International Financial Law Prof Blog

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

Friday, August 31, 2018

Activities of U.S. Multinational Enterprises: 2016

Worldwide employment by U.S. multinational enterprises (MNEs) increased 0.4 percent to 42.3 million workers (preliminary) in 2016 from 42.1 million (revised) in 2015, according to statistics released by the Bureau of Economic Analysis on the operations and finances of U.S. parent companies and their foreign affiliates.

Employment in the United States by U.S. parents was nearly unchanged at 28.0 million workers in 2016. U.S. parents accounted for 66.3 percent of worldwide employment by U.S. MNEs, a decrease of 0.3 percentage points from 2015. Employment abroad by majority-owned foreign affiliates (MOFAs) of U.S. MNEs increased 1.2 percent to 14.3 million workers and accounted for 33.7 percent of employment by U.S. MNEs worldwide.

Employment by U.S. MNEs

U.S. parents accounted for 22.3 percent of total private industry employment in the United States. Employment by U.S. parents was largest in manufacturing and retail trade. Employment abroad by MOFAs was largest in China, the United Kingdom, Mexico, India, and Canada.

Worldwide current-dollar value added of U.S. MNEs decreased 1.5 percent to $5.2 trillion. Value added by U.S. parents, a measure of their direct contribution to U.S. gross domestic product, was nearly unchanged at $3.9 trillion, representing 24.2 percent of total U.S. private industry value added. MOFA value added decreased to $1.3 trillion. Value added by MOFAs was largest in the United Kingdom, Canada, and Ireland.

Worldwide expenditures for property, plant, and equipment of U.S. MNEs decreased 7.6 percent to $856.9 billion. Expenditures by U.S. parents accounted for $657.5 billion and MOFA expenditures for $199.5 billion.

Worldwide research and development expenditures of U.S. MNEs increased 4.9 percent to $350.3 billion. U.S. parents accounted for expenditures of $296.9 billion and MOFAs for $53.5 billion.

Activities of U.S. MNEs

Additional statistics on the activities of U.S. parent companies and their foreign affiliates including sales, balance sheet and income statement items, compensation of employees, trade in goods, and more are available on BEA’s website. More industry detail for U.S. parents and more industry and country detail for foreign affiliates are also available on the website and will be published in the September issue of the Survey of Current Business.

Updates to the statistics

Statistics for 2015 are revised to incorporate newly available and revised source data. Preliminary statistics for 2015 were released in November 2017 and highlighted in “Activities of U.S. Multinational Enterprises in 2015” in the December 2017 issue of the Survey of Current Business.

Updates to Statistics on 2015 Activities of U.S. Multinational EnterprisesBillions of dollars, except as noted
  U.S. Parents  MOFAs
Number of employees (thousands) 28,302.2 28,045.6 14,124.1 14,081.0
Value added 3,961.3 3,949.2 1,357.5 1,358.8
Expenditures for property, plant, and equipment 700.5 712.6 229.4 214.8
Research and development expenditures 284.3 277.8 54.8 56.1

August 31, 2018 in Economics | Permalink | Comments (0)

Justice Department Announces Deferred Prosecution Agreement With Basler Kantonalbank

Bank Admits to Helping U.S. Taxpayers Conceal Income and Assets from the United States; Agrees to Pay $60.4 Million

Basler Kantonalbank (BKB), a bank headquartered in Basel, Switzerland, entered into a deferred prosecution agreement (DPA) that was approved by the U.S. District Court for the Southern District of Florida, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Department of Justice’s Tax Division, United States Attorney Benjamin G. Greenberg, and Chief Don Fort for Internal Revenue Service-Criminal Investigation.  As part of the agreement, Basler Kantonalbank will pay $60.4 million in total penalties.  

“The era of hiding money overseas to evade U.S. tax obligations is over,” said Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division. “Financial institutions, professionals, and accountholders are on notice that the Department continues to aggressively pursue these offenses and will hold both individuals and entities accountable.”

“U. S. citizens who seek to avoid their tax obligations by hiding income in undeclared bank accounts abroad, and the financial institutions that assist them in doing so, will be held accountable for their actions, both civilly and criminally,” said U. S. Attorney for the Southern District of Florida Benjamin G. Greenberg. “In this case, BKB will not only pay a criminal fine and restitution, but also a civil forfeiture of $29.7 million in proceeds illegally derived from their conduct. The U.S. Attorney’s Office is committed to helping the IRS investigate and prosecute not only those who evade their taxes, but the financial institutions that assist them in doing so.”

“The deferred prosecution agreement signed today with BKB reinforces that while the deadline for the offshore voluntary disclosure program may be fast approaching, holding banks and individuals accountable will not stop,” said Chief Don Fort for IRS-Criminal Investigation. “Those who think they have successfully avoided detection and prosecution for hiding or failing to report offshore holdings to date should know that our commitment in this area is only increasing through our international partnerships and the strategic use of sophisticated data analytic tools.”

In the DPA and related court documents, BKB admits that between 2002 and 2012 it conspired with its employees, external asset managers, and clients to: 1) defraud the United States with respect to taxes; 2) commit tax evasion; and 3) file false federal tax returns.  At its peak in 2010, the bank held approximately 1,144 accounts for U.S. customers, with an aggregate value of approximately $813.2 million (many, but not all of which, were undeclared accounts that were part of the conspiracy).   According to the terms of the DPA approved today, BKB will cooperate fully, subject to applicable laws and regulations, with the United States, the Internal Revenue Service (IRS), and other U.S. authorities.  The DPA also requires BKB to affirmatively disclose certain material information it may later uncover regarding U.S.-related accounts, as well as to disclose certain information consistent with the Department’s Swiss Bank Program with respect to accounts closed between January 1, 2009, and December 31, 2017.  Under the DPA, prosecution against the bank for conspiracy will be deferred for an initial period of three years to allow BKB to demonstrate good conduct. 

The $60.4 million penalty against BKB has three parts.  First, BKB agreed to pay $17,200,000 in restitution to the IRS, which represents the unpaid taxes resulting from BKB’s participation in the conspiracy.  Second, BKB agreed to forfeit $29,700,000 to the United States, which represents gross fees (not profits) that the bank earned on its undeclared accounts between 2002 and 2012.  Finally, BKB agreed to pay a fine of $13,500,000.  This penalty amount reflects BKB’s thorough internal investigation and cooperation with the United States, as well as the bank’s extensive efforts at remediation, and its waiver of any claim of foreign sovereign immunity.  Among other remedial efforts, BKB implemented measures to require all U.S.-related accounts be tax compliant, closed a branch office responsible for much of the tax fraud and fired the employees involved in the offense, and conducted extensive outreach to former clients to encourage them to participate in IRS-sponsored voluntary disclosure programs. 

According to court documents filed as part of the DPA, BKB is a bank incorporated by the Parliament of the Basel City Canton.  From 1997 to 2014, BKB had a private-banking branch that operated from Zurich.  The bank assisted certain U.S. clients in concealing their offshore assets and income from U.S. taxing authorities.  By 2010, when BKB’s U.S.-related business was at its peak, the bank held approximately 1,144 accounts for U.S. customers, with an aggregate value of approximately $813.2 million.  Many, but not all, of these accounts were undeclared and part of the conspiracy to defraud the United States.

BKB employees met directly with clients, but the bank primarily dealt with its undeclared U.S. customers through external asset managers.  Among these external asset managers was Martin Lack.  (Lack was later charged and pleaded guilty to a tax-fraud conspiracy charge.)  In or around 2003, Lack left Swiss bank UBS AG, where he had been a Team Head on the North America desk, and brought over 20 undeclared U.S. clients to BKB.  Lack met directly with the management of the Zurich branch, including the executive who headed the branch and served on BKB’s Extended Executive Board, and discussed bringing his clients to the bank.  With the knowledge and encouragement of the leadership of BKB’s Zurich branch, Lack traveled to the United States to meet with clients with undeclared accounts.  The head of the Zurich branch was also aware that Lack had new clients sign opening forms for BKB while in the United States. In some instances, the forms falsely reported that they were signed in Zurich.  During his trips to the United States, Lack also provided clients with cash services.  He accepted cash from clients wanting to make deposits to their Swiss accounts, and used those funds to provide cash to other clients wanting to make withdrawals.  When he returned to Switzerland, Lack provided BKB with receipts for the transactions so that the clients’ accounts could be reconciled.  BKB recorded the cash transactions as having occurred in Switzerland as normal withdrawals and deposits.  The Zurich branch’s management was aware of these practices.  The bank also provided Lack with office space in Zurich for several months after Lack was released by an external asset management firm for whom he initially worked. 

In March 2008, BKB became aware that UBS was considering closing its cross-border business servicing U.S. persons.  Soon after, in May 2008, it became public that UBS’s cross-border business was under criminal investigation by U.S. authorities.  BKB’s Zurich branch saw this as a business opportunity and sought to attract clients leaving UBS.  A bank document prepared as part of the Zurich branch’s 2009 budgeting process and shared with the Executive Board describes this outlook: As “competitor banks partially withdraw from U.S. business,” BKB should “seize [U.S. customer] market opportunities immediately” as this opportunity was “not leveraged enough.”  The Bank was aware that many of the clients it sought to attract wanted to continue to conceal their accounts.  For example, in one email, BKB employees discussed how a prospective client “received a letter from UBS stating that they either have to tax their assets held with UBS . . . or that, otherwise, they would have to look for a new bank.”  The email made clear that the funds to be transferred to the Bank “were never taxed in the U.S.A.” 

To attract new clients, the Bank signed up several new external asset managers and offered them finder’s fees.  For example, in 2008 the bank reached an agreement with a Swiss financial advisor (who was later indicted in the United States for conspiring with U.S. taxpayers to defraud the United States) who brought ten clients, with over $73 million in assets to the bank from UBS and Credit Suisse AG.  Another adviser brought several U.S. clients to the bank, including a family from New York that transferred over $100 million in undeclared assets from a bank in Liechtenstein. 

During this process, BKB and the external asset managers working with the bank promoted BKB as a safe haven because it lacked a U.S. presence and supposedly would not be subject to a U.S. criminal investigation.  Between July 2008 and March 2009, BKB opened 398 new accounts for U.S. customers, with a resulting inflow of approximately $441.6 million in new assets.

