International Financial Law Prof Blog

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

Thursday, March 31, 2016

Highest-Ranking Navy Official Sentenced to 46 Months in Prison for Accepting Bribes and Prostitutes from Foreign Defense Contractor in Massive Bribery and Fraud Scheme

The highest-ranking official charged in a massive Navy bribery scandal was sentenced in federal court to 46 months in prison for giving classified information to a foreign defense contractor in exchange for prostitutes, luxury travel and other gifts.  For decades, GDMA provided port services to U.S. Navy ships and in return, Francis plied Dusek with meals, alcohol, entertainment, gifts, dozens of nights and incidentals at luxury hotels and the services of prostitutes, Dusek admitted.

U.S. Navy Capt. Daniel Dusek was sentenced by U.S. District Judge Janis L. Sammartino of the Southern District of California, who also ordered Dusek to pay a $70,000 fine and Navy Crim Investigative Service$30,000 in restitution to the Navy.  He was ordered to report to the U.S. Bureau of Prisons on June 15, 2016.

Dusek, 49, pleaded guilty in January 2015 to a single count of conspiracy to commit bribery.  Dusek admitted that he used his influence as Deputy Director of Operations for the Seventh Fleet, headquartered in Yokosuka, Japan, and later as executive officer of the USS Essex and the commanding officer of the USS Bonhomme Richard, to benefit Leonard Glenn Francis and his company, Glenn Defense Marine Asia (GDMA).  For decades, GDMA provided port services to U.S. Navy ships and in return, Francis plied Dusek with meals, alcohol, entertainment, gifts, dozens of nights and incidentals at luxury hotels and the services of prostitutes, Dusek admitted.

Underscoring his importance to the conspiracy, in an email to one of his employees, Francis wrote: “(Dusek) is a golden asset to drive the big decks (aircraft carriers) into our fat revenue GDMA ports.”

“As a Navy officer, Captain Dusek took an oath to bear true faith and allegiance to the United States,” said Assistant Attorney General Caldwell.  “Instead, he chose self-interest, greed and prurience.  And when he learned of the investigation, Captain Dusek deleted his email accounts in an attempt to shield his crimes from law enforcement.  The Department of Justice is committed to holding public officials responsible when they betray the public trust.”

“Captain Dusek’s betrayal is the most distressing because the Navy placed so much trust, power and authority in his hands,” said U.S. Attorney Duffy.   “This is a fitting sentence for a man who was so valuable that his conspirators labeled him their ‘Golden Asset.’”

“This outcome again sends the message that corruption will be vigorously investigated and prosecuted,” said Director Burch.  “This is an unfortunate example of dishonorable naval officers who recklessly risked the safety of our troops by trading classified information for cash, extravagant gifts and prostitutes.  Cases such as these are not motivated by need or other difficult personal circumstances; they are the product of simple greed.  This investigation should serve as a warning that those who compromise the integrity of the United States will face their day of reckoning.  DCIS and our law enforcement partners will pursue these crimes relentlessly.”

“Captain Dusek put greed and personal pleasure above the safety of his shipmates and, in doing so, violated his sworn oath as a naval officer,” said Director Traver.  “His sentence today attests to the seriousness of his crimes.  NCIS, along with our partners at the Department of Justice, the Defense Criminal Investigative Service and the Defense Contract Audit Agency have been steadfast in our commitment to fully investigate the actions of all those involved in the GDMA case, and will continue with the same determination as the investigation continues.”

“DCAA is honored to be a partner with DCIS, NCIS and the Department of Justice in this investigation,” said Director Bales.  “Our investigative support auditors did an outstanding job analyzing the evidence.  I’m proud of their work and its impact on bringing justice to those who corruptly defraud the government.”

According to Dusek’s plea agreement, he hand-delivered Navy ship schedules to the GDMA office in Japan or emailed them directly to Francis or a GDMA employee on dozens of occasions, each time taking steps to avoid detection by law enforcement or U.S. Navy personnel.

Dusek was lavishly rewarded for his efforts to help GDMA.  For example, according to the plea agreement, GDMA paid for a hotel for Dusek and his family at the Marriott Waikiki in Hawaii on July 19, 2010, and on Aug. 5, 2010, GDMA paid for a hotel room for Dusek at the Shangri-La in Makati, Philippines, and provided him with the services of a prostitute.

Soon after, Francis asked Dusek to exercise his influence on GDMA’s behalf by steering the aircraft carrier USS Abraham Lincoln and its associated strike group to Port Klang, Malaysia (PKCC) – a port terminal owned by Francis.  Dusek replied in a series of emails to GDMA in late August 2010 that he would make it happen.  “Good discussion with N00 (Admiral) today and convince him that PKCC is the better choice,” Dusek wrote to Francis on Aug. 21, 2010.  Three days later, Dusek reported to Francis that he had “everyone in agreement that the next CSG (Carrier Strike Group) through the AOR (area of responsibility) will stop at PKCC.  Dates will be 08-12 Oct.”  The port visit cost the United States approximately $1.6 million. 

On Sept. 17, 2013, when Dusek learned that Francis and Navy personnel had been arrested, he deleted the contents of his email accounts in an effort to avoid detection by law enforcement.

To date, 10 individuals have been charged in connection with this scheme; of those, nine have pleaded guilty, including Dusek, Lieutenant Commander Todd Malaki, Commander Michael Vannak Khem Misiewicz, NCIS Special Agent John Beliveau, Commander Jose Luis Sanchez and U.S. Navy Petty Officer First Class Dan Layug.  Former Department of Defense civilian employee Paul Simpkins awaits trial.  On Jan. 21, 2016, Layug was sentenced to 27 months in prison and a $15,000 fine; on Jan. 29, 2016, Malaki was sentenced to 40 months in prison and to pay $15,000 in restitution to the Navy and a $15,000 fine; and on March 18, 2016, Alex Wisidagama, a former GDMA employee, was sentenced to 63 months and $34.8 million in restitution to the Navy; the others await sentencing.

The ongoing investigation is being conducted by NCIS, DCIS and DCAA.  The case is being prosecuted by Assistant Chief Brian R. Young of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Mark W. Pletcher of the Southern District of California. 

March 31, 2016 | Permalink | Comments (0)

Wednesday, March 30, 2016

France's 4th Richest Billionaire on Trial for Tax Evasion of Millions Hidden in Luxembourg

The Luxemburger Wort newspaper reports that French billionaire industrialist Serge Dassault is to face trial on suspicion of Sergiostashing several million euros in Luxembourg as well as Liechstenstein, a source close to the investigation said.

Deutsche Welle reports that: Dassault, member of the center-right party Les Républicains, is CEO of the Dassault Group, which holds a majority stake in commercial and military aircraft manufacturer Dassault Aviation. It also owns the popular right-wing newspaper Le Figaro.

March 30, 2016 in GATCA | Permalink | Comments (0)

Tuesday, March 29, 2016

FinCEN Re-Issues Order Against FBME Bank Ltd. Setting the Stage for the Court to Sort it Out

FinCEN re-issued its order March 25, 2016 [Download FBME_Final Rule March 25 2016] that sets the state for the court showdown between the agency and the bank FBME.   On the FINCEN one side, FinCEN finds that FBME is a great scourge to the US Financial System ("primary money laundering concern") and the only remedy for such egregious behavior is to shut the bank down (i.e. cancel its correspondent accounting relationships with the US, and thus US dollars).  FinCEN states that it gave FBME every opportunity to reform itself and that FBME simply refuses to do so.  FinCEN points to lack of employee education and training, lack of client diligence and monitoring, as well as transactions.  FinCEN also restates all of its former charges.  

"The information available to FinCEN provides reason to conclude that FBME’s AML compliance efforts remain inadequate to address the risks posed by FBME, and that FBME continues to facilitate illicit financial activity. Because of the ongoing money laundering and terrorist financing concerns that FinCEN has regarding FBME, FinCEN finds that FBME continues to be a financial institution of primary money laundering concern."

FBME has tenaciously, and expensively, fought back against the full weight and prosecution of FinCEN and the Central Bank of Cyprus, keeping itself alive, albeit barely, for three years, while this process works itself out.  FBME contends that it has reformed and cites Big 4 audited reports of its AML procedures, it's filings of STRs, among several other actions that it has taken. FBME suggested several other remedial actions that FinCEN could take, based on FinCEN actions against "banks too big to fail" and against little banks that, like FMBE, no one had really heard of until FinCEN declared war.  

