Wednesday, August 23, 2017
It is end of summer which means the 71st annual IFA is upon us. 2,500 international tax academics, general counsel of Fortune 500, government, IGOs, and big firm partners gather for over a week in this scientific forum to investigate the tax challenges that cause friction for international trade and investment, as well as the challenges for governments to legislate and collect tax to fulfill expenditure requirements.
IFA 2017 Global Conference : 71st Congress of the International Fiscal Association will be held from Sunday, 27 August 2017 to Friday, 1 September 2017 (most of us arrive to the conference this Thursday to begin discussions so I look forward to meeting you this weekend at the lobby or in the convention center!)
The Future of Transfer Pricing
Although optimists agree that the future world will be unique, most of them tend to disagree how to achieve it. In this sense, regarding transfer pricing issues, many proposals of reform are being elaborated or even implemented to solve the current problems, not only limited to BEPS actions. In order to discuss the future of transfer pricing, the panel will present and debate (i) the foundations and problems of the current regime, (ii) the recent developments that such paradigms have brought in terms of transfer pricing methods as well as (iii) the main practical problems under debate and (iv) the divergent proposals within different jurisdictions to solve them.
Assessing BEPS: Origins, Standards and Responses
The G20/OECD Base Erosion and Profit Shifting (“BEPS”) initiative, aiming at “fixing” the international tax system on the basis of coherence, substance and transparency, is currently implemented around the globe. Relying on latest developments, Subject 1 will provide participants with an instigating comparative analysis of the implementation of BEPS in various regions. The discussion will begin in the internal market and will look at the impact of BEPS for European Member States and their relations with third countries. The relation and consistency of BEPS with European law and developments such as the (re)evolution of state aid rules shall also be considered from a policy perspective. Next, the panel will contrast the national responses to BEPS in different jurisdictions, looking in particular at the US, Latin American countries, India and the Asian region. In the end, the panel will assess whether the BEPS project has kept its promises and will formulate recommendations for future multilateral initiatives.
International Fiscal Association
The International Fiscal Association (IFA) was established in 1938 with its headquarters in the Netherlands. It is the only non-governmental and non-sectoral international organisation dealing with fiscal matters. Its objects are the study and advancement of international and comparative law in regard to public finance, specifically international and comparative fiscal law and the financial and economic aspects of taxation. IFA seeks to achieve these objects through its Annual Congresses and the scientific publications relating thereto as well as through scientific research. Although the operations of the IFA are essentially scientific in character, the subjects selected take account of current fiscal developments and changes in local legislation.
Membership of IFA now stands at more than 12,500 from 116 countries. In 70 countries IFA members have established IFA Branches. Direct membership is possible in countries where there is as yet no IFA Branch. Please visit the IFA website (www.ifa.nl) on which a survey is posted which gives an impression of the geographical spread of the members affiliated to the IFA Branches and a survey of the direct members.
The public, especially the BVI Financial Institutions that have reporting obligations to be satisfied in the year 2017 are being notified that the authority’s email and the web-based portal the BVI Financial Account Reporting System (BVIFARS) are down, as a result of the Tropical Wave that affected the Territory last week. See the news flash.
The authority is therefore extending the reporting deadline for the year 2017 from Friday, August 18 to Friday, September 1.
The extension is for those persons and financial institutions who will be reporting under the following arrangements:
- The Common Reporting Standards (CRS); and
- The Agreement between the Government of the British Virgin Islands and the Government of the United Kingdom of Great Britain and Northern Ireland to improve international tax compliance (UK CDOT).
The authority said that it is working to get its systems back online as soon as possible.
Tuesday, August 22, 2017
The Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum) published the first 10 outcomes of a new and enhanced peer review process aimed at assessing compliance with international standards for the exchange of information on request between tax authorities.
The new round of peer reviews – launched in mid-2016 – follows a six-year process during which the Global Forum assessed the legal and regulatory framework for information exchange (Phase 1) as well as the actual practices and procedures (Phase 2) in 119 jurisdictions worldwide.
The Global Forum’s new peer review process combines the Phase 1 and Phase 2 elements into a single undertaking, with new focus on an assessment of the availability of and access by tax authorities to beneficial ownership information of all legal entities and arrangements, in line with the Financial Action Task Force international standard.
The Global Forum reviewed exchange of information practices through combined peer review reports in ten jurisdictions Three jurisdictions – Ireland, Mauritius and Norway – received an overall rating of “Compliant.” Six others – Australia, Bermuda, Canada, Cayman Islands, Germany and Qatar were rated “Largely Compliant.” Jamaica was rated “Partially Compliant,” leading the Global Forum to launch a supplementary report on follow-up measures to ensure a higher level of compliance.
Global Forum members are working together to monitor and review implementation of the international standard for the automatic exchange of financial account information, under the Common Reporting Standard (CRS), which will start in September 2017. The monitoring and review process is intended to ensure the effective and timely delivery of commitments made, the confidentiality of information exchanged and to identify areas where support is needed.
The Global Forum is assisting developing country members to ensure that they can also receive the benefits of the ongoing global move to automatic exchange of financial account information.
For additional information on the Global Forum peer review process, and to read all reports to date, go to: http://www.oecd-ilibrary.org/taxation/global-forum-on-transparency-and-exchange-of-information-for-tax-purposes-peer-reviews_2219469x.
Monday, August 21, 2017
The Beneficial Ownership of Legal Persons (Guernsey) Law, 2017 In Effect and Registry Now Recording UBOs
The Beneficial Ownership of Legal Persons (Guernsey) Law 2017 came into force on 15 August, and the associated limited-access electronic registry service is now live. It imposes a statutory duty on resident agents to keep an up-to-date record of the beneficial owners of legal entities for which they are responsible, essentially setting a 25 % threshold for beneficial ownership. EXPLANATORY MEMORANDUM
The Law establishes the Office of the Registrar of Beneficial Ownership of Legal Persons, sets out the powers and functions of the Registrar, and imposes new duties on beneficial owners of legal persons and resident agents relating to the provision of information. The Law also makes appropriate amendments to the "relevant legal person Laws" - ie the Companies (Guernsey) Law, 2008, the Limited Liability Partnerships (Guernsey) Law, 2013 and the Foundations (Guernsey) Law, 2012 - and makes amendments to other legislation to ensure that the Guernsey Financial Services Commission has appropriate supervisory powers in respect of persons it regulates.
Part 1 of the Law establishes the Office of the Registrar and sets out the Registrar's functions. Part 2 sets out the duties of resident agents and beneficial owners to collect and disclose information. These duties expand on existing duties in the relevant legal persons Laws (eg Part XXIX of the Companies Law). The duties are enforced by a civil penalties regime and, in respect of resident agents, criminal offences. Part 3 amends the existing resident agent and beneficial ownership provisions in the relevant legal person Laws, making them consistent with the duties under Part 2 and the functions of the Registrar. Part 4 is concerned with the enforcement of the provisions, including a range of flexible civil sanctions consistent with those in the Companies Law, such as the power to issue private reprimands. The general provisions at Part 5 include providing for the meaning of 'beneficial owner' and related expressions to be defined by regulations.
Schedule 1 makes standard provision in respect of the Office of the Registrar. Schedule 2 sets out in more detail the general powers of the Registrar to disclose, and obtain, information, as well as the duty on him to keep information secure and confidential; the powers to disclose are consistent with powers in existing legislation such as the Disclosure Law. Also in Schedule 2 is an express power for the GFSC and the Economic Crime Division of the Customs and Immigration Service to inspect the Register for the purposes of carrying out their functions. Schedule 3 sets out amendments to the Foundations Law and Schedule 4 sets out amendments to other enactments, made for the broad purpose of ensuring that the GFSC has suitable supervisory powers in respect of persons it regulates.
Saturday, August 19, 2017
Friday, August 18, 2017
FTC Says Operators of Bogus Discount Clubs Took Tens of Millions of Dollars From Consumers’ Bank Accounts without Their Consent
The Federal Trade Commission has charged a group of marketers with debiting more than $40 million from consumers’ bank accounts for membership in three online discount clubs they enrolled consumers in without their authorization.
According to the FTC, the defendants targeted consumers with websites and telemarketing calls that purported to offer payday or cash advance loans. Thinking they were applying for loans, consumers provided their bank account information, which the defendants used to enroll consumers in an online coupon service that cost monthly fees.
The FTC alleges that the defendants used electronic remotely created checks (RCCs) to withdraw from consumers’ accounts an initial fee ranging from $49.89 to $99.49, and recurring monthly fees of $14 to $19.95. Hundreds of thousands of consumers called the defendants to cancel their memberships and request refunds, and thousands of people informed their banks about the unauthorized debits. Throughout the operation of the discount clubs, banks rejected more than 75 percent of the attempts to debit consumers’ accounts. More than 99.5 percent of those who supposedly enrolled in the scheme never accessed any of the discount clubs’ coupons.
