International Financial Law Prof Blog

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

Monday, December 31, 2018

Five convictions in SFO’s Alstom investigation into bribery & corruption to secure €325 million of contracts

Nicholas Reynolds was found guilty of conspiracy to corrupt today at Blackfriars Crown Court following an extensive investigation and prosecution brought by the Serious Fraud Office.

The conviction brings to four the number of total convictions in relation to this conspiracy to bribe officials in a Lithuanian power station and senior Lithuanian politicians in order to win two contracts worth €240 million. These individuals falsified records to avoid checks in place to prevent bribery and between them, the Alstom companies paid more than €5 million in bribes to secure the contracts.

The conviction of Nicholas Reynolds who is a UK national and former Global Sales Director for Alstom Power Ltd’s Boiler Retrofits unit followed a guilty plea from former Business Development Manager at Alstom Power Ltd John Venskus on 2 October 2017 and former Regional Sales Director at Alstom Power Sweden AB Göran Wikström on 22 June 2018 on the same charge. Alstom Power Ltd entered a guilty plea to conspiracy to corrupt on 10 May 2016.

In sentencing Göran Wikström HHJ Martin Beddoe said:

“This was a very serious example of bribery and corruption that beleaguers the civilised, commercial world and is a cancer upon it”

Venskus was sentenced to 3 years and 6 months imprisonment on 4 May 2018. Wikström was sentenced to 2 years and 7 months imprisonment on 9 July 2018. He was also ordered to pay £40,000 in costs.

Alstom Power Ltd was ordered to pay a total of £18,038,000 which included:

  • A fine of £6,375,000
  • Compensation to the Lithuanian government of £10,963,000
  • Prosecution costs of £700,000

Nicholas Reynolds is due to be sentenced at Blackfriars Crown Court on 21 December 2018.

Lisa Osofsky, Director of the Serious Fraud Office said:

“The culture of corruption evident within the Alstom Group was widespread. Their illicit activities to win lucrative contracts were calculated and sustained, undermining legitimate business and public trust.

“These convictions were a result of a truly global investigation and I thank our case team for their effort and persistence in bringing the individuals and companies involved to justice.”

The SFO’s investigation involved cooperation with more than 30 countries including France, Canada, Hungary, Denmark, Austria, Slovakia, Czech Republic, Lichtenstein, Cyprus, Singapore, the Seychelles, India, Sweden, Lithuania, Switzerland and Tunisia.

Due to the lifting of reporting restrictions, the conviction of Alstom Network UK Ltd in a linked case can also now be reported.

Alstom Network UK Ltd were found guilty of one count of conspiracy to corrupt on 10 April 2018 for making corrupt payments to win a tram and infrastructure contract in Tunisia.

In return for its work in securing the €85 million contract, Alstom Network UK Ltd paid €2.4 million to a company called Construction et Gestion Nevco Inc, which Alstom Network UK Ltd itself acknowledged was a front for corruption when it decided not to make a final payment of €240,000 in its contract.

Staff within the Alstom Group helped the consultants produce paperwork to satisfy internal compliance checks, cobbling together ‘evidence’ of the services provided, which at best were of a nominal nature because the company was, in reality, just a conduit for bribes.

Graham Hill, Robert Hallett and Alstom Network UK Ltd were acquitted of other charges in this case, relating to alleged corruption to win transport contracts in India and Poland, on 10 April 2018.

Alstom Network UK Ltd will be sentenced at Southwark Crown Court on a date to be determined.

Alstom Network UK Ltd along with Michael Anderson, Terence Watson and Jean-Daniel Lainé were acquitted of a charge in a linked investigation into alleged corruption relating to a Budapest Metro rolling stock contract.