A major contention by FinCEN is the actions taken by the Central Bank of Cyprus ("CBC") against FBME -  proof of FinCEN's correct 'read' of FBME's lack of trying to reform its AML systems.  But for context of my next statements - I am born and bred in the state of Louisiana, infamous for its state and municipal corruption.  It is quite normal for actions by the state of Louisiana or New Orleans municipal government to be taken to at least coincide with underlying personal / business interest benefiting, and sometimes solely because of such interests.  So my eyebrows raised when I read the comment submitted to FinCEN by the recent former Governor of the Central Bank of Cyprus [Excerpts of letter of Former Governor of Central Bank of Cyprus and former member of the Governing Council of the European Central Bank, Professor of Financial Economics at the University  of Leicester:   Download Cyprus Central Bank Governor's Letter of Jan 16, 2016]

I am writing as the former Governor of the  Central Bank of Cyprus (CBC), a former member of the Governing Council of the European Central Bank and in my current capacity as Professor of Financial Economics at the University  of Leicester in the UK.  Whilst my tenure as  Governor ended just  prior to the published action by FinCEN …

In May 2012, I, on behalf of CBC, received an informal expression of interest by FBME to convert its Cyprus branch into a Cyprus parent company/Headquarters. This eventually resulted in a formal application, which the CBC was prepared to consider under certain conditions, in the interests of increased competition in the banking sector.  One month after I stepped down (10 May 2014), The Economist newspaper described my resignation as a “blow to central Bank independence”.

Many activities in Cyprus are an extension of party politics, which are often driven by special interest groups. Sadly, banking is no exception, with the largest domestic banks exuding considerable influence through the media and their political connections, including their largest shareholders (which in the past had also included the Greek Orthodox Church that retains close links to the state).

During my tenure, there was considerable evidence in  the public domain that certain politicians were uncomfortable with FBME’s presence in Cyprus. Not surprisingly, perhaps, the same politicians were over--‐protective of the biggest domestic banks.

Smaller banks such as FBME, as well as being a source of healthy competition, are, inadvertently a threat to the supremacy of larger banks. As such, they tend to attract interest from politicians, often for the wrong reasons.

Prior to my appointment, FBME Bank Ltd, chose to invest substantial funds into Cyprus Treasury Bills, an investment which helped the Republic of Cyprus avoid a disorderly default during the negotiations with Eurogroup and the IMF in the second half of 2012 and early part of 2013. It is not inconceivable, indeed it is likely, that politicians who were in opposition at the time interpreted this action as a lifeline to the previous government.

Just because CBC may have acted politically at the bequest of one political party or to benefit local banks does not necessarily also mean that FBME is not acting nefariously.  But it should give FinCEN pause for reliance upon the CBC information, much as the same as the DOJ might pause at relying on information about a police shooting of an unarmed suspect. Reminds me of the quote, "something is rotten in the state of Denmark". 

FinCEN once again points to a Hezbollah financier connection with an FBME account, which FBME denies.  We, John Q Public are left to rely on FinCEN's word that FinCEN has substantial, perhaps even  clear, evidence to prove the Hezbollah it is so.  The relevant evidentiary information is, contends FinCEN, protected by either national security or by protection of STR privacy interests.  Problematically, FBME's primary founder is Ayoub-Farid Michel Saab. He's a respected international banker.   He's neither, based on a simple Internet search, a nefarious terrorist nor a money launderer.  So - I stand by my Comment letter of January 2016 Download FBME_FinCEN_Concern_William_Byrnes.  There's more going on here than meets this academic's eye! 

FBME published a response 27 March to FinCEN on its website - 

 “The purported “Final Rule” that FinCEN released on Friday, 3/25/2016, is not in fact “final” at all.  It is subject to a preliminary injunction by a federal court in Washington D.C. that bars the rule from taking effect pending further inquiry by that court into the fairness, accuracy and legality of FinCEN's process.  The “Final Rule” is also subject, by its own terms, to a four-month waiting period between official publication and effective date.  FBME has every right and intention now to challenge the legality of the “Final Rule” so that the U.S. court can decide whether it should ever take effect.

“Nor do FinCEN’s claims in the Final Rule change anything as compared to the prior claims that led to the preliminary injunction.   FinCEN has effectively repeated the same mistakes and returned to the same flawed evidence in its latest incarnation of its Final Rule.  These missteps have sadly but predictably led FinCEN to the same erroneous proposal of the fifth special measure. We think it is all too obvious at this point that FinCEN has stubbornly committed itself to a foreordained conclusion and won’t let evidence, facts, law, public comments, or fundamental fairness stand in the way of that.  

"Thanks to the judicial orders, schedule, and preliminary injunction that remain in place, however, FBME Bank’s day in court lies shortly ahead.  We emphasize that we have every intention of challenging FinCEN’s latest ruling as procedurally and substantively defective and look forward to our day in court.”
Neither side, FinCEN in its final rule or FBME in its response, mentions the issue of the use of attorney-client priviliged information which was last month's big FBME story: FinCEN lawyers under Inquiry by Office of Inspector General for Potential Use of Attorney-Client Documents from FBMEs Former Cyprus Counsel? As an attorney and as a law professor, this lack of acknowledgment troubles me as well.  At least let us - John Q Public - know that the issue remains in dispute or that the dispute has been settled between the parties privately. Sweeping it under the rug undermines attorney-client privilege for future litigants, which harms the Rule of Law. 
I encourage my readers who know anything about this curious case to send me an email.  I'll keep your comments confidential and anonymous (I am a registered journalist #19868 with the National Press Club in Washington, D.C. ).

 “One of America’s leading experts on the global battle against money laundering, Professor William Byrnes is the lead author of Money Laundering, Asset Forfeiture & Recovery, and Compliance – A Global Guide.  Ray Camiscioli, Esq., Director, Product Strategy & Development for Tax, Accounting and Estates/Elder Law, LexisNexis, Inc.

book cover Money Laundering, Asset Forfeiture and Recovery, and Compliance- A Global Guide (LexisNexis Matthew Bender updated quarterly) is an eBook designed to provide the compliance officer, BSA counsel, and government agent with accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources.  Special topic chapters will assist the compliance officer design and maintain effective risk management programs.  Over 100 country and topic experts from financial institutions, government agencies, law, audit and risk management firms have contributed analysis to develop this practical compliance guide. 

March 29, 2016 | Permalink | Comments (0)

Miami Businessman Pleads Guilty to Foreign Bribery and Fraud Charges in Connection with Venezuela Bribery Scheme

The owner of multiple U.S.-based energy companies pleaded guilty to foreign bribery and fraud charges for his role in a scheme to corruptly secure energy contracts from Venezuela’s state-owned and state-controlled energy company, Petroleos de Venezuela S.A. (PDVSA).

Abraham Jose Shiera Bastidas (Shiera), 52, of Coral Gables, Florida, pleaded guilty yesterday in federal court before U.S. District Judge Gray H. Miller of the Southern District of Treasury-Dept.-Seal-of-the-IRSTexas in Houston to one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and commit wire fraud and one count of violating the FCPA.  Sentencing is scheduled for July 8, 2016.  Four others charged in relation to the case have pleaded guilty, including three foreign officials.

“The five convictions announced today hold to account bribe payors as well as the corrupt foreign officials who laundered the bribe money through the United States,” said Assistant Attorney General Caldwell.  “These individual prosecutions are the result of a tenacious and coordinated effort by our prosecutors and agents to unravel a complex web of bribes paid to Venezuelan officials.  And they demonstrate our commitment to building cases from the ground up, instead of counting on companies and other wrongdoers to self-disclose their crimes.”

“The pleas of guilty in this case are the result of the strict enforcement of the FCPA in this district,” said U.S. Attorney Magidson.  “Bribery under this law is a serious federal crime that undermines commercial and political relations around the world. This case is an example of our reach to expose this criminal conduct.”