The alleged scheme began in 2010, when EDebitPay LLC (EDP), Dale Paul Cleveland and William R. Wilson launched the Saving Pays Club. At the time, they were facing contempt charges for violating a 2008 settlement order with the FTC in another deceptive debiting scam. In 2012, EDP launched a new version of the discount club, Money Plus Saver. In 2013, EDP sold its assets, including the discount clubs, to Hornbeam. Hornbeam then launched a third version of the same discount club, calling it Saving Makes Money, and continued to charge consumers enrolled in the Saving Pays Club and Money Plus Saver.
iStream Financial Services, Inc. processed all of the payments for the discount clubs from November 2010 through April 2016. The FTC alleges that iStream consistently disregarded the high return rates generated by the discount club transactions, as well as other fraud indicators highlighted by its chief risk officer, outside compliance auditors, and the president of its own sister bank. In late 2014, iStream allegedly enabled Hornbeam to artificially reduce its high discount club return rate by allowing it to send thousands of small RCCs to itself.
The defendants in this case are EDP; Dale Paul Cleveland; William Wilson; Keith Merrill; clickXchange Media LLC; Platinum Online Group LLC, doing business as Premier Membership Clubs; Hornbeam; Cardinal Points Holding LLC; Cardinal Points Management LLC, doing business as Clear Compass Digital Group; Gyroscope Management Holdings LLC; Jerry L. Robinson; Earl G. Robinson; James McCarter; Mark Ward; iStream Financial Services Inc.; Kris Axberg; Richard Joachim; and Chet Andrews.
The FTC charged all of the defendants with violating the FTC Act. The Commission also charged the EDP and Hornbeam defendants with violating the Restore Online Shoppers’ Confidence Act. In addition, the FTC charged defendants, except for Mark Ward, with violating the Telemarketing Sales Rule.
Thursday, August 17, 2017
The Securities and Exchange Commission charged this past summer a Canadian-based oil and gas company and three of its former top finance executives for their roles in an extensive, multi-year accounting fraud.
The SEC's complaint alleges that Penn West Petroleum Ltd., which has since been renamed Obsidian Energy Ltd., fraudulently moved hundreds of millions of dollars in expenses from operating expense accounts to capital expenditure accounts. This alleged fraudulent movement caused Penn West to artificially reduce its operating costs by as much as 20 percent in certain periods, which falsely improved reported metrics for oil extraction efficiency and profitability. Penn West was one of Canada's largest oil producers at the time.
According to the SEC's complaint, the fraud was orchestrated by the company's former CFO Todd Takeyasu, former vice president of accounting and reporting Jeffery Curran, and former operations controller Waldemar Grab. The SEC alleges that they manipulated the company's operating expenses in order to lower a key publicly reported metric concerning the cost of oil extraction and processing needed to sell a barrel of oil. Penn West allegedly created an internal budget target representing the amount it would improperly move in its publicly-reported financial statements and gave the illusion that it was spending less money to get oil of out the ground. In fact, the SEC alleges, the company historically struggled to keep its operating costs under control, and Takeyasu, Curran, and Grab managed operating expenses to meet the budget target. According to the SEC's complaint, they frequently met this target to the dollar by having the company record large, round number, and unsupported adjusting journal entries. Within the company, this practice was referred to as "reclass to capital."
As alleged in the SEC's complaint, Takeyasu and Curran directed the reclass-to-capital practices without ensuring that the accounting entries reconciled with actual capital spending amounts, and Curran and Grab were repeatedly warned by a subordinate accountant that the reclass entries lacked support. In September 2014, the company publicly reported that it would restate its financial statements from 2012 to the first quarter of 2014 and its historical financial statements and related audit reports could no longer be relied upon.
"Combating financial fraud is critical to maintaining a fair and transparent marketplace," said Stephanie Avakian, Co-Director of the SEC's Enforcement Division. "We will continue to vigorously pursue and punish corporate executives and other individuals whose actions violate the federal securities laws."
"As alleged in our complaint, Penn West's widespread accounting abuses were directed by its most senior accounting executives," said Gerald W. Hodgkins, Associate Director in the SEC's Enforcement Division. "These executives breached their disclosure obligations to investors and kept hidden from the market the true nature of a key financial metric and the company's struggle to control its operating expenses."
The SEC's complaint, which was filed in federal court in Manhattan, charges Penn West, Takeyasu, Curran, and Grab with violating the antifraud, reporting, books and records and internal controls provisions of the federal securities laws. The SEC seeks permanent injunctions and monetary relief against all the defendants, officer-and-director bars from Takeyasu and Curran, and a clawback of incentive-based compensation awarded to Takeyasu. Grab, who is cooperating with the SEC's litigation, has agreed to a settlement including permanent injunctions and an officer-and-director bar. Grab also agreed to a permanent suspension from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies. The settlement is subject to court approval. Grab agreed to the settlement without admitting or denying the allegations or findings.
The SEC's investigation found no personal misconduct by Penn West's two former CEOs, Murray Nunns and David Roberts, who have reimbursed the company for cash bonuses and certain stock awards they received during the period when the company allegedly committed accounting violations. Therefore, it isn't necessary for the SEC to pursue clawback actions under Section 304(a) of the Sarbanes-Oxley Act of 2002. Those amounts, converted to U.S. dollars, are approximately $262,451 for Nunns and $22,290 for Roberts.
The SEC's investigation was conducted by Matthew T. Spitzer and Colin J. Rand, and the case was supervised by Anita B. Bandy. The litigation will be led by Sarah H. Concannon, Thomas A. Bednar, and Matthew Spitzer. The SEC appreciates the assistance of the Alberta Securities Commission.
Wednesday, August 16, 2017
Swiss Asset Management Firm Trades Client Accounts and Info of US Tax Evaders for Leniency In Its Criminal Investigation
Joon H. Kim, the Acting United States Attorney for the Southern District of New York, Stuart M. Goldberg, Acting Deputy Assistant Attorney General of the Justice Department’s Tax Division, and James D. Robnett, Special Agent in Charge of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced today that Prime Partners SA (“Prime Partners”) entered into a non-prosecution agreement (“NPA”) with the U.S. Attorney’s Office and agreed to pay $5 million to the United States for assisting U.S. taxpayer-clients in opening and maintaining undeclared foreign bank accounts from 2001 through 2010. The NPA was based on Prime Partners’ extraordinary cooperation, including its voluntary production of approximately 175 client files for non-compliant U.S. taxpayer-clients, and provides that Prime Partners will not be criminally prosecuted. The NPA requires Prime Partners to forfeit $4.32 million to the United States, representing certain fees that it earned by assisting its U.S. taxpayer-clients in opening and maintaining these undeclared accounts, and to pay $680,000 in restitution to the IRS, representing the approximate unpaid taxes arising from the tax evasion by Prime Partners’ U.S. taxpayer-clients.
Acting Manhattan U.S. Attorney Joon H. Kim said: “Prime Partners admits to helping its clients conceal their ownership of foreign bank accounts to avoid their U.S. tax obligations. They created sham entities and even counseled their clients to use pay phones and prepaid debit cards to avoid detection of their tax fraud scheme. The resolution of this matter through a non-prosecution agreement, along with forfeiture and restitution, reflects the extraordinary cooperation provided by Prime Partners to our investigation. It should serve as proof that cooperation has tangible benefits. We will continue to pursue financial services firms around the world that help their clients evade U.S. taxes.”
Acting Deputy Assistant Attorney General Stuart M. Goldberg said: “The message is clear to those using foreign bank accounts to engage in schemes to evade U.S. taxes – you can no longer assume your ‘secret’ accounts will remain concealed, no matter where they are located. In our ongoing investigations, we will continue to draw on information from a variety of sources and to provide substantial credit to those around the globe who provide full and timely cooperation regarding the identity of U.S. tax cheats and the phony trusts and shell companies they seek to hide behind.”
IRS-CI Special Agent in Charge James D. Robnett said: “Today’s NPA signals the continued erosion of the tax secrecy safe havens that helped facilitate this criminal activity at a significant cost to the US taxpayer. IRS-CI is focused on tracking funds of individuals hiding income offshore and will continue to investigate international tax evasion.”
