International Financial Law Prof Blog

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

Thursday, December 31, 2015

China takes important step to boost international co-operation against tax evasion

The People’s Republic of China became the 77th jurisdiction to sign the Multilateral Competent Authority Agreement (MCAA), OECD which allows it to move forward with plans to activate automatic exchange of financial account information in tax matters and commence exchanges with other countries in 2018. The G20 Leaders have repeatedly stressed their commitment to automatic exchange of information, most recently at their November meeting in Antalya, Turkey.

The Multilateral Competent Authority Agreement is a framework agreement based on the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. Bilateral information exchanges will come into effect between signatories after subsequent notifications are filed, as required under the Agreement. The Standard for Automatic Exchange of Financial Account Information in Tax Matters was endorsed by G20 Leaders at the Leaders’ Summit on 15-16 November 2014 in Brisbane, Australia. It provides for automatic exchange of all financial information on an annual basis.

Also, the OECD and the State Administration of Taxation of the People’s Republic of China (SAT) have today renewed their agreement, first signed in 2013, for a further three years until 31 December 2018.  This MoU builds on co-operation between the SAT and the OECD  which has proved an important platform for enhancing co-operation including the Associate status of China on the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project, and through a programme of events and legislative consultations, and the secondment of tax officials.   

In parallel with the MoU for overall co-operation, the SAT and the OECD have also signed an MoU to implement a Multilateral Tax Programme at the OECD-SAT Multilateral Tax Centre in Yangzhou. The SAT has worked with the OECD’s Global Relations Programme since 1997, serving as a focal point for policy dialogue among Chinese and OECD country officials on international tax, tax policy, and tax administration issues.  The new Multilateral Tax Centre will deliver an programme open to interested country officials reflecting the OECD’s current initiatives for the benefit of all participating countries. 

December 31, 2015 in GATCA | Permalink | Comments (0)

Wednesday, December 30, 2015

Bank J. Safra Sarasin AG (Safra Sarasin), Coutts & Co Ltd (Coutts), Gonet & Cie (Gonet) and Banque Cantonal du Valais (BC Valais) collectively will pay penalties of more than $178 million for encouraging tax evasion

“With today’s resolutions under the Swiss Bank Program, the department has reached agreements with 75 Swiss banks, Irs_logoimposed penalties in excess of $1 billion, and secured voluminous and detailed information regarding the illegal conduct of financial institutions, professionals and accountholders around the world,” said Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division. “Building on the success of the Swiss Bank Program, the civil and criminal offshore enforcement efforts of the department and its partners in the IRS will be a top priority in 2016.”

The Swiss Bank Program, which was announced on Aug. 29, 2013, provides a path for Swiss banks to resolve potential criminal liabilities in the United States.  Swiss banks eligible to enter the program were required to advise the department by Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts.  Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.

Under the program, banks are required to:

  • Make a complete disclosure of their cross-border activities;
  • Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest;
  • Cooperate in treaty requests for account information;
  • Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed;
  • Agree to close accounts of accountholders who fail to come into compliance with U.S. reporting obligations; and
  • Pay appropriate penalties.

Swiss banks meeting all of the above requirements are eligible for a non-prosecution agreement.

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

Safra Sarasin is a Swiss bank with its head office in Basel. Safra Sarasin was formed in June of 2013 through the merger of two Swiss banks, Banque J. Safra (Suisse) SA (Safra) and Bank Sarasin & Cie AG (Sarasin).  In Switzerland, Safra Sarasin has branches in Berne, Geneva, Lucerne, Lugano and Zurich.  Safra Sarasin specializes in providing investment advice and asset management services to private and institutional clients, as well as to investment funds.  It offers clients portfolio management, secured lending and financial analysis, among other services.

In 2001, Safra and Sarasin each entered into a Qualified Intermediary (QI) Agreement with the Internal Revenue Service (IRS).  The QI regime provided a comprehensive framework for U.S. information reporting and tax withholding by a non-U.S. financial institution with respect to U.S. securities. After signing their respective QI Agreements, Safra and Sarasin continued to service certain U.S. customers without disclosing the customers’ identity to the IRS and without regard for the impact of U.S. criminal law on that decision.

Through at least 2014, Safra Sarasin knew that it was highly probable that some U.S. taxpayers who had opened and maintained accounts at Safra Sarasin were not complying with their U.S. income tax and reporting obligations. Safra and Sarasin took the position that they could service U.S. clients that they knew or had reason to believe were engaged in tax evasion so long as Safra and Sarasin prohibited their accountholders from trading in U.S.-based securities or required that the account be nominally structured in the name of a non-U.S.-based entity.

With respect to structured accounts, U.S. clients would create an entity, such as a Liechtenstein foundation, a Panama corporation or a British Virgin Islands corporation, and pay a fee to third parties to act as corporate directors. Those third parties, at the direction of the U.S. client, would then open an account at Safra or Sarasin in the name of the entity or transfer a pre-existing Swiss bank account from another Swiss bank. In certain cases that involved a non-U.S.-based entity, Safra or Sarasin was aware that a U.S. taxpayer was the true beneficial owner of an account. Despite this, the respective bank would obtain from the entity’s directors an IRS Form W-8BEN or equivalent bank document in which the directors falsely declared that the beneficial owner was not a U.S. taxpayer. Although it was highly probable that in such cases the U.S. taxpayer was avoiding U.S. taxes, some of these accounts were permitted to trade in U.S. securities without the respective bank reporting account earnings or transmitting any withholding taxes to the IRS, as required by its QI Agreement.

In some instances, relationship managers at Safra and Sarasin met with or took directions or instructions from the U.S. taxpayer beneficial owner of an offshore structure account, instead of the directors or other authorized parties on the account.  Some of these relationship managers interacted with corporate service providers, including Swiss lawyers, who assisted U.S. taxpayers in setting up nominee entities for their undeclared accounts. In some instances, relationship managers referred U.S. clients who were interested in creating nominee offshore entities to these corporate service providers. After these entities were created, relationship managers assisted these clients in opening and maintaining accounts at Safra Sarasin.

For example, a Geneva-based lawyer assisted U.S. clients in opening undeclared accounts in the names of Panama corporations. These accounts had high balances totaling approximately $250 million during the period since Aug. 1, 2008. The Geneva-based lawyer had signature authority and power of attorney over these accounts and was a director of some of these entities. With respect to one of these accounts, the lawyer signed an IRS Form W-8BEN falsely certifying that a Panama entity was the taxpayer, and not the U.S. client. In December 2010, in connection with the closing of one of these accounts, the lawyer assisted a U.S. client in transferring the funds to a bank in Hong Kong.  During 2011, in connection with the closing of seven of these accounts, the lawyer assisted the U.S. clients in transferring the funds to a Swiss bank under investigation by the department.

Safra Sarasin assisted some U.S. clients in other ways, in concealing assets and income from the IRS upon the closure of their accounts. Approximately 20 percent of the funds in U.S.-related accounts closed by Safra Sarasin were transferred to banks in countries other than Switzerland and the United States, including Israel, Hong Kong and Liechtenstein.  In one instance, Safra Sarasin assisted a U.S. client, whose account was held in the name of a Panama company, to withdraw $2.9 million in gold at the account closing. In another instance, Safra Sarasin processed five cash withdrawals of $190,000 each for a U.S. client, comprising a total aggregate amount of $950,000 in cash over a two-day period.

A number of U.S.-related accounts held at Sarasin were managed by external asset managers.  From June through August 2008, one of these external asset managers used intermediary accounts at Sarasin to assist five U.S. clients in transferring $21.1 million from a large Swiss bank into undeclared bank accounts at Sarasin. These intermediary accounts were opened in the name of the external asset manager’s company and were used when a U.S. client wanted to deposit funds into his or her account or transfer funds to a third party. This added a layer of concealment when transferring the assets of a client or third party to or from the U.S. client’s bank account at Sarasin.  In 2012, this same external asset manager was charged, in a U.S. federal court, with conspiring to impede and impair the IRS in the ascertainment, computation, assessment and collection of U.S. income taxes, in connection with the external asset manager’s activities at Swiss banks other than Safra Sarasin.

In the period since Aug. 1, 2008, Sarasin maintained six accounts, with an aggregate value of $24 million, that were owned by insurance companies and held assets relating to insurance products that were issued to U.S. taxpayer clients of the respective insurance companies. Such accounts, known commonly as “insurance wrappers,” were titled in the names of insurance companies but funded with assets that were transferred to the accounts for the beneficial owners of the insurance products.  Two of the six insurance wrapper accounts were held in the name of a Cayman Islands corporation, and another account was held in the name of a Singapore company.

Since Aug. 1, 2008, Safra Sarasin had 1,275 U.S.-related accounts with an aggregate maximum value of approximately $2.2 billion.  Safra Sarasin will pay a penalty of $85.809 million.

Coutts is a Swiss private bank headquartered in Zurich with branches in Geneva, Hong Kong, Monaco and Singapore.  Coutts also has operating subsidiaries in Geneva and on the Isle of Man. During the period since Aug. 1, 2008, Coutts was part of the international Wealth Management Division of The Royal Bank of Scotland Group plc, which is majority-owned by the United Kingdom government, and had no offices, branches or subsidiaries in the United States.  Coutts closed its New York branch in 1997, and the bank closed its representative office in Florida in 2005, shortly after Coutts had acquired the Florida office as part of its acquisition of Bank von Ernst & Cie AG in 2003.

Coutts was aware that U.S. taxpayers had a legal duty to report to the IRS and pay taxes on all of their income, including income earned in accounts that these U.S. taxpayers maintained at Coutts. Coutts nonetheless opened, serviced and profited from accounts for U.S. clients who Coutts knew or had reason to know were likely not complying with these obligations.  Since August 2008, Coutts has accepted over $150 million in inflows from other Swiss banks that were being investigated by the department, and Coutts opened 465 accounts for U.S. clients, some of whom did not comply with their obligations regarding U.S. tax or Reports of Foreign Bank and Financial Accounts (FBARs).

Prior to December 2008, several relationship managers from the Coutts private banking desks traveled to the United States to maintain existing relationships with U.S. clients and recruit new clients.  After 2008, Coutts relationship managers continued to travel to the United States to meet with clients, including three relationship managers employed by other group entities located outside of Switzerland who made 11 trips to the United States.

Coutts relationship managers in Switzerland aided and assisted certain U.S. clients with undeclared accounts at Coutts to evade their income taxes by placing their assets in the names of structures formed, maintained and managed by various subsidiary trust companies of Coutts. Coutts has operated its own trust companies in Liechtenstein and Switzerland. These companies provided structuring services to Coutts clients, including the creation of foundations, trusts and companies incorporated or based in offshore locations such as the Bahamas, British Virgin Islands, Channel Islands, Liechtenstein and Panama.  By operation of Swiss bank secrecy laws, the U.S. client’s ownership of these structures would not be disclosed to U.S. authorities.  In all, more than 500 of the 1,337 U.S. client accounts held at Coutts since August of 2008, with more than $1 billion in assets under management, had some type of structure with a U.S. beneficial owner.

In addition to the relationships they had with affiliated trust companies, Coutts relationship managers coordinated with external trust companies to create and administer offshore structures for its U.S. clients that were incorporated or based in offshore locations such as the British Virgin Islands, Liechtenstein and Panama.  For example, one relationship manager had three U.S. clients with undeclared accounts held in the names of British Virgin Islands companies.  These three accounts totaled approximately $130 million.

