Tuesday, January 31, 2017
A Canadian citizen and permanent resident of Costa Rica was sentenced today to 48 months in prison for his role in an international money laundering conspiracy in connection with international “pump and dump” securities fraud scheme.
Acting Assistant Attorney General Kenneth A. Blanco of the Justice Department’s Criminal Division, U.S. Attorney Dana J. Boente of the Eastern District of Virginia and Special Agent in Charge Timothy Slater of the FBI’s Washington Field Office Criminal Division made the announcement.
Michael J. Randles, 49, was sentenced by U.S. District Judge Anthony J. Trenga of the Eastern District of Virginia. In October 2016, Randles pleaded guilty to one count of money laundering conspiracy.
According to admissions made in connection with his plea agreement, Randles controlled and operated an offshore brokerage and money laundering platform located in San Jose, Costa Rica, that went by various names, including Moneyline Brokers, Sandias Azucaradas, and Trinity Asset Services (collectively Moneyline) with his co-conspirator Harold Bailey Gallison II. Randles admitted that the purpose of Moneyline was to trade securities, primarily microcap or “penny stocks,” through U.S. and offshore accounts. While managing Moneyline’s Costa Rica office, Randles exercised authority over banking and financial transactions; operated Moneyline’s unregistered securities business in Europe; and opened U.S. and offshore brokerage and bank accounts, including in Europe and elsewhere, that were used to facilitate the conspiracy. Randles admitted that Moneyline often did business under the names of various shell companies to conceal both the true source and ownership of the securities and the flow of the funds.
Further, in connection with his plea, Randles admitted that Moneyline laundered approximately $1 million in proceeds from the pump and dump of the Colorado-based company Bryn Resources Inc. While Bryn Resources purported to be engaged in the mining and exploration of precious metals in Canada, in reality, Bryn was a shell company with no or nominal operations or assets. During the promotion of Bryn Resources, over 3.5 million shares of the company were liquidated through Moneyline accounts, generating the proceeds that were laundered through Moneyline accounts in the United States and overseas.
Three of Randles’s co-conspirators, Gallison, Ann Marie Hiskey and Roger G. Coleman, previously pleaded guilty in the case. Gallison was sentenced to serve 216 months in prison; Hiskey and Coleman were each sentenced to two years’ probation.
Monday, January 30, 2017
Treasury Extends Relief to (Law) Students for "Defense to Repayment” or “Closed School” discharge process
Revenue Procedure 2017-24 provides relief from discharge of indebtedness income for taxpayers whose Federal student loans, taken out to attend a school owned by the American Career Institutes, Inc., are discharged by the Department of Education under the "Closed School" or "Defense to Repayment" discharge process. The revenue procedure also provides that the IRS will not assert that the entity discharging these loans has an information reporting requirement. This revenue procedure modifies Rev. Proc. 2015-57, 2015-51 I.R.B. 863, to provide similar reporting relief for creditors under that revenue procedure.
Revenue Procedure 2017-24 will be IRB 2017-07, dated 2/13/17.
Saturday, January 28, 2017
FDIC Consumer News Answers Common Questions on How to Avoid Financial Mistakes and Protect Your Money
Each year, thousands of consumers contact the FDIC with questions about financial services and products such as mortgages, checking accounts and credit cards. The Winter 2017 FDIC Consumer News focuses on common concerns we hear from consumers and offers tips for solving and avoiding problems. Some topics include:
- What to do if a credit card bill shows a charge you did not make;
- Where to go for help if you can't access funds on your prepaid card;
- How to handle an email that appears to be from your bank and that asks for personal information; and
- Understanding your options if you're turned down for a checking account.
Consumers also frequently contact the FDIC to determine whether their deposit accounts are fully insured. The latest FDIC Consumer News provides an overview of "EDIE," the FDIC's simple online tool for estimating deposit insurance coverage. Users can input dollar amounts they have on deposit in a bank or hypothetical amounts they may want to deposit. If the results show there may be uninsured funds, EDIE will show the amount and the category that is over the FDIC insurance limit. EDIE is available at www.fdic.gov/edie.
Also included in the latest issue of FDIC Consumer News is information for bank customers about recent guidance issued by the FDIC and other federal regulators related to deposit account errors.
The Winter 2017 FDIC Consumer News can be read or printed at www.fdic.gov/consumers/
Friday, January 27, 2017
Rolls-Royce plc Agrees to Pay $170 Million Criminal Penalty to Resolve Foreign Corrupt Practices Act Case
Company Agrees to $800 Million Global Resolution with authorities in the United States, the United Kingdom and Brazil
Rolls-Royce plc, the United Kingdom-based manufacturer and distributor of power systems for the aerospace, defense, marine and energy sectors, has agreed to pay the U.S. nearly $170 million as part of an $800 million global resolution to investigations by the department, U.K. and Brazilian authorities into a long-running scheme to bribe government officials in exchange for government contracts.
U.S. Attorney Benjamin C. Glassman of the Southern District of Ohio, Chief Andrew Weissmann of the Fraud Section of the Justice Department’s Criminal Division, Assistant Director Stephen Richardson of the FBI’s Criminal Investigative Division, Assistant Director in Charge Paul M. Abbate of the FBI’s Washington Field Office and Inspector in Charge Regina Faulkerson of the U.S. Postal Inspection Service’s Criminal Investigations Group made the announcement.
“Bribery of government officials undermines the integrity of a free and fair market,” said U.S. Attorney Glassman. “This multinational resolution imposes significant criminal penalties on Rolls-Royce for its multinational corruption.”
“For more than a decade, Rolls-Royce repeatedly resorted to bribes to secure contracts and get a competitive edge in countries throughout the world,” said Chief Weissmann. “The global nature of this crime requires a global response, and this case is yet another example of the strong relationship between the United States and U.K. Serious Fraud Office and Brazilian Ministério Público Federal, and the collective efforts to ensure that ethical companies can compete on an even playing field anywhere in the world.”
“Rolls-Royce knowingly acted outside the law by conspiring to bribe foreign officials to gain an unfair advantage,” said Assistant Director Richardson. “No company is above the law. This resolution will stand as a warning to big and small companies all across the world that the FBI will not tolerate the foreign corruption that threatens our fair and competitive markets.”
“This successful parallel investigation is a tremendous example of the central importance of working cooperatively alongside our international partners to achieve a fair and meaningful resolution,” said Assistant Director in Charge Abbate. “This outcome is a reflection of the immense reach and capabilities of the FBI’s Washington Field Office international corruption squad and the global impact of the anti-corruption program.”
According to admissions made in court papers unsealed today, Rolls-Royce admitted that between 2000 and 2013, the company conspired to violate the Foreign Corrupt Practices Act (FCPA) by paying more than $35 million in bribes through third parties to foreign officials in various countries in exchange for those officials’ assistance in providing confidential information and awarding contracts to Rolls-Royce, RRESI and affiliated entities (collectively, Rolls-Royce):
- In Thailand, Rolls-Royce admitted to using intermediaries to pay approximately $11 million in bribes to officials at Thai state-owned and state-controlled oil and gas companies that awarded approximately seven contracts to Rolls-Royce during the same time period.
- In Brazil, Rolls-Royce used intermediaries to pay approximately $9.3 million in bribes to bribe foreign officials at a state-owned petroleum corporation that awarded multiple contracts to Rolls-Royce during the same time period.
- In Kazakhstan, between approximately 2009 and 2012, Rolls-Royce paid commissions of approximately $5.4 million to multiple advisors, knowing that at least a portion of the commission payments would be used to bribe foreign officials with influence over a joint venture owned and controlled by the Kazakh and Chinese governments that was developing a gas pipeline between the countries. In 2012, the company also hired a local Kazakh distributor, knowing it was beneficially owned by a high-ranking Kazakh government official with decision-making authority over Rolls-Royce’s ability to continue operating in the Kazakh market. During this time, the state-owned joint venture awarded multiple contracts to Rolls-Royce.
- In Azerbaijan, between approximately 2000 and 2009, Rolls-Royce used intermediaries to pay approximately $7.8 million in bribes to foreign officials at the state-owned and state-controlled oil company, which awarded multiple contracts to Rolls-Royce during the same time period.
- In Angola, between approximately 2008 and 2012, Rolls-Royce used an intermediary to pay approximately $2.4 million in bribes to officials at a state-owned and state-controlled oil company, which awarded three contracts to Rolls-Royce during this time period.
- In Iraq, from approximately 2006 to 2009, Rolls-Royce supplied turbines to a state-owned and state-controlled oil company. Certain Iraqi foreign officials expressed concerns about the turbines and subsequently threatened to blacklist Rolls-Royce from doing future business in Iraq. In response, Rolls-Royce’s intermediary paid bribes to Iraqi officials to persuade them to accept the turbines and not blacklist the company.
Rolls-Royce entered into a deferred prosecution agreement (DPA) in connection with a criminal information, filed on Dec. 20, 2016, in the Southern District of Ohio and unsealed today, charging the company with conspiring to violate the anti-bribery provisions of the FCPA. Pursuant to the DPA, Rolls-Royce agreed to pay a criminal penalty of $195,496,880, subject to a credit discussed below. The company has also agreed to continue to cooperate fully with the department’s ongoing investigation, including its investigation of individuals.
In related proceedings, Rolls-Royce also settled with the United Kingdom’s Serious Fraud Office (SFO) and the Brazilian Ministério Público Federal (MPF). As part of its resolution with the SFO, Rolls-Royce entered into a DPA and admitted to paying additional bribes or failing to prevent bribery payments in connection with Rolls-Royce’s business operations in China, India, Indonesia, Malaysia, Nigeria, Russia and Thailand between in or around 1989 and in or around 2013, and Rolls-Royce agreed to pay a total fine of £497,252,645 ($604,808,392). As part of its leniency agreement with the MPF, Rolls-Royce also agreed to pay a penalty of approximately $25,579,170 for the company’s role in a conspiracy to bribe foreign officials in Brazil between 2005 and 2008. Because the conduct underlying the MPF resolution overlaps with the conduct underlying part of the department’s resolution, the department credited the $25,579,170 that Rolls-Royce agreed to pay in Brazil against the total fine in the United States. Therefore, the total amount to be paid to the United States is $169,917,710, and the total amount of penalties that Rolls-Royce has agreed to pay is more than $800 million.