Shiera was arrested in Miami on Dec. 16, 2015, after a federal grand jury returned an 18-count indictment against him and Roberto Enrique Rincon Fernandez (Rincon), 55, of The Woodlands, Texas.  According to admissions made in connection with Shiera’s plea, Shiera and Rincon worked together to submit bids to provide equipment and services to PDVSA through their various companies.  Shiera admitted that beginning in 2009, he and Rincon agreed to pay bribes and other things of value to PDVSA purchasing analysts to ensure that his and Rincon’s companies were placed on PDVSA bidding panels, which enabled the companies to win lucrative energy contracts with PDVSA.  Shiera also made bribe payments to other PDVSA officials in order to ensure that his companies were placed on PDVSA-approved vendor lists and given payment priority so that they would get paid ahead of other PDVSA vendors with outstanding invoices, he admitted.

“The corruption of foreign officials through bribery has a damaging impact on the stability of trade, industries and even nations,” said Acting Special Agent in Charge McElroy.  “HSI and our partners will tirelessly investigate anyone who cultivates the corruption of officials abroad and bribe their way to financial gain.”

“Bribery and corruption undermines honest, free enterprise and creates an atmosphere of back room dealing that impairs the ability for honest businesses to compete,” said Special Agent in Charge Goss.  “IRS-CI tirelessly untangles the web of ‎illicit transactions that lead to corrupt individuals being held accountable.”

Judge Miller also unsealed charges yesterday against four other individuals charged in connection with the investigation.  In January 2016, Moises Abraham Millan Escobar (Millan), 32, of Katy, Texas, pleaded guilty under seal to one count of conspiracy to violate the FCPA for his role in the PDVSA bribery scheme.  Millan was Shiera’s former employee.  In December 2015, three former PDVSA officials, Jose Luis Ramos Castillo (Ramos), 38; Christian Javier Maldonado Barillas (Maldonado), 39; and Alfonzo Eliezer Gravina Munoz (Gravina), 53, all from Katy, each pleaded guilty under seal to conspiracy to commit money laundering.  As part of their guilty pleas, Ramos, Maldonado and Gravina each admitted that while employed by PDVSA or its wholly owned subsidiaries or affiliates, they accepted bribes from Shiera and Rincon in exchange for taking certain actions to assist companies owned by Shiera and Rincon in winning energy contracts with PDVSA.  Ramos, Maldonado and Gravina also admitted that they conspired with Shiera and Rincon to launder the proceeds of the bribery scheme.  Gravina also pleaded guilty to making false statements on his 2010 federal income tax return by failing to report the bribe payments he received from Shiera, Rincon and others.  As part of their plea agreements, Shiera, Millan, Ramos, Maldonado and Gravina all agreed to forfeit proceeds of their criminal activity.

The charges against Rincon remain pending.  He is charged with one count of conspiracy to violate the FCPA and commit wire fraud, one count of conspiracy to commit money laundering, seven counts of money laundering and four counts of violating the FCPA.  Rincon was ordered detained pending trial following a detention hearing held on Dec. 18, 2015, before U.S. Magistrate Judge Nancy K. Johnson of the Southern District of Texas.  The charges contained in the indictment are merely accusations, and Rincon is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

March 29, 2016 | Permalink | Comments (0)

Monday, March 28, 2016

Agencies Release Guidance to Issuing Banks on Applying Customer Identification Program Requirements to Holders of Prepaid Cards

Federal financial institution regulatory agencies today issued guidance clarifying the applicability of the Customer Identification Program (CIP) rule to prepaid cards issued by banks.

The guidance applies to banks, savings associations, credit unions, and U.S. branches and agencies of foreign banks (collectively "banks"). The guidance clarifies that a bank's CIP 800px-FdicLogoshould apply to the holders of certain prepaid cards issued by the institution as well as holders of such prepaid cards purchased under arrangements with third-party program managers that sell, distribute, promote, or market the prepaid cards on the bank's behalf. The guidance describes when, in accordance with the CIP rule, the bank should obtain information sufficient to reasonably verify the identity of the cardholder, including at a minimum, obtaining the name, date of birth, address, and identification number, such as the Taxpayer Identification Number of the cardholder.

Prepaid cards have become mainstream financial products, widely used by individuals, corporations, and other private sector entities, as well as state, federal and local governments. General purpose prepaid cards can be used at multiple, unaffiliated merchants and can allow cardholders to perform a variety of functions, including those that have traditionally been conducted using other payment mechanisms, such as checks, debit cards tied to bank accounts, or credit cards. These functions include withdrawing cash at automated teller machines (ATMs), paying bills, purchasing goods and services, and transferring funds to other cardholders and receiving funds transfers. Employers use prepaid cards to provide wages and other compensation or benefits, such as pre-tax flexible spending arrangements for healthcare expenses or dependent care. State, federal, and local governments use these financial products to distribute government benefits and tax refunds.

The Agencies have made clear that the money laundering and other financial crime risks faced by banks that issue prepaid cards and process prepaid card transactions require the implementation of strong and effective mitigating controls.  Controls put in place by issuing banks and the prepaid card industry, such as limits on card value and the frequency and amount of transfers, as well as appropriate due diligence on third parties and cardholders, have helped mitigate these risks. However, questions have arisen regarding the application of the CIP rule to prepaid cards issued by banks, including with respect to prepaid cards issued by banks under arrangements with third-party program managers.

CIP Rule Overview
In 2003, the Agencies issued the CIP rule that requires a bank to obtain information sufficient to form a reasonable belief regarding the identity of each “customer” opening a new “account.” The bank’s CIP must include risk-based procedures for verifying its customers’ identities to the extent reasonable and practicable. In particular, the CIP rule requires banks to implement a CIP that includes certain minimum requirements.  First, a bank’s CIP must include procedures for opening an account that, at a minimum, must include obtaining a name, date of birth, address, and identification number from a customer who is an individual.10 Second, a bank’s CIP must also include identity verification procedures that describe when and how the bank will verify the customer’s identity using documentary or non-documentary methods. Finally, the CIP rule has specific account recordkeeping and notice requirements.

This guidance clarifies that certain prepaid cards issued by a bank should be subject to the bank’s CIP, including when a bank issues prepaid cards under arrangements with third-party program managers that sell, distribute, promote, or market the prepaid cards issued by the bank. This may be the only relationship that the cardholder has with the bank.
In order to determine if CIP requirements apply to purchasers of prepaid cards, the bank should first determine whether the issuance of a prepaid card to a purchaser results in the creation of an account; and if so, ascertain the identity of the bank’s customer. As discussed below, these determinations depend on the functionalities of the prepaid card issued.

Determining the Existence of an ‘Account’
An “account” is defined in the CIP rule as “a formal banking relationship established to provide or engage in services, dealings, or other financial transactions, including a deposit account, a transaction or asset account, a credit account or other extension of credit.” An account also includes “a relationship established to provide a safety deposit box or other safekeeping services or to provide cash management, custodian, or trust services.” An account does not include “products and services for which a formal banking relationship is not generally established with a person, such as check cashing, wire transfer, or the sale of a check or money order.” For CIP purposes, an account does not include any account that the bank acquires, or accounts opened, to participate in an employee benefit plan established under the Employee Retirement Income Security Act of 1974.

Certain prepaid cards exhibit characteristics that are analogous to deposit accounts, such as checking or other types of transactional accounts.15 Some of these cards are linked to, and permit use of, funds held by a bank, even though the funds may be managed by, or distributed through, a third-party program manager.16 As described below, for purposes of the CIP rule, prepaid cards that provide a cardholder with (1) the ability to reload funds or (2) access to credit or overdraft features should be treated as accounts

a. General Purpose Prepaid Cards With the Ability to Reload Funds

General purpose prepaid cards may be reloaded by the cardholder or another party on behalf of the cardholder in a manner that is similar to the way in which funds can be added to a traditional deposit, asset, or transaction account. Therefore, the Agencies believe that issuing a general purpose prepaid card with those features creates a formal banking relationship and is equivalent to opening an account for purposes of the CIP rule.