As part of the NPA, Prime Partners admitted various facts concerning its wrongful conduct and the remedial measures that it took to cease that conduct. Specifically, Prime Partners admitted that it knew certain U.S. taxpayers were maintaining undeclared foreign bank accounts with the assistance of Prime Partners in order to evade their U.S. tax obligations, in violation of U.S. law. Prime Partners acknowledged that it helped certain U.S. taxpayer-clients conceal from the IRS their beneficial ownership of undeclared assets maintained in foreign bank accounts by, among other things:
(i) creating sham entities, which had no business purpose, that served as the nominal account holders for the accounts;
(ii) advising U.S. taxpayer-clients not to retain their account statements, to call Prime Partners collect from pay phones, and to destroy any faxes they received from Prime Partners;
(iii) providing U.S. taxpayer-clients with prepaid debit cards, which were funded with money from the clients’ undeclared accounts; and
(iv) facilitating cash transfers in the United States between U.S. taxpayer-clients with undeclared accounts.
The NPA recognizes that, in early 2009, Prime Partners voluntarily implemented a series of remedial measures to stop assisting U.S. taxpayers in evading federal income taxes. The NPA further recognizes the extraordinary cooperation of Prime Partners, including its voluntary production of approximately 175 client files for non-compliant U.S. taxpayers, which included the identities of those U.S. taxpayers.
As part of the NPA, Prime Partners has agreed to forfeit $4.32 million to the United States, representing a portion of the gross revenues from services that it provided to U.S. taxpayers with undeclared foreign bank accounts from 2001 through 2010. In connection with this forfeiture, Prime Partners has agreed not to contest a civil forfeiture action to be filed by the United States.
The U.S. Attorney’s Office entered into the NPA based on factors including:
- Prime Partners’ voluntary and extraordinary cooperation, including its voluntary production of account files containing the identities of U.S. taxpayer-clients;
- Prime Partners’ voluntary implementation of various remedial measures beginning in or around early 2009, before the investigation of its conduct began;
- Prime Partners’ willingness to continue to cooperate to the extent permitted by applicable law; and
- Prime Partners’ representation – based on an investigation by outside counsel, the results of which have been reviewed by the U.S. Attorney’s Office and the Tax Division – that the misconduct under investigation did not, and does not, extend beyond that described in the Statement of Facts.
The NPA requires Prime Partners to continue to cooperate with the United States for at least three years from the date of the agreement. In the event that Prime Partners violates the NPA, the U.S. Attorney’s Office may prosecute Prime Partners.
Mr. Kim thanked the IRS for its outstanding work in the investigation of this matter and the Tax Division of the Department of Justice for its assistance in the investigation.
The Securities and Exchange Commission announced that KPMG has agreed to pay more than $6.2 million to settle charges that it failed to properly audit the financial statements of an oil and gas company, resulting in investors being misinformed about the energy company’s value. KPMG’s engagement partner in charge of the audit also agreed to settle charges against him.
According to the SEC’s order, KPMG was hired as the outside auditor for Miller Energy Resources in 2011 and issued an unqualified audit report despite grossly overstated values for key oil and gas assets. KPMG and the engagement partner John Riordan failed to properly assess the risks associated with accepting Miller Energy as a client and did not properly staff the audit, which overlooked the overvaluation of certain oil and gas interests that the company had purchased in Alaska the previous year. Among other audit failures, KPMG and Riordan did not adequately consider and address facts known to them that should have raised serious doubts about the company’s valuation, and they failed to detect that certain fixed assets were double-counted in the company’s valuation.
“Auditing firms must fully comprehend the industries of their clients. KPMG retained a new client and failed to grasp how it valued oil and gas properties, resulting in investors being misinformed that properties purchased for less than $5 million were worth a half-billion dollars,” said Walter E. Jospin, Director of the SEC’s Atlanta Regional Office.
The SEC’s order finds that KPMG and Riordan engaged in improper professional conduct and caused Miller Energy’s violation of Section 13(a) of the Securities Exchange Act and Rules 13a-1 and 13a-13. Without admitting or denying the findings, KPMG agreed to be censured and pay $4,675,680 in disgorgement of all the audit fees received from Miller Energy plus $558,319 in interest and a $1 million penalty. KPMG also agreed to significant undertakings designed to improve its system of quality control. Riordan agreed, without admitting or denying the findings, to pay a $25,000 penalty and be suspended from appearing or practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies. The SEC’s order permits Riordan to apply for reinstatement after two years.
The SEC’s investigation was conducted by William M. Uptegrove and John Nemeth, and the case was supervised by Peter J. Diskin and Aaron W. Lipson of the Atlanta office.
Tuesday, August 15, 2017
Uber Technologies, Inc. has agreed to implement a comprehensive privacy program and obtain regular, independent audits to settle Federal Trade Commission charges that the ride-sharing company deceived consumers by failing to monitor employee access to consumer personal information and by failing to reasonably secure sensitive consumer data stored in the cloud.
In its complaint, the FTC alleged that the San Francisco-based firm failed to live up to its claims that it closely monitored employee access to consumer and driver data and that it deployed reasonable measures to secure personal information it stored on a third-party cloud provider’s servers.
“Uber failed consumers in two key ways: First by misrepresenting the extent to which it monitored its employees’ access to personal information about users and drivers, and second by misrepresenting that it took reasonable steps to secure that data,” said FTC Acting Chairman Maureen K. Ohlhausen. “This case shows that, even if you’re a fast growing company, you can’t leave consumers behind: you must honor your privacy and security promises.”
In the wake of news reports alleging Uber employees were improperly accessing consumer data, the company issued a statement in November 2014 that it had a “strict policy prohibiting” employees from accessing rider and driver data – except for a limited set of legitimate business purposes – and that employee access would be closely monitored on an ongoing basis.
In December 2014, Uber developed an automated system for monitoring employee access to consumer personal information, but the company stopped using it less than a year after it was put in place. The FTC’s complaint alleges that Uber, for more than nine months afterwards, rarely monitored internal access to personal information about users and drivers.
The FTC’s complaint also alleges that despite Uber’s claim that data was “securely stored within our databases,” Uber’s security practices failed to provide reasonable security to prevent unauthorized access to consumers’ personal information in databases Uber stored with a third-party cloud provider. As a result, an intruder accessed personal information about Uber drivers in May 2014, including more than 100,000 names and driver’s license numbers that Uber stored in a datastore operated by Amazon Web Services.
The FTC alleges that Uber did not take reasonable, low-cost measures that could have helped the company prevent the breach. For example, Uber did not require engineers and programmers to use distinct access keys to access personal information stored in the cloud. Instead, Uber allowed them to use a single key that gave them full administrative access to all the data, and did not require multi-factor authentication for accessing the data. In addition, Uber stored sensitive consumer information, including geolocation information, in plain readable text in database back-ups stored in the cloud.
Under its agreement with the Commission, Uber is:
- prohibited from misrepresenting how it monitors internal access to consumers’ personal information;
- prohibited from misrepresenting how it protects and secures that data;
- required to implement a comprehensive privacy program that addresses privacy risks related to new and existing products and services and protects the privacy and confidentiality of personal information collected by the company; and
- required to obtain within 180 days, and every two years after that for the next 20 years, independent, third-party audits certifying that it has a privacy program in place that meets or exceeds the requirements of the FTC order.
The Commission vote to issue the administrative complaint and to accept the consent agreement was 2-0. The FTC will publish a description of the consent agreement package in the Federal Register shortly. The agreement will be subject to public comment for 30 days, beginning today and continuing through September 15, 2017, after which the Commission will decide whether to make the proposed consent order final.
Interested parties can submit comments electronically by following the instructions in the “Invitation To Comment” part of the “Supplementary Information” section.
NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $40,654.
Monday, August 14, 2017
PHH Pays $74 Million for False Claims Act Liability Arising from Mortgage Lending, Whistleblower Earns $9 Million.
PHH Corp. PHH Mortgage Corp. and PHH Home Loans (collectively, PHH) have agreed to pay the United States $74,453,802 to resolve allegations that they violated the False Claims Act by knowingly originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA), guaranteed by the United States Department of Veterans Affairs (VA), and purchased by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) that did not meet applicable requirements, the Justice Department announced today. PHH is headquartered in Mount Laurel, New Jersey, and PHH Home Loans operates in Edina, Minnesota. PHH has agreed to pay $65 million to resolve the FHA allegations and $9.45 million to resolve the VA and FHFA allegations.
“Government mortgage programs designed to assist homeowners — including programs offered by the FHA, VA, Fannie Mae and Freddie Mac — depend on lenders to approve only eligible loans,” said Acting Assistant Attorney General Chad A. Readler, head of the Justice Department’s Civil Division. “The Department has and will continue to hold accountable lenders that knowingly cause the government to guarantee, insure, or purchase loans that are materially deficient and put both the homeowner and the taxpayers at risk.”
“PHH submitted defective loans for government insurance, and homeowners and taxpayers paid the price. This significant resolution helps rectify the misconduct by returning more than $74 million in wrongfully claimed funds to the government,” said Acting U.S. Attorney for the District of Minnesota Gregory Brooker. “I commend the efforts of this Office’s Civil Division in reaching a successful resolution.”