A number of factors contributed to the department’s criminal resolution with the company, including that Rolls-Royce did not disclose the criminal conduct to the department until after the media began reporting allegations of corruption and after the SFO had initiated an inquiry into the allegations and that the conduct was extensive and spanned 12 countries. However, the company did cooperate with the department’s investigation. Rolls-Royce has also taken significant remedial measures, including terminating business relationships with multiple employees and third-party intermediaries who were implicated in the corrupt scheme; enhancing compliance procedures to review and approve intermediaries; and implementing new and enhanced internal controls to address and mitigate corruption and compliance risks. Thus, the criminal penalty reflects a 25-percent reduction from the bottom of the U.S. Sentencing Guidelines fine range. In addition, the department considered the parallel resolutions reached by the SFO and MPF in determining the resolution.
The U.S. Postal Inspection Service and the FBI’s International Corruption Squad in Washington, D.C., investigated the case. Trial Attorneys Ephraim Wernick, Kevin Gingras and Dennis Kihm of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Michael J. Marous and Jessica Kim of the Southern District of Ohio are prosecuting the case.
The Criminal Division’s Office of International Affairs provided significant assistance in this matter. The SFO and the MPF provided significant cooperation and assistance in this matter, as did law enforcement colleagues in Austria, Germany, the Netherlands, Singapore and Turkey.
The Fraud Section is responsible for investigating and prosecuting all FCPA matters. Additional information about the Justice Department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.
Thursday, January 26, 2017
Capturing Technological Innovation in Legal Services report by Law Society - Will Your Firm Survive?
Unprecedented technological change offers solicitors exciting opportunities to innovate in ways that benefit clients, technological innovators and the legal profession.
Capturing Technological Innovation in Legal Services offers insights from those on the front line of technological change and reveals a legal sector that is increasingly engaging with advanced automation. It also introduces the possibility of combining machine learning and artificial intelligence (AI) with the skills held by the profession to engage with complex legal concepts.
There are obstacles to innovation in the legal sector: while three-quarters of firms surveyed agreed that innovation is critical to exploiting opportunities and standing our from the crowd, more than half said they were likely to wait for others to pioneer new technologies.
However, there are still a large number of innovators in the legal sector who are eager to promote a revolution in the way legal services are delivered. The legal sector is brimming with innovators looking for the next opportunity, or going out and creating that next opportunity for themselves.
The report details the products, processes and strategies we use where technology and new ways of thinking and working are making big changes. From Bitcoin, machine learning and 'lawyers on demand', we see solicitors taking advantage of new opportunities to reshape the legal services sector.
Download the report Download Capturing-technological-innovation-report
The Platform for Collaboration on Tax invites comments on a draft toolkit designed to help developing countries address the lack of comparables for transfer pricing analyses
Responding to a request by the Development Working Group of the G20, the Platform for Collaboration on Tax – a joint initiative of the IMF, OECD, UN and World Bank Group – has developed a draft toolkit designed to assist developing countries in an important area of international tax policy: transfer pricing. The Platform is now seeking public feedback on that toolkit, which specifically addresses the ways developing countries can overcome a lack of data on "comparables," or the market prices for goods and services transferred between members of multinational corporations.
The toolkit is part of a series of reports by the Platform that are designed to help countries that may have limitations in their capacity to design or administer strong tax systems. Previous reports have included discussions of tax incentives and external support for building tax capacity in developing countries. Helping developing countries build strong and credible transfer pricing regimes is an important part of the Platform's effort to increase the capacity of developing countries to apply the principles of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project, an initiative that assists countries in protecting their tax bases from aggressive or inappropriate tax planning by multinational corporations.
Transfer pricing – the value assigned to transactions between subsidiaries of multinational corporations – is an increasingly critical issue in a globalised world. This draft toolkit (A Toolkit for Addressing Difficulties in Accessing Comparables Data for Transfer Pricing Analyses) examines how tax administrations can evaluate the correctness of the transfer prices set by multinationals when there is insufficient information available to governments on market-based transactions that are comparable to those reported by the multinational corporation ("comparables"). The toolkit offers advice on making the best use of data that exists and options for monitoring the behaviour of multinational corporations in situations in which no data is available.
The discussion draft first seeks to put the search for potential comparables in context, emphasising the importance of accurately defining the transaction to ensure the subsequent search for comparables is as efficient and effective as possible. Next, sources of potential comparables data are considered, and practical tools such as step-by-step screening templates are suggested. To address situations where there is a systemic lack of comparables data, the draft considers potential policy options such as the development of safe harbours. The toolkit will also be available in French and Spanish.
In addition, since the pricing of transactions in the extractive industries is an issue of particular relevance to many low-income countries, the draft toolkit also addresses the information gaps on prices of minerals sold in an intermediate form. The supplementary material on minerals pricing (Addressing the Information Gaps on Prices of Minerals Sold in an Intermediate Form) provides a systematic process that could be used by tax administrations to map the transformation chain for a particular mineral, identify key traded products and establish common industry pricing practices. Detailed case studies demonstrating the process are then provided for copper, gold, thermal coal and iron ore. The supplementary material is also available in French (Combler le manque d’informations sur les prix des minéraux vendus sous une forme intermédiaire) and will shortly be available in Spanish.
The Platform partners now seek comments by 21 February from interested stakeholders on the draft toolkit, including the supplementary material on minerals pricing, with the aim of finalising it in the coming months.
Questions to consider
- Does this toolkit effectively help address the challenges identified by developing countries in finding the data needed to carry out a transfer pricing analysis as part of a tax audit?
- How can better use of administrative information, in a way that maintains taxpayer confidentiality, be effectively facilitated at a country and regional level?
- How could the reliability of potential comparables from other geographic markets be tested?
- Are there best practices or other reliable approaches for dealing with a lack of comparables not addressed in the discussion draft?
- What other adjustments for geographic market differences could be made, and in what circumstances? How could the reliability of such adjustments be empirically tested?
- Do the mineral pricing case studies accurately reflect market trading terms? Are there other adjustments that would be routinely made when these mineral products are sold?
Please do not restrict yourself to these questions; any other views you have on the addressing the lack of comparables for transfer pricing analyses and on information gaps on prices of minerals sold in an intermediate form would be welcome.
Comments and input on the draft will be taken into consideration in finalising the toolkit. Comments should be sent by e-mail no later than 21 February 2017 to GlobalTaxPlatform@worldbank.org, a common comment box for all the Platform organisations.
Lexis’ Practical Guide to U.S. Transfer Pricing is updated annually to help multinationals cope with the U.S. transfer pricing rules and procedures, taking into account the international norms established by the Organisation for Economic Co-operation and Development (OECD). It is also designed for use by tax administrators, both those belonging to the U.S. Internal Revenue Service and those belonging to the tax administrations of other countries, and tax professionals in and out of government, corporate executives, and their non-tax advisors, both American and foreign. Fifty co-authors contribute subject matter expertise on technical issues faced by tax and risk management counsel. Free download of chapter 2 here
Uber Agrees to Pay $20 Million to Settle FTC Charges That it Recruited Prospective Drivers with Exaggerated Earnings Claims
Uber Technologies, the San Francisco-based ride-hailing company, has agreed to pay $20 million to resolve Federal Trade Commission charges that it misled prospective drivers with exaggerated earning claims and claims about financing through its Vehicle Solutions Program. The $20 million will be used to provide refunds to affected drivers across the country.
“Many consumers sign up to drive for Uber, but they shouldn’t be taken for a ride about their earnings potential or the cost of financing a car through Uber,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “This settlement will put millions of dollars back in Uber drivers’ pockets.”
According to the FTC’s complaint, in its efforts to attract prospective drivers, Uber exaggerated the yearly and hourly income drivers could make in certain cities, and misled prospective drivers about the terms of its vehicle financing options.
The FTC alleges that Uber claimed on its website that uberX drivers’ annual median income was more than $90,000 in New York and over $74,000 in San Francisco. The FTC alleges, however, that drivers’ annual median income was actually $61,000 in New York and $53,000 in San Francisco. In all, less than 10 percent of all drivers in those cities earned the yearly income Uber touted. The FTC also alleges that Uber made high hourly earnings claims in job listings, including on Craigslist, but that the typical Uber driver failed to earn those advertised hourly amounts in various cities.
The complaint also alleges that Uber claimed its Vehicle Solutions Program would provide drivers with the “best financing options available,” regardless of the driver’s credit history, and told consumers they could “own a car for as little as $20/day” ($140/week) or lease a car with “payments as low as $17 per day” ($119/week), and “starting at $119/week.” Despite Uber’s claims, from at least late 2013 through April 2015, the median weekly purchase and lease payments exceeded $160 and $200, respectively, the FTC alleges. Uber failed to control or monitor the terms and conditions of the auto financing agreements through its program and in fact, its drivers received worse rates on average than consumers with similar credit scores typically would obtain, according to the FTC’s complaint. In addition, Uber claimed its drivers could receive leases with unlimited mileage through its program when in fact, the leases came with mileage limits, the FTC alleges.
In addition to imposing a $20 million judgment against Uber, the stipulated order prohibits the company from misrepresenting drivers’ earnings and auto finance and lease terms. The order also bars Uber from making false, misleading, or unsubstantiated representations about drivers’ income; programs offering or advertising vehicles or vehicle financing or leasing; and the terms and conditions of any vehicle financing or leasing.
The Commission vote authorizing the staff to file the complaint and proposed stipulated order was 2-1. Commissioner Maureen K. Ohlhausen dissented and issued a statement. The documents were filed in the U.S. District Court for the Northern District of California.