Notes to Editors

  1. The SFO investigation commenced in 2009 as a result of information provided by the Office of the Attorney General in Switzerland concerning the Alstom Group, in particular Alstom Network UK Ltd.
  2. The charges brought against the companies and individuals across all three linked cases were conspiracy to corrupt, contrary to s1 of the Criminal Law Act 1977 and s1 of the Prevention of Corruption Act 1906.
  3. Nicholas Reynolds (DOB 17 August 1965) was Global Sales Director for Alstom Power Ltd’s Boiler Retrofits unit, based in Derby.
  4. John Venskus (DOB 1 June 1943) was employed by Alstom Power Ltd as a Business Development Manager and on retirement by Alstom Power Sweden AB as a Relations Manager in Lithuania. He pleaded guilty on 2 October 2017.
  5. Göran Wikström (DOB 19 July 1950) was employed by Alstom Power Sweden AB as Regional Sales Director in Växjö, Sweden. He pleaded guilty on 22 June 2018.
  6. Alstom Power Ltd entered a guilty plea to one count of conspiracy to corrupt in relation to a contract to upgrade the burners at the Lithuanian Power Plant on 10 May 2016.
  7. Michael Anderson (DOB 18 January 1961) was Business Development Manager at Alstom Transport SA with responsibility for Eastern Europe, based in Paris.
  8. Jean-Daniel Lainé (DOB 7 April 1948) was, from 2006, Senior Vice President for Ethics and Compliance within Alstom International Network and a Director of Alstom Network UK, based in Paris.
  9. Terence Watson (DOB 13 November 1959) was, from 2006, Senior Vice-President for Europe and Central Asia within Alstom International Network, based near Paris.
  10. Alstom Network UK Ltd, Terence Watson and Jean-Daniel Laine were acquitted of a charge of conspiracy to corrupt on 28 November 2018.
  11. Michael Anderson was acquitted of the same charge on 29 November 2018.
  12. Graham Hill (DOB 13 July 1944) was Senior Vice President in Alstom’s Country Network based in Paris and a Director of Alstom International Ltd.
  13. Robert Hallett (DOB 31 May 1963) was Managing Director of Alstom Transport India.

Related Cases

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

Sunday, December 30, 2018

Former Alstom Power Global Sales Director sentenced to 4.5 years for corruption

Today, Nicholas Reynolds received 4 years and 6 months imprisonment for his part in a conspiracy to bribe officials in Lithuania’s Elektrenai power station and senior Lithuanian politicians in order to win two contracts worth €240 million.

He was also ordered to pay costs of £50,000.

In sentencing the former Global Sales Director for Alstom Power Ltd’s Boiler Retrofits unit, HHJ Beddoe said:

“This was sophisticated corruption, planned and executed under your direction over many years. This was a very serious example of the bribery and corruption that beleaguers the civilised commercial world and is a cancer upon it. Even if you do not create the disease but help it spread, you bear a very heavy responsibility, and the more senior your position, the more serious it obviously is.”

Lisa Osofsky, Director of the Serious Fraud Office said:

“The substantial prison sentences imposed in this case reflect the seriousness of the bribery and corruption. We can only hope that this may deter others tempted to resort to illicit means to win contracts.

“We are grateful for the assistance provided by our international partners across more than 30 countries for helping us deliver these results.”

Reynolds’ sentencing follows the conviction and sentencing of Alstom Power Ltd, its former Business Development Manager John Venskus and former Regional Sales Director at Alstom Power Sweden AB Göran Wikström for their part in the conspiracy.

John Venskus was sentenced to 3 years and 6 months imprisonment on 4 May 2018. Göran Wikström was sentenced to 2 years and 7 months imprisonment on 9 July 2018, and was also ordered to pay £40,000 in costs.

Alstom Power Ltd was ordered to pay a total of £18,038,000 which included:

  • A fine of £6,375,000
  • Compensation to the Lithuanian government of £10,963,000
  • Prosecution costs of £700,000

Notes to Editors

  1. The SFO investigation commenced in 2009 as a result of information provided by the Office of the Attorney General in Switzerland concerning the Alstom Group, in particular Alstom Network UK Ltd.
  2. Nicholas Reynolds was convicted of conspiracy to corrupt at Blackfriars Crown Court on 19 December 2018 – see press release.
  3. Charges brought in relation to the SFO’s Alstom investigation related to:
    1. Alleged corruption in trams and signalling equipment contracts in Tunisia, India and Poland
    2. Alleged corruption in two power station contracts in Lithuania; and
    3. Alleged corruption in a Budapest Metro rolling stock contract in Hungary. Full details on the case available here.
  4. Counsel for the Prosecution
    1. Martin Evans QC
    2. Janet Weeks
  5. Counsel for Nicholas Reynolds
    1. David Spens QC
    2. Philip Evans QC

Related Cases

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

Saturday, December 29, 2018

charge against individual in SFO’s Unaoil investigation

The Serious Fraud Office has further charged Stephen Whiteley with conspiracy to make corrupt payments in relation to the SFO’s Unaoil investigation.

The SFO alleges Mr Whiteley assisted Unaoil Limited to be engaged as a subcontractor for an oil pipeline project in Iraq.  The alleged conduct took place between March 2009 and May 2010.