By contrast, the issuance of a general purpose prepaid card that, under the program’s terms, cannot be reloaded by a cardholder or another party on behalf of the cardholder, does not establish an account for CIP purposes. These cards do not bear the characteristics of a typical deposit, transaction, or asset account because they do not permit the cardholder or other party on behalf of the cardholder to reload funds. Therefore, the Agencies believe these cards do not create a formal banking relationship.

b. General Purpose Prepaid Cards with Access to Credit or Overdraft Features

General purpose prepaid cards may permit withdrawals in excess of the card balance and also may provide the cardholder with access to an overdraft line or an established line of credit similar to a lender/borrower or credit card relationship. The Agencies believe that a card that permits either functionality constitutes a formal banking relationship with the issuing bank and is an account for purposes of the CIP rule.

c. Activation of General Purpose Cards

In some cases, general purpose prepaid cards may be sold without the reloadable functionalities activated or credit or overdraft features enabled. A purchaser or subsequent transferee of these cards generally may activate any one of those features only if they contact the issuing bank or the third-party program manager. In such cases, for purposes of the CIP rule, the Agencies believe that an account is not established until a reload, credit, or overdraft feature is activated by cardholder registration.

IV. Identifying the Customer
Once an account has been established, the bank must identify the customer for purposes of the CIP rule. Under the CIP rule, a person that opens a new account is deemed a customer. To verify the identity of the person opening the account, the final CIP rule’s preamble explains that a bank need only verify the identity of the named accountholder. The following describes how these principles should apply to different types of prepaid cards.

a. Prepaid Cardholders and Third Parties

When a general purpose prepaid card issued by a bank allows the cardholder to conduct transactions evidencing a formal banking relationship, such as by adding monetary value or accessing credit, the cardholder should be considered to have established an account with the bank for purposes of the CIP rule. Further, the cardholder should be treated as the bank’s customer for purposes of the CIP rule, even if the cardholder is not the named accountholder, but has obtained the card from an intermediary who uses a pooled account with the bank to fund bank-issued cards.

As a general matter, third-party program managers should be treated as agents of the bank for purposes of the CIP rule, rather than as the bank’s customer. The preamble to the final CIP rule makes clear that the rule does not affect a bank’s authority to contract for services to be performed by a third party either on or off the bank’s premises, nor does it alter a bank’s authority to use an agent to perform services on its behalf. However, as with any other activity performed on behalf of the bank, the bank ultimately is responsible for compliance with the requirements of the bank’s CIP rule as performed by that agent or other contracted third party.

Third-party program managers may establish pooled accounts in their names for the purpose of holding funds “on behalf of” or “in trust for” cardholders or processing transactions on behalf of other issuing banks. However, the fact that these funds are held in a pooled account should not affect the status of the cardholder as a bank customer, assuming the cardholder has established an account with the bank by activating the reloadable functionalities of a general purpose prepaid card, or its credit or overdraft features.

In the case of non-reloadable general purpose prepaid cards without credit or overdraft features, or other prepaid cards that do not have the identified features that establish an account for purposes of the CIP rule, such as closed-loop prepaid cards, the third-party program manager in whose name the pooled account has been established should be considered to be the only customer of the issuing bank and should be subject to requirements of the bank’s CIP policies and procedures. In these cases, the issuing bank need not “look through” the pooled account to verify the identity of each cardholder.

i. Payroll Cards

Payroll cards are cards that enable an employee to access funds in accounts that are established directly or indirectly by an employer and to which the employer (or a third party acting on the employer’s behalf ) is able to transfer the employee’s wages, salary, bonuses, travel reimbursements, or other compensation. Typically, the employer (or the employer’s agent) opens an account with a bank and provides each of its employees with a card that can be used to access the employee’s share of the account. The employer (or the employer’s agent) then transfers the employee’s wages, salaries, or other compensation into the account or subaccount, rather than distributing a check to the employee.

If the employer (or the employer’s agent) is the only person that may deposit funds into the payroll card account, the employer should be considered the bank’s customer for purposes of the CIP rule. In that case, the bank need not apply its CIP to each employee. The employer should be considered to be the customer even if there are subaccounts that are attributable to each employee. By contrast, if the employee is permitted to access credit through the card, or reload the payroll card account from sources other than the employer, the employee should be the customer of the bank and the bank should apply its CIP to the employee.


V. Contracts with Third-Party Program Managers

The issuing bank should enter into well-constructed, enforceable contracts with third-party program managers that clearly define the expectations, duties, rights, and obligations of each party in a manner consistent with this guidance. For example, a binding contract or agreement should, at a minimum:

a. outline CIP obligations of the parties;
b. ensure the right of the issuing bank to transfer, store, or otherwise obtain immediate access to all CIP information collected by the third-party program manager on cardholders;
c. provide for the issuing bank’s right to audit the third-party program manager and to monitor its performance (generally, banks need to ensure that periodic independent internal and external audits are conducted to ensure prudent operations and compliance with applicable laws and regulations); and
d. if applicable, indicate that, pursuant to the Bank Service Company Act (BSCA) or other appropriate legal authority, the relevant regulatory body has the right to examine the third-party program manager.

Download Prepaid Cards Guidance Memorandum

Agencies issuing the guidance include the Federal Deposit Insurance Corporation, Federal Reserve Board, National Credit Union Administration, Office of the Comptroller of the Currency, and Financial Crimes Enforcement Network.

March 28, 2016 | Permalink | Comments (0)

Australia Publishes Tax Return Information of Large Corporations As Part Of Tax Transparency

The ATO is today publishing some tax information of more than 1500 large corporate taxpayers. We are already seeing many ATOcorporates responding by adding explanations of their tax positions to their websites. In this way the report supports community confidence in the fairness and equity of the tax system.

The following will be published:

Name of the entity (as shown on their tax return)

  • ABN
  • total income
  • taxable income
  • tax payable
  • amounts of PRRT and MRRT payable

The published report is an entity by entity listing of public and foreign owned corporate entities reporting total income of $100 million or more in 2013–14. As required by law, the figures in the report are taken directly from tax return labels, or amendments advised by taxpayers themselves before 1 September 2015.

We anticipate releasing similar details of Australian owned and resident private companies with turnover of $200 million or more early in 2016 following amendments to the law enacted earlier this month.

ASX data show that more than 20 per cent of companies make an accounting loss in any given year. No tax paid does not necessarily mean tax avoidance.

We review every single company in this market and undertake a deeper review on at least 50 per cent where we see significant risks. Historically, we raise additional assessments of about $2 billion in each year through our compliance action on these companies.

The ATO has published guidance material to help to interpret the data:

2013-14 Corporate Report of Entity Tax Information:

March 28, 2016 in BEPS, Tax Compliance | Permalink | Comments (0)

Financial Services Company Executive Pleads Guilty to Using Offshore ACcounts to Obstruct Justice

The CEO of Preferred Merchants LLC, a financial services company based in Napa, California, pleaded guilty to engaging in an elaborate obstruction of justice scheme to conceal millions of dollars—which were subject to a freeze order and seizure warrant—from the government using a series of offshore accounts, domestic and foreign nominee accounts, a shell company and related bank and brokerage accounts.

Jaymes Meyer, aka James Meyer, 47, of Napa, pleaded guilty yesterday before U.S. Magistrate Judge David S. Cayer of the Western District of North Carolina in Charlotte to obstruction of justice. 

According to the plea agreement, in or about 2012, the U.S. Securities and Exchange Commission’s (SEC’s) Division of Enforcement commenced a securities fraud investigation Secret Serviceconcerning a Ponzi scheme centering on Rex Ventures Group LLC (RVG), a North Carolina-based company for which Preferred Merchants held millions in assets in treasury and trust accounts.  As a result of its investigation, the SEC filed a civil enforcement action against RVG, after which the court entered a freeze order that appointed a receiver and froze all of RVG’s assets.  Among other things, the receiver was responsible for marshaling, managing and distributing remaining RVG assets to impacted RVG investors.  In addition to the freeze order, the U.S. Secret Service also obtained a seizure warrant of RVG assets held by Meyer through Preferred Merchants.  Meyer admitted that in August 2012, the SEC informed him of, among other things, the investigation and the court order freezing RVG’s assets and requested that Meyer freeze any RVG assets in his possession, custody or control. 

