International Financial Law Prof Blog

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

Tuesday, July 31, 2018

The $4 Billion Theft From the Malaysian Sovereign Fund 1MDB: Rothschild bank sanctioned

FINMA concludes final 1MDB proceedings

Rothschild Bank AG and one of its subsidiaries have been found to be in serious breach of money laundering rules in the context of 1MDB. Specifically, they were in breach of due diligence, reporting and documentation requirements. FINMA will appoint an audit agent to review enhancements already put in place by the institutions. This concludes the last of seven enforcement proceedings launched by FINMA in relation to 1MDB.

Rothschild Bank AG and its subsidiary Rothschild Trust (Schweiz) AG have been found to be in serious breach of Swiss anti-money laundering rules. The breaches relate to business relationships and transactions in the context of the alleged corruption scandal involving Malaysian sovereign wealth fund 1MDB. These are the findings of enforcement proceedings concluded by FINMA in July 2018.

Breaches of due diligence, reporting and documentation requirements

FINMA found that the bank and a subsidiary operating in the trust business had failed to adequately clarify the origin of assets in a significant business relationship. Although there were early indications that this client could be involved in money laundering activities, the institutions decided nevertheless to enter into the relationship and at a later stage considerably expand it. Given the inadequate clarifications carried out, it is FINMA's view that the institutions also breached their reporting requirements. They reported suspicions of money laundering to the Money Laundering Reporting Office Switzerland (MROS) only after a substantial delay. The bank also failed to adequately document a number of high-risk transactions.

FINMA concludes final 1MDB proceedings

The institutions involved have already taken steps on their own initiative to implement a range of organisational measures aimed at improving compliance with anti-money laundering rules. FINMA will appoint an audit agent to review the appropriateness and effectiveness of these measures and of the internal control system for combating money laundering. The case outlined above is the last of seven cases relating to 1MDB in which FINMA has now concluded enforcement proceedings.

July 31, 2018 in AML | Permalink | Comments (0)

Monday, July 30, 2018

Global Forum on Transparency and Exchange of Information for Tax Purposes: United States 2018 (Second Round)

Peer Review Report on the Exchange of Information on Request
This report contains the 2018 Peer Review Report on the Exchange of Information on Request of United States.

July 30, 2018 in GATCA | Permalink | Comments (0)

Sunday, July 29, 2018

IRS Announces the Identification and Selection of Five Large Business and International Compliance Campaigns

The IRS Large Business and International division (LB&I) has announced the approval of five additional compliance campaigns. LB&I announced on January 31, 2017, the rollout of its first 13 campaigns, followed by an additional 11 on November 3, 2017, five campaigns on March 13, and six more campaigns on May 21.

LB&I continues to review legislation enacted on December 22, 2017, to determine which existing campaigns, if any, could be impacted as a result of a change in the controlling statutory framework. Information regarding any identified impact will be communicated after that analysis has been completed.

LB&I is moving toward issue-based examinations and a compliance campaign process in which the organization decides which compliance issues that present risk require a response in the form of one or multiple treatment streams to achieve compliance objectives. This approach makes use of IRS knowledge and deploys the right resources to address those issues.

The campaigns are the culmination of an extensive effort to redefine large business compliance work and build a supportive infrastructure inside LB&I. Campaign development requires strategic planning and deployment of resources, training and tools, metrics and feedback. LB&I is investing the time and resources necessary to build well-run and well-planned compliance campaigns.

These five additional campaigns were identified through LB&I data analysis and suggestions from IRS employees. LB&I's goal is to improve return selection, identify issues representing a risk of non-compliance, and make the greatest use of limited resources.

The five campaigns selected for this rollout are:

  • Restoration of Sequestered AMT Credit Carryforward

Practice Area: Enterprise Activities

Lead Executive: Gloria Sullivan, director, Enterprise Activities

LB&I is initiating a campaign for taxpayers improperly restoring the sequestered Alternative Minimum Tax (AMT) credit to the subsequent tax year. Refunds issued or applied to a subsequent year’s tax, pursuant to IRC Section 168(k)(4), are subject to sequestration and are a permanent loss of refundable credits. Taxpayers may not restore the sequestered amounts to their AMT credit carryforward. Soft letters will be mailed to taxpayers who are identified as making improper restorations of sequestered amounts. Taxpayers will be monitored for subsequent compliance. The goal of this campaign is to educate taxpayers on the proper treatment of sequestered AMT credits and request that taxpayers self-correct.

  • S Corporation Distributions

Practice Area: Pass Through Entities

Executive Leads: Holly Paz, director and Cliff Scherwinski, deputy director, Pass Through Entities

S Corporations and their shareholders are required to properly report the tax consequences of distributions. We have identified three issues that are part of this campaign. The first issue occurs when an S Corporation fails to report gain upon the distribution of appreciated property to a shareholder. The second issue occurs when an S Corporation fails to determine that a distribution, whether in cash or property, is properly taxable as a dividend. The third issue occurs when a shareholder fails to report non-dividend distributions in excess of their stock basis that are subject to taxation. The treatment streams for this campaign include issue-based examinations, tax form change suggestions, and stakeholder outreach.

  • Virtual Currency

Practice Area: Withholding & International Individual Compliance

Executive Lead: John Cardone, director, Withholding & International Individual Compliance

U.S. persons are subject to tax on worldwide income from all sources including transactions involving virtual currency. IRS Notice 2014-21 states that virtual currency is property for federal tax purposes and provides information on the U.S. federal tax implications of convertible virtual currency transactions. The Virtual Currency Compliance campaign will address noncompliance related to the use of virtual currency through multiple treatment streams including outreach and examinations. The compliance activities will follow the general tax principles applicable to all transactions in property, as outlined in Notice 2014-21. The IRS will continue to consider and solicit taxpayer and practitioner feedback in education efforts, future guidance, and development of Practice Units. Taxpayers with unreported virtual currency transactions are urged to correct their returns as soon as practical. The IRS is not contemplating a voluntary disclosure program specifically to address tax non-compliance involving virtual currency.

  • Repatriation via Foreign Triangular Reorganizations

Practice Area: Cross-Border Activities

Executive Leads: John Hinding, director, Cross-Border Activities; Barbara Harris, director, Northeastern Compliance

In December 2016, the IRS issued Notice 2016-73 (“the Notice”), which curtails the claimed “tax-free” repatriation of basis and untaxed CFC earnings following the use of certain foreign triangular reorganization transactions. The goal of the campaign is to identify and challenge these transactions by educating and assisting examination teams in audits of these repatriations.

  • Section 965 Transition Tax

Practice Area: Cross-Border Activities

Executive Lead: John Hinding, director, Cross-Border Activities

Section 965 requires United States shareholders to pay a transition tax on the untaxed foreign earnings of certain specified foreign corporations as if those earnings had been repatriated to the United States. Taxpayers may elect to pay the transition tax in installments over an eight-year period. For some taxpayers, some or all of the tax will be due on their 2017 income tax return. The tax is payable as of the due date of the return (without extensions).

Earlier this year, LB&I engaged in an outreach campaign to leverage the reach of trade groups, advisors and other outside stakeholders to raise awareness of filing and payment obligations under this provision. The external communication was circulated through stakeholder channels in April 2018.

Communication

IRS is working to alert potentially impacted taxpayers about new tax filing and tax payment obligations arising under recently revised Internal Revenue Code section 965.[1] An overview of section 965 is discussed below.

What is section 965?

Section 965 requires United States shareholders (as defined under section 951(b)) to pay a transition tax on the untaxed foreign earnings of certain specified foreign corporations as if those earnings had been repatriated to the United States. Very generally, a specified foreign corporation means either a controlled foreign corporation, as defined under section 957 (“CFC”), or a foreign corporation (other than a passive foreign investment company, as defined under section 1297, that is not also a CFC) that has a United States shareholder that is a domestic corporation. Section 965 allows U.S. shareholders to reduce the amount of the income inclusion based on deficits in earnings and profits with respect to other specified foreign corporations. The effective tax rates applicable to income inclusions are adjusted by way of a participation deduction set out in section 965(c). A reduced foreign tax credit applies to the inclusion under section 965(g). Taxpayers may elect to pay the transition tax in installments over an eight-year period.

Taxpayers may have to pay a section 965 transition tax when filing their 2017 tax returns. The tax is payable as of the due date of the return (without extensions). The IRS recently issued guidance on the calculation of the tax and filing for 2017 in the form of answers to frequently asked questions (FAQs) which can be found, along with additional IRS news releases on section 965, and other topics relating to tax reform and the Tax Cuts and Jobs Act.

What taxpayers are impacted?

It is important that all potentially impacted taxpayers are aware of the requirements under section 965. U.S. shareholders of specified foreign corporations need to be aware that an income inclusion may be required for 2017 and certain elections, which may have a significant impact on a taxpayer’s 2017 payment and filing obligations, must be made no later than the due date for a taxpayer’s 2017 tax return. U.S. shareholders include domestic corporations, but could also include other U.S. persons, such as individuals, S corporations, partnerships, estate, trusts, cooperatives, REITS, RICs and tax-exempt organizations. Notably, all U.S. shareholders of a CFC previously filing a Form 5471 should determine if there is an obligation to file and pay the tax under section 965 for 2017. Note, however, that even if a United States shareholder has not previously filed Form 5471, the United States shareholder may be subject to tax under section 965.

What do potentially impacted taxpayers need to know?

Taxpayers should be aware of their income tax obligations under section 965. See irs.gov for details on the manner of computation and reporting of the new section 965 tax (including information for 2017 filings). The new tax applies to the last taxable year of specified foreign corporations beginning before January 1, 2018, and the tax is includible in the U.S. shareholder’s tax year in which or with which the specified foreign corporation’s year ends.

If you were a U.S. shareholder of one or more CFCs or other specified foreign corporations, section 965 requires you to take the following actions:

  1. You must determine if you held an interest in one or more specified foreign corporations whose tax year ends with or within your 2017 taxable year.
  2. You must determine the amount, if any, of previously untaxed earnings and profits to be included in income on your 2017 tax return.
  3. A U.S. shareholder that is required to pay the tax with respect to a 2017 inclusion must do so either in one lump sum, or, pursuant to an election, in eight annual installments. See IRC Section 965(h).
  4. Failure to properly comply with the reporting and payment obligations could result in the imposition of interest and/or the assertion of tax penalties.

Taxpayers must keep adequate records to support the calculation of tax pursuant to section 965. Additional information and worksheets, including reporting for 2018, will be made available on irs.gov to aid taxpayers in complying with section 965. Note that reporting section 965 net tax liability for 2018 may differ from reporting for 2017.

The IRS plans to monitor compliance with the provisions of section 965. Follow-up inquiries may occur if the IRS determines that the required filings and/or payments are not made. Please see tax reform for updated information as it becomes available.

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

Friday, July 27, 2018

Deputy Attorney General Rod J. Rosenstein Delivers Remarks at the Aspen Security Forum

Remarks as prepared for delivery

It is a privilege to join you this afternoon at one of the world’s premier security conferences.

We meet at a fraught moment. For too long, along with other nations, we enjoyed the extraordinary benefits of modern technology without adequately preparing for its considerable risks. Director of National Intelligence Dan Coats elevated the alarm last week, when he stated that “the digital infrastructure that serves this country is literally under attack.” That is one of the rare instances when the word literally is used literally.

Our adversaries are developing cyber tools not only to steal our secrets and mislead our citizens, but also to disable our infrastructure by gaining control of computer networks.

Every day, malicious cyber actors infiltrate computers and accounts of individual citizens, businesses, the military, and all levels of government. Director Coats revealed that our adversaries “target[] government and businesses in the energy, nuclear, water, aviation and critical manufacturing sectors.” They cause billions of dollars in losses, preposition cyber tools they could use for future attacks, and try to degrade our political system. So combating cybercrime and cyber-enabled threats to national security is a top priority of the Department of Justice.