Stephen Whiteley has been charged with one offence of conspiracy to make corrupt payments, contrary to section (1) of the Criminal Law Act 1977 and contrary to section 1 of the Prevention of Corruption Act 1906.

Stephen Whiteley was charged by requisition and will appear before Westminster Magistrates’ Court at 10am on Wednesday, 9 January 2019.

Notes to editors:

  1. The SFO opened its investigation into Unaoil in March 2016.
  2. Mr Whiteley was previously charged with one count of the same offence for alleged corrupt payments to secure the award of contracts in Iraq to Unaoil’s client SBM Offshore. He faces two counts altogether.
  3. Details of other individuals charged in relation to this investigation can be found here.
  4. The strict liability rule in the Contempt of Court Act 1981 applies.

Related Cases

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

Friday, December 28, 2018

USA Personal Income and Outlays, November 2018

Personal income increased $40.2 billion (0.2 percent) in November according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $37.8 billion (0.2 percent) and personal consumption expenditures (PCE) increased $54.4 billion (0.4 percent).

Real DPI increased 0.2 percent in November and real PCE increased 0.3 percent. The PCE price index increased 0.1 percent. Excluding food and energy, the PCE price index increased 0.1 percent.

  2018
July Aug. Sept. Oct. Nov.
Percent change from preceding month
Personal income:  
Current dollars

0.4

0.4

0.2

0.5

0.2

Disposable personal income:  
Current dollars 0.3 0.4 0.2 0.5 0.2
Chained (2012) dollars 0.2 0.3 0.1 0.3 0.2
Personal consumption expenditures (PCE):  
Current dollars 0.5 0.4 0.1 0.8 0.4
Chained (2012) dollars 0.3 0.3 0.0 0.6 0.3
Price indexes:  
PCE 0.1 0.1 0.1 0.2 0.1
PCE, excluding food and energy 0.2 0.0 0.2 0.1 0.1
Price indexes: Percent change from month one year ago
PCE 2.4 2.2 2.0 2.0 1.8
PCE, excluding food and energy 2.0 1.9 2.0 1.8 1.9

The increase in personal income in November primarily reflected increases in wages and salaries and in farm proprietors’ income (table 3) that were partially offset by decreases in personal dividend income and social security benefits. Farm proprietors’ income increased $14.9 billion in November, which included subsidy payments associated with the Department of Agriculture’s Market Facilitation Program.

The $42.5 billion increase in real PCE in November reflected an increase of $32.6 billion in spending for goods and a $13.2 billion increase in spending for services (table 7). Within goods, recreational goods and vehicles was the leading contributor to the increase. Within services, the largest contributor to the increase was spending for household electricity and gas. Detailed information on monthly real PCE spending can be found in Table 2.3.6U.

Personal outlays increased $56.6 billion in November (table 3). Personal saving was $944.2 billion in November and the personal saving rate, personal saving as a percentage of disposable personal income, was 6.0 percent (table 1).

Updates to Personal Income and Outlays

Estimates have been updated for July through October. The percent change from the preceding month for current-dollar personal income, and for current-dollar and chained (2012) dollar DPI and PCE -- revised and previously published in last month's release -- are shown below.

  Change from preceding month
September October
Previous Revised Previous Revised Previous Revised Previous Revised
(Billions of dollars) (Percent) (Billions of dollars) (Percent)
Personal income:  
Current dollars 40.2 39.4 0.2 0.2 84.9 88.0 0.5 0.5
Disposable personal income:  
Current dollars 32.2 31.3 0.2 0.2 81.7 83.6 0.5 0.5
Chained (2012) dollars 11.8 10.2 0.1 0.1 49.2 49.0 0.3 0.3
Personal consumption expenditures:  
Current dollars 31.5 17.7 0.2 0.1 86.9 108.7 0.6 0.8
Chained (2012) dollars 12.9 -0.5 0.1 0.0 56.5 74.9 0.4 0.6
Personal Income and Outlays Release Dates for 2019
December 2018…. January 31 April 2019…. May 31 August 2019…. September 27
January 2019…. March 1 May 2019…. June 28 September 2019…. October 31
February 2019…. March 29 June 2019…. July 30 October 2019…. November 27
March 2019.… April 29 July 2019…. August 30 November 2019…. December 20

Next release:  January 31, 2019 at 8:30 A.M. EST

Personal Income and Outlays: December 2018

December 28, 2018 in Economics | Permalink | Comments (0)

