International Financial Law Prof Blog

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

Sunday, July 31, 2016

"The Impact of Empathy and Selfism on Whistleblowing Intentions"

Journal of Accounting, Ethics and Public Policy, Vol. 17, No. 3, 2016


TARA J. SHAWVER, King's College (Wilkes-Barre, PA)

The Association for Certified Fraud Examiners (ACFE) estimates potential losses from fraudulent activity are in the trillions of dollars each year for the global economy. In an effort to SSRNdeter fraud, regulations such as the Dodd-Frank Whistleblower Program and the Sarbanes Oxley Act encourage whistleblowing behavior. Although there are many studies that explore the characteristics of whistleblowers, this is the first study that examines whether empathy and selfism impact whistleblowing intentions. This study finds that both empathy and selfism affect intentions to whistleblow. This result has important implications for business ethics education, organizations and regulators who offer significant financial rewards for reporting wrongdoing.

July 31, 2016 in Financial Regulation | Permalink | Comments (0)

Saturday, July 30, 2016

LATAM Airlines Group Resolves Foreign Corrupt Practices Act Investigation and Agrees to Pay $12.75 Million Criminal Penalty

LATAM Airlines Group S.A. (LATAM), a commercial airline company based in Chile, has agreed to pay a $12.75 million criminal penalty in connection with a scheme to pay bribes to FBISeal (1)Argentine union officials via a false consulting contract with a third-party intermediary in violation of the accounting provisions of the Foreign Corrupt Practices Act (FCPA). 

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and Special Agent in Charge George L. Piro of the FBI’s Miami Field Office made the announcement.

According to admissions made in the resolution documents, executives at LATAM’s predecessor-in-interest, LAN Airlines S.A. (LAN), executed a fictitious $1.15 million consulting agreement with an advisor to the Secretary of Argentina’s Ministry of Transportation in October 2006.  Although the agreement purportedly required the consultant to undertake a study of Argentine airline routes, the consultant never provided any such services.  Instead, the purported consultant funneled the monies he received pursuant to the contract to Argentine labor union officials in exchange for the union agreeing to accept lower wages and  to not enforce what would have been a costly labor rule.  In total, LAN profited by more than $6.7 million as a result of the bribes paid to the union officials.

LATAM entered into a three-year deferred prosecution agreement (DPA) to resolve the case.  As part of the DPA, LATAM agreed to pay a $12.75 million criminal penalty, continue to cooperate with the department’s investigation, enhance its compliance program and retain an independent corporate compliance monitor for a term of at least 27 months.  The department reached this resolution based on a number of factors, including the fact that LATAM did not voluntarily disclose the FCPA violations, but did cooperate with the department’s investigation after the press in Argentina uncovered and reported the conduct approximately four years after it had occurred.  After LATAM began cooperating, it did so fully and provided all relevant facts known to it, including about individuals involved in the misconduct.  LATAM did not, however, remediate adequately.  LATAM failed to discipline in any way the employees responsible for the criminal conduct, including at least one high-level company executive, and thus the ability of the compliance program to be effective in practice is compromised.  As a result, the company paid a penalty within the U.S. Sentencing Guidelines range instead of receiving a discount off the bottom of the range.

In a related matter, LATAM reached a settlement today with the U.S. Securities and Exchange Commission (SEC) under which it agreed to pay $6.74 million in disgorgement and $2.7 million in prejudgment interest.  Thus, the approximately $22.2 million in combined penalty, disgorgement and prejudgment interest far exceeds the $6.7 million in savings the company had received from its improper payments.

The FBI’s Miami Field Office investigated the case.  Senior Trial Attorney Jason Linder of the Criminal Division’s Fraud Section prosecuted the case.  The SEC also provided assistance during the investigation.


July 30, 2016 | Permalink | Comments (0)

Friday, July 29, 2016

Governments should use tax systems to drive inclusive growth agenda, says OECD

Governments should use tax policy to drive forward economic agendas that seek to boost growth while sharing the benefits more evenly within society, according to a new OECD OECD_globe_10cm_HD_4creport.

Tax Design for Inclusive Economic Growth examines the role that tax systems play in promoting inclusive growth. Against a backdrop of historically high income and wealth inequality, this new OECD research underlines the key role that tax policy can play in not only supporting growth, but also in addressing distributional concerns.

The OECD work will be a key subject of discussion during a ministerial-level G20 Tax Symposium on July 23 in Chengdu, China, just prior to the meeting of the G20 Finance Ministers and Central Bank Governors on 23-24 July.

The Symposium – hosted by G20 President China, in co-operation with Germany, which will preside over the G20 in 2017, and with the support of the OECD – will offer G20 Finance Ministers and high-level policymakers the opportunity to discuss how to better use tax policy tools to drive forward the inclusive, pro-growth agenda while providing businesses with greater tax certainty, to promote trade and investment.

"Tax policy has a clear role to play in helping achieve strong, sustainable and balanced growth," OECD Secretary-General Angel Gurría said. "We are confident that the OECD’s latest research on tax design for inclusive growth can become part of a new tax policy contribution to the G20 agenda moving forward."

Tax policy design options to be considered are grouped under four broad categories:

  • broadening tax bases and removing tax expenditures that are not well-targeted at redistributive goals;
  • enhancing  the progressivity of tax systems beyond personal income tax and taking into account the overall progressivity of the tax and benefit system;
  • taking steps to affect pre-tax behaviours and opportunities, including those that induce individuals to develop and optimally build up and use human capital and skills; and
  • enhancing tax policy and administration, notably by bringing workers from informal sectors into the tax network through well-designed policies.

The OECD suggests that further analysis be undertaken to identify the scenarios where tax reforms stimulate inclusive growth and those where they do not, and how such tax reforms will interact with a country’s existing tax policy settings, its level of inequality and its stage of development.

July 29, 2016 in Economics, OECD | Permalink | Comments (0)

OECD releases discussion draft on approaches to address BEPS involving interest in the banking and insurance sectors

Interested parties are invited to provide comments on a discussion draft which deals with approaches to address BEPS involving interest in the banking and insurance sectors under Action 4 (Interest deductions and other financial payments) of the BEPS Action Plan.   Download NEW Discussion-draft-beps-action-4-banking-and-insurance-sector

In October 2015, the BEPS Action 4 Report Limiting Base Erosion Involving Interest Deductions and Other Financial Payments set out a common approach to address BEPS involving OECD_globe_10cm_HD_4c interest and payments economically equivalent to interest. This included a ‘fixed ratio rule’ which limits an entity’s net interest deductions to a set percentage of its tax-EBITDA and a ‘group ratio rule’ to allow an entity to claim higher net interest deductions, based on a relevant financial ratio of its worldwide group.

The use of interest is one of the simplest profit-shifting techniques available in international tax planning. The fluidity and fungibility of money makes it a relatively simple exercise to adjust the mix of debt and equity in an entity. The BEPS report Limiting Base Erosion Involving Interest Deductions and Other Financial Payments (the Action 4 Report or the Report) includes a common approach to tackling BEPS involving interest and payments economically equivalent to interest. At the heart of the common approach is a fixed ratio rule which restricts an entity’s net interest deductions to a fixed percentage of its earnings before interest, taxes, depreciation and amortisation (EBITDA) calculated using tax principles.

The Report also recommends that countries consider introducing a group ratio rule which allows an entity in a highly leveraged group to deduct net interest expense in excess of the amount permitted under the fixed ratio rule, based on a relevant financial ratio of its worldwide group. The Report contains a description of such a group ratio rule which permits an entity to deduct net interest expense up to the net third party interest expense/EBITDA ratio of its group and this represents an approach that should be suitable for most countries. However, flexibility is provided for a country to apply a different group ratio rule based on a relevant financial ratio of an entity’s worldwide group, such as a different net interest/earnings ratio or an equity/total assets ratio similar to that currently applied in Finland and Germany, or to apply no group ratio rule.

The fixed ratio rule and group ratio rule are general interest limitation rules, which impose an overall limit on an entity’s net interest deductions. In addition to these, the Action 4 Report recommends that countries should consider introducing targeted rules to deal with specific arrangements that pose a BEPS risk.

The Report also identified a number of factors which suggest that a different approach may be needed to address risks posed by entities in the banking and insurance sectors. These include the fact that banks and insurance companies typically have net interest income rather than net interest expense, the different role that interest plays in banking and insurance compared with other sectors, and the fact that banking and insurance groups are subject to regulatory capital requirements that restrict the ability of groups to place debt in certain entities. The Report therefore allowed countries to exclude entities in banking and insurance groups, and regulated banks and insurance companies in non-financial groups, from the scope of the fixed ratio rule and group ratio rule, and provided that further work would be conducted in 2016 to identify approaches suitable for addressing the BEPS risks posed by these sectors, taking into account their particular characteristics.