Because Swiss law requires Coutts to identify the true beneficial owner of structures on a document called a Form A, it knew that these were U.S. client accounts. Nonetheless, for numerous such accounts, Coutts relationship managers and other employees knowingly accepted and included in Coutts’ account records IRS Forms W-8BEN or equivalent bank documents provided by the directors of the offshore companies that falsely represented under penalty of perjury that such companies were the beneficial owners, for U.S. income tax purposes, of the assets in the Coutts accounts. This aided and assisted the U.S. clients in concealing these assets and income from the IRS.

Coutts also assisted U.S. clients in concealing the assets and income in their undeclared accounts by processing requests from U.S. taxpayers to transfer assets from accounts being closed to non-U.S.-related Coutts accounts, or to Coutts accounts that were restructured to eliminate the U.S. connection.  For example, in one instance in 2001, a joint account was opened by couple living in Singapore.  The husband was a U.S. citizen, and the wife was a French citizen.  After Coutts asked the accountholder to provide an IRS Form W-9, the husband instructed Coutts to close the joint account and internally transfer assets totaling $15.1 million to a Coutts account held jointly by his wife and children.  The husband had signatory authority over the newly opened account based on a general power of attorney, and he continued to manage the assets and was the only contact person for Coutts with respect to this account.  In another case, between July 2011 and April 2014, Coutts assisted a U.S. client in transferring $33 million from an undeclared account held in the name of a Belize corporation to 11 other accounts at Coutts held in the names of nominee entities.

Since Aug. 1, 2008, Coutts held and managed 1,337 U.S.-related accounts, which included both declared and undeclared accounts, with a peak of assets under management of approximately $2.1 billion.  Coutts will pay a penalty of $78.484 million.

Gonet is a family-owned private bank headquartered in Geneva, Switzerland.  Gonet operates a branch office in Lausanne, Switzerland, which was opened in 2011, and a representative office in Abu Dhabi, United Arab Emirates, which was opened in 2014.  In 1982, Gonet opened a subsidiary in Nassau, Bahamas, which offers traditional private banking services.  In 2008, Gonet acquired a minority interest in an entity in Monaco, and three years later Gonet established a subsidiary in Singapore.  In 2014, Gonet sold the entities in Monaco and Singapore.

Gonet enabled some U.S. taxpayers to evade their U.S. tax and filing obligations, resulting in the filing of false income tax returns with the IRS and allowing U.S. taxpayers to hide offshore assets from the IRS.  Gonet opened accounts for U.S. taxpayers who had left other Swiss banks that were known targets of investigations by the department, including UBS and Credit Suisse.  With respect to the majority of these accounts, Gonet knew or should have known that the beneficial owners were attempting to evade U.S.  taxes and foreign account reporting requirements.  Gonet also opened and maintained a number of U.S.-related accounts held by non-U.S. entities with the knowledge that U.S. persons were the true beneficial owners of the assets maintained in the accounts. Two of the accounts held by non-U.S. entities were insurance wrapper accounts.

With respect to structured accounts, U.S. clients, with the assistance of their external advisors, would create an entity, such as a Liechtenstein foundation, Panamanian corporation or British Virgin Islands corporation, and pay a fee to third parties to act as corporate directors. Those third parties, at the direction of the U.S. client, would then open a bank account at Gonet in the name of the non-U.S. entity or transfer funds from a pre-existing account from another bank.  Gonet employees provided prospective U.S. clients with referrals to external advisors who could assist with the creation and management of such an entity.  In certain cases, Gonet was aware that a U.S. client was the true beneficial owner of the account. Despite this, Gonet would sometimes obtain from the entity’s directors an IRS Form W-8BEN or equivalent bank document that falsely declared that the beneficial owner was not a U.S. taxpayer.

Since Aug. 1, 2008, Gonet held 150 U.S.-related accounts with an aggregate maximum balance of approximately $254.5 million.  Gonet will pay a penalty of $11.454 million. 

BC Valais, founded in 1917, is headquartered in the Canton of Valais, Switzerland.  BC Valais was founded by the government of the Canton of Valais to provide banking services to assist in the development of the regional economy and to provide credit services to residents of the Canton of Valais. As a cantonal bank, the Canton of Valais is BC Valais’ majority shareholder, and pursuant to cantonal law, the Canton of Valais guarantees all of the bank’s liabilities.

In 2001, BC Valais entered into a QI Agreement with the IRS. If an accountholder wanted to trade in U.S. securities without being subjected to mandatory U.S. tax withholding, the agreement required BC Valais to obtain the consent of the accountholder to disclose the client’s identity to the IRS. In the years following the signing of its QI Agreement, BC Valais’ position was that it could service U.S. clients that it knew or had reason to believe were non-compliant with their U.S. tax obligations as long as the account did not trade or hold U.S. securities.  For example, an internal memorandum written to BC Valais’ board of directors in October 2009 stated that BC Valais had 63 American clients whose accounts traded securities, but only seven of those 63 clients submitted Forms W-9 to BC Valais that authorized income generated from those securities to be reported to the IRS. The other 56 American clients had not authorized their names to be disclosed to the IRS and, because of the QI Agreement, “[t]he other clients [did] not hold any American securities.”

Prior to the time that BC Valais signed its QI Agreement in 2001, BC Valais requested that its accountholders sign an IRS Form W-9 if they wished to continue to trade in U.S. securities.  One accountholder, who lived in New York and had an open BC Valais account for more than 25 years, signed a form declaring that “I am an American taxpayer … [and I] prohibit the Bank from divulging my name and authorize it to sell in the course of the year 2000 all of my American securities held by the Bank. I take note of the fact that the Bank will not invest in American securities for me anymore.”

Since Aug. 1, 2008, BC Valais maintained 185 U.S.-related accounts with a maximum aggregate value of approximately $72 million.  BC Valais will pay a penalty of $2.311 million.

In accordance with the terms of the Swiss Bank Program, each bank mitigated its penalty by encouraging U.S. accountholders to come into compliance with their U.S. tax and disclosure obligations.  While U.S. accountholders at these banks who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS Offshore Voluntary Disclosure Program, the price of such disclosure has increased.

Most U.S. taxpayers who enter the IRS Offshore Voluntary Disclosure Program to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts.  On Aug. 4, 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement.  With today’s announcement of these non-prosecution agreements, noncompliant U.S. accountholders at these banks must now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.

“Today’s resolutions reflect the continued, strong progress of the Department of Justice’s Swiss Bank Program,” said acting Deputy Commissioner International David Horton of the IRS Large Business & International Division (LB&I). “Financial institutions that aided non-compliance and evasion are putting this conduct behind them and cooperating, leading us to those U.S. taxpayers who have failed to report their foreign accounts and pay their income taxes.”

“The end of the year does not signal the end to our enforcement efforts to bring to justice those who would circumvent our nation’s tax laws by hiding their money overseas,” said Chief Richard Weber of IRS Criminal Investigation (CI).  “In fact, with the wealth of information gathered from the Swiss Bank Program, we have already begun to track those individuals who think they are above the law and continue to hide their money offshore.  The decision to evade taxes will certainly be one they regret when they face criminal sanctions.”

Acting Assistant Attorney General Ciraolo thanked the IRS and in particular, IRS-CI and the IRS LB&I Division for their substantial assistance.  Acting Assistant Attorney General Ciraolo also thanked the counsel on these matters, John E. Sullivan, Mark W. Kotila, Thomas G. Voracek and Thomas J. Sawyer, who serves as Senior Counsel for International Tax Matters and Coordinator of the Swiss Bank Program, as well as Senior Litigation Counsel Nanette L. Davis and Attorney Kimberle E. Dodd of the Tax Division.

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

 
 

December 30, 2015 | Permalink | Comments (0)

Tuesday, December 29, 2015

Justice Department Announces Banque Cantonale Vaudoise Reaches Resolution Under Swiss Bank Program

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

Founded in 1845 and headquartered in Lausanne, Switzerland, BC Vaudoise was established by an Act of the Vaud Cantonal Parliament as a corporation organized under public law. The Canton of Vaud must hold a majority share of BC Vaudoise, and the Canton currently holds more than two third of the shares of BC Vaudoise.  

BC Vaudoise is a retail bank whose legal mission has always been to provide banking services to the local community.  Because BC Vaudoise is a cantonal bank serving the residents of the Canton of Vaud, most of its business relates to three core areas: retail banking, including home mortgages and savings accounts; small and medium enterprises; and onshore private banking. BC Vaudoise also provides private banking services to clients residing outside of Switzerland through its International Private Banking Department.

BC Vaudoise was aware that U.S. persons had a legal duty to report to the Internal Revenue Service (IRS) and pay taxes on the basis of all their income, including income earned in accounts that the U.S. persons maintained at BC Vaudoise.  BC Vaudoise knew or had reason to know that it was likely that some U.S. taxpayers who maintained accounts at BC Vaudoise were not complying with their U.S. reporting obligations.

In 2008, BC Vaudoise opened approximately 10,000 more new client accounts bank-wide than in the previous years. A large portion of these accounts were for ex-UBS clients who left UBS during the financial crisis. Out of this overall influx of clients, between August 2008 and February 2009, BC Vaudoise opened 265 new U.S. taxpayer accounts, comprising an aggregate of $171 million in new assets under management, without determining whether the relevant U.S. taxpayer clients were tax compliant in the United States.

BC Vaudoise had several relationships with independent asset managers who brought 93 U.S. taxpayer-clients to BC Vaudoise between August 2008 and February 2009.  BC Vaudoise did not require evidence of tax compliance with respect to these accounts, which resulted in the opening of many undeclared accounts for U.S. taxpayer-clients. One of these asset managers received a finders’ fee of 300,000 Swiss francs for introducing accounts to BC Vaudoise.

BC Vaudoise offered a variety of traditional Swiss banking services – including hold mail service, numbered accounts and code named accounts – that it knew could assist, and that did assist, U.S. taxpayers in concealing assets and income from the IRS. BC Vaudoise permitted U.S. taxpayer-clients to close undeclared U.S.-related accounts by transferring account funds to non-U.S.-related accounts, while continuing to exercise control or retain entitlement to the funds.  Close to or while closing accounts, BC Vaudoise also allowed U.S. taxpayer-clients to make large cash withdrawals totaling millions of dollars and to cash millions of dollars in checks drawn on the accounts.

BC Vaudoise opened and maintained potentially undeclared accounts beneficially owned by U.S. taxpayers and held in the name of structures, which were formed in the British Virgin Islands, Cayman Islands, Panama, Switzerland and the United Kingdom. U.S. taxpayers were beneficial owners of those nominee entities, which enabled U.S. taxpayer clients to conceal their identities from the IRS. In some instances, BC Vaudoise provided U.S. taxpayers with the names of outside service providers who could create these types of structures.  BC Vaudoise also permitted relationship managers in some cases to have direct contact with and accept instructions from U.S. beneficial owners who did not have powers of attorney over the entity accounts, including accounts that were held by entities incorporated in the British Virgin Islands and Panama.

Since Aug. 1, 2008, BC Vaudoise held approximately 2,088 U.S.-related accounts, which included both undeclared and not undeclared accounts, with total assets of approximately $1.3 billion.  BC Vaudoise will pay a penalty of $41.677 million.