“This settlement requires PHH to pay back to the taxpayers of the United States millions of dollars in loans that never should have been made,” Acting U.S. Attorney William E. Fitzpatrick for the District of New Jersey said. “By failing to ensure the creditworthiness of borrowers and otherwise failing to make sure the loans met HUD underwriting requirements, loans were insured by FHA that should not have been.”
“By failing to comply with FHA regulations, PHH put taxpayers and borrowers at risk of sustaining significant financial losses,” stated Acting U.S. Attorney Benjamin G. Greenberg. “This case and the resulting $75 million dollar settlement demonstrate that U.S. Attorney’s Offices and our investigative partners across the country are committed to holding lenders accountable who knowingly submit unqualified loans and compromise needed governmental programs.”
“For government mortgage programs to assist homeowners but not take on ill-advised risk, all participants in the mortgage lending process must provide true and complete information,” stated Bridget M. Rohde, Acting United States Attorney for the Eastern District of New York. “Today’s settlement with PHH demonstrates our continuing commitment to requiring such integrity in the process.”
The settlements announced today resolve allegations that PHH failed to comply with certain FHA, VA, Fannie Mae and Freddie Mac origination, underwriting, and quality control requirements.
Since at least January 2006, PHH has participated as a Direct Endorsement lender (DEL) in the FHA insurance program. A DEL has the authority to originate, underwrite, and endorse mortgages for FHA insurance. If a DEL approves a mortgage loan for FHA insurance and the loan later defaults, the holder of the loan may submit an insurance claim to HUD, FHA’s parent agency, for the losses resulting from the defaulted loan. Under the DEL program, the FHA does not review a loan before it is endorsed for FHA insurance for compliance with FHA’s credit and eligibility standards, but instead relies on the efforts of the DEL to verify compliance. DELs are therefore required to follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance.
As part of the settlement, PHH admitted to the following facts concerning the FHA loans:
Between Jan. 1, 2006, and Dec. 31, 2011, it certified for FHA insurance mortgage loans that did not meet HUD underwriting requirements and did not adhere to FHA’s self-reporting requirements. Examples of loan defects that PHH admitted resulted in loans being ineligible for FHA mortgage insurance included:
- Failing to document the borrowers’ creditworthiness, including paystubs, verification of employment, proper credit reports, and verification of the borrowers’ earnest money deposit and funds to close.
- Failing to document the borrower’s claimed net equity in a prior residence or obtain documentation showing that the borrower had paid off significant debts. Including these debts in the borrower’s liabilities resulted in the borrower exceeding HUD’s debt-to-income ratio requirements for FHA-insured loans.
- Insuring a loan for FHA mortgage insurance even though the borrower did not meet HUD’s minimum statutory investment for the loan.
In 2007, PHH audited a targeted sample of government loans for closing or pre-insuring requirements and found that its “percent accurate” did not exceed 50 percent during 2007. Since at least 2006, HUD has required self-reporting of material violations of FHA requirements. However, between Jan. 1, 2006, and Dec. 31, 2011, PHH Home Loans did not self-report any loans to HUD; rather, PHH Home Loans did not self-report any loans to HUD until 2013, after the United States commenced its investigation resulting in this settlement.
As a result of PHH’s conduct and omissions, PHH admitted, HUD insured loans endorsed by PHH that were not eligible for FHA mortgage insurance under the DEL program, and that HUD would not otherwise have insured. It admitted that HUD subsequently incurred substantial losses when it paid insurance claims on those loans.
In addition, from at least 2005 to 2012, PHH was a VA approved lender, originating and underwriting mortgage loans and obtaining VA loan guarantees. The VA helps Servicemembers, Veterans, and eligible surviving spouses become homeowners by guaranteeing a portion of home loans. VA home loans are provided by certain pre-approved private lenders, including banks and mortgage companies. By guaranteeing a portion of the loan, the VA enables the lender to provide Servicemembers, Veterans, and eligible surviving spouses with loan terms that are more favorable than would otherwise be available in the marketplace. In order to qualify for a VA guarantee, borrowers must comply with VA loan requirements. The settlement resolves the United States’ claims and potential claims that PHH originated loans that it submitted for guarantee by the VA that did not meet the VA’s requirements.
Also from at least 2009 to 2013, PHH sold mortgage loans to Fannie Mae and Freddie Mac. Congress created the two entities to provide stability and liquidity in the secondary housing market and established the Federal Housing Finance Agency (“FHFA”) to supervise, regulate, and oversee Fannie Mae and Freddie Mac, as well as the Federal Home Loan Bank System. Since 2008, in response to the substantial deterioration in the housing markets that severely damaged Fannie Mae and Freddie Mac’s financial condition, Fannie Mae and Freddie Mac have been operating under a government conservatorship. The settlement resolves the United States’ contentions that PHH originated and sold loans to the Freddie Mac and Fannie Mae that did not meet their requirements.
“This case demonstrates HUD’s resolve in protecting the integrity of its mortgage insurance programs for the benefit of all Americans, and in particular, first time homebuyers,” said Dane Narode, HUD’s Associate General Counsel for Program Enforcement. “We are gratified that PHH has accepted responsibility for its actions.”
“This settlement resolves allegations of reckless origination and underwriting of VA guaranteed mortgage loans,” said Michael J. Missal, Inspector General, for the Office of Inspector General for the Department of Veterans Affairs (VA OIG). “It sends a clear message that the VA OIG will aggressively protect the integrity of this crucial program which helps so many of our veterans buy, build, or repair their homes. I would also like to thank the U.S. Attorney's Offices for partnering with us to achieve this significant result.”
Some of the allegations resolved by these settlements included in a whistleblower lawsuit filed under the False Claims Act by a former employee of PHH, Mary Bozzelli against PHH Corp. and PHH Mortgage Corp. Under the False Claims Act, private citizens can sue on behalf of the government and share in any recovery. Ms. Bozzelli will receive $9,067,377.33 from the settlements.
The settlements were the result of joint investigations conducted by HUD, the HUD Office of Inspector General, the Veterans Administration’s Office of Inspector General, the FHFA Office of Inspector General, the Department of Justice’s Civil Division, and the U.S. Attorney’s Offices for the District of Minnesota, District of New Jersey, Southern District of Florida, and Eastern District of New York. The qui tam action is captioned United States ex rel. Mary Bozzelli v. PHH Mortgage Corporation and PHH Corporation, 13-cv-3084 (E.D.N.Y.). The claims asserted against PHH are allegations only, and there has been no determination of liability.
Sunday, August 13, 2017
You’ve probably seen online ads with offers to let you try a product – or a service – for a very low cost, or even for free. Sometimes they’re tempting: I mean, who doesn’t want whiter teeth for a dollar plus shipping? Until the great deal turns into a rip-off. That’s what the FTC says happened in a case it announced today.
The defendants sold tooth-whitening products under various names, and hired other companies to help them market the products. These affiliate marketers created online surveys, as well as ads for free or low-cost trials – all to drive people to the product’s website. What happens next is so complicated that we created an infographic to explain it.
In short, once people ended up on the product’s website, they filled in their info, put in their credit card number, and clicked “Complete Checkout.” When people clicked this button they not only got the free trial of the one product, but were actually agreeing to monthly shipments of the product at a cost of $94.31 each month.
Next, another screen came up and people were asked to click “Complete Checkout” again. But the second screen wasn’t a confirmation screen for the trial of the product. Instead, by clicking this button people were actually agreeing to monthly shipments of a second product. So, what started as a $1.03 (plus shipping) trial of one product wound up being an unexpected two products at a very unexpected $94.31 each – for a total monthly charge of $188.96 plus shipping.
Trial offers can be tricky – and there is often a catch. If you’re tempted, do some research first, and read the terms and conditions of the offer very closely. Sometimes, however, marketers might simply try to trick you – and it can be hard to spot. Look again at the infographic…would you have known what charges were about to hit your credit card? If you use your credit card for a low-cost trial offer, be sure to check your credit card statement closely. If you see charges you didn’t authorize, contact the company and your bank immediately. And then tell us about it.
Saturday, August 12, 2017
The Internal Revenue Service began mailing letters this month to more than 1 million taxpayers with expiring Individual Taxpayer Identification Numbers and urges recipients to renew them as quickly as possible to avoid tax refund and processing delays.
ITINs with middle digits 70, 71, 72 or 80 are set to expire at the end of 2017. The notice being mailed -- CP-48 Notices, You must renew your Individual Taxpayer Identification Number (ITIN) to file your U.S. tax return -- explains the steps taxpayers need to take to renew the ITIN if it will be included on a U.S. tax return filed in 2018.
