Saturday, September 29, 2018
A federal grand jury sitting in Houston, Texas returned an indictment today charging a Houston attorney with one count of conspiracy to defraud the United States and three counts of tax evasion, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Department of Justice’s Tax Division and U.S. Attorney Ryan K. Patrick for the Southern District of Texas.
According to the indictment, Jack Stephen Pursley, also known as Steve Pursley, conspired with another individual to repatriate more than $18 million in untaxed earnings from the co-conspirator’s business bank account located in the Isle of Man. Knowing that his co-conspirator had never paid taxes on these funds, Pursley allegedly designed and implemented a scheme whereby the untaxed funds were made to appear to be stock purchases in United States corporations owned and controlled by Pursley and his co-conspirator.
The indictment alleges that Pursley received more than $4.8 million and an ownership interest in the co-conspirator’s ongoing business for his role in the fraudulent scheme. The indictment further alleges that for tax years 2009 and 2010 Pursley evaded the assessment of and failed to pay the incomes taxes due on this money by, amongst other means, withdrawing the funds as purported non-taxable loans or returns of capital. Pursley allegedly used the money he received to purchase personal assets, including a vacation home in Vail, Colorado and property in Houston.
If convicted, Pursley faces a statutory maximum sentence of five years in prison for the conspiracy count, and five years in prison for each count of tax evasion. He also faces a period of supervised release, monetary penalties, and restitution.
An indictment merely alleges that a crime has been committed. A defendant is presumed innocent until proven guilty beyond a reasonable doubt.
Principal Deputy Assistant Attorney General Zuckerman and U.S. Attorney Patrick commended special agents of IRS-Criminal Investigation, who investigated the case, and Senior Litigation Counsel Nanette Davis, Trial Attorney Grace Albinson, and Trial Attorney Sean Beaty of the Tax Division, who are prosecuting this case.
The Kingdom of Saudi Arabia is achieving good results in fighting terrorist financing, but needs to focus more on pursuing larger scale money launderers and confiscating their assets.
The FATF and the Middle East and North Africa Financial Action Task Force (MENAFATF) jointly conducted an assessment of Saudi Arabia’s anti-money laundering and counter-terrorist financing (AML/CFT) system. The assessment is a comprehensive review of the effectiveness of a country’s AML/CFT system and its level of compliance with the FATF Recommendations.
Saudi Arabia recently made fundamental changes to its AML/CFT regime to bring its legal and institutional framework in line with up-to-date FATF Recommendations. Given the recent introduction of some of these measures, their effectiveness cannot yet be demonstrated.
Two separate national risk assessments have provided the country with a solid understanding of the money laundering (ML) and terrorist financing (TF) risks it faces. Financial institutions generally understand their ML/TF risks, and are applying preventive measures such as customer due diligence, record-keeping and verification of beneficial ownership. This is largely the result of an effective and proactive supervision of this sector. However, the lack of suspicious transaction reports, in particular on suspected cases of terrorist financing, is a concern. Money exchangers, real estate agents, accountants and other designated non-financial businesses and professions do not fully understand the ML/TF risks they are exposed to, with a correspondingly low level or number of suspicious transaction reports.
Saudi Arabia’s financial intelligence unit is not able to conduct sophisticated financial analysis, although it does provide a wide variety of information that is available to and used by competent authorities. While money laundering investigations have increased in recent years, Saudi authorities are not investigating and prosecuting money laundering in a proactive fashion, particularly when it comes to complex money laundering schemes. They do not systematically pursue confiscation of proceeds.
Saudi Arabia faces a significant and dynamic risk of terrorist financing including the presence of cells of Al Qaeda, ISIS, affiliates and other groups, as well as a large number of foreign terrorist fighters. Saudi Arabia demonstrated an ability and willingness to pursue terrorist financing which resulted in over 1700 investigations and convictions since 2013, although these efforts were largely focused on domestic terrorist financing. Saudi Arabia has a sound mechanism to implement United Nations targeted financial sanctions on terrorism, but the measures to implement targeted financial sanctions for proliferation financing and prevent sanctions evasion are weak.
FATF adopted this report at its Plenary meeting in June 2018.
Download the report:
Consolidate assessment ratings - an overview of ratings that assessed countries obtained for effectiveness and technical compliance.
Key findings, ratings and priority actions:
Friday, September 28, 2018
Treasury Targets Venezuelan President Maduro’s Inner Circle and Proceeds of Corruption in the United States
the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated four members of Venezuelan President Nicolas Maduro’s inner circle, including First Lady and former Attorney General and President of the National Assembly Cilia Adela Flores de Maduro. OFAC also targeted a network supporting a key front man for designated President of Venezuela’s National Constituent Assembly (ANC) Diosdado Cabello Rondon, and identified as blocked property a $20 million U.S.-based private jet as belonging to Cabello’s front man.
“President Maduro relies on his inner circle to maintain his grip on power, as his regime systematically plunders what remains of Venezuela’s wealth. We are continuing to designate loyalists who enable Maduro to solidify his hold on the military and the government while the Venezuelan people suffer,” said Secretary of the Treasury Steven T. Mnuchin. “Treasury will continue to impose a financial toll on those responsible for Venezuela’s tragic decline, and the networks and front-men they use to mask their illicit wealth.”
By the end of 2018, hyperinflation in Venezuela is projected to reach over one million percent. Three million Venezuelans will have departed Venezuela for neighboring nations to escape widespread poverty and its attendant hardships. The Maduro regime, meanwhile, continues to pursue failed policies and financing schemes to mask the regime’s corruption and gross mismanagement. The United States has imposed sanctions on many who have profited during Venezuela’s decline — like former Executive Vice President Tarek El Aissami (El Aissami) and Cabello — as well as front-men like Rafael Sarria whose relative anonymity is used to the benefit of senior officials.
The United States will continue to use every available diplomatic and economic tool to support the Venezuelan people’s efforts to restore their democracy. U.S. sanctions need not be permanent; they are intended to change behavior. The United States has made it clear that we will consider lifting sanctions for persons designated under E.O. 13692 who take concrete and meaningful actions to restore democratic order, refuse to take part in human rights abuses, speak out against abuses committed by the government, and combat corruption in Venezuela.
MADURO’S INNER CIRCLE
OFAC designated Nicolas Maduro on July 31, 2017. Today’s designations target key current or former officials of the Venezuelan government. Maduro has relied on key figures, such as previously designated Cabello and El Aissami, and those officials being designated today, to maintain his grip on power. Maduro has also installed another member of his inner circle and lifelong member of the Venezuelan military, Vladimir Padrino Lopez, to help ensure the military’s loyalty to the Maduro regime. Finally, Maduro has given Delcy Eloina Rodriguez Gomez and Jorge Jesus Rodriguez Gomez senior positions within the Venezuelan government to help him maintain power and solidify his authoritarian rule.
- Cilia Adela Flores De Maduro (Flores) is the wife of President Nicolas Maduro. She resigned from her position as a National Assembly Deputy in mid-2017 to run as a candidate for the ANC. Prior to this resignation, Flores was a principal for the Cojedes State in the Venezuelan National Assembly. In February 2017, Flores was a member of the Presidential Commission responsible for the formation and operation of the ANC process. From August 15, 2005 through January 5, 2011, Flores was the President of the Legislative Power (National Assembly). In February 2012, now-deceased former President, Hugo Chavez, appointed Flores as the Attorney General of Venezuela.
- Delcy Eloina Rodriguez Gomez (Delcy Rodriguez) was delegated the role and authorities of the Executive Vice President of Venezuela on June 14, 2018. On August 4, 2017, Delcy Rodriguez was elected president of the new ANC, a position now held by Cabello. In December 2014, Delcy Rodriguez was named the Minister of Popular Power for External Relations.