According to the plea agreement, in response to this request, Meyer misled the SEC by falsely implying that Preferred Merchants did not exercise dominion or control over any RVG assets when, in fact, Meyer controlled approximately $17.4 million in RVG assets.  Meyer further admitted that he wired approximately $4.8 million from an RVG trust account to a brokerage account under his control within an hour of learning about the SEC’s investigation.  Over the next 10 months, Meyer used that money to purchase homes in Napa and the Turks and Caicos, to which he subsequently made $1.5 million in improvements, and withdrew approximately $195,000 in cash.  He also established a Cook Islands-based trust account, formed a shell company and opened a brokerage account in the shell company’s name to further conceal the trail of RVG assets subject to the freeze order and seizure warrant.

Meyer also admitted that throughout the pending civil litigation surrounding the RVG scheme, he made fraudulent and misleading statements to the U.S. District Court for the Western District of North Carolina, the SEC and the court-appointed receiver during depositions.

In connection with his plea agreement, Meyer agreed to pay an approximately $4.8 million money judgment and to forfeit the homes that he purchased in the Turks and Caicos and Napa as proceeds of the obstruction of justice offense. 

The U.S. Secret Service and the IRS-CI investigated the case. 

March 28, 2016 | Permalink | Comments (0)

Sunday, March 27, 2016

TILA-RESPA Integrated Disclosure rule implementation (Construction & Real Estate)

TILA-RESPA Integrated Disclosure rule

Construction loan factsheet: An overview of how the integrated disclosure rule may be applied.

Compliance guide: A plain-language guide to the new rules in a FAQ format which makes the content more accessible for industry constituents, especially smaller businesses with limited legal and compliance staff.

Guide to forms: Provides detailed, illustrated instructions on completing the Loan Estimate and Closing Disclosure.

Closing factsheet: An overview of the limited circumstances when changes to the loan require a new three-day review.

Disclosure timeline: Illustrates the process and timing of disclosures for a sample real estate purchase transaction.

Integrated loan disclosure forms & samples: Downloadable Loan Estimate and Closing Disclosure forms in both English & Spanish and samples for different loan types.

Videos: A series of webinars to address implementation of the new rule. Please note that registration is required to view the recordings. Topics include an overview of the rule, frequently asked questions, loan estimate form, closing disclosure form and implementation challenges. Our most recent webinar focused on construction lending. Use the question index to find out which questions were answered and when during the webinar series.

Supervision and examination materials

Our Readiness Guide provides guidelines for institutions to evaluate their readiness and help them comply with the mortgage rule changes.

March 27, 2016 in Financial Regulation | Permalink | Comments (0)

Head of Joint OECD/UNDP Tax Inspectors Without Borders Initiative Appointed – James Karanja

Mr. James Karanja has been appointed as Head of the joint OECD/UNDP Tax Inspectors Without Borders (TIWB) Initiative effective 11 April 2016. Mr. Karanja will lead the development of TIWB, which has been designed to support developing countries to build tax audit capacity. In a real-time 'learn by doing' approach, TIWB facilitates the sharing of expertise by the deployment of experienced tax auditors on a demand-led basis to developing countries.

The TIWB Initiative was launched in July 2015 at the Third International Conference on Financing for Development in Addis Ababa by OECD Secretary-General Angel Gurría and OECDUNDP Administrator Helen Clark. To date, TIWB has delivered a conservatively estimated 185 million USD in additional revenues from programmes across Africa, Asia and Latin America. New programmes are currently being planned in Botswana, Cameroon, Ethiopia, Liberia, Malawi and Nigeria.

Mr. Karanja, currently Assistant Manager of the International Tax Office at the Kenya Revenue Authority, has been instrumental in leading Kenya’s compliance with the international standards with exchange of information. He has been serving as Chair of the ATAF Cross Border Taxation Technical Committee since its inception in 2014 and led its very significant input into the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project. That input led to revisions to several of the BEPS package outputs such as guidance on pricing of cross border commodity transactions. His leadership was key to the Technical Committee’s input.

A Kenyan national, Mr. Karanja holds a Bachelor’s Degree from the Faculty of Law, University of Nairobi and is due to complete his Masters in Public Policy and Management at Strathmore Business School.

March 27, 2016 | Permalink | Comments (0)

Saturday, March 26, 2016

Novartis Charged With FCPA violations in China including Strip Club Payments for Clients on US "Education" Trips

The Securities and Exchange Commission today announced that Novartis AG has agreed to pay $25 million to settle charges that it violated the Foreign Corrupt Practices Act (FCPA) when its China-based subsidiaries engaged in pay-to-prescribe schemes to increase sales.   Download Novartis FCPA

An SEC investigation found that employees of two China-based Novartis subsidiaries gave money, gifts, and other things of value to health care professionals, which led to several million dollars in sales of pharmaceutical products to China’s state health institutions.

The schemes, which lasted a period of years, involved certain complicit managers within Novartis’ Chinabased subsidiaries. Novartis failed to devise and maintain a sufficient system of SEC internal accounting controls and lacked an effective anti-corruption compliance program to detect and prevent these schemes. As a result, the improper payments were not accurately reflected in Novartis’ books and records.

Novartis employees maintained projections in spreadsheets that directly linked a certain cash value to be provided to HCPs in exchange for a certain number of prescriptions per month. In certain instances, these planned amounts were referred to as "investments," between several hundred and several thousand dollars annually, and the HCPs were in some instances categorized into and tracked by different tiers, including
one tier described as "money worshippers."  In one example, For example:

In one example, Novartis China sponsored twenty Chinese HCPs to attend the American College of Surgeons 95th Annual Clinical Congress in Chicago. While the Clinical Congress was devoted to educational purposes, the HCPs were also covered to sight see at Niagara Falls and covered for their charges at a strip club.

The SEC’s order finds that Novartis violated the FCPA’s internal controls and books-and-records provisions. Novartis consented to the order without admitting or denying the findings, and agreed to pay $21.5 million in disgorgement of profits plus $1.5 million in prejudgment interest and a $2 million penalty. Novartis also agreed to provide status reports to the SEC for the next two years on its remediation and implementation of anti-corruption compliance measures. See also: Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order.   Download Novartis SEC Order Against Strip Club Bribery

March 26, 2016 | Permalink | Comments (0)

Miami man defrauds ExIm Bank of $2 million with fake invoices

A Miami man pleaded guilty for his role in a scheme to defraud two commercial lenders and the Export-Import Bank of the United States (EXIM) out of more than $11 million.  Guillermo A. Sanchez-Badia, 61, pleaded today before U.S. District Judge Joan A. Lenard of the Southern District of Florida in Miami to one count of conspiracy to commit wire fraud, one count of wire fraud and one count of conspiracy to commit money laundering.  Sentencing is scheduled for June 3 before Judge Lenard.

According to admissions made as part of his plea agreement, from 2007 through 2012, Sanchez and his co-conspirators utilized companies they controlled to create fictitious invoices ExIm Bank Inspector Generalfor sales of merchandise that never occurred.  These invoices were sold to two Miami-area commercial lenders in a process called “factoring,” which allowed the conspirators to receive cash for approximately 90 percent of the value of the merchandise listed on the fake invoices, according to the plea.  Sanchez admitted that, in order to continue the scheme, he and his co-conspirators created additional fictitious invoices, transferred the funds they received through numerous bank accounts under their control and, in a Ponzi-style scheme, used a portion of the new proceeds to pay off prior factored invoices. 

Sanchez admitted that when the Miami lenders refused to extend further credit, he and his co-conspirators created false invoices and shipping documents to obtain a loan guaranteed by the EXIM.  Rather than acquiring, selling and shipping American manufactured goods as required for an EXIM guaranteed loan, Sanchez and his co-conspirators used the loan proceeds to pay off earlier factored invoices, thereby extending the scheme, and kept the balance of the loan proceeds for themselves, Sanchez admitted.  The factoring loans and the EXIM-guaranteed loan ultimately defaulted, causing more than $11 million dollars in losses to the lenders and the United States, according to the plea. 

Five other individuals have been convicted for their roles in this scheme.  Isabel C. Sanchez, 36, of Miami, the daughter of Sanchez-Badia, and Gustavo Giral, 38, of Miami, who were charged in the same indictment as Sanchez-Badia, pleaded guilty on Feb. 26, 2016, for their participation in this scheme to defraud, and will be sentenced on May 13, 2016. 