The discussion draft does not change any of the conclusions agreed in the Report, but provides a more detailed consideration of the BEPS risks posed by banks and insurance companies and those posed by entities in a group with a bank or insurance company, such as holding companies, group service companies and companies engaged in non-regulated financial or non-financial activities. For banks and insurance companies, a limited BEPS risk has been identified and the discussion draft explores why this might be the case, the protection provided by regulatory capital rules, and the limits to this protection which differ between countries. Given the differences in risk faced by countries, the discussion draft does not propose a single approach but provides that countries should introduce rules to deal with the actual BEPS risks they face. For other entities in a banking or insurance group, the discussion draft identifies a greater BEPS risk and recommends that countries consider applying the fixed ratio rule and group ratio rule to these entities, with modification in certain cases. In each case, flexibility is provided for a country to take into account particular features of its tax law and policy. The options included in this discussion draft do not represent the consensus view of the Committee on Fiscal Affairs (CFA) or its subsidiary bodies, but are intended to provide stakeholders with substantive options for analysis and comment.

The Action 4 Report calls for this work to be completed in 2016. As part of the transparent and inclusive consultation process mandated by the Action Plan, the CFA invites interested parties to send comments on this discussion draft, including responses to the specific questions identified in the discussion draft where input is required to advance this work. 

Comments should be submitted by 8 September 2016 at the latest (no extension will be granted) by email to  in Word format. They should be addressed to the International Co-operation and Tax Administration Division, OECD/CTPA.

July 29, 2016 in BEPS | Permalink | Comments (0)

Thursday, July 28, 2016

U.S. Authorities Charge Owner of Most-Visited Illegal File-Sharing Website with Copyright Infringement

U.S. authorities have charged Artem Vaulin, 30, of Kharkiv, Ukraine, the alleged owner of today’s most visited illegal file-sharing website with criminal copyright infringement and Justice logohave seized domain names associated with the website.  Download Vaulin KAT Complaint & Affidavit

Artem Vaulin, 30, of Kharkiv, Ukraine, was arrested today in Poland and is charged by criminal complaint, filed in U.S. District Court in Chicago, with one count of conspiracy to commit criminal copyright infringement, one count of conspiracy to commit money laundering and two counts of criminal copyright infringement.  The United States will seek to extradite Vaulin to the United States.

“Vaulin is charged with running today’s most visited illegal file-sharing website, responsible for unlawfully distributing well over $1 billion of copyrighted materials,” said Assistant Attorney General Caldwell.  “In an effort to evade law enforcement, Vaulin allegedly relied on servers located in countries around the world and moved his domains due to repeated seizures and civil lawsuits.  His arrest in Poland, however, demonstrates again that cybercriminals can run, but they cannot hide from justice.”

“Copyright infringement exacts a large toll, a very human one, on the artists and businesses whose livelihood hinges on their creative inventions,” said U.S. Attorney Fardon.  “Vaulin allegedly used the Internet to cause enormous harm to those artists.  Our Cybercrimes Unit at the U.S. Attorney’s Office in Chicago will continue to work with our law enforcement partners around the globe to identify, investigate and prosecute those who attempt to illegally profit from the innovation of others.”

“Artem Vaulin was allegedly running a worldwide digital piracy website that stole more than $1 billion in profits from the U.S. entertainment industry,” said Executive Associate Director Edge.  “Protecting legitimate commerce is one of HSI’s highest priorities.  With the cooperation of our law enforcement partners, we will continue to aggressively bring to justice those who enrich themselves by stealing the creative work of U.S. artists.”

“Investigating cyber-enabled schemes is a top priority for CI,” said Chief Weber.  “Websites such as the one seized today brazenly facilitate all kinds of illegal commerce.  Criminal Investigation is committed to thoroughly investigating financial crimes, regardless of the medium.  We will continue to work with our law enforcement partners to unravel this and other complex financial transactions and money laundering schemes where individuals attempt to conceal the true source of their income and use the Internet to mask their true identity.”

According to the complaint, Vaulin allegedly owns and operates Kickass Torrents or KAT, a commercial website that has enabled users to illegally reproduce and distribute hundreds of millions of copyrighted motion pictures, video games, television programs, musical recordings and other electronic media since 2008.  The copyrighted material is collectively valued at well over $1 billion, according to the complaint.  The complaint alleges that KAT receives more than 50 million unique visitors per month and is estimated to be the 69th most frequently visited website on the internet.

In addition, a federal court in Chicago ordered the seizure of one bank account and seven domain names associated with the alleged KAT conspiracy.

According to the complaint, KAT has consistently made available for download movies that were still in theaters and displayed advertising throughout its site.  KAT’s net worth has been estimated at more than $54 million, with estimated annual advertising revenue in the range of $12.5 million to $22.3 million, according to the complaint.  The complaint alleges that the site operates in approximately 28 languages.  KAT has moved its domains several times due to numerous seizures and copyright lawsuits, and it has been ordered blocked by courts in the United Kingdom, Ireland, Italy, Denmark, Belgium and Malaysia, according to the complaint.  KAT has allegedly operated at various times under the domains,,, and, and relied on a network of computer servers located around the world, including in Chicago. 

Several motion pictures currently available for download and sharing on KAT are still showing in theatres, including “Captain America: Civil War,” “Now You See Me 2,” “Independence Day: Resurgence” and “Finding Dory,” according to the complaint.  The complaint alleges that Vaulin, who used the screen name “tirm,” was involved in designing KAT’s original website, oversaw KAT’s operations and, during the latter part of the conspiracy, Vaulin allegedly operated KAT under the auspices of a Ukrainian-based front company called Cryptoneat. 

July 28, 2016 | Permalink | Comments (0)

Gross Domestic Product by State: First Quarter 2016

Bureau Econ Analysis


Real gross domestic product (GDP) increased in 37 states and the District of Columbia in the first quarter of 2016, according to statistics on the geographic breakout of GDP released today by the Bureau of Economic Analysis. Real GDP by state growth, at an annual rate, ranged from 3.9 percent in Arkansas to -11.4 percent in North Dakota. Construction; health care and social assistance; and retail trade were the leading contributors to U.S. economic growth in the first quarter.

Map of US
  • Construction grew 9.0 percent in the first quarter of 2016—the eighth consecutive quarter of growth for this industry. This industry contributed to growth in 47 states and the District of Columbia and 1.1 percentage points to the 1.7 percent growth in real GDP in Hawaii.
  • Health care and social assistance grew 3.8 percent in the first quarter. This industry contributed to growth in every state and the District of Columbia.
  • Retail trade grew 4.8 percent in the first quarter. This industry contributed to growth in 47 states and the District of Columbia and 0.59 percentage point to the 3.9 percent growth in Washington.

Other highlights

  • Although agriculture, forestry, fishing, and hunting was not a significant contributor to real GDP growth for the nation, it had an important impact on economic growth in several states. This industry contributed 2.21 percentage points to the 3.9 percent growth in Arkansas—the fastest growing state in the first quarter. By contrast, this industry subtracted more than 3.4 percentage points from real GDP growth in Iowa, North Dakota, and South Dakota, which declined 2.6 percent, 11.4 percent, and 2.8 percent, respectively.
  • Mining declined 11.1 percent for the nation in the first quarter. This industry subtracted 1.82 percentage points from real GDP growth in Wyoming, which declined 4.9 percent, and more than 2.0 percentage points from Alaska, North Dakota, and West Virginia, which declined 1.0 percent, 11.4 percent, and 2.5 percent, respectively.
  • Transportation and warehousing declined 8.8 percent for the nation in the first quarter. This industry subtracted from real GDP growth in all states and the District of Columbia. This industry subtracted 1.06 percentage points from real GDP growth in Wyoming and 1.63 percentage points in North Dakota.

List of News Release Tables

Table 1. Percent Change in Real Gross Domestic Product (GDP) by State, 2015:I-2016:I

Table 2. Contributions to Percent Change in Real Gross Domestic Product (GDP) by State, 2015:IV-2016:I

Table 3. Current-Dollar Gross Domestic Product (GDP) by State, 2015:I-2016:I

July 28, 2016 in Economics | Permalink | Comments (0)

Texas A&M Seeking National and International Scholars to Join Law Faculty

TEXAS A&M UNIVERSITY SCHOOL OF LAW seeks to expand its academic program and its strong commitment to scholarship by hiring multiple exceptional faculty candidates for TAMU-Law-lockup-stack-SQUARE (1)contract, tenure-track, or tenured positions, with rank dependent on qualifications and experience. 