Attorney General Jeff Sessions established a Cyber-Digital Task Force in February to consider two questions: What are we doing now to address cyber threats?  And how can we do better?

Today, the Department of Justice is releasing a report that responds to the first question, providing a detailed assessment of the cyber threats confronting America and the Department’s efforts to combat them.

The Task Force report addresses a wide range of issues, including how to define the multi-faceted challenges of cyber-enabled crime; develop strategies to detect, deter and disrupt threats; inform victims and the public about dangers; and maintain a skilled workforce. 

The report describes six categories of cyber threats, and explains how the Department of Justice is working to combat them. 

One serious type of threat involves direct damage to computer systems, such as Distributed Denial of Service attacks and ransomware schemes. 

Another category is data theft, which includes stealing personally identifiable information and intellectual property. 

The third category encompasses cyber-enabled fraud schemes. 

A fourth category includes threats to personal privacy, such as sextortion and other forms of blackmail and harassment. 

Attacks on critical infrastructure constitute the fifth category. They include infiltrating energy systems, transportation systems, and telecommunications networks. 

Each of those complex and evolving threats is serious, and the report details the important work that the Department of Justice is doing to protect America from them.  

I plan to focus today on a sixth category of cyber-enabled threats: malign foreign influence operations, described in chapter one of the task force report.

The term “malign foreign influence operations” refers to actions undertaken by a foreign government, often covertly, to influence people’s opinions and advance the foreign nation’s strategic objectives. The goals frequently include creating and exacerbating social divisions and undermining confidence in democratic institutions.

Influence operations are a form of information warfare. Covert propaganda and disinformation are among the primary weapons.

The Russian effort to influence the 2016 presidential election is just one tree in a growing forest. Focusing merely on a single election misses the point. As Director Coats made clear, “these actions are persistent, they are pervasive, and they are meant to undermine America’s democracy on a daily basis, regardless of whether it is election time or not.”

Russian intelligence officers did not stumble onto the ideas of hacking American computers and posting misleading messages because they had a free afternoon.  It is what they do every day.

This is not a new phenomenon. Throughout the twentieth century, the Soviet Union used malign influence operations against the United States and many other countries.  In 1963, for example, the KGB paid an American to distribute a book claiming that the FBI and the CIA assassinated President Kennedy.

In 1980, the KGB fabricated and distributed a fake document claiming that there was a National Security Council strategy to prevent black political activists from working with African leaders.

During the Reagan Administration, the KGB spread fake stories that the Pentagon developed the AIDS virus as part of a biological weapons research program.

As Jonathan Swift wrote in 1710, “Falsehood flies, and the Truth comes limping after it.”

The Reagan Administration confronted the problem head on.  It established an interagency committee called “the Active Measures Working Group” to counter Soviet disinformation.  The group exposed Soviet forgeries and other propaganda. 

Modern technology vastly expands the speed and effectiveness of disinformation campaigns.  The Internet and social media platforms allow foreign agents to spread misleading political messages while masquerading as Americans.

Homeland Security Secretary Kirstjen Nielsen explained last weekend that our adversaries “us[e] social media, sympathetic spokespeople and other fronts to sow discord and divisiveness amongst the American people.”

Elections provide an attractive opportunity for foreign influence campaigns to undermine our political processes.  According to the intelligence community assessment, foreign interference in the 2016 election “demonstrated a significant escalation in directness, level of activity, and scope of effort compared to previous operations.”

The Department’s Cyber-Digital Task Force report contributes to our understanding by identifying five different types of malign foreign influence operations that target our political processes.

First, malicious cyber actors can target election infrastructure by trying to hack voter registration databases and vote-tallying systems.  In 2016, foreign cyber intruders targeted election-related networks in as many as 21 states. There is no evidence that any foreign government ever succeeded in changing votes, but the risk is real.  Moreover, even the possibility that manipulation may occur can cause citizens to question the integrity of elections.

Second, cyber operations can target political organizations, campaigns, and public officials.  Foreign actors can steal private information through hacking, then publish it online to damage a candidate, campaign, or political party.  They can even alter that stolen information to promote their desired narrative. 

Russia’s intelligence services conducted cyber operations against both major U.S. political parties in 2016, and the recent indictment of Russian intelligence officers alleges a systematic effort to leak stolen campaign information.

The third category of malign influence operations affecting elections involves offers to assist political campaigns or public officials by agents who conceal their connection to a foreign government. Such operations may entail financial and logistical support to unwitting Americans.

Fourth, adversaries covertly use disinformation and other propaganda to influence American public opinion.  Foreign trolls spread false stories online about candidates and issues, amplify divisive political messages to make them appear more pervasive and credible, and try to pit groups against each other.  They may also try to affect voter behavior by triggering protests or depressing voter turnout.

Finally, foreign governments use overt influence efforts, such as government-controlled media outlets and paid lobbyists. Those tactics may be employed lawfully if the foreign agents comply with registration requirements. But people should be aware when lobbyists or media outlets are working for a foreign government so they can evaluate the source’s credibility. Particularly when respected figures argue in favor of foreign interests, it may matter to know that they are taking guidance from a foreign nation.

The election-interference charges filed in February demonstrate how easily human “trolls” distribute propaganda and disinformation. A Russian man recently admitted to a reporter that he worked with the trolls, in a separate department creating fake news for his own country. He “felt like a character in the book ‘1984’ by George Orwell – a place where you have to write that white is black and black is white.… [Y]ou were in some kind of factory that turned lying ... into an industrial assembly line. The volumes were colossal – there were huge numbers of people, 300 to 400, and they were all writing absolute untruths.”

When the man took a test for a promotion to the department working to fool Americans, he explained, “The main thing was showing that you are able to … represent yourself as an American.”

The former troll believes that Russian audiences pay no attention to fake internet comments. But he has a different opinion about Americans. He thinks that we can be deceived, because Americans “aren’t used to this kind of trickery.”

That remark is sort of a compliment. In repressive regimes, people always assume that the government controls media outlets. We live in a country that allows free speech, so people are accustomed to taking it seriously when other citizens express their opinions.  But not everyone realizes that information posted on the Internet may not even come from citizens.

Moreover, Internet comments may not even come from human beings. Automated bots magnify the impact of propaganda. Using software to mimic actions by human users, bots can   circulate messages automatically, creating the appearance that thousands of people are reading and forwarding information. Together, bots and networks of paid trolls operating multiple accounts allow foreign agents to quickly spread disinformation and create the false impression that it is widely accepted.

The United States is not alone in confronting malign foreign influence. Russia reportedly conducted a hack-and-release campaign against President Macron during last year’s French elections, and instituted similar operations against political candidates in other European democracies. Other foreign nations also engage in malign influence activities.

So what can we do to defend our values in the face of foreign efforts to influence elections, weaken the social fabric, and turn Americans against each other? Like terrorism and other national security threats, the malign foreign influence threat requires a unified, strategic approach across all government agencies. The Departments of Justice, Homeland Security, State, Defense, Treasury, Intelligence agencies, and others play important roles. 

Other sectors of society also need to do their part. State and local governments must secure their election infrastructure. Technology companies need to prevent misuse of their platforms.  Public officials, campaigns, and other potential victims need to study the threats and protect themselves and their networks.  And citizens need to understand the playing field.

The Department of Justice investigates and prosecutes malign foreign influence activity that violates federal criminal law.  Some critics argue against prosecuting people who live in foreign nations that are unlikely to extradite their citizens. That is a shortsighted view.

For one thing, the defendants may someday face trial, if there is a change in their government or if they visit any nation that cooperates with America in enforcing the rule of law. Modern forms of travel and communication readily allow criminals to cross national boundaries. Do not underestimate the long arm of American law – or the persistence of American law enforcement. People who thought they were safely under the protection of foreign governments when they committed crimes against America sometimes later find themselves in federal prisons.

Second, public indictments achieve specific deterrence by impeding the defendants from traveling to rule-of-law nations and raising the risk they will be held accountable for future cybercrime.  Wanted criminals are less attractive co-conspirators.

Third, demonstrating our ability to detect and publicly charge hackers will deter some others from engaging in similar conduct.

Fourth, federal indictments are taken seriously by the public and the international community, where respect for our criminal justice system – including an understanding of the presumption of innocence and the standard of proof beyond a reasonable doubt – means that our willingness to present evidence to a grand jury and ultimately at trial elicits a high degree of confidence in our allegations.

Fifth, victims deserve vindication, particularly when they are harmed by criminal acts that would be prosecuted if the perpetrator were located in the United States.

Sixth, federal criminal investigations support other penalties for malign foreign influence operations. For example, the Department of the Treasury can impose financial sanctions on defendants based on evidence exposed in indictments. Voters in foreign democracies, and influential citizens in autocratic regimes, can consider the allegations in making their own decisions about national leadership and foreign alliances.

The Department of the Treasury imposed sanctions on the individuals and entities identified in the February election-interference indictment, along with others engaged in malign activities. Nineteen individuals and five entities are subject to sanctions that freeze assets under American jurisdiction. Even if they are never brought to court, they will face consequences.

The sanctions forbid those individuals and entities from engaging in transactions with Americans and using the American financial system. The Administration followed up with similar financial sanctions for a broader range of malign activities against seven oligarchs, 12 companies, 17 Russian government officials, and two other entities.

Prosecutions are one useful tool to help deter modern criminals who remain beyond our shores. The same approach applies outside the context of crimes committed to influence elections. That is why our government regularly files charges against criminals who hide overseas, such as Iranian government hackers who broke into computer networks of a dam; Iranian hackers who infiltrated American universities, businesses and government agencies for the Islamic Revolutionary Guard Corps; an Iranian hacker who infiltrated and extorted a television network; Chinese government hackers who committed economic espionage; and Russian intelligence officers who stole data from an email service provider.

Intelligence assessments and criminal indictments are based on evidence.  They do not reflect mere guesses. Intelligence assessments include analytical judgments based on classified information that cannot be disclosed because the evidence is from sources — people who will be unable to help in the future if they are identified and might be harmed in retaliation for helping America  — and methods — techniques that would be worthless if our adversaries knew how we obtained the evidence.  Indictments are based on credible evidence that the government must be prepared to introduce in court if necessary.

Some people may believe they can operate anonymously on the Internet, but cybercrime generally creates electronic trails that lead to the perpetrators.

Gathering intelligence about adversaries who threaten our way of life is a noble task. Outside the Department of Justice headquarters stands a statue of Nathan Hale. Hale was executed immediately, without a trial, after he was caught gathering intelligence for America during the Revolutionary War. His final words are recorded as follows: “I am so satisfied with the cause in which I have engaged, that my only regret is that I have but one life to offer in its service.”

The days when foreign criminals could cause harm inside America from remote locations without fear of consequences are past. If hostile governments choose to give sanctuary to perpetrators of malicious cybercrimes after we identify them, those governments will need to take responsibility for the crimes, and individual perpetrators will need to consider the personal cost.

But criminal prosecutions and financial sanctions are not a complete solution. We need to take other steps to prevent malicious behavior.

To protect elections, the first priority is to harden our infrastructure.  State governments run American elections and are responsible for maintaining cybersecurity, but they need federal help.  The Department of Homeland Security takes the lead in helping to protect voting infrastructure, and the FBI leads federal investigations of intrusions. 

The FBI works closely with DHS to inform election administrators about threats.  DHS and the FBI provide briefings to election officials from all fifty states about our foreign adversaries’ intentions and capabilities.

We also seek to protect political organizations, campaigns, candidates, and public officials. The FBI alerts potential victims about malicious cyber activities and helps them respond to intrusions.  It shares detailed information about threats and vulnerabilities. 

To combat covert foreign influence on public policy, we enforce federal laws that require foreign agents to register with the U.S. government. Those laws prohibit foreign nationals from tricking unwitting Americans while concealing that they are following orders from foreign government handlers.  The Department of Justice is stepping up enforcement of the Foreign Agents Registration Act and related laws, and providing defensive counterintelligence briefings to local, state, and federal leaders and candidates.