- Jorge Jesus Rodriguez Gomez (Jorge Rodriguez) was appointed to the position of Minister of Popular Power for Communication and Information in late 2017. On November 23, 2008, Jorge Rodriguez was elected Mayor of Caracas, Libertador District, and held the position until he was appointed to the aforementioned Minister position. On January 8, 2007, Jorge Rodriguez was sworn in as the Vice President of Venezuela.
- Vladimir Padrino Lopez (Padrino) was appointed the Sectoral Vice President of Political Sovereignty, Security, and Peace (Venezuelan Defense Minister) in June 2018. He previously held a multitude of military posts, including Second Commander and Chief of the General Staff of the Bolivarian and Joint Chief of Staff of the Central Integral Defense Strategic Region.
RAFAEL ALFREDO SARRIA DIAZ’S FRONT NETWORK
OFAC designated Rafael Sarria on May 18, 2018 for acting for or on behalf of Cabello as his front person and maintaining an illicit business relationship with Cabello since at least 2010. During this time, Rafael Sarria owned several real estate properties in Florida that were registered under his name, but in reality he acted as the named representative for Cabello on these properties. As of 2018, Rafael Sarria continues to advise and assist Cabello, profiting from the investment of Cabello’s corruptly obtained wealth.
Today, OFAC identified a Gulfstream 200 private jet, tail number N488RC, located in Florida, as blocked property. Rafael Sarria originally purchased the plane, but his beneficial ownership had been obfuscated through the following companies that act for or on his behalf:
- Agencia Vehiculos Especiales Rurales y Urbanos, C.A. (AVERUCA, C.A.): AVERUCA, C.A. is a Venezuelan company that currently operates the aforementioned aircraft, and for which Rafael Sarria is identified as the President. As the President of AVERUCA, C.A., Rafael Sarria purchased the aircraft in 2008 for an approximate price of $20 million.
- Jose Omar Paredes (Paredes): Paredes is identified as the Chief Pilot of AVERUCA, C.A., and given this role, he is responsible for the operational control of the aircraft.
- Quiana Trading Limited (Quiana Trading): Quiana Trading is a British Virgin Islands company for which Rafael Sarria, at the time of registration in 2009, was the President and sole shareholder. Quiana Trading is the beneficial owner of the aforementioned aircraft through a trust agreement.
- Edgar Alberto Sarria Diaz (Edgar Sarria): Edgar Sarria is identified as a Director of Quiana Trading. Additionally, Edgar Sarria is the Chief Executive Officer and sole shareholder of Panazeate SL.
- Panazeate SL: Panazeate SL is a company based in Valencia, Spain, which is owned or controlled by Edgar Sarria.
As a result of this action, all property and interests in property of those designated today subject to U.S. jurisdiction are blocked, and U.S. persons are generally prohibited from engaging in transactions with them.
For additional information about the methods that Venezuelan senior political figures, their associates, and front persons use to move and hide corrupt proceeds, including how they try to exploit the U.S. financial system and real estate market, please refer to FinCEN’s advisories FIN-2017-A006, “Advisory on Widespread Public Corruption in Venezuela,” and FIN-2017-A003, “Advisory to Financial Institutions and Real Estate Firms and Professionals.”
A Latvian “non-citizen,” meaning a citizen of the former USSR who resided in Riga, Latvia, was sentenced to 168 months in prison for offenses related to his operation of “Scan4you,” an online counter antivirus service that helped computer hackers determine whether the computer viruses and other malicious software they created would be detected by antivirus software, announced Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney G. Zachary Terwilliger of the Eastern District of Virginia, and Special Agent in Charge Matthew J. DeSarno of the FBI Washington Field Office’s Criminal Division.
Ruslans Bondars, 38, was convicted on May 16, following a five-day jury trial, of one count of conspiracy to violate the Computer Fraud and Abuse Act, one count of conspiracy to commit wire fraud, and one count of computer intrusion with intent to cause damage and aiding and abetting.
“Ruslans Bondars helped malware developers attack American businesses,” said Assistant Attorney General Benczkowski. “The Department of Justice and its law enforcement partners make no distinction between service providers like Scan4You and the hackers they assist: we will hold them accountable for all of the significant harm they cause and work tirelessly to bring them to justice, wherever they may be located.”
“Ruslans Bondars designed and operated a service that provided essential aid to some of the world’s most destructive hackers,” said U.S. Attorney Terwilliger. “This prosecution demonstrates our commitment to combating global computer crime by taking away the essential tools upon which hackers rely.”
“We continue to face sophisticated cyber threats from state-sponsored hackers, hackers for hire, organized cyber syndicates, and terrorists,” said FBI Special Agent in Charge DeSarno. “This prosecution should serve as an example to those who assist or facilitate criminal hacking activity that they will be exposed and held accountable no matter where they are in the world.”
According to testimony at trial and court documents, from at least 2009 until 2016, Bondars operated Scan4you, which for a fee provided computer hackers with information they used to determine whether their malware would be detected by antivirus software, including and especially by antivirus software used to protect major U.S. retailers, financial institutions and government agencies from computer intrusions.
A Scan4you customer, for example, used the service to test malware that was subsequently used to steal approximately 40 million credit and debit card numbers, as well as approximately 70 million addresses, phone numbers and other pieces of personal identifying information, from retail store locations throughout the United States, causing one retailer approximately $292 million in expenses resulting from the intrusion.
Another Scan4you customer used the service to assist the development of “Citadel,” a widely used malware strain that was used to infect over 11 million computers worldwide, including in the United States, and resulted in over $500 million in fraud-related losses. The Citadel developer took advantage of a special feature of Scan4you that allowed its integration directly into the Citadel malware toolkit through an Application Programming Interface, or API. The API tool allowed Scan4you users the flexibility to scan malware without the need to directly submit the malware to Scan4you’s website.
At its height, Scan4you was one of the largest services of its kind and had at least thousands of users. Malware developed with the assistance of Scan4you included some of the most prolific malware known to the FBI and was used in major computer intrusions committed against American businesses.
Scan4you differed from legitimate antivirus scanning services in multiple ways. For example, while legitimate scanning services share data about uploaded files with the antivirus community and notify their users that they will do so, Scan4you instead informed its users that they could upload files anonymously and promised not to share information about the uploaded files with the antivirus community.
In issuing the sentence, the court found a loss amount of $20.5 billion. In addition to the term of imprisonment, U.S. District Judge Liam O’Grady ordered Bondars to serve three years of supervised release. A decision regarding forfeiture and payment of restitution to victims of the offenses is forthcoming.
The FBI Washington Field Office investigated the case. Trial Attorneys C. Alden Pelker and Ryan K. Dickey of the Criminal Division’s Computer Crime and Intellectual Property Section (CCIPS) and Assistant U.S. Attorneys Kellen Dwyer and Laura Fong of the Eastern District of Virginia prosecuted the case. The Government of Latvia, including the Latvia State Police International Cooperation Department, the Latvia State Police Cybercrime Unit, and the General Prosecutor’s Office of the Republic of Latvia – International Cooperation Division, provided assistance and support during the investigation. Additional assistance was provided by the Criminal Division’s Office of International Affairs, the FBI’s Atlanta Field Office and the Operational Technology Division, and the U.S. Attorney’s Offices for the District of Minnesota and the Northern District of Georgia.
