International Financial Law Prof Blog

80 countries meet to implement new framework to tackle BEPS

Representatives of more than 80 countries and jurisdictions have gathered in Kyoto, Japan to push forward ongoing efforts to update international tax rules for the 21st century, the latest step in the OECD/G20 Project to tackle Base Erosion and Profit Shifting (BEPS).
 
The 30 June - 1 July meeting marks the first time that a broad range of countries, representing varying levels of development, come together on an equal footing in the OECD’s Committee on Fiscal Affairs, and inaugurates the new inclusive framework on BEPS implementation.
 
"Today we launch a new era in international tax," said Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration. "Through their participation in the decision-making as well as the technical working groups of the OECD's Committee on Fiscal Affairs, the members of the inclusive framework will now have a direct influence in shaping international tax rules to tackle BEPS and ensuring a level playing field."
 
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. Revenue losses from BEPS are conservatively estimated at USD 100-240 billion annually, or 4-10% of global corporate income tax (CIT) revenues. Given developing countries’ greater reliance on CIT revenues, the impact of BEPS on these countries is particularly damaging.
 
Thirty-six countries and jurisdictions have already formally joined the new inclusive framework on BEPS, and have committed to implement the BEPS package, bringing to 82 the total number of countries and jurisdictionsparticipating on an equal footing in the Project. The other 21 countries and jurisdictions attending the Kyoto meeting are likely to join the inclusive framework in the coming months.
 
In Kyoto, participants have started the work to undertake the standard-setting on remaining issues including transfer pricing and interest deductibility, as well as the development of practical guidance to support consistent, global implementation of their commitments to the BEPS package. A particular focus of the inclusive framework will be ensuring implementation of the four minimum standards arising from the BEPS Project – on harmful tax practices, tax treaty abuse, country-by-country reporting and dispute resolution mechanisms – which will be subject to a peer review process, alongside ongoing monitoring of the other elements of the package.
 
Recognising their role in supporting global implementation of the BEPS package, international organisations and regional tax bodies are also participating in the initiative to ensure countries are well-equipped to tackle BEPS. A special session of the meeting will be held with representatives from business and civil society, providing governments the opportunity to hear first-hand their perspectives on the BEPS Project to date and provide input at an early stage on the work of the new inclusive framework.
 
During the meeting in Kyoto, five countries – Argentina, Curacao, Georgia, Korea, and Uruguay – signed the Multilateral Competent Authority agreement for the automatic exchange of Country-by-Country reports ("CbC MCAA") under the BEPS Project, bringing the total number of signatories to 44 countries. The CbC MCAA allows all signatories to bilaterally and automatically exchange Country-by-Country Reports with each other, as contemplated by Action 13 of the BEPS Action Plan. It will help ensure that tax administrations obtain a complete understanding of how MNEs structure their operations, while also ensuring that the confidentiality of such information is safeguarded.
 
Hosted in Japan by Finance Minister TaAso and the Chair of the Committee on Fiscal Affairs, Vice-Minister Masatsugu Asakawa, this meeting will also mark Mr Asakawa’s last plenary meeting as chair. Martin Kreienbaum, Director General of International Taxation for the German Federal Ministry of Finance has been elected to replace Mr Asakawa as Chair of the Committee on Fiscal Affairs from January 2017.
 
For more information, please visit www.oecd.org/tax/beps/

Albert Fried & Company Pays $300K to Settle Anti-Money Laundering Failures, Not Filing SARs

The Securities and Exchange Commission today charged a Wall Street-based brokerage firm with failing to sufficiently evaluate or monitor customers’ trading for suspicious activity as required under the federal securities laws.   See SEC order

 

An SEC investigation found that Albert Fried & Company failed to file Suspicious Activity Reports (SARs) with bank regulators for more than five years despite red flags tied to its customers’ high-volume liquidations of low-priced securities.  On more than one occasion, an AF&Co customer’s trading in a security on a given day exceeded 80 percent of the overall market volume.  In other instances, customers were trading in stocks issued by companies that were delinquent in their regulatory filings or involved in questionable penny stock promotional campaigns.  Certain customers also were the subject of grand jury subpoenas received by AF&Co. 

 

AF&Co agreed to pay a $300,000 penalty to settle the charges.

 

“Albert Fried & Company ignored numerous instances when customer trading activity should have triggered the firm to file SARs.  Brokerage firms must take their anti-money laundering responsibilities seriously so they can serve as a line of defense against misconduct and market risks,” said Andrew Ceresney, Director of the SEC’s Division of Enforcement.

 

The SEC’s order finds that AF&Co violated Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-8.  AF&Co agreed to be censured and pay the $300,000 penalty without admitting or denying the findings in the order, which credits the firm for its cooperation and the remedial measures already undertaken. 

 

While the SEC has charged other firms with anti-money laundering failures under the federal securities laws, this is the first case against a firm solely for failing to file SARs when appropriate.

 

The case stemmed from the work of the Enforcement Division’s Broker-Dealer Task Force, led by Associate Director Antonia Chion and New York Regional Office Director Andrew M. Calamari.  The task force focuses on current issues and practices within the broker-dealer community and develops national initiatives for potential investigations. 

LuxLeaks scandal: Luxembourg tax whistleblowers convicted

BBC reports that "Former PricewaterhouseCoopers employees Antoine Deltour and Raphael Halet received 12 and nine-month sentences respectively for leaking documents."

Guardian news story here

OECD releases guidance on the implementation of country-by-country reporting

Today the OECD has taken a new step in its continuing efforts to boost transparency in international tax matters with the release of Guidance on the Implementation of Country-by-Country (CbC) Reporting.
 
The OECD/G20 BEPS Project set 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. A key pillar of the project focused on ensuring transparency while promoting increased certainty and predictability. One of the main outcomes of that work has been the adoption of country-by-country reporting, as set out in the 2015 BEPS Report on Action 13 "Transfer Pricing Documentation and Country-by-Country Reporting". Under CbC reporting, MNEs will be required to provide aggregate information annually, in each jurisdiction where they do business, relating to 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.
 
Following the endorsement of the BEPS Package by G20 Leaders in November, the focus has now shifted to ensuring a consistent implementation, including of the new transfer pricing reporting standards developed under Action 13 of the BEPS Action Plan. To that aim, the guidance released today sets out:
 

• Transitional filing options for MNEs that voluntarily file in the Parent jurisdiction;
• Guidance on the application of CbC reporting to investment funds;
• Guidance on the application of CbC reporting to partnerships; and
• The impact of exchange rate fluctuations on the agreed EUR 750 million filing threshold for MNE groups.

Questions answered include:

1. Can MNE Groups with an Ultimate Parent Entity resident in a jurisdiction whose CbC reporting legal framework is in effect for Reporting Periods later than 1 January 2016 voluntarily file the CbC report for fiscal periods commencing on or from 1 January 2016 in that jurisdiction? What is the impact of such filing on local filing obligations in other jurisdictions?
2. How should the CbC reporting rules be applied to investment funds?
3. How should a partnership which is tax transparent and thus has no tax residency anywhere be included in the CbC report? How should a reverse hybrid partnership, which is tax transparent in its jurisdiction of organisation but considered by a partner’s jurisdiction to be tax resident in its jurisdiction of organisation, be treated?
4. If Country A is using a domestic currency equivalent of EUR 750 million for its filing threshold, Country B is using EUR 750 million for its filing threshold, and as a result of currency fluctuations Country A's threshold is in excess of EUR 750 million, can Country B impose its local filing requirement on a Constituent Entity of an MNE Group headquartered in Country A which is not filing a CbC report in Country A because its revenues, while in excess of EUR 750 million, are below the threshold in Country A?