Throughout the conspiracy, BKB took a number of steps and provided a number of services to its undeclared clients.  These services included promoting Swiss bank secrecy as a means of concealing assets and income from taxation in the United States, providing hold-mail services and “assumed name” and “numbered” accounts, and allowing accounts to be established through nominee entities set up in tax-haven jurisdictions such as the British Virgin Islands, Liechtenstein, and Panama.     

In response to prosecutions brought by the Justice Department, BKB took a number of steps to gradually wind down its undeclared business.  Only in late 2011, however, following the indictment of Lack in the United States, did the bank make a decision to exit the business of servicing U.S.-domiciled clients.  Afterward, however, the bank began a thorough process of remediation and cooperation (within the bounds of Swiss law).

Principal Deputy Assistant Attorney General Zuckerman, U.S. Attorney Greenberg and Chief Fort commended special agents of IRS-Criminal Investigation, who investigated this case, as well as Senior Litigation Counsel Mark F. Daly and Trial Attorney Jason H. Poole of the Tax Division, who prosecuted this case.  Zuckerman also thanked Assistant U.S. Attorneys Thomas P. Lanigan, Michelle B. Alvarez, and Eloisa D. Fernandez of the Southern District of Florida for their substantial assistance.

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

Thursday, August 30, 2018

Canadian Sentenced to 3+ Years in Prison for Conspiracy to Export Restricted Goods and Technology to Iran

Ghobad Ghasempour, 38, a Canadian national, was sentenced on Aug. 20, in U.S. District Court in Seattle to 42 months in prison for conspiracy to unlawfully export U.S. goods to Iran.

Assistant Attorney General for National Security John C. Demers, U.S. Attorney Jessie K. Liu for the District of Columbia and U.S. Attorney Annette L. Hayes for the Western District of Washington made the announcement. 

“This sentencing exemplifies the outstanding investigative work by HSI special agents in conjunction with other law enforcement and government partners locally and abroad,” said HSI San Diego Special Agent in Charge Dave Shaw. “The illegal export of U.S.-origin items to prohibited countries is harmful to U.S. national security and will not be tolerated. HSI will continue to aggressively pursue those that seek to violate these laws and jeopardize our nation’s safety.”

Ghasempour was arrested on March 28, 2017 as he entered the United States at Blaine, Washington.  An investigation led by Homeland Security Investigations in San Diego, California, revealed that Ghasempour had used front companies in China and co-conspirators in Iran, Turkey and Portugal to illegally export restricted technology products to Iran.

At the sentencing hearing U.S. District Judge James L. Robart noted that Ghasempour was solely motivated by greed and money, and that the unlawful export of goods and technology was to the “the Department of Defense for Iran -- the very group that would be the most harmful to the United States.”

According to records filed in the case, between 2011 and 2017, Ghasempour and his co-conspirators illegally exported and attempted to export goods and technology to Iran that have both military and non-military uses.  Ghasempour exported a thin film measurement system, manufactured by a California company, that is essentially a microscopic tape measure for liquid coatings and parts that are used in cell phones and missiles; he attempted to export an inertial guidance system test table, manufactured by a North Dakota company, used to test the accuracy of gyroscopes that assist in flying commercial and military airplanes; and the conspirators exported two types of thermal imaging cameras, manufactured by an Oregon company, that can be used in commercial security systems and military drones.  Some of the items Ghasempour sought to export were intercepted by law enforcement.  The conspirators falsified shipping documents and lied to U.S. manufacturers by claiming that the restricted items were being shipped to customers in Turkey and Portugal, knowing that the true destination of these goods was Iran. The Iranian customers paid the Chinese front companies owned by Ghasempour and a co-conspirator.

Ghasempour pleaded guilty in April 2018.

The case was investigated by Homeland Security Investigations.  The criminal case was originally filed in the District of Columbia in Washington D.C., but was resolved in the Western District of Washington.  The case was prosecuted by Assistant U.S. Attorney Frederick Yette for the District of Columbia, Assistant U.S. Attorney Marie Dalton for the Western District of Washington, and Trial Attorney Amy Larson, of the National Security Division’s Counterintelligence and Export Control Section.

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

Wednesday, August 29, 2018

New York Man Pleads Guilty to Extensive Cyberstalking Campaign

A New York man pleaded guilty in U.S. District Court in the Southern District of New York to one count of cyberstalking, stemming from his extensive cyberstalking campaign that targeted a woman he dated for several months in 2013 and 2014.  The victim’s name is being withheld to protect her privacy.

Assistant Attorney Brian A. Benczkowski of the Justice Department’s Criminal Division and U.S. Attorney Geoffrey S. Berman of the Southern District of New York made the announcement. 

David Waldman, 49, of Inwood, New York, was initially arrested and charged by complaint and then indicted by a grand jury on June 14, with one count of cyberstalking and six counts of sending interstate threats.  Waldman has been detained pending trial.   At his change of plea hearing today before U.S. District Court Magistrate Judge Robert W. Lehrburger, Waldman pleaded guilty to one count of cyberstalking.  His sentencing hearing is scheduled for Nov. 22, 2018.

According to the indictment to which Waldman pleaded guilty, Waldman engaged in an extensive cyberstalking campaign targeting a woman he briefly dated.  The campaign began in April 2014, shortly after Waldman and the victim ended their relationship, and continued intermittently until the date of Waldman’s arrest.  Over the course of almost four years, Waldman sent the victim hundreds of text messages, voicemail messages, and e-mail messages, and made voluminous posts on a variety of online platforms, in which he claimed, among other assertions, that she had been diagnosed with bipolar and narcissistic personality disorder, used drugs, and fabricated claims that she had been a victim of child sexual abuse.  In his online communications, Waldman also repeatedly threatened to show up at the victim’s apartment and office and threatened to injure, torture, and sexually assault her.  Waldman also sent email messages to the victim’s employers, accusing her of being a “habitual drug user” and claiming that he would sue her for defamation, theft, illegal trespass, violating HIPAA, and engaging in other “illegal behaviors.” 

Over the course of the alleged cyberstalking campaign, the victim obtained multiple state court orders of protection against Waldman.

August 29, 2018 | Permalink | Comments (0)

Cyber Threats to our Nation’s Critical Infrastructure

[Opening Statement of Associate Deputy Attorney General Sujit Raman at the Senate Judiciary Subcommittee on Crime and Terrorism's Hearing on Cyber Threats to our Nation’s Critical Infrastructure]

The Attorney General identified this issue as a priority when he created a Cyber-Digital Task Force within the Department earlier this year.  I have the privilege of chairing this Task Force, and as you know, last month the Task Force issued a public report that provides a comprehensive assessment of the cyber-enabled threats confronting our Nation.  The Department appreciates the Subcommittee’s interest in making sure that the Department has the tools it needs to disrupt and deter cyber actors who seek to do our Nation harm.

As I describe below, the Department’s principal role in responding to cyber threats is the investigation and prosecution of federal crimes, but our investigations can yield more than criminal charges.  The Department is committed to using all of the tools at our disposal, including civil injunctions, information sharing, and technical operations, to counter malicious cyber activity, as well as to support our federal partners’ tools, like economic sanctions, diplomatic pressure, intelligence operations, and military action.  Successfully protecting the Nation from cyberattacks also requires robust information sharing with the private sector, which is why we work with other departments and agencies to share cybersecurity information beyond the federal government.

I will cover three areas in my testimony today.  First, I will describe the seriousness of the cyber threats to our critical infrastructure, which includes our election systems.  Second, I will discuss how the Department of Justice is responding to those threats, as described in our recent Task Force report.  Finally, I will address some of the ways in which Congress can promote the Department’s mission to combat cyber threats, including those aimed at the Nation’s critical infrastructure.

Cyber threats to critical infrastructure deserve particular attention, because our Nation’s critical infrastructure provides the essential services that underpin American society and serves as the backbone of our economy, security, and health systems.  Critical infrastructure includes the financial services sector, the electrical grid, dams, electoral systems, and over a dozen other sectors of society.  Those assets, systems, and networks are considered so vital to the United States that their incapacitation or destruction would have a debilitating effect on our national security, national economic security, or our national public health or safety — or any combination thereof.  Our adversaries seek to identify and exploit vulnerabilities in the sophisticated computer networks that these sectors employ.

It is important to note that private entities own and operate the vast majority of the Nation’s critical infrastructure.  Therefore, securing U.S. critical infrastructure is a shared responsibility.  The Department recognizes that the private sector requires timely cyber threat information to secure its systems.  Accordingly, the Federal Bureau of Investigation (“FBI”) makes threat information available to affected sectors through briefings and widely distributed technical alerts developed jointly with the Department of Homeland Security (“DHS”).  In March 2018, for example, the FBI and DHS announced that Russian government cyber actors had “targeted government entities and multiple U.S. critical infrastructure sectors, including the energy, nuclear, commercial facilities, water, aviation, and critical manufacturing sectors.”  The technical alert described a multistage Russian intrusion campaign that compromised small commercial facilities’ networks.  Russian cyber actors used the networks to stage malware and to conduct spear-phishing attacks, which allowed the Russians to gain remote access into energy sector networks.  The Russian cyber actors then explored those networks and moved across the networks to collect information pertaining to Industrial Control Systems.  To respond to this nefarious cyber activity, information uncovered as part of this investigation led, at least in part, to economic sanctions against Russia when the Treasury Department announced sanctions against five Russian entities and nineteen Russian individuals on March 15, 2018.  

Cyber operations could also target our election systems.  For example, adversaries could use cyber-enabled means to target voter registration databases and voting machines.  In fact, the Intelligence Community assessed in 2017 that Russian intelligence “accessed elements of multiple state or local electoral boards” during the 2016 U.S. presidential election.  DHS has assessed that the types of systems the Russian cyber actors targeted or compromised were not involved in vote tallying, and to our knowledge, no foreign government has succeeded in perpetrating ballot fraud.  Nonetheless, the risk is real.  Securing these systems and ensuring the integrity of our elections is one of our utmost priorities.

Russia is not the only state sponsor of malicious cyber activity.  To take one prominent publicly available example, we know that the Iranian government has targeted our critical infrastructure, specifically our financial sector, with cyberattacks.  In response, in March 2016, a federal grand jury indicted seven Iranian hackers belonging to two companies that worked for Iran’s Islamic Revolutionary Guard Corps for their role in Distributed Denial of Service (“DDoS”) attacks targeting the public-facing websites of nearly fifty U.S. banks.  These DDoS attacks against the U.S. financial sector began in approximately December 2011, and occurred sporadically until September 2012, at which point they escalated in frequency to a near-weekly basis.  At their peak, the attacks disrupted hundreds of thousands of customers’ ability to access their accounts online and conduct transactions, and the affected banks’ remediation costs ran into the tens of millions of dollars.  Furthermore, one of the hackers also repeatedly gained access to the Supervisory Control and Data Acquisition (“SCADA”) system of a dam in New York, allowing him to obtain information regarding the dam’s status and operation.