Thursday, December 27, 2018

Tax Reform Current Developments Dec 27, 2018

IRS Releases Proposed Regulations on 163(j) Interest Deduction Limits
The IRS has released proposed regulations on the limitations that the 2017 tax reform package placed on the business interest expense deduction. Included in the regulations is a new definition of "interest" that includes any expenses incurred to compensate for the use of money, or the time value of money--commitment fees, debt issuance costs, guaranteed payments and other "substitute" interest costs may all be considered "interest" under the new rules. The regulations also provide that the Section 163(j) limitation applies at the entity level with respect to partnerships and S corporations, and at the consolidated tax return level with respect to consolidated groups. For more information on the new limits on deducting business interest expenses, visit Tax Facts Online and Read More.

Other Important Tax Developments

Steps to Avoid Year-End RMD Problems. Required minimum distributions (RMDs) kick in when a plan participant reaches age 701/2, and while RMDs are broadly applicable, they frequently create problems. These problems are magnified when employers fail to educate and enforce RMD requirements, as well as because many employees are managing multiple accounts as they approach retirement. Because penalties for both plan sponsors and participants can be severe, participants, sponsors should provide ample notice of the RMD rules. Further, plans are permitted to implement rules providing that RMDs will automatically be distributed to employees who fail to respond to RMD notices. For more information on the RMD rules, visit Tax Facts on Insurance and Employee Benefits Online and Read More.

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

Gross Domestic Product, 3rd quarter 2018 (third estimate); Corporate Profits, 3rd quarter 2018

Real gross domestic product (GDP) increased at an annual rate of 3.4 percent in the third quarter of 2018 (table 1), according to the "third" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 4.2 percent.

The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was 3.5 percent. With this third estimate for the third quarter, personal consumption expenditures (PCE) and exports were revised down, and private inventory investment was revised up; the general picture of economic growth remains the same (see "Updates to GDP" on page 2).

Real GDP: Percent change from preceding quarter, Q3 2018 (3rd est.)

Real gross domestic income (GDI) increased 4.3 percent in the third quarter, compared with an increase of 0.9 percent in the second quarter. The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, increased 3.8 percent in the third quarter, compared with an increase of 2.5 percent in the second quarter (table 1).

The increase in real GDP in the third quarter reflected positive contributions from PCE, private inventory investment, nonresidential fixed investment, federal government spending, and state and local government spending that were partly offset by negative contributions from exports and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased (table 2).

The deceleration in real GDP growth in the third quarter primarily reflected a downturn in exports and decelerations in nonresidential fixed investment and in PCE. Imports increased in the third quarter after decreasing in the second. These movements were partly offset by an upturn in private inventory investment.

Current-dollar GDP increased 4.9 percent, or $246.3 billion, in the third quarter to a level of $20.66 trillion. In the second quarter, current-dollar GDP increased 7.6 percent, or $370.9 billion (table 1 and table 3).

The price index for gross domestic purchases increased 1.8 percent in the third quarter, compared with an increase of 2.4 percent in the second quarter (table 4). The PCE price index increased 1.6 percent, compared with an increase of 2.0 percent. Excluding food and energy prices, the PCE price index increased 1.6 percent, compared with an increase of 2.1 percent.

Updates to GDP

The third-quarter percent change in real GDP was revised down 0.1 percentage point from the second estimate, reflecting downward revisions to PCE and exports that were partly offset by an upward revision to private inventory investment. For more information, see the Technical Note. A detailed "Key Source Data and Assumptions" file is also posted for each release.  For information on updates to GDP, see the "Additional Information" section that follows.

  Advance Estimate Second Estimate Third Estimate
(Percent change from preceding quarter)
Real GDP 3.5 3.5 3.4
Current-dollar GDP 4.9 5.0 4.9
Real GDI 4.0 4.3
Average of Real GDP and Real GDI 3.8 3.8
Gross domestic purchases price index 1.7 1.7 1.8
PCE price index 1.6 1.5 1.6

Corporate Profits (table 10)

Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased $78.2 billion in the third quarter, compared with an increase of $65.0 billion in the second quarter.

Profits of domestic financial corporations decreased $6.1 billion in the third quarter, in contrast to an increase of $16.5 billion in the second quarter. Profits of domestic nonfinancial corporations increased $83.0 billion, compared with an increase of $53.0 billion. Rest-of-the-world  profits increased $1.3 billion, in contrast to a decrease of $4.5 billion. In the third quarter, receipts decreased $9.5 billion, and payments decreased $10.8 billion.