The OECD will continue to support the consistent and swift implementation of CbC reporting to ensure a level playing field, but also provide certainty for taxpayers and improve the ability of tax administrations to use CbC reports in their risk assessment work.  Where additional questions of interpretation arise and would be best addressed through common guidance, the OECD will endeavour to make this available.

Download Guidance-on-the-implementation-of-country-by-country-reporting-beps-action-13

Help an academic out!  I (William Byrnes) am working on a neutral, independent comparables comparison for the Starbucks EU State Aid case this summer, with a view to an academic article submitted this Fall.  If you have ideas for me to find data, please reach out and let's talk.  William Byrnes is the primary author of Lexis’ Practical Guide to U.S. Transfer Pricing. 

SEC Issues $17 Million Whistleblower Award

The Securities and Exchange Commission announced a whistleblower award of more than $17 million to a former company employee whose detailed tip substantially advanced the agency’s investigation and ultimate enforcement action.

The award is the second-largest issued by the SEC since its whistleblower program began nearly five years ago.  The SEC issued a $30 million award in September 2014 and a $14 million award in October 2013.

 

“Company insiders are uniquely positioned to protect investors and blow the whistle on a company’s wrongdoing by providing key information to the SEC so we can investigate the full extent of the violations,” said Andrew Ceresney, Director of the SEC’s Division of Enforcement.  “The information and assistance provided by this whistleblower enabled our enforcement staff to conserve time and resources and gather strong evidence supporting our case.”

 

Sean X. McKessy, Chief of the SEC’s Office of the Whistleblower, added, “In the past month, five whistleblowers have received a total of more than $26 million, and we hope these substantial awards encourage other individuals with knowledge of potential federal securities law violations to make the right choice to come forward and report the wrongdoing to the SEC.”  

 

By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.

 

The SEC’s whistleblower program has now awarded more than $85 million to 32 whistleblowers since the program’s inception in 2011.  Whistleblowers may be eligible for an award when they voluntarily provide the SEC with unique and useful information that leads to a successful enforcement action.  Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million.  All payments are made out of an investor protection fund established by Congress that is financed through monetary sanctions paid to the SEC by securities law violators.  No money has been taken or withheld from harmed investors to pay whistleblower awards.

 

See 

 

• Three Tax Whistleblowers Who Changed The Game  
• Tax Whistleblowers – $104 Million IRS Award to Mr. Birkenfeld (UBS) Yet Nothing for Mr. Insinga (RABO)?

Cyberhackers Force IRS to Abandon PIN E-Filing System

As a precautionary step to protect taxpayers, the Internal Revenue Service announced 23 June 2016 that the electronic filing PIN tool  is no longer available on IRS.gov or by toll-free phone following additional questionable activity.

In February, the IRS announced that cybercriminals using taxpayer data stolen elsewhere and an automated bot attack program accessed more than 100,000 e-File PINs through the tool. The tool only reveals the PIN. It does not reveal any taxpayer data. Criminals used taxpayers’ names, addresses, filing status, dates of birth and Social Security Numbers which they obtained from other sources to access the e-File PIN.

The IRS retained the tool at that time because links are embedded in almost all commercial tax software products that helped taxpayers file their returns. However, additional defenses were added inside the IRS processing systems for protection, including extra scrutiny for any return with an e-File PIN.

Recently, the IRS observed additional automated attacks taking place at an increasing frequency, but only affecting a small number of e-File PINs. We were able to identify this issue because of additional defenses put in place earlier this year, and backend protections remain in place. However, the IRS decided to remove the e-File PIN program as a safety measure.  Prior to this, the IRS had been working with industry to assess elimination of the e-File PIN later this year.

The e-File PIN serves as an alternative signature verification method on the Form 1040 series and helps assist with electronic filing of tax returns. Most taxpayers do not need an e-File PIN to file electronically, they can use their prior-year adjusted gross income from copies of their prior year tax returns. For those who do not have a copy of their tax return, they may use Get Transcript to obtain a copy which will display the adjusted gross income.

Department of Education Releases Critical Report on ABA's Continued Recognition as Accreditor, ABA Withdraws Distance Education From Its Scope of Recognition

Inside Higher Ed reported that the DOE's National Advisory Committee on Institutional Quality and Integrity (NACIQI) panel "rebuked the American Bar Association, in part for its lack of attention to student achievement."  Inside Higher Ed reported that "the NACIQI, after three contentious votes, recommended that the department suspend the association's ability to accredit new members for a year.  The panel said the ABA had failed to implement its student achievement standards and probationary sanctions, while also falling short on its audit process and analysis of graduates' debt levels."

Distance Education

The ABA, the staff reports states: "In response to the draft analysis, the [ABA] agency withdrew distance education from their scope of recognition."

The agency needs to provide documentation that would attest to the qualifications of site team members to serve in their respective roles. ... The site evaluators training materials include distance education. However, formal training on distance education was not evident in the meeting agenda or materials. .... The Department also expects that all of the personnel involved in accreditation activities will have received training regarding the accreditation and evaluation of distance education programs.  As noted previously the agency provided no evidence of those involved in accreditation activities regarding distance education.

Staff Recommendation:   Continue the agency's recognition as a nationally recognized accrediting agency at this time, and require the agency to come into compliance within 12 months with the criteria listed below, and submit a compliance report due 30 days thereafter that demonstrates the agency's compliance.

Issues or Problems:   It does not appear that the agency meets the following sections of the Secretary’s Criteria for Recognition. These issues are summarized below and discussed in detail under the Summary of Findings section.

-- The agency must provide the twelve resumes of staff with responsibilities for accreditation activities, as listed on the submitted organizational chart but not included as evidence, to be assessed for this criterion. [§602.15(a)(1)]

-- The agency must provide the resumes for the four Council members and the one Data Policy & Collection Committee member not included in the documents provided for this criterion. [§602.15(a)(2)]

-- The agency must amend its standards, policies and procedures to include an academic and an administrative member in its composition of the Appeals Panel and provide evidence that an academic and administrative member serves on the Appeals Panel in the one defined role to demonstrate compliance with this criterion. [§602.15(a)(3)]

-- The agency standards, policies and procedures must be amended to clarify the requirements of the site evaluation questionnaire in lieu of the self-study. The agency must also provide evidence of these approved changes from the decision making bodies. [§602.16(a)(1)(viii)]

-- The agency standards, policies and procedures must be amended to clarify the requirements of the self-study and the site evaluation questionnaire. The agency must also provide evidence of these approved changes from the decision making bodies.
[§602.17(b)]

Download DOE Report on ABA NonCompliance

(2) Competent and knowledgeable individuals, qualified by education and experience in their own right and trained by the agency on their responsibilities, as appropriate for their roles, regarding the agency's standards, policies, and procedures, to conduct its on-site evaluations, apply or establish its policies, and make its accrediting and preaccrediting decisions, including, if applicable to the agency's scope, their responsibilities regarding distance education and correspondence education;