Thursday, September 27, 2018
Report is part of the FTC’s ongoing Economic Liberty Task Force initiative to reduce or eliminate unnecessary occupational licensing requirements
The Federal Trade Commission today released a staff report examining ways to reduce the burden on licensed workers moving to new states or wishing to market services across state lines. Download License_portability_policy_paper
The Report, entitled, Options to Enhance Occupational License Portability, is part of the FTC’s Economic Liberty Task Force initiative. This initiative, begun last year, aims to reduce hurdles to job growth and labor mobility by encouraging states to reduce unnecessary and overbroad occupational licensing regulation. Occupational licensing, when not necessary to further legitimate public health and safety concerns, can impose real and lasting costs on both American workers and American consumers. These burdens often fall disproportionately on lower income Americans trying to break into the workforce and on military families who must move frequently. In recent decades, the number of occupations subject to state licensing requirements has increased dramatically, increasing the burdens on workers.
The Report released today builds on a roundtable held by the Task Force last year that examined ways to mitigate the negative effects of state-based occupational licensing requirements. The Report looks at interstate compacts and model laws that states can use to improve the portability of occupational licenses. It examines procedures that might be adopted to facilitate multistate practice by those who already hold a valid license in one state. It also considers specific initiatives to reduce the burden of state relicensing on military spouses.
Commissioner Maureen K. Ohlhausen has long championed reform in this area. She stated, “Most occupations are licensed state-by-state, meaning that a valid license in one state often will not easily transfer to a new state. This can create real hardships for those who cannot easily bear the costs of being relicensed, and can also reduce public access to trained professionals in rural areas who might otherwise be served by telehealth services or multistate practitioners. Today’s FTC staff report provides important, useful guidance to help state policymakers find ways of reducing these burdens.”
Wednesday, September 26, 2018
1. IRS Issues Reminder to U.S. MNEs Filing Form 8975 with no U.S. Schedule A (Form 8975)
When submitting Form 8975 and Schedules A (Form 8975), filers must attach at least two Schedules A (Form 8975) to the Form 8975. At least one Schedule A should be for the United States.
A U.S. MNE group with only fiscally transparent United States business entities would not provide a Schedule A for the United States, but would provide a Schedule A for “stateless” entities.
Filers who do not submit either a U.S. or stateless Schedule A (Form 8975) will receive a letter notifying them that an amended return must be filed to ensure their complete and accurate information is exchanged.
U.S. MNEs must submit a Schedule A (Form 8975) for each tax jurisdiction in which one or more constituent entities is tax resident. The tax jurisdiction field in Part I of Schedule A is a mandatory field, and U.S. MNEs are required to enter a two-letter code for the tax jurisdiction to which the Schedule A pertains. The country code for the United States is “US” and the country code for “stateless” is “X5.” All other country codes can be found at www.IRS.gov/CountryCodes.
Form 8975 and Schedule A information is exchanged using the OECD Country Code List that is based on the ISO 3166-1 Standard. Although the country codes found in the IRS link above contain the jurisdictions listed in the table below, those jurisdictions do not correspond to a valid OECD country code for purposes of exchanging the information. Therefore, do not enter any of these country codes on the tax jurisdiction line of Part I of Schedule A.
|Tax Jurisdiction||Country Code|
|Ashmore and Cartier Islands||AT|
|Coral Sea Islands||CR|
If the tax jurisdiction specified in the above list is associated with a larger sovereignty, use the country code for the larger sovereignty with which the tax jurisdiction is associated (e.g., Akrotiri and Dhekelia are considered a British Overseas Territory, so the country code for the United Kingdom would be used (“UK”)). Otherwise, use a separate Schedule A for “stateless” using the tax jurisdiction code “X5”. In either case, you should include in Part III of Schedule A the name of the specific constituent entity and the jurisdiction where the constituent entity is located.
If a U.S. MNE files Form 8975 and Schedule A (Form 8975) on paper, the MNE should mail a copy of only page 1 of Form 8975 to Ogden to notify the IRS that Form 8975 and Schedules A (Form 8975) have been filed with a paper return.
If a U.S. MNE files Form 8975 and Schedules A (Form 8975) electronically, the filer should not mail a copy of page 1 of Form 8975 to the Ogden mailbox.
See the Instructions for Form 8975 and Schedule A (Form 8975) for further guidance.
If a U.S. MNE files Form 8975 and Schedules A (Form 8975) that the MNE later determines should be amended, the MNE must file an amended Form 8975 and all Schedules A (Form 8975), including any that have not been amended, with its amended tax return. The U.S. MNE should use the amended return instructions for the return with which Form 8975 and Schedules A were originally filed and check the amended report checkbox at the top of Form 8975. Note that the amended return (with the amended Form 8975 and all Schedules A) must be filed using the same method (electronically or by paper) as the original submission. In other words, if the U.S. MNE is required to e-file an original return and need to file an amended or superseding return, the amended return must also be e-filed. Note that for the paper filer, it must also submit page 1 of Form 8975 to Ogden.
Tuesday, September 25, 2018
Public comments received on BEPS discussion draft on the transfer pricing aspects of financial transactions
On 3 July 2018, interested parties were invited to provide comments on a discussion draft on financial transactions, which deals with follow-up work in relation to Actions 8-10 (“Assure that transfer pricing outcomes are in line with value creation”) of the BEPS Action Plan. The OECD is grateful to the commentators for their input and now publishes the public comments received. Download all the received comments on the BEPS discussion draft on the transfer pricing aspects of financial transactions:
Monday, September 24, 2018
OECD releases further guidance for tax administrations and MNE Groups on Country-by-Country reporting (BEPS Action 13)
The Inclusive Framework on BEPS has released additional interpretative guidance to give certainty to tax administrations and MNE Groups alike on the implementation of Country-by-Country (CbC) Reporting (BEPS Action 13).
The new guidance includes questions and answers on the treatment of dividends received and the number of employees to be reported in cases where an MNE uses proportional consolidation in preparing its consolidated financial statements, which apply prospectively. The updated guidance also clarifies that shortened amounts should not be used in completing Table 1 of a country-by-country report and contains a table that summarises existing interpretative guidance on the approach to be applied in cases of mergers, demergers and acquisitions.
The complete set of guidance concerning the interpretation of BEPS Action 13 issued so far is presented in the document released today. This will continue to be updated with any further guidance that may be agreed.
Also today, a set of newly established bilateral exchange relationships under the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (CbC MCAA) were published with respect to Bermuda, Curaçao, Hong Kong (China) and Liechtenstein. An overview of all CbC MCAA exchange relationships is available.
- Find out more about the OECD's work on Country-by-Country reporting.
- Find out more about the Inclusive Framework on BEPS.
Saudi Arabia signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the Convention). Saudi Arabia becomes the 84th jurisdiction to join the Convention, which now covers over 1,400 bilateral tax treaties.
The Convention is the first multilateral treaty of its kind, allowing jurisdictions to integrate results from the OECD/G20 BEPS Project into their existing networks of bilateral tax treaties. The OECD/G20 BEPS Project delivers solutions for governments to close the gaps in existing international rules that allow corporate profits to "disappear" or be artificially shifted to low or no tax environments, where companies have little or no economic activity. Treaty shopping, in particular, is estimated to reduce the effective withholding tax rate by more than 5 percentage points from nearly 8% to 3%, generating large revenue losses for developed and developing countries.
The Convention, negotiated by more than 100 countries and jurisdictions under a mandate from the G20 Finance Ministers and Central Bank Governors, is one of the most prominent results of the OECD/G20 BEPS project. It is the world's leading instrument for updating bilateral tax treaties and reducing opportunities for tax avoidance by multinational enterprises. Measures included in the Convention address hybrid mismatch arrangements, treaty abuse, and strategies to avoid the creation of a "permanent establishment". The Convention also enhances the dispute resolution mechanism, especially through the addition of an optional provision on mandatory binding arbitration, which has been taken up by 28 jurisdictions.
