International Financial Law Prof Blog

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

Saturday, June 30, 2018

Eight Arrested in Africa-Based Cybercrime and Business Email Compromise Conspiracy

In accordance with the Justice Department’s recent efforts to disrupt business email compromise (BEC) schemes that are designed to intercept and hijack wire transfers from businesses and individuals, including many senior citizens, the Department announced Operation Keyboard Warrior, an effort coordinated by United States and international law enforcement to disrupt online frauds perpetrated from Africa.  Eight individuals have been arrested for their roles in a widespread, Africa-based cyber conspiracy that allegedly defrauded U.S. companies and citizens of approximately $15 million since at least 2012.

Five individuals were arrested in the United States for their roles in the conspiracy including Javier Luis Ramos Alonso, 28, a Mexican citizen residing in Seaside, California; James Dean, 65, of Plainfield, Indiana; Dana Brady, 61, of Auburn, Washington; Rashid Abdulai, 24, a Ghanaian citizen residing in the Bronx, New York, who has been charged in a separate indictment; and Olufolajimi Abegunde, 31, a Nigerian citizen residing in Atlanta, Georgia. Maxwell Atugba Abayeta aka Maxwell Peter, 26, and Babatunde Martins, 62, of Ghana and Benard Emurhowhoariogho Okorhi, 39, a Nigerian citizen who resides in Ghana, have been arrested overseas and are pending extradition proceedings to face charges filed in the Western District of Tennessee. 

The indictment also charges Sumaila Hardi Wumpini, 29; Dennis Miah, 34; Ayodeji Olumide Ojo, 35, and Victor Daniel Fortune Okorhi, 35, all of whom remain at large. Abegunde had his detention hearing today before U.S. District Court Judge Sheryl H. Lipman of the Western District of Tennessee, who ordered him detained pending trial, which has been set for Oct. 9.

“The defendants allegedly unleashed a barrage of international fraud schemes that targeted U.S. businesses and individuals, robbing them to the tune of approximately $15 million,” said Acting Assistant Attorney General Cronan. “The Department of Justice will continue to work with our international partners to aggressively disrupt and dismantle criminal enterprises that victimize our citizens and businesses.”

“Today, the FBI and our partners are announcing indictments as part of Operation Keyboard Warrior,” said FBI Executive Assistant Director Resch.  “Following the success of Operation WireWire in early June, these indictments continue to demonstrate the FBI’s commitment to working with our partners around the globe to disrupt and dismantle criminal enterprises that target Americans and their businesses.  This should stand as a warning that our work is not over, and we will continue to work together with our law enforcement partners to put an end to these fraud schemes. I want to thank all the agents and analysts at the FBI, our partners at the Department of Justice, and our Ghanaian partners at the Economic and Organised Crime Office for all their tireless work to continue to pursue this issue at every turn.”

The indictment was returned by a grand jury in the U.S. District Court for the Western District of Tennessee on Aug. 23, 2017, and charges the defendants with conspiracy to commit wire fraud, wire fraud, conspiracy to commit money laundering, conspiracy to commit computer fraud, and aggravated identity fraud.

The indictment alleges that the Africa-based coconspirators committed, or caused to be committed, a series of intrusions into the servers and email systems of a Memphis-based real estate company in June and July 2016.  Using sophisticated anonymization techniques, including the use of spoofed email addresses and Virtual Private Networks, the coconspirators identified large financial transactions, initiated fraudulent email correspondence with relevant business parties, and then redirected closing funds through a network of U.S.-based money mules to final destinations in Africa.  Commonly referred to as business email compromise, or BEC, this aspect of the scheme caused hundreds of thousands in loss to companies and individuals in Memphis.

In addition to BEC, some of the Africa-based defendants are also charged with perpetrating, or causing to be perpetrated, various romance scams, fraudulent-check scams, gold-buying scams, advance-fee scams, and credit card scams.  The indictment alleges that the proceeds of these criminal activities, both money and goods, were shipped and/or transferred from the United States to locations in Ghana, Nigeria, and South Africa through a complex network of both complicit and unwitting individuals that had been recruited through the various Internet scams.  Some of the defendants are also charged with concealing their conduct by, among other means, stealing or fraudulently obtaining personal identification information (PII) and using that information to create fake online profiles and personas.  Through all their various schemes, the defendants are believed to have caused millions in loss to victims across the globe.

An indictment is merely an allegation and the defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

The FBI led the investigation.  The FBI’s Transnational Organized Crime of the Eastern Hemisphere Section of the Criminal Investigative Division, Major Cyber Crimes Unit of the Cyber Division, the Legal Attaché in Accra, and International Organized Crime Intelligence and Operations Center all provided significant support in this case, as did the Ghanaian Economic and Organised Crime Office, INTERPOL Washington, the U.S. Marshals Service, and the U.S. Attorney’s Offices of the Northern District of Georgia, Western District of Washington, Central District of California, Southern District of New York, and the Northern District of Illinois.

Senior Trial Attorney Timothy C. Flowers of the Criminal Division’s Computer Crime and Intellectual Property Section and Assistant U.S. Attorney Debra L. Ireland of the U.S. Attorney’s Office for the Western District of Tennessee are prosecuting the case, with significant assistance from the Department of Justice’s Office of International Affairs.  

June 30, 2018 in AML | Permalink | Comments (0)

Friday, June 29, 2018

OECD launches largest source of comparable tax revenue data

A new database providing detailed and comparable tax revenue information for 80 countries around the world – and which will expand to cover more than 90 countries by the end of 2018 – was unveiled today during the 5th plenary meeting of the Inclusive Framework on BEPS, held in Lima, Peru.

The Global Revenue Statistics Database provides the largest public source of comparable tax revenue data, which is produced in partnership with countries and regional organisations. The database provides reliable and accessible country-specific indicators on tax levels and structures, supports global efforts to raise domestic revenues for sustainable development, contributing directly to the Sustainable Development Goals and the Addis Ababa Action Agenda. It will strengthen the capacity of governments and tax policy-makers to develop and implement tax policy reforms that will raise domestic resources to fund the provision of vital public goods and services.

“With information covering 80 countries, the Global Revenue Statistics Database sets the global standard for robust and comparable tax revenue data” said Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration. “It is a vital foundation for tax policy reform and in supporting efforts to raise domestic resources to fund development”.

working paper, drawing on the new database, shows that in the 21st century countries have made strong progress towards mobilising domestic financing for development. Levels of tax revenues are now higher and more even across countries than at the turn of the century; and countries with the lowest revenues have experienced the largest increases in their tax-to-GDP ratios.

The Global Revenue Statistics Database integrates information from the four annual Revenue Statistics publications, which provide tailored insights on tax systems and revenue priorities in African, Asian, Latin American and Caribbean (LAC), and OECD countries. Based on the internationally-recognised OECD standard, the publications are produced in partnership with regional partners, with the financial support of the European Union, and in close collaboration with participating countries.

Key findings from the working paper (drawing from the new database):

  • Across the 80 countries, tax-to-GDP ratios range from 10.8% to 45.9%.
    • Half of the countries have a tax-to-GDP ratio ranging between 18.2% and 33.2% of GDP.
    • The median tax-to-GDP ratio is 26.2%.
  • Since 2000, three-quarters of the countries in the database have increased their tax to GDP ratios:
    • Half of the countries have increased their tax-to-GDP ratios by between 0 and 5% of GDP;
    • A further quarter have increased their tax-to-GDP ratio by more than 5% of GDP. Most of these countries are from Africa and LAC.
    • The remaining quarter of countries, where tax-to-GDP ratios fell, are predominantly OECD countries.
  • In Africa (16) and LAC, taxes on goods and services (especially VAT) and corporate income taxes are particularly important as a share of revenues. Social security contributions and personal income taxes form the highest shares of tax revenue in most OECD countries, with VAT playing a smaller role. 
  • Since 2000, VAT has become increasingly significant in more than three-quarters of the countries, in many cases, with corresponding falls in the share of income taxation or taxes on other goods and services. The exceptions are the quarter of countries with the highest increases in their tax to GDP ratios, which recorded strong increases in most or all major tax types.
  • Per capita income, and different types of tax structures, are linked to the level of taxation.
    • There is a positive correlation between tax-to-GDP levels, per-capita income levels and the share of personal income tax and social security contributions.
    • There is a negative correlation between tax-to-GDP levels and the shares of corporate taxes and taxes on goods and services.

To access the database, key findings, technical note, and working paper, visit

June 29, 2018 in OECD | Permalink | Comments (0)

New Panama Papers Leak Reveals Firm’s Chaotic Scramble To Identify Clients, Save Business Amid Global Fallout

ICIJ new report: "Over the year, newly leaked documents show, Mossack Fonseca employees frantically emailed bankers, accountants and lawyers – the professionals who had hired the firm to set up shell companies for wealthy clients who wanted to remain anonymous – in an attempt to close the gaps in its recordkeeping. Those intermediaries responded with panic and fury."

“THE CLIENT DISAPPEARED! I CAN NOT FIND HIM ANYMORE!!!!!!!,” Nicole Didi, a Swiss wealth management adviser, wrote in March 2017. A long-time intermediary of Mossack Fonseca, she acted for 80 companies set up by the firm.  Read the full story at ICIJ.

June 29, 2018 in AML | Permalink | Comments (0)

Former State Street Executive Convicted in Scheme to Defraud Clients Through Secret Trading Commissions on Billions of Dollars of Securities Trades

A former executive vice president of State Street Bank & Trust was convicted by a federal jury in Boston in connection with engaging in a scheme to defraud at least six of the bank’s clients through secret commissions applied to billions of dollars of securities trades. 

Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division, U.S. Attorney Andrew E. Lelling of the District of Massachusetts and Special Agent in Charge Harold H. Shaw of the FBI’s Boston Field Division made the announcement.

After a three-week trial, Ross McLellan, 47, of Hingham, Massachusetts, was convicted of one count of conspiracy to commit securities fraud and wire fraud, two counts of securities fraud and two counts of wire fraud.  U.S. District Court Judge Leo T. Sorokin of the District of Massachusetts, who presided over the trial, scheduled sentencing for Oct. 10.