Public attribution of foreign influence operations can help to counter and mitigate the harm caused by foreign government-sponsored disinformation. When people are aware of the true sponsor, they can make better-informed decisions.

We also help technology companies to counter covert foreign influence efforts.  The FBI works with partners in the Intelligence Community to identify foreign agents as they establish their digital infrastructure and develop their online presence.  The FBI helps technology companies disrupt foreign influence operations, by identifying foreign agents’ activities so companies may consider the voluntary removal of accounts and content that violate terms of service and deceive customers.

Technology companies bear primary responsibility for securing their products, platforms, and services from misuse.  Many are now taking greater responsibility for self-policing, including by removing fake accounts. We encourage them to make it a priority to combat efforts to use their facilities for illegal schemes.

Even as we enhance our efforts to combat existing forms of malign influence, the danger continues to grow. Advancing technology may enable adversaries to create propaganda in new and unforeseen ways. Our government must continue to identify and counter them.

Exposing schemes to the public is an important way to neutralize them. The American people have a right to know if foreign governments are targeting them with propaganda.

In some cases, our ability to expose foreign influence operations may be limited by our obligation to protect intelligence sources and methods, and defend the integrity of investigations. 

Moreover, we should not publicly attribute activity to a source unless we possess high confidence that foreign agents are responsible. We also do not want to unduly amplify an adversary’s messages, or impose additional harm on victims. 

In all cases, partisan political considerations must play no role in our efforts. We cannot seek to benefit or harm any lawful group, individual or organization. Our government does not take any official position on what people should believe or how they should vote, but it can and should protect them from fraud and deception perpetrated by foreign agents.

Unfettered speech about political issues lies at the heart of our Constitution. It is not the government’s job to determine whether political opinions are right or wrong.

But that does not leave the government powerless to address the national security danger when a foreign government engages in covert information warfare. The First Amendment does not preclude us from publicly identifying and countering foreign government-sponsored propaganda.

It is not always easy to balance the many competing concerns in deciding whether, when, and how the government should disclose information about deceptive foreign activities relevant to elections. The challenge calls for the application of neutral principles. 

The Cyber-Digital Task Force Report identifies factors the Department of Justice should consider in determining whether to disclose foreign influence operations. The policy reflects an effort to articulate neutral principles so that when the issue the government confronted in 2016 arises again – as it surely will – there will be a framework to address it.

Meanwhile, the FBI’s operational Foreign Influence Task Force coordinates investigations of foreign influence campaigns.  That task force integrates the FBI’s cyber, counterintelligence, counterterrorism, and criminal law enforcement resources to ensure that we understand threats and respond appropriately. The FBI task force works with other federal agencies, state and local authorities, international partners, and the private sector.

Before I conclude, I want to emphasize that covert propaganda disseminated by foreign adversaries is fundamentally different from domestic partisan wrangling. As Senator Margaret Chase Smith proclaimed in her 1950 declaration of conscience, we must address foreign national security threats “patriotically as Americans,” and not “politically as Republicans and Democrats.”

President Reagan’s Under Secretary of State, Lawrence Eagleburger, wrote about Soviet active measures in 1983. He said that “it is as unwise to ignore the threat as it is to become obsessed with the myth of a super Soviet conspiracy manipulating our essential political processes.” He maintained that free societies must expose disinformation on a “persistent and continuing” basis.

Over the past year, Congress passed three statutes encouraging the Executive Branch to investigate, expose, and counter malign foreign influence operations. Publicly exposing such activities has long been a feature of U.S. law.  The Foreign Agents Registration Act, which Congress enacted in 1938 to deter Nazi propagandists, mandates that the American public know when foreign governments seek to influence them.

Knowledge is power. In 1910, Theodore Roosevelt delivered a timeless speech about the duties of citizenship. It is best known for the remark that “it is not the critic who counts.” But Roosevelt’s most insightful observation is that the success or failure of a republic depends on the character of the average citizen. It is up to individual citizens to consider the source and evaluate the credibility of information when they decide what to believe.

Heated debates and passionate disagreements about public policy and political leadership are essential to democracy. We resolve those disagreements at the ballot box, and then we keep moving forward to future elections that reflect the will of citizens. Foreign governments should not be secret participants, covertly spreading propaganda and fanning the flames of division. 

The government plays a central role in combating malign foreign influence and other cyber threats. The Attorney General’s Cyber-Digital Task Force report demonstrates that the Department of Justice is doing its part to faithfully execute our oath to preserve, protect, and defend America.

I regret that my time today is insufficient to describe the report in greater detail. It is available on the Department of Justice website. I hope you read it and find it a useful contribution to public discussion about one of the most momentous issues of our time.

In brief, the report explains that we must continually adapt criminal justice and intelligence tools to combat hackers and other cybercriminals. Traditional criminal justice is most often characterized by police chasing criminals and eyewitnesses pointing out perpetrators in courtrooms. Cybercrime requires additional tools and techniques.

We limit cybercrime damage by seizing or disabling servers, domain names, and other infrastructure that criminals use to facilitate attacks.  We shut down the dark markets where criminals buy and sell stolen information. We restore control of compromised computers. We share information gathered during our investigations to help potential victims protect themselves.  We seek restitution for victims. We pursue attribution and accountability for perpetrators. And we expose governments that defraud and deceive our citizens.

The Task Force report is just one aspect of our efforts. It is a detailed snapshot of how the Department of Justice assesses and addresses current cyber threats. The work continues, and not just within our Department.

Our government is doing more now than ever to combat malign foreign influence and other cyber threats. Trump Administration agency appointees and White House officials work with career professionals every day to prevent cybercrime and protect elections.

Our adversaries will never relent in their efforts to undermine America, so we must remain eternally vigilant in the defense of liberty, and the pursuit of justice. And we must approach each new threat united in our commitment to the principle reflected in the motto adopted at the founding of our Republic: e pluribus unum.

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

Thursday, July 26, 2018

Fact Sheet on Department of Justice Cyber-Digital Task Force Report

Download DOJ 2018 Cyber task force report

The Attorney General established the Department of Justice’s Cyber-Digital Task Force in February 2018 and directed the Task Force to answer two questions: (1) how the Department is currently combating the global cyber threat, and (2) how federal law enforcement can more effectively accomplish its mission in this vital and evolving area. On July 19, 2018, the CyberDigital Task Force is making public its initial report, which describes how the Department responds to current cyber threats.

The Global Cyber Threat Cyber-enabled attacks are exacting an enormous toll on American businesses, government agencies, and families. These attacks have resulted in billions of dollars in losses and have fostered efforts by hostile foreign governments to undermine American institutions and democracy. The Cyber-Digital Task Force Report details how the Department of Justice is combating these malicious, cyber-enabled threats.

Countering Malign Foreign Influence Operations

The Report begins in Chapter 1 by focusing on one of the most pressing cyber-enabled threats confronting our Nation: the threat posed by malign foreign influence operations. Malign foreign influence operations include covert actions by foreign governments intended to sow division in our society, undermine confidence in our democratic institutions, and otherwise affect political sentiment and public discourse to achieve strategic geopolitical objectives.

Chapter 1 categorizes malign foreign influence operations and explains how these operations can target our Nation’s democratic institutions, including our elections. It ends by describing the Department’s efforts to protect the 2018 midterm elections and other future elections. The five types of malign foreign influence operations the Report identifies include:

 Cyber operations targeting election infrastructure, such as voter registration databases, voting machines, or other critical infrastructure;
 Cyber operations targeting political organizations, campaigns, and public officials, such as those carried out by Russian intelligence officers, as alleged in a July 2018 indictment;
 Covert influence operations to assist or harm political organizations, campaigns, and public officials, such as those detailed in a February 2018 indictment of 13 Russian
nationals alleging covert activities and financial support to unwitting U.S. persons;
 Covert influence operations, including disinformation operations, to influence public opinion and sow division, such as the operation of social media pages and other forums
that spread disinformation and divisive messaging to U.S. audiences; and
 Overt influence efforts, such as the use of lobbyists, foreign media outlets, and other organizations to influence policymakers and the public.

The Report marks the first time the Department has publicly articulated the types of threats posed by malign foreign influence operations and formally described how, in coordination with other federal departments and agencies, it is responding to these operations.

The response is five-fold:

 Aggressively investigating and prosecuting criminal activity where appropriate, and promoting compliance with, and punishing violations of, the Foreign Agents Registration
Act (FARA).

 Working collaboratively with other executive departments, including the Department of Homeland Security (DHS), to share information about threats and vulnerabilities with
State and local election officials, political organizations, and other potential victims, so they can detect and prevent operations that target them.
 Supporting other executive departments’ actions, such as financial sanctions or diplomatic and intelligence efforts.
 Forming and maintaining strategic relationships with social media providers to assist those companies in their voluntary efforts to identify malign foreign influence activity
and to enforce terms of service that prohibit the use of their platforms for such activity.
 Using information developed in our investigations to protect the public by, where appropriate, exposing the nature of the foreign influence threat. The Report announces a
new Department policy governing the disclosure of foreign influence operations (pages 16-17).
o This policy provides guideposts for Department action to expose and thereby counter foreign influence threats, consistent with the fundamental principle that
the Department always must seek to act in ways that are politically neutral, compliant with the First Amendment, and designed to maintain the public trust.

The Report also outlines the Department’s framework to counter malign foreign influence operations ahead of the 2018 midterm elections, and describes the work of the FBI’s Foreign
Influence Task Force, which integrates the FBI’s cyber, counterintelligence, counterterrorism, and criminal law enforcement resources towards a better understanding of the threats posed by malign foreign influence operations. The FBI coordinates with other national security agencies and develops strategic relationships with State and local authorities, international partners, and the private sector, in a comprehensive approach to combating the foreign influence problem.

As the Report observes, the Department of Justice plays an important role in combating foreign efforts to interfere in our elections, but it cannot alone solve the problem. There are limits to the Department’s role—and the role of the U.S. government—in addressing foreign influence operations aimed at sowing discord and undermining our Nation’s institutions. Combating foreign influence operations requires a whole-of-society approach that relies on coordinated actions by federal, State, and local government agencies; support from potential victims and the private sector; and the active engagement of an informed public.

Other Significant Cyber Threats

In Chapters 2 and 3, the Report discusses other significant cyber-enabled threats confronting our Nation, including attacks intended to damage computer systems; data theft; fraud schemes; crimes threatening personal privacy, such as sextortion and other forms of blackmail and harassment; and attacks on critical infrastructure. Each of these threats is serious, and the Report  details the important work that the Department of Justice is doing to keep America safe in the face of these complex and evolving threats.
Chapter 4 of the Report details how the Federal Bureau of Investigation responds to cyber incidents, while Chapter 5 focuses on how the Department manages and trains its workforce on cyber matters. Finally, the Report concludes in Chapter 6 with observations about certain priority policy matters, and identifies eight non-exclusive areas for deeper evaluation (pp. 125- 26), charting a path for the Cyber-Digital Task Force’s future work.

July 26, 2018 in AML | Permalink | Comments (0)

Corporate Effective Tax Rates Model Description and Results from 36 OECD and Non-OECD Countries

Variations in the definition of the corporate tax base across countries can have significant impacts on tax liabilities associated with a given investment. An accurate assessment of the effects of corporate tax systems on investment thus needs to build on a consistent methodological framework covering not only statutory tax rates (STRs) but also many provisions affecting the base such as, e.g., fiscal depreciation.

The new OECD model described in this paper provides such a framework; building on the theoretical model developed by Devereux and Griffith (1999, 2003) it presents forward-looking effective tax rates (ETRs) for 36 OECD and Selected Partner Economies taking into account a wide range of corporate tax provisions. Empirical results confirm that corporate tax bases vary considerably across countries and asset categories; since tax bases are typically narrower in countries with higher STRs, ETRs tend to be less dispersed across countries than STRs.