The text of the Convention, the explanatory statement, background information, database, and positions of each signatory are available at http://oe.cd/mli.
Sunday, September 23, 2018
Governments need to raise carbon prices much faster if they are to meet their commitments on cutting emissions and slowing the pace of climate change under the Paris Agreement, according to a new OECD report.
Effective Carbon Rates 2018: Pricing Carbon Emissions through Taxes and Emissions Trading presents new data on taxes and tradeable permits for carbon emissions in 42 OECD and G20 countries accounting for around 80% of global emissions. It finds that today’s carbon prices – while slowly rising – are still too low to have a significant impact on curbing climate change.
The report shows that the carbon pricing gap – which compares actual carbon prices and real climate costs, estimated at EUR 30 per tonne of CO2 – was 76.5% in 2018. This compares favourably with the 83% carbon gap reported in 2012 and the 79.5% gap in 2015, but it is still insufficient. At the current pace of decline, carbon prices will only meet real costs in 2095. Much faster action is needed to incentivise companies to innovate and compete to bring about a low-carbon economy and to stimulate households to adopt low-carbon lifestyles.
“The gulf between today’s carbon prices and the actual cost of emissions to our planet is unacceptable,” said OECD Secretary-General Angel Gurría. “Pricing carbon correctly is a concrete and cost-effective way to slow climate change. We are wasting an opportunity to steer our economies along a low-carbon growth path and losing precious time with every day that passes.”
The report measures carbon prices using the Effective Carbon Rate, which is the sum of three components: specific taxes on fossil fuels, carbon taxes and prices of tradeable emission permits. All three instruments increase the price of high-carbon relative to low- and zero-carbon fuels, encouraging energy users to go for low- or zero-carbon options.
The vast majority of emissions in industry and in the residential and commercial sector are entirely unpriced, the report finds. The carbon pricing gap is lowest for road transport (21% against the EUR 30 benchmark) and highest for industry (91%). The gap is over 80% in the electricity and the residential and commercial sectors.
Country analysis on 2015 carbon prices shows large variations, with carbon pricing gaps ranging from as low as 27% in Switzerland to above 90% in some emerging economies. France, India, Korea, Mexico and the United Kingdom substantially reduced their carbon pricing gaps between 2012 and 2015. Yet, still only 12 of the 42 countries studied had pricing gaps of below 50% in 2015.
New carbon pricing initiatives in some countries, such as China’s emissions trading scheme and renewed efforts in Canada and France to price carbon, could significantly reduce these gaps. The carbon-intensity of GDP is usually lower in countries with lower carbon pricing gaps.
The report rates emission trading as an effective way to price emissions, providing permit prices are stable at realistically high levels. Taxes have the advantage of simple administration, especially if grafted onto existing tax regimes. Revenue-neutral reforms can enable other taxes to be cut or carbon pricing can facilitate domestic revenue mobilisation.
Saturday, September 22, 2018
Isle of Man Publishes Anti-Money Laundering and Countering the Financing of Terrorism (Amendment) Code 2018
The Anti-Money Laundering and Countering the Financing of Terrorism (Amendment) Code 2018 (‘the Amendment Code’) was signed on 13 September 2018 and came into effect on 14 September 2018.
This Amendment Code gives effect to recommendations made in the Mutual Evaluation Report issued by MONEYVAL following its Fifth Round Mutual Evaluation of the Isle of Man.
The main additions to the Anti-Money Laundering and Countering the Financing of Terrorism Code 2015 contained within the Amendment Code are:
- The introduction of requirements to establish, maintain and operate procedures in relation to sanctions screening;
- The introduction of the need to consider whether the relevant person has met the customer in the course of business when conducting business and customer risk assessments;
- The introduction of Paragraph 10A which places requirements on a relevant person to undertake certain considerations where an introducer is assisting with the customer due diligence process;
- Expansion of the requirements of Paragraph 21 to address recommended actions from MONEYVAL; and,
- Amendment of Paragraph 23 to ensure that it only deals with instances where a relevant person places reliance on an eligible introducer.
A copy of the Amendment Code can be found here. A tracked changes version of the full Anti-Money Laundering and Countering the Financing of Terrorism Code 2015 (as amended) and an updated version of Appendix A of the Anti-Money Laundering and Countering the Financing of Terrorism Handbook are now available.
The Authority would like to thank everyone who participated in the consultation regarding the Amendment Code. Following comments received a number of changes were made to the draft Amendment Code with a view to providing further clarity of the new provisions. The responses received also indicated a number of areas were further guidance is required to assist firms in applying the new provisions to their business. This work has begun and an updated version of the Anti-Money Laundering and Countering the Financing of Terrorism Handbook will be issued in due course.
If you have any queries please contact the AML Unit by emailing email@example.com
Friday, September 21, 2018
Former Arkansas State Representative, President of College and Consultant Sentenced for Bribery Scheme
A consultant along with his co-conspirators, the President of an Arkansas college and a former Arkansas State Representative, were sentenced in the past week for their roles in a bribery scheme in which state funds were directed to non-profit entities in exchange for kickbacks, announced Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division and U.S. Attorney Duane “DAK” Kees for the Western District of Arkansas.
Randell G. Shelton Jr., 39, of Kemp, Texas, a consultant, was sentenced on Sept. 6 by U.S. District Judge Timothy L. Brooks to serve 72 months in prison, followed by three years of supervised release, and was ordered to pay restitution in the amount of $660,698 and to forfeit $664,000. Shelton was convicted by a federal jury on May 3 of 12 counts, including conspiracy and honest services wire and mail fraud. Also convicted in the scheme was former Arkansas State Senator Jonathan E. Woods, 41, of Springdale, Arkansas, of 15 counts, including conspiracy, honest services wire and mail fraud, and money laundering.
Oren Paris III, 50, of Springdale, Arkansas, President of Ecclesia College, was sentenced yesterday to serve 36 months in prison, followed by three years of supervised release, and was ordered to pay restitution in the amount of $621,500. Paris pleaded guilty before Judge Brooks to one count of honest services wire fraud on April 5.
Micah Neal, 43, of Springdale, Arkansas, a former Arkansas State Representative was sentenced today to three years probation including the first year to be served as home confinement and the second and third years to include 300 hours of community service. Neal was also ordered to pay restitution in the amount of $200,000 to the State of Arkansas and the Northwest Arkansas Economic Development District (NWAEDD). Neal previously pleaded guilty before Judge Brooks to one count of conspiracy to commit honest services fraud.
According to admissions made in his plea agreement, Neal served as an Arkansas State Representative from 2013 to 2017. Neal admitted, and evidence presented at trial for Woods and Shelton revealed, that between sometime in 2013 and January 2015, Neal conspired with Woods to use their official positions to appropriate and direct government money, known as General Improvement Funds (GIF), to two non-profit entities in exchange for bribes. Specifically, Neal and Woods authorized and directed the NWAEDD, which was responsible for disbursing the GIF, to award a total of approximately $600,000 in GIF money to the two non-profit entities. Pursuant to his plea agreement, Neal admitted that of the $600,000, he personally authorized and directed a total of $175,000 to the entities. In return for his official actions, Neal received approximately $38,000 in bribes from the two non-profit entities.
Neal was the fourth defendant involved in this bribery scheme to be sentenced within the past week. On Sept. 5, Woods was sentenced by Judge Brooks to serve 220 months in prison, followed by three years of supervised release, and was ordered to pay restitution in the amount of $1,621,500 and to forfeit $1,097,005.
The FBI and IRS-Criminal Investigation investigated the case. Trial Attorney Sean F. Mulryne of the Criminal Division’s Public Integrity Section and First Assistant U.S. Attorney Kenneth Elser and Assistant U.S. Attorneys Kyra Jenner and Aaron Jennen of the Western District of Arkansas prosecuted the case.