Wednesday, January 25, 2017
Las Vegas Sands Corporation Agrees to Pay Nearly $7 Million Penalty to Resolve FCPA Charges Related to China and Macao
Las Vegas Sands Corp. (Sands), a Nevada-based gaming and resort company, agreed to pay a $6.96 million criminal penalty to resolve the government’s investigation into violations of the Foreign Corrupt Practices Act (FCPA) in connection with business transactions in the People’s Republic of China (PRC) and Macao.
Acting Assistant Attorney General David Bitkower of the Justice Department’s Criminal Division and Special Agent in Charge Aaron C. Rouse of the FBI’s Las Vegas, Nevada, Field Office made the announcement.
According to admissions by Sands made in connection with the resolution, certain Sands executives knowingly and willfully failed to implement a system of internal accounting controls to adequately ensure the legitimacy of payments to a business consultant who assisted Sands in promoting its brand in Macao and the PRC, and to prevent the false recording of those payments in its books and records. Sands continued to make payments to the consultant despite warnings from its finance staff and an outside auditor that the business consultant had failed to account for portions of these funds. In addition, Sands terminated the finance department employee who raised concerns about the payments.
In total, from 2006 through 2009, Sands paid approximately $5.8 million to the business consultant without any discernable legitimate business purpose, it admitted.
Sands entered into a non-prosecution agreement and has agreed to continue to cooperate with the department in any ongoing investigations and prosecutions relating to the conduct described in the agreement, including of individuals, to enhance its compliance program, and to report to the department on the implementation of its enhanced compliance program.
Pursuant to the non-prosecution agreement, Sands will pay a $6.96 million criminal penalty, which reflects a 25-percent reduction off the bottom of the applicable U.S. Sentencing Guidelines fine range. The department reached this resolution based on a number of factors, including the nature and seriousness of the internal controls violations, and the fact that Sands fully cooperated in the investigation and fully remediated. Sands’ cooperation included conducting a thorough internal investigation and voluntarily collecting, analyzing and organizing voluminous evidence and information for the government in response to requests, including translating key documents.
Sands no longer employs or is affiliated with any of the individuals implicated in the conduct described in the agreement, and it engaged in extensive remedial measures, including revamping and expanding its compliance and audit functions and programs and making significant personnel changes, such as the retention of new leaders of its legal, compliance, internal audit and financial gatekeeper functions.
In related proceedings, on April 7, 2016, the U.S. Securities and Exchange Commission (SEC) filed a cease and desist order against Sands, whereby Sands agreed to pay a civil penalty of approximately $9 million.
The FBI’s Las Vegas field office investigated the case, and the case was prosecuted by Trial Attorney David M. Fuhr of the Criminal Division’s Fraud Section. The department appreciates the cooperation and assistance provided by the SEC, the U.S. Attorney’s Office for the District of Nevada and the Criminal Division’s Office of International Affairs in this matter.
The Fraud Section is responsible for investigating and prosecuting all FCPA matters. Additional information about the Justice Department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.
Tuesday, January 24, 2017
Failed to Report Swiss and Israeli Accounts Held for Over a Decade
Dan Farhad Kalili, 55, a resident of Irvine, California, together with his brother, David Ramin Kalili, 52, and his brother-in-law, David Shahrokh Azarian, 67, residents of Newport Coast, California, admitted that they willfully failed to file Reports of Foreign Bank and Financial Accounts (FBARs) with the Internal Revenue Service (IRS) regarding secret bank accounts in Switzerland and in Israel that each respectively maintained and controlled, many for well over a decade. These secret accounts held assets that reached into the millions of dollars.
“The days of being able to safely hide income and assets offshore and evade U.S. tax have come to an end,” said Principal Deputy Assistant Attorney General Ciraolo. “The United States and foreign jurisdictions are sharing information and working together to ensure that citizens around the world are paying their fair share. The guilty pleas entered today are yet another example of what awaits U.S. taxpayers who continue to flout the law.”
“David and Dan Kalili and David Azarian disregarded their legal responsibility to file the required report of foreign bank accounts and report all their income and interest,” said Chief Richard Weber of IRS Criminal Investigation. “Regardless of where the money is hidden around the world, IRS-CI will follow the sophisticated financial transactions and ensure everyone is held accountable for the taxes they are required to pay.”
According to the documents filed with the court, and statements made in connection with the defendants’ guilty pleas:
Beginning in May 1996, and continuing through at least 2009, Dan Kalili opened and maintained several undeclared offshore bank accounts at Credit Suisse Group (Credit Suisse) in Switzerland. He also opened and maintained several undeclared offshore bank accounts from at least 1998 through 2008 at UBS AG (UBS) in Switzerland. Similarly, David Kalili opened and maintained several undeclared accounts at Credit Suisse in Switzerland, from February 1999 through at least 2009, and at UBS in Switzerland, from October 1993 through at least 2008. Dan and David Kalili also maintained joint undeclared Swiss bank accounts at both UBS and Credit Suisse beginning in 2003 and 2004, respectively. Meanwhile, Azarian opened and maintained several of his own undeclared accounts at Credit Suisse in Switzerland from May 1994 through at least 2009, and at UBS in Switzerland from April 1997 through at least 2008.
In July 2006, Dan Kalili, with the assistance of Beda Singenberger (Singenberger), a Swiss citizen who owned and operated a financial advisory firm called Sinco Truehand AG, opened an undeclared account at UBS in the name of the Colsa Foundation, an entity established under the laws of Liechtenstein. Singenberger was indicted in the Southern District of New York on July 21, 2011, for conspiring to defraud the United States, evade U.S. income taxes, and file false U.S. tax returns. Singenberger remains a fugitive. As of May 2008, the Colsa Foundation account at UBS held approximately $4,927,500 in assets.
Each of the defendants took affirmative steps to prevent their assets in UBS and Credit Suisse from being discovered. Dan Kalili opened an undeclared account at Swiss Bank A in the name of the Colsa Foundation and in May 2008, transferred his assets from the UBS Colsa Foundation account to Swiss Bank A. He later made partial disclosure of the Swiss Bank A Colsa account on his individual income tax returns. In 2009, Dan Kalili opened undeclared accounts at Israeli Bank A and at Bank Leumi, both in Israel. In June 2009, he closed the joint undeclared account at Credit Suisse he held with David Kalili, as well as his own undeclared account, and transferred the funds. Shortly before its closure, the undeclared joint account of Dan and David Kalili at Credit Suisse held approximately $2,561,508 in assets. As of December 2009, Dan Kalili’s undeclared account at Israeli Bank A held assets valued at approximately $1,569,973, and his undeclared account at Bank Leumi held assets valued at approximately $2,497,931.
Similarly, in August 2008, David Kalili opened an undeclared account at Israeli Bank A in Israel, into which he transferred funds from his UBS accounts. He later partially declared the Israeli Bank A account on his individual income tax returns. As of August 2009, David Kalili’s undeclared account at Israeli Bank A held assets valued at approximately $1,369,489.
In August 2008, Azarian, also opened an undeclared account at Israeli Bank A in Israel, and in May 2009, he closed his undeclared account held at Credit Suisse and transferred the funds to Israeli Bank A. Azarian later partially declared this Israeli Bank A account on his individual income tax returns. At the time of its closure, Azarian’s undeclared account at Credit Suisse held assets valued at approximately $1,903,214.
For each year from 2006 through 2009, Dan Kalili, David Kalili, and Azarian, as U.S. citizens, were required, but willfully failed, to report their ownership and control over foreign bank accounts through the timely filing of FBARs with the IRS disclosing their signatory or other authority over the various undeclared accounts held at UBS, Credit Suisse, Israeli Bank A, and Bank Leumi, each having an aggregate value of more than $10,000 during each of these years.
U.S. District Judge Andrew J. Guilford of the Central District of California scheduled sentencing for April 24. Dan Kalili, David Kalili, and Azarian each face a statutory maximum sentence of five years in prison, a period of supervised release, restitution and monetary penalties. In addition, each defendant agreed to pay a civil penalty for willfully failing to file FBARs. Dan Kalili agreed to pay a civil penalty of $2,674,329, David Kalili agreed to pay a civil penalty of $1,325,121 and Azarian agreed to pay a civil penalty of $951,607.
Principal Deputy Assistant Attorney General Ciraolo commended special agents of IRS-CI, who conducted the investigation, and Assistant Chief Jorge Almonte and Trial Attorney Jason M. Scheff of the Tax Division, who are prosecuting the case. Principal Deputy Assistant Attorney General Ciraolo also thanked the U.S. Attorney’s Office for the Central District of California for its substantial assistance.
Monday, January 23, 2017
President Trump's inaugural speech and its impact on religious and racial minorities (Prof. Sahar Aziz's BBC interview)
Western Union Admits Anti-Money Laundering Violations and Settles Consumer Fraud Charges, Forfeits $586 Million in Settlement with FTC and Justice Department
The Western Union Company (Western Union), a global money services business headquartered in Englewood, Colorado, has agreed to forfeit $586 million and enter into agreements with the Federal Trade Commission, the Justice Department, and the U.S. Attorneys’ Offices of the Middle District of Pennsylvania, the Central District of California, the Eastern District of Pennsylvania and the Southern District of Florida. In its agreement with the Justice Department, Western Union admits to criminal violations including willfully failing to maintain an effective anti-money laundering program and aiding and abetting wire fraud.
FTC Chairwoman Edith Ramirez; Acting Assistant Attorney General David Bitkower of the Justice Department’s Criminal Division; U.S. Attorney Bruce D. Brandler of the Middle District of Pennsylvania; U.S. Attorney Eileen M. Decker of the Central District of California; Acting U.S. Attorney Louis D. Lappen of the Eastern District of Pennsylvania; U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida; Inspector in Charge David W. Bosch of the U.S. Postal Inspection Service (USPIS) Philadelphia Division; Special Agent in Charge Deirdre Fike of the FBI’s Los Angeles Field Office; Chief Richard Weber of Internal Revenue Service-Criminal Investigation (IRS-CI); Special Agent in Charge Marlon V. Miller of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI) Philadelphia; and Special Agent in Charge Stephen Carroll of the Office of Inspector General for the Board of Governors of the Federal Reserve System and the Consumer Financial Protection Bureau (FRB-CFPB OIG) Eastern Region made the announcement.