Preference will be given to those with demonstrated outstanding scholarly achievement and strong classroom teaching skills.  Successful candidates will be expected to teach and engage in research and service.  While the law school welcomes applications in all subject areas, it particularly invites applications from:

  • Candidates who are interested in expanding and building on our innovative Intellectual Property and Technology Law Clinic (with concentrations in both trademarks and patents), or in one of our other acclaimed clinical areas, including Family Law and Benefits Clinic, Employment Mediation Clinic, Wills & Estates Clinic, Innocence Clinic, and Immigration Law Clinic; and
  • Candidates with an oil and gas law and/or energy law background, either domestic U.S. or international, who are interested in interdisciplinary research, teaching, and programmatic activities.

While the law school is primarily interested in entry-level candidates for the above positions, more experienced candidates may be considered to the extent that their qualifications respond to the law school’s needs and interests.

In addition, the law school welcomes lateral and highly experienced professionals for the following positions:

  • Candidates with experience in IP licensing and technology transfers, with relevant academic and/or professional science background, and who are interested in working and building synergies with the Texas A&M University’s College of Agricultural and Life Sciences
  • Candidates in the field of Alternative Dispute Resolution with a national or international reputation and stellar credentials in scholarship, teaching, and service, and with an interest in building our nationally ranked dispute resolution program;
  • Candidates in any field with a national or international reputation and stellar credentials in scholarship, teaching, and service;

Texas A&M University is a tier one research institution and American Association of Universities member.  The university consists of 16 colleges and schools that collectively rank among the top 20 higher education institutions nationwide in terms of research and development expenditures.  

Over the past two years, Texas A&M University  has embarked on a program of investment for its School of Law that increased its entering class credentials and financial aid budgets, while shrinking the class size; attracted 19 new faculty members, including 12 prominent lateral hires; and substantially increased its career services, admissions, and student services staff.   The School of Law has also hired a senior U.S. Treasury expert.  The Texas A&M Law faculty is highly published,  already ranking #41 for article downloads among the top published 350 US and foreign  law faculties (SSRN 2016).

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

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

July 28, 2016 in Academia | Permalink | Comments (0)

Wednesday, July 27, 2016

Three Individuals Charged in $1 Billion Medicare Fraud and Money Laundering Scheme

The owner of more than 30 Miami-area skilled nursing and assisted living facilities, a hospital administrator and a physician’s assistant were charged with conspiracy, obstruction, FBI DOJ logomoney laundering and health care fraud in connection with a $1 billion scheme involving numerous Miami-based health care providers. 

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida, Special Agent in Charge George L. Piro of the FBI’s Miami Field Office and Special Agent in Charge Shimon R. Richmond of the U.S. Department of Health and Human Services-Office of Inspector General (HHS-OIG) Miami Regional Office made the announcement.

“This is the largest single criminal health care fraud case ever brought against individuals by the Department of Justice, and this is further evidence of how successful data-driven law enforcement has been as a tool in the ongoing fight against health care fraud,” said Assistant Attorney General Caldwell. 

“Medicare fraud has infected every facet of our health care system,” said U.S. Attorney Ferrer.  “As a result of our unrelenting efforts to combat these pernicious schemes, the Criminal Division, the U.S. Attorney’s Office and our law enforcement partners continue to identify and prosecute the criminals who, driven by greed, steal from a program meant for our aged and infirmed to increase their personal wealth.”

“Esformes is alleged to have been at the top of a complex and profitable health care fraud scheme that resulted in staggering losses – in excess of $1 billion,” said Special Agent in Charge Piro.  “The investigators who unraveled this intricate scam are to be commended for their diligence and commitment to root out fraud within our health care system.”

“Health care executives who exploit patients through medically unnecessary services and conspire to obstruct justice in order to boost their own profits – as alleged in this case – have no place in our health care system,” said Special Agent in Charge Richmond.  “Such actions only strengthen our resolve to protect patients and the U.S. taxpayers.”

Philip Esformes, 47, Odette Barcha, 49, and Arnaldo Carmouze, 56, all of Miami-Dade County, Florida, were each charged in an indictment unsealed today.  According to the indictment, Esformes operated a network of over 30 skilled nursing homes and assisted living facilities (the Esformes Network), which gave him access to thousands of Medicare and Medicaid beneficiaries.  Many of these beneficiaries did not qualify for skilled nursing home care or for placement in an assisted living facility; however, Esformes and his co-conspirators nevertheless admitted them to Esformes Network facilities where the beneficiaries received medically unnecessary services that were billed to Medicare and Medicaid.  Esformes and his co-conspirators are also alleged to have further enriched themselves by receiving kickbacks in order to steer these beneficiaries to other health care providers – including community mental health centers and home health care providers – who also performed medically unnecessary treatments that were billed to Medicare and Medicaid.  In order to hide the kickbacks from law enforcement, these kickbacks were often paid in cash, or were disguised as payments to charitable donations, payments for services and sham lease payments, court documents allege.

Esformes and Barcha were also charged with obstructing justice.  According to the indictment, following the 2014 arrest of co-conspirators Guillermo and Gabriel Delgado, Esformes attempted to fund Guillermo Delgado’s flight from the United States to avoid trial in Miami.  The indictment further alleges that Barcha created sham medical director contracts following receipt of a grand jury subpoena in June 20, 2016, in order to conceal and disguise the payment of kickbacks she made in exchange for patient referrals for admission to Esformes Network facilities and another Miami-area hospital.

According to court documents, in 2006, Esformes paid $15.4 million to resolve civil federal health care fraud claims for essentially identical conduct, namely unnecessarily admitting patients from his assisted living facilities into a Miami-area hospital.  However, Esformes and his co-conspirators allegedly continued this criminal activity-adapting their scheme to prevent detection and continue their fraud after the civil settlement.  The indictment alleges that the co-conspirators accomplished this by employing sophisticated money laundering techniques in order to hide the scheme and Esformes’ identify from investigators.  The FBI and HHS-OIG ultimately employed advanced data analysis and forensic accounting techniques and were able to identify the full scope of the fraud scheme.

The charges and allegations contained in an indictment are merely accusations.  The defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law. 

The FBI and HHS-OIG investigated the case, which was brought as part of the Medicare Fraud Strike Force, supervised by the Criminal Division’s Fraud Section and the U.S. Attorney's Office for the Southern District of Florida.  Deputy Chief Joseph Beemsterboer, Assistant Chief Allan J. Medina and Trial Attorney Elizabeth Young of the Criminal Division’s Fraud Section, and Assistant U.S. Attorneys Alison Lehr, Daren Grove and Susan Torres of the Southern District of Florida are prosecuting the case. 

Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine locations across the country, has charged nearly 2,900 defendants who have collectively billed the Medicare program for more than $10 billion.  In addition, the HHS Centers for Medicare and Medicaid Services, working in conjunction with the HHS-OIG, are taking steps to increase accountability and decrease the presence of fraudulent providers.


This morning, charges were unsealed against three individuals at the center of a massive scheme that fraudulently billed more than $1 billion to Medicare and Medicaid.  This is the largest single criminal health care fraud case ever brought against individuals by the Department of Justice, and is further evidence of how successful data-driven law enforcement has been as a tool in the ongoing fight against health care fraud.

At the center of this alleged scheme was a network of health care facilities across South Florida that were owned or controlled by Philip Esformes, who is charged today.  Also charged today are a hospital administrator and physician’s assistant, who are alleged to have conspired with Esformes.  Together, these co-conspirators are accused of using thousands of people, at more than 20 nursing homes and assisted living facilities run by Esformes, as cogs in the machinery of their massive fraud scheme, rather than medical patients for whom they were supposed to provide care.

The indictment alleges that the co-conspirators wove together a network of corrupt doctors, hospitals, and other health care providers across South Florida in a sprawling conspiracy to cheat taxpayers out of millions of dollars through false and fraudulent claims to Medicare and Medicaid.  At its core, the scheme was simple: the conspirators allegedly paid bribes and kickbacks to get patients admitted to facilities owned or controlled by Esformes, where the patients often were given medically unnecessary, and at times harmful, treatment.

As alleged in the charging documents, the conspirators were ruthlessly efficient.  When a patient reached Medicare-imposed length of stay limits at one facility, the conspirators, through their network of corrupt health care providers, are alleged to have paid and received bribes and kickbacks as they arranged to have patients moved into, out of, and between different facilities, all the while running up the taxpayer’s tab as they billed Medicare for fraudulent, unnecessary and sometimes fabricated treatment. 