December 29, 2015 | Permalink | Comments (0)

Monday, December 28, 2015

Ukrainian National Extradited from Poland to Face Charges Related to $10 Million Cyber Money Laundering Operation

A Ukrainian national made his initial appearance  in federal court in Charlotte, North Carolina, after being extradited from Poland to face charges relating to a $10 million international money laundering operation, announced Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Jill Westmoreland Rose of the Western District of North Carolina and Special Agent in Charge John A. Strong of the FBI’s Charlotte Division.

Viktor Chostak, 34, of Ukraine, along with three other individuals, are charged in a 25-count indictment with conspiracy to FBISealcommit money laundering, eleven counts of money laundering, conspiracy to commit computer fraud, conspiracy to transport stolen property, conspiracy to commit access device fraud, four counts of transporting stolen property and six counts of aggravated identity theft.

According to a redacted version of the indictment unsealed today, beginning in September 2007, Chostak and three other conspirators were members of an international money laundering organization.  The organization created and operated a sophisticated online infrastructure that allowed hackers to obtain and conceal stolen money, primarily from U.S. companies’ bank accounts, and transfer it to countries outside the United States.  The organization created seemingly legitimate websites for fake companies, then sent spam emails advertising employment opportunities.  When an individual responded to the spam solicitations, the organization put the applicant through what appeared to be a legitimate hiring process.  The organization falsely represented that the individual’s job was to receive payments from businesses into their personal bank accounts, withdraw the money, then wire the funds to the company’s partners overseas.  In reality, the individuals merely acted as money mules, processing hackers’ stolen proceeds and wiring them out of the country to other conspirators.  The organization allegedly laundered at least $10 million in stolen money from the United States overseas.

According to the indictment, Chostak recruited, hired and managed others who oversaw the money mule operations.  Chostak also allegedly worked with computer programmers to meet the needs of the organization’s online infrastructure.

An indictment is merely an allegation and the defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

The case is being investigated by the FBI’s Charlotte Division.  The Criminal Division’s Office of International Affairs also provided assistance.  The case is being prosecuted by Trial Attorneys Jocelyn Aqua and Ryan K. Dickey of the Criminal Division’s Computer Crime and Intellectual Property Section, and Assistant U.S. Attorney Kevin Zolot of the Western District of North Carolina.

Chostak et al Indictment

December 28, 2015 | Permalink | Comments (0)

Sunday, December 27, 2015

Edmond de Rothschild reached a joint resolution under the department’s Swiss Bank Program. EdR Switzerland will pay a penalty of more than $45 million.

Edmond de Rothschild (Suisse) SA is a corporation organized under the laws of Switzerland with its headquarters in Geneva, Irs_logoSwitzerland, and it operates a subsidiary called Edmond de Rothschild (Lugano) SA (collectively EdR Switzerland).  EdR Switzerland, one of the largest private banks in Switzerland, also operates a financial services business in Geneva, Lausanne, Fribourg and Lugano, Switzerland.  It offers private banking and wealth management services for individual clients around the world, including U.S. citizens, legal permanent residents and resident aliens.

EdR Switzerland is affiliated with the Edmond de Rothschild Group, an independent, family-controlled financial group focused on high-net-worth individual clients.  The Edmond de Rothschild Group was founded in 1953 and currently operates in 19 countries worldwide.  In 2012, EdR Switzerland agreed to acquire the Lugano-based Sella Bank AG, which became part of Edmond de Rothschild (Lugano) SA in 2013. 

For decades prior to and through 2013, EdR Switzerland aided and assisted U.S. clients in opening and maintaining undeclared accounts in Switzerland and concealing the assets and income they held in these accounts. EdR used a variety of means to assist U.S. clients in concealing their undeclared accounts, including by:

  • Providing traditional Swiss banking products such as hold mail, code name and numbered account services;
  • Assisting clients in using sham entities, such as structures as nominee beneficial owners of the undeclared accounts;
  • Providing offshore credit cards, cash cards and debit cards to repatriate funds from the undeclared accounts;
  • Structuring transfers of funds from undeclared accounts to evade currency transaction reporting requirements;
  • Facilitating the covert repatriation of undeclared accounts via cash withdrawals, the purchase of luxury goods and transfers to the foreign bank accounts of non-U.S. friends, family and business associates;
  • Accepting and suggesting the use of Internal Revenue Service (IRS) forms that falsely stated under penalties of perjury that the sham entities beneficially owned the assets in the undeclared accounts; and
  • Divesting U.S. securities from its undeclared U.S. accounts for the purpose of subverting its Qualified Intermediary (QI) Agreement with the IRS.

EdR Switzerland relationship managers assisted numerous U.S. clients in covertly repatriating undeclared account funds by structuring transfers in amounts under $10,000 to avoid detection by U.S. authorities.  For example, after numerous discussions with one U.S. client regarding his intent to covertly repatriate his undeclared account funds, an EdR Switzerland relationship manager issued a series of checks in the amount of $8,500 made out to the U.S. client drawn on EdR Switzerland’s bank account at UBS in Switzerland.  The same relationship manager also assisted this U.S. client in withdrawing $11,000 in cash before re-depositing $2,000 based on “customs limitations.”  In another instance, an EdR Switzerland relationship manager assisted a U.S. client in transferring 145,000 Swiss francs to the Swiss UBS account of a luxury watch maker.

Several EdR Switzerland employees notated the advice they provided regarding the repatriation of undeclared U.S. client funds.  One relationship manager noted the following about his discussion with a U.S. client: “Telephonic contact with the account holder.  Explained to him the situation with respect to U.S. citizen account holders. Asked what to do. Suggested to him to make a donation to his wife.”  An assistant to a different relationship manager made this note in an account file: “Explained to [the niece] our need to close the account (client residing in USA) and only possible solution transfer of account to a person not resident in the USA.”

Certain relationship managers assisted or otherwise facilitated some U.S. individual taxpayers in establishing and maintaining undeclared accounts in a manner that concealed the U.S. taxpayers’ ownership or beneficial interest in said accounts.  At least one EdR Switzerland relationship manager coordinated with an external trust company to create and administer an offshore structure incorporated in Singapore.  EdR Switzerland relationship managers also knew or had reason to know that U.S. clients used external trust companies and attorneys to create and administer structures incorporated or based in offshore locations such as the British Virgin Islands, Panama and Liechtenstein.  For certain U.S. client accounts, EdR Switzerland relationship managers and other employees knowingly accepted and included in EdR Switzerland’s account records IRS Forms W-8BEN (or EdR Switzerland’s substitute forms) provided by the directors of the offshore companies that falsely represented under penalty of perjury that such companies were the beneficial owners.

At least one relationship manager assisted two U.S. clients in closing their undeclared accounts at EdR Switzerland by briefly opening up new individual accounts at EdR Switzerland, into which EdR Switzerland transferred the funds from the undeclared accounts, and then transferred the funds from the new accounts to insurance wrapper accounts in Liechtenstein.  Insurance wrappers were marketed to U.S. clients by third-party providers in the wake of the UBS investigation as a means of disguising the beneficial ownership of U.S. clients.

Throughout its participation in the Swiss Bank Program, EdR Switzerland has made comprehensive disclosures regarding its U.S.-related accounts.  Among other things, EdR Switzerland provided actionable information concerning numerous U.S. client accounts held at EdR Switzerland since August of 2008 permitting the department to make treaty requests to the Swiss competent authority for U.S. client account records.  EdR Switzerland also described in detail its U.S. cross-border business, including the policies or lack of policies that contributed to misconduct committed by relationship managers, supervisory relationship managers and EdR Switzerland management; the supervisory chain overseeing relationship managers; and the names of senior management and legal and compliance officials.

Since Aug. 1, 2008, EdR Switzerland held and managed approximately 950 U.S. client accounts, which included both declared and undeclared accounts, with aggregate peak of assets under management of $2.16 billion. EdR Switzerland will pay a penalty of $45.245 million.

December 27, 2015 | Permalink | Comments (0)

Saturday, December 26, 2015

Bordier & Cie, PBZ and PostFinance Pay $15 Million and Turn Over Tax Cheats to Avoid Prosecution

The Department of Justice announced today that Bordier & Cie Switzerland (Bordier), PBZ Verwaltungs AG (PBZ) and PostFinance AG reached resolutions under the department’s Swiss Bank Program.  These banks collectively will pay penalties of more than $15 million.

 

Bordier was founded in 1844 in Geneva, Switzerland, where it maintains its headquarters.  Five generations of the Bordier Irs_logofamily have run the bank over the subsequent 170 years.  Bordier has three additional Swiss offices in Zurich, Bern and Nyon, and outside of Switzerland, Bordier has two asset management companies – one in London and one in Paris.  Additionally, Bordier is affiliated with two independent entities with local banking licenses: Bordier Bank (TCI) Ltd., established in 1986 under the laws of the Turks and Caicos, and Bordier & Cie (Singapore) Ltd., established in 2011 under the laws of Singapore.  Structurally, Bordier is led by its “Comité de Direction,” which is composed of the partners, the chief financial/administrative officer, the General Counsel, the communications director and two senior wealth managers.

Bordier was aware that some of its U.S. clients were using their accounts at Bordier to evade U.S. taxes and reporting requirements.  In certain account files, Bordier had notes stating, “Declared: No.”  In other instances, the U.S. taxpayer-client informed Bordier that he or she did not plan to declare his or her account in the United States.  For one account, a U.S. taxpayer-client refused to provide a copy of his passport, despite repeated requests from Bordier, and in 1998, this client signed bank forms with a fake signature to avoid potential recognition.  This accountholder eventually told Bordier that he did not want to declare the account in the United States because he was a lawyer and would be disbarred.  In 2000, one U.S. taxpayer-client informed Bordier, “I am glad to know that there are no U.S. securities subject to U.S. withholding tax.  I do not intend to declare this account to the U.S. authorities.”  For one account where the ultimate beneficial owner was a U.S. person, Bordier noted in the files, “Client will introduce a South African friend domiciled in Monaco who will invest in USA and transfer funds to the client.”

In a limited number of instances, Bordier actively facilitated the evasion of U.S. taxes and reporting requirements for some of its U.S. accountholders.  For example, Bordier made repeated transfers of undeclared assets under $10,000 to the Montreal bank account of a U.S. taxpayer-client in Canada in order to help the client avoid U.S. tax and reporting obligations and keep the undeclared assets hidden. For one such transfer, the U.S. taxpayer-client requested his “usual order of chocolate” from Bordier in order to institute these transfers.  Bordier was aware that the U.S. taxpayer-client withdrew the amounts in cash: “Telephone [call from U.S. taxpayer-client].  Please transfer US$8,000 to Montreal as usual.  He will pick up the cash. . . .”  In 2002, according to file notes made by the former relationship manager, Bordier transmitted undeclared assets to a U.S. taxpayer-client in a hidden manner (“sous forme cache” in French).  Bordier’s conduct allowed the bank to increase the undeclared U.S. taxpayer assets that it managed, thereby increasing the fees it generated.

Another U.S. taxpayer-client refused to sign Bordier’s Declaration of Non-U.S. Status form, which would have indicated that she was a U.S. person, despite it being required as part of Bordier’s account opening procedures.  When the U.S. taxpayer-client asked Bordier about the impact of the UBS investigation, Bordier told the U.S. taxpayer-client that she “cannot call, that her capital is protected and that she multiplies her risks by calling the bank often.  She should only call once a year when she is in Europe.” 

