International Financial Law Prof Blog

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

Wednesday, November 30, 2016

Building Contractor Company Executive Convicted of Theft from Labor Union, Unlawful Labor Payments, Fraud and Money Laundering

The owner and CEO of a Greenbelt, Maryland, building contracting company was convicted today for stealing $1.7 million from Local 657 of the Laborers International Union of North FBISeal (1) America (LIUNA) and other related offenses.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Assistant Director in Charge Paul M. Abbate of the FBI’s Washington, D.C., Field Office, Special Agent in Charge Robin Blake of the Department of Labor Office of Inspector General Washington, D.C., Regional Office and District Director Mark Wheeler of the Department of Labor’s Office of Labor-Management Standards Washington, D.C., District Office made the announcement.  

Gary Amoes Cooper, 58, of Upper Marlboro, Maryland, the owner and CEO of STS General Contracting, was convicted of conspiracy to commit theft from a labor organization, conspiracy to make unfair labor payments, wire fraud and money laundering following a jury trial before U.S. District Judge Amit P. Mehta of the District of Columbia.  Sentencing has been scheduled for Feb. 27, 2017.

Evidence presented at trial demonstrated that Cooper and co-defendant Christopher Andrew Kwegan, the president of STS, conspired with Anthony Wendel Frederick Sr., the former business manager of Local 657 of LIUNA, to convert for personal use $1.7 million in funds stolen from Local 657.  LIUNA is a labor organization that represents laborers in the construction industry, and LIUNA’s Local 657 represents construction laborers in Washington, D.C., and five adjacent counties.

According to trial evidence, from May 2013 to June 2014, Frederick directed $1.7 million in Local 657 funds to STS for an unauthorized construction project and other work without the knowledge or authorization of the Local 657 Executive Board or officials in LIUNA.  Cooper and Kwegan then directed part of the stolen funds from STS accounts toward a $225,000 down payment and construction of a garage for a residential property acquired by Frederick, and gave Frederick’s wife 50 percent ownership in a different construction corporation owned by Cooper.  In addition, according to trial evidence, Cooper and Kwegan depleted an STS bank account containing only stolen Local 657 funds by withdrawing more than $400,000 in cash, sending hundreds of thousands of dollars to third parties in Qatar and using the remainder for personal items, entertainment, shopping trips, hotel stays and overseas travel. 

Frederick, 51, also of Upper Marlboro, and Kwegan, 58, of Randallstown, Maryland, previously pleaded guilty to the same offenses and await sentencing. 

November 30, 2016 | Permalink | Comments (0)

Tuesday, November 29, 2016

Salesman Sentenced in Scheme to Defraud Consumers Through Debt Relief Firms

A Newport Beach, California, man was sentenced today in connection with a fraudulent debt relief firm, the Justice Department and U.S. Postal Inspection Service announced.  The 1024px-US-FederalTradeCommission-Seal.svgdefendant worked at Nelson Gamble and Associates and Jackson Hunter Morris and Knight, companies that offered to settle credit card debts but instead took victims’ payments as undisclosed up-front fees.

John Vartanian, 57, was sentenced to serve 27 months in prison, followed by three years of supervised release, and ordered to pay $1,208,086 in restitution.  Vartanian admitted to selling the firm’s fraudulent debt relief services through telephone calls with consumers nationwide.  The sentence was imposed Monday by U.S. District Court Judge Dale Fischer of the Central District of California in Los Angeles.  The defendant previously pleaded guilty for his  role in the scheme.

“These scams take advantage of consumers already struggling with debt,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. “The Department of Justice will continue to work with its law enforcement partners to protect consumers from fraud, especially when they are targeted based on their financially vulnerable conditions.”

“We are gratified by today’s sentencing, on behalf of the many unsuspecting victims who sought financial relief, only to be further burdened by these criminals,” said Inspector in Charge Regina L. Faulkerson of Criminal Investigations, U.S. Postal Inspection Service. “We applaud the work of the Justice Department’s Consumer Protection Branch in bringing this fraudulent credit repair salesman and his accomplices to justice.”

Vartanian pleaded guilty to one count of conspiracy to commit mail and wire fraud. Four other defendants also pleaded guiltyand were sentenced last week in connection with the fraudulent scheme.

Vartanian and other members of the conspiracy at times portrayed Nelson Gamble and Jackson Hunter as law firms or attorney-based companies.  Clients were told the companies would negotiate favorable settlements with creditors.  Clients made monthly payments expecting the money to go toward settlements.  The conspirators instead took at least 15 percent of the total debt as company fees, with the first six months of payments going almost entirely toward undisclosed up-front fees. 

The scheme ran from February 2010 to September 2012 and, in 2011, changed names from Nelson Gamble to Jackson Hunter. Conspirators told victims that Nelson Gamble had gone bankrupt and that Jackson Hunter was an unrelated company that had taken over some of the accounts. Participants in the scheme blamed past problems on Nelson Gamble and denied requests for refunds of money paid to Nelson Gamble. Some victims who previously demanded refunds accepted the explanation that Nelson Gamble was bankrupt and did not pursue complaints against Jackson Hunter.

In September 2012, the Federal Trade Commission (FTC) brought a civil case against the companies and its principal, Jeremy Nelson, alleging that the defendants misrepresented debt relief services offered to consumers. (See https://www.ftc.gov/enforcement/cases-proceedings/122-3030-x120048/nelson-gamble-associates-llc-et-al). The case was settled by entry of a consent decree in August 2013.

For more information about the Consumer Protection Branch, visit its website at http://www.justice.gov/civil/consumer-protection-branch.

November 29, 2016 | Permalink | Comments (0)

Monday, November 28, 2016

Tax Inspectors Without Borders making significant progress

Significant progress has been made by an international program designed to enhance developing countries' ability to bolster domestic revenue collection through strengthening of OECDtax audit capacities.

The Tax Inspectors Without Borders (TIWB) project was launched in July 2015 by the Organisation for Economic Co-operation and Development (OECD) and the United Nations Development Programme (UNDP) as an innovative attempt to address widespread tax avoidance by multinational enterprises in developing countries and as a contribution towards financing the UN's Sustainable Development Goals.


TIWB organizes deployment of highly qualified tax experts to countries that request assistance with ongoing audits of multinational companies. The projects focus on revenue recovery and improving local audit capacity while sending a strong message on the need for tax compliance.

Eight pilot projects – in countries spanning the globe from Africa to Asia and Latin America – have resulted in more than $260 million in additional tax revenues to date. This includes more than $100 million in new tax revenues generated through TIWB audits in Zimbabwe, demonstrating the tremendous potential for future projects.

Thirteen projects are underway worldwide, in Botswana, Costa Rica, Ethiopia, Georgia, Ghana, Jamaica, Lesotho, Liberia, Malawi, Nigeria, Uganda, Zambia and Zimbabwe.

A range of new programs will launch in the coming year – including new deployments of auditors to Republic of Congo, Egypt, Uganda, Cameroon and Vietnam - toward the goal of 100+ deployments by 2020. This will also include the first South-South cooperation project under the TIWB initiative, which will see Kenyan auditors deployed to Botswana in 2017.

"Developing countries face serious challenges in raising domestic resources to fund basic government services, and tax avoidance by multinational enterprises is a complicating factor," said James Karanja, head of the TIWB Secretariat. "The Tax Inspectors Without Borders program is demonstrating how effective capacity building can make a difference toward the goal of ensuring that all companies pay their fair share of tax."