“Western Union owes a responsibility to American consumers to guard against fraud, but instead the company looked the other way, and its system facilitated scammers and rip-offs,” said FTC Chairwoman Edith Ramirez. “The agreements we are announcing today will ensure Western Union changes the way it conducts its business and provides more than a half billion dollars for refunds to consumers who were harmed by the company’s unlawful behavior.”
“As this case shows, wiring money can be the fastest way to send it – directly into the pockets of criminals and scam artists,” said Acting Assistant Attorney General Bitkower. “Western Union is now paying the price for placing profits ahead of its own customers. Together with our colleagues, the Criminal Division will both hold to account those who facilitate fraud and abuse of vulnerable populations, and also work to recoup losses and compensate victims.”
“The U.S. Attorney’s Office for the Middle District of Pennsylvania has a long history of prosecuting corrupt Western Union Agents,” said U.S. Attorney Brandler. “Since 2001 our office, in conjunction with the U.S. Postal Inspection Service, has charged and convicted 26 Western Union Agents in the United States and Canada who conspired with international fraudsters to defraud tens of thousands of U.S. residents via various forms of mass marketing schemes. I am gratified that the deferred prosecution agreement reached today with Western Union ensures that $586 million will be available to compensate the many victims of these frauds.”
“Our investigation uncovered hundreds of millions of dollars being sent to China in structured transactions designed to avoid the reporting requirements of the Bank Secrecy Act, and much of the money was sent to China by illegal immigrants to pay their human smugglers,” said U.S. Attorney Decker. “In a case being prosecuted by my office, a Western Union agent has pleaded guilty to federal charges of structuring transactions – illegal conduct the company knew about for at least five years. Western Union documents indicate that its employees fought to keep this agent – as well as several other high-volume independent agents in New York City – working for Western Union because of the high volume of their activity. This action today will ensure that Western Union effectively controls its agents and prevents the use of its money transfer system for illegal purposes.”
“Western Union’s failure to comply with anti-money laundering laws provided fraudsters and other criminals with a means to transfer criminal proceeds and victimize innocent people,” said Acting U.S. Attorney Lappen. “Western Union has agreed to forfeit $586 million, the largest forfeiture ever imposed on a money services business, and has agreed to take specific steps to ensure that it complies with the law in the future. This office will continue to vigorously enforce the anti-money laundering laws and regulations, which are necessary to prevent those engaged in fraud, terrorism, human trafficking, drug dealing and other crimes from using companies like Western Union to further their illegal activity.”
“Western Union, the largest money service business in the world, has admitted to a flawed corporate culture that failed to provide a checks and balances approach to combat criminal practices,” said U.S. Attorney Ferrer. “Western Union’s failure to implement proper controls and discipline agents that violated compliances policies enabled the proliferation of illegal gambling, money laundering and fraud-related schemes. Western Union’s conduct resulted in the processing of hundreds of millions of dollars in prohibited transactions. Today’s historic agreement, involving the largest financial forfeiture by a money service business, makes it clear that all corporations and their agents will be held accountable for conduct that circumvents compliance programs designed to prevent criminal conduct.”
“The U.S. Postal Inspection Service has been at the forefront of protecting consumers from fraud schemes for many years,” said Inspector in Charge Bosch. “When private businesses participate in the actions that Western Union was involved in, it makes it easier for criminals to victimize innocent citizens. Our commitment to bringing these criminals to justice will not waiver, and we look forward to facilitating compensation to victims.”
“Los Angeles-defendant Wang’s company was considered to be among the largest Western Union agents in the United States as over $310 million was sent to China in a span of five years, half of which was illegally structured and transmitted using false identification,” said Assistant Director in Charge Fike. “Rather than ensuring their high volume agents were operating above-board, Western Union rewarded them without regard to the blatant lack of compliance and illegal practices taking place. This settlement should go a long way in thwarting the proceeds of illicit transactions being sent to China to fund human smuggling or drug trafficking, as well as to interrupt the ease with which scam artists flout U.S. banking regulations in schemes devised to defraud vulnerable Americans.”
“As a major player in the money transmittal business, Western Union had an obligation to its customers to ensure they offered honest services, which include upholding the Bank Secrecy Act, as well as other U.S. laws,” said Chief Weber. “Western Union’s blatant disregard of their anti-money laundering compliance responsibilities was criminal and significant. IRS-CI special agents – working with their investigative agency partners – uncovered the massive financial fraud and is proud to be part of this historic criminal resolution.”
“Today’s announcement of this significant settlement highlights the positive result of HSI’s collaboration with our partner agencies to hold Western Union accountable for their failure to comply with Bank Secrecy laws that preserve the integrity of the financial system of the United States,” said Special Agent in Charge Miller. “As a result of this settlement, Western Union now answers for these violations. I thank the Federal Reserve Board’s Office of the Inspector General for their partnership in this investigation.”
Western Union agreed to settle charges by the FTC in a complaint filed today in the U.S. District Court for the Middle District of Pennsylvania, alleging that the company’s conduct violated the FTC Act. The complaint charges that for many years, fraudsters around the world have used Western Union’s money transfer system even though the company has long been aware of the problem, and that some Western Union agents have been complicit in fraud. The FTC’s complaint alleges that Western Union declined to put in place effective anti-fraud policies and procedures and has failed to act promptly against problem agents. Western Union has identified many of the problem agents but has profited from their actions by not promptly suspending and terminating them.
In resolving the FTC charges, Western Union agreed to a monetary judgment of $586 million and to implement and maintain a comprehensive anti-fraud program with training for its agents and their front line associates, monitoring to detect and prevent fraud-induced money transfers, due diligence on all new and renewing company agents, and suspension or termination of noncompliant agents.
The FTC order prohibits Western Union from transmitting a money transfer that it knows or reasonably should know is fraud-induced, and requires it to:
- block money transfers sent to any person who is the subject of a fraud report;
- provide clear and conspicuous consumer fraud warnings on its paper and electronic money transfer forms;
- increase the availability of websites and telephone numbers that enable consumers to file fraud complaints; and
- refund a fraudulently induced money transfer if the company failed to comply with its anti-fraud procedures in connection with that transaction.
In addition, consistent with the telemarketing sales rule, Western Union must not process a money transfer that it knows or should know is payment for a telemarketing transaction. The company’s compliance with the order will be monitored for three years by an independent compliance auditor.
According to admissions contained in the deferred prosecution agreement (DPA) with the Justice Department and the accompanying statement of facts, Western Union violated U.S. laws—the Bank Secrecy Act (BSA) and anti-fraud statutes—by processing hundreds of thousands of transactions for Western Union agents and others involved in an international consumer fraud scheme.
As part of the scheme, fraudsters contacted victims in the U.S. and falsely posed as family members in need or promised prizes or job opportunities. The fraudsters directed the victims to send money through Western Union to help their relative or claim their prize. Various Western Union agents were complicit in these fraud schemes, often processing the fraud payments for the fraudsters in return for a cut of the fraud proceeds.
Western Union knew of but failed to take corrective action against Western Union agents involved in or facilitating fraud-related transactions. Beginning in at least 2004, Western Union recorded customer complaints about fraudulently induced payments in what are known as consumer fraud reports (CFRs). In 2004, Western Union’s Corporate Security Department proposed global guidelines for discipline and suspension of Western Union agents that processed a materially elevated number of fraud transactions. In these guidelines, the Corporate Security Department effectively recommended automatically suspending any agent that paid 15 CFRs within 120 days. Had Western Union implemented these proposed guidelines, it would have prevented significant fraud losses to victims and would have resulted in corrective action against more than 2,000 agents worldwide between 2004 and 2012.
Court documents also show Western Union’s BSA failures spanned eight years and involved, among other things, the acquisition of a significant agent that Western Union knew prior to the acquisition had an ineffective AML program and had contracted with other agents that were facilitating significant levels of consumer fraud. Despite this knowledge, Western Union moved forward with the acquisition and did not remedy the AML failures or terminate the high-fraud agents.
Similarly, Western Union failed to terminate or discipline agents who repeatedly violated the BSA and Western Union policy through their structuring activity in the Central District of California and the Eastern District of Pennsylvania. The BSA requires financial institutions, including money services businesses such as Western Union, to file currency transaction reports (CTRs) for transactions in currency greater than $10,000 in a single day. To evade the filing of a CTR and identification requirements, criminals will often structure their currency transactions so that no single transaction exceeds the $10,000 threshold. Financial institutions are required to report suspected structuring where the aggregate number of transactions by or on behalf of any person exceeds more than $10,000 during one business day. Western Union knew that certain of its U.S. Agents were allowing or aiding and abetting structuring by their customers. Rather than taking corrective action to eliminate structuring at and by its agents, Western Union, among other things, allowed agents to continue sending transactions through Western Union’s system and paid agents bonuses. Despite repeated compliance review identifying suspicious or illegal behavior by its agents, Western Union almost never identified the suspicious activity those agents engaged in in its required reports to law enforcement
Finally, Western Union has been on notice since at least December 1997, that individuals use its money transfer system to send illegal gambling transactions from Florida to offshore sportsbooks. Western Union knew that gambling transactions presented a heightened risk of money laundering and that through at least 2012, certain procedures it implemented were not effective at limiting transactions with characteristics indicative of illegal gaming from the United States to other countries.
