International Financial Law Prof Blog

Former Charter Airline Executive Sentenced to Nearly Eight Years in Prison for Orchestrating Multimillion Dollar Scheme to Steal Passenger Money from Escrow

The former vice president of a now-bankrupt public air charter operator was sentenced to 94 months in prison for her role in a scheme to steal millions of dollars in passenger money for future travel from an escrow account, announced Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division and Regional Special Agent in Charge Douglas Shoemaker of the U.S. Department of Transportation Office of the Inspector General’s (DOT-OIG).

Kay Ellison, 58, of Edenton, North Carolina, was sentenced by U.S. District Judge Susan D. Wigenton of the District of New Jersey, who presided over the trial.  Judge Wigenton also ordered the defendant to pay $19.6 million in restitution.  Ellison and her co-defendant, Judy Tull, 73, also of Edenton, were both convicted on March 28, after a seven-day trial, of one count of conspiracy to commit wire fraud affecting financial institutions and to commit bank fraud, four counts of wire fraud affecting financial institutions and three counts of bank fraud.  Ellison is the former vice president and managing partner of Myrtle Beach Direct Air and Tours (Direct Air), which was headquartered in Myrtle Beach, South Carolina, with operations in Daniels, West Virginia, and Tull is its former CEO.  Tull is scheduled to be sentenced at a later date.

“Kay Ellison stole tens of millions of dollars of passenger money in a brazen scheme that put a veneer of success on a failing company, and left others holding the bag—until today,” said Assistant Attorney General Benczkowski.  “Her sentence sends a powerful deterrent message—especially to corporate executives—and demonstrates the commitment of the Criminal Division and its law enforcement partners to uncovering and vigorously prosecuting corporate fraud wherever it is found.”

“The sentencing in this investigation demonstrates that the Department of Transportation Office of Inspector General is committed to stopping charter flight operators who intentionally mislead and defraud the traveling public for personal gain,” said DOT-OIG Regional Special Agent in Charge Shoemaker.  “Together with the Department of Justice, we will continue to vigorously pursue and prosecute fraud that erodes consumer confidence in the integrity of transportation-related goods and services.”

According to evidence presented at trial, from October 2007 through March 2012, Ellison and Tull engaged in a scheme to steal passengers’ money for future travel from an escrow account by artificially inflating the amount of money that the defendants claimed they were entitled to receive, and by sending this falsified amount in a letter to the escrow bank telling the escrow bank to release the money.  The evidence further established that to cover up their fraud, the defendants falsified profit and loss statements to make the company look like it was making money rather than losing money, and sent these falsified documents to credit card companies and banks to trick them into continuing to do business with the company.

Testimony at trial established that two financial institutions incurred losses of nearly $30 million for having to refund thousands of passengers their money that should have been held for them in escrow, but was actually stolen by the defendants as part of their fraud.

Robert Keilman, 73, of Marlboro, New Jersey, Direct Air’s former chief financial officer, pleaded guilty to charges stemming from his role in this scheme and will be sentenced separately. 

This case was investigated by DOT-OIG.  Trial Attorneys Cory E. Jacobs and Michael T. O’Neill of the Criminal Division’s Fraud Section are prosecuting the case. 

IRS issues proposed regulations on foreign tax credits

 The Internal Revenue Service issued proposed regulations yesterday on foreign tax credits for businesses and individuals.

The 2017 Tax Cuts and Jobs Act (TCJA), legislation passed in December 2017, made major changes to the way the U.S. taxes foreign activities. Significant new provisions include a dividends-received deduction for dividends from foreign subsidiaries and the addition of Global Intangible Low-Taxed Income rules, which subject to current U.S. taxation certain foreign earnings that would have been deferred under previous law.   
   
The TCJA also modified the foreign tax credit rules, which allow U.S. taxpayers to offset their taxes by the amount of foreign income taxes paid or accrued, in several important ways to reflect the new international tax rules. These changes include repeal of rules for computing deemed-paid foreign tax credits on dividends on the basis of foreign subsidiaries’ cumulative pools of earnings and foreign taxes, and the addition of two separate foreign tax credit limitation categories for foreign branch income and amounts includible under the new Global Intangible Low-Taxed Income provisions. The TCJA also modified how taxable income is calculated for the foreign tax credit limitation by disregarding certain expenses related to income eligible for the dividends-received deduction and repealing the use of the fair market value method for allocating interest expense. The new foreign tax credit rules apply to 2018 and future years.  

Treasury and IRS welcome public comments on these proposed regulations. For details on submitting comments, see the proposed regulations.

Updates on the implementation of the TCJA can be found on the Tax Reform page of IRS.gov.

Call for International Tax Teaching and Research Associate for Vienna University

We are pleased to remind you once more that the Institute for Austrian and International Tax Law is offering a position as teaching and research associate. The deadline for applications is December 05, 2018.
 
We would be delighted if you decide to apply for this position or if you could kindly distribute this announcement to other qualified colleagues.
 
For more information on the position, please see our website under Further Information:www.wu.ac.at/taxlaw. If you would like to apply, or you know somebody who may be interested, please send your application to Ms. Theodora Stergidou (jobtaxlaw@wu.ac.at).

Kind regards,

Michael Lang / Alexander Rust / Josef Schuch / Claus Staringer / Pasquale Pistone / Alfred Storck / Jeffrey Owens / Maria Wimmer

EU Parliament Wants European Citizenship by Investment (CBI) and Residency by Investment (RBI) programs abolished

The European Union Parliament states - 

• Observes that a majority of Member States have adopted citizenship by investment (CBI) or residency by investment (RBI) schemes, generally known as visa or investor programmes, by which citizenship or residence is granted to non-EU citizens in exchange for financial investment; observes that these programmes do not necessarily require applicants to spend time on the territory in which the investment is made
• 18 Member States have some form of RBI scheme in place, including four Member States that operate CBI  schemes in addition to RBI schemes: Bulgaria, Cyprus, Malta, Romania. 10 member States have no such schemes: Austria, Belgium, Denmark, Finland, Germany, Hungary, Poland, Slovakia, Slovenia and Sweden. Source: study entitled ‘Citizenship by investment (CBI) and residency by investment (RBI) schemes in the EU‘, EPRS, October 2018, PE: 627.128; ISBN: 978-92-846-3375-3.
• Observes that at least 5 000 non-EU citizens have obtained EU citizenship through citizenship by investment schemes
• Stresses that CBI and RBI schemes carry significant risks, including a devaluation of EU citizenship and the potential for corruption, money laundering and tax evasion; reiterates its concern that citizenship or residence could be granted through these schemes without proper or indeed any customer due diligence (CDD) having been carried out; notes that several formal investigations into corruption and money laundering have been launched at national and EU level directly related to CBI and RBI schemes; underlines that, at the same time, the economic sustainability and viability of the investments provided through these schemes remain uncertain
• Concludes that the potential economic benefits of CBI and RBI schemes do not offset the serious money laundering and tax evasion risks they present; calls on Member States to phase out all existing CBI or RBI schemes as soon as possible; stresses that, in the meantime, Member States should properly ensure that enhanced CDD on applicants for citizenship or residence through these schemes is duly carried out, as required by AMLD5; calls on the Commission to monitor rigorously and continuously the proper implementation and application of CDD within the framework of CBI and RBI schemes until they are repealed in each Member State;

Download TAX3 Final draft report

Former Venezuelan National Treasurer Sentenced to 10 Years in Prison for Money Laundering Conspiracy Involving Over $1 Billion in Bribes

A former Venezuelan national treasurer was sentenced today for his role in a billion-dollar currency exchange and money laundering scheme.