TIWB projects are currently being supported by a range of organizations, including revenue authorities in the Netherlands, Spain and the United Kingdom, the African Tax Administration Forum and the Paris-based TIWB Secretariat, which facilitates full-time or periodic deployment of experts for all programs.

To better fulfill its clearinghouse role – matching demands for auditing assistance with appropriate experts – and to meet growing demand for TIWB projects, the Secretariat is expanding its roster of available experts. Information on candidacies is available here.

November 28, 2016 in OECD, Tax Compliance | Permalink | Comments (0)

Sunday, November 27, 2016

SOI Tax Stats - Corporation Income Tax Returns Line Item Estimates

The 2013 Corporation Income Tax Returns Line Item Estimates (publication 5108) is now available on SOI's Tax Stats Website. This report contains estimates of frequencies of taxpayer Irs_logoentries and estimates of monetary amounts recorded on the applicable lines of the Forms 1120 and 1120S, representing nearly 80 percent of total returns filed as part of the SOI corporation income tax return sample. In addition, estimates of frequencies and money amounts pertaining to separate attachments to all 1120-series forms within the SOI sample are included. While data reported on Forms 1120-F, 1120-L, 1120-PC, 1120-REIT, and 1120-RIC are part of the SOI sample, the data presented have been limited for Tax Year 2013 while additional review with our other publications is being coordinated.

November 27, 2016 in Economics | Permalink | Comments (0)

Saturday, November 26, 2016

JPMorgan’s Investment Bank in Hong Kong Agrees to Pay $72 Million Penalty for Corrupt Hiring Scheme in China

JPMorgan Securities (Asia Pacific) Limited (JPMorgan APAC), a Hong Kong-based subsidiary of multinational bank JPMorgan Chase & Co. (JPMC), agreed to pay a $72 million FBI DOJ logopenalty for its role in a scheme to corruptly gain advantages in winning banking deals by awarding prestigious jobs to relatives and friends of Chinese government officials.

Assistant Attorney General Leslie R. Caldwell of the Criminal Division, U.S. Attorney Robert L. Capers of the Eastern District of New York and Assistant Director in Charge William F. Sweeney Jr. of the FBI’s New York Field Office made the announcement. 

“The so-called Sons and Daughters Program was nothing more than bribery by another name,” said Assistant Attorney General Caldwell.  “Awarding prestigious employment opportunities to unqualified individuals in order to influence government officials is corruption, plain and simple.  This case demonstrates the Criminal Division’s commitment to uncovering corruption no matter the form of the scheme.”

“U.S. businesses cannot lawfully seek to gain a business advantage by corruptly influencing foreign government officials,” said U.S. Attorney Capers.  “The common refrain that this is simply how business is done overseas is no defense.  In this case, JPMorgan employees designed a program to hire otherwise unqualified candidates for prestigious investment banking jobs solely because these candidates were referred to the bank by officials in positions to award business to the bank.  In certain instances, referred candidates were hired with the understanding that the hiring was linked to the award of specific business.  This is no longer business as usual; it is corruption.”

“Creating a barter system in which jobs are awarded to applicants in exchange for lucrative business deals is a corrupt scheme in and of itself,” said Assistant Director in Charge Sweeney.  “But when foreign officials are among those involved in the bribe, the international free market system and our national security are among the major threats we face.  Those engaging in these illegal acts abroad may think they're out of sight and out of mind, but they're wrong.  The FBI has recently established three dedicated international corruption squads to combat this type of quid pro quo, and we'll use all resources at our disposal to uncover and put an end to these crimes.”

According to JPMorgan APAC’s admissions, beginning in 2006, senior Hong Kong-based investment bankers set up and used a “client referral program,” also referred to as the “Sons and Daughters Program,” to hire candidates referred by clients and government officials.  The Sons and Daughters Program was used as a means to influence those same officials to award investment deals to JPMorgan APAC.  By late 2009, JPMorgan APAC executives and senior bankers revamped the client referral program to improve its efficacy by prioritizing those hires linked to upcoming client transactions.  In order to be hired, a referred candidate had to have a “directly attributable linkage to business opportunity.” 

According to admissions made in connection with the resolution, these quid pro quo arrangements were discussed internally among JPMorgan APAC bankers.  For example, in late 2009, a Chinese government official communicated to a senior JPMorgan APAC banker that hiring a referred candidate would significantly influence the role JPMorgan APAC would receive in an upcoming initial public offering (IPO) for a Chinese state-owned company.  The banker communicated this message to several senior colleagues, who then spent several months trying to place the referred candidate in an investment banking position in New York.  Despite learning from personnel in New York that this referred candidate was not qualified for an investment banking position, senior JPMorgan APAC bankers created a new position for the candidate in New York, and JPMorgan APAC thereafter obtained a leading role in the IPO.  Further, JPMorgan APAC employees misused compliance questionnaires to justify and paper over corrupt business arrangements.  Employees also used a template with pre-filled answers, including that there was “no expected benefit” from the hire, and compliance personnel drafted and modified questionnaires that failed to state the true purpose of the hire.

JPMorgan APAC further admitted that candidates hired during the scheme were typically given the same titles and paid the same amount as entry-level investment bankers, despite the fact that many of these hires performed ancillary work such as proofreading and provided little real value to any deliverable product. 

The corrupt scheme netted JPMorgan APAC at least $35 million in profits from business mandates with Chinese state-owned companies. 

JPMorgan APAC entered into a non-prosecution agreement and agreed to pay a criminal penalty of $72 million to resolve the matter.  As part of the agreement, JPMorgan APAC has agreed to continue to cooperate with the department in any ongoing investigations and prosecutions relating to the conduct, including of individuals, to enhance its compliance program, and to report to the department on the implementation of its enhanced compliance program.

The department reached this resolution based on a number of factors, including that JPMorgan APAC did not voluntarily and timely disclose the conduct at issue.  However, JPMorgan APAC did receive full credit for its and JPMC’s cooperation with the criminal investigation, including conducting a thorough internal investigation, making foreign-based employees available for interviews in the United States and producing documents to the government from foreign countries in ways that did not implicate foreign data privacy laws.  JPMorgan APAC also took significant employment action against six employees who participated in the misconduct resulting in their departure from the bank, and it disciplined an additional 23 employees who, although not involved in the misconduct, failed to effectively detect the misconduct or supervise those engaged in it.  JPMorgan APAC imposed more than $18.3 million in financial sanctions on former or current employees in connection with the remediation efforts.  Based on these actions and other considerations, the company received a non-prosecution agreement and an aggregate discount of 25 percent off of the bottom of the U.S. Sentencing Guidelines fine range. 

In related proceedings, the U.S. Securities and Exchange Commission (SEC) filed a cease and desist order against JPMC, whereby JPMC agreed to pay $130.5 million in disgorgement to the SEC, including prejudgment interest.  The Federal Reserve System’s Board of Governors also issued a consent cease-and-desist order and assessed a $61.9 million civil penalty. Thus, the combined U.S. criminal and regulatory penalties paid by JPMC and its Hong Kong subsidiary are approximately $264.4 million. 

The FBI’s New York Field Office investigated the case.  The department appreciates the significant cooperation and assistance provided by the SEC and the Federal Reserve Bank of New York in this matter.  Assistant Deputy Chief Leo Tsao and Trial Attorneys James P. McDonald and Derek J. Ettinger of the Criminal Division’s Fraud Section and Assistant U.S. Attorney James P. Loonam of the Eastern District of New York’s Business and Securities Fraud Section prosecuted the case. 