“State Street’s clients, including institutional investors managing pensions for retirees, entrusted McLellan and his subordinates to transition billions of dollars in assets,” said Acting Assistant Attorney General John Cronan.  “Rather than living up to the responsibility to act in their clients’ best interests, McLellan and his coconspirators stole from these victims by charging hidden commissions and then lying about the scheme to cover their tracks.  This conviction is a testament to the dedication of the FBI and prosecutors in the Criminal Division and U.S. Attorney’s Office to protecting innocent investors by investigating and prosecuting complex financial crimes.”

“Mr. McLellan defrauded State Street clients, violating his fiduciary duties and abusing his clients’ trust along the way,” said U.S. Attorney Lelling.  “With systematic precision, Mr. McLellan and his conspirators added secret commissions to securities trades and took steps to conceal the scheme.  In doing so, beyond directly defrauding institutional investors, Mr. McLellan chipped away at the savings of thousands of retirees whose pensions he was supposed to safeguard.  After only five hours of deliberations, a jury found Mr. McLellan guilty of five of six counts in the indictment.” 

“Motivated by sheer greed, Mr. McLellan devised an elaborate bait and switch scheme to defraud State Street’s clients out of millions of dollars, and now he’s finally being held accountable for his actions,” said FBI Special Agent in Charge Shaw.  “This case should serve as a warning to others, the FBI and our law enforcement partners will aggressively pursue and bring to justice those who undermine our financial markets.”

In April 2016, McLellan, a former executive vice president of State Street who served as global head of its Portfolio Solutions Group and president of its U.S. broker-dealer, was indicted with Edward Pennings, 47, of Surrey, England, a former senior managing director of State Street and the head of its Portfolio Solutions Group for Europe, the Middle East and Africa.  

As established by the evidence at trial, between February 2010 and September 2011, McLellan, Pennings and Richard Boomgaardt, 44, of Sevenoaks, England, a former managing director of State Street, conspired to add secret commissions to fixed income and equity trades performed for at least six clients of the bank’s “transition management” business, which helps institutional clients move their investments between and among asset managers or liquidate large investment portfolios.  The commissions were charged on top of fees the clients had agreed to pay the bank, and despite written instructions to the bank’s traders that generally reflected that the clients were not to be charged trading commissions.  McLellan, Pennings and Boomgaardt took steps to hide the commissions from the clients and others within the bank, including by directing that the commissions not be broken out in post-trade reports. 

For example,

  • In a telephone call in March 2010, Pennings instructed Boomgaardt not to talk about the plans to charge hidden commissions on one transaction “with anyone . . . because it’s not going to help our story.  Don’t even share it with the rest of the team, to be honest.”
  • In June 2010, McLellan and Boomgaardt requested that the bank’s traders provide them with the reported daily high and low prices of securities the bank had traded for the client so that they could determine the amount of the commissions to be applied to each security without attracting the client’s attention.
  • In March 2011, McLellan instructed a U.S. fixed income trader to charge a commission of one basis point (0.01 percent) of yield to each trade conducted for another client – notwithstanding that the written trading instructions for the transaction said to charge zero commissions – and subsequently instructed the trader to delete any reference to the commissions from the trading results he sent to the transition manager assigned to the project.

In June 2011, when one of the affected clients inquired about whether it had, in fact, been charged commissions in breach of its agreement with the bank, Pennings initially denied that any commissions had been charged.  Later – at McLellan’s direction – Pennings acknowledged only that “inadvertent commissions” had been applied to securities traded in the United States, but did not disclose that they had, in fact, been intentionally charged in both the United States and in Europe.  McLellan and Pennings sought to mislead the bank’s compliance staff into believing that the commissions had been charged in error and that the amount of the overcharges was limited to the commissions applied on U.S. securities, the evidence showed.

In June 2017, Pennings pleaded guilty and is scheduled to be sentenced on July 18.  Boomgaardt was charged separately and pleaded guilty in July 2017 to one count of conspiracy to commit securities fraud and wire fraud.  Boomgaardt is scheduled to be sentenced on July 31.

The case was investigated by the FBI.  Trial Attorney William Johnston of the Criminal Division’s Fraud Section and Assistant U.S. Attorney/Economic Crimes Chief Stephen E. Frank of the District of Massachusetts are prosecuting the case.  Valuable assistance was provided by the Securities & Exchange Commission and the Justice Department’s Office of International Affairs.

June 29, 2018 in AML | Permalink | Comments (0)

Hong Kong Starts Enforcement of Licensure of Trust and Company

Expiry of the transitional period for existing practitioners to apply for a trust or company service provider licence

The 120-day transitional period for existing practitioners to apply for a trust or company service provider ("TCSP") licence ended on 28 June 2018.

If any practitioner is currently carrying on a trust or company service business in Hong Kong and has not yet applied for a TCSP licence from the Registrar of Companies, he/she should have applied for the licence on or before 28 June 2018, the end of the transitional period.

In the absence of such an application in respect of an existing business, any person who, after 28 June 2018, carries on the TCSP business in Hong Kong without a licence commits an offence under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, Cap. 615, and, once convicted, is liable to a maximum fine of $100,000 and imprisonment up to six months.

For detailed information, please visit or call our hotline at 3142 2822.

June 29, 2018 in Financial Regulation | Permalink | Comments (0)

Strengthening the fight against crime and terrorism: Commission welcomes agreement on the confiscation of assets across borders

The provisional political agreement reached by the European Parliament and Council on the Commission's proposal for an EU regulation on the freezing and confiscation of assets across borders was confirmed by Member States. The proposal was adopted as part of the Action Plan to strengthen the fight against terrorist financing and contributes to completing the Security Union.

Vĕra Jourová, Commissioner for Justice, Consumers and Gender Equality said: “I welcome the political agreement on new rules to facilitate confiscation of assets across borders. At the moment, 99% of criminal proceeds remain in the hands of criminals and terrorists. The current EU legislation on mutual recognition of orders to confiscate or freeze assets across borders is outdated and prone to loopholes. Member States must cooperate better and much faster. Our new set of rules will directly apply in Member States, with standard documents, clear deadlines and better communication between national authorities."

The new regulation will set a deadline of 48 hours to recognise and execute freezing orders. It will widen the scope of current rules on cross-border recognition: criminals can be deprived of criminal assets, even when the assets belong to their relatives. Finally, in cases of cross-border execution of confiscation orders, the victim's right to compensation will have priority over States' claims. Following this political agreement, the text of the Directive will have to be formally approved by the European Parliament and the Council.

June 29, 2018 in AML | Permalink | Comments (0)

Thursday, June 28, 2018

National Taxpayer Advocate Discusses TCJA and Customer Services in Mid Year Report

National Taxpayer Advocate Nina E. Olson today released her statutorily mandated mid-year report to Congress that presents a review of the 2018 filing season, identifies the priority issues the Taxpayer Advocate Service (TAS) will address during the upcoming fiscal year and contains the IRS’s responses to each of the 100 administrative recommendations the Advocate made in her 2017 Annual Report to Congress.

The most significant challenge the IRS faces in the upcoming year is implementing the Tax Cuts and Jobs Act of 2017 (TCJA), which among other things requires programming an estimated 140 systems, writing or revising some 450 forms and publications and issuing guidance on dozens of TCJA provisions. Ms. Olson expresses confidence that the IRS will implement the law successfully. “Make no mistake about it. I have no doubt the IRS will deliver what it has been asked to do,” she writes in the preface to the report.

However, she reiterates her longstanding concern that IRS funding reductions have undermined the agency’s ability to provide high-quality taxpayer service and to modernize its aging information technology infrastructure. The report points out that IRS funding has been reduced by 20 percent since fiscal year (FY) 2010 on an inflation-adjusted basis. “Because of these reductions, the IRS doesn’t have enough employees to provide basic taxpayer service,” the report says. “The compliance and enforcement side of the house has been cut by even more. So in addition to answering the fewest number of taxpayer calls in recent memory, the IRS also has the lowest individual audit rate in memory (0.6 percent) and its collection actions are way down.”

Taxpayer service challenges

In her preface to the report, Ms. Olson focuses on the IRS’s customer service challenges.  The report says the IRS utilizes narrow performance measures that suggest the agency is performing well but do not reflect the taxpayer experience. For example, the IRS reports it achieved a “Level of Service” on its toll-free telephone lines of 80 percent during the 2018 filing season, which is widely understood to mean IRS telephone assistors answered 80 percent of taxpayer calls. In fact, the report points out IRS telephone assistors answered only 29 percent of the calls the IRS received. Similarly, the IRS reports it achieved a customer satisfaction level of 90 percent on its toll-free lines during FY 2017. Yet the report points out that the IRS only surveyed the subset of taxpayers whose calls were answered by telephone assistors and completed.

President’s Management Agenda and customer service. The President’s Management Agenda for 2018 emphasizes the importance of high-quality customer service. It says: “Federal customers . . . deserve a customer experience that compares to – or exceeds – that of leading private sector organizations,” and it cites data from the American Customer Satisfaction Index (ACSI) and the Forrester U.S. Federal Customer Experience Index as key benchmarks. Notably, those indices found the IRS performs poorly relative to other federal agencies.

The ACSI report for 2017 ranks the Treasury Department 12th out of 13 Federal Departments and says the Treasury Department’s score is effectively an IRS score because “most citizens make use of Treasury services via the [IRS] tax-filing process.”

For its part, the Forrester report says that federal agencies, on average, score considerably lower than the private sector. Within the federal government, Forrester assessed 15 agencies and ranked the IRS near the bottom of the pack:

  • The private sector average score for overall “Customer Experience (CX)” is 69, the federal agency average score is 59 and the IRS’s score is 54 out of 100, which the Forrester report characterized as “very poor.” This placed the IRS 12th out of 15 rated agencies.
  • In the category of “Comply with Directives and Advice,” Forrester found that “for every 1-point increase in an agency’s CX Index score, 2.0% more customers will do what the organization asks of them. . . Just 61% of Internal Revenue Service (IRS) customers say that they follow its rules, which shows that not even the threat of jail and fines always outweighs the power of a bad customer experience.”
  • In the category of “Inquire for Official Information,” Forrester found that “when a federal agency’s CX Index score rises by 1 point, 2.5% more customers are likely to seek its authoritative advice or expertise. . . [T]he IRS inspires a mere 13% of its customers to seek its expertise.” That is less than half the federal agency average of 32 percent.
  • In the category of “Speak Well of Federal Agencies,” Forrester found that “as a federal agency’s CX Index score improves by 1 point, 4.4% more customers will say positive things about the organization. . . The IRS lagged other agencies again, as a mere 24% of its customers said that they would speak well of it.” This placed the IRS last among the 15 federal agencies ranked and at about half the federal agency average of 47 percent.
  • In the category of “Trust Agencies,” Forrester found that “[e]ach time a federal agency’s CX Index score rises by 1 point, 2.8% more customers will trust the organization. . . [J]ust 20% of customers say that they trust the IRS.” Again, this placed the IRS last among the 15 federal agencies ranked and at half the federal agency average of 40 percent.
  • In the category of “Forgive Agencies That Make Mistakes,” Forrester found that “[f]or every 1-point increase in an agency’s CX Index score, 2.7% more customers are willing to forgive the agency when it makes mistakes. . . [O]nly 22% of IRS customers said that they would forgive it for an error.” Again, this placed the IRS last among the 15 federal agencies ranked and at about half the federal agency average of 40 percent.