To take another example — this one involving North Korea — in May 2018, the FBI and DHS issued a technical alert notifying the public about the FBI’s high confidence that malicious North Korean government cyber actors have been using malware since at least 2009 “to target multiple victims globally and in the United States,” across various sectors — including critical infrastructure sectors.

These examples highlight the varied nature of the cyber threats to our Nation’s critical infrastructure.  Preventing and responding to cyber intrusions and attacks requires a strong defense using a coordinated government approach, with the support of the private sector.  The Department of Justice plays an important role in this combined effort. 

The Department of Justice’s core mission is to investigate and prosecute federal crimes, including computer intrusions and attacks, whether perpetrated by a transnational criminal group, a lone hacker, or an officer of a foreign military or intelligence service.  Our primary role is to investigate those incidents, determine who was responsible, prosecute them where the evidence supports it, and share intelligence we gather in connection with our investigations.  We work closely with our partners across the Government and around the world to arrest such actors, extradite them, prosecute them, and obtain restitution for victims whenever possible.  Further, through our Office of Justice Programs, we also support training law enforcement, prosecutors, and public safety officers in cyber-related crimes, both through online and classroom training.  This training assists in identifying cyber crimes and infrastructure intrusions, in preparation for either possible State or federal prosecution.

These partnerships across the Government are important.  To take election infrastructure as an example, other Departments, like DHS, are primarily responsible for designing security standards, helping protect private and government networks, and assisting victims in their recovery from cyberattacks.  By contrast, we are responsible for investigating intrusions and attacks, figuring out who perpetrated them, and bringing those malicious actors to justice.  Based on our cyber investigations, we also share cybersecurity threat information to help victims protect themselves.

As I mentioned at the outset, the Attorney General has prioritized the Department’s efforts to combat cyber-enabled threats.  The report that the Attorney General’s Cyber-Digital Task Force issued last month discusses in detail our extensive efforts to help secure the Nation.

The report begins in chapter 1 by focusing on the threat posed by malign foreign influence operations.  We define such operations as covert actions by foreign governments that are 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.  While cyber operations that target election systems (such as voting machines and voter databases) and related infrastructure represent one aspect of the problem, foreign malign influence operations also are designed to affect the views of American voters, depress voter turnout, or undermine confidence in election results.  Chapter 1 of the Task Force report categorizes these operations and outlines the Department’s framework to counter them ahead of the 2018 midterm elections.  The chapter also describes the work of the FBI’s Foreign Influence Task Force, which integrates the FBI’s cyber, counterintelligence, counterterrorism, and criminal law enforcement resources to better counter malign foreign influence operations.  Finally, chapter 1 announces a new disclosure policy pursuant to which the Department will notify victims, social media providers, or the public, as appropriate, regarding efforts by foreign adversaries to target them in connection with a malign foreign influence operation.

As the Cyber-Digital Task Force report observes, the Department of Justice plays an important role in combating foreign efforts to interfere in our elections, but the Department is only one part of an effective response.  Combating foreign influence operations requires a whole-of-society approach involving coordinated actions by federal, State, and local government agencies, including State and local agencies that are responsible for election systems; cooperation from victims and the private sector, including social media companies; and the active engagement of an informed public.

In chapters 2 and 3, the Task Force 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.  These chapters detail 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 focuses on a critical aspect of the Department’s mission in which the FBI plays a lead role, namely, responding to cyber incidents.  Chapter 5 then turns inward, focusing on the Department’s efforts to recruit and train our own personnel on cyber matters.  Finally, the report concludes in chapter 6 with observations about certain priority policy matters, including how the global nature of cyber-enabled crime brings with it technological and legal impediments to the Department’s ability to identify and locate malicious actors and bring them to justice, as well as other ideas discussed below.

We hope that the report provides the Subcommittee and the public with a better understanding of the Department’s role in combating cyber threats; the tools we rely on to confront these threats; how we support other government efforts to address these threats; and the challenges we continue to face.

In the face of these disturbing and ever-increasing threats, I know the Subcommittee has on its mind a key question:  How can Congress help, today?  The Department continues to explore how to respond to today’s threat of malign foreign influence and whether additional enforcement and disclosure tools would be useful and appropriate.  In the meantime, as our Task Force concluded, there are several key changes to federal law that would greatly aid our work to combat threats online.

I first want to thank this Subcommittee and, specifically, the Chair and Ranking Member, for their leadership in shepherding the passage of the Clarifying Lawful Overseas Use of Data (“CLOUD”) Act earlier this year.  This important piece of legislation will greatly advance the Department’s work and will enhance both security and privacy around the world.  We appreciate that Congress has made clear that U.S. law-enforcement orders issued under the Stored Communications Act require the disclosure of data wherever a provider chooses to store that data.  The impact of this clarification was immediate and dramatic, making Americans safer and investigations more efficient.   As you know, the CLOUD Act also creates incentives for bilateral agreements that enable investigators to seek data without causing unnecessary conflicts of laws.  These bilateral agreements will help create more efficient processes among rights-respecting countries for solving crime, and will ease the burden on our Nation’s mutual legal assistance procedures.

The CLOUD ACT has helped address one of the key challenges facing law enforcement in the area of cybercrime, but many others still exist.  I would like to spend most of my time today focusing on areas of concern in the Computer Fraud and Abuse Act (“CFAA”) and related statutes that currently hamper our work to combat threats online.  The CFAA is the primary federal law against hacking.  It protects the public against criminals who intrude into computers to steal information, install malicious software, and delete files.  It was also intended to criminalize malicious conduct by insiders who abuse their right of access to computer systems and networks to commit online crime.  The CFAA, in short, reflects our baseline expectation that people are entitled to have control over their own computers and are entitled to trust that the information they store in their computers remains safe.

The CFAA was enacted in 1986, at a time when the problem of online crime was still in its infancy.  Over the years, Congress has enacted a series of measured, modest changes to the CFAA to encompass new technologies and to equip law enforcement to respond to changing threats.  The CFAA has not been amended since 2008, however, and the intervening years have again witnessed the need for the enactment of modest, incremental changes.  The CFAA needs to be updated to make sure that it continues to appropriately deter violations of Americans’ privacy and security.

The CFAA is a privacy statute.  It deters criminals from stealing peoples’ information.  Yet, the CFAA’s privacy protections now contain a significant gap.  The statute was meant to apply both to hackers who gain access to victim computers without authorization from halfway around the world, and to so-called “insiders” who have some authorization to access a computer — like company employees entitled to access a sensitive database for specified work purposes — but who intentionally abuse that access.  The part of the CFAA that covers the conduct of those who have some authorization to access a computer is the tool that Department prosecutors have used to charge, for example, police officers who misuse their access to confidential criminal records databases in order to look up sensitive information about a boyfriend or girlfriend, who sell access to private records to others, or who provide confidential law enforcement information to a charged drug trafficker.  As a recent survey of 472 cybersecurity professionals indicated, 90% percent of organizations feel vulnerable to insider attacks, and 53% have confirmed insider attacks against their organization in the previous 12 months.  The survey also found that the type of data most vulnerable to insider attacks is confidential business information, and that a plurality of those surveyed estimated that the potential cost/loss of an insider attack was between $100,000 and $500,000.

Unfortunately, recent judicial decisions have limited the Government’s ability to prosecute such cases.  As a result of these decisions, insiders cannot be charged under the CFAA — even where the insider has intentionally exceeded the bounds of his legitimate access to confidential information and has caused significant harm to his employer and to the people, often everyday Americans, whose data he has improperly accessed.

The insider threat is relevant to voting security.  Currently, for example, if a foreign hacker accessed a State’s voter registration database over the Internet, that could be charged under the CFAA as an access “without authorization.”  But if an insider, such as a State government employee, used his privileges to access the same information, that insider could not be prosecuted under the CFAA, at least as several courts have interpreted the statute.

The narrow judicial interpretation of the term “exceeds authorized access” in the CFAA stems from concerns that the statute potentially makes relatively trivial conduct a federal crime.  One frequently cited hypothetical along these lines is the theoretical threat of prosecution faced by an employee who uses the Internet to check baseball scores at lunchtime in violation of his employer’s strict business-only Internet use policy.  We understand the concerns of the courts, and I would like to reiterate that the Department of Justice has no interest in prosecuting harmless violations of use restrictions like these.       

However, by essentially barring all CFAA prosecutions of insiders, these court decisions have constrained our ability to bring certain cybercriminals to justice.  Over the last several years, numerous Department of Justice officials have called on Congress to address this issue in a manner that would maintain the law’s key privacy-protecting function, while ensuring that trivial violations of things like a website’s terms of service do not constitute federal crimes.

The Department supports efforts that would accomplish this task.  This can be done by clarifying that the definition of “exceeds authorized access” includes the situation where the person accesses the computer for a purpose that he knows is not authorized by the computer owner.  This clarification is necessary to permit the prosecution of, for example, a law enforcement officer who is permitted access to criminal records databases, but only for official business purposes.  At the same time, a legislative fix could add new limitations to make clear that trivial conduct does not constitute a crime.  For example, a limitation could be put into the CFAA making clear that in order to constitute a crime under the new insider provision, not only must an offender access a protected computer in excess of authorization and obtain information, but the information must be worth $5,000 or more, the access must be in furtherance of a separate felony offense, or the information must be stored on a government computer.

We strongly believe that the insider threat problem in the CFAA can be fixed in a way that ensures the CFAA does not inadvertently cover trivial conduct, while empowering the Department to prosecute and deter significant threats to privacy and security.  Of all of the reforms to the CFAA under consideration by this Subcommittee, addressing this problem would have the most immediate, significant impact in improving our ability to punish and deter cybercriminals.  We would like to work closely with Congress and, specifically, this Subcommittee, to find a way forward on this pressing issue.

We support the efforts in the proposed International Cybercrime Prevention Act (“ICPA”), sponsored by the Chair and Ranking Member, to update the Racketeering Influenced and Corrupt Organizations Act (“RICO”) to make CFAA offenses and certain Wiretap Act offenses subject to RICO.  As computer technology has evolved, it has become a key tool of organized crime.  Criminal organizations operating around the world hack into public and private computer systems, including systems key to America’s national security and defense.  They hijack computers to steal Americans’ identity and financial information; they extort American businesses with threats to disrupt computers; and they commit a range of other online crimes.