*          *          *

Next release, January 30, 2019 at 8:30 A.M. EST
Gross Domestic Product, Fourth Quarter and Annual 2018 (Advance Estimate)

December 27, 2018 in Economics | Permalink | Comments (0)

Wednesday, December 26, 2018

Two Chinese Hackers Associated With the Ministry of State Security Charged with Global Computer Intrusion Campaigns Targeting Intellectual Property and Confidential Business Information

Defendants Were Members of the APT 10 Hacking Group Who Acted in Association with the Tianjin State Security Bureau and Engaged in Global Computer Intrusions for More Than a Decade, Continuing into 2018, Including Thefts from Managed Service Providers and

The unsealing of an indictment charging Zhu Hua (朱华), aka Afwar, aka CVNX, aka Alayos, aka Godkiller; and Zhang Shilong (张士龙), aka Baobeilong, aka Zhang Jianguo, aka Atreexp, both nationals of the People’s Republic of China (China), with conspiracy to commit computer intrusions, conspiracy to commit wire fraud, and aggravated identity theft was announced today.

The announcement was made by Deputy Attorney General Rod J. Rosenstein, U.S. Attorney Geoffrey S. Berman for the Southern District of New York, Director Christopher A. Wray of the FBI, Director Dermot F. O’Reilly of the Defense Criminal Investigative Service (DCIS) of the U.S. Department of Defense, and Assistant Attorney General for National Security John C. Demers.

Zhu and Zhang were members of a hacking group operating in China known within the cyber security community as Advanced Persistent Threat 10 (the APT10 Group).  The defendants worked for a company in China called Huaying Haitai Science and Technology Development Company (Huaying Haitai) and acted in association with the Chinese Ministry of State Security’s Tianjin State Security Bureau. 

Through their involvement with the APT10 Group, from at least in or about 2006 up to and including in or about 2018, Zhu and Zhang conducted global campaigns of computer intrusions targeting, among other data, intellectual property and confidential business and technological information at managed service providers (MSPs), which are companies that remotely manage the information technology infrastructure of businesses and governments around the world, more than 45 technology companies in at least a dozen U.S. states, and U.S. government agencies.  The APT10 Group targeted a diverse array of commercial activity, industries and technologies, including aviation, satellite and maritime technology, industrial factory automation, automotive supplies, laboratory instruments, banking and finance, telecommunications and consumer electronics, computer processor technology, information technology services, packaging, consulting, medical equipment, healthcare, biotechnology, pharmaceutical manufacturing, mining, and oil and gas exploration and production.  Among other things, Zhu and Zhang registered IT infrastructure that the APT10 Group used for its intrusions and engaged in illegal hacking operations.

“The indictment alleges that the defendants were part of a group that hacked computers in at least a dozen countries and gave China’s intelligence service access to sensitive business information,” said Deputy Attorney General Rosenstein.  “This is outright cheating and theft, and it gives China an unfair advantage at the expense of law-abiding businesses and countries that follow the international rules in return for the privilege of participating in the global economic system.”

“It is galling that American companies and government agencies spent years of research and countless dollars to develop their intellectual property, while the defendants simply stole it and got it for free” said U.S. Attorney Berman.  “As a nation, we cannot, and will not, allow such brazen thievery to go unchecked.”

“Healthy competition is good for the global economy, but criminal conduct is not.  This is conduct that hurts American businesses, American jobs, and American consumers,” said FBI Director Wray.  “No country should be able to flout the rule of law – so we’re going to keep calling out this behavior for what it is: illegal, unethical, and unfair.  It's going to take all of us working together to protect our economic security and our way of life, because the American people deserve no less."

“The theft of sensitive defense technology and cyber intrusions are major national security concerns and top investigative priorities for the DCIS,” said DCIS Director O’Reilly.  “The indictments unsealed today are the direct result of a joint investigative effort between DCIS and its law enforcement partners to vigorously investigate individuals and groups who illegally access information technology systems of the U.S. Department of Defense and the Defense Industrial Base.  DCIS remains vigilant in our efforts to safeguard the integrity of the Department of Defense and its enterprise of information technology systems.”