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Ariana Fajardo Orshan of the Southern District of Florida, Special Agent in Charge Mark Selby of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI) Miami Field Office, Special Agent in Charge Mark B. Dawson of HSI Houston Field Office, Special Agent in Charge George L. Piro of the FBI Miami Field Office and Inspector General Jay N. Lerner of the Federal Deposit Insurance Corporation’s (FDIC) Washington, D.C. Office made the announcement.

Alejandro Andrade Cedeno (Andrade), 54, a Venezuelan citizen residing in Wellington, Florida and a former Venezuelan national treasurer, was sentenced today to 10 years in prison by U.S. District Judge Robin L. Rosenberg of the Southern District of Florida. Andrade pleaded guilty under seal on Dec. 22, 2017 to one count of conspiracy to commit money laundering.  As part of his guilty plea, Andrade admitted that he received over $1 billion in bribes from co-conspirator Raul Gorrin Belisario, 50, and other co-conspirators in exchange for using his position as Venezuelan national treasurer to select them to conduct currency exchange transactions at favorable rates for the Venezuelan government.  Andrade received cash as well as private jets, yachts, cars, homes, champion horses, and high-end watches from his co-conspirators.  As part of his plea agreement, Andrade agreed to a forfeiture money judgment of $1 billion and forfeiture of all assets involved in the corrupt scheme, including real estate, vehicles, horses, watches, aircraft and bank accounts. 

HSI Miami, HSI Houston, HSI Boston, FBI Miami, and the FDIC D.C. investigated this case.  This case is being prosecuted by Trial Attorneys Vanessa Sisti Snyder, Paul A. Hayden and John-Alex Romano of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Michael B. Nadler and Nalina Sombuntham of the Southern District of Florida’s Criminal Division.  The Criminal Division’s Office of International Affairs provided significant assistance in this matter.  The Policía Nacional (Spanish National Police) also provided significant assistance. 

The Fraud Section is responsible for investigating and prosecuting all FCPA matters.  Additional information about the department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.

Global Forum on Tax Transparency marks a dramatic shift in the fight against tax evasion with the widespread commencement of the automatic exchange of financial information

The Global Forum on Transparency and Exchange of Information for Tax Purposes held its annual meeting in Punta del Este, Uruguay on 20-22 November, bringing together over 200 delegates from more than 100 jurisdictions, international organizations and regional groups to strengthen further the international community’s fight against tax evasion.  

The meeting marked the widespread rollout of automatic exchange of financial account of information. Global Forum members took stock of the tremendous progress made in the implementation of the standard of automatic exchange of information (AEOI) with 4 500 successful bilateral exchanges having taken place under the new AEOI Standard in 2018 by 86 jurisdictions. Each exchange contains detailed information about the financial accounts each jurisdiction’s taxpayers hold abroad. Such widespread exchange was also facilitated by the use of the Common Transmission System managed by the Global Forum. Further details can be found in the 2018 AEOI Implementation Report.

Following its review of the legal frameworks, the Global Forum will move to assess the effectiveness of the AEOI Standard in practice. To this end, members adopted a detailed Terms of Reference for such reviews and a work plan further develop, test and refine its approach to conducting the reviews, which will commence in 2020.

The Global Forum also published a further  22 jurisdiction reviews this year in relation to the exchange of information on request (EOIR), which has only increased in relevance with the move to AEOI and transparency initiatives in relation to base erosion and profit shifting (BEPS).

In other developments at the meeting, Global Forum members commended the technical assistance work carried out to support jurisdictions in implementing the standards effectively. This work has grown enormously, and is a truly combined effort of the Global Forum, donors, other international organizations and regional groups, working together towards a common goal.

The Global Forum delegates also welcomed the Punta de Este Declaration which sets up a Latin American initiative to maximize the potential of the effective use of the information exchanged under the international tax transparency standards to not only tackle tax evasion, but also corruption and other financial crimes. This improved international tax cooperation will help counter practices contributing to all forms of financial crimes and improve direct access to information of common interest to all relevant agencies.

The next plenary meeting to be held in 2019 will mark the 10th anniversary of the Global Forum. This will be a key moment to reflect on the role it has played in the effective implementation of the tax transparency standards across the globe and its future direction.

• Read the meeting Statement of Outcomes
• Watch this cartoon video to see how the Global Forum operates 

IRS issues proposed regulations on new business interest expense deduction limit

The Internal Revenue Service issued proposed regulations today for a provision of the Tax Cuts and Jobs Act, which limits the business interest expense deduction for certain taxpayers. Certain small businesses whose gross receipts are $25 million or less and certain trades or businesses are not subject to the limits under this provision.

For tax years beginning after Dec. 31, 2017, the deduction for business interest expense is generally limited to the sum of a taxpayer’s business interest income, 30 percent of adjusted taxable income and floor plan financing interest. Taxpayers will use new Form 8990, Limitation on Business Interest Expense Under Section 163(j), to calculate and report their deduction and the amount of disallowed business interest expense to carry forward to the next tax year.

This limit does not apply to taxpayers whose average annual gross receipts are $25 million or less for the three prior tax years. This amount will be adjusted annually for inflation starting in 2019.

Other exclusions from the limit are certain trades or businesses, including performing services as an employee, electing real property trades or businesses, electing farming businesses and certain regulated public utilities. Taxpayers must elect to exempt a real property trade or business or a farming business from this limit.

IRS Postpones Updating Form W-4 Until 2020 But Provides New TCJA Withholding Guidance for Taxpayers

Notice 2018-92 relates to the Tax Cut and Jobs Act (P.L. 115-97) changes to sections 3402 and 3405, and the IRS’ and Treasury Department’s decision to delay an overhaul of the Form W-4 from 2019 to 2020.  This notice provides interim guidance for 2019 on income tax withholding, requests comments on certain withholding procedures, and indicates that regulations are planned to update the withholding regulations to reflect changes made by the TCJA. 

Specifically, this notice (1) announces that the 2019 Form W-4 will be similar to the 2018 Form W-4, (2) addresses new TCJA “withholding allowance” terminology, (3) continues until April 30, 2019 Notice 2018-14’s temporary suspension of the requirement to furnish new Forms W-4 within 10 days for changes resulting solely from the TCJA, (4) provides that, for 2019, the default rule when an employee fails to furnish a Form W-4 will continue to be single with zero withholding allowances, (5) allows taxpayers to take into account the qualified business income deduction under section 199A to reduce withholding under section 3402(m), (6) announces that the IRS and Treasury intend to update the regulations under section 3402 to explicitly allow taxpayers to use the online withholding calculator or Publication 505, Tax Withholding and Estimated Tax, in lieu of the worksheets to Form W-4, (7) requests comments on alternative withholding methods under section 3402(h) and announces that the IRS and the Treasury Department intend to eliminate the combined income tax withholding and employee FICA tax withholding tables under Treas. Reg. § 31.3402(h)(4)-1(b), (8) modifies notification requirements for the withholding compliance program, and (9) provides that, for 2019, withholding on annuities or similar periodic payments where no withholding certificate is in effect is based on treating the payee as a married individual claiming 3 withholding allowances  under § 3405(a)(4).