All of this was done with little regard for the patients.  Among the thousands of people cycled through the fraudulent network were, for example, drug addicts who were allegedly prescribed opioids – including OxyContin and Fentanyl – and other narcotics in order to entice them to stay in facilities where they didn’t belong.  Meanwhile, Esformes and his co-conspirators lined their pockets to the tune of tens of millions of dollars. 

The Medicare Fraud Strike Force was formed here in Miami nearly a decade ago, when the Criminal Division partnered with the FBI and the Department of Health and Human Services Office of the Inspector General (HHS-OIG).  Together with our partners at the U.S. Attorney’s Office for the Southern District of Florida, our work combating health care fraud has had a direct impact on fraudulent billings in South Florida, and over the last several years we have expanded the Medicare Fraud Strike Force to other cities and regions where fraud is endemic.  As of today, the Strike Force’s prosecutors and agents have now brought criminal cases against defendants accused of billing the Medicare program more than $10 billion.

Unfortunately, South Florida remains ground zero for these types of scams, as today’s case illustrates.  Esformes and his co-conspirators are accused of having committed this fraud for years.  When the Medicare Fraud Strike Force was created in 2007, a case like this one would not have been possible.  But as technology has advanced, so have we.

Just last month, the department announced the largest-ever national health care fraud takedown, bringing charges against more than 300 individuals, in connection with more than $900 million in false billings, including more than 100 defendants in South Florida alone.  I said at the time that the Medicare Fraud Strike Force is a model of 21st Century data-driven law enforcement, and today’s case is a prime example. 

Working with our partners, the Criminal Division used cutting-edge data analysis techniques to identify the massive scope of the fraud that is the subject of today’s case.  We used the tools we have developed that allowed us to detect high-risk providers and suppliers like Esformes.  We are now able to use data to identify links among corrupt providers who otherwise might not seem connected.  These sophisticated tools generated data that was critical in enabling law enforcement to identify the web of facilities and medical professionals involved in this fraud scheme and then to trace the reimbursement claims they made, ultimately identifying more than $1 billion in alleged false and fraudulent claims filed by Esformes and his co-conspirators between 2009 and 2016. 

FBI News Story here

July 27, 2016 | Permalink | Comments (0)

Starbucks Pays Dutch Government State Aid Tax Recovery

BNA's Daily Tax Report confirmed that the Netherlands Ministry of Finance has received the $30M in alleged state aid ordered from the EU Commission from Starbucks.  Read the full Starbucks_Coffee_Logo.svgstory at Daily Tax Report

See also, on SSRN, a free download of the 94-page Framework for Transfer Pricing Analysis under Treasury Regulation Section 1.482 and the OECD Guidelines 

see my research project that I am currently working on: 

July 27, 2016 in BEPS, Tax Compliance | Permalink | Comments (0)

OECD Finds Italy Tax Non-Compliance Above 34%

Italy is a high-tax country with a relatively high and stable tax-to-GDP ratio. At the same time, levels of compliance with tax laws are low. There have been a number of attempts to Logooecd_enquantify the extent of tax evasion in Italy, or the Italian tax gap, and all of them show that the numbers are significant. Worryingly, the Italian Value-added tax (VAT) gap is estimated at above 30% for 2013,2 substantially in excess of the EU-26 average of 15.2%. In the past, several amnesties have been introduced, bringing in additional tax revenue but also nurturing the idea that non-compliance with tax laws can subsequently be solved with payments below what one would have to pay if fully compliant. This era appears to be over and the recent initiative on voluntary disclosure and the positive results reported witness that change in approach.

This opportunity comes with some important challenges. As noted above, Italy is characterised by a few paradoxes. It is a high-tax country with low levels of compliance. The focus of efforts to reduce non-compliance has historically been on audits and control, which result in assessments that reportedly are often uncollectable, with no comprehensive strategy across the entities involved in tax administration to address this issue in a holistic manner. In line with recent actions such as the preventive communications on taxpayers which did not file their VAT return, there is now a need for reforms aimed at generating significant behavioural change, by both taxpayers and tax administration. Institutional and governance arrangements should be revised to ensure a more strategic political oversight of the tax administration, which should go along with restoring the autonomy of the agencies. A more holistic approach should be introduced to support and enhance voluntary compliance by taxpayers while ensuring that those that do not comply are promptly identified and sanctioned. The collection of tax debt needs to be modernised building on the positive results achieved since the function was brought into the public sphere.

See  Download Italy-tax-administration-a-review-of-institutional-and-governance-aspects

July 27, 2016 in OECD, Tax Compliance | Permalink | Comments (0)

Tuesday, July 26, 2016

OECD Publishes 10 New Country Reviews for Exchanging Tax Information by Request in a Timely Manner

The Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum) published today 10 new peer review reports demonstrating continuing progress OECD toward implementation of the international standard for exchange of information on request. The reports allocated ratings for compliance with the individual elements of the international standard, as well as an overall rating for each of the eight jurisdictions undergoing a Phase 2 review.

Switzerland received an overall rating of “Largely Compliant,” which confirms the progress it has made over the past years towards greater tax transparency and exchange of information.

The Global Forum also reviewed exchange of information practices through Phase 2 peer review reports in six other jurisdictions, five of which – AlbaniaCameroon, Gabon, Pakistan and Senegal – received an overall rating of “Largely Compliant.”  United Arab Emirates was rated “Partially Compliant.”

A Phase 1 report on Ukraine assessed the legal and regulatory framework for transparency and exchange of information, which was found sufficient to move Ukraine to the new round of reviews, which will assess its legal framework and practices for exchange of information against the revised Terms of Reference during the second half of 2018.

Liberia’s Supplementary Report assessed  improvements  made to the legal framework and exchange of tax information mechanisms since the adoption of a Phase 1 Report in 2012. In light of actions undertaken to address the recommendations made in 2012, Liberia is in a position to move to the next round of peer reviews, which is scheduled to commence in the second half of 2018.

The Phase 2 supplementary report for Saint Lucia assessed changes to its exchange of information practices since the adoption of its previous review in 2014. The overall rating for Saint Lucia has been upgraded from “Partially Compliant” to “Largely Compliant.”

With the release of the latest batch of reviews, the Global Forum has now completed  235 peer reviews and assigned compliance ratings to 101 jurisdictions that have undergone Phase 2 Reviews. Twenty-two  jurisdictions are rated “Compliant,” 67 are rated “Largely Compliant,” and 12 are rated “Partially Compliant”. There are still 7 jurisdictions which remain blocked from moving to a Phase 2 review, due to insufficiencies in the legal and regulatory framework. The supplementary reviews of five of these jurisdictions are currently under way.

Global Forum members are also working together  to monitor and review the implementation of the international standard for the automatic exchange of tax information for which exchanges are to start in 2017. The monitoring and review process is intended to ensure the effective and timely delivery of the commitments made, the confidentiality of information exchanged and to identify areas where support is needed. It is also assisting its developing country members  to ensure that they can also receive the benefits of the ongoing global move to automatic exchange of financial account information. 

Egypt has just joined the Global Forum, bringing membership to 135 jurisdictions. The European Union fully participates in Global Forum work.

For additional information on the Global Forum peer review process, and to read all reports to date, go to:

July 26, 2016 in GATCA | Permalink | Comments (0)

$342 Million Corruption Leniency Agreement Signed between Brazilian Authorities, Petrobras and SBM Offshore

SMB issued a press release heralding its corruption  leniency agreement with the Brazil government about Petrobras, and agreed to pay $342 million.  The $342 million will partly be used to establish a unit that will collect data to prevent corruption in the future [$6.8 million to the Council of Control of Financial Activities (Conselho de Controle de Atividades Financeiras - "COAF") for the implementation of units for massive electronic process of information and other instruments to be used in the prevention and combat against corruption by the MPF and the COAF].  

Good move from Brazil's Prosecutors office and good publicity for SBM funding it.

The Ministry of Transparency, Oversight and Control (Ministério da Transparência, Fiscalização e Controle - "MTFC"), the Public Prosecutor's Office (Ministério Público Federal - Petrobras "MPF"), the General Counsel for the Republic (Advocacia Geral da União  - "AGU"), Petróleo Brasileiro S.A. - Petrobras ("Petrobras") and SBM Offshore signed a settlement agreement ("Settlement Agreement") today that closes out the inquiries of the MPF, the MTFC and Petrobras into the payment of undue advantages to employees of Petrobras.  The MTFC investigation was suspended as a result of the execution of a Memorandum of Understanding between the MTFC and SBM Offshore in March 2015.  Following the execution of the Memorandum of Understanding, SBM Offshore, the MTFC, the MPF, the AGU and Petrobras engaged in negotiations which resulted in the signature on Friday, July 15 of the Settlement Agreement.