The agency states that the accreditation processes are performed by the council, accreditation committee, managing director, and appeals panel. The council has primary authority to determine compliance with agency standards; the accreditation committee makes recommendations to the council on various issues; the managing director oversees and reports all accreditation matters to the council and assures legal requirements are followed for law school accreditation; and the appeals panel considers appeals on denial or withdrawal of accreditation. The agency's bylaws, standards, and rules of procedure for approval of law schools describe the criteria and composition of the Accreditation Committee, Council, appeals panel members, on-site evaluators, and team chairs. The rosters included as evidence identify the selection of qualified evaluators and decision makers as described in the written policies and procedures, however no curriculum vitae have been included demonstrating the qualifications via education and experience for the decision making bodies (which include the Accreditation Committee, Council, and appeals panel) for Department staff to review to ensure compliance with this criteria. The agency needs to provide documentation that would attest to the qualifications of site team members to serve in their respective roles. The site evaluation teams consist of legal educators, practitioners, and a judge as demonstrated during the site visit observed by Department staff in February 2016 and within agency policies. The agency provided the internal operating practices as evidence which specifically outlines the qualifications needed for and the training of site team members, as well as the evaluation of site team reports by the managing director. The agency provided training materials for the aforementioned groups as evidence. The materials are created to ensure understanding of the standards, policies, procedures in their perspective roles as a decision and policy-makers as well as the evaluators reviewing the application of standards, policies and procedures during site visits. The site evaluators training materials include distance education. However, formal training on distance education was not evident in the meeting agenda or materials. In accordance with 602.27(a) (5) the agency notified the Department on June 16, 2014, requesting that the accreditation of distance education programs be included in its scope of recognition. As noted in aforementioned criterion such an expansion of scope is effective on the date the Department receives the notification. At the next full recognition review the Department expects the agency to demonstrate its ability to evaluate distance education. The agency has not provided evidence of such a review. The Department also expects that all of the personnel involved in accreditation activities will have received training regarding the accreditation and evaluation of distance education programs. As noted previously the agency provided no evidence of those involved in accreditation activities regarding distance education. Also, the Data Policy & Collection Committee is introduced as part of the accreditation internal operating practices for legal education and admission to the bar. The role of the Data Policy & Collection Committee is not defined within the bylaws or standards and rules of procedure for approval of law schools, yet internal operating practices submitted as evidence by the agency states that the committee operate under the accreditation domain. The qualifications and the definition of the Data Policy and Collection Committee must be explained as it relates to accreditation

Analyst Remarks to Response:

In response to the draft analysis, the agency withdrew distance education from their scope of recognition and provided additional information and documentation to address the previous concerns related to competency of representatives as evidenced in Exhibits B-C and F-G in addition to further explanation of exhibits 10-11, 15, 17-19 and 21. Specifically, the agency included in the response resumes of the members of the Appeals Panel and Accreditation Committee but only some of the resumes for the Council and Data Policy & Collection Committee members (exhibits B-C and F-G). The agency also provided additional detail on the training of all entities involved in accreditation activities outlining the focus of these training workshops. Finally, the agency clarified the role of the Data Policy & Collection Committee as it relates to the accreditation process of the agency. The agency attest s that the Data Policy & Collection Committee role is to continue a dialogue between the schools and the Council on the most effective and efficient ways to collect and report the data that is required to operate the agency’s accreditation process which falls under the Special Committees of Article X, section 2 within the agency Bylaws (exhibit 15). The agency provided the roaster for the Data Policy & Collection Committee members and all but one of the resumes for the members (exhibits 21 and G). However, the exclusion of the resumes causes the agency to remain out of compliance with the criteria. §602.16 Accreditation and preaccreditation standards (a)(1)(viii) Measures of program length and the objectives of the degrees or credentials offered.   The agency’s measures of program length and the objectives of the degrees or credentials offered are found in standards 301 and 311. Standard 301 requires law schools to establish and publish learning outcomes while maintaining a rigorous program of legal education that prepares its students for admission to the bar and effective, ethical, and responsible participation as members of the legal profession. A description of learning outcomes is also required for distance education. Standard 311 requires not fewer than 83 credit hours for graduation of which 64 of these credit hours require attendance in regularly scheduled classroom sessions or direct faculty instruction; completion no earlier than 24 months and no later than 84 months; do not permit a student to be enrolled at any time in coursework that exceeds 20 percent of the total credit hours required by that school for graduation; and credit for a J.D. degree is only given for course work taken after the student has matriculated in a law school. Description of learning outcomes is also required for distance education. The agency submitted documentation on standard 204-self study, which is submitted six weeks prior to the on-site review. The agency has adopted the site evaluation questionnaire to serve as a form of the self study. The agency submitted as evidence a guidance memo regarding compliance with Standard 204 and site evaluation workshop training materials on the self-study requirements. The agency provided SEQs and site visit reports demonstrating the review of these criteria in addition to Department staff’s observation of an on-site evaluation. The agency has not provided a self-study demonstrating the changes mentioned in standard 204. In section 602.16(a)(1)(i), the agency narrative states that each law school is required to complete the SEQ (which now serves as the self-study), six weeks before its site visit. However, the agency’s standards and rules of procedure for approval of law school standard 204 states that a self-study is comprised of (a) a completed site evaluation questionnaire, (b) a statement of the law school’s mission and of its educational objectives in support of that mission, (c) an assessment of the educational quality of the law school’s program, (d) an assessment of the school’s continuing efforts to improve educational quality, (e) an evaluation of the school’s effectiveness in achieving its stated educational objectives, and (f) a description of the strengths and weaknesses of the law school’s program of legal education. The agency indicates distance education as part of their scope of recognition, but has not provided evidence of a review of distance education program for Department staff to assess. Also, the agency narrative indicates the inclusion of decision letters A and B (exhibit 31 and 32) demonstrating the results of this standards review, but is not included as evidence. As noted previously, in accordance with 602.27(a) (5), the agency notified the Department on June 16, 2014, requesting that the accreditation of distance education programs be included in its scope of recognition. As noted in aforementioned criterion such an expansion of scope is effective on the date the Department receives the notification. At the next full recognition review the Department expects the agency to demonstrate its ability to evaluate distance education. The agency has not provided evidence of such a review. The agency needs to inform the Department if it still has a need or desire to accredit programs via distance. The agency also needs to inform the Department when it will be able to demonstrate to the Department (through its evaluation of a distance education program) that it has the ability to evaluate such programs and that all entities involved in accreditation activities have been trained in the accreditation and evaluation of distance education programs. Analyst Remarks to Response: In response to the draft analysis, the agency withdrew distance education from their scope of recognition and provided additional information and documentation to address the previous concerns related to the criteria as evidenced in the submitted exhibits. Specifically, the agency has updated standard 204 for law schools when submitting a self-study as evidenced in the agency memo (exhibit 73) announcing new interpretations for the standard as to rid the agency of duplication of efforts by the law school. The agency now requires law schools to submit a comprehensive site evaluation questionnaire in lieu of the separate self-study document, which must include all of the parts of standard 204. The agency has provided a site evaluation questionnaire, now entitled self-study (exhibits S, T and U) as part of the full cycle of review for this criterion. However, the agency standards do not reflect this new requirement. Standard 204 and the subsequent sections of the agency standards still identify the self-study and site evaluation questionnaire as separate requirements with separate definitions as sited in 602.17(b). Initially, the agency submitted decision letters 31 and 32 to the Department a month after the renewal petition submission. The Analyst discovered discrepancies within the documents that were submitted late, thus finding the agency out of compliance with the criteria, which was discussed with the agency during follow up communication. The original agency documents were heavily redacted which made it unclear to the Department the connection between the documents to assess them for compliance with the criteria. The agency response has now included a table outlining the documents submitted as they relate to the redacted name of the schools designating all documents affiliated with schools A, B, and C. The documents submitted now contain full cycles of review for these schools, including a decision letter from April 2016 for school C, to demonstrate compliance with the criteria.

Volkswagen to Spend Up to $14.7 Billion to Settle Allegations of Cheating Emissions Tests and Deceiving Customers on 2.0 Liter Diesel Vehicles

Settlements Require VW to Spend up to $10 Billion to Buyback, Terminate Leases, or Modify Affected 2.0 Liter Vehicles and Compensate Consumers, and Spend $4.7 Billion to Mitigate Pollution and Make Investments that Support Zero-Emission Vehicle Technology  

In two related settlements, one with the United States and the State of California, and one with the U.S. Federal Trade Commission (FTC), German automaker Volkswagen AG and related entities have agreed to spend up to $14.7 billion to settle allegations of cheating emissions tests and deceiving customers. Volkswagen will offer consumers a buyback and lease termination for nearly 500,000 model year 2009-2015 2.0 liter diesel vehicles sold or leased in the U.S., and spend up to $10.03 billion to compensate consumers under the program. In addition, the companies will spend $4.7 billion to mitigate the pollution from these cars and invest in green vehicle technology.