Western Union entered into a DPA in connection with a two-count felony criminal information filed today in the Middle District of Pennsylvania charging Western Union with willfully failing to maintain an effective AML program and aiding and abetting wire fraud. Pursuant to the DPA, Western Union has agreed to forfeit $586 million and also agreed to enhanced compliance obligations to prevent a repeat of the charged conduct, including creating policies and procedures:
- for corrective action against agents that pose an unacceptable risk of money laundering or have demonstrated systemic, willful or repeated lapses in compliance;
- that ensure that its agents around the world will adhere to U.S. regulatory and AML standards; and
- that ensure that the company will report suspicious or illegal activity by its agents or related to consumer fraud reports.
Since 2001, the department has charged and convicted 29 owners or employees of Western Union agents for their roles in fraudulent and structured transactions. The U.S. Attorney’s Office of the Middle District of Pennsylvania has charged and convicted 26 Western Union agent owners and employees for fraud-related violations; the U.S. Attorney’s Office of the Central District of California has secured a guilty plea from one Western Union agent for BSA violations, and the U.S. Attorney’s Office for the Eastern District of Pennsylvania has secured guilty pleas for BSA violations of two other individuals associated with Western Union agents for BSA violations.
USPIS’s Philadelphia Division’s Harrisburg, Pennsylvania, Office; the FBI’s Los Angeles Field Office; IRS-CI; HSI; FRB-CFPB OIG; Department of Treasury OIG; the Orange County Regional Narcotics Suppression Program Task Force; the Broward County, Florida Sherriff’s Offices; and Department of Labor investigated the case. Trial Attorney Margaret A. Moeser of the Criminal Division’s Money Laundering and Asset Recovery Section’s Bank Integrity Unit, Assistant U.S. Attorney Kim Douglas Daniel of the Middle District of Pennsylvania, Assistant U.S. Attorney Gregory W. Staples of the Central District of California, Assistant U.S. Attorneys Judy Smith and Floyd Miller of the Eastern District of Pennsylvania and Assistant U.S. Attorney Randall D. Katz of the Southern District of Florida are prosecuting the case. Asset forfeiture attorneys in each U.S. Attorney’s Office and the Money Laundering and Asset Recovery Section provided significant assistance in this matter. The department appreciates the significant cooperation and assistance provided by the FTC in this matter.
Persons who believe they were victims of the fraud scheme should visit the Department of Justice’s victim website at https://www.justice.gov/criminal-afmls/remission for instructions on how to request compensation through the Victim Asset Recovery Program.
The Victim Compensation Program, operated by the Money Laundering and Asset Recovery Section, is composed of a team of experienced professionals, including attorneys, accountants, auditors and claims analysts. In hundreds of cases, the Victim Compensation Program has successfully used its specialized expertise to efficiently convert forfeited assets to victim recoveries.
Are Your Contact Lenses Safe? Owner Of Major Online Colored Contact Lens Business Sentenced to 46 Months in Prison in Largest-Ever Scheme to Import and Sell Counterfeit and Misbranded Contact Lenses
The owner and operator of Candy Color Lenses, a major online retailer of colored contact lenses in the United States, was sentenced to 46 months in prison today for running an international operation importing counterfeit and misbranded contact lenses from suppliers in Asia and then selling them over the internet without a prescription to tens of thousands of customers around the country.
Acting Assistant Attorney General David Bitkower of the Justice Department’s Criminal Division, U.S. Attorney Daniel G. Bogden of the District of Nevada and Director George M. Karavetsos of the U.S. Food and Drug Administration’s (FDA) Office of Criminal Investigations made the announcement.
In addition to imposing a prison sentence, U.S. District Judge James C. Mahan of the District of Nevada ordered defendant Dmitriy V. Melnik, 30, of Las Vegas, remit $200,000 in restitution and forfeit $1.2 million in proceeds derived from the scheme as well as property seized during the investigation. Melnik pleaded guilty before Judge Mahan on Sept. 8, 2016, to one count of conspiracy to traffic in counterfeit goods and to introduce into interstate commerce misbranded devices.
According to the plea agreement, Melnik imported large quantities of colored contact lenses from the People’s Republic of China and South Korea that he knew were counterfeit and/or unauthorized by the FDA for sale in the United States. Many of these contact lenses bore labels with counterfeit trademarks for Ciba Vision FreshLook COLORBLENDS, which are manufactured by Novartis International AG (Novartis), and others bore labels of contact lense brands produced and sold in Asia, he admitted.
As stipulated in the plea agreement, contact lenses—even decorative ones—are medical devices that if not fitted, worn, or cared for properly can result in serious eye injury including blindness, and must receive prior FDA authorization to enter the U.S. and be further distributed. Melnik admitted, however, that he sold purportedly “authentic” contact lenses to tens of thousands of customers around the United States without a prescription, adequate directions for use or adequate warnings. After purchasing the contact lenses, many customers complained directly to Melnik about the quality of the contact lenses and questioned Melnik about whether the contact lenses were genuine and FDA approved. Melnik admitted that many of the contact lenses that he sold were substandard, and that some were tested and found to be contaminated with a potentially dangerous bacteria.
As stated in the plea agreement, a substantial part of the fraudulent scheme was committed from outside the United States, and Melnik received at least $1.2 million in gross revenue from this illegal enterprise, including approximately $200,000 alone from the sale of counterfeit Ciba Vision FreshLook COLORBLENDS.
Anyone with information about individuals committing intellectual property offenses can report those crimes to the National Intellectual Property Rights Coordination Center by going to http://www.iprcenter.gov/referral or calling (866) IPR-2060.
The prosecution is the result of an ongoing multiagency effort to combat counterfeit, illegally imported and unapproved contact lenses called Operation Double Vision. The FDA’s Office of Criminal Investigations led the investigation, with significant support from the U.S. Postal Inspection Service and the U.S. Immigration and Customs Enforcement’s Homeland Security Investigations. Senior Counsel Matthew A. Lamberti of the Criminal Division’s Computer Crime and Intellectual Property Section and Assistant U.S. Attorney Daniel J. Cowhig of the District of Nevada are prosecuting the case.
The indictment is related to the many efforts being undertaken by the department’s Task Force on Intellectual Property, which supports prosecution priorities, promotes innovation through heightened civil enforcement, enhances coordination among federal, state and local law enforcement partners and focuses on international enforcement efforts, including reinforcing relationships with key foreign partners and U.S. industry leaders.
Sunday, January 22, 2017
Federal Trade Commission and Department of Justice Announce Updated International Antitrust Guidelines
The Federal Trade Commission and Department of Justice today issued revised Antitrust Guidelines for International Enforcement and Cooperation. These guidelines update the 1995 Antitrust Enforcement Guidelines for International Operations and provide guidance to businesses engaged in international activities on questions that concern the agencies’ international enforcement policy, as well as the agencies’ related investigative tools and cooperation with foreign authorities.
The revised guidelines reflect the growing importance of antitrust enforcement in a globalized economy and the agencies’ commitment to cooperating with foreign authorities on both policy and investigative matters.
“The agencies’ enforcement of the U.S. antitrust laws now frequently involves activity outside the United States, increasingly requiring collaboration with international counterparts,” said FTC Chairwoman Edith Ramirez. “The Guidelines we are issuing today explain to the business and antitrust communities our current approaches to international enforcement policy and related investigative tools, and cooperation. They are the product of the excellent working relationship between our two agencies,” she added.
“Anticompetitive conduct that crosses borders can adversely affect our commerce with foreign nations. The Department’s antitrust enforcement is focused on ending that conduct in order to protect consumers and businesses in the United States,” said Acting Assistant Attorney General Renata Hesse, in charge of the Department of Justice’s Antitrust Division.
“The Antitrust Guidelines for International Enforcement and Cooperation released today provide important, up to date guidance to businesses engaged in international operations on our enforcement policies and priorities; the changes we have made to the international guidelines, last issued in 1995, reflect developments in the department’s practices and in the law over the last 22 years. Developed jointly with the FTC, the Guidelines are another powerful example of the benefits of collaboration between our agencies,” she said.
The revisions describe the current practices and methods of analysis the agencies employ when determining whether to initiate and how to conduct investigations of -- or enforcement actions against, conduct with an international dimension. The Antitrust Guidelines for International Enforcement and Cooperation are different from the 1995 guidelines in several important ways. In particular, they:
- Add a chapter on international cooperation, which addresses the Agencies’ investigative tools, confidentiality safeguards, the legal basis for cooperation, types of information exchanged and waivers of confidentiality, remedies and special considerations in criminal investigations;
- Update the discussion of the application of U.S. antitrust law to conduct involving foreign commerce, the Foreign Trade Antitrust Improvements Act, foreign sovereign immunity, foreign sovereign compulsion, the act of state doctrine and petitioning of sovereigns, in light of developments in both the law and the Agencies’ practice; and
- Provide revised illustrative examples of the types of issues most commonly encountered.
The agencies issued proposed revisions for public comment on November 1, 2016, and received comments from practitioners, academics, economists, and other stakeholders. Public comments can be found at https://www.justice.gov/atr/
The Antitrust Guidelines for International Enforcement and Cooperation are available on the Department’s website at https://www.justice.gov/atr/
The FTC vote approving the 2017 Antitrust Guidelines for International Enforcement and Cooperation was 3-0.
Saturday, January 21, 2017
A congressional staffer was sentenced to prison today for willfully failing to file an individual income tax return, announced Principal Deputy Assistant Attorney General Caroline D. Ciraolo, head of the Justice Department’s Tax Division, and U.S. Attorney Dana J. Boente for the Eastern District of Virginia.
According to documents filed with the court, Issac Lanier Avant, a resident of Arlington, Virginia, has been employed by the U.S. House of Representatives as a Chief of Staff since 2002. In December 2006, Avant assumed the additional role of Democratic Staff Director for the House Committee on Homeland Security. Despite earning more than $165,000, Avant failed to timely file his 2009 through 2013 individual income tax returns, causing a tax loss of $153,522. Avant had no federal income withheld during those years because in May 2005, he caused a form to be filed with his employer that falsely claimed he was exempt from federal income taxes. Avant did not have any federal tax withheld from his paycheck until the Internal Revenue Service (IRS) mandated that his employer begin withholding in January 2013. Avant did not file tax returns until after he was interviewed by federal agents.