According to the allegations in the Indictment unsealed today in Manhattan federal court:

Overview

Zhu Hua (朱华), aka Afwar, aka CVNX, aka Alayos, aka Godkiller, and Zhang Shilong (张士龙), aka Baobeilong, aka Zhang Jianguo, aka Atreexp, the defendants, both nationals of China, were members of a hacking group operating in China known within the cyber security community as the APT10 Group, or alternatively as “Red Apollo,” “CVNX,” “Stone Panda,” “MenuPass,” and “POTASSIUM.”  The defendants worked for Huaying Haitai in Tianjin, China, and acted in association with the Chinese Ministry of State Security’s Tianjin State Security Bureau.  From at least in or about 2006 up to and including in or about 2018, members of the APT10 Group, including Zhu and Zhang, conducted extensive campaigns of intrusions into computer systems around the world.  The APT10 Group used some of the same online facilities to initiate, facilitate and execute its campaigns during the conspiracy.

Most recently, beginning at least in or about 2014, members of the APT10 Group, including Zhu and Zhang, engaged in an intrusion campaign to obtain unauthorized access to the computers and computer networks of MSPs for businesses and governments around the world (the MSP Theft Campaign).  The APT10 Group targeted MSPs in order to leverage the MSPs’ networks to gain unauthorized access to the computers and computer networks of the MSPs’ clients and to steal, among other data, intellectual property and confidential business data on a global scale.  For example, through the MSP Theft Campaign, the APT10 Group obtained unauthorized access to the computers of an MSP that had offices in the Southern District of New York and compromised the data of that MSP and certain of its clients involved in banking and finance, telecommunications and consumer electronics, medical equipment, packaging, manufacturing, consulting, healthcare, biotechnology, automotive, oil and gas exploration, and mining.

Earlier, beginning in or about 2006, members of the APT10 Group, including Zhu and Zhang, engaged in an intrusion campaign to obtain unauthorized access to the computers and computer networks of more than 45 technology companies and U.S. government agencies, in order to steal information and data concerning a number of technologies (the Technology Theft Campaign).  Through the Technology Theft Campaign, the APT10 Group stole hundreds of gigabytes of sensitive data and targeted the computers of victim companies involved in aviation, space and satellite technology, manufacturing technology, pharmaceutical technology, oil and gas exploration and production technology, communications technology, computer processor technology, and maritime technology.

In furtherance of the APT10 Group’s intrusion campaigns, Zhu and Zhang, among other things, worked for Huaying Haitai and registered malicious domains and infrastructure.  In addition, Zhu, a penetration tester, engaged in hacking operations on behalf of the APT10 Group and recruited other individuals to the APT10 Group, and Zhang developed and tested malware for the APT10 Group.

The MSP Theft Campaign

In furtherance of the MSP Theft Campaign, Zhu, Zhang, and their co-conspirators in the APT10 Group engaged in the following criminal conduct:

  • First, after the APT10 Group gained unauthorized access into the computers of an MSP, the APT10 Group installed multiple variants of malware on MSP computers around the world. To avoid antivirus detection, the malware was installed using malicious files that masqueraded as legitimate files associated with the victim computer’s operating system.  Such malware enabled members of the APT10 Group to monitor victims’ computers remotely and steal user credentials. 
  • Second, after stealing administrative credentials from computers of an MSP, the APT10 Group used those stolen credentials to connect to other systems within an MSP and its clients’ networks. This enabled the APT10 Group to move laterally through an MSP’s network and its clients’ networks and to compromise victim computers that were not yet infected with malware. 
  • Third, after identifying data of interest on a compromised computer and packaging it for exfiltration using encrypted archives, the APT10 Group used stolen credentials to move the data of an MSP client to one or more other compromised computers of the MSP or its other clients’ networks before exfiltrating the data to other computers controlled by the APT10 Group.

Over the course of the MSP Theft Campaign, Zhu, Zhang, and their co-conspirators in the APT10 Group successfully obtained unauthorized access to computers providing services to or belonging to victim companies located in at least 12 countries, including Brazil, Canada, Finland, France, Germany, India, Japan, Sweden, Switzerland, the United Arab Emirates, the United Kingdom, and the United States.  The victim companies included at least the following:  a global financial institution, three telecommunications and/or consumer electronics companies; three companies involved in commercial or industrial manufacturing; two consulting companies; a healthcare company; a biotechnology company; a mining company; an automotive supplier company; and a drilling company. 