Isabel Sanchez created the false sales and shipping documents and arranged for the transfer of criminal proceeds through over 50 bank accounts.  Giral assisted in circulating the fraudulent documents and in converting loan proceeds to currency, facilitating the money-laundering concealment by making the source of funds more difficult to trace.  Freddy Moreno-Beltran, 43, of Bogota, Colombia; Ricardo Beato, 62, of Miami; and Jorge Amad, 48, of Miramar, Florida, were separately charged and have each pleaded guilty for their roles in the scheme.  According to admissions in their plea agreements, Moreno-Beltran owned Clientric, a company in Colombia, which purportedly purchased goods from companies that the defendants controlled.  Beato and Amad owned Approach Technologies International, a company offering call center software. 

The conspirators admitted that they told the EXIM that Approach Technologies International had sold more than $1 million in American manufactured software and equipment to Clientric, which was false, in order to obtain an EXIM-guaranteed loan.  Moreno-Beltran and Beato were each sentenced to 12 months and one day in prison and ordered to pay $1,951,643.05 in restitution. 

Ultimately, the EXIM-guaranteed loan defaulted, causing a loss to the United States of nearly $2 million.


March 26, 2016 | Permalink | Comments (0)

Friday, March 25, 2016

Turkish National Arrested for Conspiring to Evade U.S. Sanctions Against Iran, Money Laundering and Bank Fraud

Charges Unsealed against Three Defendants Who Allegedly Engaged in Hundreds of Millions of Dollars of Transactions on Behalf of the Government of Iran and Iranian Entities as Part of a Scheme to Evade U.S. Sanctions   Zarrab et al Indictment

An indictment was unsealed in the Southern District of New York against Reza Zarrab, aka Riza Sarraf, 33, a resident of Turkey and dual citizen of Turkey and Iran; Camelia Jamshidy, NSA-DOJ aka Kamelia Jamshidy, 29, a citizen of Iran; and Hossein Najafzadeh, 65, a citizen of Iran, for engaging in hundreds of millions of dollars-worth of transactions on behalf of the government of Iran and other Iranian entities, which were barred by U.S. sanctions, laundering the proceeds of those illegal transactions and defrauding several financial institutions by concealing the true nature of these transactions. 

Zarrab was arrested on March 19, 2016, and was presented in federal court in Miami earlier today.  Jamshidy and Najafzadeh remain at large.  The case is assigned to U.S. District Judge Richard M. Berman of the Southern District of New York.

The indictment was announced by Assistant Attorney General for National Security John P. Carlin, U.S. Attorney Preet Bharara of the Southern District of New York and Assistant Director in Charge Diego Rodriguez of the FBI’s New York Field Office.

“According to charges in the indictment, Zarrab, Jamshidy and Najafzadeh circumvented U.S. sanctions by conducting millions of dollars-worth of transactions on behalf of the Iranian government and Iranian businesses,” said Assistant Attorney General Carlin.  “These alleged violations, as well as the subsequent efforts taken to cover up these illicit actions, undermined U.S. laws designed to protect national security interests.  The National Security Division will continue to vigorously pursue and bring to justice those who seek to violate U.S. sanctions.”

“As alleged, these defendants conspired for years to violate and evade United States sanctions against Iran and Iranian entities,” said U.S. Attorney Bharara.  “By allegedly laundering money through institutions around the world, Reza Zarrab, Camelia Jamshidy, and Hossein Najafzadeh undermined the U.S. sanctions regime imposed against Iran, and committed federal crimes.”

“For almost five years, from 2010 to 2015, the defendants allegedly conspired to thwart U.S. and international economic sanctions against Iran by concealing financial transactions that were on behalf of Iranian entities,” said Assistant Director in Charge Rodriguez.  “The charges announced today should send a message to those who try to hide who are their true business partners.  We appreciate the assistance of the FBI’s Miami Office with this case.”

According to the allegations contained in the indictment:

Beginning in 1979, the U.S. President found that the situation in Iran constituted an unusual and extraordinary threat to the national security, foreign policy and economy of the United States and declared a national emergency to deal with the threat.  Consistent with that designation, the United States has instituted a host of economic sanctions against Iran and Iranian entities pursuant to the International Emergency Economic Powers Act (IEEPA).  This sanctions regime prohibits, among other things, financial transactions involving the United States or United States persons that are intended for the government or Iran, or specified Iranian-related entities.

Between 2010 and 2015, Zarrab, Jamshidy and Najafzadeh conspired to conduct international financial transactions on behalf of and for the benefit of, among others, Iranian businesses, the Iranian government and entities owned or controlled by the Iranian government.  Among the beneficiaries of these scheme were Bank Mellat, an Iranian government-owned bank designated, during the time of the charged offenses, by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) as a Specially Designated National (SDN) under the Iranian Transactions and Sanctions Regulations, the Iranian Financial Sanctions Regulations and the Weapons of Mass Destruction Proliferators Sanctions Regulations; Mellat Exchange, an Iranian money services business owned and controlled by Bank Mellat; the National Iranian Oil Company (NIOC), identified during the time of the charged offenses by OFAC as an agent or affiliate of Iran’s Islamic Revolutionary Guard Corp (IRGC); the Naftiran Intertrade Company Ltd. (NICO), Naftiran Intertrade Company Sarl (NICO Sarl) and Hong Kong Intertrade Company (KHICO), companies located in the United Kingdom, Switzerland and Hong Kong, respectively, that were acting on behalf of NIOC; and the MAPNA Group, an Iranian construction and power plant company.  Bank Mellat, NIOC, NICO Sarl, NICO and HKICO are no longer designated as SDNs and NIOC is no longer identified as an agent or affiliate of the IRGC, though these entities remain “blocked parties,” with whom U.S. persons continue to be prohibited generally from engaging in unlicensed transactions or dealings.

The scheme was part of an intentional effort to assist the government of Iran in evading the effects of United States and international economic sanctions.  For example, on or about Dec. 3, 2011, Zarrab and Najafzadeh received a draft letter in Farsi prepared for Zarrab’s signature and addressed to the general manager of the Central Bank of Iran.  The letter stated, in part, that “[t]he role of the Supreme Leader and the esteemed officials and employees of Markazi Bank [the Central Bank of Iran] play against the sanctions, wisely neutralizes the sanctions and even turns them into opportunities by using specialized methods.”  The letter goes on to state, in part, “[i]t is not secret that the trend is moving towards intensifying and increasing the sanctions, and since the wise leader of the Islamic Revolution of Iran has announced this to be the year of the Economic Jihad, the Zarrab family, which has had a half a century of experience in foreign exchange, . . . considers it to be our national and moral duty to declare our willingness to participate in any kind of cooperation in order to implement monetary and foreign exchange anti-sanction policies . . . .”

Zarrab, Jamshidy, Najafzadeh and their co-conspirators used an international network of companies located in Iran, Turkey and elsewhere to conceal from U.S. banks, OFAC and others that the transactions were on behalf of and for the benefit of Iranian entities.  This network of companies includes Royal Holding A.S., a holding company in Turkey; Durak Doviz Exchange, a money services business in Turkey; Al Nafees Exchange, a money services business; Royal Emerald Investments; Asi Kiymetli Madenler Turizm Otom, a company located in Turkey; ECB Kuyumculuk Ic Vedis Sanayi Ticaret Limited Sirketi, a company located in Turkey; and Gunes General Trading LLC; and others.  As a result of this scheme, the co-conspirators induced U.S. banks to unknowingly process international financial transactions in violation of the IEEPA.

Each defendant is charged with conspiracies to defraud the United States, to violate the IEEPA, to commit bank fraud and to commit money laundering.  The conspiracy to defraud the United States charge carries a maximum sentence of five years in prison.  The conspiracy to violate the IEEPA and money laundering conspiracy counts each carry a maximum of 20 years in prison.  The bank fraud conspiracy charge carries a maximum sentence of 30 years in prison.  The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

The charges contained in the indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

March 25, 2016 | Permalink | Comments (0)

Thursday, March 24, 2016

OECD releases BEPS consultation document on the treaty entitlement of non-CIV funds

Responses are invited to the questions included in a consultation document on issues and suggestions on the tax treaty entitlement of non-CIV (Collective Investment Vehicle) funds.