Accordingly, much of the fight against transnational organized crime has moved online.  federal prosecutors have used RICO for over forty years to prosecute organized criminals ranging from mob bosses to Hells Angels to members of MS-13.  Just as RICO has proven to be an effective tool to prosecute the leaders of these organizations who may not have been directly involved in committing the underlying crimes, it should be a tool to fight criminal organizations that use computer intrusions and other CFAA violations to further their schemes.  These changes, as proposed in ICPA, would simply make clear that all types of CFAA violations should be considered criminal activities under the RICO statute, with the associated heavy penalties.

Protecting election infrastructure from attack is another important goal.  Yet, as the Department’s recent Cyber-Digital Task Force report noted, “should hacking of a voting machine occur, the government would not, in many conceivable circumstances, be able to use the CFAA to prosecute the hackers.”  The CFAA’s current definition of “protected computer” includes computers “affecting interstate or foreign commerce,” a definition that attempts to encompass the breadth of congressional power under the Commerce Clause.  We are concerned that courts might conclude that the Commerce Clause power, alone, does not reach voting machine computers that are not used in a commercial setting, are not used in interstate communication, and are typically never connected to the Internet or to any other network.  We believe, however, that Congress could reach such hacking by other means, such as its power to regulate federal elections in Article I, Section 4, of the Constitution.

Expanding the definition of a protected computer to include electronic voting machines will strengthen confidence in the integrity of our electoral system and ensure that any attempts to manipulate the results of an election can be prosecuted to the fullest extent under federal law.  We therefore applaud the introduction of S. 3311, which would accomplish this important goal.

Another striking example of online crime that victimizes Americans is the threat from botnets — networks of victim computers surreptitiously infected with malicious software, or “malware.”  Once a computer is infected with malware, it can be controlled remotely from another computer with a so-called “command and control” server.  Using that control, criminals can steal usernames, passwords, and other personal and financial information from the computer user, or hold computers and computer systems for ransom.  Criminals can also use armies of infected computers to commit other crimes, such as DDoS attacks, or to conceal their identities and locations while perpetrating crimes ranging from drug dealing to online child sexual exploitation.

The scale and sophistication of the threat posed by botnets is increasing every day.  Individual hackers and organized criminal groups are using state-of-the-art techniques to infect hundreds of thousands — sometimes millions — of computers and cause massive financial losses, all while becoming increasingly difficult to detect.  If we want security to keep pace with criminals’ technological innovations, we need to ensure that we have a variety of effective tools to combat rapidly evolving cyber threats like these.

One powerful tool that the Department has used to disrupt botnets and free victim computers from criminal malware is the civil injunction process.  Current law gives federal courts the authority to issue injunctions to stop the ongoing commission of certain crimes by authorizing actions that prevent a continuing and substantial injury.  This authority played a critical role in the Department’s successful disruption of the Coreflood botnet in 2011 and of the Gameover Zeus botnet in 2014.  (The Gameover Zeus botnet, which infected computers worldwide, inflicted over $100 million in losses on American victims alone, many of them small- and medium-sized businesses.)  Because the criminals behind these particular botnets used them to commit fraud against banks and bank customers, existing law allowed the Department to obtain court authority to disrupt the botnets by taking actions such as disabling communications between infected computers and the command and control servers.

The problem is that current law permits courts to consider injunctions only for limited categories of crimes, including certain frauds and illegal wiretapping.  Botnets, however, can be used for many different types of illegal activity.  They can be used to steal sensitive corporate information, to harvest email account addresses, to hack other computers, or to execute denial of service attacks against websites or other computers.  Yet — depending on the facts of any given case — these crimes may not constitute fraud or illegal wiretapping.  In those cases, courts may lack the statutory authority to consider an application by prosecutors for an injunction to disrupt the botnets in the same way that injunctions were successfully used to incapacitate the Coreflood and Gameover Zeus botnets.

Thus, we support the provision in ICPA that would add activities like the operation of a botnet to the list of offenses eligible for injunctive relief.  ICPA would allow the Department to seek an injunction to prevent ongoing hacking violations in cases where 100 or more victim computers have been hacked.  This numerical threshold focuses the injunctive authority on enjoining the creation, maintenance, operation, or use of a botnet, as well as other widespread attacks on computers using malicious software (such as ransomware).

The same legal safeguards that currently apply to obtaining civil injunctions, and that applied to the injunctions obtained by the Department in the Coreflood and Gameover Zeus cases, would also apply under the ICPA proposal.  Before an injunction is issued, the Government must civilly sue the defendant and demonstrate to a court that it is likely to succeed on the merits of its lawsuit and that the public interest favors an injunction; the defendants and enjoined parties have the right to notice and to have a hearing before a permanent injunction is issued; and the defendants and enjoined parties may move to quash or modify any injunctions that the court issues.

I would now like to turn to the criminal statutes that prohibit the creation and use of botnets.  Unfortunately, these statutes also contain shortcomings.  We find that criminals continue to find new ways to make money illegally through botnets.  Law enforcement officers now frequently observe that creators and operators of botnets not only use botnets for their own illicit purposes, but also sell or even rent access to the infected computers to other criminals. 

Current criminal law prohibits the creation of a botnet because it prohibits hacking into computers without authorization.  It also prohibits the use of botnets to commit other crimes.  But it is not similarly clear that the law prohibits the sale or renting of a botnet.  In one case, for example, undercover officers discovered that a criminal was offering to sell a botnet consisting of thousands of victim computers.  The officers accordingly “bought” the botnet from the criminal and notified the victims that their computers were infected.  The operation, however, did not result in a prosecutable U.S. offense because there was no evidence that the seller himself had created the botnet in question.  While trafficking in botnets is sometimes chargeable under other subsections of the CFAA, this problem has resulted in, and will increasingly result in, the inability to prosecute individuals selling or renting access to thousands of hacked computers.

We believe that it should be illegal to sell or rent surreptitious control over infected computers to another person, just like it is already clearly illegal to sell or transfer computer passwords.  That is why we support the provision in ICPA to prohibit the sale or transfer not only of “password[s] and similar information” (the wording of the existing statute) but also of “means of access,” which would include the ability to access computers that were previously hacked and are now part of a botnet.   In addition, we recommend replacing the current requirement that the Government prove that the offender had an “intent to defraud” with a requirement to prove that the offender not only knew his conduct is “wrongful,” but also that he knew or should have known that the means of access would be used to hack or damage a computer.  This last change is necessary because, as noted above, criminals do not use botnets only to commit fraud — they also use them to commit a variety of other crimes.

Some commentators have raised the concern that this proposal would chill the activities of legitimate security researchers, academics, and system administrators.  The Department takes this concern seriously.  We have no interest in prosecuting such individuals, and our proposal would not prohibit legitimate activity.  That is because the Government should have the burden to prove, beyond a reasonable doubt, that the individual intentionally undertook an act (trafficking in a means of access) that he or she knew to be wrongful.  The Government should similarly have to prove that the individual knew or had reason to know that the means of access would be used to commit a crime by hacking someone else’s computer without authorization. 

ICPA’s approach makes clear that ordinary conduct by legitimate security researchers and others is not a crime.  We believe that ICPA’s botnet injunction provision strikes the proper balance in prohibiting the pernicious conduct I have described without chilling the activities of those who are trying to improve cybersecurity for us all.

The Department also supports the efforts in ICPA to strengthen the criminal code to better deter malicious activities directed at computers and networks that control our critical infrastructures.  As I have discussed, America’s open and technologically complex society includes, as a part of its critical infrastructure, numerous vulnerable targets.  While the CFAA’s maximum penalties apply to malicious efforts to harm the computers and networks that run our critical infrastructure, the statute does not currently require any enhanced penalties for such conduct.  While it is reasonable to believe that judges would impose appropriate prison terms if malicious activity severely debilitates a critical infrastructure system, it is possible that courts may not impose adequate penalties for activities that cause less disruption — and they could conceivably impose no penalty at all in the case of an attempt that is thwarted before it is completed.

In light of the grave risk posed by those who might compromise our critical infrastructure, the Department believes that the enhanced penalties for such malicious activity called for in ICPA not only will appropriately punish offenders, but also will more effectively deter others who would engage in misconduct that puts public safety and national security at risk.  Criminals and other malicious actors should know that any attempt to damage a vital national resource will result in serious consequences.

We have long had concerns about the text of the “Pen Register and Trap and Trace” (“PRTT”) statute that is used, among other things, to support computer security.  The PRTT statute’s exceptions — which, for example, permit a provider, but not a user, of wire or electronic communications services to monitor their own network — are subtly and inexplicably different than the Wiretap Act’s exceptions.  The existing language in the PRTT statute has been difficult to apply, resulting in complex legal analyses for services as simple as Caller ID.  The Wiretap Act’s rules appropriately protect the content of communications; they are more than adequate to protect non-content information, which is much less sensitive.  Importing the Wiretap Act’s exceptions into the PRTT statute would remedy these problems and result in a more logical framework for applying these two related statutes that regulate the real-time collection of communications.  There is no reason why a user of a PRTT device, whether a private or governmental entity, should be precluded from logging his or her own communications.  We have proposed language under which the PRTT statute would continue to protect user privacy, but it would no longer inappropriately limit private entities’ or the Government’s ability to use PRTT devices on their own computer networks.

Finally, we support several amendments to the CFAA, which are reflected in the ICPA.  Key amongst these changes would be amendments to 18 U.S.C. § 2513, which would bring the forfeiture provisions of the CFAA in line with other federal criminal statutes, providing concrete procedures for the forfeiture of property used to commit or facilitate a violation of this statute as well as the proceeds of such violation.  These amendments support consistent application of the law, while maintaining the Government’s ability to dismantle and disrupt criminal operations and deter future violations, both when prosecutors are able to reach violators and when those violators are located overseas beyond the judicial reach of our courts.  The amendments in ICPA are a measured and sensible addition that will help assure that criminal hackers do not profit from their crimes. 