Under the terms of the Settlement Agreement, SBM Offshore is granted, by the MTFC, the MPF, the AGU and Petrobras, full discharge and exemption from legal actions for all matters related to or arising from any acts relating to its then main Brazilian agent and his companies over the period 1996 - 2012 and all related investigations conducted by Petrobras, the MPF and the MTFC.

The Settlement Agreement provides for Petrobras and SBM Offshore to resume normal business relationships.

The terms for final settlement negotiated between the Parties are made up as follows:

  • cash payment by SBM Offshore totalling US$162.8 million, of which US$149.2 million will go to Petrobras, US$6.8 million to the MPF and US$6.8 million to the Council of Control of Financial Activities (Conselho de Controle de Atividades Financeiras - "COAF") for the implementation of units for massive electronic process of information and other instruments to be used in the prevention and combat against corruption by the MPF and the COAF.  This amount will be paid in three installments.  The first installment of US$142.8 million will be payable as of the effective date of the Settlement Agreement.  The two further installments of US$10 million each will be due respectively one and two years following the effective date of the Settlement Agreement; and
  • a reduction of 95% in future performance bonus payments related to FPSOs Cidade de Anchietaand Capixaba lease and operate contracts, representing a nominal value of approximately US$179 million over the period 2016 to 2030, or a present value for SBM Offshore of approximately US$112 million
  • SBM Offshore further remains under the obligation to cooperate with the procedures that may be conducted by the MTFC and the MPF against third parties, as developments of the case
  • the implementation by SBM Offshore of improvements of its internal compliance program in relation to Brazil, in consultation with the MTFC, to whom SBM for three years following the effective date of the Settlement Agreement, will periodically report on matters addressed in the agreement. These arrangements do not affect the regular activities of the compliance departments of Petrobras and of SBM Offshore.

The Settlement Agreement constitutes the results of the institutional collaboration efforts between the MTFC, the AGU and the Federal Prosecutor Service of the State of Rio de Janeiro, which jointly conducted the negotiations, with a view to reaching the best solution for the case.The Public Prosecutor's Office shall submit the Settlement Agreement for approval of the Fifth Chamber for Coordination and Review and Anti-Corruption of the Federal Prosecutor Service, to the extent it is concerned.  The MTFC will additionally send the Settlement Agreement to the Federal Court of Accounts (Tribunal de Contas da União - "TCU").

Corporate Profile

SBM Offshore N.V. is a listed holding company that is headquartered in Amsterdam.  It holds direct and indirect interests in other companies that collectively with SBM Offshore N.V. form the SBM Offshore group ("the Company").
SBM Offshore provides floating production solutions to the offshore energy industry, over the full product life-cycle.  The Company is market leading in leased floating production systems with multiple units currently in operation and has unrivalled operational experience in this field.  The Company's main activities are the design, supply, installation, operation and the life extension of Floating Production, Storage and Offloading (FPSO) vessels.  These are either owned and operated by SBM Offshore and leased to its clients or supplied on a turnkey sale basis.

Group companies employ approximately 7,000 people worldwide.  Full time company employees totaling 4,900 are spread over five regional centres, eleven operational shore bases and the offshore fleet of vessels.  A further 2,100 are working for the joint ventures with several construction yards.  Please visit our website at

Independent news sources - 

FCPA Blog reports that prosecutors in Brazil and state-owned oil company Petróleo Brasileiro SA signed a settlement agreement Friday with Netherlands-based oil and gas services firm SBM Offshore NV to resolve allegations of corruption. - Read the story of journalist Richard Cassin of the at FCPA Blog

Dow Jones' Market Watch reports here that Brazil has granted SMB Offshore 'leniency' whereby "SBM Offshore agreed to pay $341.8 million in fines. Of that total, $328.2 million will be paid to Petrobras and $13.6 million to the Brazilian government."

July 26, 2016 | Permalink | Comments (0)

EU Council Agrees Directive to Implement BEPS into Laws of EU Members

On 21 June 2016, the Council agreed on a draft directive addressing tax avoidance practices commonly used by large companies.  As the procedure expired without EU Councilobjections being raised, the directive will be submitted to a forthcoming Council meeting for adoption.

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 a deduction of the income in one country without its inclusion in the other. 

A common EU approach 

The directive will ensure that the OECD anti-BEPS measures are implemented in a coordinated manner in the EU, including by 7 member states that are not OECD members. Furthermore, pending a revised proposal from the Commission for a common consolidated corporate tax base (CCCTB), it takes account of discussions since 2011 on an existing CCCTB proposal within the Council. 

Three of the five areas covered by the directive implement OECD best practice, namely the interest limitation rules, the CFC rules and the rules on hybrid mismatches. The two others, i.e. the general anti-abuse rule and the exit taxation rules, deal with BEPS-related aspects of the CCCTB proposal. 

Approval and implementation

The agreement was reached following discussion by the Economic and Financial Affairs Council. On 17 June 2016, the Council reached broad agreement, subject to a silence procedure.  As the procedure expired without objections being raised, the directive will be submitted to a forthcoming Council meeting for adoption.

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.

Other initiatives 

As concerns the rest of the January 2016 anti-tax-avoidance package, the presidency has set an ambitious timetable. On 25 May, the Council approved: 

  • a directive on the exchange of tax-related information on multinational companies;
  • conclusions on the third country aspects of tax transparency. 

The anti-tax-avoidance package follows on from a number of EU initiatives in 2015. These include a directive, adopted in December 2015, on cross-border tax rulings. 

In December 2014, the European Council cited “an urgent need to advance efforts in the fight against tax avoidance and aggressive tax planning, both at the global and EU levels”.

July 26, 2016 in BEPS | Permalink | Comments (0)

Monday, July 25, 2016

Investigations into 1MDB-Related Fund Flows through Singapore


Joint Statement by Attorney-General’s Chambers, Singapore (AGC); Commercial Affairs Department, Singapore Police Force (CAD); and Monetary Authority of Singapore (MAS)

The AGC, CAD, and MAS announced in a joint statement that the Singapore authorities have been investigating various 1MDB-related fund flows through Singapore, for possible money laundering, securities fraud, cheating, and other offences committed in Singapore.   We note the statement by the US Attorney General on 20 July 2016, seeking the forfeiture and recovery of more than US$1 billion in assets associated with an international conspiracy to launder funds related to 1MDB.

Singapore’s investigations began in March 2015 and are still in progress.  The fund flows being investigated include those connected with Good Star Limited (Seychelles), Aabar Investments PJS Limited (BVI), Aabar Investments PJS Limited (Seychelles), and Tanore Finance Corp. (BVI). The criminal investigations by CAD are targeted at individuals suspected of committing offences in Singapore related to these flows, while MAS has been examining the financial institutions through which the funds flowed for possible regulatory breaches and control lapses.

In the course of the investigations, bank accounts belonging to various individuals have been seized and dealings in properties belonging to some of these individuals have been curtailed. The assets amount in total to S$240 million.  Of these bank accounts and properties, about S$120 million belong to Mr Low Taek Jho and his immediate family.

Singapore has made a number of requests for information to countries where these funds originated from or were subsequently sent to.  Some of these requests are still being processed.  Several countries have likewise requested Singapore’s assistance in relation to questionable fund flows pertaining to monies suspected to have originated from 1MDB.  Singapore has promptly acceded to all such requests, in compliance with our international obligations.

Appropriate actions will be brought against those who have broken Singapore’s laws.  To-date, two individuals – Mr Yeo Jiawei and Mr Kelvin Ang – have been charged for various offences.  Several other individuals are still being questioned or investigated.

Statement by Monetary Authority of Singapore

Actions to be taken against Financial Institutions

Singapore, 21 July 2016 … The MAS announced today that its supervisory examinations of financial institutions (FIs) with 1MDB-related fund flows have revealed a complex international web of transactions involving multiple entities and individuals operating in several jurisdictions. Certain FIs in Singapore were among those used as conduits for these transactions. MAS’ supervisory examinations, which began in March 2015, found lapses and weaknesses in anti-money laundering (AML) controls in these Singapore-based FIs. MAS will be taking actions against these FIs.

MAS’ supervisory examinations included detailed onsite inspections, and analysis of information obtained from regulators abroad. They revealed extensive layering of transactions and subterfuge aimed at disguising the nature of certain activities and fund flows.  In some instances, shell or unauthorised companies domiciled in various jurisdictions were used to conceal the true beneficiaries of the funds.

MAS’ findings to-date on the lapses and weaknesses in Singapore-based FIs in managing 1MDB-related flows are summarised below. The FIs include banks, capital market intermediaries, and a remittance agent.