The settlements partially resolve allegations by the Environmental Protection Agency (EPA), as well as the California Attorney General’s Office and the California Air Resources Board (CARB) under the Clean Air Act, California Health and Safety Code, and California’s Unfair Competition Laws, relating to the vehicles’ use of “defeat devices” to cheat emissions tests.  The settlements also resolve claims by the FTC that Volkswagen violated the FTC Act through the deceptive and unfair advertising and sale of its “clean diesel” vehicles. The settlements do not resolve pending claims for civil penalties or any claims concerning 3.0 liter diesel vehicles.  Nor do they address any potential criminal liability.

The affected vehicles include 2009 through 2015 Volkswagen TDI diesel models of Jettas, Passats, Golfs and Beetles as well as the TDI Audi A3.

“By duping the regulators, Volkswagen turned nearly half a million American drivers into unwitting accomplices in an unprecedented assault on our environment,” said Deputy Attorney General Sally Q. Yates.  “This partial settlement marks a significant first step towards holding Volkswagen accountable for what was a breach of its legal duties and a breach of the public’s trust.  And while this announcement is an important step forward, let me be clear, it is by no means the last.  We will continue to follow the facts wherever they go.”

“Today’s settlement restores clean air protections that Volkswagen so blatantly violated,” said EPA Administrator Gina McCarthy. “And it secures billions of dollars in investments to make our air and our auto industry even cleaner for generations of Americans to come. This agreement shows that EPA is committed to upholding standards to protect public health, enforce the law, and to find innovative ways to protect clean air.”

“Today’s announcement shows the high cost of violating our consumer protection and environmental laws,” said FTC Chairwoman Edith Ramirez. “Just as importantly, consumers who were cheated by Volkswagen’s deceptive advertising campaign will be able to get full and fair compensation, not only for the lost or diminished value of their car but also for the other harms that VW caused them.”

According to the civil complaint against Volkswagen filed by the Justice Department on behalf of EPA on January 4, 2016, Volkswagen allegedly equipped its 2.0 liter diesel vehicles with illegal software that detects when the car is being tested for compliance with EPA or California emissions standards and turns on full emissions controls only during that testing process. During normal driving conditions, the software renders certain emission control systems inoperative, greatly increasing emissions. This is known as a “defeat device.”  Use of the defeat device results in cars that meet emissions standards in the laboratory, but emit harmful NOx at levels up to 40 times EPA-compliant levels during normal on-road driving conditions.  The Clean Air Act requires manufacturers to certify to EPA that vehicles will meet federal emission standards.  Vehicles with defeat devices cannot be certified.

The FTC sued Volkswagen in March, charging that the company deceived consumers with the advertising campaign it used to promote its supposedly “clean diesel” VWs and Audis, which falsely claimed that the cars were low-emission, environmentally friendly, met emissions standards and would maintain a high resale value.

The settlements use the authorities of both the EPA and the FTC as part of a coordinated plan that gets the high-polluting VW diesels off the road, makes the environment whole, and compensates consumers.

The settlements require Volkswagen to offer owners of any affected vehicle the option to have the company buy back the car and to offer lessees a lease cancellation at no cost. Volkswagen may also propose an emissions modification plan to EPA and CARB, and if approved, may also offer owners and lessees the option of having their vehicles modified to substantially reduce emissions in lieu of a buyback.  Under the U.S./California settlement, Volkswagen must achieve an overall recall rate of at least 85% of affected 2.0 liter vehicles under these programs or pay additional sums into the mitigation trust fund.  The FTC order requires Volkswagen to compensate consumers who elect either of these options. 

Volkswagen must set aside and could spend up to $10.03 billion to pay consumers in connection with the buy back, lease termination, and emissions modification compensation program. The program has different potential options and provisions for affected Volkswagen diesel owners depending on their circumstances:

Buyback option: Volkswagen must offer to buy back any affected 2.0 liter vehicle at  their retail value as of September 2015 -- just prior to the public disclosure of the emissions issue. Consumers who choose the buyback option will receive between $12,500 and $44,000, depending on their car’s model, year, mileage, and trim of the car, as well as the region of the country where it was purchased. In addition, because a straight buyback will not fully compensate consumers who owe more than their car is worth due to rapid depreciation, the FTC order provides these consumers with an option to have their loans forgiven by Volkswagen.  Consumers who have third party loans have the option of having Volkswagen pay off those  loans, up to 130 percent of the amount a consumer would be entitled to under the buyback (e.g., if the consumer is entitled to a $20,000 buyback, VW would pay off his/her loans up to a cap of $26,000).

EPA-approved modification to vehicle emissions system: The settlements also allow Volkswagen to apply to EPA and CARB for approval of an emissions modification on the affected vehicles, and, if approved, to offer consumers the option of keeping their cars and having them modified to comply with emissions standards.  Under this option in accordance with the FTC order, consumers would also receive money from Volkswagen to redress the harm caused by VW’s deceptive advertising. 

Consumers who leased the affected cars will have the option of terminating their leases (with no termination fee) or having their vehicles modified if a modification becomes available.  In either case, under the FTC order, these consumers also will receive additional compensation from Volkswagen for the harm caused by VW’s deceptive advertising.  Consumers who sold their TDI vehicles after the VW defeat device issue became public may be eligible for partial compensation, which will be split between them and the consumers who purchased the cars from them as set forth in the FTC order.

Eligible consumers will receive notice from VW after the orders are entered by the court this fall. Consumers will be able to see if they are eligible for compensation and if so, what options are available to them, at VWCourtSettlement.com andAudiCourtSettlement.com. They will also be able to use these websites to make claims, sign up for appointments at their local Volkswagen or Audi dealers and receive updates.  Consumer payments will not be available until the settlements take effect if and when approved by the court, which may be as early as October 2016.

Emissions Reduction Program: The settlement of the company’s Clean Air Act violations also requires Volkswagen to pay $2.7 billion to fund projects across the country that will reduce emissions of NOx where the 2.0 liter vehicles were, are or will be operated. Volkswagen will place the funds into a mitigation trust over three years, which will be administered by an independent trustee.  Beneficiaries, which may include states, Puerto Rico, the District of Columbia, and Indian tribes, may obtain funds for designated NOx reduction projects upon application to the Trustee. Funding for the designated projects is expected to fully mitigate the NOx these 2.0 liter vehicles have and will emit in excess of EPA and California standards.

The emissions reduction program will help reduce NOx pollution that contributes to the formation of harmful smog and soot, exposure to which is linked to a number of respiratory- and cardiovascular-related health effects as well as premature death. Children, older adults, people who are active outdoors (including outdoor workers), and people with heart or lung disease are particularly at risk for health effects related to smog or soot exposure. NO2 formed by NOx emissions can aggravate respiratory diseases, particularly asthma, and may also contribute to asthma development in children.

Zero Emissions Technology Investments: The Clean Air Act settlement also requires VW to invest $2 billion toward improving infrastructure, access and education to support and advance zero emission vehicles. The investments will be made over 10 years, with $1.2 billion directed toward a national EPA-approved investment plan and $800 million directed toward a California-specific investment plan that will be approved by CARB.  As part of developing the national plan, Volkswagen will solicit and consider input from interested states, cities, Indian tribes and federal agencies. This investment is intended to address the adverse environmental impacts from consumers’ purchases of the 2.0 liter vehicles, which the governments contend were purchased under the mistaken belief that they were lower emitting vehicles.