Paragraph 14 of the final version of the Report on Action 6 of the BEPS Action Plan (Preventing the Granting of Treaty Benefits in Inappropriate Circumstances) indicates that the OECD logoOECD will continue to examine issues related to the treaty entitlement of non-CIV funds in order to ensure that the new treaty provisions included in the BEPS Action 6 Report address adequately the treaty entitlement of these funds.

This consultation document has been produced as part of the follow-up work on this issue. It includes a number of specific questions related to concerns, identified in comments received on previous discussion drafts related to the BEPS Action 6 Report, as to how the new provisions included in the BEPS Action 6 Report could affect the treaty entitlement of non-CIV funds as well as to possible ways of addressing these concerns that were suggested in these comments or subsequently.

Commentators are invited to respond to the specific questions included in this consultation document in order to facilitate the analysis of these concerns and suggestions. Commentators may also offer additional suggestions. Since a number of questions are likely to be relevant only for commentators who supported specific approaches, it is expected that most commentators will only address some of the questions. The consultation document and the responses received will be discussed at the May 2016 meeting of Working Party 1 of the OECD Committee on Fiscal Affairs.

Responses should be sent by 22 April 2016 at the latest by e-mail to in Word format (in order to facilitate their distribution to government officials). They should be addressed to the Tax Treaties, Transfer Pricing and Financial Transactions Division, OECD/CTPA.

Please note that all responses to this consultation document will be made publicly available. Responses submitted in the name of a collective “grouping” or “coalition”, or by any person submitting responses on behalf of another person or group of persons, should identify all enterprises or individuals who are members of that collective group, or the person(s) on whose behalf the commentator(s) are acting.

The proposals included in this consultation document were previously put forward by commentators and do not, therefore, represent proposals by the CFA or its subsidiary bodies. They are merely included in this document in order to obtain further information that will be used for the purpose of analysing these proposals.

Lexis’ Practical Guide to U.S. Transfer Pricing is a 3,000 page, annually updated, treatise that is leveraged by MNE tax risk counsel to cope with the transfer pricing rules and procedures, taking into account the international norms established by the Organisation for Economic Co-operation and Development (OECD). It is also designed for use by tax administrators, both those belonging to the U.S. Internal Revenue Service and those belonging to the tax administrations of other countries, and tax professionals in and out of government, corporate executives, and their non-tax advisors, both American and foreign.  Fifty co-authors contribute subject matter expertise on technical issues faced by tax and risk management counsel.

March 24, 2016 in BEPS, OECD | Permalink | Comments (0)

Fraudster Creates $100 Trillion of Bogus Financial Instruments to Bilk Unwary Public

A federal grand jury sitting in Portland, Oregon, returned a superseding indictment charging a Hillsboro, Oregon man with 13 counts of making, presenting and transmitting fictitious financial instruments and six counts of willfully failing to file income tax returns, Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division announced.

According to the superseding indictment, beginning in or about February 2008 and continuing through at least June 2015, Winston Shrout knowingly devised and participated in a Irs_logoscheme to defraud financial institutions and the United States out of monies by making, presenting and transmitting fictitious financial instruments, which he variously called, among other things, “International Bills of Exchange” and “Non-Negotiable Bills of Exchange.”  Shrout claimed that these fictitious financial instruments had monetary value when he knew they were in fact worthless.  It is alleged that during the course of his scheme, Shrout produced and issued more than 300 fictitious financial instruments, purported to be worth more than $100 trillion, on his own behalf and for credit to third parties. 

The superseding indictment further alleges that Shrout promoted and marketed the use of fictitious financial instruments as a way to pay off debts, including federal income taxes, through seminars and private client consultations.  Shrout is alleged to have sold recordings of his seminars, templates for fictitious financial instruments, and other materials through his website.  see Download Shrout Superseding Indictment

In addition, the superseding indictment alleges that Shrout received income for the years 2009 through 2014 from various sources, including presentations at seminars, licensing fees associated with the sale of products in his name and his business, Winston Shrout Solutions in Commerce, and annual pension payments.  It is alleged that Shrout willfully failed to file income tax returns with the Internal Revenue Service (IRS) for those years to report his income, despite being required to do so.

If convicted, Shrout faces a statutory maximum sentence of 25 years in prison on each count of making, presenting and transmitting a fictitious financial instrument and one year in prison for each count of willful failure to file income tax returns.

An indictment is not a finding of guilt.  Individuals charged in indictments are presumed innocent until proven guilty beyond a reasonable doubt. 

March 24, 2016 | Permalink | Comments (0)

Wednesday, March 23, 2016

OECD releases standardised electronic format for the exchange of BEPS Country-by-Country Reports

In a continued effort to boost transparency in international tax matters, the OECD has today released its standardised electronic format for the exchange of Country-by-Country (CbC) Reports between jurisdictions – the CbC XML Schema – as well as the related User Guide. The CbC XML Schema is part of the OECD’s work to ensure the swift and efficient implementation of the BEPS measures, endorsed by G20 Leaders as part of the final BEPS package in November 2015.

The OECD/G20 BEPS Project sets out 15 key actions to reform the international tax framework and ensure that profits are reported where economic activities are carried out and value created. The BEPS Project delivers solutions for governments to close the gaps in existing international rules that allow corporate profits to "disappear" or be artificially shifted to low or no tax environments, where companies have little or no economic activity.

CbC Reports, to be electronically transmitted between Competent Authorities in accordance with the CbC XML Schema, will assist tax administrations in obtaining a complete understanding of the way in which Multinational Enterprises (MNEs) structure their operations, by annually providing them with key information on the global allocation of income and taxes paid, together with other indicators of the location of economic activity within the MNE group. It will also cover information about which entities do business in a particular jurisdiction and the business activities each entity engages in.

The information to be included in the CbC Report will be collected by the country of residence of the Reporting Entity for the MNE group, and will then be exchanged under the OECDrelevant international exchange of information agreement, in particular the Multilateral Competent Authority Agreement on the Exchange of CbC Reports (the "CbC MCAA"), in the format of the CbC XML Schema. First exchanges of CbC Reports will start in 2018, with information on the year 2016. The Country-by-Country reporting template does not apply to groups with annual consolidated revenue in the immediately preceding fiscal year of less than EUR 750 million.

The CbC XML Schema User Guide further explains the information required to be included in each data element to be reported. It also contains guidance on how to make corrections of data element within a file.

While the CbC XML Schema has been primarily designed to be used for the automatic exchange of CbC Reports between Competent Authorities, the CbC XML Schema can also be relied upon by Reporting Entities for transmitting the CbC Report to their tax authorities, provided the use of the CbC XML Schema is mandated domestically.

Lexis’ Practical Guide to Transfer Pricing is a 3,000 page treatise, updated annually, to help transfer pricing risk officers cope with planning and tax management and with audit mitigation and litigation in alignment with the U.S. transfer pricing rules and procedures and the international norms established by the Organisation for Economic Co-operation and Development (OECD). It is also designed for use by tax administrators, both those belonging to the U.S. Internal Revenue Service and those belonging to the tax administrations of other countries, and tax professionals in and out of government, corporate executives, and their non-tax advisors, both American and foreign.  Fifty co-authors, recognised elite transfer pricing litigation experts, contribute subject matter expertise on technical issues faced by tax and risk management counsel.

March 23, 2016 in BEPS, OECD | Permalink | Comments (0)

Former Head of Offshore Brokerage Sentenced to 18 Years for Conspiracy to Commit International Stock Fraud and Money Laundering

A California man was sentenced to 18 years in prison for two counts of conspiracy to commit wire fraud and one count of conspiracy to commit international money laundering in connection with an international “pump and dump” scheme involving stocks traded on the over-the-counter (OTC) market.

Harold Bailey Gallison II, 58, of Valley Center, California, pleaded guilty on Dec. 10, 2015, and was sentenced by U.S. District Judge Anthony J. Trenga of the Eastern District of FBISeal (1)Virginia, who also ordered Gallison to pay $1,724,770 in restitution.  Gallison 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 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 market 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 also 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 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), he admitted.  According to the plea, 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. 

See previous article Nine Indicted for 'Warrior Girl' and Everock Stock Fraud & Money Laundering Via Moneyline Platform

March 23, 2016 | Permalink | Comments (0)

Tuesday, March 22, 2016

SEC Charges Fraud Against California's BIC Real Estate - Investors Money Used to Pay Student Loans, Clothing and Vacations

The Securities and Exchange Commission today announced fraud charges against a California businessman accused of stealing investor assets and then trying to cover it up once the SEC caught onto his scheme.