From 2008 to the present, Bordier maintained approximately 292 U.S.-related accounts with a total of $440.8 million in assets under management.  Bordier will pay a penalty of $7.827 million.

PBZ was a private bank operating in Zurich.  From 2001 to November 2013, PBZ Verwaltungs AG operated as AKB Privatbank Zürich AG and was a subsidiary of Aargauische Kantonalbank.  Prior to 2001, PBZ operated as BFZ Bankfinanz AG, a bank founded in 1988 and headquartered in Zurich.  In November 2013, Aargauische Kantonalbank sold AKB Privatbank to Privatbank IHAG Zürich AG, and since July 2014 it has operated as PBZ Verwaltungs AG.  PBZ Verwaltungs AG has ceased its banking activities and had its banking license revoked by Aug. 29, 2014.

As early as 2008, PBZ knew that some U.S.-related accounts held untaxed funds, which were described within PBZ in one instance as “Schwarzgeld” or “black money.”  PBZ knew that U.S. persons had a duty under U.S. law to report their income to the Internal Revenue Service (IRS) and to pay taxes on that income, including all income earned in accounts maintained by PBZ in Switzerland.  Despite this knowledge, PBZ opened, maintained and serviced accounts for U.S. persons that it knew or had reason to know were likely not declared to the IRS or the U.S. Department of the Treasury, as U.S. law required.  As of Feb. 19, 2010, PBZ formally renounced its previous practice of accepting “manifestly untaxed assets from foreign clients.” 

In 2001, PBZ entered into a Qualified Intermediary (QI) agreement with the IRS.  As a QI, PBZ agreed to supply the IRS with information and to withhold tax in connection with trades in U.S. securities.  The agreement’s purpose was to ensure that, with respect to U.S. securities held in an account at PBZ, non-U.S. accountholders would be subject to the proper U.S. tax rates on withholding and that U.S. accountholders would properly pay U.S. taxes.  As a practical matter, PBZ reported income pursuant to the QI agreement on only one of its U.S.-related accounts.  For each U.S. client who did not provide a W-9, PBZ blocked any trading in U.S. securities, which, in PBZ’s view, obviated any payment or reporting obligation under the QI agreement.

PBZ opened accounts for foundations and other entities set up in Panama, Liechtenstein and any of several island countries – the Bahamas, the British Virgin Islands, the Cayman Islands, the Marshall Islands, St. Kitts and Nevis and the Turks and Caicos Islands – that PBZ knew were beneficially owned by U.S. persons.  For instance, accounts were opened for three British Virgin Islands corporations that really belonged to a single U.S. person as the beneficial owner.  In another instance, a U.S. resident beneficial owner of a Marshall Islands corporation gave instructions on an account nominally held by a domiciliary entity that resulted in the transfer of the account to the beneficial owner’s brother, who lived abroad. 

PBZ also offered a variety of traditional Swiss banking services – including hold mail and numbered accounts – that it knew could assist, and did assist, U.S. taxpayers in concealing their identity from the IRS by minimizing the paper trail associated with their undeclared assets and income.  From time to time, PBZ assisted its U.S. clients in sending money to themselves, relatives, business partners or other businesses in the United States by issuing checks drawn on PBZ’s own bank account.  Issuing such checks is a service routinely provided by banks to clients and is similar to cashier’s checks in the United States.  But under the circumstances present with respect to the U.S. clients, because these checks listed only PBZ as the accountholder, they did not reveal that the funds were ultimately paid out of the U.S. clients’ Swiss bank account.  One such check issued was in the amount of $301,000. U.S. clients were thus able to utilize this technique to conceal their ownership of a Swiss bank account.

From at least 2008 through 2014, PBZ maintained and serviced 171 U.S.-related accounts having a maximum aggregate value of more than $101 million. PBZ will pay a penalty of $5.57 million.

PostFinance, headquartered in Bern, is a wholly-owned subsidiary of Swiss Post, the Swiss state-owned enterprise responsible for Swiss postal and other essential public infrastructure services.  The Swiss parliament established PostFinance’s predecessor in 1906 to provide payment services to retail customers.  PostFinance operated as a division of Swiss Post until June 26, 2013, when it became a bank under Swiss law.

For decades, PostFinance has provided the predominant means of payment in Switzerland.  Customers pay bills and receive payments, electronically or in person, at post offices in Switzerland through PostFinance accounts.  PostFinance has 45 branch offices, all in Switzerland, and roughly 40 percent of Swiss residents have an account with PostFinance.  Until 2008, the names of PostFinance’s customers were publicly available.  PostFinance was not subject to Swiss bank secrecy laws until June 26, 2013, when it received its license to operate as a bank under Swiss law.

Before and since Aug. 1, 2008, PostFinance was required by Swiss law and government mandate to provide accounts to persons living in Switzerland, regardless of nationality, and to Swiss nationals living outside of Switzerland.  Consequently, PostFinance provided accounts to U.S. taxpayers living in Switzerland, as well as to Swiss nationals living in the United States, including U.S.-related accountholders who transferred assets to PostFinance from UBS or other banks under investigation by the department.  

PostFinance has never offered private banking or wealth management services to any of its customers.  Instead, PostFinance engaged in basic consumer retail banking and payment services. U.S. taxpayers resident in Switzerland, as well as U.S.-Swiss dual nationals, may obtain “current” accounts, which are comparable to checking accounts in the United States. Savings accounts, fixed income retirement accounts and credit cards may be obtained only by Swiss residents.

PostFinance was aware that citizens and resident aliens of the United States had a legal duty to report their assets and income to the IRS and to pay taxes on the basis of all their income, including income earned from accounts that PostFinance maintained on their behalf.  Largely due to its obligations under Swiss law, however, PostFinance nevertheless opened and maintained undeclared accounts belonging to customers who were subject to U.S. tax and were not complying with their U.S. tax obligations.

Since Aug. 1, 2008, PostFinance maintained a total of 2,731 U.S.-related accounts having a maximum aggregate value of approximately $290 million.  PostFinance will pay a penalty of $2 million.

In accordance with the terms of the Swiss Bank Program, each bank mitigated its penalty by encouraging U.S. accountholders to come into compliance with their U.S. tax and disclosure obligations.  While U.S. accountholders at these banks who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS Offshore Voluntary Disclosure Program, the price of such disclosure has increased.

Most U.S. taxpayers who enter the IRS Offshore Voluntary Disclosure Program to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts.  On Aug. 4, 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement.  With today’s announcement of these non-prosecution agreements, noncompliant U.S. accountholders at these banks must now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.

Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division thanked the IRS and in particular, IRS-Criminal Investigation and the IRS Large Business & International Division for their substantial assistance.  Acting Assistant Attorney General Ciraolo also thanked Kaycee M. Sullivan, Brian D. Bailey and Paul G. Galindo, who served as counsel on these matters, as well as Senior Counsel for International Tax Matters and Coordinator of the Swiss Bank Program Thomas J. Sawyer, Senior Litigation Counsel Nanette L. Davis and Attorney Kimberle E. Dodd of the Tax Division.

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

December 26, 2015 | Permalink | Comments (0)

Friday, December 25, 2015

Former Executive Sentenced for Conspiracy to Bribe Panamanian Officials

A former regional director of the technology company SAP International Inc. was sentenced to prison today for his role in a Justice logoscheme to bribe Panamanian officials to secure the award of government technology contracts.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Acting U.S. Attorney Brian J. Stretch of the Northern District of California, Special Agent in Charge George L. Piro of the FBI’s Miami Division and Acting Special Agent in Charge Thomas McMahon of Internal Revenue Service-Criminal Investigation (IRS-CI) made the announcement.

Vicente Eduardo Garcia, 65, of Miami, was sentenced to 22 months in prison by U.S. District Judge Charles R. Breyer of the Northern District of California.  On Aug. 12, 2015, Garcia pleaded guilty to one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA).  On July 15, 2015, Garcia and the U.S. Securities and Exchange Commission (SEC) entered into a settlement of the parallel SEC investigation in which Garcia agreed, among other things, to pay disgorgement of $85,965 plus prejudgment interest.  For this reason, the United States did not request, and the court did not order, forfeiture in the criminal action.

In his plea, Garcia admitted that in late 2009, to secure for SAP a multimillion-dollar contract to provide a Panamanian state agency with a technology upgrade package, Garcia conspired with others to bribe two Panamanian government officials directly and a third official through an agent.  Garcia admitted that the conspirators used sham contracts and false invoices to disguise the true nature of the bribes and that he believed paying such bribes was necessary to secure the initial and any future Panamanian government contracts.  Panamanian officials awarded the $14.5 million contract, which included $2.1 million in SAP software licenses, to SAP’s partner as well as subsequent contracts that also included the provision of SAP products.  Garcia personally received over $85,000 in kickbacks for arranging the bribes.

The FBI and IRS-CI investigated the case.  Trial Attorney Aisling O’Shea of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Adam A. Reeves of the Northern District of California are prosecuting the case.  The Criminal Division’s Office of International Affairs and the SEC, which previously announced separate civil charges against Garcia, provided assistance. 

Additional information about the Justice Department’s FCPA enforcement efforts can be found atwww.justice.gov/criminal/fraud/fcpa.

December 25, 2015 | Permalink | Comments (0)

Thursday, December 24, 2015

Accountant for Michael ‘The Situation’ Sorrentino Admits Tax Fraud Conspiracy

The former tax preparer for television personality Michael “The Situation” Sorrentino and his brother, Marc Sorrentino, Irs_logoadmitted filing fraudulent tax returns on their behalf, Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U.S. Attorney Paul J. Fishman of the District of New Jersey announced.

Gregg Mark, 51, of Spotswood, New Jersey, pleaded guilty before U.S. District Judge Susan D. Wigenton in Newark federal court to an information charging him with one count of conspiracy to defraud the United States.

According to documents filed in this case and statements made in court: Mark, formerly an accountant at a Staten Island, New York-based accounting firm, admitted preparing fraudulent tax returns for the Sorrentinos for tax years 2010 and 2011, during which time the Sorrentinos and their businesses – MPS Enterprises LLC and Situation Nation Inc. – received millions of dollars in income. To reduce the taxes the Sorrentinos owed, Mark caused to be prepared and filed with the Internal Revenue Service (IRS) fraudulent business and personal tax returns. Mark admitted the Sorrentinos’ false returns defrauded the IRS out of $550,000 to $1.5 million.

On Sept. 24, a grand jury in Newark returned a seven-count indictment charging the Sorrentinos with conspiracy to defraud the United States and filing false tax returns. Michael Sorrentino was also charged with failing to file a tax return. According to the indictment, the brothers received several million dollars in connection with Michael Sorrentino’s role as a cast member on the MTV television show “Jersey Shore” and other promotional activities. The brothers are charged with failing to report all of the income they received. They are also charged with claiming personal expenses as business expenses, including payments for luxury vehicles and high-end clothing, and making distributions – or direct payments – from the businesses to personal bank accounts. Both have pleaded not guilty; a trial date has not yet been set.

The conspiracy charge to which Mark pleaded guilty carries a statutory maximum sentence of five years in prison and a $250,000 fine. Sentencing is scheduled for March 24, 2016.