November 26, 2016 | Permalink | Comments (0)

Friday, November 25, 2016

Rising Use of Virtual Currencies Requires IRS to Take Additional Actions to Ensure Taxpayer Compliance

Alternative payment methods, such as convertible virtual currencies, have grown in popularity in recent years and have emerged for some people as a potential alternative to using Irs_logotraditional currencies like U.S. dollars. Virtual currencies offer potential benefits over traditional currencies, including lower transaction fees and faster transfer of funds for services provided. However, some virtual currencies are also popular because the identity of the parties involved is generally anonymous, leading to a greater possibility of their use in illegal transactions. Recently, many types of virtual currencies have been created for use in lieu of currency issued by a government to purchase goods and services in the real economy. The overall objective of this review was to evaluate the IRS’s strategy for addressing income produced through virtual currencies.

Although the IRS issued Notice 2014-21, Virtual Currency Guidance, and established the Virtual Currency Issue Team, there has been little evidence of coordination between the responsible functions to identify and address, on a program level, potential taxpayer noncompliance issues for transactions involving virtual currencies. None of the IRS operating divisions have developed any type of compliance initiatives or guidelines for conducting examinations or investigations specific to tax noncompliance related to virtual currencies.

The IRS has not used an important enforcement tool at its disposal to address unlawful activities by those who use virtual currencies. Under authority of the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), the IRS has Bank Secrecy Act enforcement responsibilities for financial institutions not regulated by a Federal bank agency or another Federal regulator such as money service businesses. Although FinCEN has designated administrators or exchanges that accept and transmit a virtual currency, or buy or sell virtual currency as money service businesses and subject to IRS enforcement, the IRS has not taken enforcement action in this area. In addition, it does not appear that any of the actions already taken by the IRS to address virtual currency tax noncompliance were coordinated to ensure that the IRS maintains a strategic approach to the tax implications of virtual currencies.

Although the IRS requested comments to Notice 2014-21 from the public, no actions were taken to address the comments received. TIGTA reviewed all the comments and found several examples of information requested by the public that would be helpful in understanding how to comply with the tax reporting requirements when using or receiving virtual currencies.

In addition, third-party methods of reporting taxable transactions to the IRS do not separately identify transactions related to virtual currencies. While employers and businesses are required to report taxable virtual currency transactions, current third-party information reporting documents do not provide the IRS with any means to identify that the taxable transaction amounts being reported were specifically related to virtual currencies.

“It is imperative that the IRS ensures that those who engage in activities using virtual currencies comply with all of their tax obligations,” said J. Russell George, Treasury Inspector General for Tax Administration.

TIGTA made three recommendations. The IRS agreed with TIGTA’s recommendations and plans to develop a virtual currency strategy, including an assessment of whether changes to information reporting documents are warranted. The IRS also agreed that additional guidance would be helpful and plans to share the recommendation with the IRS’s Office of Chief Counsel for coordination with the Department of the Treasury’s Office of Tax Policy.

Read the report.

November 25, 2016 | Permalink | Comments (0)

Thursday, November 24, 2016

Saint Lucia expands its capacity to fight international tax avoidance and evasion

Saint Lucia today signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. Saint Lucia became the 107th jurisdictions to join the Convention. Hon. OECDAllen Michael Chastanet, Prime Minister and Minister for Finance, Economic Growth, Job Creation, External Affairs and Public Service, signed the Convention in the presence of the OECD Secretary-General, Angel Gurría.

The Convention provides for all forms of administrative assistance in tax matters: exchange of information on request, spontaneous exchange, automatic exchange, tax examinations abroad, simultaneous tax examinations and assistance in tax collection. It guarantees extensive safeguards for the protection of taxpayers' rights.

The Convention was developed jointly by the OECD and the Council of Europe in 1988 and amended in 2010 to respond to the call by the G20 to align it to the international standard on exchange of information and to open it to all countries, thus ensuring that developing countries could benefit from the new more transparent environment.

Since then, the Convention has become a truly global instrument. It is seen as the ideal instrument for the swift implementation of the standard on exchange of information on request and the new OECD/G20 Standard for Automatic Exchange of Financial Account Information in Tax Matters. The signing and ratification of the Convention is therefore very timely since Saint Lucia has already signed the CRS Multilateral Competent Authority Agreement (MCAA) based on Article 6 of the Convention to operationalise automatic exchange of financial account information. The Convention can also be used to swiftly implement the transparency measures of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project such as the automatic exchange of Country-by-Country reports under Action 13 as well as the sharing of rulings under Action 5. A powerful tool for the fight against illicit financial flows the Convention also enables jurisdictions to implement the commitments they have each made as members of the Global Forum on Transparency and Exchange of Information for Tax Purposes.

November 24, 2016 | Permalink | Comments (0)

Wednesday, November 23, 2016

One year post-BEPS: The OECD, EU, USA and Mexico perspectives - Monday, 28 November 2016, 8:00 – 13:00 (breakfast included)

Monday, 28 November 2016, 8:00 – 13:00 (breakfast included) at The University Club of Mexico - Salón Terraza, Paseo de la Reforma 150, 06600 D.F. Mexico city

http://universityclub.com.mx/ Limited seats available: RSVP required. Please email C.D.M.vandenBerg@uva.nl.

 During this morning-seminar, organized by the Amsterdam Centre for Tax Law (ACTL) of the University of Amsterdam, Texas A&M University  School of Law, IFA Mexico and Universidad Nacional Autónoma de México (UNAM), several aspects of anti-BEPS measures of States around the world will be highlighted. The discussion will be the OECD BEPS initiatives and the resulting EU-measures, USA measures and Mexican measures.

7:45 – 8:00 Registration and Breakfast

8:00 – 8:45 Keynote Practical Tax Information Exchange and Use: CbCR software application pilot for Mexico by Dr. George Salis (Vertex) and David Deputy (Vertex)

8:45 – 9:00 Welcome by Miguel Ortiz (President IFA Mexico; Ortiz, Sosa Y Asociados, S.C.)

9:00 – 10:30 Panel 1 One year post-BEPS What’s happening around the world?

Chair: Prof. William Byrnes (Texas A&M University School of Law)

EU anti-BEPS implementation: What can we expect?  Prof. dr. Dennis Weber (ACTL, University of Amsterdam)

The EU and non-EU countries: treaty abuse, EU blacklist Dr. Bruno da Silva (ACTL, University of Amsterdam)

Impact of BEPS in practice - Jeroen Janssen (Loyens & Loeff)

USA new MAP/competent authority procedures - Melissa Muhammad (OECD & U.S. Treasury, APMA Competent Authority)

Coffee break

11:00 – 12:30 Panel 2 One year post-BEPS The Mexican perspective

Chair: Prof. Gabriela Rios (UNAM)

Anti-BEPS measures in Mexico Manuel E Tron (Manuel Tron, SC)

Making dispute resolution mechanisms more effective (BEPS Action 14) Armando Lara (Chevez, Ruiz, Zamarripa)

Disclosure of Tax Arrangements (BEPS Action 12) Jorge Correa (Creel, García-Cuéllar, Aiza y Enríquez)

Challenges for the government to implement anti-BEPS measures Juan Carlos Perez Pena (Secretaria de Hacienda y Credito Publico)

12:30 networking until 13:00

November 23, 2016 in Education | Permalink | Comments (0)

Tuesday, November 22, 2016

Prosecuting Tech Savvy Criminals

This DOJ blog post is from Assistant Attorney General Leslie R. Caldwell of the Criminal Division and addresses the abuse of internet anonymizing technology, and the need for the USCYBERCOM_Logo
amendment to the Federal Rules of Criminal Procedure adopted by the Supreme Court to ensure that investigators can identify the right court from which to seek a search warrant.  A second post will address the threat posed by botnets, and the need for a related amendment to make the warrant process effective when law enforcement must investigate a nationwide attack.  A third post will address arguments raised by commentators against the amendments adopted by the Supreme Court.