IRS Guarantees It Won't Claw Back Large Gifts When $10.2 Million Exemption Extension Expires 2026

Today the IRS announced that individuals taking advantage of the increased gift and estate tax exclusion amounts in effect from 2018 to 2025 will not be adversely impacted after 2025 when the exclusion amount is scheduled to drop to pre-2018 levels.

The Treasury Department and the IRS issued proposed regulations which implement changes made by the 2017 Tax Cuts and Jobs Act (TCJA). As a result, individuals planning to make large gifts between 2018 and 2025 can do so without concern that they will lose the tax benefit of the higher exclusion level once it decreases after 2025.

In general, gift and estate taxes are calculated, using a unified rate schedule, on taxable transfers of money, property and other assets. Any tax due is determined after applying a credit – formerly known as the unified credit – based on an applicable exclusion amount.

The applicable exclusion amount is the sum of the basic exclusion amount (BEA) established in the statute, and other elements (if applicable) described in the proposed regulations. The credit is first used during life to offset gift tax and any remaining credit is available to reduce or eliminate estate tax.

The TCJA temporarily increased the BEA from $5 million to $10 million for tax years 2018 through 2025, with both dollar amounts adjusted for inflation. For 2018, the inflation-adjusted BEA is $11.18 million. In 2026, the BEA will revert to the 2017 level of $5 million as adjusted for inflation.

To address concerns that an estate tax could apply to gifts exempt from gift tax by the increased BEA, the proposed regulations provide a special rule that allows the estate to compute its estate tax credit using the higher of the BEA applicable to gifts made during life or the BEA applicable on the date of death.

Treasury and IRS welcome public comment, and the proposed regulations provide details on how to submit comments.

26 CFR Part 20 [REG-106706-18] RIN 1545-B072 Estate and Gift Taxes; Difference in the Basic Exclusion Amount

Report on U.S. Portfolio Holdings of Foreign Securities at End-Year

The findings from the annual survey of U.S. portfolio holdings of foreign securities at year-end 2017 were released today and posted on the Treasury web site at https://www.treasury.gov/resource-center/data-chart-center/tic/Pages/fpis.aspx.

The survey was undertaken jointly by the U.S. Department of the Treasury, the Federal Reserve Bank of New York, and the Board of Governors of the Federal Reserve System. 

A complementary survey measuring foreign holdings of U.S. securities is also conducted annually.  Data from the most recent such survey, which reports on securities held at end-June 2018, are currently being processed.  Preliminary results are expected to be reported on February 28, 2019.  See for historical data: http://www.treasury.gov/resource-center/data-chart-center/tic/Pages/index.aspx

Overall Results

This survey measured the value of U.S. portfolio holdings of foreign securities at year-end 2017 as approximately $12.4 trillion, with $9.1 trillion held in foreign equity, $2.8 trillion held in foreign long-term debt securities (original term-to-maturity in excess of one year), and $0.5 trillion held in foreign short-term debt securities.  The previous such survey, conducted as of year-end 2016, measured U.S. holdings of approximately $9.9 trillion, with $7.1 trillion held in foreign equity, $2.4 trillion held in foreign long-term debt securities, and $0.3 trillion held in foreign short-term debt securities.  The increase during 2017 occurred mainly in equity.

U.S. portfolio holdings of foreign securities by country at the end of 2017 were the largest for the Cayman Islands ($1.77 trillion), followed by the United Kingdom ($1.47 trillion), Japan ($1.13 trillion), and Canada ($996 billion) (see Table 2).  These four countries attracted 43 percent of total U.S. portfolio investment, versus 43 percent the previous year.

The surveys are part of an internationally coordinated effort under the auspices of the International Monetary Fund (IMF) to improve the measurement of portfolio asset holdings.

Table 1.  U.S. holdings of foreign securities, by type of security, as of survey dates [1]

(Billions of dollars)

 

Type of Security	Dec. 31, 2016	Dec. 31, 2017
Long-term Securities	9,583	11,953
Equity	7,146	9,118
Long-term debt	2,436	2,835
Short-term debt securities	308	456
Total	9,891	12,409

 

U.S. Portfolio Investment by Country

 

Table 2.  Market value of U.S. portfolio holdings of foreign securities, by country and type of security, for countries attracting the most U.S. investment, as of December 31, 2017 [1]

(Billions of dollars)

Country or category	Total	Equity	Debt
			Total	Long-term	Short-term
Cayman Islands	1,767	1,362	405	403	2
United Kingdom	1,473	1,091	382	336	46
Japan	1,132	902	230	123	107
Canada	996	512	484	381	102
France	605	442	163	134	29
Netherlands	538	345	193	185	8
Switzerland	506	477	29	26	2
Ireland	495	421	74	70	4
Germany	494	400	94	83	11
Australia	355	197	158	114	44
Bermuda	263	229	34	34	*
Korea, South	263	242	21	20	1
India	194	181	14	13	1
Brazil	182	148	34	34	*
Taiwan	178	178	*	*	0
Sweden	172	107	65	43	23
Singapore	171	143	28	11	17
Hong Kong [2]	164	155	8	4	4
Mexico	163	67	96	94	2
China, mainland [2]	162	158	4	3	1
Rest of world	2,135	1,361	774	723	51
Total	12,409	9,118	3,291	2,835	456

*     Greater than zero but less than $500 million.

Items may not sum to totals due to rounding.

[1] The stock of foreign securities for December 31, 2017, reported in this survey may not, for a number of reasons, correspond to the stock of foreign securities on December 31, 2016, plus cumulative flows reported in Treasury’s transactions reporting system.  An analysis of the relationship between the stock and flow data is available in Table 4 and the associated text of the “Report on U.S. Portfolio Holdings of Foreign Securities at end-year 2017.”

[2] China, Hong Kong, and Macau are all reported separately.

Societe Generale reaches agreements with U.S. authorities to resolve U.S. Economic sanctions and AML investigations

Société Générale has reached settlement agreements with certain U.S. authorities, resolving their investigations relating to certain U.S. dollar transactions processed by Société Générale involving countries, persons or entities that are the subject of U.S. economic sanctions and implicating New York State laws.  Download SocGen settlement

• Société Générale has agreed to pay penalties totaling approximately $1.3 billion (€1.2 billion) to the U.S. Authorities.  This amount is entirely covered by the provision for disputes booked in Société Générale's accounts.  These agreements will not have an additional impact on the Bank’s results for 2018.  Download SocGen OFAC Penalty Calculations
• The Bank has signed deferred prosecution agreements with the U.S Attorney's Office of the Southern District of New York ("SDNY") and the New York County District Attorney's Office, which provide that, following a three-year probation period, the Bank will not be prosecuted if it abides by the terms of the agreements, to which Société Générale is fully committed.  The deferred prosecution agreement with SDNY will be subject to court approval in the United States.
• The Bank has also committed, beyond the extensive actions it has already taken to date, to enhance its compliance program to prevent and detect potential violations of U.S. economic sanctions regulations and New York state laws, and to enhance corporate oversight of its sanctions compliance program.  The Bank has also agreed with the Board of Governors of the Federal Reserve System to retain an independent consultant that will evaluate the Bank's progress on the implementation of enhancements to its sanctions compliance program.
• In addition, the Bank has reached a separate agreement with the New York State Department of Financial Services relating to the Bank’s anti-money-laundering compliance program in the New York Branch. The Bank has agreed to pay an additional penalty of $95 million (€82 million) in connection with this agreement, which amount is likewise entirely covered by the provision for disputes booked in Société Générale's accounts.