The Technology Theft Campaign

Over the course of the Technology Theft Campaign, which began in or about 2006, Zhu, Zhang, and their coconspirators in the APT10 Group successfully obtained unauthorized access to the computers of more than 45 technology companies and U.S. Government agencies based in at least 12 states, including Arizona, California, Connecticut, Florida, Maryland, New York, Ohio, Pennsylvania, Texas, Utah, Virginia and Wisconsin.  The APT10 Group stole hundreds of gigabytes of sensitive data and information from the victims’ computer systems, including from at least the following victims: seven companies involved in aviation, space and/or satellite technology; three companies involved in communications technology; three companies involved in manufacturing advanced electronic systems and/or laboratory analytical instruments; a company involved in maritime technology; a company involved in oil and gas drilling, production, and processing; and the NASA Goddard Space Center and Jet Propulsion Laboratory.  In addition to those victims who had information stolen, Zhu, Zhang, and their co-conspirators successfully obtained unauthorized access to computers belonging to more than 25 other technology-related companies involved in, among other things, industrial factory automation, radar technology, oil exploration, information technology services, pharmaceutical manufacturing, and computer processor technology, as well as the U.S. Department of Energy’s Lawrence Berkeley National Laboratory. 

Finally, the APT10 Group compromised more than 40 computers in order to steal sensitive data belonging to the Navy, including the names, Social Security numbers, dates of birth, salary information, personal phone numbers, and email addresses of more than 100,000 Navy personnel.

*                *                *

Zhu and Zhang are each charged with one count of conspiracy to commit computer intrusions, which carries a maximum sentence of five years in prison; one count of conspiracy to commit wire fraud, which carries a maximum sentence of 20 years in prison; and one count of aggravated identity theft, which carries a mandatory sentence of two years in prison. 

The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the assigned judge.  The charges contained in the Indictment are merely accusations and the defendants are presumed innocent unless and until proven guilty.

The case was investigated by the FBI, including the New Orleans, New Haven, Houston, New York, Sacramento, and San Antonio Field Offices; DCIS; and the U.S. Naval Criminal Investigative Service (NCIS).  Mr. Rosenstein, Mr. Berman and Mr. Demers praised the outstanding investigative work of, and collaboration among, the FBI, DCIS, and NCIS.  They also thanked the U.S. Attorney’s Office for the District of Connecticut, and the Department of Defense’s Computer Forensic Laboratory for their assistance in the investigation.

Assistant U.S. Attorney Sagar K. Ravi of the Southern District of New York’s Complex Frauds and Cybercrime Unit is in charge of the prosecution, with assistance provided by Trial Attorney Matthew Chang of the National Security Division’s Counterintelligence and Export Control Section.

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

Tuesday, December 25, 2018

disclosure on a tax return

Revenue Procedure 2019-9 updates Rev. Proc. 2018-11, and updates the annual adequate disclosure revenue procedure.  It identifies circumstances under which the disclosure on a tax return with respect to an item or position is adequate for the purposes of the accuracy penalty of section 6662 and return preparer penalty under 6694.   

CHANGES FROM REV. PROC. 2018-11 Editorial changes have been made throughout this revenue procedure. In addition, minor changes have been made in order to update the taxable years and tax forms to which this revenue procedure applies. No additional substantive changes have been made.

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

Monday, December 24, 2018

What source of money do corrupt officials prefer: revenue form taxes or transfers (e.g. development aid)?

The capacity of Brazilian local governments to source tax revenue has a greater impact on education and on corruption than external transfers.

In developing countries, new sources of government revenue are often channeled into corrupt hands. A study in Brazil explored whether revenues sourced from taxes, as opposed to external transfers, was spent differently.

Tax Me, But Spend Wisely? Sources of Public Finance and Government Accountability American Economic Journal: Applied Economics, 2017, Vol 9 (1).

Online Appendix Data and replication code Working Paper Version Non technical summary (VoxDev)

Existing evidence suggests that extra grant revenues lead to little improvements in public services in developing countries--but would governments spend tax revenues differently? This paper considers a program that invests in the tax capacity of Brazilian municipalities. Using variations in the timing of program uptake, I find that it raises local tax revenues and that the increase in taxes is used to improve both the quantity and quality of municipal education infrastructure. In contrast, increases in grants over which municipalities have the same discretion as taxes have no impact on any measure of local public infrastructure. These results suggest that the way governments are financed matters: governments spend increases in tax revenues more toward expenditures that benefit citizens than increases in grant revenues.

Hat Tip: above provided by Dean Andrew Morriss of Texas A&NM University School of Innovation.

December 24, 2018 in AML | Permalink | Comments (0)

Sunday, December 23, 2018

IRS issues guidance on changes to excess business and net operating losses

 The Internal Revenue Service issued guidance on excess business loss limitations and net operating losses following law changes in the Tax Cuts and Jobs Act (TCJA).