“The significant cuts to the IRS’s budget combined with the need to implement several significant new laws in recent years has stretched the IRS very thin,” Ms. Olson writes. “But the ACSI and Forrester reports show that taxpayers are not being well served. The aptly named Taxpayer First Act, which the House passed on a unanimous 414-0 vote in April, would direct the IRS to develop a comprehensive customer service strategy within one year.  That’s an important step in the right direction. I have also recommended that Congress provide the IRS with more funding along with more oversight – and I will encourage the next Commissioner to make customer service improvements a top priority.”

Select recommendations to improve customer service. The report highlights recommendations the National Taxpayer Advocate has made to improve customer service, including the following:

  • Adopt robust performance measures that more accurately reflect the taxpayer experience, such as “First Contact Resolution” – a widely used measure in the private sector.  If the IRS adopts better measures, it will gain a better understanding of where it needs to focus its efforts to improve customer service.
  • Provide taxpayers with modernized “omnichannel” services so that taxpayers can obtain assistance online, by phone or in-person. In recent years, the IRS has been pushing taxpayers to use online services, and its recently adopted FY 2018-2022 Strategic Plan even includes a performance measure to gauge the agency’s success at getting taxpayers to use “self-assistance service channels . . . versus needing support from an IRS employee.” Thus, the agency itself is striving for less personal contact with taxpayers, even though 41 million taxpayers do not have broadband service in their homes to access the Internet and even though only about 30 percent of taxpayers who attempt to create online accounts are able to do so because of the IRS’s rigorous authentication requirements. The IRS is right to prioritize data security, the report says, but the inability of most taxpayers to create online accounts underscores the importance of high-quality telephonic and in-person services.
  • Accelerate the development of an integrated case management system. Today, the IRS maintains at least 60 separate case management systems that house different items of taxpayer data and cannot be centrally accessed. As a result, customer service representatives are often unable to access information when taxpayers call, and IRS employees often must check multiple systems to get complete information. The inability to access complete taxpayer data on an integrated system also limits the utility of online taxpayer accounts, as taxpayers often will need to call to request information they are not able to see.
  • Use “big data” to help taxpayers as well as to bolster enforcement. The IRS regularly uses technology to help identify fraud and noncompliance, but it should also use technology more frequently to minimize harm to taxpayers. For example, the IRS uses filters to detect and stop fraudulent tax returns, but the filters have unacceptably high false-positive rates of more than 60 percent, delaying refunds for hundreds of thousands of legitimate taxpayers. The IRS can do more to refine its filters. The IRS can also do more to use information reporting documents to identify taxpayers who are at risk of economic hardship and therefore should be exempt from collection actions by the IRS and private debt collection agencies.

Priority issues for 2019

The report identifies and discusses 12 priority issues TAS plans to focus on during the upcoming fiscal year. The top five, described briefly above, include implementation of the TCJA, the effectiveness of IRS service channels in meeting taxpayer needs, the development of an integrated case management system, the impact of high false-positive rates on legitimate taxpayers and the protection of taxpayers facing financial hardship from IRS and private debt collection activities.

Volume 2: IRS responses to Taxpayer Advocate

The National Taxpayer Advocate is required by statute to submit a year-end report to Congress that, among other things, describes at least 20 of the most serious problems facing taxpayers and makes administrative recommendations to mitigate those problems. The report released today includes a second volume containing the IRS’s general responses to each of the problems the Advocate identified in her 2017 year-end report, as well as specific responses to each recommendation. In addition, it contains TAS’s analysis of the IRS’s responses and, in some cases, details TAS’s disagreement with the IRS’s position.

Overall, the Advocate made 100 administrative recommendations in her 2017 year-end report, and the IRS has implemented or agreed to implement 35 of the recommendations, or 35 percent. The agreed implementation rate is slightly lower than last year’s. Out of 93 administrative recommendations proposed in the Advocate’s 2016 year-end report, the IRS implemented or agreed to implement 35 recommendations, or 38 percent.

“Both people who work in the field of tax administration and taxpayers generally can benefit greatly from reading the agency responses to our report,” Ms. Olson said. “Tax administration is a complex field with many trade-offs required. Reading both my office’s critique and the IRS’s responses in combination will provide readers with a broader perspective on key issues, the IRS’s rationale for its policies and procedures, and alternative options TAS recommends.”

New TAS website to help taxpayers understand tax reform changes

In light of the Tax Cuts and Jobs Act, TAS has launched a new website, Tax Reform Changes, that lists key tax return items under current law (2017), shows which ones have been impacted by the TCJA and illustrates how the changes will be reflected on tax year 2018 returns filed in 2019. Taxpayers can navigate the website by viewing key tax return topics or seeing them illustrated on a 2017 Form 1040. The line-by-line explanations allow taxpayers to see how the new law may change their tax filings and to consider how to plan for these changes. The website will incorporate updated information as it becomes available.  Taxpayers and professionals can sign up to receive email notifications when updates occur. If a taxpayer determines the TCJA will impact his or her tax liability, he or she should make withholding adjustmentsby filing a new Form W-4, Employee’s Withholding Allowance Certificate, with employers.

June 28, 2018 in Tax Compliance | Permalink | Comments (0)

Real Estate Investor Pleads Guilty to Rigging Bids at Online Foreclosure Auctions

First Guilty Plea Involving Foreclosure Auctions in Florida

Real estate investor Stuart Hankin pleaded guilty today for his role in a conspiracy to rig bids, in violation of antitrust law, at online public foreclosure auctions in Florida, the Department of Justice announced.  He is the first defendant to plead guilty in this conspiracy.  

“Those who corrupt the foreclosure auction process through illegal bid rigging must expect to face the consequences,” said Assistant Attorney General Makan Delrahim of the Department of Justice’s Antitrust Division.  “The Division remains committed to rooting out antitrust violations at foreclosure auctions, whether the auction is online or in person, and whether the conspiracy is carried out in person, in text messages, or through other electronic means.”

Felony charges of bid rigging were filed against Stuart Hankin on November 2, 2017, in the U.S. District Court for the Southern District of Florida.  According to court documents, from around January 2012 through around June 2015, Hankin conspired with others to rig bids during online foreclosure auctions in Palm Beach County, Florida.  

The Department said that the primary purpose of the conspiracy was to suppress and restrain competition in order to obtain selected real estate offered at online foreclosure auctions at noncompetitive prices.  When real estate properties are sold at these auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with any remaining proceeds available to the homeowner.  According to court documents, the conspiracy artificially lowered the price paid at auction for such homes.  In the past several years, the Division and its law enforcement partners have secured convictions of over 100 individuals for rigging public mortgage foreclosure auctions in six different states, now including Florida.

“Stuart Hankin and his co-conspirators used bid rigging to successfully undermine the legitimate, competitive foreclosure auction process for certain properties in Palm Beach County, Florida,” said Special Agent in Charge Robert F. Lasky for FBI Miami.  “Their greed left victims – including homeowners and other valid stakeholders – shortchanged.  The FBI and our law enforcement partners will vigorously investigate such schemes.”

A violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. The maximum fine for a Sherman Act charge may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime if either amount is greater than the statutory maximum fine.

The investigation is being conducted by the Antitrust Division’s Washington Criminal I Section and the FBI’s Miami Division – West Palm Beach Resident Agency.  

June 28, 2018 in Financial Regulation | Permalink | Comments (0)

Commission adopts stronger rules to fight terrorism financing

The European Commission has adopted a package of measures to strengthen the EU's capacity to fight the financing of terrorism and organised crime, delivering on the commitments made in the Action Plan against terrorist financing from February 2016. The proposals being presented by the Commission will complete and reinforce the EU's legal framework in the areas of money laundering, illicit cash flows and the freezing and confiscation of assets. Presented alongside the third Progress Report on the Security Union, today's proposals will ensure a strong and coordinated European response in the fight against terrorism financing, bringing the EU one step closer towards an effective and genuine Security Union.

The proposals were prepared by a project team led by First Vice-President Frans Timmermans and Vice-President Valdis Dombrovskis, working with Commissioners Dimitris Avramopoulos, Pierre Moscovici, Věra Jourová and Julian King.

First Vice-President Frans Timmermans stated: "With today's proposals, we strengthen our legal means to disrupt and cut off the financial sources of criminals and terrorists. We must ensure we have the right tools in place to detect and stop suspicious financial flows and to support better cooperation between law enforcement authorities so that we can better protect the security of European citizens."

Vice-President Valdis Dombrovskis said: "Terrorism remains a major threat to our safety. We must stay a step ahead to stop terrorists in their tracks and the fight against terrorism financing is part of it. That's why today we are proposing that money laundering be subject to effective criminal sanctions right across the EU. We are proposing cross-border freezing and confiscation of criminal assets within the EU, and putting an end to criminals circumventing cash controls at the EU's external borders."

With today's proposals, as highlighted in the third Progress Report towards an effective and genuine Security Union, the European Commission is strengthening the capacity of the EU to fight terrorism and organised crime, making it harder for terrorists and criminals to finance their activities whilst making it easier for the authorities to detect and stop their financial movements. Detecting suspicious financial flows and cutting off the sources of financing is one of the most effective ways to stop potential terrorist attacks and criminal activities. The tracking of financial flows can also provide police and law enforcement authorities with crucial information and effective tools for their investigations.