FTC’s Injunctive Relief: The FTC settlement includes injunctive provisions to protect consumers from deceptive claims in the future.  These provisions prohibit Volkswagen from making any misrepresentations that would deceive consumers about the environmental benefits or value of its vehicles or services, and the order specifically bans VW from employing any device that could be used to cheat on emissions tests. 

The provisions of the U.S./California settlement are contained in a proposed consent decree filed today in the U.S. District Court for the Northern District of California, as part of the ongoing multi-district litigation, and will be subject to public comment period of 30 days, which will be announced in the Federal Register in the coming days.  The provisions of the FTC settlement are contained in a proposed Stipulated Final Federal Court Order filed today in the same court. 

To view the consent decree, visit: www.justice.gov/enrd/consent-decrees

To view the FTC proposed order, visit: https://www.ftc.gov/enforcement/cases-proceedings/162-3006/volkswagen-group-america-inc.

Consumer Fact Sheet

VW Partial 2L CD and Appendices

VW Notice of Lodging

Distance Education Pedagogy

Fulbright Specialist Prof. William Byrnes (Texas A&M Law) was invited to address India's National Board of Accreditation and receive an award for his pioneering efforts with online pedagogical methods in the early nineties.  His remarks address developing learning outcomes and effective pedagogical practices with an emphasis on distance learning. The remarks cover the following topics: Review of the Effectiveness of Distance Learning, Developing Learning Outcomes, Occupational Outcomes Framing Learning Outcomes, Information Acquisition, Information Delivery, Learning Communities, Learning Media, Learner Motivation, Knowledge Acquisition and Learning Tools.  See my white paper at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2487679

 

 

Investment Fraud Victims Include Online Daters

The Securities and Exchange Commission today announced fraud charges and an asset freeze obtained against a Connecticut man accused of misleading people into investing in his company and then taking their money for his personal use.  His victims include several women he met through an online dating website.

 

The SEC alleges that Thomas J. Connerton told investors that his company Safety Technologies LLC was developing a material to make surgical gloves better resistant to cuts or punctures.  He claimed that several major glove manufacturers wanted the technology and Safety Technologies was on the brink of imminent deals that would result in large payouts for investors in his company.  But no deals have ever been anywhere close to materializing, and Connerton has emptied the company’s bank account by writing a series of checks to himself and using investor funds for his own expenses.

 

According to court documents filed by the SEC, among Connerton’s improper spending of investor funds was $20,000 for an engagement ring for his latest online date turned investor.  There are more than 50 investors in Safety Technologies, including six women Connerton met through online dating and 14 others who are family or friends of those women.

 

“We charge Connerton with lying about the state of his business and exploiting personal connections to lure in investors,” said Paul G. Levenson, Director of the SEC’s Boston Regional Office.  “Investors beware: a rosy picture of a business that’s about to take off could still lead to a total loss of investment.”

 

According to the SEC’s complaint, Connerton failed to comply with the requirements for private offerings exempt from registration under the federal securities laws, such as providing investors with appropriate financial information and confirming that they have sufficient knowledge and experience to evaluate the merits and risks of the investment.  Connerton also is not registered to sell investments.  Investors can quickly and easily check whether people selling investments are registered by using the SEC’s investor.gov website.

 

The SEC has obtained a court order freezing the assets of Connerton and Safety Technologies.  The SEC’s complaint seeks a permanent injunction as well as the return of allegedly ill-gotten gains plus interest and a penalty.

• SEC complaint

Texas ex-tycoon Wyly ordered to pay $1.1 billion for tax fraud

Reuters reported that "A federal bankruptcy judge in Texas on Monday ordered former billionaire Sam Wyly to pay $1.11 billion in back taxes, interest and penalties after finding he committed tax fraud by shielding much of his family's wealth in offshore trusts."

Read the Reuters full story here.

Hedge Fund Managers and Former Government Official Charged in $32 Million Insider Trading Scheme; One Commits Suicide

 

The Securities and Exchange Commission previously announced insider trading charges against two hedge fund managers and their source, a former government official accused of deceptively obtaining confidential information from the U.S. Food and Drug Administration (FDA).  A third hedge fund manager working at the same investment advisory firm as the alleged insider traders was charged with falsely inflating assets in portfolios he managed - this asset mismarking scheme yielded $6 Million in extra fees.....

 

The SEC alleges that Sanjay Valvani, whom slit his own throat on June 20, reaped unlawful profits of nearly $32 million for hedge funds investing in health care securities by insider trading on tips he received from Gordon Johnston, who worked at the FDA for a dozen years and remained in close contact with former colleagues while working for a trade association representing generic drug manufacturers and distributors.  Johnston concealed his separate role as a hedge fund consultant and obtained confidential information about anticipated FDA approvals for companies to produce enoxaparin, a generic drug that helps prevent the formation of blood clots.  Johnston allegedly funneled to Valvani the details of his conversations with FDA personnel, including a close friend he mentored during his time at the agency.  Valvani then traded in advance of public announcements concerning FDA approvals for such companies as Momenta Pharmaceuticals, Watson Pharmaceuticals, and Amphastar Pharmaceuticals.

 

“We allege that Valvani’s formula for trading success was tapping Johnston to abuse his position of trust as a generic industry representative to the FDA and underhandedly obtain confidential information from his friends and former colleagues at the FDA,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “Valvani and his hedge funds made millions by trading on nonpublic FDA drug approval information not available to the rest of the stock market.”

 

The SEC further alleges that Valvani in turn tipped fellow hedge fund manager Christopher Plaford, who is charged in a separate complaint with insider trading on this nonpublic information as well as other material he received confidentially from a former Centers for Medicare and Medicaid Services official about an impending cut to Medicare reimbursement rates for certain home health services.  Plaford allegedly made approximately $300,000 by trading based on inside information in hedge funds he managed.  He has cooperated with the SEC’s investigation.

 

In a separate complaint against Stefan Lumiere, the SEC alleges that he and Plaford engaged in a fraudulent scheme to falsely inflate the value of securities held by a hedge fund advised by their firm.  For an 18-month period, Lumiere used sham broker quotes to mismark as many as 28 securities per month, surreptitiously passing his desired prices along to brokers via his personal cell phone or a flash drive delivered by a courier.  The fund consequently reported artificially inflated returns and monthly net asset values, and paid out more than $5.9 million in inflated management and performance fees to its investment adviser.

 

“Lumiere allegedly used fake prices to value assets while investors were led to believe the fund was using real prices from independent sources that reflected the market value for those assets,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “Financial professionals who cheat investors and game the system should not expect to get away with it.”

 

In parallel actions, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Valvani, Johnston, Lumiere, and Plaford.

 

The SEC’s complaint against Valvani and Johnston charges them with violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  Valvani also allegedly aided and abetted his firm’s violation of Section 204A of the Investment Advisers Act of 1940. 

 

The SEC’s complaint against Plaford charges him with violations of Section 10(b) of the Exchange Act and Rule 10b-5, and Section 206 of the Advisers Act and Rule 206(4)-8.  He is also charged with aiding and abetting his firm’s violation of Section 204A of the Advisers Act. 

 

The SEC’s complaint against Lumiere charges him with committing or aiding and abetting violations of Section 10(b) of the Exchange Act and Rule 10b-5 as well as Section 206 of the Advisers Act and Rule 206(4)-8. 

 

The SEC’s complaints, filed in federal court in Manhattan, seek disgorgement of ill-gotten gains plus interest and penalties as well as permanent injunctions against future violations.

SEC Halts Scheme Defrauding Pro Athletes

The Securities and Exchange Commission announced that it has obtained a court order freezing the assets of an investment advisor it has charged with secretly siphoning millions of dollars from accounts he managed for professional athletes and investing them in a struggling online sports and entertainment ticket business on whose board he served.