We also support the change in ICPA that would make the sale or advertising of a surreptitious interception device under 18 U.S.C. § 2512 a predicate offense under the federal money laundering statutes.  Section 2512, which is part of the Wiretap Act, has proven to be a valuable tool for protecting the privacy of innocent Americans by criminalizing the manufacture, distribution, possession, and advertising of devices, such as spyware, that unlawfully collect private communications.  Section 2512 is not a predicate offense under 18 U.S.C. §§ 1956 and 1957, however, which impedes the Government’s ability to punish and deter certain offenders who conceal and spend their ill-gotten gains by selling and advertising spyware and other illegal interception devices.

I want to thank the Subcommittee again for providing me this opportunity to discuss these important issues on behalf of the Department of Justice.  Americans should be able to turn to the Government for leadership, especially when facing cyberattacks from nation states and from equally sophisticated criminals.  We look forward to continuing to work with Congress to improve the Government’s ability to respond to these cyber threats.  I am happy to answer any questions you may have.

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

Tuesday, August 28, 2018

CEO and CFO of Utah Biodiesel Company and California Businessman Charged in $500 Million Fuel Tax Credit Scheme

A federal grand jury sitting in the District of Utah has returned an indictment, which was unsealed today, charging the CEO and CFO of Washakie Renewable Energy (WRE), a Utah-based biodiesel company, and a California businessman with laundering proceeds of a mail fraud scheme, which obtained over $511 million in renewable fuel tax credits from the Internal Revenue Service (IRS), announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division, U.S. Attorney John W. Huber for the District of Utah, Don Fort, Chief of IRS Criminal Investigation and Jessica Taylor, Director of Environmental Protection Agency Criminal Investigation Division.

According to the indictment, Jacob Kingston was Chief Executive Officer and Isaiah Kingston was Chief Financial Officer of WRE and each held a 50% ownership interest in the company. WRE has described itself as the “largest producer of biodiesel and chemicals in the intermountain west.” 

Jacob Kingston, Isaiah Kingston, and Lev Aslan Dermen (aka Levon Termendzhyan), owner of California-based fuel company NOIL Energy Group, allegedly schemed to file false claims for renewable fuel tax credits, which caused the IRS to issue over $511 million to WRE.  Jacob Kingston is separately charged with filing nine false claims for refund on behalf of WRE in 2013.

The IRS administered tax credits designed to increase the amount of renewable fuel used and produced in the United States. These tax credits were paid by the IRS regardless of whether the taxpayer owed other taxes.

From 2010 through 2016, as part of their fraud to obtain the fuel tax credits, the defendants allegedly created false production records and other paperwork routinely created in qualifying renewable fuel transactions along with other false documents.  To make it falsely appear that qualifying fuel transactions were occurring, the defendants rotated products through places in the United States and through at least one foreign country.  The defendants also allegedly used “burner phones” and other covert means to communicate during the scheme.

The indictment further charges that the defendants laundered part of the scheme proceeds through a series of financial transactions related to the purchase of a $3 million personal residence for Jacob Kingston.  Jacob and Isaiah Kingston are separately alleged to have laundered approximately $1.72 million in scheme proceeds to purchase a 2010 Bugatti Veyron.  Jacob Kingston and Lev Aslan Dermen are separately charged with money laundering related to an $11.2 million loan funded by scheme proceeds.

If convicted, the defendants each face a maximum of 10 years in prison for each money laundering count and Jacob Kingston faces a maximum of 3 years in prison for each false tax return count. They also face a period of supervised release, monetary penalties, and restitution.

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

Monday, August 27, 2018

Entertainment Industry Business Manager Convicted of Defrauding Celebrity Clients, Bankruptcy Fraud and Tax Charges

A federal jury in Columbus, Ohio has convicted Kevin R. Foster, 42, of Montclair, NJ, of 16 charges related to a fraud scheme. He was found guilty of wire fraud, money laundering, bankruptcy fraud, tax evasion and filing a false tax return, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division, U.S. Attorney Benjamin C. Glassman for the Southern District of Ohio, Special Agent in Charge Ryan L. Korner for the Internal Revenue Service (IRS) Criminal Investigation; and Special Agent in Charge Angela L. Byers for the Federal Bureau of Investigation (FBI), Cincinnati Division.

This case stems from the prior prosecution of Thomas E. Jackson and Preston J. Harrison, who, according to court documents, collected approximately $9 million from investors under false pretenses to start and market the sports beverage OXYwater through their company, Imperial Integrative Health Research and Development (Imperial). The two were convicted by a federal jury in March 2015 of multiple wire fraud, money laundering and tax fraud charges.

According to court documents and evidence presented at trial, Foster, as the principal of his management/accounting firm, Foster & Firm, Inc., and as business manager for Shaffer Smith, a/k/a Ne-Yo, induced Smith to invest $2 million into OXYwater under false representations. Unbeknownst to Smith, Foster invested an additional $1.5 million of Smith’s money into the product without his consent and fraudulently took out $1.4 million in lines of credit under Smith’s name by forging his signature.

Foster also defrauded a second celebrity client, Brian McKnight, as a way to secure money to help keep Imperial solvent.

Foster also stole millions of dollars from Smith and McKnight’s bank accounts in order to fund the operations of OXYwater as well as his own lavish lifestyle, including multiple luxury vehicles, a personal driver, designer watches, and season tickets to the New York Giants and New York Knicks.

Smith and McKnight agreed to invest in the company, not knowing that Foster was receiving a substantial commission based on their investments, that he served as an officer/controller of Imperial and that he controlled an Imperial bank account.

In addition, Foster failed to report on his 2012 and 2013 tax returns the millions of dollars that he stole from Smith and McKnight. He also claimed millions of dollars in bogus deductions in order to further reduce his tax liability.

Foster was charged in an original, seven-count indictment in July 2016. A superseding indictment containing 10 counts was returned in November 2017. The final, second superseding indictment added six more charges in May 2018.

August 27, 2018 in Tax Compliance | Permalink | Comments (0)

Sunday, August 26, 2018

Former Swiss Bank Executive Pleads Guilty to Role in Billion-Dollar International Money Laundering Scheme Involving Funds Embezzled from Venezuelan State-Owned Oil Company

The former managing director and vice chairman of a Swiss bank pleaded guilty for his role in a billion-dollar international scheme to launder funds embezzled from Venezuelan state-owned oil company Petróleos de Venezuela, S.A. (PDVSA).

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Benjamin Greenberg of the Southern District of Florida and Special Agent in Charge Mark Selby of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI) Miami Field Office made the announcement.

Matthias Krull, 44, a German national and Panamanian resident, pleaded guilty to one count of conspiracy to commit money laundering.  He is scheduled to be sentenced on Oct. 29 by U.S. District Judge Cecilia M. Altonaga of the Southern District of Florida, who accepted his plea today.

As part of his plea, Krull admitted that in his position with the Swiss bank, he attracted private clients, particularly clients from Venezuela, to the bank.  In this role, Krull’s clients included Francisco Convit Guruceaga, who was indicted on money laundering charges on Aug. 16.  Krull’s clients also included three unnamed conspirators described in the Aug. 16 indictment. 

Krull admitted that the conspiracy began in December 2014 with a currency exchange scheme that was designed to embezzle around $600 million from PDVSA, obtained through bribery and fraud, and the conspirators’ efforts to launder a portion of the proceeds of that scheme.  By May 2015, the conspiracy had doubled in amount to $1.2 billion embezzled from PDVSA.  PDVSA is Venezuela’s primary source of income and foreign currency (namely, U.S. Dollars and Euros).  Krull joined the conspiracy in or around 2016, he admitted, when a co-conspirator contacted him to launder the proceeds of a PDVSA foreign-exchange embezzlement scheme. 

Ultimately, Krull joined the conspiracy to launder $1.2 billion worth of funds that were embezzled from PDVSA, he admitted.  Krull and members of the money laundering conspiracy used Miami, Florida real estate and sophisticated false-investment schemes to conceal that the $1.2 billion was in fact embezzled from PDVSA.  Krull also admitted that surrounding and supporting these false-investment laundering schemes are complicit money managers, brokerage firms, banks and real estate investment firms in the United States and elsewhere, operating as a network of professional money launderers. 

Krull’s co-conspirators indicted on Aug. 16 include former PDVSA officials, professional third-party money launderers, and members of the Venezuelan elite, sometimes known as “boliburgués.”

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

This case is the result of ongoing efforts by the Organized Crime Drug Enforcement Task Force’s (OCDETF) “Operation Money Flight,” a partnership among federal, state and local law enforcement agencies.  The OCDETF mission is to identify, investigate and prosecute high-level members of drug trafficking enterprises, bringing together the combined expertise and unique abilities of federal, state and local law enforcement.

HSI Miami, HSI London, HSI Rome and HSI Madrid investigated this case.  This case is being prosecuted by Assistant Chief David Johnson and Trial Attorney Gwendolyn Stamper of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Francisco R. Maderal of the Southern District of Florida’s International Narcotics and Money Laundering Section and Michael Nadler of the Southern District of Florida’s Economic and Environmental Crimes Section. Assistant U.S. Attorney Nalina Sombuntham of the Southern District of Florida is handling the asset forfeiture.

The Criminal Division’s Office of International Affairs provided substantial assistance in this matter, and U.S. Customs and Border Protection; the National Crime Agency of the United Kingdom; and Italian, Spanish and Maltese law enforcement authorities provided assistance. 

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

Saturday, August 18, 2018

Former Virgin Islands Senator Convicted of Wire Fraud and Theft of Federal Program Funds

A former senator for the U.S. Virgin Islands has been convicted for wire fraud and theft of federal program funds for taking money ostensibly being used to fund a historical research project, announced Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division and U.S. Attorney Gretchen C. F. Shappert for the District of the U.S. Virgin Islands.

Wayne A.G. James, 56, of St. Croix, U.S. Virgin Islands, was convicted of two counts of wire fraud and one count of theft of federal program funds.  Sentencing has been set for Dec. 20.

“Wayne James abused his trusted position as a senator for the people of the U.S. Virgin Islands by stealing tens of thousands of taxpayer dollars to pay his own campaign and personal expenses,” said Assistant Attorney General Benczkowski.  “Public corruption undermines confidence in our government institutions and the rule of law.  Wayne James’s conviction is a testament to the commitment of the Criminal Division and our law enforcement partners to hold accountable those who breach the public’s trust for their personal gain.”