Ensuring the criminalisation of money laundering

The Commission is today proposing a new Directive to criminalise money laundering and to provide competent authorities with adequate criminal law provisions to prosecute criminals and terrorists and put them behind bars. The proposed measures will:

  • Establish minimum rules concerning the definition of criminal offences and sanctions related to money laundering, closing gaps to prevent criminals from exploiting differences between different national rules.
  • Remove obstacles to cross-border judicial and police cooperation by setting common provisions to improve the investigation of offences related to money laundering;
  • Bring the EU norms in line with the international obligations in this area, as set out in the Council of Europe Warsaw Convention and Financial Action Task Force recommendations.

Putting tighter controls on large cash flows

In order to provide competent authorities with the adequate tools to detect terrorists and those who support them financially, thenewRegulation on cash controls presented today will:

  • Tighten cash controls on people entering or leaving the EU with €10,000 or morein cash;
  • Enable authorities to act on amounts lower than the customs declaration threshold of €10,000, where there are suspicions of criminal activity, and
  • Improve the exchange of information between authorities and Member States;
  • Extend customs checks to cash sent in postal parcels or freight shipments and to precious commodities such as gold, and to prepaid payment cards which are currently not covered by the standard customs declaration.

Freezing terrorists' financial resources and confiscating their assets

Freezing or confiscating financial assets quickly across borders will prevent terrorists from using their funds to commit further attacks. Theproposed Regulation on mutual recognition of criminal asset freezing and confiscation orders will:

  • Offer one single legal instrument for the recognition of both freezing and confiscation orders in other EU countries, simplifying the current legal framework. The Regulation would apply immediately in all Member States;
  • Widen the scope of the current rules on cross-border recognition, to include confiscation from other people connected to the criminal, and would cover confiscation in the case the criminal is not being convicted for example due to escape or death;
  • Improve the speed and efficiency of freezing or confiscation orders thanks to a standard document and an obligation on the part of competent authorities to communicate with each other. The rules set cleardeadlines, including shorter deadlines for freezing orders;
  • Ensure victims' rights to compensation and restitution are respected. In cases of cross-border execution of confiscation orders, the victim's right has priority over the executing and issuing States' interest.


Security has been a constant theme since the beginning of the Juncker Commission's mandate – from President Juncker's Political Guidelinesof July 2014 to the latest State of the Union address in September 2016.

Building on the European Agenda on Security adopted in April 2015, which underlined the need for measures to address terrorist financing in a more effective and comprehensive manner, in February 2016 the European Commission set out an Action Plan against terrorist financing to ensure that Member States have the necessary tools at their disposal to address new threats.

In April 2016, the Commission identified the cutting of terrorists' access to funds as one of the priority actions to be taken to complete an efficient and sustainable EU Security Union. The creation by President Juncker of a specific Commissioner portfolio for the Security Union in August 2016 shows the importance the Commission has attached to stepping up its response to the terrorist threat.

As set out in the Action Plan against terrorist financing, and as reported in today's third Progress Report on the Security Union, the Commission will introduce a proposal to reinforce the powers of customs authorities to address terrorism financing through trade in goods in 2017. The Commission will also extend the scope of the current legislation addressing illicit trade in cultural goods to a wider number of countries. In the Progress report, the Commission also encourages the co-legislators to find an agreement on the revised 4th Anti-Money Laundering Directive in the weeks to come.

For more information

Factsheet on the state of play of the Action Plan against terrorist financing

Factsheet on the state of play of the European Agenda on Security

MEMO - Proposal for a Directive on countering money laundering by criminal law

MEMO - Update of EU rules on cash controls

MEMO - Regulation on the mutual recognition of freezing and confiscation orders

Proposal - Directive on countering money laundering by criminal law

Proposal - Regulation on cash controls

Proposal - Regulation to strengthen the mutual recognition of criminal asset freezing and confiscation orders

Third Progress Report towards an effective and genuine Security Union

Communication: Delivering on the European Agenda on Security to fight against terrorism and pave the way towards an effective and genuine Security Union

European Agenda on Security

June 28, 2018 in AML | Permalink | Comments (0)

Wednesday, June 27, 2018

Regulation on the mutual recognition of freezing and confiscation orders

The European Commission adopted a proposal on the recognition of freezing and confiscation orders across borders.  This proposal is part of the Action Plan to strengthen the fight against terrorist financing presented in February 2016.  Questions and Answers

Why adopt a new regulation on freezing and confiscation orders?

Confiscating assets generated by criminal activities is a very efficient tool to fight crime and terrorism, as it deprives criminals from the proceeds of their illegal activities and terrorists from organising an attack. At the moment, 98.9% of estimated criminal profits are not confiscated and remain at the disposal of criminals.

The recognition of a confiscation and freezing order from one EU country to the other is still too slow, allowing criminals to keep their assets or move them across Europe. The 2015 and 2016 terror attacks showed the need for stronger and seamless judicial cooperation throughout the EU.

The proposed Regulation will facilitate cross-border recovery of criminal assets and lead to more efficient freezing and confiscation of funds from illicit origin in the EU without cumbersome formalities. Recovered assets will be used for the compensation of victims, where national legislation allows it. It also provides additional funds to invest back into law enforcement activities or other crime prevention initiatives or it can be used for other public interest or social purposes.

What are confiscation and freezing orders? 

Freezing order

A freezing order is a judicial decision issued to freeze an asset or funds in order to provisionally prevent the destruction, transformation, moving, transfer or disposal of property. The freezing order can be followed by a confiscation.

For instance, someone is arrested for terrorism and the judge suspects that he is planning an attack with other people. The judge can decide to issue a freezing order to freeze his bank account. 

Confiscation order

A confiscation order is a judicial decision resulting in the confiscation of property.

There are different types of confiscation orders:

  • Classic confiscation order: following a criminal conviction the direct proceed of a crime is confiscated. For example: the confiscation of a car from a person convicted for car theft.
  • Extended confiscation order: following a criminal conviction, the authority can issue a confiscation order on a criminal asset which is not the direct proceeds of the crime for which the person was convicted. For example: the confiscation of a large villa bought with money from drug trafficking.
  • Third party confiscation order: to deprive someone else than the offender (person or company) from criminal property transferred to him by the offender. For instance, a criminal who buys a house under the name of his wife or another family member.
  • Non-conviction based order: confiscation measure taken in the absence of a conviction and directed against an asset from illicit origin/ Example: the suspect is not convicted, because he is sick or has escaped.

What rules already exist at EU level to facilitate freezing and confiscation?

The current EU legal framework sets out common minimum rules for freezing and confiscation orders. It is based on the 2014 Directive on the freezing and confiscation of instrumentalities and proceeds of crime in the European Union and the Framework Decision on confiscation of crime-related proceeds.

Rules for mutual recognition of freezing and confiscation orders enabling national orders to be executed in the territory of other EU Member States are based on two instruments: the Framework Decision on mutual recognition of freezing orders and the Framework Decision on mutual recognition of confiscation orders.

However, the current EU legislation on mutual recognition is outdated and is no longer aligned with the latest national and EU rules on freezing and confiscation. This creates loopholes that are exploited by criminals.

Whereas the 2014 Directive on the freezing and confiscation makes it easier for authorities to seize and take away assets at national level, today's proposal aims at improving the cross-border enforcement of freezing and confiscation orders. Together the Directive and the proposed Regulation will create a more effective asset recovery system in the European Union. 

What is the principle of mutual recognition of judicial decisions?

The mutual recognition principle means that a judicial decision taken in one EU Member State is recognised, and where necessary, enforced by another EU Member State without being assessed again. Mutual recognition is based on mutual trust between Member States' authorities.

The regulation sets out a limited number of reasons on which recognition and execution can be refused. Common EU certificates, annexed to the Regulation, contain all necessary information for the executing State to facilitate the recognition.

There are several EU laws on judicial cooperation in criminal matters that are based on the principle of mutual recognition, such as the European Arrest Warrant.

How will the Regulation work?

The proposed Regulation will improve co-operation between authorities to ensure that they can swiftly and efficiently freeze and confiscate assets across the EU.

Whenever a competent authority in one EU country decides to freeze or confiscate property in another Member State, it can request the other Member State to do so by filling in a standard form for freezing order or a standard certificate for the confiscation order. The authority in the other Member State must recognise the request and execute the freezing or confiscation order within short time limits. It can only refuse to recognise and execute such orders on the basis of a limited number of reasons, set out in the regulation.

What would the new rules cover?

The proposed Regulation will cover mutual recognition of all types of freezing and confiscation orders for which common minimum rules are set by the 2014 Directive on the freezing and confiscation of instrumentalities and proceeds of crime.

In addition, it will cover all orders for non-conviction based confiscation issued during a criminal procedure, for example in the following cases:

  • the perpetrator of an offence died or could not be identified;
  • the suspect enjoys immunity;
  • in case of prescription of a criminal offence;
  • when a criminal court can confiscate an asset without conviction because the court has decided that such an asset is the proceeds of a crime. This requires the court to establish that an advantage was derived from a criminal offence.

In order to be included in the scope of the Regulation, these types of confiscation orders must be issued within the framework of criminal proceedings. It does not include confiscation or freezing orders issued in civil or administrative proceedings.

All safeguards applicable to criminal proceedings will have to be ensured in the issuing State.

What benefits will the new proposal bring?

This proposed Regulation improves the current legal framework for the mutual recognition of freezing and confiscation orders by bringing the following benefits:

  • Widening the scope of freezing and confiscation orders types covered compared to the current mutual recognition laws

The proposal covers mutual recognition of all types of freezing and confiscation orders issued during criminal proceedings. It includes classic, extended and third party confiscation as well as non-conviction based confiscation decided by a criminal court.

  • A directly applicable single law for both freezing and confiscation orders

One single law for mutual recognition of both freezing and confiscation orders will replace the Framework Decisions on mutual recognition for freezing and confiscation orders. Member States will be bound by the regulation. This will ensure uniformity in the application of this instrument and avoid problems due to late or incorrect transposition by Member States. This will be the first Regulation proposed by the Commission in the field of mutual recognition in criminal matters since the entry into force of the Lisbon Treaty.