The court imposed a prison term of approximately 4 months, consisting of 30 days incarceration, followed by incarceration every weekend for 12 months. Avant was also ordered to serve a one-year term of supervised release and to pay restitution in the amount of $149,962 to the IRS.
Principal Deputy Assistant Attorney General Ciraolo and U.S. Attorney Boente thanked special agents of IRS-Criminal Investigation and the FBI, who conducted the investigation, and Assistant U.S. Attorney Jack Hanly and Assistant Chief Todd Ellinwood of the Tax Division, who are prosecuting the case.
Friday, January 20, 2017
Forbes reports that "Kroll issued its report on February 6, 2015. Based on an inspection of admissions records over six years, the researchers concluded that there had in fact been favoritism by president Powers towards well-connected Texans who wanted their children to get into UT as undergraduates or into its law and business schools."
"Watchdog’s Jon Cassidy calculated that 746 students (not 73 as Kroll had said) with grades and scores that would otherwise merit prompt rejection were admitted to keep legislators and wealthy university supporters happy."
Read the investigative story here. (Wonder if these under-qualified matriculants were reported to US News for ranking purposes?)
Thursday, January 19, 2017
Credit Suisse Agrees to Pay $5.28 Billion in Connection with its Sale of Residential Mortgage-Backed Securities
The Justice Department announced today a $5.28 billion settlement with Credit Suisse related to Credit Suisse’s conduct in the packaging, securitization, issuance, marketing and sale of residential mortgage-backed securities (RMBS) between 2005 and 2007. The resolution announced today requires Credit Suisse to pay $2.48 billion as a civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). It also requires the bank to provide $2.8 billion in other relief, including relief to underwater homeowners, distressed borrowers and affected communities, in the form of loan forgiveness and financing for affordable housing. Investors, including federally-insured financial institutions, suffered billions of dollars in losses from investing in RMBS issued and underwritten by Credit Suisse between 2005 and 2007.
“Today’s settlement underscores that the Department of Justice will hold accountable the institutions responsible for the financial crisis of 2008,” said Attorney General Loretta E. Lynch. “Credit Suisse made false and irresponsible representations about residential mortgage-backed securities, which resulted in the loss of billions of dollars of wealth and took a painful toll on the lives of ordinary Americans. Under the terms of this settlement, Credit Suisse will pay $2.48 billion as a fine for its conduct. And Credit Suisse has pledged $2.8 billion in relief to struggling homeowners, borrowers, and communities affected by the bank’s lending practices. These sums reflect the huge breach of public trust committed by financial institutions like Credit Suisse.”
“Credit Suisse claimed its mortgage backed securities were sound, but in the settlement announced today the bank concedes that it knew it was peddling investments containing loans that were likely to fail,” said Principal Deputy Associate Attorney General Bill Baer. “That behavior is unacceptable. Today's $5.3 billion resolution is another step towards holding financial institutions accountable for misleading investors and the American public.”
“Resolutions like the one announced today confirm that the financial institutions that engaged in conduct that jeopardized the nation’s fiscal security will be held accountable,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. “This is another step in the Department’s continuing effort to redress behavior that contributed to the Great Recession.”
“Credit Suisse’s mortgage misconduct hurt people, including in Colorado,” said Acting United States Attorney for the District of Colorado Bob Troyer. “Unscrupulous lenders knew they could get away with shoddy underwriting when making mortgage loans, because they knew Credit Suisse would buy those defective mortgage loans and put them into securities. When those mortgages went into foreclosure, many people got hurt: families lost their homes, communities were blighted by empty houses, and investors who had put their trust in Credit Suisse’s supposedly safe securities suffered huge losses. Our office led this investigation into Credit Suisse to protect homeowners, communities, and investors across the country, including here in Colorado. Credit Suisse is paying a hefty penalty and acknowledging its misconduct, but that is not all. Years after the Great Recession, many families still struggle to afford a home, so we also crafted an agreement to bring needed housing relief to such families, including specifically in Colorado.”
This settlement includes a statement of facts to which Credit Suisse has agreed. That statement of facts describes how Credit Suisse made false and misleading representations to prospective investors about the characteristics of the mortgage loans it securitized. (The quotes in the following paragraphs are from that agreed-upon statement of facts, unless otherwise noted.):
- Credit Suisse told investors in offering documents that the mortgage loans it securitized into RMBS “were originated generally in accordance with applicable underwriting guidelines,” except where “sufficient compensating factors were demonstrated by a prospective borrower.” It also told investors that the loans “had been originated in compliance with all federal, state, and local laws and regulations, including all predatory and abusive lending laws.”
- Credit Suisse has now acknowledged that “Credit Suisse repeatedly received information indicating that many of the loans reviewed did not conform to the representations that would be made by Credit Suisse to investors about the loans to be securitized.” It has acknowledged that in many cases, it purchased and securitized loans into its RMBS that “did not comply with applicable underwriting guidelines and lacked sufficient factors” and/or “w[ere] not originated in compliance with applicable laws and regulations.” Credit Suisse employees even referred to some loans they securitized as “bad loans,” “‘complete crap’ and ‘[u]tter complete garbage.’”
- Credit Suisse acquired some of the mortgage loans it securitized by buying, from other loan originators, “Bulk” packages containing numerous loans. For example, in December 2006, Credit Suisse purchased a “Bulk” pool of approximately 10,000 loans originated by Countrywide Home Loans. Credit Suisse selected fewer than 10 percent of these loans for due diligence review. “Reports from Credit Suisse’s due diligence vendors showed that approximately 85 percent of the loans in this sample violated Countrywide’s underwriting guidelines and/or applicable law,” but “Credit Suisse securitized over half of the loans into various RMBS it then sold to investors.” Credit Suisse did not review the remaining unsampled 90 percent of the pool to determine whether those loans had similar problems. Instead, it “securitized an additional $1.5 billion worth of unsampled—and therefore unreviewed—loans from this pool into various RMBS it then sold to investors.” A Credit Suisse manager wrote to another manager who was reviewing these loans, “Thanks for working thru this mess. If it helps, it looks like we will make a killing on this trade.”
- Credit Suisse acquired other mortgage loans for securitization through its “Conduit” channel. Through this channel, Credit Suisse bought loans from other lenders one-by-one or in small packages, and also itself extended loans to borrowers as “Wholesale” loans. Approximately 25-35 percent of the loans Credit Suisse acquired from 2005 to 2007 were acquired through its mortgage “Conduit.”
- Credit Suisse employees discussed in internal emails that for Conduit loans, the loan review and approval process was “‘virtually unmonitored.’” For loans Credit Suisse purchased through its Conduit, Credit Suisse told investors, ratings agencies and others, “‘Credit Suisse senior underwriters make final loan decisions, not contracted due diligence firms.’” Credit Suisse has now acknowledged, “For Conduit loans, these representations were false.”
- Credit Suisse has acknowledged that “[a] September 2004 audit by Credit Suisse’s audit department gave the Conduit a C rating on an A-D scale (the second worst possible rating) and a level 4 materiality score on a 1-4 scale (the highest possible score),” and that a March 2006 evaluation by Credit Suisse of one of the third-party vendors it used to review Conduit loans “similarly reported that ‘There are serious concerns as to compliance[.]’”
- Between 2005 and 2007, Credit Suisse managers made comments in emails about the quality of Conduit loans and its process for reviewing those loans. For example, a top Credit Suisse manager wrote to senior traders, “‘Of course we would like higher quality loans. That’s never been the identity of our [mortgage] conduit, and we’re becoming less and less competitive in that space.’” A senior Credit Suisse trader, discussing the “fulfillment centers” Credit Suisse used to review Conduit loans, stated in an email: ‘we make these underwriting exceptions and then we have liability down the road when the loans go bad and people point out that we violated our own guidelines. . . . The fulfillment process is a joke.’”
- For example, in one instance Credit Suisse approved, through its Conduit, a purchase of over $700 million worth of loans originated by Resource Bank. Credit Suisse senior traders “referr[ed] to Resource Bank loans as ‘complete crap’ and ‘[u]tter complete garbage.’” Despite this, “Credit Suisse provided Resource Bank with financial ‘incentives’ in exchange for loan volume [and] securitized Resource Bank loans into various RMBS it then sold to investors.”
- Credit Suisse has acknowledged that it also “received reports from vendors that it might have been acquiring and securitizing loans with inflated appraisals” and that its approach for reviewing the property values associated with the mortgage loans “could lead to the acceptance of inflated appraisals.” In August 2006, a Credit Suisse manager wrote to two senior traders, “How would investors react if we say that 20 percent of the pool have values off by 15 percent? If we are comfortable buying these loans, we should be comfortable telling investors.”
- Credit Suisse used vendors to conduct quality control on a small subset of loans it acquired. Credit Suisse has now acknowledged that its quality control review vendors reported that “more than 25 percent of the loans that they reviewed for quality control were designated ‘ineligible’ because of credit, compliance, and/or property defects.”
- Credit Suisse has now acknowledged that its “Co-Head of Transaction Management expressed concern that the quality control results could serve as a written record of defects, and sought to avoid documented confirmation of these defects.” In May 2007, a top Credit Suisse manager met with others “to discuss implementing this reduction of quality control review.” Credit Suisse’s Co-Head of Transaction Management wrote that “this change was to ‘avoid the previous approach by which a lot of loans were QC’d . . . creating a record of possible rep/ warrant breaches in deals . . . .’”