James was indicted in October 2015.  From January 2009 through January 2011, James served as a senator for the U.S. Virgin Islands.  According to the evidence admitted at trial, in or about April 2009, James began submitting requests to the Legislature of the U.S. Virgin Islands for funds, ostensibly to pay for research, copying, and translation of historical documents housed at the Danish National Archives related to the Fireburn, a revolt against slave labor that took place in the Virgin Islands in the 1800s.  Though James initially did use some of the requested funds to pay for the research project, he soon began to take money for himself.  By 2010, James fabricated entire invoices and simply stole the money.  James caused the Legislature of the Virgin Islands to pay him over $90,000, approximately $70,000 of which he took for himself.  James used the misappropriated government funds to pay his re-election campaign expenses and other personal expenses after his legislative salary was garnished from a tax levy of more than $197,000. 

“The U.S. Attorney’s Office for the U.S. Virgin Islands is committed to rooting out fraud and corruption in our government,” said U.S. Attorney Shappert.  “The defendant’s betrayal of the people and his elected office is intolerable and we will continue to pursue such abuses of the public trust.  Here, the defendant exploited a precious piece of Virgin Islands history for his own purposes. And a Virgin Islands jury held him accountable. ” 

The FBI and the Office of the Virgin Islands Inspector General investigated this case.  Trial Attorneys Amanda R.Vaughn and Luke Cass of the Criminal Division’s Public Integrity Section and Assistant U.S. Attorney Delia Smith prosecuted the case.

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

Friday, August 17, 2018

Eighth Circuit Casts Doubt on Medtronic’s Transfer Pricing Method

The Court of Appeals for the Eighth Circuit issued an opinion yesterday reversing a Tax Court decision that had rejected the Commissioner’s valuation method in a closely watched transfer-pricing case:  Download Medtronic_opinion

The Court of Appeals for the Eighth Circuit issued an opinion August 16, 2018, reversing the Tax Court decision.[1]  The Tax Court determined that the Pacesetter agreement was an appropriate CUT because it involved similar intangible property and had similar circumstances regarding licensing. The Eighth Circuit held that the Tax Court had adopted the transfer pricing method of the taxpayer without first engaging in the analysis required under Treasury’s transfer-pricing regulations. The Eighth Circuit remanded the case back because the tax court’s factual findings were insufficient to conduct an evaluation of the determination. 

The Eighth Circuit provided three primary areas of analysis to be conducted. First, the tax court must address in sufficient detail whether the circumstances of the settlement between Pacesetter and Medtronic U.S. were comparable to the licensing agreement between Medtronic and Medtronic Puerto Rico. Second, the tax court must analyze the degree of comparability of the Pacesetter agreement’s contractual terms and those of the Medtronic Puerto Rico licensing agreement.  Finally, the tax court must then decide the amount of risk and product liability expense that should be allocated between Medtronic U.S. and Medtronic Puerto Rico.  The Eighth Circuit stated that determining the degree of comparability between the controlled and uncontrolled transactions requires a comparison of the significant contractual terms that could affect the results of the two transactions.  Because the Tax Court failed to make the necessary factual findings, the Eighth Circuit was unable to determine whether the court “applied the best transfer pricing method for calculating an arm’s length result or whether it made proper adjustments under its chosen method.”  Accordingly, it vacated the Tax Court’s order and remanded the case for further consideration by the Tax Court.

For further analysis, see the leading treatise of William Byrnes & Robert Cole (deceased), Practical Guide to U.S. Transfer Pricing.  Available on Lexis.

[1] Medtronic, Inc. & Consolidated Subsidiaries v. Commissioner, No. 17-1866.

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

Tuesday, August 14, 2018

Royal Bank of Scotland Agrees to Pay $4.9 Billion for Financial Crisis-Era Misconduct

Settlement Is Largest Penalty Imposed On A Single Entity By The Justice Department For Financial Crisis-Era Misconduct

The Justice Department announced today a $4.9 billion settlement with The Royal Bank of Scotland Group plc (RBS) resolving federal civil claims that RBS misled investors in the underwriting and issuing of residential mortgage-backed securities (RMBS) between 2005 and 2008. The penalty is the largest imposed by the Justice Department for financial crisis-era misconduct at a single entity under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, which authorizes the federal government to seek civil penalties against financial institutions that violate various predicate criminal offenses, including wire and mail fraud.

“Many Americans suffered lasting economic harm as a result of the 2008 financial crisis,” said Acting Associate Attorney General Jesse Panuccio.  “This settlement holds RBS accountable for serious misconduct that contributed to that financial crisis, and it sends an important message that the Department of Justice will pursue financial institutions that illicitly harm the American economy and our consumers.”

"This resolution – the largest of its kind – holds RBS accountable for defrauding the people and institutions that form the backbone of our investing community,” said Andrew E. Lelling, U.S. Attorney for the District of Massachusetts. “Despite assurances by RBS to its investors, RBS’s deals were backed by mortgage loans with a high risk of default. Our settlement today makes clear that institutions like RBS cannot evade responsibility for the damage caused by their illicit conduct, and it serves as a reminder that the Justice Department, and this Office, will hold those who engage in fraudulent conduct accountable.”

“The actions of RBS resulted in significant losses to investors, including Fannie Mae and Freddie Mac, which purchased the Residential Mortgage-Backed Securities backed by defective loans,” said Associate Inspector General Jennifer Byrne of the Federal Housing Finance Agency-Office of Inspector General’s (FHFA-OIG). “We are proud to have partnered with the U.S Attorney’s Office for the District of Massachusetts on this matter.”

The settlement includes a statement of facts that details – using contemporaneous calls and emails of RBS executives – how RBS routinely made misrepresentations to investors about significant risks it failed to disclose about its RMBS. For example:

  • RBS failed to disclose systemic problems with originators’ loan underwriting. RBS’s reviews of loans backing its RMBS (known as “due diligence”) confirmed that loan originators had failed to follow their own underwriting procedures, and that their procedures were ineffective at preventing risky loans from being made. As a result, RBS routinely found that borrowers for the loans in its RMBS did not have the ability to repay and that appraisals for the properties guaranteeing the loans had materially inflated the property values. RBS never disclosed that these material risks both existed and increased the likelihood that loans in its RMBS would default. 
  • RBS changed due diligence findings without justification. RBS’s due diligence practices did not remove fraudulent and high-risk loans from its RMBS. For example, when RBS’s due diligence vendors graded loans materially defective, RBS frequently directed the vendors to “waive” the defects without justification. One due diligence vendor, which tracked waivers by most major participants in the RMBS industry, concluded that RBS waived material defects 30% more frequently than the industry average. RBS’s waiver of material defects routinely resulted in the securitization of loans with excessive risk. When it engaged in such waivers, RBS never included enhanced “scratch-and-dent” disclosures that would have alerted investors that loans with excessive risks were included in the RMBS.
  • RBS provided investors with inaccurate loan data. RBS’s due diligence frequently found that loan data – which RBS passed on to investors, who used the data to analyze the risks associated with its RMBS – were riddled with errors. Many inaccuracies made the loans look less risky than they actually were. RBS, however, did not require originators to correct the data errors. In one deal, where RBS identified over 600 data errors associated with 563 loans (including debt-to-income ratios understated by as much as 2700%), RBS failed to disclose these errors even to the originator; instead, RBS reassured the originator that RBS had not required originators to correct data errors in the past and did not anticipate doing so for that deal.
  • RBS failed to disclose due diligence and kick-out caps. To develop and maintain business relations with originators, RBS agreed to limit the number of loans it could review (due diligence caps) and/or limit the number of materially defective loans it could remove from a RMBS (kick-out caps). RBS’s scheme reached its height in two deals issued in October 2007. In both of these RMBS, RBS identified hundreds of underlying loans that carried a particularly high risk of default and would cause losses to the RMBS investors. RBS kept these materially risky loans in the RMBS, without disclosing their inclusion to investors, because RBS had agreed to a kick-out cap limiting the number of defective loans that RBS could exclude from the securities in exchange for receiving a lower price for the loan pool. As a result, over the entirety of its scheme, RBS securitized tens of thousands of loans that it determined or suspected were fraudulent or had material problems without disclosing the nature of the loans to investors. 

Through its scheme, RBS earned hundreds of millions of dollars, while simultaneously ensuring that it received repayment of billions of dollars it had lent to originators to fund the faulty loans underlying the RMBS. RBS used RMBS to push the risk of the loans, and tens of billions of dollars in subsequent losses, onto unsuspecting investors across the world, including non-profits, retirement funds, and federally-insured financial institutions. As losses mounted, and after many mortgage lenders who originated those loans had gone out of business, RBS executives showed little regard for this misconduct and made light of it. 

These are allegations only, which RBS disputes and does not admit, and there has been no trial or adjudication or judicial finding of any issue of fact or law. 

The settlement was the result of a multi-year investigation by the U.S. Attorney’s Office of the District of Massachusetts.  Assistant U.S. Attorneys Justin D. O’Connell, Brian M. LaMacchia, Elianna J. Nuzum, Steven T. Sharobem, and Sara M. Bloom of Lelling’s Office investigated RBS’s conduct in connection with RMBS, with the support of the Federal Housing Finance Agency’s Office of the Inspector General.

August 14, 2018 in AML, Financial Regulation | Permalink | Comments (0)

Monday, August 13, 2018

FTC and State of Minnesota Halt Sellers Playbook’s Get Rich Scheme

Online ads and in-person workshops for Sellers Playbook claim to offer “secrets” to making big money on Amazon. But like a lot of namedroppers, the truth doesn’t live up to the hype. That’s what the FTC and the Minnesota Attorney General allege in a lawsuit they filed.

According to the complaint, Sellers Playbook lures consumers in with promises like “Potential Net Profit: $1,287,463.38” and “Starting with $1000…1 year later over $210,000,” but the FTC and AG say few people – if anybody – make that kind of money, despite shelling out thousands to learn the company’s so-called secrets. What’s more, Sellers Playbook has no affiliation with Amazon other than dropping the online giant’s name in its ads.

If the tactics sound familiar, that’s because some of the defendants behind Sellers Playbook were affiliated with Amazing Wealth Systems, a venture whose bogus big-money claims were the subject of an FTC lawsuit earlier this year.

The FTC and the Minnesota AG have charged Sellers Playbook with making misleading earnings claims. The FTC also says the defendants have violated the Business Opportunity Rule, a consumer protection provision that requires sellers of money-making ventures to disclose certain facts up front to people thinking about signing up. In addition, the lawsuit alleges the defendants violated the Consumer Review Fairness Act – a new law that bans contract provisions that try to silence consumers from posting their honest opinions about a company’s products or customer service.