  • Clear deadlines for freezing and confiscation orders

Freezing as a precautionary measure needs to be carried out quickly, short deadlines are therefore set for the recognition and execution of freezing orders. The execution of confiscation orders can take place within a longer time period, however clear deadlines are also set to ensure efficient cross-border procedures.

  • A standard certificate and a standard form

A standard certificate for mutual recognition of confiscation orders and a standard form for freezing orders will allow for speedy and efficient action.

They contain all the relevant information on the order, which will help the executing authority to reach the targeted property and will facilitate the recognition and enforcement of the foreign order by the competent national authorities. The freezing order will be issued in a standard form to simplify the mutual recognition procedure and will not be accompanied by a domestic freezing order.

  • Efficient communication between the competent authorities

To allow smooth and swift recognition and execution of freezing and confiscation orders the competent authorities have to communicate whenever necessary at all stages of the procedure. For instance, before applying one of the grounds for refusal, a consultation has to take place between the executing and issuing authorities.  

  • Victims' rights

The proposal also aims at improving the protection of victims of crime in cross-border cases. It addresses victims' needs to get compensation for damages or to get stolen assets restituted from the State where the property was confiscated. A possibility to receive a decision on compensation or restitution during criminal proceedings exists in several Member States but there is currently no specific provision which takes into account such a decision in cross border confiscation cases. The proposal addresses this issue. In cases where the victim has been granted a decision on compensation or restitution and the assets have been confiscated in another State following the mutual recognition procedure, the victim's right to compensation or restitution will have priority over the issuing and executing State's interests.

What are the deadlines for the freezing and confiscation orders? 

Deadline for confiscation orders

Different time limits are set separately for the decision on the recognition and for the execution of the confiscation order. Firstly, the executing authority must take the decision on the recognition and execution of the confiscation order as soon as possible, at the latest 30 days after the receipt of the confiscation order. Secondly, the executing authority must carry out the confiscation without delay and not later than 30 days after taking the decision to recognise and execute the confiscation order.

Deadline for freezing orders

Three different time limits are set separately for the decision on the recognition, for the execution of the freezing order and for the reporting back to the issuing authority.

Firstly, the executing authority must take the decision on the recognition and execution of the freezing order as soon as possible and at the latest within 24 hours after the receipt of the freezing order.

Secondly, the executing authority must carry out the freezing without delay and not later than 24 hours after taking the decision to recognise and execute the freezing order and it must communicate its decision without delay to the issuing authority.

In addition to these deadlines, the regulation requires the executing authority to report to the issuing one about the measures taken within 3 days.

What happens with the confiscated funds and assets?

If the confiscation order is accompanied by a decision to compensate the victim, this person should recover the assets or funds.

Otherwise, when a confiscation order is executed in another country, both countries split the amount between themselves, if it is above 10,000 euros. Under this threshold, the executing State will keep this money. Countries can also agree otherwise on the disposal of assets.

How are fundamental rights safeguarded?

Safeguards are included in the proposed Regulation to ensure that the mutual recognition of freezing or confiscation orders is in line with fundamental rights protected by the EU Charter of Fundamental Rights (the Charter) and the European Convention on Human Rights (ECHR).

For instance, the Regulation includes grounds for refusal when the rules on the right to be present at the trial (‘in absentia') or when the rights of third parties "in good faith" ('bona fide') are not respected. There is an obligation to inform interested parties of the execution of a freezing order, including of the reasons why it is carried out and the legal remedies available. There is also an obligation for Member States to provide for legal remedies in the executing State.

All applicable criminal law procedural safeguards should be ensured by the Member States. Furthermore, for those orders falling within the scope of Directive 2014/42/EU on the freezing and confiscation of instrumentalities and proceeds of crime, Article 8 of the Directive also includes a list of safeguards that need to be ensured by the issuing Member States, andArticles 47 and 48 of the Charter apply.

Applicable criminal law standards also include the relevant legislation at EU level on procedural rights in criminal proceedings: Directive on the right to interpretation and translation, the Directive on the right to information, Directive on the right of access to a lawyer,Directive on the presumption of innocence and the right to be present at the trialDirective on the procedural safeguards for children and Directive on legal aid.

For more information:




June 27, 2018 in AML | Permalink | Comments (0)

Two Colorado Financial Services Executives Sentenced in Multimillion-Dollar Fraud Scheme

A former CEO and a former corporate counsel of a Colorado financial services company were sentenced in Denver, Colorado for their participation in a multimillion-dollar investment scheme in which they falsely told investors that they could access substantial financing, including hundreds of millions in cash in an overseas bank account, in exchange for up-front fees.

Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division, Inspector in Charge Craig Goldberg of the U.S. Postal Inspection Service’s Denver Division, and Acting Inspector in Charge Bill Hedrick of the U.S. Postal Inspection Service’s Chicago Division, made the announcement.

Brian G. Elrod, 59, of Buffalo Creek, Colorado, formerly the CEO of a financial services company known as Compass Financial Solutions Ltd. (CFS), was sentenced to serve 38 months in prison, followed by three years of supervised release.  Additionally, Elrod was ordered to pay restitution in the amount of $2,440,051.29. William E. Dawn, 80, who was CFS’s corporate counsel, was sentenced to time served.  U.S. District Judge William J. Martinez handed down the sentence for Elrod, and U.S. District Judge Robert E. Blackburn sentenced Dawn and ordered him to pay restitution in the amount of $366,752.01. 

Elrod pleaded guilty on Feb. 19, 2015, in the District of Colorado to one count of conspiracy to commit mail fraud and wire fraud.  As part of his plea agreement, Elrod admitted that from approximately 2005 to 2011, while he served as the CEO of CFS, he marketed and sold to investors promissory notes that were purportedly guaranteed by CFS and others.  With respect to the notes that were guaranteed by CFS, Elrod promised investors high returns through monthly interest payments and represented to investors that the proceeds from the notes would be used to operate CFS.  However, Elrod instead used the investors’ funds for, among other things, payments to other investors and to himself.  After Elrod defaulted on the notes, he conspired with Kenneth Brewington, who purported to be a wealthy financier, and told investors that Brewington would assume CFS’s obligations on these notes.  To induce CFS’s investors to sign these assumption agreements, Elrod showed investors fraudulent documents that falsely claimed Brewington had 500 million euros in an overseas bank account.  Elrod also sold additional promissory notes that were guaranteed by Brewington personally.  To induce investors to purchase the notes guaranteed by Brewington, Elrod again showed investors similar fraudulent documents purporting to show Brewington’s wealth and told some of the investors that their investments would be used to release Brewington’s money overseas.  Elrod acknowledged that his scheme resulted in over $2.5 million in losses to investors.

Dawn pleaded guilty on Feb. 25, 2015, in the District of Colorado, to one count of conspiracy to commit mail fraud and wire fraud.  As part of his plea agreement, Dawn admitted that from approximately 2002 to 2010, he served as in-house counsel at CFS.  Dawn also admitted that he drafted promissory notes sold by Elrod and Brewington in order to solicit investor funds.  In doing so, Dawn knew that the proceeds from these notes were going to be used by CFS to make payments to other investors, which had not been disclosed to the purchasers of these notes.  To disguise from investors the fact that the proceeds from the notes were not in fact going to be used to release the millions of euros supposedly held by Brewington overseas, the defendant allowed his attorney-client trust account to be used to receive the investors’ money.  Dawn acknowledged that his scheme resulted in over $200,000 in losses to investors.  He also acknowledged that he owes $366,752.01 in restitution.        

Brewington, 55, of Corona, California, was convicted on multiple counts of fraud and money laundering on May 18, in the District of Colorado, following a two-week jury trial.  Brewington’s sentencing is set for Aug. 17, before U.S. District Court Judge Philip A. Brimmer, who presided over the trial of the case.

The investigation was led by the U.S. Postal Inspection Service.  The U.S. Attorney’s Office for the District of Colorado and the U.S. Securities and Exchange Commission also provided substantial assistance in this matter.  Trial Attorneys Anna G. Kaminska, Kyle C. Hankey, and Jennifer G. Ballantyne, as well as Assistant Chief Henry P. Van Dyck of the Criminal Division’s Fraud Section prosecuted the case. 

June 27, 2018 in AML | Permalink | Comments (0)

Tuesday, June 26, 2018

U.S. International Transactions: First Quarter 2018 and Annual Update

Current-Account Balance

The U.S. current-account deficit increased to $124.1 billion (preliminary) in the first quarter
of 2018 from $116.1 billion (revised) in the fourth quarter of 2017, according to statistics
released by the Bureau of Economic Analysis (BEA). The deficit was 2.5 percent of current-dollar
gross domestic product (GDP) in the first quarter, up from 2.4 percent in the fourth quarter.

Quarterly U.S. Current-Account and Component Balance

The $8.0 billion increase in the current-account deficit reflected an $8.1 billion increase in
the deficit on goods and relatively small and nearly offsetting changes in the balances on
services, primary income, and secondary income.

Quarterly U.S. Current-Account Transactions

                           Current-Account Transactions (tables 1-5)

Exports of goods and services and income receipts

Exports of goods and services and income receipts increased $23.0 billion in the first quarter
to $913.4 billion.

   * Primary income receipts increased $9.8 billion to $258.8 billion, reflecting increases in
     direct investment income, portfolio investment income, and other investment income. For
     more information on direct investment income, see the box “Effects of the 2017 Tax Cuts
     and Jobs Act on Components of Direct Investment.”

   * Goods exports increased $9.5 billion to $411.4 billion, mostly reflecting increases in
     automotive vehicles, parts, and engines, in consumer goods, primarily jewelry and collectibles,
     and in nonmonetary gold.

Imports of goods and services and income payments

Imports of goods and services and income payments increased $30.9 billion in the first quarter
to $1,037.5 billion.

   * Goods imports increased $17.6 billion to $631.9 billion, mostly reflecting increases in
     industrial supplies and materials, primarily petroleum and products, and in consumer goods,
     primarily medicinal, dental, and pharmaceutical products.

   * Primary income payments increased $10.2 billion to $196.8 billion, reflecting increases in
     direct investment income, portfolio investment income, and other investment income.