The notices will be issued over a five-week period beginning in early August. Taxpayers who receive the notice but have acted to renew their ITIN do not need to take further steps unless another family member is affected.
“We urge people who receive this letter to renew their ITIN as quickly as possible to avoid tax refund and processing delays next year,” said IRS Commissioner John Koskinen. “Taking steps now and renewing early will make things go much more smoothly for ITIN holders when it comes time to file their taxes.”
Under the Protecting Americans from Tax Hikes (PATH) Act, ITINs that have not been used on a federal tax return at least once in the last three consecutive years will expire Dec. 31, 2017, and as mentioned above, ITINs with middle digits 70, 71, 72 or 80 will also expire at the end of the year. Affected taxpayers who expect to file a tax return in 2018 must submit a renewal application.
As a reminder, ITINs with middle digits 78 and 79 that expired at the end of last year can be renewed at any time.
Who Needs an ITIN?
ITINs are used by people who have tax filing or income reporting obligations under U.S. law but are not eligible for a Social Security number (SSN). ITIN holders should visit the ITIN information page on IRS.gov and take a few minutes to understand the guidelines.
Who Should Renew an ITIN?
Taxpayers with ITINs set to expire and who need to file a tax return in 2018 must submit a renewal application. Others do not need to take any action.
- ITINs with middle digits 70, 71, 72, or 80 (For example: 9NN-70-NNNN) need to be renewed if the taxpayer will have a filing requirement in 2018.
- Taxpayers whose ITINs expired due to lack of use should only renew their ITIN if they will have a filing requirement in 2018.
- Taxpayers who are eligible for, or who have, an SSN should not renew their ITIN, but should notify IRS both of their SSN and previous ITIN, so that their accounts can be merged.
- Taxpayers whose ITINs have middle digits 78 or 79 that have expired should renew their ITIN if they will have a filing requirement in 2018.
Family Option Remains Available
Taxpayers with an ITIN with middle digits 70, 71, 72, 78, 79 or 80 have the option to renew ITINs for their entire family at the same time. Those who have received a renewal letter from the IRS can choose to renew the family’s ITINs together even if family members have an ITIN with middle digits other than 70, 71, 72, 78, 79 or 80. Family members include the tax filer, spouse and any dependents claimed on the tax return.
How to Renew an ITIN
To renew an ITIN, taxpayers must complete a Form W-7 and submit all required documentation; taxpayers are not required to attach a federal tax return.
The IRS is currently accepting ITIN renewals. There are three ways to submit the W-7 application package:
- Mail the Form W-7, along with original identification documents or copies certified by the issuing agency, to the IRS address listed on the Form W-7 instructions. The IRS will review the identification documents and return them within 60 days.|
- Taxpayers have the option to work with Certified Acceptance Agents(CAAs)
authorized by the IRS to help them apply for an ITIN. CAAs can certify all identification documents for primary and secondary taxpayers and certify that an ITIN application is correct before submitting it to the IRS for processing. A CAA can also certify passports and birth certificates for dependents. This saves taxpayers from mailing original documents to the IRS.
- In advance, taxpayers can call and make an appointment at a designated IRS Taxpayer Assistance Center instead of mailing original identification documents to the IRS.
Avoid Common Errors Now; Prevent Delays Next Year
Several common errors can delay some ITIN renewal applications. The mistakes generally center on missing information and/or insufficient supporting documentation. Here are a few examples of mistakes taxpayers should avoid:
- Filing with an expired ITIN. Federal returns that are submitted in 2018 with an expired ITIN will be processed. However, exemptions and/or certain tax credits will be disallowed. Taxpayers will receive a notice in the mail advising them of the change to their tax return and their need to renew their ITIN. Once the ITIN is renewed, any applicable exemptions and credits will be restored and any refunds will be issued.
- Missing a reason for applying. A reason for needing the ITIN must be selected on the Form W-7.
- Missing a complete foreign address. When renewing an ITIN, if Reason B (non-resident alien) is marked, the taxpayer must include a complete foreign address on their Form W-7.
- Mailing incorrect identification documents. Taxpayers mailing their ITIN renewal applications must include original identification documents or certified copies by the issuing agency and any other required attachments. They must also include the ITIN assigned to them and the name under which it was issued in 6e-f.
Taxpayers should review the Form W-7 instructions for detailed information and carefully check their package before submitting it.
As a reminder, the IRS no longer accepts passports that do not have a date of entry into the U.S. as a stand-alone identification document for dependents from a country other than Canada or Mexico, or dependents of U.S. military personnel overseas. The dependent’s passport must have a date of entry stamp, otherwise the following additional documents to prove U.S. residency are required:
- U.S. medical records for dependents under age 6,
- U.S. school records for dependents under age 18, and
- U.S. school records (if a student), rental statements, bank statements or utility bills listing the applicant’s name and U.S. address, if over age 18
IRS Encourages More Applicants for the Acceptance Agent Program to Expand ITIN Services
To increase the availability of ITIN services nationwide, particularly in communities with high ITIN usage, the IRS is actively recruiting Certified Acceptance Agents. Applications are now accepted year-round. Interested individuals, community outreach partners and volunteers at tax preparation sites are encouraged to review program changes and requirements.
The IRS continues to work with partner groups and others in the ITIN community to share information about these important changes. To assist taxpayers, the IRS has a variety of informational materials, including flyers and fact sheets available in several languages on the ITIN information page on IRS.gov.
Friday, August 11, 2017
The Federal Trade Commission has charged 12 defendants with laundering millions of dollars in credit card charges through fraudulent merchant accounts. According to the complaint filed by the FTC, the defendants arranged for a deceptive operation known as Money Now Funding (MNF) to obtain and maintain merchant accounts that allowed it to process almost $6 million through the credit card networks.
In September 2013, the FTC charged MNF with running a deceptive business opportunity scheme that promised consumers they would make thousands of dollars helping small businesses get loans. The court in the MNF matter determined that MNF’s promises were false.
Today’s case alleges that the defendants – an Independent Sales Organization (ISO), sales agents, and their principals – provided the MNF scheme access to the credit card networks by submitting and approving fraudulent applications in the names of more than 40 fictitious MNF companies. According to the FTC’s complaint, the defendants did so despite obvious signs that the companies were likely fictitious and being used to conceal the true identity of the underlying merchant. By processing the fraudulent MNF scheme’s transactions through merchant accounts opened in the names of fictitious companies, the ISO defendants allegedly also evaded the anti-fraud monitoring efforts of the credit card networks.
In the case announced today, the defendants are charged with violating the FTC Act and the FTC’s Telemarketing Sales Rule.
The ISO defendants are Electronic Payment Systems LLC, Electronic Payment Transfer LLC, John Dorsey, Thomas McCann and Michael Peterson. The sales agent defendants are Electronic Payment Solutions of America Inc., Electronic Payment Services Inc., KMA Merchant Services LLC, Dynasty Merchants LLC, Jay Wigdore, Michael Abdelmesseh, also known as Michael Stewart, and Nikolas Mihilli.
The Commission vote authorizing the staff to file the complaint was 2-0. It was filed in the U.S. District Court for the District of Arizona.
NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. The case will be decided by the court.
Eighteen elusive marketers who cheated American and Canadian consumers out of more than $7 million are banned from selling business or work-at-home opportunities under court orders obtained by the Federal Trade Commission.
These orders, along with court orders against 14 other people and companies named in the FTC’s lawsuit, resolve charges that the defendants conned consumers into thinking they could make money by referring merchants in their area to a non-existent money-lending service. Many victims affected by this scam were seniors with limited income and savings.
“The defendants tricked people into purchasing worthless ‘business opportunities,’ and manipulated the credit card system to hide their tracks,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “We’re pleased the court stopped this deception, which harmed many older people just trying to make a living.”
The defendants, who began operating as “Money Now Funding,” tried to avoid detection by law enforcement by changing product names, office locations, and merchant identities. They falsely claimed consumers would earn up to $3,000 per month by referring small businesses to the defendants to obtain loans. After consumers paid up to $499 to buy the business opportunity, the defendants told them that, to succeed, they had to buy sales leads that cost tens of thousands of dollars but turned out to be worthless.
Today’s announcement describes the court’s summary judgment orders against three defendants (the court found the facts of the case indisputable), settlements with six defendants, and default judgment against 23 defendants who did not respond to charges made against them.
The various judgments and settlements impose a ban on selling business or work-at-home opportunities on Lukeroy K. Rose, Leary Darling, Solana DePaola, Lance Himes, Cordell Bess, Cynthia Miller, Clinton Rackley, and Richard Frost, and 10 corporate defendants: Money Now Funding LLC, Rose Marketing LLC, DePaola Marketing LLC, Affiliate Marketing Group LLC, Affinity Technologies LLC, Global Network Marketing LLC, Precise Payroll Services LLC, Strategic Media Advertising LLC, Legal Doxs LLC, and US Doc Assist LLC. Some defendants are also banned from telemarketing. In addition, the judgments and settlements include provisions that apply specifically to certain defendants, prohibiting them from engaging in the types of misconduct alleged by the FTC.