In 2014, I returned to the Department of Justice to lead the Criminal Division after nearly a decade in private practice.  This decade coincided with a revolution in how computers and the Internet affect our lives.  While most changes were for the better, some technologies enable new forms of crime and victimization that would have been difficult to imagine not that long ago.  One of the most surprising and disturbing trends I learned about when I returned was the proliferation of online child sexual exploitation forums.  As you read this blog post, dozens of websites openly distribute images of child rape and sexual exploitation.  Tens of thousands of pedophiles congregate on these sites to buy, sell and trade images and videos of abuse, and even to pay abusers to commit new abuses and to record and share them.  Many of these same websites feature discussion groups where pedophiles can provide one another advice on how to groom young children for abuse, how to evade detection by caregivers and law enforcement and other ways to facilitate these vile crimes.

The reason these sites can remain and even thrive in the open, despite violating the laws of just about every country in the world, is that they employ software that allows their administrators and users to hide their identities and locations.  Often the sites are located on the Tor network, which uses anonymizing technology designed to make it impossible for anyone – a victim, a relative or a criminal investigator – to learn who has posted a particular video of child rape, or purchased access to one.  Although this kind of technology is comparatively new, it doesn’t require much technical expertise, which is why so many thousands of criminals have adopted it.  Because of the technology, however, while law enforcement can readily locate images of child sexual exploitations or planning sessions related to child rape, it often cannot identify and bring to justice the online criminals responsible for the abuse.  Even worse, the child victims whose torment is so openly and notoriously disseminated stand little chance of rescue.  In essence, we now confront the digital equivalent of crimes committed in the middle of a busy street, in full view of the citizenry and the police, with little risk of being caught.

But sometimes we beat these odds.  A string of recent successful prosecutions have stopped some of the child exploitation crimes committed on Tor; in other cases, we have been able to find criminals who have used Tor to commit crimes such as firearms trafficking, narcotics trafficking, and fraud.

Recent judicial decisions and news coverage have highlighted a recent investigation, of the Playpen website, a Tor site used by more than 100,000 pedophiles to encourage sexual abuse and exploitation of children and to trade sexually explicit images of the abuse.  Investigators caught a break with Playpen.  Authorities were able to wrest control of the site from its administrators, and then obtained approval from a federal court to use a remote search tool to undo the anonymity promised by Tor.  The search would occur only if a Playpen user accessed child pornography on the site (a federal crime), in which case the tool would cause the user’s computer to transmit to investigators a limited amount of information, including the user’s true IP address, to help locate and identify the user and their computer.  Based on that information, authorities could then conduct a traditional, real-world investigation, such as by running a criminal records check, interviewing neighbors, or applying for an additional warrant to search a suspect’s house for incriminating evidence.  Those court-authorized remote searches in the Playpen case have led to more than 200 active prosecutions – including the prosecution of at least 48 alleged hands-on abusers – and, extraordinarily, the identification or rescue of at least 49 American children who were subject to sexual abuse.

Despite surmounting this technological obstacle, however, the Playpen prosecutions still face an additional obstacle: a loophole in judicial procedures that makes it unclear which court – if any – an investigator is supposed to go to with a search warrant application when investigating anonymized crime.  Under a rule first codified in 1917, when the government seeks court approval to conduct a search – like the searches that helped to identify the computers of Playpen members – it is generally required to make an application to the court where the property to be searched is located.  But when a child abuser has successfully anonymized their identity and location online, investigators do not know where the abuser’s computer is located.  So in those cases, the Rules do not clearly identify which court the investigators should bring their warrant application to.  And in several of the cases resulting from the Playpen investigation, federal courts have thrown out evidence because the agents – who didn’t know where the suspects were located when they started their investigation – could not guess the right court.  In other cases, the courts have declined to throw out evidence because the law was not clear, but have suggested that they would do so in any future cases.

This outcome would be merely nonsensical if the consequences were not so serious.  Despite being prepared to comply fully with the Fourth Amendment’s warrant requirements, including persuading a federal judge that a lawful basis for a warrant exists, investigators are being told that, because criminals have successfully used technology to hide their location, there is no court available to hear their warrant application.  Unless that nonsensical outcome is addressed, cases such as Playpen fail, meaning that pedophiles – including hands-on abusers – will be free to continue their crimes.

We believe technology should not create a lawless zone merely because a procedural rule has not kept up with the times.  That is why, for almost three years, the Justice Department has followed the process set by Congress to fill this gap in the Rules by making clear which courts are available to consider whether a particular warrant application comports with the Fourth Amendment.  The amendments do not create any new law enforcement authority, or make any change to what constitutes a crime or what must be shown to a court in order to investigate crime.  Nor do they change in any way the traditional protections under the Fourth Amendment, such as the requirement that investigators establish probable cause before each search.  They simply do what the Rules were always intended to do: identify a judge who can consider whether to grant or deny a warrant application.

In good news for victims of child sexual exploitation and their families, and for all of those victimized by the crimes facilitated by online anonymizing technology, the United States Supreme Court recently approved the proposed amendments.  After three years of review by expert committees and public comment, the rule is scheduled to go into effect on Dec. 1, 2016.  That date won’t immediately change life for the many victims of child sexual exploitation or other crimes.  Successfully investigating these crimes requires resources, perseverance, technology and often luck.  But the proposed amendment will eliminate one obstacle that currently grants effective immunity to many serious criminals.

November 22, 2016 | Permalink | Comments (0)

Monday, November 21, 2016

Russia Companies Must Collect Ultimate Beneficial Owners Info as of 2017

Clifford Chance analyzes Federal Law dated 23 June 2016 #215-FZ amended Russian AML legislation with effect from 21 December 2016. From that date, legal entities will be obliged to FATF logocollect and maintain information on their ultimate beneficial owners (UBOs). No grandfathering or transitional provisions are contemplated.  Read teh analysis here:  Download Russian_UBOs_Briefing_Note_ENG_6034056

November 21, 2016 | Permalink | Comments (0)

Sunday, November 20, 2016

Baker McKenzie reports on New French U.S.-Style Anti-Corruption System To Combat Bribery and Corruption

After considerable debate, France adopted its new Law on Transparency, the Fight against Corruption and Modernization of Economic Life, on November 8, 2016 (the “Law”). This Law FATF logorepresents a reaction to international pressure brought to bear against the French government for its perceived laissez-faireenforcement towards corruption, and a response to severe sanctions imposed by the U.S. Department of Justice (“DOJ”) on French companies in recent years. The French Minister of Finance, Michel Sapin (after whom the Law has been nicknamed the “Sapin II” Law), has indicated that the adoption of the Law will bring France’s anti-corruption regime up to the highest European and international standards in its fight against corruption.

Read the Baker McKenzie analysis here .

November 20, 2016 | Permalink | Comments (0)

Saturday, November 19, 2016

FTC Wins Summary Judgment against Pitchman of Deceptive Green Coffee Weight-Loss Ads; $30 Million Judgment Entered

At the request of the Federal Trade Commission, a U.S. district court judge issued a summary decision and $30 million judgment against the pitchman behind a product called Pure 1024px-US-FederalTradeCommission-Seal.svgGreen Coffee, who deceived consumers using false weight-loss claims, bogus testimonials, and fake news websites.