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 from USD 32 billion to over USD 150 billion since the 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.
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.
Financial Flows from Human Trafficking Download pdf ( 1,289kb)
Also available: Financial Flows from Human Trafficking - Executive Summary
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, and financial institutions in particular, are on the frontline.
Non-profit organisations also play a crucial role in tackling human trafficking and the financial flows that derive from it. In addition to the support to the victims of this crime, they can also ensure that essential information, including on who is profiting from the trafficking, reaches financial institutions and authorities as victims are often fearful of reaching out to the authorities themselves.
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 (see Part three) to help countries develop measures to address money laundering and terrorist financing from human trafficking and includes red flag indicators (see Annex B) to help identify those who are laundering the proceeds of these heinous crimes.
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.
Thursday, September 20, 2018
State aid: Commission investigation did not find that Luxembourg gave selective tax treatment to McDonald's
The Commission has found that the non-taxation of certain McDonald's profits in Luxembourg did not lead to illegal State aid, as it is in line with national tax laws and the Luxembourg-United States Double Taxation Treaty.
At the same time, the Commission welcomes steps taken by Luxembourg to prevent future double non-taxation.
Commissioner Margrethe Vestager, in charge of competition policy, said: "The Commission investigated under EU State aid rules whether the double non-taxation of certain McDonald's profits was the result of Luxembourg misapplying its national laws and the Luxembourg-US Double Taxation Treaty, in favour of McDonald's. EU State aid rules prevent Member States from giving unfair advantages only to selected companies, including through illegal tax benefits. However, our in-depth investigation has shown that the reason for double non-taxationin this case is a mismatch between Luxembourg and US tax laws, and not a special treatment by Luxembourg. Therefore, Luxembourg did not break EU State aid rules.
Of course, the fact remains that McDonald's did not pay any taxes on these profits – and this is not how it should be from a tax fairness point of view. That's why I very much welcome that the Luxembourg Government is taking legislative steps to address the issue that arose in this case and avoid such situations in the future."
Following an in-depth investigation launched in December 2015, based on doubts that Luxembourg might have misapplied its Double Taxation Treaty with the United States, the Commission has concluded that Luxembourg's tax treatment of McDonald's Europe Franchising does not violate the Double Taxation Treaty with the United States. On that basis the tax rulings granted to McDonald's do not infringe EU State aid rules.
McDonald's Europe Franchising corporate structure
McDonald's Europe Franchising is a subsidiary of McDonald's Corporation, based in the United States. The company is tax resident in Luxembourg and has two branches, one in the United States and the other in Switzerland. In 2009, McDonald's Europe Franchising acquired a number of McDonald's franchise rights from McDonald's Corporation in the United States, which it subsequently allocated internally to the US branch of the company.
As a result, McDonald's Europe Franchising receives royalties from franchisees operating McDonald's fast food outlets in Europe, Ukraine and Russia for the right to use the McDonald's brand.
McDonald's Europe Franchising also set up a Swiss branch responsible for the licensing of the franchise rights to franchisors and through which royalty payments flowed from Luxembourg to the US branch of the company.
McDonald's tax rulings in Luxembourg
In March 2009, the Luxembourg authorities granted McDonald's Europe Franchising a first tax ruling confirming that the company did not need to pay corporate tax in Luxembourg since the profits would be subject to taxation in the United States. This was justified by reference to the Luxembourg – US Double Taxation Treaty, which exempts income from corporate taxation in Luxembourg, if it may be taxed in the United States. Under this first ruling, McDonald's Europe Franchising was required to submit proof every year to the Luxembourg tax authorities that the royalties transferred to the United States via Switzerland were declared and subject to taxation in the United States and in Switzerland.
Following this first tax ruling, the Luxembourg authorities and McDonald's engaged in discussions concerning the taxable presence of McDonald's Europe Franchising in the United States (a so-called "permanent establishment"). McDonald's claimed that although the US branch was not a "permanent establishment" according to US tax law, it was a "permanent establishment" according to Luxembourg tax law. As a result, the royalty income should be exempt from taxation under Luxembourg corporate tax law.
The Luxembourg authorities ultimately agreed with this interpretation and, in September 2009, issued a second tax ruling according to which McDonald's Europe Franchising was no longer required to prove that the royalty income was subject to taxation in the United States.
The role of EU State aid control is to ensure that Member States do not give selected companies a better treatment than others, through tax rulings or otherwise. In this context, the Commission's in-depth investigation assessed whether the Luxembourg authorities selectively derogated from the provisions of their national tax law and the Luxembourg – US Double Taxation Treaty and gave McDonald's an advantage not available to other companies subject to the same tax rules.
The Commission concluded that this was not the case.
In particular, it could not be established that the interpretation given by the second tax ruling to the Luxembourg – US Double Taxation Treaty was incorrect, although it resulted in the double non-taxation of the royalties attributed to the US branch. Therefore, the Commission found that the Luxembourg authorities did not misapply the Luxembourg –US Double Taxation Treaty and that the tax advantage conferred to McDonald's Europe Franchising cannot be considered State aid.
McDonald's Europe Franchising's US branch did not fulfil the relevant provisions under the US tax code to be considered a permanent establishment.
At the same time, the Commission found that the Luxembourg authorities could exempt the US branch of McDonald's Europe Franchising from corporate taxation without violating the Double Taxation Treaty because the US branch could be considered a permanent establishment according to Luxembourg tax law. Under the relevant provision in the Luxembourg tax code, the business carried on by the US branch of McDonald's Europe Franchising fulfilled all the conditions of a permanent establishment under Luxembourg tax law.
Therefore, the Commission concluded that the Luxembourg authorities did not misapply the Luxembourg – US Double Taxation Treaty by exempting the income of the US branch from Luxembourg corporate taxation.
Preventing future double non-taxation in Luxembourg
This interpretation of the Luxembourg – US Double Taxation Treaty led to double non-taxation of the franchise income of McDonald's Europe Franchising.
The Luxembourg government presented on 19 June 2018 draft legislation to amend the tax code to bring the relevant provision into line with the OECD's Base Erosion and Profit Shifting project and to avoid similar cases of double non-taxation in the future. This is currently being discussed by the Luxembourg Parliament.
Under the proposed new provision, the conditions to determine the existence of a permanent establishment under Luxembourg law would be strengthened. In addition, Luxembourg would be able to, under certain conditions, require companies that claim to have a taxable presence abroad to submit confirmation that they are indeed subject to taxation in the other country.
Tax rulings as such are not a problem under EU State aid rules, if they simply confirm that tax arrangements between companies within the same group comply with the relevant tax legislation. However, tax rulings that confer a selective tax advantage to specific companies can distort competition within the EU's Single Market, in breach of EU State aid rules.
Since June 2013, the Commission has been investigating individual tax rulings of Member States under EU State aid rules. It extended this information inquiry to all Member States in December 2014.
Regarding investigations concerning tax rulings that have already been concluded by the Commission:
- In October 2015, the Commission concluded that Luxembourg and the Netherlands had granted selective tax advantages to Fiat and Starbucks, respectively. As a result of these decisions, Luxembourg recovered €23.1 million from Fiat and the Netherlands recovered €25.7 million from Starbucks.
- In January 2016, the Commission concluded that selective tax advantages granted by Belgium to at least 35 multinationals, mainly from the EU, under its "excess profit" tax scheme are illegal under EU State aid rules. The total amount of aid to be recovered from 35 companies is estimated at approximately €900 million, including interest. Belgium has already recovered over 90% of the aid.
- In August 2016, the Commission concluded that Ireland granted undue tax benefits to Apple, which led to a recovery by Ireland of €14.3 billion.