July 26, 2018 in OECD | Permalink | Comments (0)

Wednesday, July 25, 2018

Global Forum publishes tax transparency compliance ratings for seven jurisdictions and welcomes three new members

The Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum), published today seven peer review reports assessing compliance with the international standard on tax transparency and exchange of information on request (EOIR).

These reports assess jurisdictions against the updated standard which incorporates beneficial ownership information of all legal entities and arrangements, in line with the definition used by the Financial Action Task Force Recommendations.

Two jurisdictions – Guernsey and San Marino – received an overall rating of “Compliant.” Four others – IndonesiaJapanthe Philippines and the United States were rated “Largely Compliant.” Kazakhstan was rated “Partially Compliant.” The jurisdictions have demonstrated their progress on many deficiencies identified in the first round of reviews. Main challenges in this second round are associated with ensuring the availability of beneficial ownership information, an element of the standard that was strengthened in 2016.

The Global Forum is the leading multilateral body mandated to ensure that jurisdictions around the world adhere to and effectively implement the international tax transparency standards both the standard of exchange of information on request and the standard of automatic exchange of information. This objective is achieved through a robust monitoring and peer review process. The Global Forum also runs an extensive technical assistance programme to provide support to its members in implementing the standards and helping tax authorities to make the best use of cross-border information sharing channels.

The Global Forum also welcomed three new countries into its membership – Bosnia and Herzegovina, Cabo Verde and Swaziland. This takes its membership to 153 members who have come together to cooperate in the international fight against cross border tax evasion.  

For additional information on the Global Forum, its peer review process, and to read all reports to date, go to: http://www.oecd-ilibrary.org/taxation/global-forum-on-transparency-and-exchange-of-information-for-tax-purposes-peer-reviews_2219469x.

July 25, 2018 in Tax Compliance | Permalink | Comments (0)

Tuesday, July 24, 2018

OECD Concludes CRS Led To EUR 93 Billion Additional Revenue

The OECD reports that as a result of CRS, FATCA, and related transparency efforts, taxpayers are changing their behavior.  As a result of voluntary compliance mechanisms and other offshore investigations put in place since 2009 thanks to the improvements in international tax cooperation, particularly the onset of automatic exchange of information, taxpayers have come forward and disclosed formerly concealed assets and income. By June 2018, jurisdictions around the globe have identified EUR 93 billion in additional revenue (tax, interest, penalties) from such initiatives.  Download Oecd-secretary-general-tax-report-g20-finance-ministers-july-2018

July 24, 2018 in GATCA | Permalink | Comments (0)

Treasury Department and IRS Announce Significant Reform to Protect Personal Donor Information to Certain Tax-Exempt Organizations

Policy Relieves Burdens on Taxpayers While Preserving Transparency

The Treasury Department and IRS announced that the IRS will no longer require certain tax-exempt organizations to file personally-identifiable information about their donors as part of their annual return.  The revenue procedure released today does not affect the statutory reporting requirements that apply to tax-exempt groups organized under section 501(c)(3) or section 527, but it relieves other tax-exempt organizations of an unnecessary reporting requirement that was previously added by the IRS.  

Nearly fifty years ago, Congress directed the IRS to collect donor information from charities that accept tax-deductible contributions.  That statutory requirement applies to the majority of tax-exempt organizations, known as section 501(c)(3) organizations, receiving contributions that can be claimed by donors as charitable deductions.  This policy provided the IRS information that could be used to confirm contributions to those organizations.

By regulation, however, the IRS extended the donor reporting requirement to all other tax-exempt organizations—labor unions and volunteer fire departments, issue-advocacy groups and local chambers of commerce, veterans groups and community service clubs.  These groups do not generally receive tax deductible contributions, yet they have been required to list the names and addresses of their donors on Schedule B of their annual returns (Form 990).

“Americans shouldn’t be required to send the IRS information that it doesn’t need to effectively enforce our tax laws, and the IRS simply does not need tax returns with donor names and addresses to do its job in this area,” said U.S. Treasury Secretary Steven T. Mnuchin.  “It is important to emphasize that this change will in no way limit transparency.  The same information about tax-exempt organizations that was previously available to the public will continue to be available, while private taxpayer information will be better protected.  The IRS’s new policy for certain tax-exempt organizations will make our tax system simpler and less susceptible to abuse.”

Summary of New IRS Policy

  • Tax-exempt organizations described by section 501(c), other than section 501(c)(3) organizations, are no longer required to report the names and addresses of their contributors on the Schedule B of their Forms 990 or 990-EZ. 
     
  • These organizations must continue to collect and keep this information in their records and make it available to the IRS upon request, when needed for tax administration.
     
  • Form 990 and Schedule B information that was previously open to public inspection will continue to be reported and open to public inspection.
     
  • The Internal Revenue Code expressly governs the tax-return reporting of donor information by charities that primarily receive tax-deductible contributions (under section 501(c)(3)) and political organizations (under section 527).  The IRS action today does not affect those organizations. 

After careful review, Treasury and the IRS have decided to relieve these tax-exempt organizations (other than organizations described in section 501(c)(3) or section 527) of a requirement that Congress never imposed for several reasons:

  • First, the IRS makes no systematic use of Schedule B with respect to these organizations in administering the tax code.  Donor information for many of these organizations was once relevant to the federal gift tax, but Congress eliminated that need in 2015 by making gifts to many of these tax-exempt organizations tax-free.  The IRS has no tax administration need for continuing the routine collection of donor names and addresses as part of an exempt organization’s annual tax return.  If the information is needed for purposes of an examination, the IRS will be able ask the organization for it directly.    
  • Second, the new policy will better protect taxpayers by reducing the risk of inadvertent disclosure or misuse of confidential information—an especially important safeguard for organizations engaged in free speech and free association protected by the First Amendment.  Unfortunately, the IRS has accidentally released confidential Schedule B information in the past.  In addition, conservative tax-exempt groups were disproportionately impacted by improper screening in the previous Administration, including what the Treasury Inspector General for Tax Administration concluded were inappropriate inquiries related to donors.  Ending the unnecessary collection of sensitive donor information will reinforce the reforms already implemented by the IRS in the wake of the political targeting scandal and enhance public trust in the agency.
  • Third, the new policy will save both private and government resources.  On the taxpayer side, the previous policy added needless paperwork.  On the government side, the IRS has been forced to devote scarce resources to redacting donor names and addresses (as required by federal law) before making Schedule B filings public.  Now, the IRS will no longer require personally-identifiable donor information that the IRS does not regularly need and the public does not see.  The public information will continue to be available, just as before.

The IRS’s new policy will relieve thousands of organizations of an unnecessary regulatory burden, while better protecting sensitive taxpayer information and ensuring appropriate transparency.

The IRS guidance is available here.

July 24, 2018 in Tax Compliance | Permalink | Comments (0)

Monday, July 23, 2018

TaxFacts Intelligence Weekly Tax Reform Developments

Tax Reform May Require Additional Disclosures for Withholding Purposes
The IRS released a draft Form W-4 designed to reflect the new changes to the tax code imposed by the 2017 tax reform legislation, including the elimination of the personal exemption. The new form is more complex and detailed than previously existing forms, because employers can no longer use the personal exemption to calculate withholding. The form itself is not yet finalized, and it is possible that changes following a very brief comment period. For more information on the suspended personal exemption, visit Tax Facts Online and Read More.

Small Business Valuation Discounts Less "Valuable" Post-Reform
With the enlargement of the estate tax exemption for 2018-2025, many planners are now seeking to reverse strategies that would have permitted clients to claim valuation discounts in their estate plans. Valuation discounts are primarily important in reducing the value of a client's taxable estate--usually in the small business context. However, if the client is unlikely to be subject to the estate tax at all, use of a valuation discount can cause the client to forgo a portion of the basis adjustment to which his or her heirs would otherwise be entitled. Clients who do not expect to be subject to the estate tax may wish to revisit their estate planning. For more information on minority discounts in the small business context, visit Tax Facts Online and Read More.

OTHER TAX DEVELOPMENTS

Need to Know Information for Kids With Summer Jobs
Many teenagers and college students are likely to be working this summer, and it is important that both the parent and kids should know with respect to potential tax liabilities. First, kids should pay attention to their withholding to ensure that they aren't under or over paying--any over-withholding will be returned in the form of a refund, and most minors should claim 0 or 1 allowances on their Form W-4. Kids also should be aware that some states will require even very low income workers to file state income tax returns, so even if the kid expects to be exempt at the federal level, a state filing may be required. Finally, if the kid has started his or her own summer business--such as a lawn mowing business--business-related expenses may be tax deductible, so should be carefully documented for tax time. For more information on the kiddie tax, visit Tax Facts Online and Read More.

Last Call for IRS Offshore Voluntary Disclosure Program is Looming
The September 28, 2018 closing date for the IRS' offshore voluntary disclosure program (OVDP) is looming. Many advisors agree that the September 28 deadline is the last date for potential participants to submit an "initial submission" that requests admission, and note that a pre-clearance request is likely insufficient. The initial submission requires more detailed information, such as the history of any foreign accounts, assets and past reporting, as well as the source of any foreign funds and an estimate of foreign account value. For more information on foreign account reporting requirements, visit Tax Facts Online and Read More.

LITIGATION WATCH

Metlife Lawsuit Highlights Missing Plan Participant Issue
Metlife has recently been sued because of its failure to pay retirement benefits to pension plan participants that it claims it can no longer locate, highlighting the importance of the "missing participant" issue in the financial community. Metlife's liability stems from a pension risk transfer transaction, where the pension plan itself purchased a group annuity contract from Metlife in order to reduce its pension liabilities. It then became Metlife's responsibility to make payments to plan participants. For more information on pension plan rules, visit Tax Facts Online and Read More.

 

Tax Facts Team
Molly Miller
Publisher
William H. Byrnes, J.D., LL.M
Tax Facts Author
Richard Cline, J.D.
Senior Director, Practical Insights
Robert Bloink, J.D., LL.M.
Tax Facts Author
Jason Gilbert, J.D.
Senior Editor
Alexis Long, J.D.
Senior Contributor
Connie L. Jump
Senior Manager, Editorial Operations
Marcia Mermelstein
Marketing Manager
Patti O'Leary
Senior Editorial Assistant
Emily Brunner
Editorial Assistant

July 23, 2018 in Tax Compliance | Permalink | Comments (0)

Concealment of Beneficial Ownership by Criminals

Criminals employ a range of techniques and mechanisms to obscure their ownership and control of illicitly obtained assets. Identifying the true  beneficial owner(s) or individual(s) exercising control represents a significant challenge for prosecutors, law enforcement agencies, and intelligence
practitioners across the globe. Schemes designed to obscure beneficial ownership often employ a “hide-in-plain sight” strategy, leveraging global trade and commerce infrastructures to appear legitimate. However, visibility does not equate to transparency, and many of the tools that were designed to encourage business growth and development, such as limited liability corporations and nominee directorship services, can be used to facilitate money laundering, tax evasion, and corruption. The globalisation of trade and communications has only increased this threat, and countries now face the
challenge of enforcing national laws in a borderless commercial environment.

While corporate vehicles, such as companies, foundations, partnerships, and other types of legal persons and arrangements are important for supporting commercial and entrepreneurial activity, they can also be misused to conceal the ownership and control of illicitly gained assets. A new joint FATF-Egmont Group report assesses the vulnerabilities linked to the concealment of beneficial ownership in order to support further risk analysis by governments, financial institutions and other professional service providers.

The report uses over 100 case studies provided by 34 different jurisdictions of the FATF Global Network, the experiences of law enforcement and other experts, private sector input the private sector as well as open-source research and intelligence reports to identify the methods that criminals use to hide beneficial ownership. Vulnerabilities associated with beneficial ownership are analysed, with a particular focus on the involvement of professional intermediaries.