The U.S. District Court for the Middle District of Florida, Tampa Division, ruled that Nicholas Scott Congleton deceptively marketed Pure Green Coffee for weight loss through NPB Advertising, Inc. and a web of other companies under his control. The court order permanently bars him from the deceptive advertising practices challenged by the Commission.

In addition, the court ordered another man, Dylan Loher, to turn over $549,000 in partial satisfaction of the judgment. The FTC charged Loher as a relief defendant, meaning that he did not directly participate in the scheme, but indirectly profited from it.

“As this case shows, the FTC is willing to go the distance make sure that defendants like these are held accountable,” said Bureau of Consumer Protection Director Jessica Rich. “We’re pleased that the court has put an end to Congleton’s deceptive scheme.”

The FTC first filed a complaint against Florida-based NPB Advertising, its principals and related companies in May 2014. According to the FTC’s amended complaint, the defendants used deceptive marketing to capitalize on the green coffee bean diet fad, which gained notoriety on “The Dr. Oz Show,” a syndicated television program. The scheme used mastheads of fictitious news outlets, as well as logos from actual news organizations, to trick consumers. Most of the defendants settled the FTC’s charges in November 2015.

The FTC is a member of the National Prevention Council, which provides coordination and leadership at the federal level regarding prevention, wellness, and health promotion practices. This case advances the National Prevention Council’s goal of increasing the number of Americans who are healthy at every stage of life. This case is part of the FTC’s ongoing efforts to protect consumers from misleading health advertising.

November 19, 2016 | Permalink | Comments (0)

Friday, November 18, 2016

Interlinked system of beneficial ownership registers coming soon

The European Commission expects to have in place by next year an interconnected, pan-European system of beneficial ownership registers, as part of the fight against money laundering and tax evasion, the European Commissioner, Věra Jourová, tells MEPs of the Inquiry committee into the Panama Papers scandal.

Ms Jourová, Commissioner for Justice, Consumers and Gender equality, said the linked registers would promote cooperation between member states in the battle against money EU Parliamentlaundering, tax evasion and terrorism financing.  “We foresee having the registers, and soon, I hope next year, they should be interconnected throughout Europe.”

During the hour and half exchange with MEPs, Jourová faced questions about the effectiveness of the Commission’s measures, and particularly against the role of intermediaries.  One MEPs pointed to the example of Nordea bank which in 2015 was fined ‎just €5miilion -- compared to €5 billion in pre-tax profits --  for “major deficiencies” in their anti-money laundering compliance checks.

Jourová maintained that the sanctions -- which could amount to at least 5 million euro or at least 10 percent of annual turnover -- were “robust and strong” and had a deterrent effect.      

High-risk third countries

Under the Commission’s proposals, European banks would also have to carry out additional checks (“due diligence measures”) on financial flows originating from countries with deficiencies in their anti-money laundering and countering terrorist financing regimes.  But Jourová acknowledged that while EU legislation might be effective within Europe, its effectiveness was blunter outside.  “Viz-a-viz high-risk third countries, we are in a weak position and can only exert influence,” she said. 

Many of the European Commission’s proposals against money laundering, tax evasion and terrorist financing are contained in the 4th Anti-Money Laundering Directive (AMLD) which needs to be transposed into respective national laws by June next year.  She insisted that member states had an obligation to implement EU legislation. 

The Commissioner told MEPs that 22 member states had already been reprimanded for ”non-communication” of the 3rd AMLD,  6 of which were referred to the European Court of Justice for non-transposition.  She added that “effective enforcement of existing legislation is as important as the framework.”

Whistleblowers protection

The EU Commissioner said that the recent revelations contained in the “Panama Papers” which was triggered by an anonymous source, highlighted the need for stronger protection for whistle-- blowers.  Under EU law, whistle-blowers are protected in sectorial legislation, for example on market abuse. Jourová said the Commission was currently deciding whether to provide more protection through additional sectorial measures, or whether to adopt a horizontal approach. 

November 18, 2016 in Tax Compliance | Permalink | Comments (0)

Wednesday, November 16, 2016

"Freedom Law School" Member Sentenced To Thirty-Three Months’ Imprisonment For Tax Evasion

Used Warehouse Bank, Prepaid Debit Cards, Cashier’s Checks, and Postal Money Orders to Conceal Income and Assets From IRS

 Oakland – A resident of Point Richmond, Calif. was sentenced late yesterday to serve 33 months in prison for tax evasion, announced U.S. Attorney Brian J. Stretch, Principal Deputy Irs_logoAssistant Attorney General Caroline D. Ciraolo, head of the Justice Department’s Tax Division, and Special Agent in Charge of Internal Revenue Service-Criminal Investigation (IRS-CI) Michael T. Batdorf.

In June, Richard Thomas Grant, 63, was found guilty of three counts of tax evasion following a jury trial in Oakland, California. 

According to evidence presented at trial, in 2001, Grant stopped filing individual income tax returns and paying income taxes despite the fact that he received significant income as a partner with Grant Engineering & Manufacturing, an engineering company in Richmond.  In 2003, Grant stopped filing annual partnership returns for Grant Engineering, even though he continued to pay a CPA to prepare these returns.  That same year, Grant became a member of Freedom Law School, and paid thousands of dollars in yearly membership fees.  While the IRS attempted to collect unpaid taxes owed by Grant for 2001 and 2002, and attempted to examine Grant’s taxes for subsequent years, Grant, with the assistance of Freedom Law School, attempted to frustrate the IRS’s actions by, among other things, filing multiple law suits in various jurisdictions.  These lawsuits were unsuccessful. 

For the charged years 2005 through 2009, Grant’s partnership income was $509,339, $566,741, $486,062, $598,977, and $604,706, respectively.

In an effort to conceal his assets and income, in 2005, Grant significantly curbed the use of his checking accounts and began depositing his partnership distributions at a warehouse bank known as MyICIS in Berryville, Arkansas.  Warehouse banks can be used to conceal ownership of funds in part by commingling such funds with those of other individuals.  Between April 2005 and October 2006, Grant wrote hundreds of checks drawn on the MyICIS account and funded multiple prepaid debit cards.  Grant used the checks and debit cards to pay his mortgage and other personal expenses.

After the federal government shut down MyICIS, Grant used another bank to convert his partnership distributions to cashier’s checks and cash in order to avoid depositing the funds into a bank account and used the cashier’s checks to pay his mortgage and other high-dollar personal expenses.  He also used cash to purchase dozens of U.S. Postal money orders to pay other bills and expenses, including utilities, taxes, and expenses related to his classic aircraft.  

“Mr. Grant spent years trying to devise and implement ways to avoid paying his taxes,” said U.S. Attorney Stretch.  “In the end, his violations of the law equated to three years in jail and substantial monetary penalties.  Similar results await those who cheat on their taxes.”

“This was not a case about someone who simply fell behind in a good faith effort to keep up with their taxes, rather someone who earned millions of dollars and paid no taxes,” said Special Agent in Charge Michael T. Batdorf. “Mr. Grant moved his funds out of the traditional banking system which enabled him conceal ownership and hide his income.  Today’s sentencing sends a message that those who intentionally undermine our tax system will not go undetected and will be held accountable.”