- In October 2017, the Commission concluded that Luxembourg granted undue tax benefits to Amazon, which led to a recovery by Luxembourg of €282.7 million.
- In June 2018, the Commission concluded that Luxembourg granted undue tax benefits to Engie of around €120 million. The recovery procedure is still ongoing.
The Commission also has one ongoing in-depth investigation concerning tax rulings issued by the Netherlands in favour of Inter IKEA, and one investigation concerning a tax scheme for multinationals in the United Kingdom.
Statement by Commissioner Vestager on Commission decision that the non-taxation of certain McDonald's profits in Luxembourg is not illegal State aid
The Commission has today decided that the non-taxation of certain McDonald's profits in Luxembourg is not illegal State aid.
Our case concerned two tax rulings granted by Luxembourg to McDonald's in 2009. These exempt from taxation in Luxembourg all franchise profits that McDonald's receives from third parties operating McDonald's outlets in Europe, the Ukraine and Russia. In the first ruling, Luxembourg falsely assumed that these profits were taxable in the US. They were not. In the second ruling, Luxembourg then removed any obligation on McDonald's to prove that the revenues were taxable in the US. This means that these profits were neither taxed in Luxembourg nor the US.
The Commission investigated under EU State aid rules whether this double non-taxation was the result of Luxembourg misapplying its national laws and the Luxembourg-US Double Taxation Treaty, in favour of McDonald's. EU State aid rules prevent Member States from giving unfair advantages only to selected companies, including through illegal tax benefits.
However, our in-depth investigation has shown that the reason for double non-taxation in this case is a mismatch between Luxembourg and US tax laws, and not a special treatment by Luxembourg. Therefore, we concluded that Luxembourg did not break EU State aid rules.
Details of the McDonald's structure
First, let me tell you a bit more about the facts of the case.
Our case concerns McDonald's Europe Franchising, a Luxembourg-based subsidiary of the McDonald's Corporation. This company also has a branch in the US.
McDonald's Europe Franchising owns the rights to the McDonald's brand and other related rights. It licenses these rights to third parties, who operate the McDonald's fast food outlets and pay franchise fees to McDonald's Europe Franchising.
In February 2009, McDonald's Europe Franchising contacted the Luxembourg tax authorities to ask for a tax ruling confirming that profits from its franchise rights would not be taxable in Luxembourg. McDonald's claimed that this was because these rights are attributed to its US branch. It further argued that the Luxembourg – US Double Taxation Treaty exempts from taxation in Luxembourg any income that may be taxed in the US, if the company has a taxable presence there, for example through a branch.
In March 2009, the Luxembourg authorities issued a first tax ruling agreeing to McDonald's interpretation of the Double Taxation Treaty. At the same time, they requested that the company provide proof that the income of the US branch had been declared and could indeed be taxed in the US.
However, six months later, the Luxembourg tax authorities issued a second tax ruling that removed this requirement to submit proof. In other words, Luxembourg confirmed that the income is exempt from taxation in Luxembourg as well, even though it is not taxable at the US branch.
The State aid investigation
You may wonder how Luxembourg can rely on a Treaty meant to avoid double taxation to endorse double non-taxation. We asked ourselves the same question, which is why we opened a State aid investigation in December 2015.
The purpose of such investigations is to give the Member State and company concerned, as well as other third parties, the opportunity to submit their views on the Commission's preliminary concerns. We then carefully assess them.
The short summary of our conclusion in this case is that the Double Taxation Treaty between Luxembourg and the US explains Luxembourg's tax treatment of McDonald's. Luxembourg did not misapply the Treaty in a selective manner and, on that basis, did not break EU State aid rules.
The more complicated answer starts with a taxation concept called "permanent establishment". If a company has a "permanent establishment" in a specific country, this means that it carries out business and has a taxable presence there.
The Luxembourg – US Double Taxation Treaty says that Luxembourg cannot tax the profits of companies, if they may be taxed in the US because they have a permanent establishment there. Luxembourg can assume that the income of this permanent establishment is taxed in the US.
However, whether a permanent establishment exists in the US is assessed differently by the US and by the Luxembourg tax authorities, under their respective tax codes.
The US did not consider the US branch of McDonald's Europe Franchising to be a permanent establishment under its tax law, and so did not tax the profits of this US branch. However, the Luxembourg authorities considered that the same US branch fulfilled all the conditions necessary to be a permanent establishment under Luxembourg tax law. It therefore exempted this income from Luxembourg taxation in line with the Double Taxation Treaty.
The result was double non-taxation of the income by Luxembourg and the US. However, this was not due to any special treatment awarded by Luxembourg to McDonald's, which was the issue that our investigation under EU State aid rules focused on. In other words, Luxembourg's tax treatment of McDonald's is not illegal under EU State aid rules.
As usual, we will publish the non-confidential version of our decision as soon as we have agreed with Luxembourg on any business secrets that need to be removed from it.
New Luxembourg tax rules
Of course, the fact remains that McDonald's did not pay any taxes in Luxembourg on these profits – and this is not how it should be from a tax fairness point of view.
That's why I very much welcome that the Luxembourg Government is taking legislative steps to address the issue that arose in this case and avoid such situations in the future.
Among other things, Luxembourg will strengthen the criteria under its tax code to define a permanent establishment. This proposal is currently with the Luxembourg parliament. Once adopted, the new provision will require the taxpayer, in certain circumstances, to provide a certificate of residence in the other country, if it wants to benefit from a tax exemption in Luxembourg. This would be proof that the other country recognises the existence of a taxable permanent establishment of that company. This new provision is presented to the Luxembourg parliament together with other measures to transpose the EU's Anti-Tax-Avoidance Directive.
Over the past few years, we have seen an international determination to deal with the issue of tax avoidance. Through closing loopholes in tax laws and working on the OECD's Base Erosion and Profit Shifting Project.
Also within the EU, under the responsibility of my colleagues Valdis Dombrovskis and Pierre Moscovici, the Commission has pursued a coherent strategy towards fair taxation and greater transparency. And Member States have been using the momentum to reform their corporate taxation framework, to make it both fairer and more efficient.
Progress on recovery cases
Finally, I would like to update you on significant progress made on the implementation of Commission decisions requiring Member States to recover unpaid taxes. This is important because otherwise companies continue to benefit from an illegal advantage.
In May, Luxembourg completed the recovery of more than 280 million euros from Amazon, of which 21 million euros is interest.
I am also happy to confirm that Ireland has now recovered the full illegal aid from Apple. The final amount recovered is 14.3 billion euros, of which about 1.2 billion euros is interest. This money will be held in an escrow account, pending the outcome of the ongoing appeal of the Commission's decision before the EU courts. This means that we can proceed to closing the infringement procedure against Ireland for failure to implement the decision.
These are important steps forward to tackling multinationals' tax avoidance and to meeting our ultimate goal of ensuring that all companies, big or small, pay their fair share of tax in the future.
The Minister for Finance and Public Expenditure and Reform, Paschal Donohoe TD, on behalf of the Government, confirms that the full recovery of the alleged State Aid from Apple has been completed. Over the course of Q2 and Q3 2018, Apple deposited c. €14.3 billion into the Escrow Fund which represents the full recovery of the alleged State Aid of c. €13.1 billion plus EU interest of c. €1.2 billion.
The full recovery of the alleged State Aid is a significant milestone and is in line with the commitment given earlier in the year that the alleged State Aid would be recovered by end Q3 2018.
Notwithstanding the fact that the Government does not accept the Commission’s analysis in the Apple State Aid decision and have lodged an appeal with the European Courts, the collection of the alleged State Aid from Apple demonstrates that it was always the Government’s intention to comply with its legal obligations.