******

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) today announced a $53,966,916.05 settlement with Société Générale S.A. to settle potential civil liability for apparent violations of U.S. sanctions.  The settlement resolves OFAC’s investigation into Société Générale S.A.’s processing of transactions to or through the United States or U.S. financial institutions in a manner that removed, omitted, obscured, or otherwise failed to include references to OFAC-sanctioned parties in the information sent to U.S. financial institutions that were involved in the transactions.  Société Générale S.A. processed 1,077 transactions totaling $5,560,452,994.36 in apparent violation of the Cuban Assets Control Regulations, 31 C.F.R. part 515; the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560; and the Sudanese Sanctions Regulations, 31 C.F.R. part 538.  This settlement with OFAC is part of a global settlement among Société Générale S.A., OFAC, the Board of Governors of the Federal Reserve System, the U.S. Department of Justice, the New York County District Attorney’s Office, the U.S. Attorney for the Southern District of New York, and the New York State Department of Financial Services.

Société Générale has reached settlement agreements with the Office of Foreign Assets Control of the U.S. Department of the Treasury ("OFAC"), the U.S. Attorney's Office of the Southern District of New York ("SDNY"), the New York County District Attorney's Office ("DANY"), the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York (together , the "Federal Reserve"), and the New York State Department of Financial Services ("DFS") (collectively, the "U.S. Authorities"), resolving their investigations relating to certain U.S. dollar transactions processed by Société Générale involving countries, persons, or entities that are the subject of U.S. economic sanctions and implicating New York State laws

The vast majority by value of the sanctions violations involved in the settlements related to Cuba, and stem from a single revolving credit facility extended in 2000.  The remaining transactions involved other countries that are the target of U.S. economic sanctions, including Iran.

Under the terms of these agreements, Société Générale has agreed to pay penalties totaling approximately $1.3 billion (€1.2 billion) to the U.S. Authorities, including $53.9 million to OFAC, $717.2 million to SDNY, $162.8 million to DANY, $81.3 million to the Federal Reserve, and $325 million to DFS.

This amount is entirely covered by the provision for disputes booked in Société Générale’s accounts.  These agreements will not have an additional impact on the Bank's results for 2018.

The Bank has signed deferred prosecution agreements with SDNY and DANY, which provide that, following a three-year probation period, the Bank will not be prosecuted if it abides by the terms of the agreements, to which Société Générale is fully committed.

Société Générale received significant credit from the U.S. Authorities for its cooperation during the investigation.  The Bank will continue to cooperate with the U.S. Authorities in the future, pursuant to the agreements.

The Bank has also committed to continue to enhance its compliance program to prevent and detect potential violations of U.S. economic sanctions laws and New York state laws. The Bank also agreed to enhance its oversight of its sanctions compliance program.  The Bank has also agreed with the Federal Reserve to retain an independent consultant that will evaluate the Bank's progress on the implementation of enhancements to its sanctions compliance program.

In this regard, in recent years, the Bank has already taken several actions, which include:

• Disseminating enhanced policies related to complying with regulations regarding sanctions and embargoes to all employees, emphasizing their importance, and in parallel, initiating an ambitious training program in the matter.
• Recruiting additional compliance officers working on financial crime, at the Group level and in the relevant business lines, and reinforcing the centralized Group-level sanctions and embargoes alert management teams.
• Reorganizing the hierarchical structure of the teams responsible for sanctions and embargoes compliance, and enhancing escalation procedures. 

These specific actions supplement important measures that the Bank has already taken regarding the organization and operation of its compliance program.  Notably, they include a vast multi-year compliance transformation program, the implementation of a centralized and independent compliance role directly supervised by General Management, and the deployment of a worldwide “Culture & Conduct” program.  The Bank is fully committed to complying with all remediation program requirements set forth in the agreements.

In addition, the Bank has agreed to a Consent Order with DFS relating to components of the Bank’s anti-money-laundering (“AML”) compliance program in the New York Branch.  The Consent Order requires the Bank to pay a civil money penalty of $95 million (€82 million) in light of deficiencies noted by DFS, which amount is likewise entirely covered by the provision for disputes booked in Société Générale's accounts.  The Consent Order requires the Bank to continue a series of enhancements to its New York branch’s AML compliance program.  After a period of 18 months, an independent consultant will conduct an assessment of the Branch’s progress on the implementation of its AML compliance program.

Frédéric Oudéa, Chief Executive Officer of Société Générale, stated: "We acknowledge and regret the shortcomings that were identified in these settlements, and have cooperated with the U.S. Authorities to resolve these matters.  Société Générale has already taken a number of significant steps in recent years and dedicated substantial resources to enhance its sanctions and AML compliance programs.  More broadly, these resolutions, following on the heels of the resolution of other investigations earlier this year, allow the Bank to close a chapter on our most important historical disputes.  Looking to the future, we aim to be a trusted partner.  Anchoring a culture of responsibility in the way we conduct and develop our activities is a priority of our 'Transform to Grow' strategic plan.  We aim to meet the highest standards of compliance and ethics, in the best interest of our clients and of all of our stakeholders."

Société Générale S.A. Agrees to Pay $860 Million in Criminal Penalties for Bribing Gaddafi-Era Libyan Officials and Manipulating LIBOR Rate

Bank admits to making over $90 million in corrupt payments; Acknowledges manipulation of global benchmark interest rate, impacting financial products traded worldwide

Société Générale S.A. (Société Générale), a global financial services institution based in Paris, France, and its wholly owned subsidiary, SGA Société Générale Acceptance N.V., have agreed to pay a combined total penalty of more than $860 million to resolve charges with criminal authorities in the United States and France, including $585 million relating to a multi-year scheme to pay bribes to officials in Libya and $275 million for violations arising from its manipulation of the London InterBank Offered Rate (LIBOR), one of the world’s leading benchmark interest rates.  SGA Société Générale Acceptance N.V. will plead guilty in the Eastern District of New York in connection with the resolution of the foreign bribery case.  Together with approximately $475 million in regulatory penalties and disgorgement that Société Générale has agreed to pay to the Commodity Futures Trading Commission (CFTC) in connection with the LIBOR scheme, the total penalties to be paid by the bank exceed $1 billion. 

In related proceedings, Société Générale reached a settlement with the Parquet National Financier (PNF) in Paris relating to the Libya corruption scheme.  The United States will credit $292,776,444 that Société Générale will pay to the PNF under its agreement, equal to 50 percent of the total criminal penalty otherwise payable to the United States.  This is the first coordinated resolution with French authorities in a foreign bribery case.

Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division, U.S. Attorney Richard P. Donoghue of the Eastern District of New York, Special Agent in Charge Matthew J. DeSarno of the FBI Washington Field Office's Criminal Division, Assistant Director in Charge William F. Sweeney Jr. of the FBI New York Field Office and Deputy Chief Eric Hylton of IRS Criminal Investigation made the announcement.