BSI Bank Limited Singapore (BSI Bank)
MAS completed its examination of BSI Bank in May 2016. MAS decided to withdraw its status as a merchant bank in view of its serious breaches of AML requirements and poor management oversight, and gross misconduct by some of the bank’s staff.

DBS Bank Ltd (DBS), Standard Chartered Bank, Singapore Branch (SCB), and UBS AG, Singapore Branch (UBS)
MAS has completed its inspections of DBS, SCB, and UBS, and is now finalising its assessments.

The preliminary findings are that there were instances of control failings in all three banks and, in some cases, weaknesses in the processes for accepting clients and monitoring transactions. There was also undue delay in detecting and reporting suspicious transactions.

The deficiencies observed in DBS, SCB and UBS related to lapses in specific processes and by individual officers. The lapses were serious in their own right, and will be met by firm regulatory actions against the banks. However, the MAS’ inspections did not reveal pervasive control weaknesses or staff misconduct within these banks, unlike in the case of BSI Bank. 

Falcon Private Bank Limited, Singapore Branch (Falcon PBS)
MAS completed its onsite inspection of Falcon PBS in April 2016, and found substantial breaches of AML regulations, including failure to adequately assess irregularities in activities pertaining to customers’ accounts and to file suspicious transaction reports.

However, the supervisory examination of Falcon PBS is still ongoing as the oversight and management of certain key client relationships were done out of the bank’s head office in Switzerland. MAS is examining information obtained from Falcon PBS’ head office and has asked for further details. 

Raffles Money Change (RMC)
MAS has completed its examination of RMC, a licensed money changer and remittance agent.  The examination revealed weak management oversight, inadequate risk management practices and internal controls.  Specific findings include failure to identify beneficial owners, verify authenticity of remittance instructions, and assess if a customer’s remittance activities are consistent with the profile of the customer. MAS is finalising regulatory actions against RMC.

MAS’ examination of certain other FIs are ongoing. More details will be provided when these examinations are completed.  MAS will take decisive regulatory actions against any FI that has breached regulations or failed to meet the expected AML standards.

July 25, 2016 | Permalink | Comments (0)

United States Seeks to Recover More Than $1 Billion Obtained from Corruption Involving Malaysian Sovereign Wealth Fund

Attorney General Loretta E. Lynch announced today the filing of civil forfeiture complaints seeking the forfeiture and recovery of more than $1 billion in assets associated with an Justice logointernational conspiracy to launder funds misappropriated from a Malaysian sovereign wealth fund.  Today’s complaints represent the largest single action ever brought under the Kleptocracy Asset Recovery Initiative.

Attorney General Lynch was joined in the announcement by Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Eileen M. Decker of the Central District of California, FBI Deputy Director Andrew G. McCabe and Chief Richard Weber of the Internal Revenue Service-Criminal Investigation (IRS-CI).

According to the complaints, from 2009 through 2015, more than $3.5 billion in funds belonging to 1Malaysia Development Berhad (1MDB) was allegedly misappropriated by high-level officials of 1MDB and their associates.  With today’s complaints, the United States seeks to recover more than $1 billion laundered through the United States and traceable to the conspiracy.  1MDB was created by the government of Malaysia to promote economic development in Malaysia through global partnerships and foreign direct investment, and its funds were intended to be used for improving the well-being of the Malaysian people.  Instead, as detailed in the complaints, 1MDB officials and their associates allegedly misappropriated more than $3 billion. 

“The Department of Justice will not allow the American financial system to be used as a conduit for corruption,” said Attorney General Lynch.  “With this action, we are seeking to forfeit and recover funds that were intended to grow the Malaysian economy and support the Malaysian people.  Instead, they were stolen, laundered through American financial institutions and used to enrich a few officials and their associates.  Corrupt officials around the world should make no mistake that we will be relentless in our efforts to deny them the proceeds of their crimes. ”

“According to the allegations in the complaints, this is a case where life imitated art,” said Assistant Attorney General Caldwell.  “The associates of these corrupt 1MDB officials are alleged to have used some of the illicit proceeds of their fraud scheme to fund the production of The Wolf of Wall Street, a movie about a corrupt stockbroker who tried to hide his own illicit profits in a perceived foreign safe haven.  But whether corrupt officials try to hide stolen assets across international borders – or behind the silver screen – the Department of Justice is committed to ensuring that there is no safe haven.”

“Stolen money that is subsequently used to purchase interests in music companies, artwork or high-end real estate is subject to forfeiture under U.S. law,” said U.S. Attorney Decker.  “Today’s actions are the result of the tremendous dedication of attorneys in my office and the Department of Justice, as well as law enforcement agents across the country.  All of us are committed to sending a message that we will not allow the United States to become a playground for the corrupt, a platform for money laundering or a place to hide and invest stolen riches.”

“The United States will not be a safe haven for assets stolen by corrupt foreign officials,” said Deputy Director McCabe.  “Public corruption, no matter where it occurs, is a threat to a fair and competitive global economy.  The FBI is committed to working with our foreign and domestic partners to identify and return these stolen assets to their legitimate owners, the Malaysian people.  I want to thank the FBI and IRS investigative team who worked with the prosecutors and our international partners on this case.”

“Today’s announcement underscores the breadth of the alleged corruption and money laundering related to the 1MDB fund,” said Chief Weber.  “We cannot allow the massive, brazen and blatant diversion of billions of dollars to be laundered through U.S. financial institutions without consequences.”

As alleged in the complaints, the members of the conspiracy – which included officials at 1MDB, their relatives and other associates – allegedly diverted more than $3.5 billion in 1MDB funds.  Using fraudulent documents and representations, the co-conspirators allegedly laundered the funds through a series of complex transactions and fraudulent shell companies with bank accounts located in the Singapore, Switzerland, Luxembourg and the United States.  These transactions were allegedly intended to conceal the origin, source and ownership of the funds, and were ultimately processed through U.S. financial institutions and were used to acquire and invest in assets located in the United States.

In seeking recovery of more than $1 billion, the complaints detail the alleged misappropriation of 1MDB’s assets as it occurred over the course of at least three schemes.  In 2009, the complaints allege that 1MDB officials and their associates embezzled approximately $1 billion that was intended to be invested to exploit energy concessions purportedly owned by a foreign partner.  Instead, the funds were transferred through shell companies and were used to acquire a number of assets, as set forth in the complaints.  The complaints also allege that the co-conspirators misappropriated more than $1.3 billion in funds raised through two bond offerings in 2012 and $1.2 billion following another bond offering in 2013.  As further detailed in the complaints, the stolen funds were laundered into the United States and used by the co-conspirators to acquire and invest in various assets.  These assets allegedly included high-end real estate and hotel properties in New York and Los Angeles, a $35 million jet aircraft, works of art by Vincent Van Gogh and Claude Monet, an interest in the music publishing rights of EMI Music and the production of the 2013 film The Wolf of Wall Street.

July 25, 2016 | Permalink | Comments (0)

Sunday, July 24, 2016

ESMA Advises On Extension Of Funds Passport Into EU from 12 Non-EU Countries

The European Securities and Markets Authority (ESMA) has today published its Advice in relation to the application of the Alternative Investment Fund Managers Directive (AIFMD) ESMApassport to non-EU Alternative Investment Fund Managers (AIFMs) and Alternative Investment Funds (AIFs) in twelve countries: Australia, Bermuda, Canada, Cayman Islands, Guernsey, Hong Kong, Japan, Jersey, Isle of Man, Singapore, Switzerland, and the United States.

Currently, non-EU AIFMs and AIFs must comply with each EU country’s national regime when they market funds in that country. ESMA’s Advice relates to the possible extension of the passport, which is presently only available to EU entities, to non-EU AIFMs and AIFs so that they could market and manage funds throughout the EU.

For each country, ESMA assessed whether there were significant obstacles regarding investor protection, competition, market disruption and the monitoring of systemic risk which would impede the application of the AIFMD passport.