The ease with which legal persons, primarily limited liability companies (or similar) can be formed, make them particularly vulnerable, and are seen to be used in building complex legal ownership structures, often involving shell companies. Trust and company service providers frequently play a role in such structures. The use of nominee directors and shareholders, both formal and informal, exacerbates the risks by creating barriers between the owner or individual and laundered proceeds, and often professional intermediaries play a role in helping create or operate the structures used to conceal beneficial ownership, either complicitly or unwittingly.

The report highlights the importance of the effective implementation of the FATF Recommendations on beneficial ownership to ensure that competent authorities have access to adequate, accurate and timely information on the beneficial ownership and control of legal persons, and arrangements including express trusts. 

Concealment of Beneficial Ownership

Concealment of Beneficial Ownership - Executive Summary

Concealment of Beneficial Ownership - Indicators of Concealed Beneficial Ownership  

More on:

More about the Egmont Group of Financial Intelligence Units

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

Sunday, July 22, 2018

Justice Department Announces Resolution With NPB Neue Privat Bank AG

The Department of Justice announced that NPB Neue Privat Bank (NPB) reached a resolution with the Tax Division.  NPB will pay a penalty of $5 million.

“The Department of Justice is committed to ending the practice of using foreign bank accounts to evade taxes,” said Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division. “Taxpayers and financial institutions should take notice that the Department is continuing to aggressively pursue these cases.”

According to the terms of the non-prosecution agreement signed today, NPB agrees to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay a penalty in return for the Department’s agreement not to prosecute this bank for tax-related criminal offenses.

NPB is a Swiss private bank based in Zurich, Switzerland.  Until 2012, NPB conducted a U.S. cross-border banking business that aided and assisted certain of its U.S. clients in opening and maintaining undeclared accounts in Switzerland and concealing the assets and income they held in these accounts from the U.S. government. NPB offered a variety of traditional Swiss banking services that it knew could assist, and did in fact assist, U.S. clients in the concealment of assets and income from the IRS, including the use of numbered accounts and hold mail services. 

NPB signed agreements with individual external asset managers or external asset management firms, whereby clients of the external asset manager could open and maintain accounts at NPB, with account management services being provided by the external asset manager. Almost all of NPB’s U.S. accounts were managed by external asset managers, for whom it provided custodial and limited banking services. In such cases, NPB generally did not contact the clients directly once they had opened their account. The Bank required an external asset manager mandate, so that communication about asset management and investment decisions were done between the U.S. customer and their external asset manager(s). In a few circumstances, NPB managed U.S. customers directly without an external asset manager. In those cases, the Bank required the U.S. customer to sign a direct asset management mandate, allowing the Bank to make investment decisions for the account. 

In 2001, NPB entered into a Qualified Intermediary Agreement (QI Agreement) with the Internal Revenue Service (IRS).  The Qualified Intermediary regime provided a comprehensive framework for U.S. information reporting and tax withholding by a non-U.S. financial institution with respect to U.S. securities. The QI Agreement required NPB to obtain IRS Forms W-9 and to undertake IRS Form 1099 reporting for new and existing U.S. clients engaged in U.S. securities transactions.  Notwithstanding this requirement, NPB chose to continue to service U.S. clients without disclosing their identity to the IRS.  NPB’s view was that it could continue to accept and service U.S. account holders, even if it knew or had reason to believe they were engaged in tax evasion, so long as it complied with the QI Agreement, which in NPB’s view did not apply to account holders who were not trading in U.S.-based securities or to accounts that were nominally structured in the name of a non-U.S.-based entity.  NPB formed this view without consulting legal counsel. 

Between August 1, 2008 and December 31, 2015, NPB held a total of 353 U.S.-related accounts, which included both declared and undeclared accounts, with an aggregate peak year-end value of approximately $400 million in assets under management.

In approximately early 2009, NPB was approached by certain external asset managers who managed accounts on behalf of U.S. taxpayers and were seeking a replacement custodian bank for accounts for U.S. taxpayers that were being closed by other Swiss banks, including UBS AG.  Some of these external asset managers and NPB discussed the long-term trend towards tax compliance in Switzerland and that eventually the external asset managers would only be able to manage accounts that were declared to the U.S. government. Those external asset managers told NPB that they were telling their clients to become tax compliant. However, the external asset managers also made clear to NPB that many of their clients who wished to onboard accounts at the Bank had not yet declared their accounts to the U.S. government. The external asset managers did not promise, and NPB did not require, that all accounts onboarded to NPB would become compliant within a specific period of time. In one instance, however, an external asset manager onboarded accounts from other Swiss banks that the Bank knew were undeclared with no discussion of tax compliance until 2011.

NPB viewed the taking of clients from other banks that were exiting U.S. taxpayers as a business opportunity. During a board of directors meeting held on March 9, 2009, the board unanimously resolved that it would allow U.S. taxpayers to open accounts at NPB, including customers who were forced to exit other banks.  Prior to 2009, NPB had few U.S. clients. At the close of 2008, U.S. Related Accounts held approximately 8 million Swiss francs in assets.  By the end of 2009, NPB had approximately 450 million Swiss francs under management in accounts owned or beneficially owned by U.S. taxpayers, an influx of approximately 442 million Swiss Francs.  Approximately 69% of the U.S.-related assets held by the Bank at the end of 2009 were reported to the U.S. government by the account holder in or before the 2009 tax year.

NPB’s executives hoped that their U.S. customers would eventually fully declare their accounts and keep their money at the Bank after becoming compliant. However, NPB created no written or formal policies to encourage or mandate tax compliance and, in fact, continued to acquire and service non-compliant U.S. taxpayers.

According to NPB executives, beginning in August 2010, NPB decided not to open any new accounts for U.S. customers who were not tax-compliant. NPB did not memorialize this decision in any written policy nor in any executive board or management board meeting minutes. NPB knew in August 2010 that some of its existing U.S. customers were not tax-compliant, but continued to service those accounts. 

Until at least August 2010, NPB did not require a Form W-9 from U.S. clients to open an account.  NPB did not require the completion of Forms W-9 for existing U.S. customers until approximately summer of 2011.

NPB serviced some U.S. customers who structured their accounts so that they appeared as if they were held by a non-U.S. legal structure, such as an offshore corporation or trust, which aided and abetted the clients’ ability to conceal their undeclared accounts from the IRS. At least 89 of NPB’s U.S. Related Accounts, both declared and undeclared, were held in the name of offshore structures, including trusts or corporations purportedly domiciled in Panama, Liechtenstein, the British Virgin Islands, Hong Kong, and Belize.  NPB never assisted customers in setting up such offshore structures.  For accounts held in non-U.S. legal structures opened in 2009 and prior to Summer 2010, NPB did not require the signing of either a Form W-9 or Form W-8BEN.

NPB increased its efforts to obtain tax compliance from its U.S. customers in 2010 and 2011, but continued to service undeclared accounts.  NPB first requested tax compliance evidence from its external asset managers for U.S. clients in August 2011.  NPB serviced the declared and undeclared clients of two external asset managers after their respective indictments in the United States. 

NPB has cooperated with the Department of Justice in this investigation, including by producing information relating to the U.S. taxpayer clients who maintained assets overseas, including the identities of the account holders and/or beneficial owners of more than 88% of assets, and by making multiple executives available for interview by the Department of Justice.

While U.S. accountholders at NPB who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS Offshore Voluntary Disclosure Program, the price of such disclosure has increased.  Most U.S. taxpayers who enter the IRS Offshore Voluntary Disclosure Program to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts.  On Aug. 4, 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement.  With today’s announcement of this non-prosecution agreement, noncompliant U.S. accountholders at NPB must now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.  The IRS recently announced that the Offshore Voluntary Disclosure Program will close on September 28, 2018.

“The non-prosecution agreement with NPB should signal that IRS CI continues its fight against offshore tax evasion,” said Don Fort, Chief IRS-Criminal Investigation. “The IRS devotes considerable resources in the U.S. and abroad to hold accountable those individuals and institutions that seek to cheat the U.S. tax system. I urge anyone not compliant with their tax obligations to consider the offshore voluntary disclosure program before it closes on September 28, 2018.”

Principal Assistant Attorney General Zuckerman of the Justice Department’s Tax Division thanked Senior Litigation Counsel Nanette Davis of the Tax Division and Assistant United States Attorneys Michelle Petersen and Patrick King of the U.S. Attorney’s Office for the Northern District of Illinois and IRS-Criminal Investigation, in particular IRS Special Agent Michael Leach, for their substantial assistance. 

Attachment(s): 

July 22, 2018 in GATCA | Permalink | Comments (0)

Saturday, July 21, 2018

Former Business Partner of U.S. Military Contractor Pleads Guilty to Bribery Scheme Related to Contracts in Support of Iraq War

A former business partner of a U.S. military contractor pleaded guilty to one count of bribery for his role in a years-long scheme to bribe U.S. Army contracting officials stationed at a U.S. military base in Kuwait, announced Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division.

According to the plea filed today in the U.S. District Court for the Northern District of Alabama, Finbar Charles, 62, a citizen of Saint Lucia most recently residing in Baguio City, Philippines, was a business partner of a former U.S. military contractor, Terry Hall.  As Hall’s business partner, Charles facilitated Hall and others in providing millions of dollars in bribes in approximately 2005 to 2007 to various U.S. Army officials in exchange for preferential treatment for Hall’s companies in connection with Department of Defense (DOD) contracts to deliver bottled water and construct security fencing to support U.S. troops stationed in Kuwait and Iraq. 

As part of his role in this criminal conspiracy, Charles managed bank accounts in Kuwait and the Philippines that he used to receive DOD payments and transfer illegal bribes to various U.S. Army contracting officials, including Majors Eddie Pressley, John Cockerham, James Momon, and Chris Murray.  All of those individuals, as well as at least 10 other co-conspirators, have pleaded guilty or been convicted of crimes relating to this scheme.  Charles admitted that he personally received over $228,000 in illicit gains as a result of his participation.  

The sentencing is set for Nov. 26.

This case was investigated by the Defense Criminal Investigative Service, the U.S. Army Criminal Investigation Command, the FBI, and the Special Inspector General for Iraq Reconstruction.  The case is being prosecuted by Trial Attorneys Peter N. Halpern and Robert J. Heberle of the Criminal Division’s Public Integrity Section.

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

Friday, July 20, 2018

Attorney General Sessions Announces Publication of Cyber-Digital Task Force Report

Attorney General Jeff Sessions announced today the public release of a report produced by the Attorney General’s Cyber-Digital Task Force.  The report provides a comprehensive assessment of the cyber-enabled threats confronting the Nation, and catalogs the ways in which the Department of Justice combats those threats.  Deputy Attorney General Rod Rosenstein formally issued the report in remarks delivered today at the Aspen Security Forum in Aspen, Colorado.

Download DOJ 2018 Cyber task force report

Attorney General Sessions established the Cyber-Digital Task Force within the Department in February 2018 and directed the Task Force to answer two basic questions:  how is the Department responding to global cyber threats?  And how can federal law enforcement accomplish its mission in this area more effectively?  Today’s report answers the first question.  It canvasses a wide spectrum of cyber threats; defines the multi-faceted challenges posed by cyber-enabled crime; describes the Department’s work in detecting, deterring, and disrupting threats; explains how the Department collaborates with other government departments and with the private sector to respond to cyber incidents; and explores how the Department trains and maintains a skilled workforce.

“The Internet has given us amazing new tools that help us work, communicate, and participate in our economy, but these tools can be—and frequently are—exploited by criminals, terrorists, and enemy governments,” Attorney General Sessions said.  “At the Department of Justice, we take these threats seriously.  That is why I am grateful to the members of the Cyber-Digital Task Force for providing me with this thorough, first-of-its-kind report, which comprehensively details the scope of the problem and provides initial recommendations on the most effective ways that the Department can confront cyber threats and keep the American people safe.”