          Effects of the 2017 Tax Cuts and Jobs Act on Components of Direct Investment

In the international transactions accounts, income on equity, or earnings, of foreign affiliates
of U.S. multinational enterprises in a period typically consists of a portion that is repatriated
to the parent company in the United States in the form of dividends and a portion that is reinvested
in foreign affiliates. At times, repatriation of dividends exceeds current-period earnings,
resulting in negative values being recorded for reinvested earnings. In the first quarter of 2018,
direct investment earnings were $130.6 billion, reflecting dividends and withdrawals of $305.6
billion and reinvested earnings of -$175.0 billion (table 4).

The large magnitudes for dividends and withdrawals and the negative reinvested earnings reflect
the repatriation of accumulated earnings by foreign affiliates of U.S. multinational enterprises
to their parent companies in the United States in response to the 2017 Tax Cuts and Jobs Act
(TCJA). The TCJA requires U.S. parent companies to pay a one-time tax on their accumulated earnings
held abroad, but generally eliminates taxes on repatriated earnings. The negative reinvested
earnings of -$175.0 billion reflect the fact that dividends exceeded earnings in the first quarter
and U.S parent companies withdrew accumulated prior earnings from their foreign affiliates. The
negative reinvested earnings are also reflected in the net acquisition of direct investment assets
in the financial account, which was -$119.6 billion in the first quarter of 2018 (table 6).

For more information, see “How does the 2017 Tax Cuts and Jobs Act affect BEA's business income
statistics?” and “How are the international transactions accounts affected by an increase in
direct investment dividend receipts?

Direct Investment Income Receipts and Components


                           Financial Account (tables 1, 6, 7, and 8)

Net U.S. borrowing measured by financial-account transactions was $180.6 billion in the first
quarter, an increase from net borrowing of $31.3 billion in the fourth quarter.

Financial assets

Net U.S. acquisition of financial assets excluding financial derivatives increased $127.6 billion
in the first quarter to $254.7 billion.

   * Net U.S. acquisition of portfolio investment assets increased $277.2 billion to $365.5
     billion, reflecting net U.S. purchases of foreign equity and investment fund shares following
     net sales in the fourth quarter.

   * Net U.S. acquisition of other investment assets was $8.9 billion following net liquidation
     of $50.9 billion in the fourth quarter. This change mostly reflected net U.S. provision of
     loans to foreigners following net foreign repayment in the fourth quarter.

   * Net U.S. withdrawal of direct investment assets was $119.7 billion following net U.S.
     acquisition of $91.3 billion in the fourth quarter. This change partly offset the changes
     in portfolio investment assets and other investment assets. The net withdrawal of direct
     investment assets reflected U.S. parent repatriation of previously reinvested earnings in
     response to the TCJA. For more information, see the box “Effects of the 2017 Tax Cuts and
     Jobs Act on Components of Direct Investment.”


Net U.S. incurrence of liabilities excluding financial derivatives increased $304.9 billion in the
first quarter to $464.1 billion.

   * Net U.S. incurrence of portfolio investment liabilities increased $210.5 billion to $292.1
     billion, mostly reflecting net foreign purchases of U.S. equity and investment funds shares
     following net foreign sales in the fourth quarter.

   * Net U.S. incurrence of direct investment liabilities increased $59.1 billion to $97.3 billion,
     mostly reflecting net U.S. incurrence of debt instrument liabilities following net repayment
     in the fourth quarter.

   * Net U.S. incurrence of other investment liabilities increased $35.3 billion to $74.6 billion,
     reflecting partly offsetting changes in transactions in loan and deposit liabilities. Net
     U.S. incurrence of loan liabilities in the first quarter followed net repayment in the fourth
     quarter. Net foreign withdrawal of deposits in the United States followed net incurrence in
     the fourth quarter.

Financial derivatives

Transactions in financial derivatives other than reserves reflected first-quarter net lending of
$28.7 billion, a $27.9 billion increase from the fourth quarter.

                               Statistical Discrepancy (table 1)

The statistical discrepancy was -$56.5 billion in the first quarter following a statistical
discrepancy of $84.9 billion in the fourth quarter.

         Updates to Fourth Quarter 2017 International Transactions Accounts Aggregates
                            Billions of dollars, seasonally adjusted

                                                      Preliminary estimate     Revised estimate

Current-account balance                                       -128.2                -116.1
   Goods balance                                              -214.3                -212.4
   Services balance                                             60.4                  64.6
   Primary-income balance                                       57.2                  62.4
   Secondary-income balance                                    -31.5                 -30.7
Net lending (+)/borrowing (-) from
   financial-account transactions                              -29.8                 -31.3
Statistical discrepancy                                         98.4                  84.9

June 26, 2018 in Economics | Permalink | Comments (0)

Monday, June 25, 2018

OECD releases new guidance on the application of the approach to hard-to-value intangibles and the transactional profit split method under BEPS Actions 8-10

the OECD released two reports containing Guidance for Tax Administrations on the Application of the Approach to Hard-to-Value Intangibles, under BEPS Action 8; and Revised Guidance on the Application of the Transactional Profit Split Method, under BEPS Action 10.

In October 2015, as part of the final BEPS package, the OECD/G20 published the report on Aligning Transfer Pricing Outcomes with Value Creation (OECD, 2015), under BEPS Actions 8-10. The Report contained revised guidance on key areas, such as transfer pricing issues relating to transactions involving intangibles; contractual arrangements, including the contractual allocation of risks and corresponding profits, which are not supported by the activities actually carried out; the level of return to funding provided by a capital-rich MNE group member, where that return does not correspond to the level of activity undertaken by the funding company; and other high-risk areas. The Report also mandated follow-up work to develop:

The new guidance for tax administration on the application of the approach to hard-to-value intangibles (HTVI) is aimed at reaching a common understanding and practice among tax administrations on how to apply adjustments resulting from the application of this approach. This guidance should improve consistency and reduce the risk of economic double taxation by providing the principles that should underlie the application of the HTVI approach. The guidance also includes a number of examples have been included to clarify the application of the HTVI approach in different scenarios and addresses the interaction between the HTVI approach and the access to the mutual agreement procedure under the applicable tax treaty. This guidance has been formally incorporated into the Transfer Pricing Guidelines as an annex to Chapter VI.

This report contains revised guidance on the profit split method, developed as part of Action 10 of the BEPS Action Plan. This guidance has been formally incorporated into the Transfer Pricing Guidelines, replacing the previous text on the transactional profit split method in Chapter II. The revised guidance retains the basic premise that the profit split method should be applied where it is found to be the most appropriate method to the case at hand, but it significantly expands the guidance available to help determine when that may be the case. It also contains more guidance on how to apply the method, as well as numerous examples.

Addressing base erosion and profit shifting continues to be a key priority of governments around the globe. In 2013, OECD and G20 countries, working together on an equal footing, adopted a 15-point Action Plan to address BEPS. In 2015, the BEPS package of measures was endorsed by G20 Leaders and the OECD. In order to ensure the effective and consistent implementation of the BEPS measures, the Inclusive Framework on BEPS was established in 2016 and now has 116 members. It brings together all interested countries and jurisdictions on an equal footing at the OECD Committee on Fiscal Affairs.

June 25, 2018 in BEPS, OECD | Permalink | Comments (0)

Joshua Adam Schulte Charged with the Unauthorized Disclosure of Classified Information and Other Offenses Relating to the Theft of Classified Material from the Central Intelligence Agency

John C. Demers, Assistant Attorney General for National Security, Geoffrey S. Berman, United States Attorney for the Southern District of New York, and William F. Sweeney Jr., Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today that Joshua Adam Schulte was charged in a 13-count Superseding Indictment (the “Indictment”) in connection with his alleged theft of classified national defense information from the Central Intelligence Agency (“CIA”) and the transmission of that material to an organization that purports to publicly disseminate classified, sensitive, and confidential information (“Organization-1”).  The Indictment also charges Schulte with the receipt, possession, and transportation of child pornography, as well as criminal copyright infringement.  Schulte, who is presently detained on the child pornography charges, will be arraigned by U.S. District Judge Paul A. Crotty.

“Leaks of classified information pose a danger to the security of all Americans,” said Assistant Attorney General Demers.  “It adds insult to injury when, as alleged here, the leaks come from former government officials in whom Americans placed their sacred trust. The National Security Division, alongside our partners in the Intelligence Community, will not waver in our commitment to pursue and hold accountable these officials, and I commend all those at the Department of Justice and the FBI who have worked diligently to investigate this matter and bring these charges.”

"Joshua Schulte, a former employee of the CIA, allegedly used his access at the agency to transmit classified material to an outside organization,” said Manhattan U.S. Attorney Geoffrey S. Berman. “During the course of this investigation, federal agents also discovered alleged child pornography in Schulte’s New York City residence.  We and our law enforcement partners are committed to protecting national security information and ensuring that those trusted to handle it honor their important responsibilities.  Unlawful disclosure of classified intelligence can pose a grave threat to our national security, potentially endangering the safety of Americans.”

“As alleged, Schulte utterly betrayed this nation and downright violated his victims. As an employee of the CIA, Schulte took an oath to protect this country, but he blatantly endangered it by the transmission of Classified Information.” said Assistant Director-in-Charge William F. Sweeney, Jr. “To further endanger those around him, Schulte allegedly received, possessed, and transmitted thousands of child pornographic photos and videos. In an effort to protect this nation against crimes such as these, the FBI's Counterintelligence Division in New York will continue to keep our mission at the forefront of our investigations in protecting the American public."

According to the Indictment, other court filings, and statements made during court proceedings:

On March 7, 2017, Organization-1 released on the Internet classified national defense material belonging to the CIA (the “Classified Information”).  In 2016, Schulte, who was then employed by the CIA, stole the Classified Information from a computer network at the CIA and later transmitted it to Organization-1.  Schulte also intentionally caused damage without authorization to a CIA computer system by granting himself unauthorized access to the system, deleting records of his activities, and denying others access to the system.  Schulte subsequently made material false statements to FBI agents concerning his conduct at the CIA. 

Schulte was previously arrested on August 24, 2017, on charges relating to his receipt, possession, and transportation of approximately ten thousand images and videos of child pornography.  In March 2017, members of the FBI had searched Schulte’s residence in New York, New York, pursuant to a search warrant and recovered, among other things, multiple computers, servers, and other portable electronic storage devices, including Schulte’s personal desktop computer (the “Personal Computer”).  On the Personal Computer, FBI agents found an encrypted container (the “Encrypted Container”), which held over 10,000 images and videos of child pornography.  The Encrypted Container with the child pornography files was identified by FBI computer scientists beneath three layers of password protection on the Personal Computer.  Each layer, including the Encrypted Container, was unlocked using passwords previously used by Schulte on one of his cellphones.  Moreover, FBI agents identified Internet chat logs in which Schulte and others discussed their receipt and distribution of child pornography.  FBI agents also identified a series of Google searches conducted by Schulte in which he searched the Internet for child pornography.

