appear to potential purchasers that the businesses were located entirely in the United States.  The companies used bank accounts, office space and other services in the Southern District of Florida and elsewhere.  In reality, White and his co-conspirators operated out of call centers in Costa Rica. 

White admitted that he and his co-conspirators made numerous false statements to potential purchasers of the business opportunities, including that purchasers likely would earn substantial profits; that prior purchasers of the business opportunities were earning substantial profits; that purchasers would sell a guaranteed minimum amount of merchandise, such as greeting cards and beverages; and that the business opportunity worked with locators familiar with the potential purchaser’s area who would secure or had already secured high-traffic locations for the potential purchaser’s merchandise stands.  Potential purchasers also were falsely told that the profits of the companies were based in part on the profits of the business opportunity purchasers, thus creating the false impression that the companies had a stake in the purchasers’ success and in finding good locations.

As alleged in the indictment against White and others, the companies employed various types of sales representatives, including fronters, closers and references.  A fronter spoke to potential purchasers when the prospective purchasers initially contacted the company in response to an advertisement.  A closer subsequently spoke to potential purchasers to close deals and references spoke to potential purchasers about the financial success they had purportedly experienced since purchasing one of the business opportunities.  The companies also employed locators, who were typically characterized by the sales representatives as third parties who worked with the companies to find high-traffic locations for the prospective purchaser’s merchandise display racks.  White admitted that he worked as a fronter and reference using aliases.

“This international and domestic investigation shows the Postal Inspection Service’s resolve to protect Americans from business opportunity scams,” said Postal Inspector in Charge Ronald Verrochio of the U.S. Postal Inspection Service (USPIS) Miami Division. 

August 23, 2015 | Permalink | Comments (0)

Saturday, August 22, 2015

Costa Rican Telemarketer Convicted for Money Laundering

An Ohio man was convicted yesterday after a two-day jury trial for his role in a Costa Rican telemarketing scheme.

Paul Ronald Toth Jr., 40, of Wintersville, Ohio, was convicted of one count of conspiracy to commit Justice logomoney laundering and six counts of international money-laundering concealment.  Sentencing before U.S. District Judge Robert J. Conrad Jr. of the Western District of North Carolina will be scheduled at a later date.

According to the evidence presented at trial, Toth was involved in a telemarketing scheme in which his co-conspirators contacted U.S. residents from call centers in Costa Rica, falsely informing them that they had won substantial cash prizes in “sweepstakes.”  To claim the cash prizes, the victims – many of whom were elderly – were instructed to send a purported “refundable insurance fee.”  

The trial evidence showed that, between approximately November 2009 and November 2010, Toth was a United States-based “smasher” who facilitated the laundering of funds received from the elderly victims.  Specifically, according to the evidence presented at trial, Toth and others he recruited and supervised received over $300,000 from victims and, using various individuals as senders and recipients to conceal the fraudulent nature of the transactions, wired over $200,000 of those funds to co-conspirators in Costa Rica.  The evidence further demonstrated that Toth kept the remainder as his profit.

August 22, 2015 | Permalink | Comments (0)

Friday, August 21, 2015

Bank Zweiplus and Banca Stato Admit Assisting US Tax Evaders- Enter Non Prosecution Agreements

The Department of Justice announced today that bank zweiplus ag (Bank Zweiplus) and Banca dello Stato del Cantone Ticino (Banca Stato) have reached resolutions under the department’s Swiss Bank Program.  

Since Aug. 1, 2008, Bank Zweiplus maintained and serviced 44 U.S.-related accounts with an Justice logoaggregate value of approximately $12.1 million. Bank Zweiplus cooperated with the department during its participation in the Swiss Bank Program and encouraged its U.S. clients to enter the IRS Offshore Voluntary Disclosure Program.  Bank Zweiplus will pay a penalty of $1.089 million.  

Banca Stato maintained and serviced 187 U.S.-related accounts with an aggregate maximum balance of approximately $137 million.  But Banca Stato will pay a proportionately smaller penalty than Bank Zweiplus, of $3.393 million.   