In addition to the term of prison imposed, Grant was also ordered to serve three years of supervised release, as well as pay restitution to the IRS in the amount of $402,457.39, costs of prosecution of $4,400.90, and a fine of $7,500.  Grant was ordered to appear to begin serving his sentence on January 9, 2016,

November 16, 2016 in Tax Compliance | Permalink | Comments (0)

Tuesday, November 15, 2016

Consultation on Disincentives for advisors and intermediaries for potentially aggressive tax planning schemes

This consultation aims to gather views on whether there is a need for EU action aimed at introducing more effective disincentives for intermediaries engaged in operations that facilitate EU Commissiontax evasion and tax avoidance and in case there is, how it should be designed. Link to submit here.

This consultation wants to gather views in particular on the following:
•Need for EU action.
•The different options identified, in case EU action is appropriate.
•The key design features of a possible disclosure regime.

The results of the public consultation will be duly published, together with the responses provided.

This consultation might be complemented by further targeted consultations with Member States, experts, professional associations, think tanks and others.

November 15, 2016 in Tax Compliance | Permalink | Comments (0)

Latin American Workshop on Law & Economics (2016) in Bogota Nov 17 & 18

2016 host:  Universidad de Los Andes, Bogota, Colombia PosterLAWLE

Sponsor: World Bank

The Latin American Workshop on Law and Economics is an academic annual meeting created in 2014 by a group of Law and Economics professors from Latin American universities ― Pontificia Universidad Católica de Chile, Instituto Tecnológico Autónomo de México, ITAM, Universidad de Los Andes, Colombia, and Universidade de Brasília, Brasil.

The main purpose of this event is to encourage academic research on Law and Economics across Latin America, by discussing a wide array of topics regarding these two disciplines.

The event will take place on Thursday, November the 17th, and Friday, November the 18th, at the campus of Universidad de Los Andes, Bogotá, Colombia.

Program here

November 15, 2016 in Academia | Permalink | Comments (0)

Monday, November 14, 2016

Hewlett-Packard Defrauded in the Acquisition of Autonomy for $11 Billion?

A federal grand jury indicted former CEO of Autonomy Sushovan Hussain, 52, a citizen and resident of the United Kingdom, with conspiracy to commit wire fraud and multiple counts of wire fraud.  According to the indictment filed last Nov. 10, Hussain allegedly engaged in a scheme to defraud purchasers and sellers of securities of Autonomy Corporation plc (Autonomy) and Hewlett-Packard Company about the true performance of Autonomy’s business, its financial condition and its prospects for growth. 

According to the indictment, Hussain, was the former Chief Financial Officer (CFO) of Autonomy, a company incorporated in the United Kingdom.  Autonomy maintained dual SECheadquarters in San Francisco and Cambridge.  In 2010, about 68 percent of Autonomy’s reported revenues came from the United States and other countries in the Americas.

The case involves the acquisition by Palo Alto-based Hewlett-Packard Company and Hewlett-Packard Vision B.V., a wholly-owned subsidiary of HP (collectively HP), of Autonomy.  On Aug. 18, 2011, HP entered into an offer agreement with Autonomy and publicly announced its offer to acquire Autonomy for approximately $11 billion.  On Oct. 3, 2011, HP’s acquisition of Autonomy closed and HP acquired control of Autonomy.

According to the indictment, between 2009 and 2011, Hussain artificially inflated Autonomy’s revenues by backdating written agreements to record revenue in prior periods; recorded revenue on contracts that were subject to side letters or other contingencies that impacted revenue recognition; improperly recorded revenue for reciprocal or roundtrip transactions; and made false and misleading statements to Autonomy’s independent auditor about transactions allegedly supporting the recognition of revenue and other items in Autonomy’s financial statements.  In so doing, Hussain allegedly issued materially false and misleading quarterly and annual financial statements on behalf of Autonomy.  The indictment further alleges that defendant and others provided these financial statements to HP during the time that HP was considering whether to purchase Autonomy.

In addition, the indictment alleges that Hussain caused Autonomy to make materially false and misleading statements directly to HP regarding Autonomy’s financial condition, performance and business during the negotiations between HP and Autonomy leading up to the Aug. 18, 2011, acquisition announcement.  Allegedly, Hussain made false and misleading statements about the nature of Autonomy’s products, concealed Autonomy’s non-appliance hardware sales and made other false and misleading statements during HP’s “due diligence” of Autonomy.  In sum, the indictment charges Hussain with one count of conspiracy to commit wire fraud and 14 counts of wire fraud.    

No federal court appearance has yet been scheduled for the defendant. 

November 14, 2016 | Permalink | Comments (0)

Saturday, November 12, 2016

OECD releases many Exchange of Tax Information Country Peer-Reviewed Assessments

The following OECD publications are hot off the press!:

More information
Global Forum on Transparency and Exchange of Information for Tax Purposes
Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Dominican Republic 2016
Phase 2: Implementation of the Standard in Practice
This report contains the 2014 “Phase 2: Implementation of the Standards in Practice” Global Forum review of Dominican Republic.
 
More information
Global Forum on Transparency and Exchange of Information for Tax Purposes
Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Marshall Islands 2016
Phase 2: Implementation of the Standard in Practice
This report contains the 2014 “Phase 2: Implementation of the Standards in Practice” Global Forum review of Marshall Islands.
 
More information
Global Forum on Transparency and Exchange of Information for Tax Purposes
Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Peru 2016
Phase 1: Legal and Regulatory Framework
This publication reviews the quality of Peru's legal and regulatory framework for the exchange of information for tax purposes.
 
More information
Global Forum on Transparency and Exchange of Information for Tax Purposes
Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Bulgaria 2016
Combined: Phase 1 + Phase 2, incorporating Phase 2 ratings
This report contains the revised Phase 1 + Phase 2 reviews for Bulgaria, now including ratings.
 
More information
Global Forum on Transparency and Exchange of Information for Tax Purposes
Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Azerbaijan 2016
Phase 2: Implementation of the Standard in Practice
This report contains the 2014 “Phase 2: Implementation of the Standards in Practice” Global Forum review of Azerbaijan.
 
More information
Global Forum on Transparency and Exchange of Information for Tax Purposes
Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Brunei Darussalam 2016
Phase 2: Implementation of the Standard in Practice
This report contains the 2014 “Phase 2: Implementation of the Standards in Practice” Global Forum review of Brunei Darussalam.
 
More information
Global Forum on Transparency and Exchange of Information for Tax Purposes
Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Burkina Faso 2016
Phase 2: Implementation of the Standard in Practice
This report contains the 2014 “Phase 2: Implementation of the Standards in Practice” Global Forum review of Burkina Faso.
 
More information
Global Forum on Transparency and Exchange of Information for Tax Purposes
Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Dominica 2016
Phase 2: Implementation of the Standard in Practice
This report contains the 2014 “Phase 2: Implementation of the Standards in Practice” Global Forum review of Dominica.
 
More information
Global Forum on Transparency and Exchange of Information for Tax Purposes
Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Lesotho 2016
Phase 2: Implementation of the Standard in Practice
This report contains the 2014 “Phase 2: Implementation of the Standards in Practice” Global Forum review of Lesotho.
 
More information
Global Forum on Transparency and Exchange of Information for Tax Purposes
Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Morocco 2016
Phase 2: Implementation of the Standard in Practice
This report contains the 2014 “Phase 2: Implementation of the Standards in Practice” Global Forum review of Morocco.
 
More information
Global Forum on Transparency and Exchange of Information for Tax Purposes
Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Panama 2016
Phase 2: Implementation of the Standard in Practice
This report contains the 2014 “Phase 2: Implementation of the Standards in Practice” Global Forum review of Panama.
 