The report begins by focusing on one of the most pressing cyber-enabled threats confronting the Nation: the threat posed by malign foreign influence operations.  Chapter 1 explains what foreign influence operations are and describes how foreign adversaries have used these operations to target our Nation’s democratic processes, including our elections.  It concludes by describing the Department’s efforts to protect the 2018 midterm elections and announces a new Department policy that governs the disclosure of foreign influence operations.

Chapters 2 and 3 discuss other significant cyber threats, particularly those relating to sophisticated cybercrime schemes, and describes how the Department is deploying its capabilities to combat them.  Chapter 4 focuses on the role of the Federal Bureau of Investigation (FBI) in responding to cyber incidents.  Chapter 5 describes the Department’s efforts to recruit and train qualified personnel on cyber matters.  Chapter 6 concludes the report by identifying certain priority policy matters and charting a path for the Task Force’s future work.

The Task Force is chaired by Associate Deputy Attorney General Sujit Raman.  Task Force members include John P. Cronan, now the Principal Deputy Assistant Attorney General in the Criminal Division who until recently served as Acting Assistant Attorney General; John C. Demers, Assistant Attorney General for the National Security Division; Beth A. Williams, Assistant Attorney General for the Office of Legal Policy; John M. Gore, Acting Assistant Attorney General for Civil Rights Division; Andrew E. Lelling, United States Attorney for the District of Massachusetts; Peter A. Winn, the Department’s Acting Chief Privacy and Civil Liberties Officer; and two senior executives at the FBI.  Components from across the Department contributed to the drafting of the Task Force report.  The initial report of the Attorney General’s Cyber-Digital Task Force can be downloaded here, along with a fact sheet here.

Remarks as prepared for delivery

It is a privilege to join you this afternoon at one of the world’s premier security conferences.

We meet at a fraught moment. For too long, along with other nations, we enjoyed the extraordinary benefits of modern technology without adequately preparing for its considerable risks. Director of National Intelligence Dan Coats elevated the alarm last week, when he stated that “the digital infrastructure that serves this country is literally under attack.” That is one of the rare instances when the word literally is used literally.

Our adversaries are developing cyber tools not only to steal our secrets and mislead our citizens, but also to disable our infrastructure by gaining control of computer networks.

Every day, malicious cyber actors infiltrate computers and accounts of individual citizens, businesses, the military, and all levels of government. Director Coats revealed that our adversaries “target[] government and businesses in the energy, nuclear, water, aviation and critical manufacturing sectors.” They cause billions of dollars in losses, preposition cyber tools they could use for future attacks, and try to degrade our political system. So combating cybercrime and cyber-enabled threats to national security is a top priority of the Department of Justice.

Attorney General Jeff Sessions established a Cyber-Digital Task Force in February to consider two questions: What are we doing now to address cyber threats?  And how can we do better?

Today, the Department of Justice is releasing a report that responds to the first question, providing a detailed assessment of the cyber threats confronting America and the Department’s efforts to combat them.

The Task Force report addresses a wide range of issues, including how to define the multi-faceted challenges of cyber-enabled crime; develop strategies to detect, deter and disrupt threats; inform victims and the public about dangers; and maintain a skilled workforce. 

The report describes six categories of cyber threats, and explains how the Department of Justice is working to combat them. 

One serious type of threat involves direct damage to computer systems, such as Distributed Denial of Service attacks and ransomware schemes. 

Another category is data theft, which includes stealing personally identifiable information and intellectual property. 

The third category encompasses cyber-enabled fraud schemes. 

A fourth category includes threats to personal privacy, such as sextortion and other forms of blackmail and harassment. 

Attacks on critical infrastructure constitute the fifth category. They include infiltrating energy systems, transportation systems, and telecommunications networks. 

Each of those complex and evolving threats is serious, and the report details the important work that the Department of Justice is doing to protect America from them.  

I plan to focus today on a sixth category of cyber-enabled threats: malign foreign influence operations, described in chapter one of the task force report.

The term “malign foreign influence operations” refers to actions undertaken by a foreign government, often covertly, to influence people’s opinions and advance the foreign nation’s strategic objectives. The goals frequently include creating and exacerbating social divisions and undermining confidence in democratic institutions.

Influence operations are a form of information warfare. Covert propaganda and disinformation are among the primary weapons.

The Russian effort to influence the 2016 presidential election is just one tree in a growing forest. Focusing merely on a single election misses the point. As Director Coats made clear, “these actions are persistent, they are pervasive, and they are meant to undermine America’s democracy on a daily basis, regardless of whether it is election time or not.”

Russian intelligence officers did not stumble onto the ideas of hacking American computers and posting misleading messages because they had a free afternoon.  It is what they do every day.

This is not a new phenomenon. Throughout the twentieth century, the Soviet Union used malign influence operations against the United States and many other countries.  In 1963, for example, the KGB paid an American to distribute a book claiming that the FBI and the CIA assassinated President Kennedy.

In 1980, the KGB fabricated and distributed a fake document claiming that there was a National Security Council strategy to prevent black political activists from working with African leaders.

During the Reagan Administration, the KGB spread fake stories that the Pentagon developed the AIDS virus as part of a biological weapons research program.

As Jonathan Swift wrote in 1710, “Falsehood flies, and the Truth comes limping after it.”

The Reagan Administration confronted the problem head on.  It established an interagency committee called “the Active Measures Working Group” to counter Soviet disinformation.  The group exposed Soviet forgeries and other propaganda. 

Modern technology vastly expands the speed and effectiveness of disinformation campaigns.  The Internet and social media platforms allow foreign agents to spread misleading political messages while masquerading as Americans.

Homeland Security Secretary Kirstjen Nielsen explained last weekend that our adversaries “us[e] social media, sympathetic spokespeople and other fronts to sow discord and divisiveness amongst the American people.”

Elections provide an attractive opportunity for foreign influence campaigns to undermine our political processes.  According to the intelligence community assessment, foreign interference in the 2016 election “demonstrated a significant escalation in directness, level of activity, and scope of effort compared to previous operations.”

The Department’s Cyber-Digital Task Force report contributes to our understanding by identifying five different types of malign foreign influence operations that target our political processes.

First, malicious cyber actors can target election infrastructure by trying to hack voter registration databases and vote-tallying systems.  In 2016, foreign cyber intruders targeted election-related networks in as many as 21 states. There is no evidence that any foreign government ever succeeded in changing votes, but the risk is real.  Moreover, even the possibility that manipulation may occur can cause citizens to question the integrity of elections.

Second, cyber operations can target political organizations, campaigns, and public officials.  Foreign actors can steal private information through hacking, then publish it online to damage a candidate, campaign, or political party.  They can even alter that stolen information to promote their desired narrative. 

Russia’s intelligence services conducted cyber operations against both major U.S. political parties in 2016, and the recent indictment of Russian intelligence officers alleges a systematic effort to leak stolen campaign information.

The third category of malign influence operations affecting elections involves offers to assist political campaigns or public officials by agents who conceal their connection to a foreign government. Such operations may entail financial and logistical support to unwitting Americans.

Fourth, adversaries covertly use disinformation and other propaganda to influence American public opinion.  Foreign trolls spread false stories online about candidates and issues, amplify divisive political messages to make them appear more pervasive and credible, and try to pit groups against each other.  They may also try to affect voter behavior by triggering protests or depressing voter turnout.

Finally, foreign governments use overt influence efforts, such as government-controlled media outlets and paid lobbyists. Those tactics may be employed lawfully if the foreign agents comply with registration requirements. But people should be aware when lobbyists or media outlets are working for a foreign government so they can evaluate the source’s credibility. Particularly when respected figures argue in favor of foreign interests, it may matter to know that they are taking guidance from a foreign nation.

The election-interference charges filed in February demonstrate how easily human “trolls” distribute propaganda and disinformation. A Russian man recently admitted to a reporter that he worked with the trolls, in a separate department creating fake news for his own country. He “felt like a character in the book ‘1984’ by George Orwell – a place where you have to write that white is black and black is white.… [Y]ou were in some kind of factory that turned lying ... into an industrial assembly line. The volumes were colossal – there were huge numbers of people, 300 to 400, and they were all writing absolute untruths.”

When the man took a test for a promotion to the department working to fool Americans, he explained, “The main thing was showing that you are able to … represent yourself as an American.”

The former troll believes that Russian audiences pay no attention to fake internet comments. But he has a different opinion about Americans. He thinks that we can be deceived, because Americans “aren’t used to this kind of trickery.”

That remark is sort of a compliment. In repressive regimes, people always assume that the government controls media outlets. We live in a country that allows free speech, so people are accustomed to taking it seriously when other citizens express their opinions.  But not everyone realizes that information posted on the Internet may not even come from citizens.

Moreover, Internet comments may not even come from human beings. Automated bots magnify the impact of propaganda. Using software to mimic actions by human users, bots can   circulate messages automatically, creating the appearance that thousands of people are reading and forwarding information. Together, bots and networks of paid trolls operating multiple accounts allow foreign agents to quickly spread disinformation and create the false impression that it is widely accepted.

The United States is not alone in confronting malign foreign influence. Russia reportedly conducted a hack-and-release campaign against President Macron during last year’s French elections, and instituted similar operations against political candidates in other European democracies. Other foreign nations also engage in malign influence activities.

So what can we do to defend our values in the face of foreign efforts to influence elections, weaken the social fabric, and turn Americans against each other? Like terrorism and other national security threats, the malign foreign influence threat requires a unified, strategic approach across all government agencies. The Departments of Justice, Homeland Security, State, Defense, Treasury, Intelligence agencies, and others play important roles. 

Other sectors of society also need to do their part. State and local governments must secure their election infrastructure. Technology companies need to prevent misuse of their platforms.  Public officials, campaigns, and other potential victims need to study the threats and protect themselves and their networks.  And citizens need to understand the playing field.

The Department of Justice investigates and prosecutes malign foreign influence activity that violates federal criminal law.  Some critics argue against prosecuting people who live in foreign nations that are unlikely to extradite their citizens. That is a shortsighted view.

For one thing, the defendants may someday face trial, if there is a change in their government or if they visit any nation that cooperates with America in enforcing the rule of law. Modern forms of travel and communication readily allow criminals to cross national boundaries. Do not underestimate the long arm of American law – or the persistence of American law enforcement. People who thought they were safely under the protection of foreign governments when they committed crimes against America sometimes later find themselves in federal prisons.

Second, public indictments achieve specific deterrence by impeding the defendants from traveling to rule-of-law nations and raising the risk they will be held accountable for future cybercrime.  Wanted criminals are less attractive co-conspirators.

Third, demonstrating our ability to detect and publicly charge hackers will deter some others from engaging in similar conduct.

Fourth, federal indictments are taken seriously by the public and the international community, where respect for our criminal justice system – including an understanding of the presumption of innocence and the standard of proof beyond a reasonable doubt – means that our willingness to present evidence to a grand jury and ultimately at trial elicits a high degree of confidence in our allegations.

Fifth, victims deserve vindication, particularly when they are harmed by criminal acts that would be prosecuted if the perpetrator were located in the United States.

Sixth, federal criminal investigations support other penalties for malign foreign influence operations. For example, the Department of the Treasury can impose financial sanctions on defendants based on evidence exposed in indictments. Voters in foreign democracies, and influential citizens in autocratic regimes, can consider the allegations in making their own decisions about national leadership and foreign alliances.

The Department of the Treasury imposed sanctions on the individuals and entities identified in the February election-interference indictment, along with others engaged in malign activities. Nineteen individuals and five entities are subject to sanctions that freeze assets under American jurisdiction. Even if they are never brought to court, they will face consequences.

The sanctions forbid those individuals and entities from engaging in transactions with Americans and using the American financial system. The Administration followed up with similar financial sanctions for a broader range of malign activities against seven oligarchs, 12 companies, 17 Russian government officials, and two other entities.