Bank Zweiplus was founded in July 2008 as a retail bank based in Zurich.  Offices located in Geneva and Basel, Switzerland, were closed in 2008 and 2012, respectively. 

Bank Zweiplus was aware that U.S. taxpayers have a legal duty to report to the Internal Revenue Service (IRS) their ownership of bank accounts outside the United States and to pay taxes on income earned in such accounts.  Nevertheless, in disregard of U.S. laws, the bank provided a variety of traditional Swiss banking services that assisted some U.S. taxpayers in concealing their undeclared accounts.  For example, Bank Zweiplus maintained numbered accounts and accounts held in the name of structures which were effectively owned or controlled by U.S. persons, including structures in the British Virgin Islands and the Bahamas.

Banca Stato was established in 1915 and is headquartered in Bellinzona, Switzerland.  Banca Stato was aware that U.S. taxpayers had a legal duty to report to the IRS and pay taxes on the basis of all of their income, including income earned in accounts that the U.S. taxpayers maintained at the bank.  Despite this, the bank opened and serviced accounts for U.S. clients who the bank knew or had reason to know were not complying with their U.S. income tax obligations. 

In 2001, Banca Stato entered into a Qualified Intermediary Agreement with the IRS.  In 2001, the bank issued an internal directive prohibiting U.S. persons without a Form W-9 on file with the bank from buying U.S. securities.  However, prior to 2011, Banca Stato’s relationship managers were not instructed to, and did not, evaluate or screen incoming U.S. clients for U.S. tax compliance status.  At that time, more than 70 percent of the assets under management were related to U.S. accountholders who had not provided a Form W-9 to the bank.

In 2011, Banca Stato implemented a project that it called “Colombo” to change the manner in which it handled U.S. clients.  The bank recognized both risks and rewards of handling U.S. clients.  As to the former, the bank recognized that “[w]e can no longer have clients who are U.S. Persons who have not signed the W-9 form.”  But the bank also recognized an opportunity to attract new U.S. clients because many Swiss banks declined to service U.S. persons from Ticino, Switzerland, and the bank perceived “a huge demand from fully tax-compliant U.S. Persons . . . attracted by the brand BancaStato (especially because we have no branches in the US).”

Banca Stato entered into a relationship with a Lugano-based U.S. Securities and Exchange-registered investment advisory firm to partner in attracting U.S. persons living and working in the Ticino region who could not open or maintain accounts at other institutions.  The bank paid the firm a one-time finder’s fee of 0.5 percent on the incoming funds.  Despite the bank’s decision to refuse to open new accounts of U.S. persons without a Form W-9, it did not always adhere to this policy.

Banca Stato offered a variety of traditional Swiss banking services that it knew would and in certain instances did assist U.S. clients in concealing assets and income from the IRS, including hold mail and code name or numbered accounts.  In addition, the bank employed a variety of other means or conduct that it knew or should have known would assist U.S. taxpayers in concealing their Banca Stato accounts, including opening accounts for U.S. taxpayers who left other banks being investigated by the department and allowing U.S. clients to direct repeated wire transfers between $9,000 and $9,900 in an effort to conceal their Swiss bank accounts from U.S. authorities.

Download Banca Stato Executed NPA and SOF (3.88 MB)

August 21, 2015 | Permalink | Comments (0)

Is EU Commission backtracking or turning up the heat on international financial centers?

The EU Commission has confirmed its continued endorsement of Guernsey as a cooperative jurisdiction following a meeting between officials in Brussels.

This news was welcomed in Guernsey, which has a strong record in meeting international standards Comision_Europea_logo.svg as a cooperative and highly transparent jurisdiction - including as an 'early adopter' of the Common Reporting Standards ahead of some European countries.

Responding to the news, Guernsey's Chief Minister, Jonathan Le Tocq, has written to European Tax Commissioner Pierre Moscovici, stating: "Guernsey welcomes the Commission's confirmation at the meeting that it considers Guernsey to be a cooperative jurisdiction. This recognises not only Guernsey's adherence to the OECD and Global Forum international standards on transparency and information exchange, but also that our corporate tax regime has been assessed as compliant with the EU's Code of Conduct on Corporate Taxation, and hence not containing harmful measures."