The SEC alleges that Daniel R. Nase raised money from investors through an unregistered offering of common stock in his Bakersfield, California-based company, BIC Real Estate SECDevelopment Corp., and used the funds for personal expenses.  According to the SEC’s complaint filed in U.S. District Court for the Eastern District of California:

  • Nase told investors that BIC would invest in real estate and promissory notes.  With money he used to purchase real estate and notes, Nase improperly titled most of the properties in his name or his wife’s name or their family trust, not BIC.
  • Nase used some investor funds to pay for clothing, vacations, student loans, and other personal expenses.
  • Nase tried to cover up his theft after learning of the SEC’s investigation by investing stolen assets back into the company to make it appear he was increasing his equity stake in it.

Nase was not registered with the SEC or any state regulator to sell investments.  Investors can quickly and easily check whether people selling investments are registered by using the SEC’s website.  

The SEC’s complaint charges Nase and BIC with violating federal antifraud laws and rules and securities registration provisions.  The complaint seeks emergency relief in the form of a temporary restraining order, asset freeze, and a preliminary injunction.  It also seeks return of allegedly ill-gotten gains along with interest, penalties, and permanent injunctions and other relief against Nase and BIC.

March 22, 2016 in Financial Regulation | Permalink | Comments (0)

Monday, March 21, 2016

Why May Accrediting Agencies Be Toothless? Is DOE Pulling the Rug Out From Under Them If They Act To Enforce the Rules?

I've been following the Insider Higher Education  articles about the WASC affiliated "Accrediting Commission for Community and Junior Colleges" (I call it "Baby WASC").  I just know what I read .. but the article accounts are alarming to say the least. 

According to Insider Higher Ed, Baby WASC voted to strip San Francisco's City College’s accreditation because the city college had not progressed to correct 12 problem areas, including failing to track student outcomes and operating with only three days of cash reserves (this factor by itself would be a reason to alarm any accreditor).

So instead of the state, city, and local politicians and business leaders stepping up to fix, or at least mitigate, the challenges faced by San Fran's city college - read what Insider Higher ED reports happened....

In 2013, ACCJC sought to revoke the accreditation of the City College of San Francisco. That drew sharp criticism from faculty unions and California political leaders, who 2000px-US-DeptOfEducation-Seal.svgfiled lawsuits and brought their complaints about the accreditor to the Education Department.

After a recommendation from its federal advisory committee -- and amid pressure from City College supporters, faculty unions and members of Congress representing the San Francisco area, including House Democratic Leader Nancy Pelosi -- the Education Department in 2014 found ACCJC out of compliance with 15 federal standards for accreditors and gave it a year to resolve those issues.

The Obama Administration's DOE, which in numerous speeches has talked about the need to improve accreditation and education standards, turns coat and rejects Baby WASC's appeal against the politicization of its accrediting decision about San Fran City College.  If that wasn't enough, on March 17, the California state teacher unions ganged up at the state level with the following result:

The majority of community college presidents in California voted yesterday to pull the colleges away from the Accrediting Commission for Community and Junior Colleges...

The potential take-a-way from the articles is that the accrediting process has been taken over by 'special interests' representing constituencies, and is no longer representative of best academic practices and student consumer protection.   Or maybe, other stories are buried under the surface that have not been reported yet?  

Let us know what you think is going on with California's WASC accreditation system (or soon, lack-there-of)?



March 21, 2016 in Education | Permalink | Comments (0)

SEC Brings First Charge Under Dodd-Frank's Fiduciary Duty Requirement - Conflict of Interest Case

Albeit this is a muni-bond COI case, still it represents the first DF fiduciary action. So - it is interesting from the perspective of the SEC's strategy (or lack thereof) in bringing a DF fiduciary-breach action. Is this merely a test drill? Or will the SEC only look to innocuous scenarios, and leave the big firms alone? Questions to be answered by future SEC action.

The Securities and Exchange Commission charged Kansas-based Central States Capital Markets, its CEO, and two employees for breaching their fiduciary duty by failing to disclose a conflict of interest to a municipal client.  The case is the SEC’s first to enforce the fiduciary duty for municipal advisors created by the 2010 Dodd-Frank Act, which requires these advisors to put their municipal clients’ interests ahead of their own.   Download SEC Fiduciary Violation Dodd-Frank case

In connection with the offerings, Central States collected $130,120 in municipal advisor fees and the Broker-Dealer collected $121,530 in underwriting fees, 90% of which it remitted to Central States. Central States then paid commissions to Detter and Malone based on both the municipal advisor services and the underwriting services they performed. However, Respondents failed to disclose to the City: (1) the fact that certain Central States employees also worked for the Broker-Dealer; (2) the fact that certain Central States employees were performing both municipal advisor services and underwriting services for the Offerings; and (3) the fact that certain Central States employees had a conflict of interest because they were receiving a direct financial benefit from the underwriting services. 

According to the SEC’s order, while Central States served as a municipal advisor to a client on municipal bond offerings in 2011, two of its employees, in consultation with the CEO, SECarranged for the offerings to be underwritten by a broker-dealer where all three worked as registered representatives.  The order found that Central States CEO John Stepp and employees Mark Detter and David Malone did not inform the client, identified in the order as “the City,” of their relationship to the underwriter or the financial benefit they obtained from serving in dual roles. 

In an April 2011 email from Detter to Malone, Detter wrote: “if we are going to charge an [advisory] fee and [the City’s administrator] keeps calling us [municipal advisors], should we not resign as [municipal advisors] to [underwrite] this issue? Out of an abundance of caution I believe we should resign….” Detter even attached draft documents advising the City that they were resigning as municipal advisor, discussing MSRB Rule G-23 and the conflict of interest issue, and requesting the City’s consent to their change of role from municipal advisor to underwriter. However, neither Detter nor Malone ever sent the documents to the City.

Municipal advisors advise municipal and conduit borrowers about the terms of offerings, including interest rates, the selection of underwriters, and underwriting fees.  In the three offerings, Central States collected fees from the City for the municipal advisory work and received 90 percent of the underwriting fees the City paid to the broker-dealer.  The SEC’s order found that Central States, Stepp, Detter, and Malone, breached their duty to the City by failing to disclose the conflict of interest.  The order found that Detter and Malone were aware of the conflict and that Detter emailed Malone that “we should resign” as municipal advisor to serve solely as underwriter on the offerings.

Municipal advisors include financial advisors who assist municipal entities with bond offerings, reinvestment of bond proceeds and the structuring and pricing of related products. See Commission Report on the Municipal Securities Market (July 31, 2012) at 45, available at In 2010, Congress passed the DoddFrank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), which included provisions for the registration and regulation of municipal advisers. The municipal advisor registration requirements and regulatory standards were intended to mitigate some of the problems observed with the conduct of some municipal advisors, including undisclosed conflicts of interest and failure to place the duty of loyalty to their municipal entity clients ahead of their own interests. See Registration of Municipal Advisers, SEC Release No. 34-70462 (September 20, 2013) at 6.

Central States agreed to settle the SEC’s charges by paying $289,827.80 in disgorgement and interest and an $85,000 civil penalty.  Detter agreed to settle the charges by paying a $25,000 civil penalty and agreeing to a bar from the financial services industry for a minimum of two years.  Malone agreed to settle the charges by paying a $20,000 civil penalty and agreeing to a bar from the financial services industry for a one-year minimum.  Stepp agreed to settle the charges by paying a $17,500 civil penalty and agreeing to a six-month suspension from acting in a supervisory capacity with any broker-dealer, investment adviser, or municipal advisor.

March 21, 2016 in Financial Regulation | Permalink | Comments (0)

Sunday, March 20, 2016

What do millennials expect from your company? Ask a Tax-Aggie

Students and professionals of the millennial generation tell EY what they seek from their employers.

What did — Macdonald Norman (23), who has a BBA in accounting and who is a full-time student at Texas A&M School of Law and also a research assistant in oil and gas taxation - disclose to E&Y? Read it here.

March 20, 2016 in Education | Permalink | Comments (0)