Schulte, 29, of New York, New York, is charged with one count each of (i) illegal gathering of national defense information, (ii) illegal transmission of lawfully possessed national defense information, (iii) illegal transmission of unlawfully possessed national defense information, (iv) unauthorized access to a computer to obtain classified information, (v) theft of Government property, (vi) unauthorized access of a computer to obtain information from a Department or Agency of the United States, (vii) causing transmission of a harmful computer program, information, code, or command, (viii) making material false statements to representatives of the FBI, (ix) obstruction of justice, (x) receipt of child pornography, (xi) possession of child pornography, (xii) transportation of child pornography, and (xiii) copyright infringement.  A chart containing the charges and maximum penalties is below.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Berman praised the outstanding investigative efforts of the FBI. 

The prosecution of this case is being handled by the Office’s Terrorism and International Narcotics Unit.  Assistant U.S. Attorneys Sidhardha Kamaraju and Matthew Laroche are in charge of the prosecution, with assistance from Trial Attorney Scott McCulloch of the National Security Division’s Counterintelligence and Export Control Section.

June 25, 2018 in AML | Permalink | Comments (0)

Sunday, June 24, 2018

Sixth Mississippi Real Estate Investor Pleads Guilty to Conspiring to Rig Bids at Public Foreclosure Auctions

Mississippi real estate investor Ivan Spinner became the sixth real estate investor to plead guilty in connection with the ongoing investigation into bid rigging at public real estate foreclosure auctions in Mississippi, the Department of Justice announced. 

Felony charges against Spinner were filed on June 8, 2018, in the U.S. District Court for the Southern District of Mississippi. According to those charges, from at least as early as April 20, 2010, through at least as late as August 21, 2015, Ivan Spinner conspired with others not to bid against one another for selected public real estate foreclosure auctions in the Southern District of Mississippi. Co-conspirators made and received payoffs in exchange for their agreement not to bid.  

“With today’s guilty plea, the Antitrust Division continues to hold those individuals accountable who corrupt the competitive process for their own financial gain,” said Makan Delrahim, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division. “The Division and its law enforcement partners remain committed to prosecuting bid rigging and restoring competition at these auctions in Mississippi and across the United States.”

“Individuals who defraud our home foreclosure process harm us all,” said United States Attorney Mike Hurst for the Southern District of Mississippi.  “Our prosecutors and investigators should be commended for continuing to pursue those who violate our antitrust laws simply to enrich themselves.”

“Today’s guilty plea is another example that those who participate in bid rigging in Mississippi will be brought to justice,” said Special Agent in Charge Christopher Freeze of the FBI in Mississippi. “Bid rigging is a serious offense which undermines the integrity of the public systems designed to protect our citizens. The FBI continues to participate with the Antitrust Division investigating allegations of fraudulent bidding during public auctions in our state."

The Department stated that the primary purpose of the conspiracy was to suppress and restrain competition in order to obtain selected real estate offered at public foreclosure auctions at non-competitive prices. When real estate properties are sold at these auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with any remaining proceeds paid to the homeowner. According to court documents, these conspirators paid and received money in connection with their agreement to suppress competition, which artificially lowered the price paid at auction for such homes.

A violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals.  The maximum fine for a Sherman Act charge may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime if either amount is greater than the statutory maximum fine.  

The investigation is being conducted by Antitrust Division attorneys in the Washington Criminal II Section and the FBI’s Gulfport Resident Agency, with the assistance of the U.S. Attorney’s Office for the Southern District of Mississippi.  Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact Antitrust Division prosecutors in the Washington Criminal II Section at 202-598-4000, or visit  

June 24, 2018 in Financial Regulation | Permalink | Comments (0)

Saturday, June 23, 2018

Former Arkansas State Senator Sentenced to Prison for Wire Fraud, Money Laundering, and Bank Fraud

Former Arkansas State Senator Jake C. Files was sentenced to 18 months in prison for orchestrating a scheme to obtain approximately $46,500 in state government funds through fraudulent means and for obtaining approximately $56,700 in loan proceeds, also through fraudulent means.

Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division and U.S. Attorney Duane A. Kees for the Western District of Arkansas made the announcement.

Files, 46, of Fort Smith, Arkansas who represented Arkansas’s state legislative district No. 8 in the Arkansas State Senate until his resignation in January 2018 following his guilty plea in this matter, was sentenced by Chief U.S. District Court Judge P. K. Holmes III of the Western District of Arkansas.  Judge Holmes ordered Files to serve three years of supervised release following his prison sentence as well as pay restitution in the amount of $83,903.77.  Files was ordered to surrender to the U.S. Marshals Service to begin serving his sentence on Aug. 2.

Files pleaded guilty to wire fraud, money laundering, and bank fraud on Jan. 29.  According to admissions made in connection with his guilty plea, between August 2016 and December 2016, while serving in the Arkansas State Senate, Files used his senate office to obtain government money known as General Improvement Funds (GIF) through fraudulent means and for personal gain.  Specifically, Files authorized and directed the Western Arkansas Economic Development District, which was responsible for administrating the GIF in Files’s legislative district, to award a total of $46,500 in GIF money to the City of Fort Smith.  To secure the release of the GIF money, Files prepared and submitted three fraudulent bids to the Western Arkansas Economic Development District.  Files then instructed an associate to open a bank account under that person’s name to conceal his role as the ultimate beneficiary of the GIF award.  When a first installment of approximately $25,900 was wire transferred from the City of Fort Smith to the associate’s bank account, the associate withdrew approximately $11,900 of the funds in a cashier’s check made payable to FFH Construction, Files’s construction company, and the rest in cash.  The associate then hand-delivered the check and the cash to Files who, in turn, deposited the check into his personal bank account.

Files also admitted to submitting a materially false loan application in November 2016 in connection with a loan application for approximately $56,700 from First Western Bank.

The FBI investigated the case.  Trial Attorney Victor R. Salgado of the Criminal Division’s Public Integrity Section and Assistant U.S. Attorney Kyra Jenner of the Western District of Arkansas prosecuted the case.

June 23, 2018 in AML | Permalink | Comments (0)

Friday, June 22, 2018

CFTC Orders JPMorgan Chase Bank, N.A. to Pay $65 Million Penalty for Attempted Manipulation of U.S. Dollar ISDAFIX Benchmark Swap Rates

The Commodity Futures Trading Commission (CFTC or Commission) issued an Order filing and settling charges against JPMorgan Chase Bank, N.A. (JPMC) for attempted manipulation of the ISDAFIX benchmark and requiring JPMC to pay a $65 million civil monetary penalty.

The CFTC Order finds that over a five-year period, beginning in at least January 2007 and continuing through January 2012 (the Relevant Period), JPMC made false reports and attempted to manipulate the U.S. Dollar International Swaps and Derivatives Association Fix (USD ISDAFIX), a leading global benchmark referenced in a range of interest rate products, to benefit its derivatives positions, including positions involving cash-settled options on interest rate swaps.

James McDonald, CFTC Director of Enforcement, commented: “This matter is one in a series of CFTC actions that clearly demonstrates the Commission’s unrelenting commitment to root out manipulation from our markets and to protect those who rely on the integrity of critical financial benchmarks.” 

During the Relevant Period, USD ISDAFIX was set each day in a process that began at 11:00 a.m. Eastern Time with the capture and recording of swap rates and spreads from a U.S. based unit of a leading interest rate swaps brokering firm (Swaps Broker).  ISDAFIX rates and spreads are published daily and are meant to indicate the prevailing mid-market rate, at a specific time of day, for the fixed leg of a standard fixed-for-floating interest rate swap.  They are issued in several currencies and are published for various maturities of U.S. Dollar-denominated swaps.  The most widely used USD ISDAFIX rates and spreads, and the ones at issue in this Order, are those that are intended to indicate the prevailing market rate as of 11:00 a.m. Eastern Time.  The 11:00 a.m. USD ISDAFIX rate is used for the cash settlement of options on interest rate swaps, or swaptions, and as a valuation tool for certain other interest rate products.

The Order finds that certain JPMC traders understood and employed two primary means in their attempts to manipulate USD ISDAFIX rates: trading attempted manipulation and submission attempted manipulation. 

Trading Attempted Manipulation

According to the Order, JPMC attempted to manipulate the USD ISDAFIX by bidding, offering, and executing transactions in targeted interest rate products, including swap spreads and U.S. Treasuries at or near the critical 11:00 a.m. fixing time to affect rates on the electronic interest rate swap screen known as the “19901 screen” and thereby increase or decrease the Swaps Broker’s reference rates and influence the final published USD ISDAFIX.  As one JPMC employee acknowledged in an electronic communication with one of the Swaps Broker’s employees, it was possible to “muscle the fix at 11” through trading at 11:00 a.m.  Another member of the JPMC Swaps Desk (JPMC Swaps Trading Assistant) provided the following description to a colleague at JPMC regarding the efforts by a JPMC Swaps Desk trader to “muscle” the USD ISDAFIX:  

[Y]ou know how there is an 11am screen print for ISDA of where rates are . . . well— sometimes clients put orders in to do trades at the 11 o’clock screen shot—so they get positioned for that and then there’s often a big push to move the screen a ¼ [basis point] in their favor but sometimes there are other dealers trying to go the opposite way so it ends up being a screaming match to try and figure out which way it’s going to go so today, [an identified  JPMC swaps trader] didn’t win the battle and he was pissed.

The description of a “battle” at 11:00 a.m. to control the 11:00 a.m. reference point snapshot is consistent with both trading records during the Relevant Period, as well as recorded audio instructions at least one JPMC Swaps Trader gave to the Swaps Broker regarding executing his trades just prior to 11:00 a.m.  For example, the trader gave the following instructions to the Swaps Broker just before 11:00 a.m. regarding his intentions for trading the 10-year and 30-year tenors at 11:00 a.m.:

“At 11:00, I want to hit, lift 10s.  Okay . . . I’ll lift them up.  I’ll play the game for up to 400 . . . I’d like to keep it up at ¼ if I can.  I don’t want bonds to go over fifty so if they go up to fifty bid, I’m a ¼ offer.  If they lift me, they go down immediately.  I’ll, I’ll sell whatever he wants to sell, okay.”