 

In a complaint filed on May 24 (see SEC complaint) but only unsealed June 21 in federal court in Dallas, the SEC charged the advisor, Ash Narayan, of Newport Coast, California, along with The Ticket Reserve Inc., CEO Richard M. Harmon, and chief operating officer John A. Kaptrosky.  The SEC obtained a court order on May 24 to freeze the assets of the defendants and the court appointed a receiver over The Ticket Reserve.

 

The SEC’s complaint alleges that Narayan transferred more than $33 million from clients’ accounts to The Ticket Reserve, typically without their knowledge or consent and often using forged or unauthorized signatures.  According to the complaint, the Ticket Reserve became dependent on the fraudulent cash infusions from Narayan’s unsuspecting clients to stay in business and in exchange, Narayan received nearly $2 million in hidden compensation from the company, most of it directly traceable to funds stolen from his clients.

 

According to the SEC’s complaint, The Ticket Reserve also made Ponzi-like payments to existing investors using money from new investors.  Since being fired from the investment firm where he worked and losing access to the clients’ accounts, Narayan is alleged to have been redirecting to The Ticket Reserve the sham fees he received out of the money taken from client accounts.  The SEC secured the court-ordered asset freeze before Narayan could make a planned financial transaction on May 31.

 

“We allege that Narayan exploited athletes and other clients who trusted him to manage their finances.  He fraudulently funneled their savings into a money-losing business and his own pocket,” said Shamoil T. Shipchandler, Director of the SEC’s Fort Worth Regional Office.  “The asset freeze stops the uncontrolled spending of investor assets within The Ticket Reserve until the case is resolved, preserving money that rightfully belongs to Narayan’s clients.”

 

According to the SEC’s complaint:

• Narayan was a managing director in the California office of Dallas-based investment advisory firm RGT Capital Management. 
• Narayan’s clients trusted and relied upon Narayan to pursue safe, conservative investments that would not put their principal at risk, realizing that as professional athletes with injury risks, their earnings might occur within a short window.
• Besides failing to disclose the bulk of The Ticket Reserve investments to his clients and the fees he was receiving in exchange for investing their money, Narayan failed to disclose other key conflicts of interest—including that he was a member of The Ticket Reserve’s board of directors and owned more than three million shares of company stock.  Narayan also falsely claimed to be a CPA.
• Harmon and Kaptrosky participated in the scheme by making undisclosed finder’s fee payments to Narayan out of his clients’ funds and covertly describing them as “director's fees” and “loans” in various company documents.
• Harmon and Kaptrosky approved and executed Ponzi-like payments, falsified and backdated documents, and created sham promissory notes between The Ticket Reserve and Narayan in attempts to further conceal the scheme. 

The SEC’s complaint alleges that Narayan, The Ticket Reserve, Harmon, and Kaptrosky violated antifraud provisions of the federal securities laws and a related SEC antifraud rule, and charges Narayan with violating the antifraud provisions of the Investment Advisers Act of 1940.  The SEC seeks disgorgement of ill-gotten gains plus interest and penalties as well as preliminary and permanent injunctions. 

Analogic Subsidiary Agrees to Pay More than $14 Million to Resolve Bribery in Russia and Other Countries

A subsidiary of Massachusetts technology company Analogic Corporation entered into a non-prosecution agreement and agreed to pay a $3.4 million penalty today to resolve the government’s investigation into improper payments made in Russia and elsewhere in violation of the Foreign Corrupt Practices Act (FCPA), announced Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and U.S. Attorney Carmen M. Ortiz of the District of Massachusetts. 

According to admissions made in the resolution documents, BK Medical ApS, a manufacturer of ultrasound equipment headquartered in Denmark, engaged in a scheme with its distributor in Russia to make improper payments to third parties using fictitious invoices, falsely book those third-party payments and cause Analogic to falsify its books and records.  BK Medical admitted that, as part of the scheme, after the terms of a sale had been agreed upon, the distributor requested that BK Medical issue invoices that falsely inflated the sales price on the equipment.  The distributor then overpaid BK Medical the inflated amount and BK Medical transferred the excess funds to third parties as directed by the distributor, the company admitted.  BK Medical had no legitimate business relationship with those third parties and had not conducted due diligence on them, it admitted.  According to admissions in the resolution documents, at least some of these payments ultimately went to doctors employed by Russian state-owned entities.  Although the scheme involving its Russian distributor was the most extensive, BK Medical also admitted that it engaged in similar schemes with distributors in five other countries.  BK Medical admitted that its conduct – creating and maintaining these fictitious invoices, representing to Analogic that BK Medical was complying with all Analogic accounting policies and signing Sarbanes-Oxley subcertifications – caused Analogic to falsify its books, records and accounts in violation of the FCPA.   

As part of the non-prosecution agreement, BK Medical has agreed to pay the criminal penalty, to continue to cooperate with the department and with foreign authorities in any ongoing investigations and prosecutions relating to the conduct, including of individuals, to enhance its compliance program and to periodically report to the department on the implementation of its enhanced compliance program.  The department reached this resolution based on a number of factors.  Among other factors, BK Medical received credit for its self-disclosure and its remediation, including terminating the officers and employees responsible for the corrupt payments.  It received partial credit for cooperation because, as described in the non-prosecution agreement, it did not initially disclose certain relevant facts that it learned in the course of its internal investigation.  Otherwise, by the conclusion of the investigation, BK Medical had provided to the department all relevant facts known to it, including information about individuals involved in the FCPA misconduct. 

In a related matter, Analogic reached a settlement today with the U.S. Securities and Exchange Commission (SEC) under which it agreed to pay $7,672,651 in disgorgement and $3,810,311 in prejudgment interest.  Download BK Medical Non-Prosecution Agreement

After UBS Produces Singapore-Based Documents, Justice Department Dismisses Summons Case

UBS AG has complied with an Internal Revenue Service (IRS) summons for bank records held in its Singapore office, the
Justice Department announced today.  Because UBS has now produced all Singapore-based records responsive to the request and the IRS determined that UBS complied with the summons, the Justice Department has voluntarily dismissed its summons enforcement action against the bank.

The IRS served an administrative summons on UBS for records pertaining to accounts held by Ching-Ye “Henry” Hsiaw.  According to the petition, the IRS needed the records in order to determine Hsiaw’s federal income tax liabilities for the years 2006 through 2011.  Hsiaw transferred funds from a Switzerland-based account with UBS to the UBS Singapore branch in 2002, according to the declaration of a revenue agent filed at the same time as the petition.  UBS refused to produce the records, and the United States filed its petition to enforce the summons.

“The Department of Justice and the IRS are committed to making sure that offshore tax evasion is detected and dealt with appropriately,” said Acting Assistant Attorney General Caroline D. Ciraolo of the Tax Division.  “One critical component of that effort is making sure that the IRS has all of the information it needs to audit taxpayers with offshore assets.  In this case, we filed a petition to enforce a summons for offshore documents, but that’s only one of the tools we have available for gathering information.  Taxpayers with offshore assets who underreported their income should come forward before we come looking for them.”

 

 

Download UBS AG Notice of Voluntary Dismissal of Petition to Enforce IRS Summons

Corporate tax avoidance: Council agrees its stance on anti-avoidance rules

On 21 June 2016, the Council agreed on a draft directive addressing tax avoidance practices commonly used by large companies. The member states will have until 31 December 2018 to transpose the directive into their national laws and regulations, except for the exit taxation rules, for which they will have until 31 December 2019. Member states that have targeted rules that are equally effective to the interest limitation rules may apply them until the OECD reaches agreement on a minimum standard or until 1 January 2024 at the latest.

The directive is part of a January 2016 package of Commission proposals to strengthen rules against corporate tax avoidance. The package builds on 2015 OECD recommendations to address tax base erosion and profit shifting (BEPS).