The judgments and settlements also impose monetary judgments of $7.3 million against 12 defendants, and smaller judgments against others. The judgments against some defendants are suspended due to their inability to pay and, in some cases, pending the transfer of assets frozen by the court or held in receivership. The full judgments will become due immediately if the defendants are found to have misrepresented their financial condition.
The Commission votes authorizing the staff to file the proposed stipulated final orders against DePaola, Himes, Claspell, Beckman, Duckett and Hobbs were 5-0. The orders were entered by the U.S. District Court for the District of Arizona on June 3 and June 24. The court entered summary judgment orders against defendants Rose, Darling, and Rackley on June 3, and against the default defendants between July 15 and 20.
Thursday, August 10, 2017
Deputy Attorney General Rod Rosenstein Delivers Remarks at the International Association for Identification Annual Conference
Thank you, Governor Deal, for that kind introduction. I am grateful to the International Association for Identification for giving me the opportunity to participate in your Annual Conference.
It is an honor to address such a talented group of forensic examiners. I am excited to share with you what the Department of Justice is doing to advance the reliability of forensic science.
One of the keys to using forensic analysis appropriately is understanding the limitations of the evidence. You need to know what it means, and what it does not mean.
I recently handled a criminal appeal. The evidence showed that the defendant’s telephone had connected with particular cell towers. One of the disputed issues was the testimony of a telecommunications company employee. He testified that the cell tower range was about three miles, and digital records established that the phone had connected with a particular tower. The telecommunications provider routinely relied on these records in the normal course of business. It was hard evidence that required no analysis. A witness with no specialized knowledge could introduce it simply as the custodian of the company’s records.
Knowing what factors influence the range of a tower, on the other hand, requires special expertise. The range generally is imprecise, and therefore the exact location of the phone is difficult to determine from those records.
Given these limitations, we argued only that the records provided direct evidence that the defendant’s phone was in the neighborhood, and circumstantial evidence that the defendant himself was there.
Our case did not rely solely on that evidence. But it was relevant, it was true, and it was properly explained.
I have worked as a prosecutor for 27 years. I understand the critical role that forensic analysis can play in our criminal justice system. I know how forensics can be used to exonerate the innocent and convict the guilty.
Supervising the law enforcement components of the Department of Justice is now one of my responsibilities. This job gives me an even deeper appreciation of the Department’s work in advancing forensic science.
At the Department of Justice, we practice forensic science through our crime labs and digital analysis centers. We fund forensic science through grant programs at the Office of Justice Programs and elsewhere. And we are clients of forensic science in tens of thousands of cases we investigate every year. Given the Department’s deep reliance on forensic science to carry out our mission, we strive to set the standard for excellence.
The Attorney General has made it the Department’s top priority to reduce violent crime and improve public safety. The effective and proper use of forensic science advances that goal.
I am inspired by the outstanding work of the forensic examiners I’ve met, by the expertise they bring to the job, and by their dedication to justice.
FBI forensic examiners recently undertook an initiative to reexamine old fingerprint evidence. They used the FBI’s Next Generation Identification System to generate leads, identify missing persons, and solve crimes.
In 1992, Los Angeles experienced one of the deadliest riots in U.S. history. More than 50 people lost their lives. One of the victims was “John Doe No. 80.” His body was found in a store that had been set on fire. He was so badly burned that investigators were left with only a few clues as to his identity: Some teeth and a partial print from his left middle finger.
For nearly 25 years, John Doe No. 80 remained unidentified. But then an FBI latent print examiner had an innovative idea: use the FBI’s new NextGen technology to run the fingerprints of unidentified individuals. It relies on a sophisticated algorithm that increases the accuracy and the likelihood of an identification. Even where the FBI had already run someone’s fingerprints, the FBI Latent Print Unit believed this new technology could produce new leads. They were right.
After 25 years, John Doe No. 80 finally has a name. Thanks to hard work and ingenuity, we know that John Doe No. 80 is Armando Ortiz Hernandez.
The success story does not stop with the identification of one individual. The FBI Latent Print Unit partnered with a program funded by the National Institute of Justice. The National Missing and Unidentified Persons System stores information about thousands of deceased, missing, and unidentified individuals. The staff of the FBI Latent Print Unit worked to run the prints of approximately 1,500 unidentified people.
As a result of that hard work, the FBI identified 195 deceased individuals, including 55 suspected homicide victims. One of them was a Virginia native named Andrea Kuiper. Andrea disappeared 27 years ago. Through the new program, the FBI identified her as a woman who was killed in a car accident in California in 1990. After almost three decades, Andrea’s family finally knows what happened to her. Hundreds of other families were also able to experience closure, because of the FBI’s impressive latent print examiners.
Armando’s story and Andrea’s story are just the beginning. You are developing new ways to use technology to advance forensic science, and benefit the criminal justice system.
Last year, FBI lab personnel worked with database experts at the FBI’s Criminal Justice Information Services to re-examine 42,000 prints from unsolved crimes, including bank robberies, arson, and violent crimes. The prints had been examined previously, but FBI examiners thought that they may be able to generate additional identifications with the improved Next Gen system.
Running that many fingerprints required the FBI to develop a new interface to search large quantities of prints. And it paid off. The FBI generated leads about more than one thousand suspects in unsolved crimes.
Now, the FBI is working to make the bulk searching interface available to all law enforcement agencies nationwide. With this new technology in the hands of our law enforcement partners, many open cases can now be solved. Criminals will be brought to justice. Future crimes will be prevented. People will not become victims.
None of this would be possible without forensic analysis. Without the creativity and hard work of professionals like many of you, there would be thousands more unsolved cases. And thousands more victims waiting for justice.
Dedication to finding the truth is the mission of our criminal justice system. That is why it troubles me when people unfairly question the integrity of fingerprint examiners, and other legitimate forensic experts.
The practice of forensic science relies on human interpretation of scientific tests and examinations. This is not new. Almost every applied science relies on human interpretation. That includes medicine, computer science, and engineering. A doctor who testifies about the cause of a victim’s death bases that judgment on expert analysis. The same is true of forensic psychologists, entomologists, anthropologists, fire investigators, accident reconstruction experts, and a host of other trusted forensic disciplines. They use their scientific knowledge and training to analyze particular facts and data, apply judgment, and come to a reasoned conclusion. Those disciplines have been around for a long time. When subjected to informed cross examination, expert testimony can be tremendously probative and helpful to the jury.
Nevertheless, some critics have sought to limit the forensic evidence and testimony that can be presented in court. These critics suggest that unless a forensic discipline has a “known error rate,” evidence derived from that discipline should not be admitted in court. Under that standard, trusted and reliable forensic evidence would be excluded simply because the discipline is not susceptible to an easy-to-calculate error rate.
The folly of that approach is clear when critics question fingerprint analysis. They admit that it usually works. Their objection is that it requires judgment.
Those attacks are based on a mistaken view of the role of expert witnesses in the justice system. The bedrock principle of evidence law is that relevant evidence is generally admissible. Evidence is relevant if it tends to make a material fact more or less probable than it would be without the evidence. It is not necessary for the evidence to be indisputable.
For example, a shoeprint with irregular edges and unique wear on the outsole found at the scene of a burglary is likely relevant and admissible. Both the prosecution and the defense can use the evidence to help the jury decide whether to believe a defendant was at the scene of the crime.
Physical evidence may be more helpful to a jury if an expert can explain the evidence and place it in context. The jury may benefit from expert testimony in interpreting how probative the shoe print is. Is it the same size as the defendant’s foot? Does it match a shoe found in the defendant’s closet? Answers to those questions may determine whether the physical evidence is incriminating or exculpatory. If the testimony were excluded, the search for truth would be impeded. The jury would have no assistance in determining what to conclude about the discovery of the shoeprint.
Forensic evidence can be extremely important. But we also need to recognize that it can be abused and misused, as is true of every discipline. There have been instances in which people have operated in bad faith, masquerading as reliable experts when they lacked sufficient knowledge or failed to perform appropriate tests. In other instances, people have testified in good faith but used language that may have suggested more confidence than was warranted.
When the judicial system functions as intended, justice is advanced. Our adversarial system is based on the principle that the truth is most likely to emerge when opposing parties have the opportunity to cross-examine each other’s witnesses, and each party is able to call its own witnesses and introduce conflicting evidence.