Prosecutions are one useful tool to help deter modern criminals who remain beyond our shores. The same approach applies outside the context of crimes committed to influence elections. That is why our government regularly files charges against criminals who hide overseas, such as Iranian government hackers who broke into computer networks of a dam; Iranian hackers who infiltrated American universities, businesses and government agencies for the Islamic Revolutionary Guard Corps; an Iranian hacker who infiltrated and extorted a television network; Chinese government hackers who committed economic espionage; and Russian intelligence officers who stole data from an email service provider.

Intelligence assessments and criminal indictments are based on evidence.  They do not reflect mere guesses. Intelligence assessments include analytical judgments based on classified information that cannot be disclosed because the evidence is from sources — people who will be unable to help in the future if they are identified and might be harmed in retaliation for helping America  — and methods — techniques that would be worthless if our adversaries knew how we obtained the evidence.  Indictments are based on credible evidence that the government must be prepared to introduce in court if necessary.

Some people may believe they can operate anonymously on the Internet, but cybercrime generally creates electronic trails that lead to the perpetrators.

Gathering intelligence about adversaries who threaten our way of life is a noble task. Outside the Department of Justice headquarters stands a statue of Nathan Hale. Hale was executed immediately, without a trial, after he was caught gathering intelligence for America during the Revolutionary War. His final words are recorded as follows: “I am so satisfied with the cause in which I have engaged, that my only regret is that I have but one life to offer in its service.”

The days when foreign criminals could cause harm inside America from remote locations without fear of consequences are past. If hostile governments choose to give sanctuary to perpetrators of malicious cybercrimes after we identify them, those governments will need to take responsibility for the crimes, and individual perpetrators will need to consider the personal cost.

But criminal prosecutions and financial sanctions are not a complete solution. We need to take other steps to prevent malicious behavior.

To protect elections, the first priority is to harden our infrastructure.  State governments run American elections and are responsible for maintaining cybersecurity, but they need federal help.  The Department of Homeland Security takes the lead in helping to protect voting infrastructure, and the FBI leads federal investigations of intrusions. 

The FBI works closely with DHS to inform election administrators about threats.  DHS and the FBI provide briefings to election officials from all fifty states about our foreign adversaries’ intentions and capabilities.

We also seek to protect political organizations, campaigns, candidates, and public officials. The FBI alerts potential victims about malicious cyber activities and helps them respond to intrusions.  It shares detailed information about threats and vulnerabilities. 

To combat covert foreign influence on public policy, we enforce federal laws that require foreign agents to register with the U.S. government. Those laws prohibit foreign nationals from tricking unwitting Americans while concealing that they are following orders from foreign government handlers.  The Department of Justice is stepping up enforcement of the Foreign Agents Registration Act and related laws, and providing defensive counterintelligence briefings to local, state, and federal leaders and candidates.

Public attribution of foreign influence operations can help to counter and mitigate the harm caused by foreign government-sponsored disinformation. When people are aware of the true sponsor, they can make better-informed decisions.

We also help technology companies to counter covert foreign influence efforts.  The FBI works with partners in the Intelligence Community to identify foreign agents as they establish their digital infrastructure and develop their online presence.  The FBI helps technology companies disrupt foreign influence operations, by identifying foreign agents’ activities so companies may consider the voluntary removal of accounts and content that violate terms of service and deceive customers.

Technology companies bear primary responsibility for securing their products, platforms, and services from misuse.  Many are now taking greater responsibility for self-policing, including by removing fake accounts. We encourage them to make it a priority to combat efforts to use their facilities for illegal schemes.

Even as we enhance our efforts to combat existing forms of malign influence, the danger continues to grow. Advancing technology may enable adversaries to create propaganda in new and unforeseen ways. Our government must continue to identify and counter them.

Exposing schemes to the public is an important way to neutralize them. The American people have a right to know if foreign governments are targeting them with propaganda.

In some cases, our ability to expose foreign influence operations may be limited by our obligation to protect intelligence sources and methods, and defend the integrity of investigations. 

Moreover, we should not publicly attribute activity to a source unless we possess high confidence that foreign agents are responsible. We also do not want to unduly amplify an adversary’s messages, or impose additional harm on victims. 

In all cases, partisan political considerations must play no role in our efforts. We cannot seek to benefit or harm any lawful group, individual or organization. Our government does not take any official position on what people should believe or how they should vote, but it can and should protect them from fraud and deception perpetrated by foreign agents.

Unfettered speech about political issues lies at the heart of our Constitution. It is not the government’s job to determine whether political opinions are right or wrong.

But that does not leave the government powerless to address the national security danger when a foreign government engages in covert information warfare. The First Amendment does not preclude us from publicly identifying and countering foreign government-sponsored propaganda.

It is not always easy to balance the many competing concerns in deciding whether, when, and how the government should disclose information about deceptive foreign activities relevant to elections. The challenge calls for the application of neutral principles. 

The Cyber-Digital Task Force Report identifies factors the Department of Justice should consider in determining whether to disclose foreign influence operations. The policy reflects an effort to articulate neutral principles so that when the issue the government confronted in 2016 arises again – as it surely will – there will be a framework to address it.

Meanwhile, the FBI’s operational Foreign Influence Task Force coordinates investigations of foreign influence campaigns.  That task force integrates the FBI’s cyber, counterintelligence, counterterrorism, and criminal law enforcement resources to ensure that we understand threats and respond appropriately. The FBI task force works with other federal agencies, state and local authorities, international partners, and the private sector.

Before I conclude, I want to emphasize that covert propaganda disseminated by foreign adversaries is fundamentally different from domestic partisan wrangling. As Senator Margaret Chase Smith proclaimed in her 1950 declaration of conscience, we must address foreign national security threats “patriotically as Americans,” and not “politically as Republicans and Democrats.”

President Reagan’s Under Secretary of State, Lawrence Eagleburger, wrote about Soviet active measures in 1983. He said that “it is as unwise to ignore the threat as it is to become obsessed with the myth of a super Soviet conspiracy manipulating our essential political processes.” He maintained that free societies must expose disinformation on a “persistent and continuing” basis.

Over the past year, Congress passed three statutes encouraging the Executive Branch to investigate, expose, and counter malign foreign influence operations. Publicly exposing such activities has long been a feature of U.S. law.  The Foreign Agents Registration Act, which Congress enacted in 1938 to deter Nazi propagandists, mandates that the American public know when foreign governments seek to influence them.

Knowledge is power. In 1910, Theodore Roosevelt delivered a timeless speech about the duties of citizenship. It is best known for the remark that “it is not the critic who counts.” But Roosevelt’s most insightful observation is that the success or failure of a republic depends on the character of the average citizen. It is up to individual citizens to consider the source and evaluate the credibility of information when they decide what to believe.

Heated debates and passionate disagreements about public policy and political leadership are essential to democracy. We resolve those disagreements at the ballot box, and then we keep moving forward to future elections that reflect the will of citizens. Foreign governments should not be secret participants, covertly spreading propaganda and fanning the flames of division. 

The government plays a central role in combating malign foreign influence and other cyber threats. The Attorney General’s Cyber-Digital Task Force report demonstrates that the Department of Justice is doing its part to faithfully execute our oath to preserve, protect, and defend America.

I regret that my time today is insufficient to describe the report in greater detail. It is available on the Department of Justice website. I hope you read it and find it a useful contribution to public discussion about one of the most momentous issues of our time.

In brief, the report explains that we must continually adapt criminal justice and intelligence tools to combat hackers and other cybercriminals. Traditional criminal justice is most often characterized by police chasing criminals and eyewitnesses pointing out perpetrators in courtrooms. Cybercrime requires additional tools and techniques.

We limit cybercrime damage by seizing or disabling servers, domain names, and other infrastructure that criminals use to facilitate attacks.  We shut down the dark markets where criminals buy and sell stolen information. We restore control of compromised computers. We share information gathered during our investigations to help potential victims protect themselves.  We seek restitution for victims. We pursue attribution and accountability for perpetrators. And we expose governments that defraud and deceive our citizens.

The Task Force report is just one aspect of our efforts. It is a detailed snapshot of how the Department of Justice assesses and addresses current cyber threats. The work continues, and not just within our Department.

Our government is doing more now than ever to combat malign foreign influence and other cyber threats. Trump Administration agency appointees and White House officials work with career professionals every day to prevent cybercrime and protect elections.

Our adversaries will never relent in their efforts to undermine America, so we must remain eternally vigilant in the defense of liberty, and the pursuit of justice. And we must approach each new threat united in our commitment to the principle reflected in the motto adopted at the founding of our Republic: e pluribus unum.

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

State aid: Commission opens in-depth investigation into tax exemptions for companies in the Madeira Free Zone

The European Commission has opened an in-depth investigation to examine whether Portugal has applied the Madeira Free Zone regional aid scheme in conformity with the 2007 and 2013 Commission decisions approving it.

In particular, the Commission has concerns that tax exemptions granted by Portugal to companies established in the Madeira Free Zone are not in line with the Commission decisions and EU State aid rules.

Commissioner Margrethe Vestager, in charge of competition policy, said: "Our regional aid rules are particularly flexible when it comes to supporting the EU's outermost regions, including Madeira. Under these rules, fiscal aid can only be granted if it contributes to the creation of real economic activity and jobs in the assisted region. We will now investigate whether the Zona Franca Madeira fiscal aid scheme approved by the Commission in the past has been applied correctly by Portugal." 

The Madeira Free Zone

The Madeira Free Zone (Zona Franca da Madeira, “ZFM”) was created by Portugal in 1987 to support economic development in its outermost region Madeira. The ZFM's objective is to attract investment to and create jobs in Madeira.

In this context, Portugal put in place a regional aid scheme providing support to companies establishing themselves in the ZFM through:

  • corporate income tax reductions on profits resulting from activities performed in Madeira; and
  • other tax reductions, such as an exemption from municipal and local taxes, as well as exemption from transfer tax payable on real estate for setting up a business in the ZFM.

The Commission approved successive versions of the ZFM regional aid scheme under EU State aid rules on several occasions between 1987 and 2014.

EU State aid rules provide ample scope for Member States to support the economic development of outermost regions, such as Madeira, and to address the structural challenges of companies active in such regions.

At the same time, in order for such measures to be fit for purpose, State aid must be granted exclusively to companies generating economic activity and real jobs in the outermost regions. That is why under the approved ZFM regional aid scheme, the amount of aid granted to companies through corporate income tax reductions or other tax reductions is linked to the number of jobs that they create in Madeira.

The Commission's investigation

As part of its standard monitoring of the implementation of State aid decisions, the Commission has carried out a preliminary assessment of how Portugal applied the ZFM aid scheme until its expiry at the end of 2014, taking into account the framework of the 2007 and 2013Commission decisions approving the scheme.

At this stage, the Commission has concerns that the Portuguese authorities may have failed to respect some of the basic conditions under the 2007 and 2013 decisions. In particular, the Commission has doubts that Portugal complied with the requirements that:

  • the company profits benefitting from the income tax reductions originated exclusively from activities carried out in Madeira; and
  • the beneficiary companies actually created and maintained jobs in Madeira.

The Commission will now investigate further to find out whether its initial concerns are confirmed. The opening of an in-depth investigation gives Portugal and interested third parties an opportunity to submit comments. It does not prejudge the outcome of the investigation.

 

Background

Each year, the Commission selects a number of State aid measures in order to monitor whether Member States implement them in compliance with EU State aid rules. In this context, the Commission asked Portugal for information on the implementation of the ZFM scheme in 2012 and 2013.

The scheme in question expired at the end of 2014. Portugal has informed the Commission that, since 2015, it has implemented a similar aid scheme on the basis of the 2014 General Block Exemption Regulation (GBER). Under this Regulation, Member States can implement regional operating aid schemes for companies established in outermost regions, without notification and approval by the Commission, as long as certain conditions are respected.