The directive addresses situations where corporate groups take advantage of disparities between national tax systems in order to reduce their overall tax liability. Corporate taxpayers may benefit from low tax rates or double tax deductions. Or they can ensure that categories of income remain untaxed by making it deductible in one jurisdiction whilst in the other it is not included in the tax base. The outcome distorts business decisions and risks creating situations of unfair tax competition.

New provisions in five areas

The draft directive covers all taxpayers that are subject to corporate tax in a member states, including subsidiaries of companies based in third countries. It lays down anti-tax-avoidance rules in five specific fields:

Interest limitation rules. Multinational groups may finance group entities in high-tax jurisdictions through debt, and arrange that they pay back inflated interest to subsidiaries resident in low-tax jurisdictions. The outcome is a reduced tax liability for the group as a whole. The draft directive sets out to discourage this practice by limiting the amount of interest that the taxpayer is entitled to deduct in a tax year.

Exit taxation rules. Corporate taxpayers may try to reduce their tax bill by moving their tax residence and/or assets to a low-tax jurisdiction. Exit taxation prevents tax base erosion in the state of origin when assets that incorporate unrealised underlying gains are transferred, without a change of ownership, out of the taxing jurisdiction of that state.

General anti-abuse rule. This rule is intended to cover gaps that may exist in a country's specific anti-abuse rules. Corporate tax planning schemes can be very elaborate and tax legislation doesn't usually evolve fast enough to include all the necessary defences. A general anti-abuse rule therefore enables tax authorities to deny taxpayers the benefit of abusive tax arrangements.

Controlled foreign company (CFC) rules. In order to reduce their overall tax liability, corporate groups can shift large amounts of profits towards controlled subsidiaries in low-tax jurisdictions. A common scheme consists of first transferring ownership of intangible assets such as intellectual property to the CFC and then shifting royalty payments. CFC rules reattribute the income of a low-taxed controlled foreign subsidiary to its - usually more highly taxed - parent company.

Rules on hybrid mismatches. Corporate taxpayers may take advantage of disparities between national tax systems in order to reduce their overall tax liability. Such mismatches often lead to double deductions (i.e. tax deductions in both countries) or adeduction of the income in one country without its inclusion in the other.

For more information:

Proposal on anti-tax avoidance measures

Anti-Tax Avoidance Package

Memo on the Anti-Tax Avoidance Package

Study on Structures of Aggressive Tax Planning and Indicators

Action Plan for Fair and Efficient Corporate Taxation in the EU

Canadian Revenue Pursues Panama Papers Info Through Treaty Requests and Whistleblower Payments

Excerpt from Canada Revenue statement regarding its investigation of persons named in the Panama Papers:

The CRA continues to pursue audits related to offshore tax evasion including some Canadian clients associated with law firm Mossack Fonseca.  The Agency is actively pursuing the cooperation of its tax treaty partners and the International Consortium of Investigative Journalists to obtain all of the leaked records that pertain to Canadian residents.

Since 2015, the CRA has collected data on international funds transfers, and is actively identifying high risk taxpayers, high risk jurisdictions, and high risk intermediaries.

The Minister of National Revenue has instructed CRA officials to obtain the data leaked through the Panama Papers in order to cross-reference this information with the data already obtained through the Agency’s existing investigation tools. The CRA will be communicating with its treaty partners to obtain any further information that may not currently be in its possession. We will continue to analyze relevant information from all sources to identify Canadian taxpayers who may have used accounts to hide or conceal money offshore in an effort to avoid or evade paying tax.

Compliance actions are being taken according to the information available in each case, including referrals to the CRA’s Criminal Investigations Directorate and, where appropriate, the Public Prosecution Services of Canada for possible criminal prosecution.

International tax evasion and aggressive tax avoidance are complex global issues. Budget 2016 allocated over $440M for the CRA to combat tax evasion and aggressive tax avoidance, including offshore. This investment enhances the effective tools the CRA already has to detect offshore non-compliance, including access to international Electronic Funds Transfers, information from the Offshore Tax Informant Program (OTIP) and exchanges with treaty partners.

Since January 2015, the CRA has collected information on all international funds transfers over $10,000, including those to Panama and other jurisdictions of concern.

OTIP allows the CRA to pay individuals who confidentially provide specific information about major international tax non-compliance. If the CRA collects more than $100,000 in federal taxes resulting from this information, the person who provided it could be awarded between 5% and 15% of the amount collected. Since the program started in January 2014, it has received calls from over 800 individuals and is reviewing over 120 cases.

Information sharing and international cooperation are key to deterring international tax evasion and avoidance, and identifying tax non-compliance and abuse. Canada has one of the most extensive tax treaty networks in the world, with 92 tax treaties and 22 Tax Information Exchange Agreements (TIEAs) in force as ofApril 4, 2016.  Treaties and TIEAs are important tools that enhance Canada's ability to obtain information to enforce our laws and to see that all Canadians, including those with operations and investments abroad, pay their appropriate share of taxes.

Pension fund investments down slightly in 2015, Returns Low

The OECD's preliminary data for 2015 show that aggregated pension fund investments in the OECD area total USD 24.8 trillion, down slightly on the 2014 total of USD 25.2 trillion in Pension Markets in Focus (see Table 1).

The OECD analyzed that "the relative fall of pension fund investments may be explained by low real net investment returns in 2015, coupled with the strengthening of the US dollar vis-à-vis other major currencies". 

Find all the OECD Pension Markets data here.

Former Swiss Banker Pleads Guilty to Conspiring with U.S. Taxpayers and Other Swiss Bankers

A former Credit Suisse AG banker, who has been a fugitive since 2011, pleaded guilty today in U.S. District Court in the Eastern District of Virginia to charges related to aiding and assisting U.S. taxpayers in evading their income taxes, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U.S. Attorney Dana J. Boente of the Eastern District of Virginia.

Michele Bergantino, 48, a citizen of Italy and a resident of Switzerland, pleaded guilty before U.S. District Judge Gerald Bruce Lee to conspiring to defraud the United States by assisting U.S. taxpayers to conceal foreign accounts and evade U.S. tax during his employment as a banker working for Credit Suisse AG on its North American desk.

“Mr. Bergantino is now the third fugitive to come to the United States and plead guilty to charges in this case,” said Acting Assistant Attorney General Ciraolo. “To those who have actively assisted U.S. taxpayers in using offshore accounts to evade taxes, the message is clear:  staying outside the United States will provide little comfort.  We will investigate and charge you, and will work relentlessly to hold you to account for your actions.”

Bergantino admitted that from 2002 to 2009, while working as a relationship manager for Credit Suisse in Switzerland, he participated in a wide-ranging conspiracy to aid and assist U.S. taxpayers in evading their income taxes by concealing assets and income in secret Swiss bank accounts.  Bergantino oversaw a portfolio of accounts, largely owned by U.S. taxpayers residing on the West Coast, which grew to approximately $700 million of assets under management.  Bergantino admitted that the tax loss associated with his criminal conduct was more than $1.5 million but less than or equal to $3.5 million.  

During his time as a relationship manager, Bergantino assisted many U.S. clients in utilizing their Credit Suisse accounts to evade their U.S. income taxes and to facilitate concealment of the U.S clients’ undeclared financial accounts from the U.S. Treasury Department and the Internal Revenue Service (IRS).  Among the steps taken by Bergantino to assist clients in hiding their Swiss accounts were the following:  assuring them that Swiss bank secrecy laws would prevent Credit Suisse from disclosing their undeclared accounts to U.S. law enforcement; discussing business with clients only when they traveled to Zurich to meet him; structuring withdrawals from their undeclared accounts by sending multiple checks, each in amounts below $10,000, to clients in the United States; facilitating the withdrawal of large sums of cash by U.S. customers from their Credit Suisse accounts at Credit Suisse offices in the Bahamas, in Switzerland, particularly the Credit Suisse branch at the Zurich airport and at a financial institution in the United Kingdom; holding clients’ mail from delivery to the United States; issuing withdrawal checks from Credit Suisse’s correspondent bank in the United States; and taking actions to remove evidence of a U.S. client’s control over an account because the U.S. client intended to file a false and fraudulent income tax return.  Moreover, Bergantino understood that a number of his U.S. clients concealed their ownership and control of foreign financial accounts by holding those accounts in the names of nominee tax haven entities, or structures, which were frequently created in the form of foreign partnerships, trusts, corporations or foundations. 