December 24, 2015 in Tax Compliance | Permalink | Comments (0)

Wednesday, December 23, 2015

FBME Bank Ltd: Re-opening of comment period and availability of supplemental information

On July 29, 2015, FinCEN issued a Final Rule imposing the fifth special measure against FBME Bank Ltd. (FBME) with an effective date of August 28, 2015.  On August 27, 2015, the United States District Court for the District of Columbia granted FBME’s motion for a preliminary injunction and enjoined the Final Rule from taking effect. On November 6, 2015, the Court granted the Government’s motion for voluntary remand to allow for further rulemaking proceedings.

On November 27, 2015, FinCEN published in the Federal Register a Notice to re-open the Final Rule for 60 days to solicit additional comment in connection with the rulemaking, particularly with respect to the unclassified, non-protected documents that support the rulemaking and whether any alternatives to the prohibition of the opening or maintaining of correspondent accounts with FBME would effectively mitigate the risk to domestic financial institutions.  The Notice can be found at http://www.gpo.gov/fdsys/pkg/FR-2015-11-27/pdf/2015-30119.pdf. The unclassified, non-protected documents that support the rulemaking are available at http://www.regulations.gov/#!documentDetail;D=FINCEN_FRDOC_0001-0038 [Docket ID: FINCEN_FRDOC_0001].

III. Request for Comments

FinCEN invites comments on all aspects of this rulemaking, including, but not limited to, the following:

1. The unclassified, non-protected information that FinCEN intends to rely upon during the rulemaking proceeding; (7)

2. Whether any of special measures one through four under Section 311 with respect to covered U.S. financial institutions' activities involving FBME would be an effective alternative to mitigate the risk posed by FBME as explained in the Notice of Finding;

3. Whether, pursuant to special measure five of Section 311, FinCEN should impose conditions, rather than a prohibition, on the opening or maintaining of correspondent accounts with FBME as an effective alternative to mitigate the risk posed by FBME as explained in the Notice of Finding; and

4. Any material developments that have occurred with respect to FBME since the issuance of the NOF and NPRM on July 22, 2014, including whether reasonable grounds continue to exist for concluding that FBME is a primary money laundering concern.

December 23, 2015 in FinCEN | Permalink | Comments (0)

Tuesday, December 22, 2015

Margin and Capital Requirements for Covered Swap Entities

The FDIC, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Farm Credit Administration, and the Federal Housing Finance Agency (the Agencies) have adopted a final rule to implement Sections 731 and 764 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). These sections require the agencies to adopt rules jointly to establish capital requirements and initial and variation margin requirements for all non-cleared swaps and non-cleared security-based swaps of dealers and major participants. The capital requirements under these sections have been previously incorporated in the Agencies' capital rules.

Statement of Applicability to Institutions with Total Assets Under $10 Billion: In conjunction with the final rule, the Agencies have adopted an interim final rule that would exempt swaps entered into by financial institutions with total assets of $10 billion or less from the final rule, provided the swaps were entered into for hedging purposes. The Agencies seek comments on the interim final rule, for which the comment period closes January 31, 2016.

Highlights:

The final rule imposes certain margin requirements on insured depository institutions and other entities regulated by the Agencies that have registered as swap dealers and major swap participants with the Commodity Futures Trading Commission or as security-based swap dealers and major security-based swap participants with the U.S. Securities and Exchange Commission. These organizations are referred to in the final rule as "covered swap entities" (CSEs). Generally, the final rule would require CSEs to:

  • Collect initial margin and variation margin from other CSE counterparties.
  • Post and collect daily initial margin when trading with financial end-user counterparties with material swaps exposure, defined as a notional exposure of $8 billion or more.
  • Post and collect daily variation margin when trading with financial end-user counterparties, regardless of the level of swaps exposure if the required amount of variation margin and initial margin exceeds $500,000.

In addition, the final rule:

  • Includes specific provisions for inter-affiliate swaps.
  • Does not require CSEs to exchange margin with commercial end-users or financial institutions with total assets of $10 billion or less, provided that the swaps are entered into for hedging purposes.
  • Establishes minimum quality standards for acceptable initial and variation margin collateral. It also establishes minimum safekeeping standards for initial margin collateral posted by CSEs and counterparties to ensure collateral will be available to support the trades if defaults occur.
  • Applies only to new swaps entered into after the applicable compliance dates. These dates range from September 2016 to September 2020.

Final Rule to Establish Margin and Capital Requirements for Covered Swap Entities - PDF

Interim Final Rule to Exempt Commercial End Users and Small Banks - PDF

December 22, 2015 in Financial Regulation | Permalink | Comments (0)

Monday, December 21, 2015

Former Head of Brokerage Guilty for $25 Million International Stock Fraud and Money Laundering Scam for Warrior Girl & Everock

Harold Bailey Gallison II, 58, of Valley Center, California, was charged in an indictment unsealed on July 14, 2015, along with eight other individuals for their roles in complex, international stock manipulation and money laundering schemes.

In entering his guilty plea, Gallison admitted that he conspired to artificially “pump” or inflate the trading volume and price of the shares of Warrior Girl Corp., quoted on the OTC FBISealmarket under the ticker symbol WRGL, and Everock Inc., quoted on the OTC market under the ticker symbol EVRN, by touting business activities and deceptive revenue forecasts and by engaging in coordinated trading activity to create the appearance of increasing market demand. 

Gallison admitted that he and others then “dumped” or sold the shares at the inflated prices and laundered proceeds through bank accounts in the United States and overseas.  Gallison further admitted that he facilitated the schemes through an offshore brokerage and money laundering platform that went by various names, including Sandias Azucaradas, Moneyline Brokers and Trinity Asset Services (collectively Moneyline).  Through Moneyline, Gallison created nominee accounts in the names of shell companies to conceal both the true source and ownership of the securities and the flow of funds.  In addition, Gallison pleaded guilty to one count of conspiring to launder the proceeds of a number of securities fraud schemes, including Warrior Girl and Everock, totaling more than $25 million. 

Several of Gallison’s co-defendants are scheduled to proceed to trial on Jan. 25, 2016, and are presumed innocent until and unless proven guilty.  Gallison is scheduled to be sentenced on March 18, 2016.

December 21, 2015 | Permalink | Comments (0)

Sunday, December 20, 2015

Cornèr & Bank Coop Enter Non Prosecution Program for Enabling Tax Evasion

The Department of Justice announced today that Cornèr Banca SA (Cornèr) and Bank Coop AG (Bank Coop) reached resolutions under the department’s Swiss Bank Program

Cornèr is headquartered in Lugano, Switzerland, with branch offices in Chiasso, Geneva, Locarno and Zurich, Switzerland.  Cornèr has two wholly owned affiliates: Cornèr Banque Irs_logo(Luxembourg) SA, based in Luxembourg, and Cornèr Bank (Overseas) Ltd., based in the Bahamas.  Cornèr offers a full range of traditional banking services, but it specializes in private banking, payment cards and securities trading. 

For 40 years, Cornèr has offered both credit cards and prepaid debit cards under its CornèrCard brand name to its clients and clients of other financial institutions.  Since Aug. 1, 2008, U.S. persons held 1,312 CornèrCard accounts at Cornèr. Use of CornèrCards by U.S. persons facilitated their access to and use of any undeclared funds on deposit at Cornèr and at other Swiss banks.

Cornèr assisted certain of its U.S. clients to evade their U.S. tax obligations, file false federal tax returns with the Internal Revenue Service (IRS) and hide overseas assets from the IRS.  Cornèr opened, maintained and serviced accounts for U.S. persons that it knew were likely not declared to the IRS or the U.S. Department of the Treasury as required by U.S. law. Cornèr also maintained correspondent accounts at a U.S. bank to facilitate certain transactions for its clients – namely, conducting wire transfers in U.S. dollars and collecting checks issued in U.S. dollars.  Such transfers included transactions involving U.S.-related accounts.

Between 2001 and 2008, Cornèr relationship managers traveled to the United States on at least 10 occasions to visit existing Cornèr clients.  All of the U.S. client visits were approved by Cornèr management.  Cornèr executives accompanied relationship managers on several of the trips to the United States and also visited with U.S. clients.  Matters discussed during these client visits included account performance, account fees, account investment positions, alternative investments, increasing client deposits at Cornèr, client satisfaction with Cornèr, how to send account funds to the United States to purchase assets and referrals of new clients to Cornèr by existing clients.  Cornèr relationship managers also met with holders of U.S.-related accounts in countries other than the United States and Switzerland, such as Italy.

In August 2008, Cornèr’s executive board decided that:

  • There would be no changes to Cornèr’s existing U.S.-related accounts at that time, based on the board’s assessment that Cornèr had not engaged in the same type of conduct as had UBS;

  • Cornèr would continue accepting new U.S. clients, but only after review by Cornèr’s compliance department and approval by an executive board member; and

  • Cornèr would not accept any new U.S. clients coming from UBS.

However, after August 2008, Cornèr accepted new U.S.-related accounts from UBS, and Cornèr had reason to know that some of these accounts were undeclared. Also, after August 2008, Cornèr accepted new U.S.-related accounts, including one of the above-mentioned UBS accounts, without approval by an executive board member.

Cornèr provided its U.S. clients with the option to enter into hold-mail agreements, which allowed U.S. persons to keep evidence of their accounts outside of the United States in order to conceal assets and income from the IRS.  Cornèr also provided its U.S. clients with the option to request numbered accounts, including code-name accounts.  Holders of these accounts were permitted to use code names in all of their correspondence addressed to Cornèr and agreed that correspondence from Cornèr addressed to the code names would be considered as addressed to the clients.  Examples of code names used by U.S. persons for their numbered accounts at Cornèr include “Dumbledor,” “Windstopper,” “Rocking” and “Anticipation.”  Cornèr understood that providing numbered accounts and permitting code-name correspondence allowed U.S. persons to keep their identities secret from U.S. authorities in order to conceal assets and income from the IRS. 

Cornèr had U.S.-related accounts that were beneficially owned by U.S. persons but held in the names of structures, including entities such as corporations, foundations or trusts.  Cornèr knew, or had reason to know, that many of these structures were used by U.S. clients to help conceal their identities from the IRS. The structures were organized under the laws of various jurisdictions, including the Bahamas, Belize, the British Virgin Islands, Jersey, Liberia, Liechtenstein, the Marshall Islands, the Netherlands Antilles, Panama, St. Kitts and Nevis, St. Vincent and the Grenadines and Uruguay.  Cornèr Bank (Overseas), Cornèr’s Bahamian affiliate, created international business corporations organized under the laws of the Bahamas, and several such corporations opened accounts at Cornèr that were beneficially owned by U.S. persons.

Since Aug. 1, 2008, Cornèr held 383 U.S.-related accounts with over $351 million in assets.  Cornèr will pay a penalty of $5.068 million.

Bank Coop is a Swiss retail bank headquartered in Basel, Switzerland.  Bank Coop was founded in 1927, when the Swiss Confederation of Trade Unions and the Federation of Swiss Consumer Associations established it as a cooperative society under the name Cooperative Central Bank.  Today, Bank Coop is a publicly traded company listed on the SIX Swiss Exchange.  Basler Kantonalbank has been Bank Coop’s majority shareholder since December 1999.  Bank Coop has 32 branches throughout Switzerland.  It has never had offices, branches or subsidiaries outside the country. 