Speaking today Minister Donohoe said: ‘While the Government fundamentally disagrees with the Commission’s analysis in the Apple State Aid decision and is seeking an annulment of that decision in the European Courts, as committed members of the European Union, we have always confirmed that we would recover the alleged State aid. We have demonstrated this with the recovery of the alleged State Aid which will be held in the Escrow Fund pending the outcome of the appeal process before the European Courts’.
“This is the largest State Aid recovery at c. €14.3 billion and one of the largest funds of its kind to be established. It has taken time to establish the infrastructure and legal framework around the Escrow Fund but this was essential to protect the interests of all parties to the agreement.”
Notes to editors
Recovery of alleged State Aid
- The State has recovered the alleged State Aid from Apple. The total amount is €14.285 billion (which is the principal amount and relevant EU interest). The final payment was made in early September.
- There has been continuous and extensive engagement with the Commission Services throughout the recovery process, including in relation to agreeing the amount of the alleged State Aid and the relevant EU interest.
- The alleged State Aid has been placed into an Escrow Fund with the proceeds being released only when there has been a final determination in the European Courts over the validity of the Commission’s Decision.
- Notwithstanding the appeal in the Apple State Aid case and the difference in view between Ireland and the Commission on the issue, the Government has always been committed to complying with the binding legal obligations the Commission’s Final Decision places on Ireland.
- Significant developments during 2018:
- On 7 March 2018, the Department of Finance confirmed that the Bank of New York Mellon, London Branch, was selected as preferred tenderer for the provision of escrow agency and custodian services following a competitive tender process.
- On 23 March 2018, the Department of Finance confirmed that Amundi, BlackRock Investment Management (UK) Limited and Goldman Sachs Asset Management International were selected as preferred tenderers for the provision of investment management services.
- On 24 April 2018, the Minister for Finance confirmed that the Escrow Framework Deed, which sets out the detailed legal agreement regarding the recovery of the alleged State Aid was signed by the Minister and Apple.
- On 18 May 2018, the Minister for Finance confirmed that the collection of the alleged State Aid had commenced.
6. In October 2017, the European Commission announced the intention to launch infringement proceedings against Ireland over the recovery of the alleged Apple State Aid. As recovery of the alleged State Aid has now been effected, it is now hoped that these proceedings will be withdrawn by the Commission. The Irish Government is in discussion with the Commission in respect of this.
Appeal on State Aid case
7. The Government profoundly disagrees with the Commission’s analysis in the Apple State Aid case. An appeal is therefore being brought before the European Courts in the form of an application to the General Court of the European Union (GCEU), asking it to annul the Decision of the Commission.
8. The case has been granted priority status and is progressing through the various stages of private written proceedings before the GCEU. It is at the discretion of the Court to determine if there will be oral proceedings, either in public or in private.
9. It will likely be several years before the matter is ultimately settled by the European Courts.
IRC section 871(m) regulations phase in extended (overwithholding - securities lending and sale repurchase agreements)
Consistent with Executive Order 13777 (82 FR 12285), the Treasury Department and the IRS continue to evaluate the section 871(m) regulations and consider possible agency actions that may reduce unnecessary burdens imposed by the regulations. Pending consideration of section 871(m) regulations pursuant to Executive Order 13777, this Notice extends parts of the phase-in period described in both Notice 2017- 42 and Notice 2018-5 through 2020. Download Reg 871 ext 2018
- EXTENSION OF THE PHASE-IN YEAR FOR DELTA-ONE AND NON-DELTAONE TRANSACTIONS
- EXTENSION OF THE SIMPLIFIED STANDARD FOR DETERMINING WHETHER TRANSACTIONS ARE COMBINED TRANSACTIONS
- EXTENSION OF PHASE-IN RELIEF FOR QUALIFIED DERIVATIVES DEALERS
On June 14, 2010, the Treasury Department and the IRS published Notice 2010-46, which addresses potential overwithholding in the context of securities lending and sale repurchase agreements. Notice 2010-46 provides a two-part solution to the problem of overwithholding on a chain of dividends and dividend equivalents. First, it provides an exception from withholding for payments to a qualified securities lender (QSL). Second, it provides a proposed framework to credit forward prior withholding on a chain of substitute dividends paid pursuant to a chain of securities loans or stock repurchase agreements. The QSL regime requires a person that agrees to act as a QSL to comply with certain withholding and documentation requirements. The Treasury Department and the IRS permitted withholding agents to rely on transition rules described in Notice 2010-46, Part III, until guidance was developed that would include documentation and substantiation of withholding.
On July 18, 2016, the Treasury Department and the IRS published Notice 2016-42, 2016-29 I.R.B. 67, which contained the proposed qualified intermediary agreement (QI Agreement) that included provisions relating to the QDD regime and reiterated the intent to replace the proposed regulatory framework described in Notice 2010-46 with
the QDD regime. On December 19, 2016, the Treasury Department and the IRS published Notice 2016-76, which provided for the phased-in application of certain provisions of the
section 871(m) regulations to allow for the orderly implementation of those final regulations and announced that taxpayers may continue to rely on Notice 2010-46 until January 1, 2018.
On January 17, 2017, the Treasury Department and the IRS published Revenue Procedure 2017-15, 2017-3 I.R.B. 437, which sets forth the final QI Agreement (2017 QI Agreement), including the requirements and obligations applicable to QDDs, and provided that taxpayers may continue to rely on Notice 2010-46 during 2017. On January 24, 2017, the Federal Register published final regulations and temporary regulations (TD 9815, 82 FR 8144) (the 2017 regulations), which finalized the 2015 notice of proposed rulemaking (80 FR 56415) that was issued in conjunction with the 2015 temporary regulations. The effective/applicability dates in the 2017 regulations reflect the phased-in application described in Notice 2016-76.
On August 21, 2017, the Treasury Department and the IRS published Notice 2017-42, 2017-34 I.R.B. 212, which extended certain transition relief. On February 5, 2018, the Treasury Department and the IRS published Notice 2018-5, 2018-6 I.R.B. 341, which permits withholding agents to apply the transition rules from Notice 2010-46 in 2018 and 2019.
Exceptive Relief from Beneficial Ownership Requirements for Legal Entity Customers of Rollovers, Renewals, Modifications, and Extensions of Certain Accounts
The Financial Crimes Enforcement Network (FinCEN) grants exceptive relief under the authority set forth in 31 U.S.C. § 5318(a)(7) and 31 CFR § 1010.970(a) to covered
financial institutions from the obligations of the Beneficial Ownership Requirements for Legal Entity Customers (Beneficial Ownership Rule) and its requirement to identify and verify the identity of the beneficial owner(s) when a legal entity customer opens a new account as a result of the following:
• A rollover of a certificate of deposit (CD) (as defined below);
• A renewal, modification, or extension of a loan (e.g., setting a later payoff date) that does not require underwriting review and approval;
• A renewal, modification, or extension of a commercial line of credit or credit card account (e.g., a later payoff date is set) that does not require underwriting review and approval; and
• A renewal of a safe deposit box rental.
The exception only applies to the rollover, renewal, modification or extension of any of the types of accounts listed above occurring on or after May 11, 2018, and does not apply to the initial opening of such accounts.
Notwithstanding this exception, covered financial institutions must continue to comply with all other applicable anti-money laundering (AML) requirements under the Bank Secrecy Act (BSA) and its implementing regulations, including program, recordkeeping, and reporting requirements.
see FINCEN release: Download Permanent Exceptive Relief Extension of Compliance Date CDs_final 508
1. 31 CFR §1010.230. “Covered financial institutions” are banks, brokers or dealers in securities, mutual funds, futures commission merchants, and introducing brokers in commodities.