Article 349 of the Treaty on the Functioning of the European Union acknowledges the special characteristics of the outermost regions and affords them a special status. All outermost regions, including Madeira, have been granted special regional aid status to help address their specific handicaps - remoteness, insularity, small size, difficult topography and climate, economic dependence on few products.

In recognition of the serious nature of the structural disadvantages that the companies located in these regions face, the Commission has established specific State aid rules for the outermost regions, within both the Regional Aid Guidelines and the GBER.

In particular, these regions are all automatically considered assisted areas where the economic situation is extremely unfavourable in relation to the rest of the European Union as a whole. Due to this status, all companies with economic activity in these areas may benefit from additional bonuses of up to 20% on top of the normal regional investment aid ceilings. Additionally, Member States can provide operating aid to companies located in these regions to compensate them for the additional costs they are facing in these remote regions.

The non-confidential version of the decision will be made available under the case number SA.21259 in the State aid register on the Commission's competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.

July 20, 2018 in Tax Compliance | Permalink | Comments (0)

Thursday, July 19, 2018

Extension of offshore time limits for the assessment of tax

This measure increases the tax assessment time limit for non-deliberate offshore non-compliance. The time limit will be increased to 12 years for Income Tax, Capital Gains Tax and Inheritance Tax. A consultation with a summary of responses about Extension of offshore time limits is also available.

Who is likely to be affected

This measure will only have an impact on individuals, trustees or others liable to Income Tax, Capital Gains Tax or Inheritance Tax on offshore income, gains or chargeable transfers who have made errors that are not deliberate or otherwise covered by the longer 20 year assessment time limit.

General description of the measure

This measure increases the tax assessment time limit for non-deliberate offshore non-compliance. The time limit will be increased to 12 years for Income Tax, Capital Gains Tax and Inheritance Tax. This increases the existing time limits of 4 years, or 6 where the loss of tax is due to carelessness, after the end of the year of assessment (or date of the chargeable transfer) to which it relates.

Where the taxpayer has sought to deliberately evade tax, the time limit will remain 20 years.

Policy objective

The government is determined to ensure that all UK taxpayers pay the tax they owe, and that offshore non-compliance is identified and investigated before assessment time limits expire. The extended time limits will provide HMRC with more time to access the information needed to understand offshore transactions, calculate the tax due, detect any errors and ensure the correct Income Tax, Capital Gains Tax or Inheritance Tax is paid.

This measure will help HMRC ensure everyone pays all the tax they owe, and addresses the risk that some taxpayers avoid a full investigation or assessment because of the time taken to gather facts on offshore structures and investments, which may not have been declared for many years, and can be very complex.

Background to the measure

The government announced that the assessment time limit for non-deliberate offshore tax non-compliance will be increased to at least 12 years at Autumn Budget 2017.

HMRC issued a public consultation on the details of this reform on 19 February 2018. This consultation closed on 14 May 2018. The response to the consultation and the draft legislation were published on 6 July 2018.

Detailed proposal

Operative date

These amendments will have effect in relation to Income Tax and Capital Gains Tax assessments from 2013 to 2014 in cases where the loss of tax is brought about carelessly, and from 2015 to 2016, and subsequent years, for other cases (where not already subject to the 20 year time limit). They will apply for Inheritance Tax to chargeable transfers taking place on or after 1 April 2013 where the loss of tax is brought about carelessly, and 1 April 2015 for other cases not subject to a longer time limit. The amendments will have effect when Finance Bill 2018-19 receives Royal Assent.

Current law

The existing time limits are set out in Part IV of the Taxes Management Act 1970 for Income Tax and Capital Gains Tax, and in Part VIII of the Inheritance Tax Act 1984 for Inheritance Tax.

Proposed revisions

Legislation will be introduced in Finance Bill 2018-19 to amend the Taxes Management Act 1970 through the insertion of a new section 36A, and the Inheritance Tax Act 1984 will be amended through the insertion of a new section 240B.

These amendments will provide for extended time limits where offshore Income Tax, Capital Gains Tax or Inheritance Tax is lost. Taxpayers’ appeal rights are unaffected.

Summary of impacts

Exchequer impact (£m)

2017 to 2018 2018 to 2019 2019 to 2020 2020 to 2021 2021 to 2022 2022 to 2023
- negligible negligible negligible +5 +10

These figures are set out in Table 2.1 of Autumn Budget 2017 as ‘Offshore Time Limits: extend to prevent non-compliance’ and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2017.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

This measure will only have an impact on individuals with offshore income, gains or assets who have made non-deliberate errors. These individuals may receive an assessment of tax as a result of the increase of the time limit to 12 years. There will be a negligible impact on individuals and households.

This measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

It is expected that any groups affected by the extended time limits are likely to have above average wealth. The government does not anticipate there will be adverse impacts on any group sharing protected characteristics.

Impact on business including civil society organisations

This measure will impact on businesses with offshore income, gains or chargeable transfers who have made non-deliberate errors. Businesses and individuals may receive an assessment of tax as a result of the increase of the assessing time limit to 12 years. This measure is expected to have a negligible impact on business admin burdens as statutory record-keeping requirements remain unchanged.

Organisations will need to determine how long they should hold on to information in light of the new time limits and will need to have robust data protection policies whether they hold information for 4 years, 20 years or any period in between.

One-off costs may include familiarisation with the new rules. On-going costs may include additional interaction with HMRC as a result of the increased time limit.

July 19, 2018 in Tax Compliance | Permalink | Comments (0)

Wednesday, July 18, 2018

Brazil court acquits former BTG Pactual CEO Esteves in Bribery Scheme

Reuters reported: A Brazilian federal judge on Thursday acquitted Banco BTG Pactual SA’s founder and main partner André Esteves in a corruption probe, according to court documents.

Esteves was arrested in November 2015 after prosecutors accused him of trying to buy the silence of a witness involved in a sprawling bribery scheme.

read the full story on Reuters here

July 18, 2018 in AML | Permalink | Comments (0)

Major enlargement of the global network for the automatic exchange of offshore account information as over 100 jurisdictions get ready for exchanges

The OECD published a new set of bilateral exchange relationships established under the Common Reporting Standard Multilateral Competent Authority Agreement (CRS MCAA).

In total, the international legal network for the automatic exchange of offshore financial account information under the CRS now covers over 90 jurisdictions, with the remaining dozen set to follow suit over summer. The network will allow over 100 committed jurisdictions to exchange CRS information in September 2018 under more than 3200 bilateral relationships that are now in place, an increase of over 500 since April of 2018. All 124 participating jurisdictions are due to exchange CRS information in September 2018.

The full list of automatic exchange relationships* that are currently in place under the CRS MCAA is available online.

The last two months have also been marked by a significant increase of jurisdictions participating in the multilateral Convention on Mutual Administrative Assistance in Tax Matters, which is the prime international instrument for all forms of exchange of information in tax matters, including the exchange upon request, as well as the automatic exchange of CRS information and Country-by-Country Reports.

Since early May, the Former Yugoslav Republic of Macedonia, Grenada, Hong Kong (China), Liberia, Macau (China), Paraguay and Vanuatu have joined the Convention, bringing the total number of participating jurisdictions to 124. In addition, The Bahamas, Bahrain, Grenada, Peru and the United Arab Emirates have deposited their instruments of ratification.

These recent developments show that jurisdictions are now completing the final steps for being able to commence CRS exchanges by September 2018, therewith delivering on their commitment made at the level of the G20 and the Global Forum.

July 18, 2018 in GATCA | Permalink | Comments (0)

FINRA Encourages Firms to Notify FINRA if They Engage in Activities Related to Digital Assets

Download FinCEN Digital Currency Regulatory-Notice-18-20

The market for digital assets, such as cryptocurrencies and other virtual coins and tokens, has grown significantly and has increasingly been of interest to retail investors. At the same
time, investor protection concerns exist, including incidences of fraud and other securities law violations involving digital assets and the platforms on which they trade. As such,
FINRA has a keen interest in remaining abreast of the extent of member involvement in this space. Firms that engage or begin to engage in such activities are reminded to consider all
applicable federal and state laws, rules and regulations, including FINRA and SEC rules and regulations.

FINRA is monitoring developments in the digital asset marketplace and is undertaking efforts to ascertain the extent of FINRA member involvement related to digital assets.

To supplement FINRA’s efforts to date, FINRA is issuing this Notice to encourage each firm to promptly notify FINRA if it, or its associated persons or affiliates, currently engages, or intends to engage, in any activities related to digital assets, such as cryptocurrencies and other virtual coins and tokens. In addition, until July 31, 2019, FINRA encourages each firm to keep its Regulatory Coordinator abreast of changes in the event the firm, or its associated persons or affiliates, determines to engage in activities relating to digital assets not previously disclosed.

If a firm recently has provided notice to its Regulatory Coordinator in response to a direct request, has provided this information by way of the 2018 Risk Control Assessment (RCA) Survey, or has submitted a continuing membership application (CMA) regarding its involvement in activities related to digital assets, FINRA does not request additional notification pursuant to this Notice unless a change has occurred.

 

July 18, 2018 in Financial Regulation | Permalink | Comments (0)

Tuesday, July 17, 2018

TaxFacts Intelligence Weekly Jul 16 - 20, 2018: 

William H. Byrnes, J.D., LL.M. and Robert Bloink, J.D., LL.M.

Tax Reform's Stock Deferral Option Remains Unpopular

Many have speculated that the deferral option remains unpopular because companies are required to allow at least 80 percent of employees to participate under a written plan. Further, the company's ability to buy back to the stock if advantageous is restricted. Because of a lack of guidance on the rules governing the new Section 83(i) deferral election, many employers are not willing to risk the potential penalties associated with the rules should Treasury interpret the provision differently. For more information on the rules governing the Section 83(i) election, visit Tax Facts on Investments Online and Read More.

IRS Officials Note Potential Need for Additional Accumulated Earnings Tax Guidance

The 2017 tax reform legislation lowered the corporate tax rate from 35 percent to 21 percent, potentially providing motivation for some companies to convert to C corporation status rather than attempt to interpret the complicated pass-through provisions that apply post-reform. However, the legislation did not modify the accumulated earnings tax, which applies a 20 percent penalty tax to undistributed corporate earnings and profits in excess of the reasonable business needs of the company. This "reasonableness" standard can be difficult to interpret and could require additional guidance in the coming year. For more information on the accumulated earnings tax, visit Tax Facts Online and Read More.

OTHER DEVELOPMENTS

Avoiding Modification on a Series of Substantially Equal IRA Payments

Clients can avoid the early distribution penalty on pre-age 59 1/2 distributions from IRAs if the distributions are received as part of a series of substantially equal payments. However, to continue avoiding the 10 percent early distribution penalty, the series of substantially equal payments cannot be modified. Further, the owner cannot modify the amount of the installment payments that he or she receives pursuant to the payment plan. The owner must abide by these restrictions until the end of the payment term, which is the later of five years or the date the owner reaches age 59 1/2. For more information on the IRA early distribution penalty, visit Tax Facts Online and Read More.

LITIGATION WATCH

Tax Court Rules Unemployment Compensation Subject to Back Pay Agreement Was Compensation

In this case, the taxpayer was terminated from employment, and his union challenged the termination. In arbitration, it was found that the taxpayer was wrongly terminated, and the employer was ordered to pay any back pay that the taxpayer should have received during the period of unemployment, less any amounts that the taxpayer received relating to his loss of employment (i.e., the unemployment compensation). The taxpayer argued that he should not have to include the unemployment compensation in income, because it was deducted from the back pay to which he was otherwise entitled. The court disagreed, finding that the unemployment compensation did, in fact, constitute taxable income. For more information on items that are included in income, visit Tax Facts Online and Read More.

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July 17, 2018 in Tax Compliance | Permalink | Comments (0)