Our criminal justice system provides important procedural protections for defendants. For example, a federal defendant is entitled to a written summary of the testimony of the government’s forensic expert. That allows the defendant to know in advance what the government’s expert plans to say, and to rebut it with his own expert testimony. The defendant also has the right to examine and challenge the results of any scientific test.
The search for truth benefits from those protections. But most of all, the quest for truth benefits from prepared legal practitioners and trained forensic examiners. When courts exclude useful evidence, it undermines the cause of justice.
The Department of Justice has undertaken unprecedented efforts to examine and strengthen the reliability of forensic science and its use in the courtroom. We are committed to improving forensic science.
With that goal in mind, the National Institute of Justice has provided $125 million over the past 6 years for grants dedicated to research and innovation. It will provide millions more this upcoming fiscal year as we continue to support the forensic community. We hope that this money will lead to the development of accurate, reliable, cost-effective, and rapid methods for the identification, analysis, and interpretation of physical evidence. Federal funding has been key to earlier advances in forensic science, such as the Ames black box study of ballistics.
Many state and local labs rely on funding from the Department through our grant programs. We are dedicated to ensuring our partners are able to access grant funds to conduct high quality, reliable, and probative forensic examinations.
The Department is also committed to ensuring that our own forensic experts testify only in ways that are supported by available research. Justice is not advanced if an expert exaggerates in describing the significance of the evidence.
To achieve that goal, I am announcing today the creation of a new Forensic Science Working Group. The first order of business will be to resume work on the Uniform Language for Testimony and Reports.
The Uniform Language project started in 2016. It was paused earlier this year. After discussions with Department components, I concluded that the project will help in setting the bounds of what examiners should say in court. Prosecutors and forensic examiners at the federal, state, and local level support the project. Accordingly, I have instructed the Working Group to finalize the Uniform Language program so we can implement it in the near future. We will rely on input from outside stakeholders, including defense attorneys, academic scientists, and statisticians, as well as forensic science practitioners.
Our efforts will not end with implementation of the Uniform Language program. I am also directing the Working Group to establish a process to continually monitor the accuracy of courtroom testimony by federal expert witnesses. The FBI already implemented a monitoring program to help ensure that its experts testify accurately about the results of their forensic examinations. A new Department-wide monitoring program will ensure that all examiners give testimony consistent with scientific principles.
The working group will be directed by our new Senior Advisor on Forensics. I am pleased to announce that the Attorney General has appointed Ted Hunt as Senior Advisor. Ted is a teaching faculty member for a number of organizations that train legal practitioners, law enforcement, and laboratory analysts. He was previously a supervisory prosecutor in Kansas City, Missouri. Ted is also a member of several forensic science commissions and organizations.
Some of you know Ted from his service on the National Commission of Forensic Science. Appointing Ted to serve in this new position demonstrates the Attorney General’s commitment to improving forensic science.
Ted will coordinate closely with federal, state, local, and tribal forensic science practitioners and identify ways to conduct ongoing outreach to those stakeholders.
We are taking other steps to improve forensic science. In April, we announced a “Needs Assessment of Forensic Laboratories.” We plan to examine workload, backlog, personnel and equipment needs of public crime laboratories, and the education and training needs of forensic science practitioners.
As part of the needs assessment, we will first collect and review existing data sources. We already started reviewing materials to assess what data and information exist, and to identify what else we need to collect. The next phase of implementation is outreach to forensic science practitioners. We welcome input from the forensic science practitioner community about where additional resources are needed.
We plan to establish a needs assessment steering committee of crime lab directors. We expect to convene the steering committee this fall and conduct listening sessions with the committee and other forensic science stakeholders. The listening sessions will explore forensic needs and ideas to increase efficiency.
The Department also will conduct an internal needs assessment. The needs assessment is an opportunity for us to develop comprehensive strategies about how best to improve the quality, reliability, and efficiency of forensic science processes.
I encourage you to participate in this process of data collection to advance our shared mission of using forensic science to improve public safety.
In April, the Department published an Issue for Comment in the Federal Register seeking broad stakeholder input about how the Department can best support the advancement of forensic science. That Notice closed on June 9. We received more than 250 comments, including one from International Association for Identification. We will use those comments to help develop a path forward.
Thanks to the diligent work of federal, state, and local leaders, there has been meaningful progress in advancing forensic science and employing it in the legal system.
We must use forensic analysis carefully. But we must continue to use it. We should not exclude reliable forensic analysis—or any reliable expert testimony—simply because it is based on human judgment.
Has anyone seen the movie My Cousin Vinny? In the film, a young woman takes the witness stand and surprises everyone by demonstrating her expertise about automobiles. It does not necessarily take a Ph.D. scientist to be an expert witness and to provide information that will be helpful to a jury. And it certainly does not require proof of a known error rate. Many factors may influence the weight of the evidence – how much the jury should rely on it – but we could rely on juries to make those decisions as long as the witness is competent and responsible, and the judge gives appropriate instructions about how to evaluate the testimony.
We face many law enforcement challenges – new challenges spawned by the internet and modern technology, old challenges like combatting violent gangs, and evolving challenges such as the unprecedented surge in drug overdose deaths from synthetic chemicals. The President has tasked the Department of Justice to address those challenges. The Attorney General strongly believes that forensic analysis can help us find solutions.
Our uniform language initiative, and continuous monitoring program, will provide assurance that forensic analysis is used correctly. That will advance the search for truth in federal courtrooms.
In closing, I want to thank you all for your commitment to responsible forensic analysis. I look forward to working collaboratively with you to ensure that reliable forensic evidence is available for use in court by all parties.
The truth is out there. Working together, we will help judges and juries find it. And make America safer in the process.
Wednesday, August 9, 2017
E-Commerce Company and Top Executive Agree to Plead Guilty to Price-Fixing Conspiracy for Customized Promotional Products
An e-commerce company and its top executive have agreed to plead guilty to conspiring to fix prices for customized promotional products sold online to customers in the United States. Zaappaaz Inc. (d/b/a WB Promotions Inc., Wrist-Band.com and Customlanyard.net) and its president Azim Makanojiya agreed to plead guilty to a one-count criminal violation of the Sherman Act.
Acting Assistant Attorney General Andrew Finch of the Department of Justice’s Antitrust Division, Acting U.S. Attorney Abe Martinez and Special Agent in Charge Perrye K. Turner of the FBI’s Houston Field Division made the announcement.
According to the felony charges filed today in the U.S. District Court for the Southern District of Texas in Houston, the conspirators attended meetings and communicated in person and online. The investigation has revealed that the conspirators used social media platforms and encrypted messaging applications, such as Facebook, Skype and Whatsapp, to reach and implement their illegal agreements. Specifically, the defendants and their co-conspirators agreed, from as early as 2014 until June 2016, to fix the prices of customized promotional products sold online, including wristbands and lanyards. In addition to agreeing to plead guilty, Zaappaaz has agreed to pay a $1.9 million criminal fine.
“As today’s charges show, criminals cannot evade detection by conspiring online and using encrypted messaging,” said Acting Assistant Attorney General Andrew Finch. “In addition, today’s charges are a clear sign of the Division’s commitment to uncovering and prosecuting collusion that affects internet sales. American consumers have the right to a marketplace free of unlawful collusion, whether they are shopping at retail stores or online.”
“Schemes like the defendants’ cause financial harm to consumers who purchase goods and services and to businesses who sell goods and services in compliance with the laws of the United States,” said Acting U.S. Attorney Abe Martinez. “The United States will continue to investigate and prosecute individuals and businesses who seek to gain an illegal advantage.”
“The FBI stands ready to protect consumers from unscrupulous business practices,” said Special Agent in Charge Perrye K. Turner. “Antitrust laws help protect the competitive process for the benefit of all consumers.”
Makanojiya is charged with price fixing in violation of the Sherman Act which carries a maximum sentence of 10 years in federal prison and a maximum fine of $1 million for individuals. The maximum fine for an individual may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime if either of those amounts is greater than the statutory maximum fine.
Both defendants have agreed to cooperate with the Antitrust Division’s ongoing investigation. The plea agreements are subject to court approval.
This prosecution arose from an ongoing federal antitrust investigation into price fixing in the online promotional products industry, which is being conducted by the Antitrust Division’s Washington Criminal I Section with the assistance of the FBI’s Houston Field Office. Anyone with information on price fixing or other anticompetitive conduct in the customized promotional products industry should contact the Antitrust Division’s Citizen Complaint Center at 888-647-3258 or visit www.justice.gov/atr/contact/newcase.html.
Tuesday, August 8, 2017
Quinnipiac University School of Law invites applications for two full-time tenure-track faculty positions for the fall of 2018. The principal curricular focus for one position will be tax law. Applicants for this position should expect to teach at least one section of Federal Income Taxation plus other courses in taxation and/or related fields of interest, including real estate, trusts & estates, business entities, and non-profit organizations. The principal curricular focus for the second position will be property law, broadly construed to include the traditional first-year Property course, plus real estate transactions and financing, land use, and planning and zoning.