More information
Global Forum on Transparency and Exchange of Information for Tax Purposes
Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Romania 2016
Phase 2: Implementation of the Standard in Practice
This report contains the 2014 “Phase 2: Implementation of the Standards in Practice” Global Forum review of Romania.
 
More information
Global Forum on Transparency and Exchange of Information for Tax Purposes
Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Uganda 2016
Phase 2: Implementation of the Standard in Practice
This report contains the 2014 “Phase 2: Implementation of the Standards in Practice” Global Forum review of Uganda.

November 12, 2016 in GATCA, OECD | Permalink | Comments (0)

Friday, November 11, 2016

OECD releases schedule for Action 14 MAP peer reviews and invites taxpayer input

The OECD released the key documents that will form the basis of the Mutual Agreement Procedure (MAP) peer review and OECDmonitoring process under Action 14 of the BEPS Action Plan. In accordance with the Assessment Methodology, the reviews will be conducted in batches, with the first batch commencing in December 2016.

The first schedule of reviews is now available. This schedule also identifies the developing countries for which the review has been deferred. The schedule will be updated periodically to include the remaining Inclusive Framework members.

In preparation for the first batch of reviews and in recognition that taxpayers are the main users of the MAP, the FTA MAP Forum invites taxpayers to provide input on specific areas relating to access to MAP, clarity and availability of MAP guidance and the timely implementation of MAP agreements in relation to the first batch of reviews, which comprises the reviews of Belgium, Canada, the Netherlands, Switzerland, the United Kingdom and the United States.

Taxpayers should submit their inputs using this questionnaire for each of the jurisdictions named above. The completed questionnaire should be sent in Word format to fta.map@oecd.org at the latest by 28 November 2016.

For more information on the BEPS Action 14 peer review and monitoring process, see: www.oecd.org/tax/beps/beps-action-14-peer-review-and-monitoring.htm

November 11, 2016 in BEPS, OECD | Permalink | Comments (0)

Thursday, November 10, 2016

Update on DOJ's Tax Cases by Deputy Assistant Attorney General Caroline D. Ciraolo to the ABA Annual Tax Conference

The Tax Division currently employs 370 attorneys and approximately 130 administrative and executive staff.  This represents substantial progress from the end of fiscal year 2014, when the division was down to about 300 attorneys due to sequestration, the government shut down, and a hiring freeze.  A fully-funded and staffed Tax Division ensures efficient and effective tax enforcement, and we hope that Congress will soon provide funding for the remainder of the 2017 fiscal year.

During the last two years, our civil trial attorneys were successful in more than 95 percent of the cases they litigated to a Treasury-Dept.-Seal-of-the-IRSdecision.  During this time, we collected more than $1.6 billion and saved the U.S. Treasury an additional $1.3 billion by successfully defending against tax refund suits.  As of Aug. 30, the division was defending tax refund cases worth approximately $10 billion to the federal Treasury.

With over 6,000 civil cases pending each year in various stages of litigation, we covered the landscape of tax enforcement.  We sued to collect assessed tax, penalties and interest, assisted the Internal Revenue Service (IRS) through pursuit of summons enforcement proceedings and defended the IRS in challenges to regulations, refund litigation and matters involving the Freedom of Information Act.  We pursued penalties and obtained injunctions against fraudulent tax return preparers, promoters of abusive tax schemes and employers who fail to comply with their employment tax obligations.  When these defendants violated the injunctions, civil trial attorneys pursued contempt proceedings seeking disgorgement and incarceration.

At any given time, our civil appellate attorneys are handling approximately 650 appeals involving everything from collection due process proceedings to refund litigation over the economic substance of tax shelters and related penalty assessments.

Tax Division prosecutors authorized, investigated and prosecuted traditional tax crimes, such as tax evasion, false returns, obstructing and impeding the due administration of the internal revenue laws, employment tax violations and the concealment of assets and income offshore, as well as aggravated identity theft and fraudulent return preparation.  Since 2014, our division prosecutors obtained more than 200 indictments, negotiated more than 100 guilty pleas and achieved a conviction rate in more than 30 trials of over 95 percent.  This does not include the additional criminal tax prosecutions authorized by the Tax Division and assigned to the U.S. Attorneys’ Offices.

We briefed and argued criminal tax appeals, served as a resource to the IRS and our department colleagues on criminal tax matters and provided technical expertise related to international issues, tax information agreements and treaties.

As many of you know, over the past two years, the Tax Division increased its focus in several areas and I am pleased to report that we continue to make substantial progress in these areas.

Among our top priorities is civil and criminal employment tax enforcement.  Employment tax violations represent $91 billion dollars of our country’s $458 billion gross tax gap, and as of June 30, more than $59 billion reported on quarterly employment tax returns remained unpaid.  

In the last two years, in an effort to send a clear message to delinquent employers who treat taxes withheld from employee wages as a personal slush fund or loan that can be put off or ignored entirely, we filed 55 injunction complaints in federal courts across the country and, to date, courts have issued 47 permanent injunctions. These injunctions require the timely deposit of employment tax and filing of employment tax returns, prompt notice to the IRS after each deposit and notice to the IRS if the employer begins operating a new business.  In addition, the injunctions preclude employers from assigning property or making payments to other creditors until the company’s employment tax obligations are paid.

We are also prioritizing criminal investigations and prosecutions of willful employment tax violations.  For example, in September, the former owner of a trucking company in Kansas was sentenced to three years in prison for evading the payment of more than $900,000 in employment taxes and for filing a false statement with the IRS concealing his ownership interest in assets when the IRS began collection efforts.

On the offshore front, we completed 78 non-prosecution agreements with 80 Swiss banks that admitted assisting in the concealment of U.S. related accounts and facilitating the evasion of U.S. tax, and that completed the requirements of Category 2 of the Swiss Bank Program.  We collected more than $1.3 billion in penalties and received substantial, detailed information regarding U.S. related accounts, U.S. accountholders and foreign and domestic individuals and entities that assisted the U.S. accountholders to evade U.S. tax and reporting requirements.

In addition, since 2008, the department, working with our colleagues in IRS Criminal Investigation (IRS-CI), charged more than 160 U.S. accountholders with tax evasion and willful failure to report foreign accounts and more than 50 individuals who assisted in this criminal conduct. We also reached resolutions with nine foreign financial institutions outside of the Swiss Bank Program and continue to pursue investigations of entities located within and outside Switzerland.

Our criminal offshore enforcement efforts have encouraged participation in the IRS offshore voluntary disclosure programs, through which more than 55,000 taxpayers have come into compliance and paid nearly $10 billion in tax, interest and penalties since 2009.  In addition, filing of Reports of Foreign Bank and Financial Accounts (FBARs) has increased from 332,000 reports for calendar year 2007, to over a million reports for 2015.

Our civil trial attorneys also furthered our offshore tax enforcement efforts, seeking the issuance of John Doe summonses to identify U.S. taxpayers whose identities are unknown and who are engaged in violations of the internal revenue laws and initiating summons enforcement proceedings to assist the IRS in conducting its examinations and determining the accurate tax due. The information we seek is often located in the United States; however, as we recently demonstrated in a district court in Miami, we will pursue enforcement of a Bank of Nova Scotia summons when a domestic entity has dominion or control over records located outside the United States, even where the domestic entity asserts that production may be a violation of foreign law, if our interest in combatting tax evasion substantially outweighs the interest in foreign jurisdictions in allowing banks to preserve the privacy of their customers.