Thinking about sinking your savings into a business opportunity? Don’t make a move without consulting a person you trust in your community and considering these suggestions from the FTC. And here’s a tip from in-the-know entrepreneurs: If the promoter of a business opportunity doesn’t give you the disclosure document required by the FTC’s Business Opportunity Rule, that alone should sound an alarm. If they’re not honoring those basic legal requirements, can you trust their money-making promises? Probably not.

August 13, 2018 in AML | Permalink | Comments (0)

Sunday, August 12, 2018

Extension of Limited Exception from Beneficial Ownership Requirements for Legal Entity Customers of Certain Financial Products and Services with Rollovers and Renewals

On May 16, 2018, the Financial Crimes Enforcement Network (FinCEN) issued a 90-day limited exceptive relief to covered financial institutions from the obligations of the Beneficial Ownership Rule for Legal Entity Customers (Beneficial Ownership Rule)1 for certain financial products and services (i.e., certificate of deposit or loan accounts) that were established before the Beneficial Ownership Rule’s Applicability Date, May 11, 2018. FinCEN issued the 90-day limited exception in order to determine whether, and to what extent, a further exception would be appropriate for such products and services. The exception expires on August 9, 2018, but may be extended, modified or revoked at FinCEN’s discretion

FinCEN is extending the limited exception for an additional 30 days, up to and including September 8, 2018, from the obligations of the Beneficial Ownership Rule for rollover or renewal of certain financial products and services (i.e., certificate of deposit or loan accounts) that were established before May 11, 2018 to further consider the issue.

August 12, 2018 in AML | Permalink | Comments (0)

Former Convergex Global Markets CEO Pleads Guilty in New Jersey for Role in Securities and Wire Fraud Scheme

 The former Chief Executive Officer of ConvergEx Global Markets Limited (CGM Limited) pleaded guilty for his role in a scheme to commit securities and wire fraud from 2006 through 2011. 

Assistant Attorney General Brian A. Benczkowski for the Justice Department’s Criminal Division, U.S. Attorney Craig Carpenito of the District of New Jersey, Assistant Director in Charge Nancy McNamara of the FBI’s Washington Field Office, and Inspector in Charge Peter R. Rendina of the U.S. Postal Inspection Service (USPIS) made the announcement.

Anthony Blumberg, 53, of Short Hills, New Jersey, pleaded guilty before U.S. District Judge Jose L. Linares of the District of New Jersey, in Newark, to one count of conspiracy to commit securities and wire fraud.  Sentencing has been scheduled for Dec. 5 before Chief Judge Linares. 

According to court documents, CGM Limited was a wholly owned subsidiary of ConvergEx Group LLC (“ConvergEx Group”).   As part of his plea today, Blumberg admitted that clients placed orders to buy or sell securities with G-Trade Services LLC and ConvergEx Limited, subsidiaries of ConvergEx Group that offered global trading services to clients, which in turn routed orders to CGM Limited.  Blumberg also admitted that traders at CGM Limited executed the orders and sometimes added a “spread,” (a mark-down on the sale of a security or a mark-up on the purchase of a security) to the prices they had obtained for non-fiduciary clients.  To hide the fact that spread had been taken, on several occasions from 2007 to 2011, Blumberg and traders acting under his direction, acting in response to requests by clients for information that could reveal the existence of spread, sent false reports (known as time and sales reports) to these clients.  The false time and sales reports contained fabricated details regarding the individual transactions, or “fills,” executed during the course of a day to complete a client’s orders, including false information concerning the number of shares involved in a fill, the time at which the fill was executed, and the price at which shares were either purchased or sold.

Blumberg also admitted that he and his co-conspirators agreed to violate a client’s instructions to provide real-time transactional data through an immediate data feed with details of trades that CGM Limited executed for the client by providing “batch fills” that hid the actual information the client sought. 

Blumberg is the fourth individual to plead guilty as a result of the investigation into ConvergEx Group and CGM Limited’s practices.  On Dec. 18, 2013, CGM Limited pleaded guilty to conspiracy to commit securities and wire fraud before Judge Linares.  On the same day, ConvergEx Group entered into a deferred prosecution agreement.  Collectively, the two ConvergEx entities paid $43.8 million in criminal penalties and restitution.

The case is being investigated by the FBI’s Washington Field Office and the Washington, D.C. and New York offices of the U.S. Postal Inspection Service.  The case is being prosecuted by Trial Attorney Gary A. Winters and Assistant Chief Justin D. Weitz of the Criminal Division’s Fraud Section and by Assistant U.S. Attorney Paul Murphy, Chief of the U.S. Attorney’s Office for the District of New Jersey Economic Crimes Unit in Newark.  The Department appreciates the substantial assistance of the Securities and Exchange Commission.

August 12, 2018 in AML | Permalink | Comments (0)

Saturday, August 11, 2018

Former Member of Barbados Parliament and Minister of Industry Charged with Laundering Bribes from Barbadian Insurance Company

The former Minister of Industry of Barbados was arrested Friday and had his initial court appearance today in connection with an indictment charging him with laundering bribes that he allegedly received from a Barbadian insurance company in exchange for official actions he took to secure government contracts for the insurance company.  
Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Richard P. Donoghue for the Eastern District of New York and Assistant Director-in-Charge William F. Sweeney Jr. of the FBI New York Field Office made the announcement.

Donville Inniss, 52, a U.S. legal permanent resident who resided in Tampa, Florida, and Barbados, was charged in an indictment with one count of conspiracy to launder money and two counts of money laundering.  The indictment was returned under seal by a federal grand jury sitting in Brooklyn, New York, on March 15.

“Donville Inniss allegedly used the U.S. financial system to launder bribes he received while serving as a government official in Barbados,” said Assistant Attorney General Benczkowski.  “These charges demonstrate the commitment of the Department and our law enforcement partners to hold accountable anyone who seeks to use our financial system to promote or launder the corrupt proceeds of their crimes.” 

“As charged in the indictment, Inniss abused his position of trust as a government official by taking bribes from a Barbadian company, then laundered the illicit funds through a bank and a dental company located in the Eastern District of New York,” said U.S. Attorney Donoghue.  “The Department of Justice will continue to hold accountable corrupt government officials here or abroad who use the U.S. financial system to facilitate their criminal conduct.”

The indictment alleges that in 2015 and 2016, Inniss took part in a scheme to launder into the United States approximately $36,000 in bribes that he received from high-level executives of a Barbadian insurance company.  At the time, Inniss was a member of the Parliament of Barbados and the Minister of Industry, International Business, Commerce, and Small Business Development of Barbados.  In exchange for the bribes, Inniss leveraged his position as the Minister of Industry to enable the Barbadian insurance company to obtain two government contracts.  To conceal the bribes, Inniss arranged to receive them through a U.S. bank account in the name of a dental company, which had an address in Elmont, New York.

The charges in the indictment are merely allegations, and the defendant is presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

The FBI’s New York Field Office is investigating the case.  In 2015, the FBI formed International Corruption Squads across the country to address national and international implications of foreign corruption.  

Trial Attorney Gerald M. Moody Jr. of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Sylvia Shweder of the Eastern District of New York are prosecuting the case.  The Criminal Division’s Office of International Affairs provided significant assistance in this matter.

The Criminal Division’s Fraud Section is responsible for investigating and prosecuting all Foreign Corrupt Practices Act (FCPA) matters.  Additional information about the department’s FCPA enforcement efforts can be found at    

August 11, 2018 in AML | Permalink | Comments (0)

Friday, August 10, 2018

Justice Department Announces Addendum To Swiss Bank Program Category 2 Non-Prosecution Agreement With Bank Lombard Odier & Co. Ltd.

The Department of Justice announced that it has signed an Addendum to a non-prosecution agreement with Bank Lombard Odier & Co., Ltd., of Zurich Switzerland.  The original non-prosecution agreement was signed on December 31, 2015.  Download Addendum

The Swiss Bank Program, which was announced on August 29, 2013, provided a path for Swiss banks to resolve potential criminal liabilities in the United States relating to offshore banking services provided to United States taxpayers.  Swiss banks eligible to enter the program were required to advise the Department by December 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts.  Swiss banks participating in the program were required to make a complete disclosure of their cross-border activities, provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers had a direct or indirect interest, cooperate in treaty requests for account information, and provide detailed information about the transfer of funds into and out of U.S.-related accounts, including undeclared accounts, that identifies the sending and receiving banks involved in the transactions. 

The Department executed non-prosecution agreements with 80 banks between March 2015 and January 2016.  The Department imposed a total of more than $1.36 billion in Swiss Bank Program penalties, including more than $99 million in penalties from Lombard Odier.  Pursuant to today’s agreement, an addendum to Lombard Odier’s non-prosecution agreement, Lombard Odier will pay to the Department an additional sum of $5,300,000, and will provide to the Department supplemental information regarding its U.S.-related account population, which now includes 88 additional accounts.  

Every bank that signed a non-prosecution agreement in the Swiss Bank Program had represented that it had disclosed all of its U.S.-related accounts that were open at each bank between August 1, 2008, and December 31, 2014.  Each bank also represented that it would, during the term of the non-prosecution agreement, continue to disclose all material information relating to its U.S.-related accounts.  In reaching today’s agreement, Lombard Odier acknowledges that there were certain additional U.S.-related accounts that it knew about, or should have known about, but that were not disclosed to the Department at the time of the signing of the non-prosecution agreement.  Lombard Odier provided early self-disclosure of their unreported U.S.-related accounts and has fully cooperated with the Department.   

“The Department of Justice and Internal Revenue Service have capitalized on information obtained under the Swiss Bank Program to analyze the flow of money of U.S. tax evaders from closed Swiss bank accounts to banks in other countries.  As a result, the Department has learned more about the methods of those who continue to evade their tax obligations and those institutions that assist them,” said Richard E. Zuckerman, Principal Deputy Assistant Attorney General of the Department of Justice’s Tax Division.  “I urge any banks that aided and abetted in these schemes, or that have received money from closed Swiss bank accounts owned or controlled by persons or entities that are U.S. related, to contact the Tax Division and disclose complete and accurate information about these activities before they are contacted by the Division or the IRS.” 

Principal Deputy Assistant Attorney General Zuckerman thanked Trial Attorney Kimberly M. Shartar, who served as counsel on this matter, as well as Senior Counsel for International Tax Matters and Coordinator of the Swiss Bank Program Thomas J. Sawyer, Senior Litigation Counsel Nanette L. Davis, and Attorney Kimberle E. Dodd of the Tax Division.