“For years, Société Générale undermined the integrity of global markets and foreign institutions by issuing false financial data and by fraudulently securing contracts through bribery,” said Acting Assistant Attorney General Cronan.  “Today’s resolution – which marks the first coordinated resolution with France in a foreign bribery case – sends a strong message that transnational corruption and manipulation of our markets will be met with a global and coordinated law enforcement response.”

“The resolution announced today by the Department with Societe Generale and a subsidiary, which includes a guilty plea, admissions of wrongdoing, significant corrective measures and hundreds of millions of dollars in penalties, sends a powerful message to financial institutions that engage in corruption and manipulation in the financial markets that they will be held accountable,” said U.S. Attorney Donoghue.  “The United States will vigorously protect the integrity of financial markets by holding responsible to the full extent of the law those banks, corporations and individuals who seek to corrupt government officials to enrich themselves.” 

“Today’s resolution demonstrates that fraudulently manipulating LIBOR and deceiving the financial market has severe consequences, and the FBI will not tolerate this type of criminal activity,” said FBI Special Agent in Charge DeSarno. “The FBI remains committed to holding institutions accountable for their actions in breaking the law and manipulating the global benchmark interest rate. The personnel of the FBI Washington Field Office have dedicated significant time and resources to investigating complex financial fraud schemes such as this one, and I want to thank them for their tireless efforts as well as our colleagues at the Department of Justice Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Eastern District of New York for their hard work.”

“When financial institutions convince foreign officials to accept bribes in return for lucrative business deals, their actions directly threaten the international free market system, not to mention our national security," said FBI Assistant Director in Charge Sweeney. "But being geographically out of sight doesn’t mean you’re out of reach from prosecution. No matter who you are, where you are, or how much money you have, the FBI will continue to use all resources at our disposal to find you, uncover your crimes, and reveal them for what they really are. Many thanks to the hardworking men and women of the FBI’s New York Field Office for leading the effort to expose this scheme and bring its perpetrators to justice.”

“Today’s announcement resulted from the unraveling of international financial transactions orchestrated by Société Générale and its agents to facilitate illegal payments to foreign government officials in Libya,” said IRS-CI Deputy Chief Hylton. “IRS-CI is a trusted partner in pursuit of those who use pervasive bribery schemes to circumvent the law. We are committed to maintaining fair competition, free of corrupt practices, through global teamwork and our robust financial investigative talents.”                                             

The FCPA Case

According to the companies’ admissions, between 2004 and 2009, Société Générale paid bribes through a Libyan “broker” in connection with 14 investments made by Libyan state-owned financial institutions.  For each transaction, Société Générale paid the Libyan broker a commission of between one and a half and three percent of the nominal amount of the investments made by the Libyan state institutions.  In total, Société Générale paid the Libyan Intermediary over $90 million, portions of which the Libyan broker paid to high-level Libyan officials in order to secure the investments from various Libyan state institutions for Société Générale.  As a result of the corrupt scheme, Société Générale obtained 13 investments and one restructuring from the Libyan state institutions worth a total of approximately $3.66 billion, and earned profits of approximately $523 million.

Société Générale will enter into a deferred prosecution agreement in connection with a criminal information charging the company with one count of conspiracy to violate the anti-bribery provisions of the FCPA and one count of transmitting false commodities reports.  Additionally, Société Générale’s subsidiary, SGA Société Générale Acceptance N.V., will plead guilty to a one-count criminal information filed today in the Eastern District of New York charging the company with a conspiracy to violate the anti-bribery provisions of the FCPA.  Pursuant to its agreement with the Department, Société Générale agreed to pay a total criminal penalty of $585 million to the Department.  Société Générale also agreed to continue to cooperate with the Department’s investigation and adopt and maintain enhanced compliance procedures.  The guilty plea is scheduled to take place on Tuesday, June 5, before U.S. District Judge Dora L. Irizarry of the Eastern District of New York.                                                                                                                  

The Department entered into this resolution in part due to Société Générale’s failure to voluntarily self-disclose the companies’ misconduct to the Department; the seriousness of the companies’ conduct, including the high value of the bribes paid to foreign officials; the company’s substantial, though not full, cooperation with the Department; and the company’s significant remediation which, together with the company’s risk profile and ongoing monitoring by L’Agence Française Anticorruption, resulted in the Department determining that a monitor was not necessary in this case.

The LIBOR Case

As admitted by the company, between May 2010 and at least October 2011, Société Générale promulgated falsely deflated U.S. Dollar (USD) LIBOR submissions to make it look as though Société Générale was able to borrow money at more favorable interest rates than it was actually able to do.  This downward manipulation allowed Société Générale to create the appearance that it was stronger and more creditworthy than it was. 

The USD LIBOR manipulation scheme was ordered by senior executives of Société Générale, who tasked the managers of the company’s Treasury Department with overseeing the execution of the deflation effort.  Several employees within Société Générale’s Treasury Department ensured that the company’s USD LIBOR submissions were altered in accordance with the deflation directive.  Société Générale’s misconduct frequently altered the daily rate at which USD LIBOR was set, which affected financial products worldwide, including interest rate swaps, futures contracts and other derivative financial products.

Further, in 2006, certain Société Générale employees in London and Tokyo worked together to manipulate Société Générale’s Japan Yen (JPY) LIBOR submissions.  These employees endeavored to manipulate JPY LIBOR in order to benefit the trading positions of a Société Générale employee.  This employee had numerous deals tied to JPY LIBOR, and manipulation of JPY LIBOR improved the profitability of the employee’s trading book.

By the terms of the agreement, Société Générale will pay a fine of $275 million to resolve the LIBOR misconduct matter.  Additionally, in August 2017, two individuals—former Société Générale Global Treasury Head Danielle Sindzingre and former Paris Treasury Head Muriel Bescond—were indicted for their roles in the scheme.  Both individuals remain at large.  An indictment is merely an allegation and all defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law. 

The deferred prosecution agreement and the plea agreement are subject to court approval.

The FBI’s Washington and New York Field Offices and IRS-Criminal Investigation’s New York office are investigating the case.  Trial Attorneys Gerald M. Moody Jr. and Dennis R. Kihm of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys David C. Pitluck and James P. McDonald of the Eastern District of New York are prosecuting the FCPA case.  Assistant Chief Carol Sipperly, Trial Attorneys Timothy A. Duree and Gary A. Winters of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Matthew S. Amatruda of the Eastern District of New York are prosecuting the LIBOR case.  The Criminal Division’s Office of International Affairs provided significant assistance in this matter.

The Department appreciates the significant cooperation and assistance provided by the U.S. Securities and Exchange Commission and the CFTC in this matter.  The PNF, the United Kingdom’s Serious Fraud Office, the Federal Office of Justice in Switzerland and the Office of the Attorney General in Switzerland also provided significant cooperation.

The Criminal Division’s Fraud Section is responsible for investigating and prosecuting all FCPA matters.  Additional information about the Justice Department’s Fraud Section FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.

OECD invites taxpayer input on seventh batch of Dispute Resolution peer reviews

Improving the tax treaty dispute resolution process is a top priority of the BEPS Project. The Mutual Agreement Procedure (MAP) peer review and monitoring process under Action 14 of the BEPS Action Plan was launched in December 2016 with the peer review process now well underway.