According to ESMA’s advice:

  • there are no significant obstacles impeding the application of the AIFMD passport to Canada, Guernsey, Japan, Jersey and Switzerland;
  • if ESMA considers the assessment only in relation to AIFs, there are no significant obstacles impeding the application of the AIFMD passport to AIFs in Hong Kong and Singapore. However, ESMA notes that both Hong Kong and Singapore operate regimes that facilitate the access of UCITS from only certain EU Member States to retail investors in their territories.  
  • there are no significant obstacles regarding market disruption and obstacles to competition impeding the application of the AIFMD passport to Australia, provided the Australian Securities and Investment Committee (ASIC) extends to all EU Member States the ‘class order relief’, currently available only to some EU Member States, from some requirements of the Australian regulatory framework;
  • there were no significant obstacles regarding investor protection and the monitoring of systemic risk which would impede the application of the AIFMD passport to the United States (US). With respect to the competition and market disruption criteria, ESMA considers there is no significant obstacle for funds marketed by managers to professional investors which do not involve any public offering. However, ESMA considers that in the case of funds marketed by managers to professional investors which do involve a public offering, a potential extension of the AIFMD passport to the US risks an un-level playing field between EU and non-EU AIFMs. The market access conditions which would apply to these US funds in the EU under an AIFMD passport would be different from, and potentially less onerous than, the market access conditions applicable to EU funds in the US and marketed by managers involving a public offering. ESMA suggests, therefore, that the EU institutions consider options to mitigate this risk;    
  • For Bermuda and the Cayman Islands, ESMA cannot give definitive Advice with respect to the criteria on investor protection and effectiveness of enforcement since both countries are in the process of implementing new regulatory regimes and the assessment will need to take into account the final rules in place. For the Isle of Man ESMA finds that the absence of an AIFMD-like regime makes it difficult to assess whether the investor protection criterion is met.

ESMA published its first set of Advice on the application of the passport to six non-EU countries (Guernsey, Hong Kong, Jersey, Switzerland, Singapore and the US) in July 2015. The European Commission (Commission) subsequentlyasked ESMA to assess a further six countries and to provide more details on the capacity of non-EU supervisory authorities and their track record in ensuring effective enforcement, including those non-EU countries which ESMA looked at in its first set of advice. The Commission also asked ESMA to provide data on the expected inflows of funds by type and size into the EU from the different non-EU countries.

This Advice, required under the AIFMD, will now be considered by the European Commission, Parliament and Council. 

July 24, 2016 in Financial Regulation | Permalink | Comments (0)

Saturday, July 23, 2016

Warner Bros. Settles FTC Charges It Failed to Adequately Disclose It Paid Online Influencers to Post Gameplay Videos

Influencers Were Paid Thousands of Dollars to Promote ‘Shadow of Mordor’

Warner Bros. Home Entertainment, Inc. has settled Federal Trade Commission charges that it deceived consumers during a marketing campaign for the video game Middle Earth: 1024px-US-FederalTradeCommission-Seal.svgShadow of Mordor, by failing to adequately disclose that it paid online “influencers,” including the wildly popular “PewDiePie,” thousands of dollars to post positive gameplay videos on YouTube and social media. Over the course of the campaign, the sponsored videos were viewed more than 5.5 million times.

Under a proposed FTC order announced today, Warner Bros. is barred from failing to make such disclosures in the future and cannot misrepresent that sponsored content, including gameplay videos, are the objective, independent opinions of video game enthusiasts or influencers.

“Consumers have the right to know if reviewers are providing their own opinions or paid sales pitches,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “Companies like Warner Brothers need to be straight with consumers in their online ad campaigns.”

The FTC’s complaint stems from a late-2014 Warner Bros. online marketing campaign designed to generate buzz within the gaming community for the new release of Middle Earth: Shadow of Mordor, a fantasy role-playing game loosely based on The Hobbit and the Lord of the Rings trilogy. It was released in September 2014 for the PlayStation 3 and in November 2014 for the Xbox 360.

According to the complaint, during the campaign, Warner Bros., through its advertising agency Plaid Social Labs, LLC, hired online influencers to develop sponsored gameplay videos and post them on YouTube. Warner Bros. also told the influencers to promote the videos on Twitter and Facebook, generating millions of views. PewDiePie’s sponsored video alone was viewed more than 3.7 million times.

Warner Bros. paid each influencer from hundreds to tens of thousands of dollars, gave them a free advance-release version of the game, and told them how to promote it, according to the complaint. The FTC contends that Warner Bros. required the influencers to promote the game in a positive way and not to disclose any bugs or glitches they found.

While the videos were sponsored content – essentially ads for Shadow of Mordor – the FTC alleges that Warner Bros. failed to require the paid influencers to adequately disclose this fact. The FTC also alleges that Warner Bros. did not instruct the influencers to include sponsorship disclosures clearly and conspicuously in the video itself where consumers were likely to see or hear them.

Instead, according to the complaint, Warner Bros. instructed influencers to place the disclosures in the description box appearing below the video. Because Warner Bros. also required other information to be placed in that box, the vast majority of sponsorship disclosures appeared “below the fold,” visible only if consumers clicked on the “Show More” button in the description box. In addition, when influencers posted YouTube videos on Facebook or Twitter, the posting did not include the “Show More” button, making it even less likely that consumers would see the sponsorship disclosures.

The complaint also alleges that in some cases, the influencers disclosed only that they had received early access to Shadow of Mordor, but failed to disclose that Warner Bros. also had paid them to promote the game.

The FTC also alleges that the Warner Bros.’ contracts with influencers subjected their videos to pre-approval, and that on at least one occasion Warner Bros. reviewed and approved an influencer video that lacked adequate sponsorship disclosure.

The Commission’s complaint charges that Warner Bros., through its marketing campaign, misled consumers by suggesting that the gameplay videos of Shadow of Mordor reflected the independent or objective views of the influencers. The complaint also alleges that Warner Bros. failed to adequately disclose that the gamers were compensated for their positive reviews.

The proposed order settling the FTC’s charges prohibits Warner Bros. from misrepresenting that any gameplay videos disseminated as part of a marketing campaign are independent opinions or the experiences of impartial video game enthusiasts. Further, it requires the company to clearly and conspicuously disclose any material connection between Warner Bros. and any influencer or endorser promoting its products.

Finally, the order specifies the minimum steps that Warner Bros., or any entity it hires to conduct an influencer campaign, must take to ensure that future campaigns comply with the terms of the order. These steps include educating influencers regarding sponsorship disclosures, monitoring sponsored influencer videos for compliance, and, under certain circumstances, terminating or withholding payment from influencers or ad agencies for non-compliance.

The Commission vote to issue the administrative complaint and to accept the proposed consent agreement was 3-0. The FTC will publish a description of the consent agreement package in the Federal Register shortly.

The agreement will be subject to public comment for 30 days, beginning today and continuing throughAugust 10, 2016, after which the Commission will decide whether to make the proposed consent order final. Interested parties can submit comments electronically by following the instructions in the “Invitation to Comment” part of the “Supplementary Information” section of the Federal Register notice.

Warner Bros. Home Entertainment, Inc., In the Matter of

In the popular video game Shadow of Mordor, players don’t just randomly slash, hack, and pillage. They battle specific opponents through a feature known as the Nemesis System. In the FTC’s lawsuit against Warner Bros. Home Entertainment, truth in advertising had a nemesis: paid pitches for Shadow of Mordor that Warner Bros. deceptively claimed were independent reviews. And read on for a startlingly candid statement by one of those influencers.

To help launch Shadow of Mordor, Warner Bros. brought a social media company on board to coordinate a YouTube influencer campaign. One strategy was to hire influential gamers to post videos promoting Shadow of Mordor – videos that ultimately yielded more than 5.5 million YouTube views.

In addition to free game access, Warner Bros. paid the influencers cash – ranging from hundreds of dollars to five figures. Influencers’ videos were subject to pre-approval and, according to the terms of the agreement, Warner Bros. “will be deemed the author and exclusive owner.”

Warner Bros. was quite exacting in what else it required of influencers:

  • “Video will feature gameplay” of the Shadow of Mordor game.
  • “Video will have a strong verbal call-to-action to click the link in the description box for the viewer to go to the [game’s] website to learn more about the [game], to learn how they can register, and to learn how to play the game.”
  • “Video will promote positive sentiment” about the game.
  • “Video will not show bugs or glitches that may exist.”
  • “Video will not communicate negative sentiment” about Warner Bros. Home Entertainment, its affiliates or the game.

Warner Bros. also required “One Facebook post or one Tweet by Influencer in support of Video.”

“Positive sentiment” posted for cash? That sounds like the kind of material connection between an advertiser and endorser the FTC says should be clearly and conspicuously disclosed. And for FTC watchers, that’s where the story gets almost as interesting as Shadow of Mordor.

According to the complaint, influencers were directed to place sponsorship information in the text of the description box – that’s the collapsed box just below a YouTube video – not in the video itself. Furthermore, they were told to put “information about [the game] above the fold” in the description box and that the “description box will include FTC disclaimer disclosing that the post is sponsored.”

But as the first example shows, only the top few lines of the description box are immediately visible. Without clicking the “Show More” button and possibly scrolling down, consumers wouldn’t see the sponsorship disclosure – especially since Warner Bros. mandated that game information had to come first.