Bank Coop offered a variety of traditional Swiss banking services that it knew could assist, and did assist, U.S. clients in concealing their undeclared assets and income.  These services included hold mail, numbered accounts and travel cash cards.  Bank Coop accepted regular instructions from one client who is a U.S. citizen and resident to transfer approximately $9,500 to his account in the United States each month.  After Aug. 1, 2008, Bank Coop opened accounts for U.S. residents who transferred assets from other Swiss financial institutions, including UBS and Credit Suisse AG, knowing that it was likely that the assets were undeclared.

Bank Coop also processed substantial cash withdrawals in connection with the closure of some U.S.-related accounts.  For example, in February 2012, a client visited Bank Coop three times and withdrew $30,000, 30,000 in euros and 25,000 in euros, respectively, on those visits.  At that time, the client informed Bank Coop that he decided to close the account, expressing concern about recent developments regarding Swiss bank secrecy and disclosure requests by U.S. and EU authorities.  In March 2012, the client withdrew approximately 30,000 in Swiss francs and, upon closing the account in June 2012, withdrew the remaining balance of approximately 5,000 euros.

In April 2010, one client visited Bank Coop and requested that the bank purchase one kilogram of gold, which the client stored in his safety deposit box at Bank Coop.  In August 2010, the client instructed Bank Coop to purchase another kilogram of gold, which was collected by the client’s daughter.  In March 2011, the client instructed Bank Coop to purchase another kilogram of gold, which the client stored in his safety deposit box.  In September 2012, after being advised by Bank Coop that his account would be closed on account of his U.S. residence, the client instructed Bank Coop to sell the gold in his safety deposit box and credit the proceeds to his account at Bank Coop.  In October 2012, the client instructed Bank Coop to close the account and send a “crossed” check of approximately $335,000 to a Swiss law firm.

Bank Coop opened and maintained accounts held in the name of non-U.S. entities, including a Panama corporation and a Hong Kong corporation, while knowing that U.S. taxpayers were the true beneficial owners of the accounts held by these non-U.S. entities.  In at least one instance, Bank Coop was aware that a U.S. person was the true beneficial owner of an account held by a Panama entity but accepted a false IRS Form W-8BEN from the entities’ directors.  The false Form W-8BEN falsely declared that the beneficial owner was not a U.S. taxpayer and was signed by a director of the entity, who also was the director of the external asset manager that introduced the client to Bank Coop. 

In 2001, Bank Coop entered into a Qualified Intermediary (QI) Agreement with the IRS.  The QI regime provided a comprehensive framework for U.S. securities-related information reporting and tax withholding by a non-U.S. financial institution.  In general, if an accountholder wanted to trade in U.S. securities and avoid mandatory U.S. tax withholding, the QI Agreement required Bank Coop to obtain the consent of the accountholder to disclose the client’s identity to the IRS.  Bank Coop continued to service certain U.S. customers without disclosing their identity to the IRS and without considering the impact of U.S. criminal law on that decision.  In 2001, a relationship manager, after winning a contest sponsored by Bank Coop, visited the United States.  During the visit he secured from an accountholder a “Declaration of U.S. Taxable Persons,” in which the accountholder declared that she did not authorize Bank Coop to disclose her name to the U.S. tax authorities and instructed Bank Coop to sell her U.S. securities. 

Since Aug. 1, 2008, Bank Coop maintained 385 U.S.-related accounts, with an aggregate maximum balance of approximately $71.4 million.  Bank Coop will pay a penalty of $3.223 million.        

December 20, 2015 | Permalink | Comments (0)

Saturday, December 19, 2015

Andorra 75th Country to SIgn OECD's Competent Authority Agreement for Automatic Exchange of Financial Account Information

Andorra signed the Multilateral Competent Authority Agreement, marking a crucial step forward in its commitment to implement automatic exchange of financial account information in time to exchange in 2018.

The Multilateral Competent Authority Agreement lays the foundation for the international operational framework for automatic exchange, seen as the pre-eminent instrument for Logooecd_enfacilitating its rapid implementation. Andorra is the 75th  jurisdiction to sign the Agreement.

Andorra signed the Agreement  during a meeting of experts on automatic exchange of information convened by the Global Forum on Transparency and Exchange of Information for Tax Purposes in New Delhi, India.

Participants in the Global Forum meeting discussed progress toward implementation of the new global standard on automatic exchange of information, as well as how to ensure it is implemented effectively. Many jurisdictions are now updating  domestic legislation to ensure that financial institutions report information on financial assets held by non-residents. Financial information will be collected from 1 January 2016 in around 50 jurisdictions, for automatic exchange between authorities in 2017.

The Global Forum has established a real-time monitoring process to  track  delivery of commitments made and to identify areas where support is needed. It has also begun assessing confidentiality standards and data safeguards in all  committed jurisdictions.

The list of jurisdictions that have signed Multilateral Competent Authority Agreement is available here: http://www.oecd.org/tax/exchange-of-tax-information/MCAA-Signatories.pdf

December 19, 2015 in GATCA | Permalink | Comments (0)

Friday, December 18, 2015

Operation “Phantom Bank” Leads to 20 Indictments for Money Laundering & RICO Including Former President of an Orange County Bank

Two Other Money Laundering Indictments Unsealed as Part of Operation “Phantom Bank”

Federal authorities today arrested 11 defendants named in a sweeping racketeering indictment alleging a series of money laundering schemes that revolved around the former head of FBISeal (1)Saigon National Bank, based in Westminster, California, announced Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and U.S. Attorney Eileen M. Decker of the Central District of California.  Four other defendants, who are named in separate indictments, were also arrested today.

The majority of the defendants arrested today are named in a racketeering indictment that was returned on Dec. 1 by a federal grand jury and unsealed today along with two other indictments returned by the grand jury over the past year.  The three indictments charge a total of 20 defendants.

Six of the defendants named in the main indictment are charged with violating the federal Racketeer Influenced and Corrupt Organizations Act (RICO) by playing key roles in a series of schemes to launder drug proceeds.  At the center of the schemes is Tu Chau “Bill” Lu, 71, of Fullerton, California, who from 2009 through January 2015, was president and CEO of Saigon National Bank.

The indictment alleges that Lu and the other five defendants were members of a criminal organization that was involved in narcotics trafficking and international money laundering in countries that included the United States, China, Cambodia, Liechtenstein, Mexico and Switzerland.  Lu allegedly used his insider knowledge, position as an official at Saigon National Bank and

Lu allegedly used his insider knowledge, position as an official at Saigon National Bank and network of connections to promote and facilitate money laundering transactions involving members and associates of the enterprise.  Several members of the organization established or engaged in separate money laundering schemes, but all of the defendants allegedly worked with Lu, through him or at his direction.

In one scheme, an undercover informant delivered cash represented to be drug proceeds to defendants, who allegedly arranged for the cash to be converted into cashier’s checks made out to a company the informant claimed to own.  Other conspiracies alleged in the indictment also involved the delivery of cash from the informant and the defendants’ alleged conversion of that money into cashier’s checks.

As part of the racketeering enterprise, Lu and others named in the RICO count allegedly floated a plan in which the informant and his boss (who was an actually an undercover law enforcement officer) would purchase a controlling interest in Saigon National Bank so they could have a financial institution that could easily facilitate money laundering operations.

In another aspect of the racketeering conspiracy, Lu and others allegedly proposed setting up a foundation in Liechtenstein that would be used to move money around the world.  The informant and an undercover law enforcement officer posing as an associate told those proposing the creation of the foundation that they would be laundering the proceeds of drug sales in Europe and that the drugs had been bartered for weapons in Nigeria.

In yet another aspect of the conspiracy, Lu allegedly played a critical role in introducing the informant and other defendants to operatives from the Sinaloa drug cartel who wanted to launder millions of dollars every month.  According to the indictment, Lu had also discussed purchasing Saigon National Bank with the Sinaloa operatives, and one of the operatives said the cartel had already invested $1 million in the bank.

The five other individuals charged in the RICO count are:

  • Tsung Wen “Peter” Hung, 61, of Monterey Park, California;
  • Edward Kim, 56, of Beverly Hills, California;
  • John Edmundson, 55, a British citizen who resides in Hong Kong, who is still being sought by authorities;
  • Pablo Hernandez, 75, of Tijuana, Mexico, who is still being sought by authorities; and
  • Emilio Herrera, 53, a Mexican citizen who resides in Spring Valley, California, who is still being sought by authorities.

The RICO count is one of 28 counts in the indictment.  The various money laundering schemes detailed in the RICO count are the subject of other charges, specifically conspiracy, money laundering and structuring transactions to avoid federal reporting requirements.  Kim is additionally charged with evidence tampering for allegedly encouraging one of the undercover agents to destroy evidence.

The indictment alleges that members of the racketeering conspiracy discussed laundering hundreds of millions of dollars.  The indictment details actual money transactions involving a total of $3.75 million.

The other defendants named in the indictment are:

  • Mina Chau, 32, of La Mesa, California;
  • Ben Ho, 41, of Santa Ana, California;
  • Tom Huynh, also known as The Fat Guy, 57, of Westminster;
  • Renaldo Negele, 51, of Liechtenstein, who is still being sought by authorities;
  • Jack Nguyen, 38, of Manhattan Beach, California;
  • Luis Krueger, 58, of Malibu, California;
  • Li Jessica Wei, who is also known under various permutations of her name, including Wei Jessica Li, 58, of Arcadia, California;
  • Du Truong “Andrew” Nguyen, 34, of Westminster, who is still being sought by authorities;
  • Richard Cheung, also known as Richard Cheang, 58, of El Monte, California; and
  • Lien Tran, 41, of Santa Ana.

The second indictment unsealed today charges Hung; Wei; Jian Sheng “Raymond” Tan, 48, of Temple City, California; and Derrick Cheung, also known as Chang Zhang Ying and Zhang Ying Chang, 39, of Rowland Heights, California, with conspiring to launder money that they believed to be the proceeds of narcotics trafficking and bank fraud.  The defendants allegedly accepted money from an undercover operative and converted it to cashier’s checks and money orders, in exchange for a fee. 

The third indictment unsealed today charges Tan; Ruimin Zhao, 45, of Temple City; and Vivian Tat, of Hacienda Heights, California, with conspiring to launder money that they believed to be the proceeds of narcotics trafficking.  An undercover operative allegedly delivered the money to the defendants, who converted into cashier’s checks.

 

December 18, 2015 | Permalink | Comments (0)

IRS FATCA Updates

1.  IDES New IP Address


The FATCA International Data Exchange Service (IDES) Gateway  has a new IP address. If you access IDES through an automated process or SFTP, update the IP address to 52.1.31.195. If you need assistance contact the IDES Help Desk.

 

2.  Updated- IDES web page


The following web page and samples have been updated: FATCA XML Schema Best Practices to Correct, Amend and Void

 

3.  Updated - IDES Testing Session


The FATCA International Data Exchange Service (IDES) opens for testing fromMonday, December 21, 2015 at 8:00 AM EDT to Thursday, January 7, 2016 at 5:00 PM EDT (UTC/GMT -4).  The test session will be open to users that have completed IDES enrollment by Thursday, December 17, 2015 at 5:00 PM EDT. Additional testing sessions will be announced on the IDES Testing Schedule web page. If you need assistance, contact the IDES Help Desk.