The peer review process is conducted in two stages. Under Stage 1, implementation of the Action 14 minimum standard is evaluated for Inclusive Framework members, according to the schedule of review. Stage 2 focuses on monitoring the follow-up of the recommendations resulting from jurisdictions' Stage 1 report. To date, four rounds of Stage 1 peer review reports covering 29 jurisdictions have been released.

The OECD is now gathering input for the Stage 1 peer reviews of Brazil, Bulgaria, China (People's Republic of), Hong Kong (China), Indonesia, Papua New Guinea, Russian Federation and Saudi Arabia, and invites taxpayers to submit input on specific issues relating to access to MAP, clarity and availability of MAP guidance and the timely implementation of MAP agreements for each of these jurisdictions using the taxpayer input questionnaire. As taxpayers are the main users of the MAP this input is key for the review process and we encourage taxpayers and associations of taxpayers (e.g. business and industry associations) to complete the questionnaire and return it to fta.map@oecd.org (in Word format) by 13 December 2018 at the latest.

For more information on the BEPS Action 14 peer review and monitoring process, visit: www.oecd.org/tax/beps/beps-action-14-peer-review-and-monitoring.htm

Venezuelan Billionaire News Network Owner, Former Venezuelan National Treasurer and Former Owner of Dominican Republic Bank Charged in Money Laundering Conspiracy Involving Over $1 Billion in Bribes

A Venezuelan billionaire who owns Globovision news network was charged in an indictment unsealed yesterday for his role in a billion-dollar currency exchange and money laundering scheme.  A former Venezuelan national treasurer and a former owner of Banco Peravia bank in the Dominican Republic each pleaded guilty in proceedings unsealed today for their roles in the scheme.

Download Gorrin Indictment

Download Jimenez Array Plea Agreement

Download Andrade Cedeno Plea Agreement

Raul Gorrin Belisario (Gorrin), 50, a Venezuelan citizen with a residence in Miami, Florida, was charged in an indictment filed on Aug. 16, 2018 in the Southern District of Florida with one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA), one count of conspiracy to commit money laundering and nine counts of money laundering.  The case has been assigned to U.S. District Judge William P. Dimitrouleas of the Southern District of Florida.  Alejandro Andrade Cedeno (Andrade), 54, a Venezuelan citizen residing in Wellington, Florida and a former Venezuelan national treasurer, pleaded guilty under seal on Dec. 22, 2017 before U.S. District Judge Robin L. Rosenberg of the Southern District of Florida to one count of conspiracy to commit money laundering.  Gabriel Arturo Jimenez Aray (Jimenez), 50, a Venezuelan citizen residing in Chicago, Illinois and former owner of Banco Peravia bank, pleaded guilty under seal on March 20, 2018 in the Southern District of Florida before Judge Rosenberg to one count of conspiracy to commit money laundering.  Charges against Andrade and Jimenez were unsealed today. 

The indictment alleges that Gorrin paid millions of dollars in bribes to two high-level Venezuelan officials, including Andrade, to secure the rights to conduct foreign currency exchange transactions at favorable rates for the Venezuelan government.  In addition to wiring money to and for the officials, Gorrin allegedly purchased and paid expenses for them related to private jets, yachts, homes, champion horses, high-end watches and a fashion line.  To conceal the bribe payments, Gorrin made payments through multiple shell companies.  Gorrin allegedly partnered with Jimenez to acquire Banco Peravia, a bank in the Dominican Republic, to launder bribes paid to Venezuelan officials and proceeds of the scheme. 

As part of his guilty plea, Andrade admitted that he received over $1 billion in bribes from Gorrin and other co-conspirators in exchange for using his position as Venezuelan national treasurer to select them to conduct currency exchange transactions for the Venezuelan government.  As part of his plea agreement, Andrade agreed to a forfeiture money judgment of $1 billion and forfeiture of all assets involved in the corrupt scheme, including real estate, vehicles, horses, watches, aircraft and bank accounts.  His sentencing is scheduled for Nov. 27.

As part of his guilty plea, Jimenez admitted that, as part of the scheme, he conspired with Gorrin and others to acquire Banco Peravia, through which he helped launder bribe money and scheme proceeds.  His sentencing is scheduled for Nov. 29.

HSI Miami, HSI Houston, HSI Boston, FBI Miami, and the FDIC D.C. investigated this case.  This case is being prosecuted by Trial Attorneys Vanessa Sisti Snyder, Paul A. Hayden and John-Alex Romano of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Michael B. Nadler and Nalina Sombuntham of the Southern District of Florida’s Criminal Division.  The Criminal Division’s Office of International Affairs provided significant assistance in this matter.  The Policía Nacional (Spanish National Police) also provided significant assistance. 

The Fraud Section is responsible for investigating and prosecuting all FCPA matters.  Additional information about the department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.

IRS Criminal Investigation releases Fiscal Year 2018 Annual Report

The Internal Revenue Service today released the Criminal Investigation Division’s (CI) annual report, reflecting significant accomplishments and criminal enforcement actions taken in fiscal year 2018.

“This report shows that as financial crime has evolved and proliferated around the world, so have IRS Criminal Investigation special agents and their abilities to track the proceeds of financial crime,” said IRS Commissioner Chuck Rettig. “CI uses cutting-edge technology combined with sophisticated investigative work to bring the most impactful cases that affect tax administration. I am extremely proud of our special agents and professional staff and their work serving the nation.”

A major focus of CI in fiscal 2018 was traditional tax cases, including international tax enforcement, employment tax, refund fraud and tax-related identity theft. Other areas of emphasis included public corruption, cybercrime, terrorist financing and money laundering.

“We prioritized the use of data in our investigations in fiscal 2018,” said Don Fort, Chief of CI. “The future for CI must involve leveraging the vast amount of data we have to help drive case selection and make us more efficient in the critical work that we do. Data analytics is a powerful tool for identifying areas of tax non-compliance.”

CI initiated 2,886 cases in fiscal 2018, with traditional tax cases accounting for 73 percent of the total. The number of CI special agents dipped below 2,100 by the end of fiscal 2018, which is the lowest level since the early 1970’s. Consequently, CI turned to data analytics to assist in finding the most-impactful cases.

CI is the only federal law enforcement agency with jurisdiction over federal tax crimes. CI achieved a conviction rate of 91.7 percent in fiscal 2018, which is among the highest of all federal law enforcement agencies. The high conviction rate reflects the thoroughness of CI investigations and the high quality of CI agents. CI is routinely called upon by prosecutors across the country to lead financial investigations on a wide variety of financial crimes.

CI has published an annual report since 1920 to highlight the agency’s successes and provide a historical snapshot of the make-up and priorities of the organization. The 2018 report is interactive, summarizes a wide variety of CI activity during the year, and features examples of cases from each field office on a wide range of financial crimes.

The current year, fiscal 2019, marks the 100-year anniversary of CI as a law enforcement agency. CI’s crime-fighting techniques have come a long way in that time. The federal fiscal year begins Oct. 1 and ends on Sept. 30.

“As we begin our 100th year, I could not be prouder to lead this exceptional agency of dedicated women and men," Fort said. "We have never been more capable, better trained or more relevant to the financial crimes landscape."