The second screenshot shows an example of the sponsorship information at the end of the expanded “Show More” box and illustrates – inadvertently perhaps – the FTC’s concern with the placement of the disclosure. In this example, the gamer wrote “This video sponsored by Warner Bros.” and followed with this telling statement: “No one reads this far into the description … what are you doing snooping around.”

Our sentiments exactly, Dude.

In other instances, influencers’ videos included a half-hearted sponsorship disclosure – for example, “This has been one of my favorite sponsored games, so thanks that I could play it for free!!” – that failed to mention that in addition to free play, Warner Bros. was paying them thousands of dollars.

The complaint charges that Warner Bros. falsely represented that the Shadow of Mordor gameplay videos reflected the independent opinions or experiences of impartial gamers. The FTC also alleges that, in many cases, Warner Bros. failed to disclose – or failed to adequately disclose – influencers’ material connection to the company. Among other things, the proposed settlement requires Warner Bros. Home Entertainment to clearly disclose material connections to influencers or endorsers. In addition, it puts provisions in place to educate and monitor what influencers do on the company’s behalf – and in certain circumstances, requires the Warner Bros. to withhold payment or terminate influencers or ad agencies that don’t comply.

What compliance tips can others to take from the proposed settlement?

Disclose material connections clearly and conspicuously.  If there’s a connection between an endorser and advertiser that consumers wouldn’t expect and it would affect how they evaluate the endorsement, the connection should be disclosed. But that’s not all the law requires. A sponsorship statement or any other disclosure necessary to prevent deception must be clear and conspicuous. A “disclosure” that consumers aren’t likely to read isn’t really a disclosure at all. The FTC staff reiterated that point in .com Disclosures: How to Make Effective Disclosures in Digital Advertising: “Simply making the disclosure available somewhere in the ad, where some consumers might find it, does not meet the clear and conspicuous standard.”

No one knows better than advertisers how to make disclosures clear and conspicuous. Building on earlier cases challenging the failure to include disclosures altogether, the Warner Bros. settlement addresses allegedly ineffective disclosures. “But how do I convey information effectively?” some advertisers ask. Really? Advertisers are in the “clear and conspicuous” business. One rule of thumb is to apply the tried-and-true principles for conveying a marketing message effectively. In the context of YouTube, for example, a disclosure front and center in the video is likely to be clearer than language buried in the description box.

Consider how consumers will view your ads. Warner Bros. directed influencers to put the sponsorship disclosure in the YouTube description box, but then also required them to promote their videos on Facebook or Twitter. But when influencers complied by posting the videos themselves on Twitter or Facebook, it was even less likely that consumers would see the disclosures since “Show More” buttons didn’t appear on those posts. .com Disclosures addresses that, too: “If a particular platform does not provide an opportunity to make clear and conspicuous disclosures, then that platform should not be used to disseminate advertisements that require disclosures.”

Keep an eye on what others are doing on your behalf.  For future influencer campaigns, the proposed settlement outlines steps Warner Bros. must take to monitor influencers’ conduct. Of course, the settlement applies just to that company, but The FTC’s Endorsement Guides: What People Are Asking offers advice on how savvy marketers train and monitor members of their network.

July 23, 2016 in Financial Regulation | Permalink | Comments (0)

Friday, July 22, 2016

Owner of Costa Rican Call Center and Two Others Plead Guilty to Defrauding Elderly through Offshore Sweepstakes Scheme

Two U.S. citizens and a Canadian citizen have pleaded guilty for their roles in a $9 million “sweepstakes fraud” scheme to defraud hundreds of U.S. residents, many of them elderly, Postal inspectorannounced Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and U.S. Attorney Jill Westmoreland Rose of the Western District of North Carolina.

Jeffrey Robert Bonner, 37, of Sacramento, California; Cody Trevor Burgsteiner, 33, of Houston; and Darra Lee Shephard, 57, of Calgary, Alberta, pleaded guilty this week before U.S. Magistrate Judge David Keesler of the Western District of North Carolina to various counts of conspiracy to commit wire fraud and mail fraud, wire fraud, conspiracy to commit money laundering and international money laundering, all in connection with a Costa Rican telemarketing fraud scheme.  Sentencing dates have not been set.  

As part of their guilty pleas, Bonner, Burgsteiner and Shephard each admitted that from approximately 2007 through November 2012, they worked in a call center located in Costa Rica, which Bonner owned, where they placed telephone calls to U.S. residents, falsely informing them that they had won a substantial cash prize in a “sweepstakes.”  The victims, many of whom were elderly, were told that in order to receive the prize, they had to pay for a purported “refundable insurance fee,” the defendants admitted.  Bonner, Burgsteiner and Shephard admitted that once they received the money, they contacted the victims again to tell them that their prize amount had increased, due to either a clerical error or because other winners had been disqualified.  The victims were then told to send additional money to pay for new purported fees, duties and insurance to receive the now larger sweepstakes prize, the defendants admitted.  The defendants further admitted that they and their co-conspirators continued their attempts to collect additional money from the victims until an individual either ran out of money or discovered the fraudulent nature of the scheme.  To mask that they were calling from Costa Rica, the conspirators utilized voice over internet protocol (VoIP) phones that displayed a 202 area code, giving the false impression that they were calling from Washington, D.C., they admitted.  According to admissions made in connections with their pleas, the defendants and their co-conspirators often falsely claimed that they were calling on behalf of a U.S. federal agency to lure victims into a false sense of security.

Bonner, Burgsteiner, Shephard and their co-conspirators were responsible for causing approximately $9 million in losses to hundreds of U.S. citizens. 

 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.

July 22, 2016 | Permalink | Comments (0)

Thursday, July 21, 2016

ECJ Strikes Down Withholding Tax on Interest To Non Resident If Not Allowed Business Expense Deductions

Clifford Chance reports that "The Court of Justice of the European Union (CJEU) yesterday ruled that the EU fundamental freedoms preclude Member States from imposing withholding tax on interest paid to EU financial institutions, unless the financial institutions can claim a deduction for their financing costs and other expenses."  See the CC newsletter here.

Case decision here

Brisal — Auto Estradas do Litoral SA, KBC Finance Ireland Fazenda Pública (ECJ, 5th Chamber, 13 July 2016)

The request has been made in proceedings between, on the one hand, Brisal ‒ Auto Estradas do Litoral SA (‘Brisal’), established in Portugal, and KBC Finance Ireland (‘KBC’), a bank European_Court_of_Justiceestablished in Ireland, and, on the other, the Fazenda Pública (State Treasury, Portugal), concerning the calculation of corporation tax (‘IRC’) on interest received by KBC and the collection of that tax at source.

Article 49 EC does not preclude national legislation under which a procedure for withholding tax at source is applied to the income of financial institutions that are not resident in the Member State in which the services are provided, whereas the income received by financial institutions that are resident in that Member State is not subject to such withholding tax, provided that the application of the withholding tax to the non-resident financial institutions is justified by an overriding reason in the general interest and does not go beyond what is necessary to attain the objective pursued.

Article 49 EC precludes national legislation, such as that at issue in the main proceedings, which, as a general rule, taxes non-resident financial institutions on the interest income received within the Member State concerned without giving them the opportunity to deduct business expenses directly related to the activity in question, whereas such an opportunity is given to resident financial institutions.


July 21, 2016 in Tax Compliance | Permalink | Comments (0)

Download Data of UK Company Beneficial Owners

People with significant control (PSC) snapshot

What is it?

The People with significant control (PSC) snapshot is a downloadable data snapshot containing the full list of PSC's provided to Companies House. This snapshot is provided as a single Companies House logo data file in JSON format and is overwritten with the latest information daily.

When will it be updated?

The latest snapshot will be updated every morning before 10am GMT.

Additional Information

The contents of the snapshot have been compiled up to the end of the previous day.

By following the link below you can find further information on PSC, details of the PSC Streaming API, a list of the data fields contained in the snapshot and example data files.


International Trust Laws and Analysis, Company Laws, Wealth Management & Tax Planning Strategies provides all the legal, tax, and estate-planning intelligence necessary for professional advisers to recommend among financial centers for their high net wealth clients — as well as the tools to establish and operate trusts, companies, and funds in compliance with all applicable rules and regulations. The full text of the trust laws and links to the company laws of 60 countries is included with clear, concise comparison charts aimed at reducing research time. The 29 vital trust elements and 20 company elements of each jurisdiction’s laws are analyzed from a compliance perspective in detail.

July 21, 2016 in GATCA, OECD | Permalink | Comments (0)