Our civil trial attorneys also are actively engaged in suits involving penalties assessed for failing to file FBARs. These suits include affirmative litigation to collect unpaid penalties, and defensive litigation raising a variety of issues.  We have approximately three dozen cases involving FBAR issues pending, the vast majority of which include a willfulness penalty for at least one of the years at issue.  These suits have raised issues related to the computation of the penalty, burden of proof, service of process abroad, definition of a foreign account, corresponding assessments on spouses, venue, jurisdiction, and challenges under the Administrative Procedures Act.

We also enhanced our efforts to protect the public and the U.S. Treasury from fraudulent tax return preparers.  In the last two fiscal years, we filed more than 90 suits all over the country to enjoin these preparers and courts have issued nearly 80 injunctions that prohibit the defendants from owning or operating tax return preparation businesses and require them to turn over customer lists to the IRS and share copies of the injunction order with their employees.

When preparers failed to comply with injunctions, we pursued contempt proceedings.  In Tennessee, we successfully moved to hold two former tax return preparers in contempt after they violated an injunction by opening a successor tax-return preparation company in the same location.  The court ordered the new company to shut down and disgorge all fees collected, and later jailed one preparer for failure to comply.

We also sought injunctions against promoters of fraudulent schemes to evade taxes and hide assets.  While advertising asset protection arrangements, novel charitable contributions, or tax avoidance plans, these promoters are in fact assisting taxpayers to fraudulently assign income, conceal ownership of income-producing assets and file tax returns with fraudulently inflated charitable donation deductions to evade paying their taxes.

In September, a federal court in Montana permanently barred an attorney and his two companies from promoting an abusive scheme that promised generous tax savings to clients who donated unwanted timeshares to a tax-exempt entity organized and operated by the promoter.  Clients received grossly inflated appraisals that they used to support excessive charitable donation deductions.  The court required that the promoter notify all customers and employees of the injunction and that a copy of the order be posted on the promoter’s website.

Tax Division attorneys also continue to challenge tax shelters designed to generate large tax benefits using multiple entities and complex financial institutions that, in the government’s view, lack a real business purpose or any real economic substance.  These cases often involve well-disguised transactions and tax-indifferent parties located in other countries, making case development and document discovery difficult and expensive.  Because tax shelters typically involve enormous sums of money and often attract significant media attention, a coordinated and effective effort is essential to prevent substantial losses to the Treasury and we remain committed to deterring future use of such shelters by other taxpayers.  

As you can see, it has been a very busy and productive time at the Tax Division and we have worked closely with the tax practitioner community on a variety of matters.  As we approach the close of 2016, what does the future hold for tax enforcement?   Let me take a moment to share my forecast of what I think you will see in 2017.

First, the Tax Division is now well into the legacy phase of the Swiss Bank Program, reviewing the substantial data provided by the banks and obtained from other sources.  We are working closely with our colleagues in the IRS and using information gathered in pending investigations and to identify new individuals, entities and areas of interest for both civil tax enforcement and criminal tax investigations and prosecutions.  We are following the money outside Switzerland and into jurisdictions around the world and investigating activities by asset management companies, corporate service providers, financial advisers, insurance companies and other financial entities.  As a result of our enforcement efforts, entities are contacting us to acknowledge their role in facilitating U.S. tax evasion, disclose the individuals engaged in this conduct, and cooperate with the department in an effort to address and resolve criminal exposure.

In addition, the IRS recently announced that 48,000 taxpayers have made use of separate streamlined procedures to correct prior non-willful omissions and paid approximately $450 million in taxes, interest and penalties.  While we certainly encourage taxpayers to come into compliance, Tax Division prosecutors are reviewing certain streamlined filings and will investigate and prosecute taxpayers who willfully submit false statements in an effort to obstruct and impede the IRS and evade the payment of tax due.

When requested by the IRS, the Tax Division will ask courts to authorize John Doe summonses, pursue summons enforcement proceedings, and when appropriate, will seek to enforce Bank of Nova Scotia summonses and issue and enforce Bank of Nova Scotia subpoenas to obtain information located outside the United States.

In conducting civil and criminal investigations, the Tax Division will also continue to seek and review information pursuant to our bilateral and multilateral international treaties and agreements, respond to requests from treaty partners, and work closely with foreign counterparts to promote financial transparency and combat global tax evasion.

In addition, the Tax Division is working closely with IRS-CI to prioritize traditional legal source tax prosecutions.  Our voluntary tax system only works when the honest taxpayer has faith in the process and believes that those who break the law will be held accountable.  When a local business owner, the neighborhood doctor or dentist, the mechanic down the street, or an investment banker is prosecuted for skimming from their business, using nominee accounts and shell companies to conceal assets and evade tax, filing false returns, conspiring to defraud the IRS, or obstructing the due administration of the internal revenue laws, there is an immediate and substantial impact among the defendant’s family, friends and neighbors, in the local and regional community and throughout the applicable industry.  These high-impact cases send a clear message that no one is above the law and that those who engage in this criminal conduct will pay a heavy price, including incarceration, fines, restitution and collateral consequences.

In corporate civil and criminal investigations, you will continue to see an emphasis on individual accountability.  Corporate crimes damage not only a company, but its employees and shareholders.  Prosecution of a corporation is not a substitute for the prosecution of criminally culpable individuals and imposition of individual criminal liability may provide the strongest deterrence against future corporate wrongdoing.

To comply with this requirement, an entity must conduct a fulsome internal investigation and provide all non-privileged evidence to the United States.  Failure to come forward and identify individual actors will render an entity ineligible for cooperation credit.

Tax Division prosecutors will continue to seek to resolve cases with individuals before or at the same time that we resolve a matter with the related entity.  After a corporate resolution is reached, the entity must continue to provide relevant information about individuals implicated in the wrongdoing.  If simultaneous individual and corporate resolutions are not feasible based on the particular facts and circumstances of a case, the department looks for a clear plan that addresses individual accountability prior to the entity resolution.  We recognize that holding individuals accountable may not be feasible or appropriate in every case, but these efforts will force entities to view serious misconduct as a substantial risk to the company and a threat to the liberty of those involved, rather than simply a cost of doing business.

A good example of corporate cooperation is the resolution reached with Bank Julius Baer, which signed a deferred prosecution agreement in February, admitting that it conspired with and assisted U.S. accountholders to hide offshore accounts and evade U.S. taxes.  Julius Baer paid $547 million, including restitution for tax loss arising from the undeclared U.S. related accounts, disgorgement of gross fees paid with respect to these accounts and a fine for its illegal conduct.  In addition, two Julius Baer bankers, both of whom had been fugitives since 2011, pleaded guilty to their role in the conspiracy.  Julius Baer’s early, extensive and continuing cooperation resulted in a substantial reduction in the monetary penalties imposed.

Finally, we are encouraging individuals with information regarding material violations of the internal revenue laws to submit that information to the IRS Whistleblower Office.  When those individuals have specific, credible and substantiated information of material domestic or international criminal tax violations, we encourage them, through counsel, to share that information and a copy of their Form 211 with the Tax Division.  We are interested in claims involving criminal tax violations and filed pursuant to subsection (b) of the IRS whistleblower statute, in which the amount in dispute exceeds $2 million.

Please note that we are not announcing the opening of a Tax Division whistleblower office.  The IRS operates the whistleblower program pursuant to its statutory authority.  However, if a whistleblower is truly interested in bringing attention to illegal conduct and schemes that undermine our nation’s tax system, the Tax Division welcomes and is prepared to receive such information.

November 10, 2016 | Permalink | Comments (0)