Bergantino also admitted traveling to the United States approximately one to two times a year to meet with clients, taking careful steps to conceal the purpose of his visits from U.S. law enforcement.  He used private couriers to send clients’ account statements to the U.S. hotels where he stayed, so that he would not be caught traveling with clients’ statements in his possession.  In addition, Bergantino obtained “travel” account statements for each client he intended to visit which were devoid of Credit Suisse’s logo and account or customer identification information and used business cards that Credit Suisse provided that contained only his name and office number and did not carry the Credit Suisse name or logo.  On entering the United States, Bergantino provided misleading information regarding the nature and purpose of his visit to U.S. Customs and Border Protection authorities.

In addition to assisting customers in evading their U.S. taxes, Bergantino also provided illegal advice to U.S. customers regarding investments in U.S. securities.  Neither Bergantino nor Credit Suisse were registered with the U.S. Securities and Exchange Commission and both U.S. law and Credit Suisse policy prohibited Bergantino and other Credit Suisse employees from providing investment advice in the United States.  Nevertheless, Credit Suisse management pressured its employees, including Bergantino, to make sales in the United States.

Two of Bergantino’s co-defendants, Andreas Bachmann and Josef Dörig, pleaded guilty to the superseding indictment in 2014 and were sentenced on March 27, 2015.  Credit Suisse pleaded guilty in May 2014 for conspiring to aid and assist taxpayers in filing false returns and was sentenced in November 2014 to pay $2.6 billion in fines and restitution.

Bergantino faces a statutory maximum sentence of five years in prison.  He also faces monetary penalties and restitution.

U.S. Navy Admiral Pleads Guilty to Lying to Federal Investigators about His Relationship with Foreign Defense Contractor in Massive Navy Bribery and Fraud Investigation

U.S. Navy Rear Admiral Robert Gilbeau pleaded guilty today in federal court to charges that he lied to federal investigators to conceal his illicit years-long relationship with Leonard Glenn Francis, owner of Glenn Defense Marine Asia (GDMA), the foreign defense contractor at the center of a massive bribery and fraud scandal.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Laura E. Duffy of the Southern District of California, Acting Director Dermot O’Reilly of the Department of Defense’s (DOD) Defense Criminal Investigative Service (DCIS), Director Andrew Traver of the Naval Criminal Investigative Service (NCIS) and Director Anita Bales of Defense Contract Audit Agency (DCAA) made the announcement.

Gilbeau, 55, of Burke, Virginia, pleaded guilty to one count of making a false statement.  He was charged by information today and is the highest-ranking U.S. Navy officer to be charged in the investigation so far.  Gilbeau is scheduled to be sentenced on Aug. 26, 2016, before U.S. District Judge Janis L. Sammartino of the Southern District of California. 

In his plea agreement, Gilbeau admitted that he lied when he told agents from DCIS and NCIS that he had never received any gifts from Francis, the owner of Singapore-based GDMA.  Gilbeau also admitted that he lied when he told investigators that he “always paid for half of the dinner” when he and Francis met about three times a year.  Gilbeau further admitted that when he became aware that Francis and others had been arrested in connection with the fraud and bribery offenses in September 2013, he destroyed documents and deleted computer files.  Francis previously pleaded guilty to plying scores of other U.S. Navy officials with gifts such as luxury travel, meals, cash, electronics, parties and prostitutes.

According to his plea, in 2003 and 2004, Gilbeau was the supply officer on the USS Nimitz, where he was responsible for procuring all goods and services necessary for operation of the ship.  He later served as head of the Tsunami Relief Crisis Action Team in Singapore, heading the Navy’s logistics response to the Southeast Asia tsunami in December 2004, and in June 2005, Gilbeau was assigned to the office of the Chief of Naval Operations as the head of aviation material support, establishing policies and requirements for budgeting and acquisitions for the Navy’s air forces, according to the plea agreement.

In August 2010, after he was promoted to admiral, Gilbeau assumed command of the Defense Contract Management Agency International, where he was responsible for the global administration of DOD’s most critical contracts performed outside the United States, according to admissions made in connection with his plea.

“As a flag level officer in the U.S. Navy, Admiral Gilbeau understood his duty to be honest with the federal agents investigating this sprawling bribery scheme,” said Assistant Attorney General Caldwell.  “By destroying documents and lying about the gifts that he received, Admiral Gilbeau broke the law and dishonored his uniform.”

“Of those who wear our nation’s uniform in the service of our country, only a select few have been honored to hold the rank of Admiral – and not a single one is above the law,” said U.S. Attorney Laura Duffy.  “Admiral Gilbeau lied to federal agents investigating corruption and fraud, and then tried to cover up his deception by destroying documents and files.  Whether the evidence leads us to a civilian, to an enlisted service member or to an admiral, as this investigation expands we will continue to hold responsible all those who lied or who corruptly betrayed their public duties for personal gain.”

“The guilty plea of Rear Admiral Robert Gilbeau is an unfortunate example of a dishonorable naval flag officer who has betrayed his shipmates, the U.S. Navy and his country,” said Acting Director O’Reilly.  “Admiral Gilbeau's guilty plea should be a resounding message that DCIS, Naval Criminal Investigative Service and the Department of Justice will continue to investigate and seek to prosecute any individual, regardless of position or rank, who would put our mission of ‘Protecting America’s Warfighters’ at risk.”

“This investigation demonstrates that corruption, conspiracy and the release of sensitive information puts Department of the Navy personnel and resources at risk,” said Director Traver.  “And in concert with our partner agencies, NCIS remains resolved to follow the evidence, to help hold accountable those who make personal reward a higher priority than professional responsibility.”

“DCAA is proud to stand in partnership with our law enforcement allies and make a meaningful contribution to the outcome in this egregious case,” said Director Bales.  “It is very disappointing that this high-ranking individual lost sight of his responsibility as a government official.  We look forward to continuing our support of this significant investigation.”

Including Gilbeau, 14 individuals have been charged in connection with this scheme; of those, nine have pleaded guilty, including U.S. Navy Captain (Select) Michael Misiewicz, U.S. Navy Capt. Daniel Dusek, Lieutenant Commander Todd Malaki, NCIS Special Agent John Beliveau, Commander Jose Luis Sanchez and U.S. Navy Petty Officer First Class Dan Layug.  Former Department of Defense Senior Executive 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; on March 18, 2016, Alex Wisidagama, a former GDMA employee, was sentenced to 63 months and to pay $34.8 million in restitution to the Navy; on March 25, 2016, Dusek was sentenced to 46 months in prison and to pay $30,000 in restitution to the Navy and a $70,000 fine; and on April 29, 2016, Misiewicz was sentenced to 78 months in prison and to pay a fine of $100,000 and to forfeit $95,000 in proceeds for the scheme.  Retired Navy Captain Michael Brooks, Commander Bobby Pitts and Lieutenant Commander Gentry Debord were charged by a federal grand jury on May 25, 2016, and their cases remain pending.  GDMA, the corporate entity, was also charged and has pleaded guilty.  Francis and Ed Aruffo, a former GDMA employee, have both pleaded guilty and await sentencing.

NCIS, DCIS and DCAA are conducting the investigation.  Assistant Chief Brian R. Young of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Mark W. Pletcher and Patrick Hovakimian of the Southern District of California are prosecuting the case.