The endorsement from the EU comes soon after the Commission included Guernsey on a list that some commentators had misperceived as a 'black list' of un-cooperative jurisdictions. The list, published on 17 June, was widely criticised, including by the OECD, for a lack of transparent and consistent methodology and has subsequently had its name changed for clarity. 

Dominic Wheatley, Chief Executive of Guernsey Finance - the promotional agency for the Island's finance industry internationally, said: "We welcome the EU's endorsement of Guernsey as a cooperative jurisdiction which is fully consistent with the findings of its Code of Conduct Group on Corporate Taxation in 2012. This clarification should give full confidence to all those looking to do business in Guernsey and enjoy the high quality of the financial business environment here."

"While the confirmation of the Commission's view is positive for Guernsey, the contribution that Guernsey makes to the European economy should not be overlooked. Research published by KPMG earlier this year showed that Guernsey funds have a total population of £155.4 billion assets under administration and that almost half of that is invested into continental (non-UK) Europe, demonstrating Guernsey is also an important business partner for the EU."

"It has also been welcome to have confirmation from organisations such as the European Investment Fund that not only do they also recognise that Guernsey was not in any way 'black listed', but also that they are aware of the positive recognition of Guernsey's track record by the OECD."

Guernsey Press Release

EU Blacklists

August 21, 2015 in Financial Centers | Permalink | Comments (0)

Thursday, August 20, 2015

Is the IRS indicating that FATCA isn't going to work?

Dr. Jack Manhire gets a tip of the hat for pointing out the following blog post on Federal Tax Crimes

  •  The IRS might use a summons (presumably John Doe Summons) to obtain offshore credit Irs_logo card information to track and identify U.S. offshore account depositors through correspondent banks.
  • The IRS may reinstitute a broker initiative to issues summons to brokers to identify U.S. beneficial owners of foreign corporations with U.S. brokerage accounts.

What this information indicates to  me?

(1) The IRS is not so certain that FATCA reporting will be effective to catch the non-compliant taxpayers.

(2) The IRS estimates that many Americans with foreign accounts are noncompliant. 

Given that the IRS has forced billions in spending in four years to bring about FATCA compliance, I find it disturbing that it may not think it is working.  Worse is that this tool was always at the IRS disposal, just like the credit card John Doe Summons, and it is a good tool.  So why not ask for funding to use it back in 2009 instead of FATCA? 

It appears that the strategy for bringing non-compliant taxpayers into compliance is hodge podge, without thought to the ramifications of each, as a whole, and without addressing underlying problems, like taxpayer education and easy to file FBAR.  At least Treasury modified the FBAR date to coincide with the 1040 filing date.  But the forms are still uncoordinated with different questions, different filing procedures, different penalties.  Just not good administration techniques.

See Treasury's Taxpayer Advocate discloses FATCA Imposes Unnecessary Burdens, Will Not Improve Compliance

August 20, 2015 | Permalink | Comments (1)

Key Derivatives Cases 2015 - Newly Released

Rupert Macey-DareUniversity of Oxford - Saint Cross College; Middle Temple; Minerva Chambers

Link to Paper Here 

The paper considers key derivatives cases in the English courts from 2015, namely: Wani v Royal Bank of 6a00d8341c4eab53ef019104927134970c-800wiScotland, Dexia v Commune di Prato, Enasarco v Lehmans, SwissMarine v O.W. Supply, and MHB Bank v Shanpark.

Derivative products covered include: base rate swaps, interest rate swaps, caps, collars and corridors, extendable swaps, constant proportional portfolio insurance (CPPI) funds, fund options, and contracts for difference (CFDs).

ISDA 1992 and 2002 Master Agreement provisions considered include s. 2 Obligations, s. 6 Early Termination, s. 6(f) Set-off, s.13(b) Jurisdiction, s.14 Definitions of Loss and Market Quotation.

Additional cases will be added in due course.

August 20, 2015 in Financial Regulation | Permalink | Comments (0)