Applications must be submitted electronically and should include a cover letter which details teaching experience and research achievements as well as a curriculum vitae. The names and contact information of three references must be submitted on the application. While the application process requires that candidates apply online, inquiries regarding the position may be directed to: Professor Jeffrey Cooper, Chair, Faculty Appointments Committee, Quinnipiac University School of Law. Please send e-mail inquiries to: email@example.com.
U.S. INTERNATIONAL TRADE IN GOODS AND SERVICES June 2017
The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $43.6 billion in June, down $2.7 billion from $46.4 billion in May, revised. June exports were $194.4 billion, $2.4 billion more than May exports. June imports were $238.0 billion, $0.4 billion less than May imports.
The June decrease in the goods and services deficit reflected a decrease in the goods deficit of $2.1 billion to $65.2 billion and an increase in the services surplus of $0.6 billion to $21.6 billion.
Year-to-date, the goods and services deficit increased $26.7 billion, or 10.7 percent, from the same period in 2016. Exports increased $64.9 billion or 6.0 percent. Imports increased $91.7 billion or 6.9 percent.
Goods and Services Three-Month Moving Averages (Exhibit 2)
The average goods and services deficit decreased $0.5 billion to $45.9 billion for the three months ending in June.
* Average exports of goods and services increased $1.0 billion to $192.5 billion in June.
* Average imports of goods and services increased $0.4 billion to $238.4 billion in June.
Year-over-year, the average goods and services deficit increased $4.6 billion from the three months ending in June 2016.
* Average exports of goods and services increased $9.9 billion from June 2016.
* Average imports of goods and services increased $14.5 billion from June 2016.
Exports (Exhibits 3, 6, and 7)
Exports of goods increased $1.7 billion to $129.0 billion in June. Exports of goods on a Census basis increased $1.9 billion.
* Capital goods increased $0.8 billion.
* Foods, feeds, and beverages increased $0.7 billion.
o Soybeans increased $0.6 billion.
* Automotive vehicles, parts, and engines increased $0.4 billion.
* Consumer goods decreased $0.3 billion.
o Pharmaceutical preparations decreased $0.4 billion.
Net balance of payments adjustments decreased $0.2 billion.
Exports of services increased $0.6 billion to $65.4 billion in June.
* Travel (for all purposes including education) increased $0.3 billion.
* Transport, which includes freight and port services and passenger fares, increased
* Financial services increased $0.1 billion.
Imports (Exhibits 4, 6, and 8)
Imports of goods decreased $0.4 billion to $194.3 billion in June. Imports of goods on a Census basis decreased $0.3 billion.
* Industrial supplies and materials decreased $1.1 billion.
o Crude oil decreased $1.4 billion.
* Consumer goods decreased $0.7 billion.
o Cell phones and other household goods decreased $0.9 billion.
* Automotive vehicles, parts, and engines increased $1.0 billion.
o Passenger cars increased $1.3 billion.
Net balance of payments adjustments decreased $0.1 billion.
Imports of services were nearly unchanged at $43.8 billion in June, reflecting small and offsetting changes across categories.
Real Goods in 2009 Dollars – Census Basis (Exhibit 11)
The real goods deficit decreased $1.8 billion to $61.0 billion in June.
* Real exports of goods increased $2.0 billion to $126.9 billion.
* Real imports of goods increased $0.3 billion to $187.9 billion.
Revisions to May exports
* Exports of goods were revised up $0.1 billion.
* Exports of services were revised down $0.1 billion.
Revisions to May imports
* Imports of goods were revised down less than $0.1 billion.
* Imports of services were revised down $0.1 billion.
Goods by Selected Countries and Areas: Monthly – Census Basis (Exhibit 19)
The June figures show surpluses, in billions of dollars, with Hong Kong ($2.9), South and Central America ($2.6), Singapore ($0.9), Brazil ($0.5), and United Kingdom ($0.2). Deficits were recorded, in billions of dollars, with China ($31.3), European Union ($12.5), Germany ($5.6), Japan ($5.5), Mexico ($5.5), Italy ($2.7), India ($1.9), South Korea ($1.8), Taiwan ($1.7), France ($1.1), Canada ($1.0), OPEC ($0.7), and Saudi Arabia (less than $0.1).
- The deficit with Mexico decreased $1.2 billion to $5.5 billion in June. Exports increased $1.7 billion to $20.8 billion and imports increased $0.5 billion to $26.3 billion.
* The deficit with Canada decreased $1.2 billion to $1.0 billion in June. Exports decreased less than $0.1 billion to $23.6 billion and imports decreased $1.2 billion to $24.5 billion.
Monday, August 7, 2017
Joseph P. Allen, a former owner of a government contracting company that serviced the Military Sealift Command (MSC) was sentenced to 60 months in prison, and to pay a $15,000 fine, for his participation in a bribery conspiracy from approximately 1999 to 2014, in which he provided a contracting official at MSC with almost $3 million in bribes. U.S. District Judge Arenda L. Wright Allen today sentenced Joseph P. Allen, 56, of Panama City, Florida, following his guilty plea on April 19, to one count of conspiracy to commit bribery.
According to the statement of facts included in Allen’s guilty plea, Allen conspired with a government contracting official, Scott B. Miserendino, Sr., 58, formerly of Stafford, Virginia, to use Miserendino’s position at MSC to enrich themselves through bribery. Specifically, beginning in about 1999, Miserendino used his position and influence at MSC to facilitate and expand Allen’s company’s commission agreement with a third-party telecommunications company that sold maritime satellite services to MSC. Unknown to MSC or the telecommunications company, throughout the scheme, Allen paid half of the commissions he received from that telecommunications company to Miserendino as bribes.
For his role in the scheme, Miserendino was charged in a five-count indictment on May 4, with one count of conspiracy to commit bribery and honest services mail fraud, one count of bribery, and three counts of honest services mail fraud. His trial is currently scheduled for October 31, before U.S. District Court Judge Rebecca Beach Smith. The charges and allegations against Miserendino contained in the indictment are merely accusations. The defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.
Sunday, August 6, 2017
The Securities and Exchange Commission charged Halliburton Company with violating the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act (FCPA) while selecting and making payments to a local company in Angola in the course of winning lucrative oilfield services contracts.
Halliburton, which profited by approximately $14 million from the deals, has agreed to pay more than $29.2 million to settle the SEC’s case. The company also agreed to obtain an independent compliance consultant to oversee its anti-corruption policies and procedures in Africa. Halliburton’s former vice president Jeannot Lorenz has agreed to pay a $75,000 penalty for causing the company’s violations, circumventing internal accounting controls, and falsifying books and records.
According to the SEC’s order, officials at Angola’s state oil company Sonangol advised Halliburton management in 2008 that it was required to partner with more local Angolan-owned businesses to satisfy local content regulations for foreign firms operating in Angola. Halliburton tasked Lorenz to spearhead these efforts. When a new round of oil company projects came up for bid, Lorenz began a lengthy effort to retain a local Angolan company owned by a former Halliburton employee who was a friend and neighbor of the Sonangol official who would ultimately approve the award of the contracts. It took three attempts but Halliburton ultimately outsourced more than $13 million worth of business to the local Angolan company.
The SEC’s order finds that Halliburton entered into contracts with the local Angolan company that were intended to meet local content requirements rather than the stated scope of work. Lorenz violated Halliburton’s internal accounting controls by starting with the local Angolan company and then backing into a list of contract services rather than first determining the services and then selecting an appropriate supplier. Lorenz also failed to conduct competitive bidding or substantiate the need for a single source of supply, and he avoided an internal accounting control that required contracts of more than $10,000 in countries like Angola with high corruption risks to be reviewed and approved by a special committee within Halliburton. The company eventually paid $3.705 million to the local Angolan firm, and Sonangol approved the award of seven lucrative subcontracts to Halliburton.
“Halliburton committed to using a particular supplier that posed significant FCPA risks and a company vice president circumvented important internal accounting controls to get the deal done quickly,” said Antonia Chion, Associate Director in the SEC’s Enforcement Division. “Companies and their executives must comply with these internal accounting controls that help ensure the integrity of corporate transactions.”
Without admitting or denying the findings, Halliburton and Lorenz consented to the order requiring them to cease and desist from committing or causing any violations or any future violations of the books and records and internal accounting controls provisions of the FCPA. Halliburton agreed to pay $14 million in disgorgement plus $1.2 million in prejudgment interest and a $14 million penalty. Halliburton must retain an independent compliance consultant for 18 months to review and evaluate its anti-corruption policies and procedures, particularly in regard to local content obligations for business operations in Africa.