Former Registered Financial Advisor Pleads Guilty to Bank Fraud For Role in Scheme to Fraudulently Obtain and Misuse Credit Lines, Generating Over $1 Million in Improper Commissions

A former registered financial advisor previously employed by UBS Financial Services Inc. of Puerto Rico (UBS-PR) pleaded guilty for his role in a scheme to fraudulently obtain and misuse non-purpose credit lines for purchasing securities, resulting in over $1 million in improperly generated commissions, announced Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division and Special Agent in Charge Douglas A. Leff of the FBI’s San Juan, Puerto Rico Field Office.

José G. Ramirez-Arone Jr., 60, currently of Fulton, Maryland, previously of San Juan, Puerto Rico, pleaded guilty to one count of bank fraud before U.S. District Judge Thomas F. Hogan of the District of Columbia.  Sentencing has been scheduled for Feb. 8, 2019, before Judge Hogan. 

As part of his guilty plea, Ramirez-Arone admitted that, in his role as a financial advisor, he participated in a scheme in which various of his clients at UBS-PR fraudulently obtained non-purpose credit lines (i.e., credit lines for which purchasing securities was expressly prohibited by an internal UBS-PR policy) offered by UBS Bank USA (UBS-UT), a Utah-based subsidiary of UBS Financial Services, Inc.  He admitted knowing that his clients then misused them by drawing funds from the credit lines for purchasing securities, directly violating the credit lines’ terms of use. 

Ramirez-Arone further admitted that the scheme took advantage of the low interest rate of UBS-UT’s non-purpose credit lines, and the payout interest rate of closed-end funds (CEFs) offered by UBS-PR, which were mainly comprised of Puerto Rican bonds.  Ramirez-Arone admitted that the CEFs had a payout interest rate exceeding the low interest rate of the non-purpose credit lines.  To capitalize on the difference between the low and high interest rates by engaging in arbitrage, Ramirez-Arone advised various clients that they could draw funds from a UBS-UT non-purpose credit line and invest the funds in a UBS-PR CEF, he admitted.

In addition, Ramirez-Arone admitted that, to circumvent the prohibition against purchasing securities with non-purpose credit line funds, and to obscure from UBS-PR the origin of the funds, he advised clients to obtain a UBS-UT non-purpose credit line by misrepresenting in a credit line application the proposed reason for needing the credit line, which was an important piece of information for UBS-UT.  He further admitted that he advised clients—after the credit line was issued—to transfer UBS-UT non-purpose credit line funds to a third-party bank (i.e., outside of the UBS banking system), before transferring the same funds back into the UBS banking system to UBS-PR for investment in a CEF.  This practice diminished UBS-UT’s ability to recognize that funds originating from a UBS-UT non-purpose credit line were later being invested in a UBS-PR CEF.  As a result of at least a portion of his illicit activity, from in or about January 2011 through in or about September 2013, Ramirez-Arone improperly generated approximately $1,225,500 in commissions, he admitted.

This case was investigated by the FBI.  Trial Attorney Cory E. Jacobs of the Criminal Division’s Fraud Section is prosecuting the case.

SEC Proposes Rules for Investment Advisers and Broker-Dealers to Disclose Conflicts and Fiduciary Standard to to Clients

In connection with our ongoing efforts to help address investor confusion about the nature of their relationships with investment advisers and broker-dealers, the SEC’s Office of the Investor Advocate made available a report on investor testing conducted by the RAND Corporation.  The investor testing gathered feedback on a sample Relationship Summary issued in April 2018 as part of a package of proposed rulemakings and interpretations designed to enhance the quality and transparency of investors’ relationships with investment advisers and broker-dealers. Download Investor-testing-form-crs-relationship-summary.

“Based on my discussions with many retail investors over the last several months, it is clear to me that too many retail investors are not aware of the material aspects of their relationships with their investment professionals,” said SEC Chairman Jay Clayton.  “The results of RAND Corporation’s investor testing support our efforts to provide retail investors with a clear and concise Relationship Summary to help them make important decisions about choosing to work with an investment professional.  The SEC staff is carefully reviewing RAND Corporation’s investor testing report as well as other information related to the proposed Relationship Summary that is available in the comment file.”

RAND Corporation’s investor testing of the Relationship Summary consisted of:

• A nationwide online survey of over 1,800 individuals fielded through RAND’s nationally representative American Life Panel
• Qualitative in-depth interviews conducted in Denver and Pittsburgh fielded using independent market research firms

This report may be informative to those evaluating the proposed Relationship Summary.  This report may supplement other information considered in connection with the final rule, and the Office of Investor Advocate is making this report available to allow the public to consider and comment on this supplemental information.  Comments on this supplemental information may be submitted to comment File Nos. S7-08-18, S7-09-18, and S7-07-18 and are encouraged by Dec. 7, 2018.

Australia’s Improving its AML Regime but Still Lacking

As a result of Australia’s progress in strengthening its framework to tackle money laundering and terrorist financing since their 2015 mutual evaluation, the FATF has re-rated the country on 7 of the 40 Recommendations.   Download FUR-Australia-2018

Australia has been in an enhanced follow-up process, following the adoption of the FATF-APG mutual evaluation, which assessed the effectiveness of Australia’s anti-money laundering and counter-terrorist financing (AML/CFT) measures and the country’s compliance with the FATF Recommendations. In line with the FATF Procedures for mutual evaluations, Australia has reported back to the FATF on the progress it has made to strengthen its AML/CFT framework.

This report analyses Australia’s progress in addressing the technical compliance deficiencies identified in the mutual evaluation report.

To reflect this progress, the FATF has re-rated Australia on the following Recommendations:

15 – New Technologies from largely compliant to compliant
19 - Higher-risk countries from partially compliant to largely compliant 
30 – Responsibilities of law enforcement and investigative authorities from largely compliant to compliant
32 – Cash couriers from largely compliant to compliant
36 – International instruments from largely compliant to compliant

The report also looks at whether Australia’s measures meet the requirements of FATF Recommendations that have changed since their 2015 mutual evaluation, taking into account any new measures since the mutual evaluation. The FATF has re-rated Australia on the following Recommendations:

5 – Terrorist financing offence from largely compliant to compliant
8 – Non-profit organisations from non compliant to largely compliant

The FATF agreed to maintain the partially compliant rating for Recommendation 18 and the compliant rating for Recommendations 7 and 21.

OECD releases latest results on preferential regimes and moves to strengthen the level playing field with zero tax jurisdictions

International efforts to curb harmful tax practices and prevent the misuse of preferential tax regimes are having a tangible impact worldwide, according to new data released today by the OECD.

The latest progress report from the Inclusive Framework on BEPS covers the assessment of 53 preferential tax regimes, demonstrating jurisdictions' continuing resolve to ensure that tax breaks are only offered to substantive activities and only if they do not pose risks of harmful competition to others.