- In another example, in May 2007, a Credit Suisse employee identified two wholesale loans Credit Suisse itself had originated and wrote, “‘I would think that we would want to see loans like these that seem to represent confirmed problems, especially on our own originations. Why do we have an appraisal watch list and broker oversight group if we aren’t going to review the bad ones and take action appropriately? . . . I just see so many of these cross my desk, fraud, value, etc., it’s hard to just let them go by and not do something.’” Credit Suisse’s Co-Head of Transaction Management responded, “‘I think the idea is that we don’t want to spend a lot of $ to generate a lot of QC results that give us no recourse anyway but generate a lot of negative data, so no need to order QC on each of these loans.’” The employee then stated, “‘I think the lack of interest in bad loans is scary.’”
- As another example, in June 2007, a Credit Suisse employee identified 44 Wholesale loans Credit Suisse had itself originated that had gone 60 days delinquent. Credit Suisse’s Co-Head of Transaction Management wrote in response, “‘if we already know: that the loans aren’t performing . . . the only thing QC will tell us is that there were compliance errors, occupancy misreps etc. I think we already know we have systemic problems in FC/UW [fulfillment centers/underwriting] re both compliance and credit. The downside of QC’ing these 44 loans is, after we get the QC results, we will be obligated to repurchase a fair chunk of the loans from deals, assuming the loans are securitized and the QC results look like the QC we’ve done in the past. So based on a wholesale QC historical fail rate of over 35 percent (major rep defects), the avg bal of wholesale loans and the loss severities, it is reasonable to expect this QC may cost us a few million dollars.’” Credit Suisse has now acknowledged that it “did not inform investors or ratings agencies that its Wholesale loan channel had a ‘QC historical fail rate of over 35 percent (major rep defects).’”
- Credit Suisse commented about the mortgage loans that accumulated in its inventory. For example, Credit Suisse’s Co-Head of Transaction Management wrote to another Credit Suisse manager that “loans with potential defects ‘pile up in inventory . . . . So my theory is: we own the risk 1 way or another. . . . I am inclined to securitize loans that are close calls or marginally non-compliant, and take the risk that we’ll have to repurchase, if we can’t put them back, rather than adding to sludge in inventory. . . .’ One of the senior traders responded, ‘Agree.’” In another instance, a Credit Suisse senior trader commented in 2007 that “‘we have almost $2.5B of conduit garbage to still distribute.’” In another instance, a Credit Suisse trader wrote to a top manager, discussing another bank to which Credit Suisse was seeking to sell loans from its inventory, and stated, “‘[The other bank] again came back with an embarrassing number of diligence kicks this month. . . . If their results are in any way representative of our compliance with our reps and warrants, we have major problems.’ But rather than holding these loans in its own inventory, Credit Suisse securitized certain of these loans into its RMBS.”
Assistant U.S. Attorneys Kevin Traskos, Hetal J. Doshi, Shiwon Choe, Ian J. Kellogg, Lila M. Bateman, and J. Chris Larson of the District of Colorado investigated Credit Suisse’s conduct in connection with RMBS, with the support of the Federal Housing Finance Agency’s Office of the Inspector General (FHFA-OIG).
“Credit Suisse knowingly put investors at risk, and the losses caused by its irresponsible behavior deeply affected not only financial institutions such as the Federal Home Loan Banks, but also taxpayers, and contributed significantly to the financial crisis,” said Special Agent in Charge Catherine Huber of the Federal Housing Finance Agency-Office of Inspector General’s (FHFA-OIG) Midwest Region. “This settlement illustrates the tireless efforts put forth toward bringing a resolution to this chapter of the financial crisis. FHFA-OIG will continue to work with our law enforcement partners to hold those who have engaged in misconduct accountable for their actions.”
The $2.48 billion civil monetary penalty resolves claims under FIRREA, which authorizes the federal government to impose civil penalties against financial institutions that violate various predicate offenses, including wire and mail fraud. The settlement expressly preserves the government’s ability to bring criminal charges against Credit Suisse or any of its employees. The settlement does not release any individuals from potential criminal or civil liability. As part of the settlement, Credit Suisse has agreed to fully cooperate with any ongoing investigations related to the conduct covered by the agreement.
Credit Suisse will pay out the remaining $2.8 billion in the form of relief to aid consumers harmed by its unlawful conduct. Specifically, Credit Suisse agrees to provide loan modifications, including loan forgiveness and forbearance, to distressed and underwater homeowners throughout the country. It also agrees to provide financing for affordable rental and for-sale housing throughout the country. This agreement represents the most substantial commitment in any RMBS agreement to date to provide financing for affordable housing—a crucial need following the turmoil of the financial crisis.
The settlement is part of the ongoing efforts of President Obama’s Financial Fraud Enforcement Task Force’s RMBS Working Group, which has recovered tens of billions of dollars on behalf of American consumers and investors for claims against large financial institutions arising from misconduct related to the financial crisis. The RMBS Working Group brings together attorneys, investigators, analysts and staff from multiple state and federal agencies, including the Department of Justice, U.S. Attorneys’ Offices, the FBI, the U.S. Securities and Exchange Commission (SEC), the Department of Housing and Urban Development (HUD), HUD’s Office of Inspector General, the FHFA-OIG, SIGTARP, the Federal Reserve Board’s OIG, the Recovery Accountability and Transparency Board, the Financial Crimes Enforcement Network and multiple state Attorneys General offices around the country. The RMBS Working Group is led by Director Joshua Wilkenfeld and four co-chairs: Principal Deputy Assistant Attorney General Mizer, Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Director Andrew Ceresney of the SEC’s Division of Enforcement, and New York Attorney General Eric Schneiderman. This settlement is the latest in a series of major RMBS settlements announced by the Working Group.
Former Vice President of Publicly Traded Company Charged with Orchestrating $100 Million Securities Fraud Scheme
A former vice president of U.S. operations at a now-defunct publicly traded Canadian oil-services company was indicted with orchestrating a scheme to fraudulently inflate the company’s reported revenue by approximately $100 million.
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and Inspector in Charge Terrence P. McKeown of the U.S. Postal Inspection Service’s (USPIS) Washington, D.C., Division made the announcement.
Joseph A. Kostelecky, 55, of Dickinson, North Dakota, was charged in an indictment filed yesterday in the District of North Dakota with five counts of wire fraud and one count of securities fraud for his alleged role in the scheme. Kostelecky, who previously worked at Poseidon Concepts Corporation’s field office in Dickinson, made his initial appearance earlier today before U.S. Magistrate Judge Charles S. Miller Jr. of the District of North Dakota.
“The defendant is charged with a $100 million fraud that led to the collapse of an entire company and harm to thousands of individual investors,” said Assistant Attorney General Caldwell. “Today’s indictment again makes clear the department's commitment to protecting the investing public against those who manipulate the markets to enrich themselves.”
“Postal Inspectors will continue to aggressively protect the U.S. mail from being used by fraudsters to further their stock market manipulation schemes,” said Inspector in Charge McKeown.
The indictment alleges that between November 2011 and December 2012, Kostelecky, the sole executive in Poseidon Concepts Corporation’s U.S. division, engaged in conduct that caused the company to falsely report approximately $100 million in revenue from purported contracts with oil and natural gas companies. Kostelecky’s alleged misconduct included fraudulently directing the company’s accounting staff at the U.S. corporate headquarters in Denver to record revenue from such contracts and then assuring management that the associated revenue was collectable, when he knew that such contracts either did not exist or that the associated revenue was not collectable.
When the inflated revenue came to light at the end of 2012, the company’s stock fell precipitously, with shares losing close to $1 billion in value, and the company was forced into bankruptcy. The indictment alleges that Kostelecky perpetrated the scheme in order to inflate the value of the company’s stock price and to enrich himself through the continued receipt of compensation and appreciation of his own stock and stock options.
An indictment is merely an allegation, and a defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.
This case was investigated by the USPIS Washington, D.C. Division. Trial Attorneys Anna G. Kaminska and Henry P. Van Dyck of the Criminal Division’s Fraud Section are prosecuting the case. The Securities and Exchange Commission and the U.S. Attorney’s Office of the District of North Dakota provided assistance in this matter.
Wednesday, January 18, 2017
Deutsche Bank Agrees To Pay $7.2 Billion For Misleading Investors In Its Sale Of Residential Mortgage-Backed Securities
Deutsche Bank’s Conduct Contributed to the 2008 Financial Crisis
The Justice Department, along with federal partners, announced today a $7.2 billion settlement with Deutsche Bank resolving federal civil claims that Deutsche Bank misled investors in the packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities (RMBS) between 2006 and 2007. This $7.2 billion agreement represents the single largest RMBS resolution for the conduct of a single entity. The settlement requires Deutsche Bank to pay a $3.1 billion civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). Under the settlement, Deutsche Bank will also provide $4.1 billion in relief to underwater homeowners, distressed borrowers and affected communities.
“This resolution holds Deutsche Bank accountable for its illegal conduct and irresponsible lending practices, which caused serious and lasting damage to investors and the American public,” said Attorney General Loretta E. Lynch. “Deutsche Bank did not merely mislead investors: it contributed directly to an international financial crisis. The cost of this misconduct is significant: Deutsche Bank will pay a $3.1 billion civil penalty, and provide an additional $4.1 billion in relief to homeowners, borrowers, and communities harmed by its practices. Our settlement today makes clear that institutions like Deutsche Bank cannot evade responsibility for the great cost exacted by their conduct.”
“This $7.2 billion resolution – the largest of its kind – recognizes the immense breadth of Deutsche Bank’s unlawful scheme by demanding a painful penalty from the bank, along with billions of dollars of relief to the communities and homeowners that continue to struggle because of Wall Street’s greed,” said Principal Deputy Associate Attorney General Bill Baer. “The Department will remain relentless in holding financial institutions accountable for the harm their misconduct inflicted on investors, our economy and American consumers.”
“In the Statement of Facts accompanying this settlement, Deutsche Bank admits making false representations and omitting material information from disclosures to investors about the loans included in RMBS securities sold by the Bank. This misconduct, combined with that of the other banks we have already settled with, hurt our economy and threatened the banking system,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. “To make matters worse, the Bank’s conduct encouraged shoddy mortgage underwriting and improvident lending that caused borrowers to lose their homes because they couldn’t pay their loans. Today’s settlement shows once again that the Department will aggressively pursue misconduct that hurts the American public.”