2. Covered financial institutions are not excepted from the obligation to identify and verify the identity of the beneficial owner(s) of legal entity customers at the initial account opening for such accounts occurring on or after May 11, 2018.
- New York-Newark-Jersey City, NY-NJ-PA
- Chicago-Naperville-Elgin, IL-IN-WI
- Dallas/Fort Worth ($536 B)
- Washington-Arlington-Alexandria, DC-VA-MD-WV
- San Francisco-Oakland-Hayward, CA
- Houston-The Woodlands-Sugar Land, TX
Real gross domestic product (GDP) increased in 312 out of 383 metropolitan areas in 2017 according to statistics on the geographic breakout of GDP released today by the Bureau of Economic Analysis. The percent change in real GDP by metropolitan area ranged from 12.1 percent in Odessa, TX to -7.8 percent in Enid, OK (table 2).
Real GDP for U.S. metropolitan areas increased 2.1 percent in 2017, led by growth in professional and business services; wholesale and retail trade; and finance, insurance, real estate, rental, and leasing (table 3).
- Professional and business services increased 3.5 percent across the nation's metropolitan areas. This industry contributed to growth in 317 metropolitan areas, most notably in Midland, MI which increased 9.5 percent.
- Wholesale and retail trade increased 3.2 percent. This industry contributed to growth in 323 metropolitan areas, and was the leading contributor to growth in Lakeland-Winter Haven, FL and Seattle-Tacoma-Bellevue, WA, which increased 2.4 percent and 5.2 percent, respectively.
- Finance, insurance, real estate, rental, and leasing increased 1.5 percent. This industry contributed to growth in 237 metropolitan areas, and made major contributions to growth in Wheeling, WV-OH and Athens-Clark County, GA, which increased 10.9 percent and 4.9 percent, respectively.
- Natural resources and mining increased 2.2 percent. Although this industry wasn't a large contributor overall, it did make significant contributions in several metropolitan areas. Notable increases in this industry occurred in Beckley, WV and Odessa, TX, which increased 9.6 percent and 12.1 percent, respectively.
Large Metropolitan Area Highlights
- Of the large metropolitan areas, those with population greater than two million, Austin-Round Rock, TX (6.9 percent) and Seattle-Tacoma-Bellevue, WA (5.2 percent) had the largest increases in real GDP. Increases in Austin-Round Rock, TX and Seattle-Tacoma-Bellevue, WA were led by increases in wholesale and retail trade.
- Real GDP in Houston-The Woodlands-Sugarland, TX was unchanged from the previous year making it the only large metropolitan area not to increase. Professional and business services subtracted the most from growth in Houston-The Woodlands-Sugarland, TX offsetting notable contributions from natural resources and mining and nondurable-goods manufacturing.
Small Metropolitan Area Highlights
- Of the small metropolitan areas, those with population less than two million, Odessa, TX (12.1 percent) and Elkhart-Goshen, IN (11.3 percent) had the largest increases in real GDP. Odessa, TX was led by an increase in natural resources and mining, while Elkhart-Goshen, IN was led by an increase in durable goods manufacturing.
- The largest decreases in real GDP for small metropolitan areas were Enid, OK (-7.8 percent) and Visalia-Porterville, CA (-6.6 percent). Natural resources and mining subtracted from growth in Enid, OK, while finance, insurance, real estate, rental, and leasing subtracted from growth in Visalia-Porterville, CA.
Updates to Gross Domestic Product by Metropolitan Area
In addition to the statistics presented in this news release, BEA also revised GDP by metropolitan area statistics for 2001–2016. This update incorporated revised GDP by state statistics published in May 2018 and revised earnings statistics from BEA's Local Area Personal Income published in November 2017. These statistics do not yet reflect the revised benchmark NIPA statistics released in July 2018.
More metropolitan area highlights can be found on the regional highlights pages that accompany this release.
Wednesday, September 19, 2018
Latvian National Sentenced to Prison for “Scareware” Hacking Scheme That Targeted Minneapolis Star Tribune Website
A Latvian man was sentenced in Minneapolis for participating in a lucrative “scareware” hacking scheme that targeted visitors to the Minneapolis Star Tribune’s website. Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Erica H. MacDonald of the District of Minnesota and Special Agent in Charge Jill Sanborn of the FBI’s Minneapolis Field Office made the announcement.
Peteris Sahurovs aka “Piotrek” and “Sagade,” 29, was sentenced to 33 months in prison for conspiracy to commit wire fraud. District Judge Ann D. Montgomery of the District of Minnesota imposed the sentence. Sahurovs will be removed from the United States to Latvia following his prison sentence. Sahurovs was arrested on a District of Minnesota indictment in Latvia in June 2011, but was released by a Latvian court and later fled. In November 2016, Sahurovs was located in Poland and apprehended by Polish law enforcement and extradited to the United States in June 2017. Sahurovs was at one time the FBI’s fifth most wanted cybercriminal and a reward of up to $50,000 had been offered for information leading to his arrest and conviction. He pleaded guilty before Judge Montgomery on Feb. 7.
According to admissions made in connection with his plea, from at least May 2009 to June 2011, Sahurovs operated a “bullet-proof” web hosting service in Latvia, through which he leased server space to customers seeking to carry out criminal schemes without being identified or taken offline. The defendant admitted that he knew his customers were using his servers to perpetrate criminal schemes, including the transmission of malware, fake anti-virus software, spam, and botnets to unwitting victims, and he received notices from Internet governance entities (such as Spamhaus) that his servers were hosting malicious activity. Nonetheless, Sahurovs admitted he took steps to protect the criminal schemes from being discovered or disrupted, and hosted them on his servers for financial gain.
Sahurovs admitted that from in or about February 2010 to in or about September 2010, he registered domain names, provided bullet-proof hosting services, and gave technical support to a “scareware” scheme targeting visitors to the Minneapolis Star Tribune’s website. On Feb. 19, 2010, the Minneapolis Star Tribune began hosting an online advertisement, purporting to be for Best Western hotels, on its website, startribune.com. Two days later, however, the advertisement began causing the computers of visitors to the website to be infected with malware. This malware, also known as “scareware,” caused visitors to experience slow system performance, unwanted pop-ups and total system failure. Website visitors also received a fake “Windows Security Alert” pop-up informing them that their computer had been infected with a virus and another pop-up that falsely represented that they needed to purchase the “Antivirus Soft” computer program to fix their security issues, at a price of $49.95.
Website visitors who clicked the “Antivirus Soft” window were presented with an online order form to purchase a purported security program called “Antivirus Soft.” Users who purchased “Antivirus Soft” would receive a file download that “unfroze” their computers and stopped the pop-ups and security notifications. However, the defendant admitted, the file was not a real anti-virus product and did not perform legitimate computer security functions, and merely caused malware that members of the conspiracy had previously installed to cease operating. Meanwhile, the defendant admitted, victim users who did not choose to purchase “Antivirus Soft” became immediately inundated with so many pop-ups containing fraudulent “security alerts” that all information, data, and files on their computers were rendered inaccessible. Members of the conspiracy defrauded victims out of substantial amounts of money as a result of the scheme. The defendant admitted that as a result of his participation, he made between $150,000 and $250,000 U.S. dollars.
This case was investigated by the FBI’s Minneapolis Field Office. The Criminal Division’s Office of International Affairs secured the extradition from Poland and the Polish National Police, the National Prosecutor’s Office, and the Ministry of Justice provided substantial assistance in this matter. Assistant U.S. Attorney Timothy C. Rank of the District of Minnesota and Trial Attorney Aaron R. Cooper of the Criminal Division’s Computer Crime and Intellectual Property Section prosecuted the case.