Additional information about the Tax Division and its enforcement efforts may be found on the division’s website.

August 10, 2018 in GATCA | Permalink | Comments (0)

Financial Flows from Human Trafficking

 In recent years, the number of victims of human trafficking and migrant smuggling has continued to grow significantly.  In addition to the terrible human cost, the estimated proceeds that human trafficking generates have increased five-fold since the Financial Action Task Force (FATF) produced a comprehensive report on the laundering of the proceeds of these crimes in 2011. Since then, there is also a better understanding of how and where human trafficking is taking place, including the increasing prevalence of people being trafficked in the same country or region.  Download Human-Trafficking-2018

A new FATF and Asia/Pacific Group on Money Laundering (APG) report aims to raise awareness about the type of financial information that can identify human trafficking for sexual exploitation or forced labour and to raise awareness about the potential for profit-generation from organ trafficking. The report also highlights potential links between human trafficking and terrorist financing.

As human trafficking can happen in any country, it is important that countries assess how they are at risk of human trafficking and the laundering of the proceeds of this crime, share this information with stakeholders and make sure that it is understood. Countries should also build partnerships between public sector, private sector, civil society and non-profit communities to leverage expertise, capabilities and partnership.  The private sector - financial institutions in particular - and non-profit organisations that provide support to the victims of this crime, are on the frontline and have a crucial role in tackling human trafficking and the financial flows that derive from it.  

Innovative initiatives at the national or regional level have demonstrated how anti-money laundering and counter-terrorist financing measures, and those that implement them, can contribute to stopping this crime. However, globally, there has not been sufficient focus on how to use financial information to detect, disrupt and dismantle human trafficking networks.  This report provides good practices to help countries develop measures to address money laundering and terrorist financing from human trafficking and includes red flag indicators to help identify those who are laundering the proceeds of these heinous crimes. 

The FATF is a global standard-setter whose role is to understand money laundering and terrorist financing risks, develop and promote policies and standards to counter these risks and assess countries against those standards. The Asia/Pacific Group on Money Laundering is an FATF-style regional body whose members and observers are committed to the effective implementation and enforcement of internationally accepted standards against money laundering and the financing of terrorism.

 The FATF acknowledges the support of several financial institutions  and associations (Barclays, Standard Chartered, HSBC, Western Union, Ria Financial, the Wolfsberg Group, European and American Bankers’ Alliances and the Meekong Club,) and NGOs (Liberty Asia and Stop the Traffik) in developing this report.



August 10, 2018 in AML | Permalink | Comments (0)

Thursday, August 9, 2018

TCJA Analysis in TaxFacts Intelligence Weekly from Byrnes & Bloink


New Association Health Plan Rules Can Impact Employee-Owners
The new regulations on association health plans generally expand access to these types of plans by broadening the types of businesses that qualify (i.e., the regulations eliminated the requirement that all participating employers be in the same trade or business). However, the new rules also expanded the availability of association health plans to "working owners" of small businesses. For more information on the health insurance options available to self-employed individuals, visit Tax Facts Online and Read More.

IRS Releases Guidance for Post-Reform Small Business Change in Accounting Methods
The 2017 tax reform legislation expanded the availability of the cash basis accounting method to small businesses with average annual gross receipts of less than $25 million for the three prior years. Revenue Procedure 2018-40 provides the procedures by which small businesses can obtain automatic consent to change to the cash basis accounting method for tax years beginning after December 31, 2017. For more information on which entities are permitted to use the cash basis method, visit Tax Facts on Individuals and Small Business Online and Read More.


Proposed Regs Define UBIA for Determining the Section 199A Deduction 
The proposed regulations provide a definition of "Unadjusted Basis Immediately After Acquisition" (UBIA), for purposes of the Section 199A deduction. Under the regulations, UBIA is defined as the property's basis determined under IRC Section 1012 (which provides the general rules for determining cost basis) or other applicable section of Chapter 1. UBIA must be determined without regard to (i) adjustments required under IRC Section 1016(a)(2) or (3), (ii) adjustments for tax credits or (iii) adjustments for any portion of the basis that the taxpayer has elected to treat as an expense (i.e., under Section 179). Basis, for this purpose, is determined as of the date the property is placed into service under Proposed Regulation §1.199A-2. Therefore, basis will typically be the cost of the property under IRC Section 1012 as of the placed-in-service date.

TO OUR CUSTOMERS: The Section 199A regulations came out early today and we are planning on having an initial summary of these complex regs in a special edition later today.

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August 9, 2018 in Tax Compliance | Permalink | Comments (0)

U.S. International Trade in Goods and Services June 2018

he U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced today that the goods 
and services deficit was $46.3 billion in June, up $3.2 billion from $43.2 billion in May, revised.

Goods and Services Trade Deficit

Exports, Imports, and Balance (exhibit 1)

June exports were $213.8 billion, $1.5 billion less than May exports. June imports were $260.2 
billion, $1.6 billion more than May imports.

The June increase in the goods and services deficit reflected an increase in the goods deficit 
of $3.1 billion to $68.8 billion and a decrease in the services surplus of less than $0.1 billion 
to $22.5 billion.

Year-to-date, the goods and services deficit increased $19.6 billion, or 7.2 percent, from the 
same period in 2017. Exports increased $103.6 billion or 9.0 percent. Imports increased $123.2 
billion or 8.6 percent.

Three-Month Moving Averages (exhibit 2)

The average goods and services deficit decreased $0.3 billion to $45.2 billion for the three 
months ending in June.
     * Average exports increased $1.0 billion to $213.5 billion in June.
     * Average imports increased $0.8 billion to $258.7 billion in June.

Year-over-year, the average goods and services deficit decreased $0.4 billion from the three 
months ending in June 2017.
     * Average exports increased $20.2 billion from June 2017.
     * Average imports increased $19.9 billion from June 2017.

Exports (exhibits 3, 6, and 7)

Exports of goods decreased $1.7 billion to $143.2 billion in June.
  Exports of goods on a Census basis decreased $1.7 billion.
     * Consumer goods decreased $1.4 billion.
          o Pharmaceutical preparations decreased $0.6 billion.
          o Jewelry decreased $0.4 billion.
     * Capital goods decreased $0.9 billion.
          o Civilian aircraft engines decreased $0.4 billion.
          o Civilian aircraft decreased $0.2 billion.
     * Automotive vehicles, parts, and engines decreased $0.7 billion.
          o Passenger cars decreased $0.9 billion.
     * Industrial supplies and materials increased $2.0 billion.
          o Other petroleum products increased $0.5 billion.
          o Nonmonetary gold increased $0.5 billion.
          o Fuel oil increased $0.5 billion.

  Net balance of payments adjustments increased less than $0.1 billion.

Exports of services increased $0.2 billion to $70.6 billion in June.
     * Financial services increased $0.1 billion. 

Imports (exhibits 4, 6, and 8)

Imports of goods increased $1.4 billion to $212.0 billion in June.
  Imports of goods on a Census basis increased $1.5 billion.
     * Consumer goods increased $2.0 billion.
          o Pharmaceutical preparations increased $1.5 billion.
     * Industrial supplies and materials increased $0.9 billion.
          o Crude oil increased $1.2 billion.
     * Capital goods decreased $1.5 billion.
          o Computers decreased $0.8 billion.
          o Telecommunications equipment decreased $0.5 billion.

  Net balance of payments adjustments decreased $0.1 billion.

Imports of services increased $0.2 billion to $48.1 billion in June.
     * Charges for the use of intellectual property increased $0.3 billion. The increase reflects 
       payments for the rights to broadcast the portion of the 2018 soccer World Cup that occurred 
       in June.

Real Goods in 2012 Dollars – Census Basis (exhibit 11)

The real goods deficit increased $3.8 billion to $79.3 billion in June.
     * Real exports of goods decreased $2.1 billion to $151.1 billion.
     * Real imports of goods increased $1.7 billion to $230.4 billion.


Revisions to May exports
     * Exports of goods were revised up less than $0.1 billion.
     * Exports of services were revised down less than $0.1 billion.

Revisions to May imports
     * Imports of goods were revised down less than $0.1 billion.
     * Imports of services were revised up $0.2 billion.

Goods by Selected Countries and Areas: Monthly – Census Basis (exhibit 19)

The June figures show surpluses, in billions of dollars, with South and Central America ($3.3), 
Hong Kong ($2.5), Brazil ($0.8), United Kingdom ($0.4), and Singapore (less than $0.1). Deficits 
were recorded, in billions of dollars, with China ($32.5), European Union ($12.8), Mexico ($6.7), 
Germany ($5.7), Japan ($5.6), Canada ($2.6), Italy ($2.2), OPEC ($1.8), India ($1.7), Taiwan ($1.4), 
South Korea ($1.3), Saudi Arabia ($0.8), and France ($0.7).

     * The deficit with members of OPEC increased $1.6 billion to $1.8 billion in June. Exports 
       decreased $0.8 billion to $5.0 billion and imports increased $0.7 billion to $6.7 billion.
     * The deficit with the European Union increased $0.9 billion to $12.8 billion in June. Exports 
       decreased $0.3 billion to $27.2 billion and imports increased $0.6 billion to $40.0 billion.
     * The deficit with Japan decreased $0.4 billion to $5.6 billion in June. Exports decreased 
       $0.2 billion to $6.1 billion and imports decreased $0.7 billion to $11.7 billion.

August 9, 2018 in Economics | Permalink | Comments (0)

The BSA Civil Penalty Regime: Reckless Conduct Can Produce “Willful” Penalties

By   wherein the attorney for Ballad Spahr states: "As noted, the new FBAR opinions (United States v. Markus, from the District of New Jersey, and Norman v. United States, from the U.S. Court of Federal Claims) are merely the latest opinions issued in an ongoing battle between the government and the tax controversy and white collar defense bar regarding the proper definition of “willfulness” for the purposes of the civil FBAR penalty – a penalty which can be very severe (half the value of the undisclosed offshore account, for each year of the violation), and a battle which the government, with some wrinkles, has been winning.  True to this trend, both Markus and Norman find that the IRS properly assessed a willfulness penalty against the taxpayers who previously had undisclosed foreign accounts. What is important for our purposes here is how they describe the willfulness standard."

Read his analysis of these opinions, and their impact on FBAR compliance, penalties, and litigation on his Ballad Spahr blog here.

Jack Townsend's analysis in his blog:

August 9, 2018 in AML, GATCA | Permalink | Comments (0)