“Investors who bought RMBS from Deutsche Bank, and who suffered catastrophic losses as a result, included individuals and institutions that form the backbone of our community,” said U.S. Attorney Robert L. Capers for the Eastern District of New York. “Deutsche Bank repeatedly assured investors that its RMBS were safe investments. Instead of ensuring that its representations to investors were accurate and transparent, so that investors could make properly informed investment decisions, Deutsche Bank repeatedly misled investors and withheld critical information about the loans it securitized. Time and again, the bank put investors at risk in pursuit of profit. Deutsche Bank has now been held accountable.”
“Deutsche Bank knowingly securitized billions of dollars of defective mortgages and subsequently made false representations to investors about the quality of the underlying loans,” said Special Agent In Charge Steven Perez of the Federal Housing Finance Agency, Office of the Inspector General. “Its actions resulted in enormous losses to investors to whom Deutsche Bank sold these defective Residential Mortgage-Backed Securities. Today’s announcement reaffirms our commitment to working with our law enforcement partners to hold accountable those who deceived investors in pursuit of profits, and contributed to our nation’s financial crisis. We are proud to have worked with the U.S. Department of Justice and the U.S Attorney’s Office for the Eastern District of New York.”
As part of the settlement, Deutsche Bank agreed to a detailed Statement of Facts. That statement describes how Deutsche Bank knowingly made false and misleading representations to investors about the characteristics of the mortgage loans it securitized in RMBS worth billions of dollars issued by the bank between 2006 and 2007. For example:
Deutsche Bank represented to investors that loans securitized in its RMBS were originated generally in accordance with mortgage loan originators’ underwriting guidelines. But as Deutsche Bank now acknowledges, the bank’s own reviews confirmed that “aggressive” revisions to the loan originators’ underwriting guidelines allowed for loans to be underwritten to anyone with “half a pulse.” More generally, Deutsche Bank knew, based on the results of due diligence, that for some securitized loan pools, more than 50 percent of the loans subjected to due diligence did not meet loan originators’ guidelines.
Deutsche Bank also knowingly misrepresented that loans had been reviewed to ensure the ability of borrowers to repay their loans. As Deutsche Bank acknowledges, the bank’s own employees recognized that Deutsche Bank would “tolerate misrepresentation” with “misdirected lending practices” as to borrower ability to pay, accepting even blocked-out borrower pay stubs that concealed borrowers’ actual incomes. As a Deutsche Bank employee stated, “What goes around will eventually come around; when performance (default) begins affecting profits and/or the investors who purchase the securities, only then will Wall St. take notice. For now, the buying continues.”
Deutsche Bank concealed from investors that significant numbers of borrowers had second liens on their properties. In one instance, a supervisory Deutsche Bank trader specifically instructed his team that if investors asked about second liens, “‘[t]ell them verbally . . . [b]ut don’t put in the prospectus.’” Deutsche Bank knew that these second liens increased the likelihood that a borrower would default on his or her loan.
Deutsche Bank purchased and securitized loans with substantial defects to provide “flexibility” to the mortgage originators on whom Deutsche Bank’s RMBS program depended for a continued supply of loans. Indeed, after the president of a large mortgage originator told Deutsche Bank he was “very upset with the rejection percentage,” Deutsche Bank’s diligence team was instructed, on three separate occasions, to clear loans it previously determined should be rejected.
While Deutsche Bank conducted due diligence on samples of loans it securitized in RMBS, Deutsche Bank knew that the size and composition of these loan samples frequently failed to capture loans that did not meet its representations to investors. In fact, Deutsche Bank knew “the more you sample, the more you reject.”
Deutsche Bank knowingly and intentionally securitized loans originated based on unsupported and fraudulent appraisals. Deutsche Bank knew that mortgage originators were “‘giving’ appraisers the value they want[ed]” and expecting the resulting appraisals to meet the originators’ desired value, regardless of the actual value of the property. Deutsche Bank concealed its knowledge of pervasive and consistent appraisal fraud, instead representing to investors home valuation metrics based on appraisals it knew to be fraudulent. Deutsche Bank misrepresented to investors the value of the properties securing the loans securitized in its RMBS and concealed from investors that it knew that the value of the properties securing the loans was far below the value reflected by the originator’s appraisal.
By May 2007, Deutsche Bank knew that there was an increasing trend of overvalued properties being sold to Deutsche Bank for securitization. As one employee noted, “We are finding ourselves going back quite often and clearing large numbers of loans [with inflated appraisals] to bring down the deletion percentages.” Deutsche Bank nonetheless purchased and securitized such loans because it received favorable prices on the fraudulent loans. Ultimately, Deutsche Bank enriched itself by paying reduced prices for risky loans while representing to investors valuation metrics based on appraisals the Bank knew to be inflated.
Deutsche Bank represented to investors that disclosed borrower FICO scores were accurate as of the “cut-off date” of the RMBS issuance. However, Deutsche Bank knowingly represented borrowers’ FICO scores as of the time of the origination of their loans despite the bank’s knowledge that these scores had often declined materially by the cut-off date.
Assistant U.S. Attorneys Edward K. Newman, Matthew R. Belz, Jeremy Turk, and Ryan M. Wilson of the U.S. Attorney’s Office for the Eastern District of New York investigated Deutsche Bank’s conduct in connection with the issuance and sale of RMBS between 2006 and 2007. The investigation was conducted with the Office of the Inspector General for the Federal Housing Finance Agency.
The $3.1 billion civil monetary penalty resolves claims under FIRREA, which authorizes the federal government to impose civil penalties against financial institutions that violate various predicate offenses, including wire and mail fraud. It is one of the largest FIRREA penalties ever paid. The settlement does not release any individuals from potential criminal or civil liability. As part of the settlement, Deutsche Bank has agreed to fully cooperate with investigations related to the conduct covered by the agreement.
Deutsche Bank will also provide $4.1 billion in the form of relief to aid consumers harmed by its unlawful conduct. Specifically, Deutsche Bank will provide loan modifications, including loan forgiveness and forbearance, to distressed and underwater homeowners throughout the country. It will also provide financing for affordable rental and for-sale housing throughout the country. Deutsche Bank’s provision of consumer relief will be overseen by an independent monitor who will have authority to approve the selection of any third party used by Deutsche Bank to provide consumer relief. To report RMBS fraud, go to: http://www.stopfraud.gov/rmbs.html
About the RMBS Working Group:
The RMBS Working Group, part of the Financial Fraud Enforcement Task Force, was established by the Attorney General in late January 2012. The Working Group has been dedicated to initiating, organizing, and advancing new and existing investigations by federal and state authorities into fraud and abuse in the RMBS market that helped precipitate the 2008 Financial Crisis. The Working Group’s efforts to date have resulted in settlements providing for tens of billions of dollars in civil penalties and consumer relief from banks and other entities that are alleged to have committed fraud in connection with the issuance of RMBS.
- Download Annex 1 -- Statement of Facts
- Download Annex 1A -- Statement of Facts Appendices A through D
- Download Annex 2 -- Consumer Relief
- Download Annex 3 -- RMBS Covered by the Settlement
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 Adolphus P. Wright of the Drug Enforcement Administration’s (DEA) Miami Field Division and Special Agent in Charge Kelly R. Jackson of Internal Revenue Service – Criminal Investigation’s (IRS-CI) Miami Field Office made the announcement.
Guy Philippe, 48, of Haiti, was indicted in 2005 on one count of conspiracy to import narcotics; one count of conspiracy to launder monetary instruments and engage in monetary transactions in property derived from unlawful activity; and one substantive count of engaging in monetary transactions derived from unlawful activity. This afternoon, Philippe was ordered held without bond during an initial hearing before U.S. Magistrate Judge Barry L. Garber of the Southern District of Florida. Philippe’s arraignment hearing is scheduled for Jan. 13, 2017.
According to the indictment, from approximately 1997 through 2001, Philippe conspired with others to import more than five kilograms of cocaine into the United States. From approximately June 1999 through April 2003, Philippe also allegedly conspired with others to engage in money laundering to conceal their participation in criminal activity, including narcotics trafficking. The indictment alleges that in 2000, Philippe transferred a $112,000 check through a financial institution, affecting interstate and foreign commerce, that included monies derived from the illicit drug trafficking enterprise.
An indictment is merely an allegation and a defendant is presumed innocent until proven guilty beyond a reasonable doubt in a court of law.
The DEA and IRS-CI investigated the case. The Criminal Division’s Office of International Affairs, U.S. Marshals Service Fugitive Task Force, U.S. Customs and Border Protection’s Miami Office of Field Operations and the Haitian Government, including the Haitian Ministry of Justice, Haitian National Police and La Brigade de Lutte contre le Trafic de Stupéfiants (BLTS), provided assistance in this matter. Senior Trial Counsel Mark A. Irish of the Criminal Division’s Asset Forfeiture and Money Laundering Section and Assistant U.S. Attorneys Lynn M. Kirkpatrick and Andy R. Camacho of the Southern District of Florida are prosecuting the case.
This case is the result of the ongoing efforts by the Organized Crime Drug Enforcement Task Force (OCDETF) a partnership that brings together the combined expertise and unique abilities of federal, state and local law enforcement agencies. The principal mission of the OCDETF program is to identify, disrupt, dismantle and prosecute high level members of drug trafficking, weapons trafficking and money laundering organizations and enterprises.
Following the first meeting of the Inclusive Framework on BEPS in Japan, on 30 June-1 July, and recent regional meetings, more countries and jurisdictions are joining the framework. The Inclusive Framework on BEPS welcomed Kazakhstan, Côte d’Ivoire and Bermuda bringing to 94 the total number of countries and jurisdictions participating on an equal footing in the project.
- Download the full list of all countries and jurisdictions participating in the Inclusive Framework on BEPS.