Note: 

Use test data only. The test files should not contain production data or personally identifiable information, such as a valid taxpayer number or account number. Do not submit production files to the test environment or test files to the production environment.

December 18, 2015 | Permalink | Comments (0)

$680 Million of Tax Cuts, $1.1 Trillion Spending Bill download posted

Politico reports that: Congress released more than 2,200 pages of legislation in the dead of night — containing $1.1 trillion in spending, about $680 billion in tax cuts and a string of other policy changes.  Both the fossil fuel and alternative energy industries can count themselves as winners, following a trade of the decades-long ban on crude oil exports for an extension of wind and solar tax credits.

Download Omnibus Budget & Tax bill 2015  The bill is 2009 pages,so bear with it. 

The Congress site for bill updates here

Download Expiring tax provisions

December 18, 2015 in Tax Compliance | Permalink | Comments (0)

Corporate tax revenues falling, according to OECD

Comment: The average tax burden across OECD countries increased to 34.4% of GDP gross domestic product (GDP) in 2014, continuing its upward trend since 2009 when the ratio was 32.7%.  The increasing share of GDP going to government for its bureaucratic choice of allocation, instead of such potential investment capital being allocated based on the markets, appears troubling, with the potential to limit future economic growth, compounded.  The OECD's focus on corporate tax revenues as a share of GDP is a red herring.  Instead, the OECD should report on how corporate dollars are allocated within an economy and among economies that policy makers and the public can assess the economic utility of corporations.

Corporate tax revenues have been falling across OECD countries since the global economic crisis, putting greater pressure on individual taxpayers to ensure that governments meet financing requirements, according to new data from the OECD’s annual Revenue Statistics publication.

Average revenues from corporate incomes and gains fell from 3.6% to 2.8% of gross domestic product (GDP) over the 2007-14 period. Revenues from individual income tax grew from Logooecd_en8.8% to 8.9% and VAT revenues grew from 6.5% to 6.8% over the same period.

“Corporate taxpayers continue finding ways to pay less, while individuals end up footing the bill,” said Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration. “The great majority of all tax rises seen since the crisis have fallen on individuals through higher social security contributions, value added taxes and income taxes. This underlines the urgency of  efforts to ensure that corporations pay their fair share.”

These efforts are focused on the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project, which provides governments with solutions for closing the gaps in existing international rules that allow corporate profits to « disappear » or be artificially shifted to low/no tax environments, where little or no economic activity takes place. 

Revenue Statistics shows that the average tax burden across OECD countries increased to 34.4% of GDP gross domestic product (GDP) in 2014. The increase of 0.2 percentage points in 2014 continues the recent upward trend, as the OECD average tax burden has increased in every year since 2009 when the ratio was 32.7%. The tax burden is measured by taking the total tax revenues received as a percentage of GDP. 

While the increase in tax ratios between 2009 and 2014 is due to a combination of factors, the largest contributors have been increases in revenue from VAT and taxes on personal incomes and profits, which combine to account for around two-thirds of the increase. Revenues from social security contributions and property taxes account for the majority of the remainder. 

Discretionary tax changes have played an important role, as many countries have raised tax rates or broadened tax bases or both.  The OECD average standard VAT rate has increased to a record high, rising from 17.7% in 2008 to 19.2% in 2015.  Twenty-two of 34 OECD countries raised top personal income tax rates between 2008 and 2014. 

The average OECD tax-to-GDP ratio in 2014 was 0.3 percentage points higher than the pre-crisis level of 34.1% in 2007, and has surpassed the previous high of 34.2%, which was recorded in 2000. The average revenues from corporate incomes and gains fell from 3.6% to 2.8% of GDP over the same period. This decline was offset by an increase in social security contributions, from 8.5% to 9.2% of GDP, and a smaller increase in revenues from VAT.

This year’s edition also includes a special chapter on the impact on the measurement of tax to GDP ratios of the move to the 2008 System of National Accounts (SNA).

Key findings:

  • Compared with 2013, the average tax burden in OECD countries increased by 0.2 percentage points to 34.4% in 2014. This followed a rise of 1.5 percentage points between 2009 and 2013, reversing the decline from 34.1% to 32.7% between 2007 and 2009. The 2014 figure is the highest ever recorded OECD average tax to GDP ratio since the OECD began measuring the tax burden in 1965. 

  • The ratio of tax revenues to GDP rose in 16 of the 30 OECD countries for which 2014 data are available, compared with 2013, and fell in 14. Between 2009 and 2014, there were increases for 22 of these countries, a decline in seven, with one unchanged. 

  • About 80% of revenue increases over the 2013-14 period are attributed to a combination of consumption taxes and taxes on personal incomes and profits. This combination also accounts for two-thirds of the rise in revenues between 2009 and 2014.
     
  • The largest tax ratio increases between 2013 and 2014 were in Denmark (3.3 percentage points) and Iceland (2.8 percentage points). Other countries with substantial rises were Greece (1.5 percentage points), Estonia (1.1 percentage points) and New Zealand (1.0 percentage point).

  • The largest falls were in Norway (1.4 percentage points) and Czech Republic (0.8 percentage points). Luxembourg and Turkey showed falls of 0.6 percentage points.

  • Underlying the OECD average, individual countries show widely differing trends. For example, Spain recorded a fall of 3.3 percentage points between 2007 and 2014, while Greece recorded an increase of 4.7 percentage points.

  • Historically, tax-to-GDP ratios increased through the 1990s, to a peak OECD average of 34.2% in 2000. They fell slightly between 2001 and 2004, but then rose again between 2005 and 2007 to an average of 34.1% before falling back sharply during the crisis. 

  • Denmark has the highest tax-to-GDP ratio among OECD countries (50.9% in 2014), followed by France (45.2%) and Belgium (44.7%).

  • Mexico (19.5% in 2014) and Chile (19.8%) have the lowest tax-to-GDP ratios among OECD countries. They are followed by Korea, which has the third lowest ratio among OECD countries at 24.6%, and the United States at 26.0%.
     
  • Compared with 2007 (pre-crisis) tax to GDP ratios, the ratio in 2014 was still down by 3 percentage points or more in three countries – Israel, Norway and Spain. The biggest fall has been in Spain - from 36.5% in 2007 to 33.2% of GDP in 2014 (3.3 percentage points). 

  • The tax burden in Greece increased from 31.2% to 35.9% between 2007 and 2014. Two other countries; Denmark and Turkey showed increases of more than 4 percentage points over the same period.
     
  • Data for 2013, the latest year for which a breakdown of revenues by category of tax is available for all OECD countries, show that revenues from personal and corporate income taxes are now recovering following the sharp falls of 2008 and 2009. However, the share of these taxes in total revenues remains at 33.7%, somewhat below their 36% share in 2007. On the other hand, the share of social security contributions has increased by 1.6 percentage points to an average of 26.1% of total revenue.

  • In 2013, an average of 24% of revenues is attributed to sub-central levels of government in Federal countries in the OECD - about two thirds of this is attributed to State and one third to local governments. The same applies to Spain, which is classified as a regional country in the publication. In the 25 unitary countries, about 12% of revenues are attributed to local governments.

Further information on Revenue Statistics is available at: http://www.oecd.org/ctp/tax-policy/revenue-statistics-19963726.htm

December 18, 2015 in BEPS | Permalink | Comments (0)

Thursday, December 17, 2015

Germany Provides Greece With Swiss Account Information of Nearly US$4 Billion

Swiss Info reported that the German state North Rhine-Westphalia collected more than €600 million (US$634 m) in fines and penalties from the stolen HSBC bank data of Hervé Falciani, and that more than 100,000 citizens had admitted tax evasion.  The German state has now given Greece information of some $3.9 billion held in Swiss banks by Greek citizens and companies.

See also HSBC's Whistleblower Leaked Client Information Via Internet

Will Greece use the information to collect its back taxes owed and drive its taxpayers into tax compliance for the future?  Will Greece be able to manage its still increasing government debt?

December 17, 2015 in Tax Compliance | Permalink | Comments (0)

Italy Rakes In Euro 4 Billion Tax Collections from Amnesty Disclosures

EU Business reported that "The Italian government said Wednesday it was set to rake in at least 3.8 billion euros ($4 billion) after tax dodgers took advantage of an amnesty deal to declare money and assets hidden abroad.  ... The Italian authorities received 130,000 voluntary declarations as a result of the scheme, amounting to a total of 59.5 billion euros, it said."

Read EU Business' report here.

 

December 17, 2015 in GATCA | Permalink | Comments (0)

Wednesday, December 16, 2015

Crédit Agricole, Dreyfus Sons, Baumann & Cie Pay $130 Million, Escape Prosecution for Assisting Tax Evasion

The Department of Justice announced today that Crédit Agricole (Suisse) SA (CAS), Dreyfus Sons & Co Ltd, Banquiers (Dreyfus), and Baumann & Cie, Banquiers (Baumann), reached resolutions under the department’s Swiss Bank Program.  These banks collectively will pay penalties of more than $130 million.

CAS, a corporation organized under the laws of Switzerland and headquartered in Geneva, operates a financial services business predominantly focused on offering private banking IRS CIDand wealth management services to high net worth clients.  In the period since Aug. 1, 2008, CAS operated Swiss branch offices in Lausanne, Lugano, Basel and Zurich.  CAS closed the Basel office in 2013.  CAS is wholly owned by Crédit Agricole Private Banking, a French holding company created in 2011 to hold private banking entities of the French Crédit Agricole Group.  CAS is the result of the 2005 merger of two Swiss banks that were originally formed by two French banks: Crédit Lyonnais (Suisse) S.A., which was formed in 1876 by the French bank Crédit Lyonnais, and Banque Indosuez (Suisse) SA, which was formed in 1956 by the French bank Banque Indosuez.

CAS opened, maintained and profited from undeclared accounts belonging to clients that it knew, or should have known, were U.S. taxpayers—including those who CAS knew, or should have known, were likely not complying with their U.S. tax obligations.  CAS provided certain of its clients, including ones with U.S. tax reporting obligations, with access to its then wholly-owned subsidiary Crédit Agricole Suisse Conseil (CASC), based in Geneva.  CASC, directly or through its subsidiaries, provided services that included international estate and tax planning, as well as the establishment and administration of non-U.S. entities.  CASC provided its services exclusively to private banking clients of the Crédit Agricole Group, including CAS.  CAS sold its interest in CASC to an unaffiliated third party on July 8, 2015.

Effective in 2001, CAS entered into a Qualified Intermediary (QI) Agreement with the Internal Revenue Service (IRS).  The QI regime provided a comprehensive framework for U.S. information reporting and tax withholding by a non-U.S. financial institution relating to U.S. securities.  Pursuant to its interpretation of the terms of its QI Agreement, CAS’s view was that the reporting and withholding obligations of its QI Agreement did not apply to accountholders who were not trading in U.S. securities or accounts that were held in the names of non-U.S. entities that, for U.S. tax purposes, were deemed to be corporations and the beneficial owners of such accounts.  As a result, from in or about 2001 and continuing past Aug. 1, 2008, CAS serviced and profited from certain U.S. taxpayers without disclosing their identities to the IRS.