The assessment process is part of ongoing implementation of Action 5 under the OECD/G20 Base Erosion and Profit Shifting Project. The assessments are undertaken by the Forum on Harmful Tax Practices (FHTP), comprising of the more than 120 member jurisdictions of the Inclusive Framework. Action 5 revamps the work on harmful tax practices with a focus on improving transparency, including compulsory spontaneous exchange on rulings related to preferential regimes, and on requiring substantial activity for preferential regimes, such as IP regimes. The latest batch of assessments includes:

• 18 regimes where jurisdictions have delivered on their commitment to make legislative changes to abolish or amend the regime (Andorra, Curaçao, Hong Kong (China), Mauritius, San Marino and Spain).
• Four new or replacement regimes that have been specifically designed to meet Action 5 standard (Lithuania, Mauritius and San Marino).
• New commitments to make legislative changes to amend or abolish a further 10 regimes, by Aruba, Australia, Maldives, Mongolia, Montserrat, the Philippines and Saint Lucia.
• An additional 17 regimes that have been brought into the FHTP review process (Aruba, Brunei Darussalam, Curaçao, Gabon, Greece, Jordan, Kazakhstan, Malaysia, Panama, Paraguay, Saint Kitts and Nevis and the United States).
• Four other regimes that have been found to be out of scope, not yet operational or were already abolished or without harmful features (Aruba, Kenya, Paraguay).

Having completed this latest set of reviews, the cumulative picture of the Action 5 regime review process is as follows, bringing the total number of regimes reviewed to 246:

These results indicate the extent of continuing work to end harmful tax practices, and ensures that in the future all preferential regimes require real substance.

• Consult the updated conclusions of regime reviews

Given that all preferential regimes for geographically mobile income must now meet the Substantial Activities Requirements, it is essential to ensure that business activity does not simply relocate to a zero tax jurisdiction in order to avoid the substance requirements. This would tilt the playing field for those that have now changed their preferential regimes to comply with the standard and jeopardise the progress made in Action 5 to date. Against this backdrop, the Inclusive framework has decided to apply the Substantial Activities Requirement for "no or only nominal tax" jurisdictions.

"This new global standard means that mobile business income can no longer be parked in a zero tax jurisdiction without the core business functions having been undertaken by the same business entity, or in the same location," said Pascal Saint Amans, director of the OECD Centre for Tax Policy and Administration. "The Inclusive Framework's actions will ensure that substantial activities must be performed in respect of the same types of mobile business activities, regardless of whether they take place in a preferential regime or in a no or only nominal tax jurisdiction."

• Consult the new global standard on substantial activities in no or only nominal tax jurisdictions

The FHTP will next meet in January 2019, to assess continuing reviews on the remaining regimes for which commitments to amend or abolish were made in 2017. Further discussion on all other regimes will take place through the FHTP review process in 2019. The FHTP will also work on the next steps for assessing compliance with the global standard for no or only nominal tax jurisdictions, and continue to report results to the Inclusive Framework.

US Joins 4 Other Nations to Share Data Analytics to Catch International Tax Enablers

IRS statement

The Joint Chiefs of Global Tax Enforcement (J5) have this week brought together their leading data scientists, technology experts and investigators in a coordinated push to track down those people who make a living out of facilitating and enabling international tax crime. The event, known as ‘The Challenge,’ was hosted by the Fiscal Information and Investigation Service (FIOD) in Amsterdam to identify, develop, and test tools, platforms, techniques, and methods that contribute to the mission of the J5.

The Challenge focused on identifying professional enablers facilitating offshore tax fraud and financial crime posing a threat to the J5 jurisdictions. Experts from each country gathered with the mission of optimizing data from a variety of open and investigative sources available to each country, including offshore account information. Using various analytical tools, the teams were tasked to find schemes, identify potential enablers, and propose actions to J5 leadership to address these threats. At the conclusion of ‘The Challenge,’ each team identified new targets of investigations, developed investigative schemes to address those targets and increased their ability to share information and find similar patterns and targets in the future.

Canada Statement

This week, Canada Revenue Agency (CRA) officials participated in a five-nation challenge to optimize international coordination against tax evasion. The challenge was hosted by the Fiscal Information and Investigation Service (FIOD) in Amsterdam to identify, develop, and test tools, platforms, techniques, and methods that contribute to the mission of the Joint Chiefs of Global Tax Enforcement, also known as the J5.

Three CRA officials took part in the challenge including data, IT and enforcement specialists. During the challenge, front line investigators tested each other's technology to see what could be learned and applied to their own operations. The J5 participants also explored how they could bring existing data together with new technology and shared expertise to identify new ways of working and identifying non-compliant taxpayers. 

At the conclusion of the challenge, each team identified new targets of investigations, developed investigative schemes to address those targets and increased their ability to share information and find similar patterns and targets in the future.

The CRA has specifically identified promoters of tax schemes, including enablers, as one of the top operational priorities of its criminal investigations program. Through better tools, better data, and with the assistance and collaboration of its partners, both internal and external, such as the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), Canada's financial intelligence unit, and the J5, the CRA will continue to identify and go after those that promote schemes to evade taxes. More specifically, the CRA is currently investigating over 15 cases involving promoters of tax schemes and more than 50 cases linked to offshore tax evasion. 

Quick facts

• The J5 is an international operational group formed to tackle enablers and promoters of international tax crime and is composed of tax experts from five countries: Australia, Canada, the Netherlands, the United Kingdom and the United States.

• The J5 focuses on building international enforcement capacity by sharing information and intelligence, enhancing operational capability by piloting new approaches, and conducting joint operations / investigations. 

• Established in June 2018, the J5 hosted its inaugural meeting in Montreal where it developed tactical plans and identified opportunities to pursue cyber criminals and enablers of transnational tax crime.

Associated links

• Tax enforcement authorities unite to combat international tax crime and money laundering
• IRS Data Challenge news release
• More information about the J5 is available at www.irs.gov/J5

EU mutual recognition of freezing and confiscation orders

The European Union Council adopted a regulation on the mutual recognition of freezing and confiscation orders. The aim of the new rules is to ensure the effective freezing and confiscation of criminal assets across the EU. This will help make  the EU more secure by tackling the financing of criminal activities, including acts of terrorism.

The regulation will come into effect 24 months after its publication in the EU official journal.

The main features of the new rules include:

• A single regulation covering freezing and confiscation orders, directly applicable in the EU. This will resolve issues linked to implementation of the existing instruments, which have resulted in insufficient mutual recognition.
• The general principle of mutual recognition, meaning that all judicial decisions in criminal matters taken in one EU country will normally be directly recognised, and enforced, by another member state. The regulation provides only a limited number of grounds for non-recognition and non-execution.
• A wide range of types of confiscation in criminal matters such as value based confiscation and non-conviction based confiscation, including some systems of preventive confiscation, provided that there is a link to a criminal offence.
• Standard certificates and procedures to allow for speedy and efficient freezing and confiscation actions.
• A deadline of 45 days for the recognition of a confiscation order and in urgent cases a deadline of 48 hours for the recognition and 48 hours for the execution of freezing orders. Those limits can only be extended under strict conditions.
• Provisions to ensure that victims' rights to compensation and restitution are respected in cross-border cases.

Background

The new regulation replaces the framework decisions on mutual recognition of freezing orders and on mutual recognition of confiscation orders dating back to 2003 and 2006 These  were considered outdated and no longer in line with the latest national and EU rules on freezing and confiscation, and therefore gave rise to loopholes which were exploited by criminals.

Confiscating assets generated by criminal activities is a very efficient tool to fight crime and terrorism. At the moment, it is estimated that 98.9% of profits from criminal activities are not confiscated and remain at the disposal of criminals.

• Regulation on mutual recognition of freezing and confiscation orders