JPMC’s efforts to manipulate or “muscle” the USD ISDAFIX and prices on the 19901 screen were common knowledge and openly joked about by certain JPMC traders.  When transferring a position between desks, a JPMC trader jokingly commented, “ha, don’t let the rates go up.”  In another electronic communication, a senior trader on the JPMC Swaps Desk openly mocked another senior trader on the desk for bragging about his ability to manipulate the 11:00 a.m. ISDAFIX setting in a group chat, writing “remember when i moved the screen in 2y[year] spreads at the 11am setting? [F]vcking [sic] awesome…noone [sic] was paying attention and i [sic] lifted it up and then it went down.”

Submission Attempted Manipulation

The Order also finds that on certain days in which JPMC had a trading position settling or resetting against the USD ISDAFIX, JPMC  attempted to manipulate the final published USD ISDAFIX rates by submitting rates that were false, misleading, or knowingly inaccurate because they purported to reflect JPMC’s honest view of the true costs of entering into an interest rate swap in particular tenors, but in fact reflected traders’ desire to move USD ISDAFIX higher or lower in order to benefit JPMC’s positions.  

Electronic communications captured examples of discussions between the JPMC submitters and other JPMC trading desk employees.  As evidenced in one electronic communication, a JPMC trader requested that the JPMC submitter “give the lowest 3[year] possible (and the highest 2 [year] and 5 [year]” because his desk had “an exercise with the options desk on the 2s/3s/5s.”  The request to raise and lower the particular tenors in question was made the day before the reference point snapshot was even taken, indicative of the manipulative intent of the author.


*  *  *  *  *  *

JPMC has taken specified steps to implement and strengthen its internal controls and procedures relating to the fixing of interest-rate swaps benchmarks, including measures to detect and deter trading or other conduct potentially intended to manipulate directly or indirectly swap rates, including benchmarks based on interest-rate swaps and to ensure the integrity of the fixing of any interest-rate swap benchmark.

In accepting the Bank’s offer, the Commission recognizes that JPMC provided substantial cooperation in the investigation in this matter, and commenced significant remedial action to strengthen the internal controls and policies relating to all benchmarks, including ISDAFIX. 

The following staff members assisted in this case: Candice Aloisi, Jason Fairbanks, Jordon Grimm, David MacGregor, David C. Newman, K. Brent Tomer, and James Wheaton.

CFTC Division of Enforcement staff members responsible for this case are Patrick Daly, Mark A. Picard, Trevor Kokal, David Acevedo, Lenel Hickson, Jr., and Manal M. Sultan.

June 22, 2018 in Financial Regulation | Permalink | Comments (0)

Thursday, June 21, 2018

FinCEN Advisory on Human Rights Abuses Enabled by Corrupt Senior Foreign Political Figures and their Financial Facilitators

FinCEN Advisory On Human Rights Abuses 

High-level political corruption undermines democratic institutions and public trust, damages economic growth, and fosters a climate where financial crime and other forms of lawlessness can thrive. Corrupt senior foreign political figures, their subordinates and facilitators, through their corrupt actions, often contribute directly or indirectly to human rights abuses, which have a devastating impact on individual citizens and societies, undermining markets and economic development and creating instability in a region. The use of financial facilitators is one way that corrupt senior foreign political figures access the U.S. and international financial system to move or hide illicit proceeds, evade U.S. and global sanctions, or otherwise engage in illegal activity, including related human rights abuses.

Treasury employs its unique tools, consistent with applicable authorities, to impose financial consequences on those who pillage the wealth and  resources of their people, generate ill-gotten profits from corruption, cronyism, and other criminal activity, and engage in human rights abuses. These tools include the ability to sanction corrupt actors and human rights abusers around the world under an Executive Order implementing the Global Magnitsky Act of 2016,[1] taking enforcement action against financial facilitators of corrupt senior foreign political figures, as well as issuing advisories to financial institutions to help them identify, mitigate, and report on these risks.

[1] See Executive Order 13818, “Blocking the Property of Persons Involved in Serious Human Rights Abuse and Corruption,” December 20, 2017; see also United States Sanctions Human Rights Abusers and Corrupt Actors Across the Globe December 21, 2017.

June 21, 2018 in AML | Permalink | Comments (0)

Maryland Man Sentenced to Seven Years in Prison for Role in Scheme That Used Stolen Identities to Fraudulently Seek Tax Refunds

            WASHINGTON – A Maryland man was sentenced today to seven years in prison for his involvement in a scheme to fraudulently obtain millions of dollars in income tax refunds.

            The announcement was made by Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division; U.S. Attorney Jessie K. Liu for the District of Columbia; Acting Special Agent in Charge Kelly R. Jackson of the Internal Revenue Service Criminal Investigation (IRS-CI) Washington D.C. Field Office; Acting Inspector in Charge Eric Shen of the U.S. Postal Inspection Service, Washington Division and Assistant Inspector General for Investigations John L. Phillips of the U.S. Department of the Treasury.

            Antonio Cooper, 47, of Oxon Hill, Md., pled guilty in May 2016 to charges of conspiracy to commit theft of government funds, theft of public money, and aggravated identity theft.

            Cooper was part of a massive sophisticated stolen identity refund fraud scheme that involved a network of more than 130 people, many of whom were receiving public assistance.  Conspirators fraudulently claimed refunds for tax years 2005 through 2012, often in the names of people whose identities had been stolen, including the elderly, people in assisted living facilities, drug addicts and incarcerated prisoners.  Returns were also filed in the names of, and refunds were issued to, willing participants in the scheme.  The returns filed listed more than 400 “taxpayer” addresses located in the District of Columbia, Maryland and Virginia.  According to court documents, the overall case involved the filing of at least 12,000 fraudulent federal income tax returns that sought at least $42 million in refunds. 

            Conspirators played various roles in the scheme: stealing identifying information; allowing their personal identifying information to be used; creating and mailing fraudulent federal tax returns; allowing their addresses to be used for receipt of the refund checks; cashing the refund checks; providing bank accounts into which the refund checks were deposited and forging endorsements of identity theft victims on the refund checks.  The false returns typically reported inflated or fictitious income from a sole proprietorship and claimed phony dependents to generate an Earned Income Tax Credit, a refundable federal income tax credit for working families with low to moderate incomes.  To date, approximately two dozen participants in this scheme have pleaded guilty, and three have been convicted by a trial jury.  

            According to the government’s evidence, Cooper actively participated in the scheme from approximately February 2010 through July 2012. He also recruited others to do so. As he admitted in Court, Cooper played an integral part in the overall conspiracy; he, his friends, and his family members defrauded the IRS out of more than $2 million through the receipt of fraudulently obtained income tax refund checks. Among other things, Cooper used others’ addresses to receive checks, bought personal identifying information needed to complete tax forms, and cashed some of the fraudulently-obtained tax refund checks. 

            In addition to the term of prison imposed, U.S. District Judge Rosemary M. Collyer ordered Cooper to serve three years of supervised release and to pay $2,420,241 in restitution to the IRS.  She also ordered a forfeiture money judgment $806,747.

            Principal Deputy Assistant Attorney General Zuckerman, U.S. Attorney Liu, Acting Special Agent in Charge Jackson, Acting Inspector in Charge Shen and Assistant Inspector General Phillips commended the special agents who conducted the investigation and acknowledged the efforts of those who worked on the case from the U.S. Attorney’s Office of the District of Columbia, including former Assistant U.S. Attorney Sherri L. Schornstein; Assistant U.S. Attorney Chrisellen Kolb; Paralegal Specialists Aisha Keys and Donna Galindo; former Paralegal Specialists Jessica Mundi and Julie Dailey; Litigation Technology Specialist Ron Royal; Investigative Analysts William Hamann and Zachary McMenamin, and Victim/Witness Advocate Tonya Jones. They also expressed appreciation for the work of Trial Attorneys Jeffrey B. Bender, Thomas F. Koelbl, and Jessica Moran of the Tax Division, who worked on the case.

June 21, 2018 in Tax Compliance | Permalink | Comments (0)

Wednesday, June 20, 2018

Texas Man Sentenced To Prison For Money Laundering Conspiracy On Pharma Fraud

A Houston, Texas man was sentenced to 58 months in prison for his role in a money laundering conspiracy, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division and U.S. Attorney Ryan K. Patrick for the Southern District of Texas.

According to documents and information provided to the court, Marcus T. Weathersby conspired with others to facilitate the fraudulent sale of second-hand prescription medications to a Utah-based wholesale distributor.  This scheme involved purchasing bottles of prescription medications from illegitimate sources and then selling the medications to another wholesale distributor who then sold them to pharmacies as new.  Federal regulation requires wholesale distributors of prescription medications to provide to a buyer a pedigree – a written statement identifying each prior sale, purchase, or trade of the drugs being sold that includes the business name and information of all parties to the prior transactions, starting with the manufacturer.

Weathersby, in approximately December 2010, established Acacia Pharma Distributors Inc. (Acacia), a Mississippi corporation.  Nearly eight months later, Weathersby directed another individual to incorporate Four Corner Suppliers Inc. (Four Corner) in Mississippi.  Acacia and Four Corner purported to be legitimate wholesale distributors of pharmaceuticals licensed and operating in Mississippi, however, in reality Weathersby and others used these corporations to facilitate the illegal sale of second-hand prescription drugs.

Weathersby also opened and caused others to open bank accounts in the names of Acacia and Four Corner.  Between February 2011 and July 2012, Weathersby withdrew and led others to withdraw over $2.9 million in cash from these bank accounts and to structure these cash withdrawals in amounts under $10,000 in order to prevent the banks from complying with their legal obligation to prepare currency transaction reports for each cash transaction over $10,000.

In addition to the term of imprisonment, U.S. District Court Chief Judge Lee H. Rosenthal ordered Weathersby to serve three years of supervised release, and imposed a money judgment against the defendant in the amount of $2,991,867.76, which will be applied as criminal restitution.

June 20, 2018 in AML | Permalink | Comments (0)