In a number of instances, CAS maintained accounts for certain U.S. taxpayers in the names of corporations, foundations, trusts or other legal entities that were organized in non-U.S. jurisdictions, including the Bahamas, the British Virgin Islands, Columbia, Curaçao, Hong Kong, Mauritius and Panama.  CASC provided, directly or through its subsidiaries, corporate services to at least 25 such accounts.  Eighteen of these accounts held U.S. securities, two of which received services from CASC or subsidiaries.  In some cases, CAS knew or had reason to know that certain offshore entity accounts were operated without strict adherence to corporate formalities.  In at least seven instances, CAS accepted from the directors of these entities an IRS Form W-8BEN (or CAS’s substitute “Declaration of Non U.S. Status” form) that falsely declared or implied that the entity was the beneficial owner of the assets deposited in the account when CAS knew, or had reason to know, that the entity was being operated as a sham, conduit or nominee with respect to its U.S. taxpayer owner.  At least six such offshore entity accounts held U.S. securities and were not reported to the IRS, in violation of CAS’s QI Agreement.

Upon client instruction, CAS transferred the assets of certain U.S.-related accounts belonging to some of its U.S. taxpayer clients in ways that concealed the U.S. connection to those accounts.  CAS implemented a flawed account closing protocol that enabled certain U.S. taxpayer clients to exit their CAS accounts using ways and means that continued to conceal the accounts from the IRS.  As a result, certain U.S. taxpayer clients were able to utilize, and in some instances fully deplete, the assets of undeclared accounts held at CAS through substantial and/or successive withdrawals of cash, reloads of prepaid stored value cash cards or bank checks.  In one such instance, an employee of CAS asked a CAS relationship manager to encourage the use of a prepaid stored value cash card as a means of facilitating account closure.

In addition, in certain instances and on the client’s instruction, CAS transferred assets from U.S.-related accounts briefly through non-U.S. accounts at CAS en route to accounts at unaffiliated banks without documenting the U.S. relationship to these assets at the time of the transfers.  As a result of such transactions, the receiving banks were unable to identify the assets that they received as U.S.-related assets.  In a number of other instances, CAS followed client instructions to remove U.S. taxpayers as the holders or beneficial owners of U.S.-related accounts or to close U.S.-related accounts by transferring assets from the accounts to other accounts maintained by CAS or a CAS affiliate held in the names of other people or entities.  CAS documented such instances as donations to, or other bona fide transactions with, the transferees.  However, certain CAS relationship managers knew, or had reason to know, that the U.S. taxpayers originally named on such accounts or in control of such assets:

  • Continued to maintain effective economic ownership, control and/or enjoyment of the accounts and their assets, or

  • Regained ownership or control over the assets after being transferred to accounts at unaffiliated financial institutions.

Before and throughout its participation in the Swiss Bank Program, CAS committed to providing full cooperation to the U.S. government and has made timely and comprehensive disclosures regarding its U.S. cross border business.  Among other things, CAS described in detail the structure of its cross border business for U.S.-related accounts including, but not limited to:

  • Its cross border policies and directives;

  • Data on desks and employees with elevated concentrations of U.S.-related accounts;

  • Information on key external asset managers that had significant involvement with U.S.-related accounts;

  • The names and functions of individuals who were involved in the structuring, operation or supervision of CAS’s cross border business for U.S.-related accounts; and

  • Written summaries on its largest U.S.-related accounts and those involving conduct disclosed herein.

Since Aug. 1, 2008, CAS maintained approximately 954 declared and undeclared U.S.-related accounts having a maximum aggregate dollar value in excess of $1.8 billion.  CAS will pay a penalty of $99.211 million.

Dreyfus is a traditional private bank founded in 1813 in Basel, Switzerland.  As one of the oldest family-owned banks in Switzerland, Dreyfus is managed today by the sixth generation of the founder’s family.  In November 2013, Dreyfus opened a representative office in Tel Aviv to serve existing and new clients in the Israeli market.  Other than the Tel Aviv representative office, Dreyfus has never operated a desk outside of Switzerland. 

Following World War II, Dreyfus created Panama corporations to hold funds for clients.  This practice had its roots in the desire of Jewish clients to protect their assets for reasons of personal safety, and the purpose and operation of the entities was to conceal ownership of the assets from all government authorities, “friendly” or otherwise.  However, the practice extended well into the 2000s.  Among the Panama entity accounts created by Dreyfus are 33 U.S.-related accounts, the oldest of which opened in 1951.  The combined high value of these accounts was approximately $90 million.  The U.S. person beneficial owners of the Panama entity accounts were properly identified as beneficial owners of the entities on Forms A pursuant to Swiss know your customer rules.  However, the entities were identified as the beneficial owner on IRS Forms W-8BEN, when, as Dreyfus well knew, the true beneficial owners were U.S. persons.  Dreyfus employees – primarily the Deputy Chairman of the Executive Management, a former member of Dreyfus’s Board of Directors and Head of the Gérance division, which provides services mainly to corporate entities, and a former deputy manager – also served as corporate directors of the entities. 

With respect to at least two Panama entity accounts, the entity structure was used to conceal payments into the United States.  For example, one Panama entity account was opened in 1991 with a husband and wife, both U.S. nationals living in the United States, as beneficial owners.  The account, which had a high value of over $1 million during the period since Aug. 1, 2008, was opened with funds inherited from a relative with an account at Dreyfus.  Beginning in 2008, checks in amounts between $4,000 and $5,000 each were sent to the husband and the couple’s three sons in the United States on a regular basis.  In total, 205 checks with a combined value of approximately $925,000 were sent to the individual family members in the United States.  Dreyfus’s efforts to convince the beneficial owners to disclose the account were unsuccessful, and the account was closed in 2012 without being disclosed to U.S. authorities.

For four Panama entity accounts, Dreyfus allowed the accounts to be closed in the form of bearer shares, which assisted in the further concealment of assets in the accounts.  A bearer share is a security that is not required to be registered and which can be transferred without an endorsement of any kind.  Thus, a bearer share is negotiable by whoever possesses it.  For example, an individual can purchase shares from an issuer and exchange the shares for cash at a financial institution that redeems bearer shares or may give the shares to another individual, who may exchange the shares for cash.  The four Panama entities used assets in the accounts to purchase bearer shares at Dreyfus, with the shares then physically delivered to representatives of the Panama entities in closure of the accounts.  Because the shares could then be delivered to the U.S. persons whose assets were converted to bearer shares, or to anyone else, funds from these accounts left Dreyfus in a virtually untraceable manner.  With respect to these four accounts, over $4 million in assets left Dreyfus in the form of bearer shares.   

Dreyfus also opened and maintained at least 34 U.S.-related accounts for domiciliary entities created in foreign countries including the Bahamas, the British Virgin Islands, the Isle of Man, Liberia, Liechtenstein, Mauritius, Nevis and Switzerland.  For each account, the U.S. beneficial owner was properly identified in bank documents for purposes of Swiss know your customer rules, but the non-U.S. entity was identified as the beneficial owner of the account on IRS Forms W-8BEN.  In this manner, Dreyfus assisted U.S. persons in concealing ownership of the assets. 

Separate from its traditional private banking services, over 20 years ago, Dreyfus  management agreed to serve as a custodian for physical gold and cash for clients of a third party, a British Virgin Islands entity whose business operations are based in Switzerland (Entity #1).  Entity #1 also maintained and operated a storage facility at the Zurich airport for the storage of precious metals other than gold, independent of its relationship with Dreyfus.  Dreyfus’s relationship with Entity #1 is overseen by Dreyfus’s Head of Legal and Compliance.  For introducing customers to Dreyfus, Entity #1 receives a share of the general fees earned by Dreyfus for storing the gold and cash.

A total of 315 U.S.-related accounts with a combined high value of approximately $440 million in gold and/or cash were held through Entity #1 and custodied by Dreyfus.  Although Entity #1’s master account at Dreyfus is held in the name of a British Virgin Islands entity, each U.S. person storing gold or cash with the bank has a subaccount of Entity #1’s master account and can hold the subaccount in the name of an individual, trust, foundation, corporation or other structure.  Ninety-two of these 315 U.S.-related gold and cash accounts were held in the name of an entity.  Although some of the gold and cash client base maintained their accounts because of fears related to the collapse of the banking system, upon review by Dreyfus and the department, certain of the gold and cash storage accounts show strong indicia of the concealment of assets, such as being held in the name of nominee entities.

Since Aug. 1, 2008, Dreyfus held a total of 855 U.S.-related accounts with a combined high value of assets under management of approximately $1.76 billion.  Dreyfus will pay a penalty of $24.161 million.

Baumann is a traditional private bank founded in 1920, which is headquartered in Basel, Switzerland. In June 2009, Baumann opened a branch in Zurich dedicated purely to private banking.

The majority of Baumann’s U.S. clients structured their accounts so that they appeared as if they were held by a non-U.S. legal structure, such as an offshore corporation or trust, which aided and abetted the clients’ ability to conceal their undeclared accounts from the IRS. Baumann was not involved in setting up these entities, but those entities were generally created or serviced by a few Zurich-based lawyers with whom the relationship managers in Baumann’s Zurich branch were personally acquainted. In the period since Aug. 1, 2008, Baumann opened U.S.-related accounts for non-U.S. structures, such as offshore corporations or trusts.  These offshore entities included British Virgin Islands, British West Indies, Panama and Seychelles corporations, as well as Liechtenstein foundations, all of which were established by external law firms.

As one example, Baumann opened an account in June 2009 for a Panama corporation, established in 2000, where the beneficial owner as listed on Form A was a U.S. citizen domiciled in the United States.  This person was a retired lawyer living in Las Vegas.  The beneficial owner provided a U.S. passport upon opening the account, which was funded by $27 million from the accountholder’s account at another bank.  The accountholder signed Baumann’s compliance form indicating that the Panama corporation was in fact the beneficial owner of the assets for U.S. tax withholding purposes when Baumann knew or should have known this was untrue.

Baumann offered a variety of other traditional Swiss banking services that, although available to all its clients, it knew could assist, and did assist, its U.S. clients in concealing their undeclared assets and income.  Among other things, Baumann opened numbered accounts and held bank statements and other mail relating to some U.S.-related accounts at Baumann’s offices in Switzerland, rather than sending the statements and mail to the U.S. taxpayers in the United States. 

Regarding one numbered account, in July 2010, the clients transferred $2 million to an account at Baumann from an account at Credit Suisse.  The taxpayers were American horse breeders who had granted a power of attorney to an external asset management company based in Zurich.  That external asset manager introduced the clients to Baumann, and Baumann was instructed to retain the correspondence, to send copies to the clients’ external asset manager and not to invest in U.S. securities.  In 2010 and 2011, Baumann was instructed to make repeated payments of under $10,000 to a U.S. bank account in the name of a U.S.-based coin dealer.  From June to August 2011, the clients instructed Baumann to buy 2,279 pieces of Krugerrand gold coins, at that time worth approximately $3.7 million.  In September 2011, the clients instructed Baumann to close the account.  The remaining assets were withdrawn in cash, and the account closed in 2011.

Since Aug. 1, 2008, Baumann maintained a total of 167 U.S.-related accounts, with an aggregate peak value of $514.1 million. Baumann will pay a penalty of $7.7 million.

 

December 16, 2015 | Permalink | Comments (1)