Excess business losses
The TCJA modified existing tax law on excess business losses by limiting losses from all types of business for noncorporate taxpayers.

An excess business loss is the amount by which the total deductions from all trades or businesses exceed a taxpayer’s total gross income and gains from those trades or businesses, plus $250,000, or $500,000 for a joint return.

Excess business losses that are disallowed are treated as a net operating loss carryover to the following taxable year.

See Form 461 and instructions, available soon, for details.

Net Operating Losses
TCJA also modified net operating loss (NOL) rules. Most taxpayers no longer have the option to carryback a NOL. For most taxpayers, NOLs arising in tax years ending after 2017 can only be carried forward. Exceptions apply to certain farming losses and NOLs of insurance companies other than a life insurance company.

For losses arising in taxable years beginning after Dec. 31, 2017, the new law limits the NOL deduction to 80% of taxable income.

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

Saturday, December 22, 2018

Alleged Nigerian Ringleader of International Investment Scam Charged with Fraud, Money Laundering and Identity Theft

A Nigerian national was charged in court documents unsealed for his role as the alleged ringleader of an international advance-fee scheme that allegedly involved false promises of investment funding by individuals who impersonated U.S. bank officials in person and over the internet to victims around the world, who were told they had to make certain payments before they could supposedly receive their funding.  Proceeds of the scheme were allegedly laundered through U.S. bank accounts and diverted back to the scheme’s perpetrators in Nigeria.

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Ryan Patrick of the Southern District of Texas, Special Agent in Charge Perrye K. Turner of the FBI’s Houston Field Office and Special Agent in Charge Robert Smolich of the U.S. Department of State Office of Inspector General made the announcement. 

Osondu Victor Igwilo, 49, of Lagos, Nigeria, was charged in a complaint filed in the Southern District of Texas in December 2016 and unsealed today.  The complaint charges Igwilo with one count of wire fraud conspiracy, one count of money laundering conspiracy and one count of aggravated identity theft.  Igwilo remains a fugitive.

As alleged in the complaint, Igwilo was the leader of a criminal network of “catchers,” who sent phishing emails to potential victims falsely offering investment funding on behalf of BB&T Corporation, a U.S. bank headquartered in North Carolina.  When victims were interested in the supposed investment funding, Igwilo allegedly dispatched U.S. citizens whom he had recruited over the internet to pose as “representatives” of BB&T to meet in person with the victims and sign a supposed investment agreement on behalf of BB&T.  When traveling to the countries where the victims resided, these representatives, at Igwilo’s direction, would visit the local U.S. embassy or consulate and employ fake documents with fraudulent seals of the U.S. government to deceive the victims into believing that the investment agreement was sponsored by the U.S. government, the complaint alleges.  Igwilo then allegedly used the representatives and catchers to convince victims to make wire payments to bank accounts in the United States on the false belief that such payments were necessary to effectuate the investment agreements.  The holders of the U.S. bank accounts were “money movers,” who disposed of the funds as directed by Igwilo, including by purchasing luxury vehicles, from brands such as Mercedes Benz and Range Rover, and shipping them to Nigeria, the complaint alleges.

Uche Diuno, 52, also of Lagos, was charged in a separate case in a second superseding indictment filed on Oct. 3, 2018 with one count of wire fraud conspiracy, one count of money laundering conspiracy and one count of concealment money laundering.  Diuno was arrested in Paris, France on Sept. 29, 2018 and is awaiting extradition.

As alleged in the second superseding indictment, Diuno was a “chairman” or leader in the scheme, who operated his own network of catchers and money movers alongside Igwilo’s, which he used in furtherance of the same BB&T investment scam. 

Seven other individuals have been charged to date as part of the same investigation including Uju Okigbo, 49, of Houston, Texas, an alleged money mover; Chioma Okafor, 29, of Houston, an alleged money mover; Marita Ranalan Underwood, 62, of Manila, Philippines, an alleged representative; John Christian Rutledge, 65, of Yaphank, New York, an alleged representative; Osa May Martin, 69, of Carthage, Missouri, an alleged representative; Tochukwu Nwosisi, 47, of Indianapolis, Indiana, an alleged money mover and Tiffany Sourjohn, 48, of Miami, Oklahoma, an alleged representative.

Okigbo, Okafor, Rutledge and Sourjohn have pleaded guilty and are awaiting sentencing.  Underwood remains a fugitive.  Martin and Nwosisi are pending trial.     

The charges in the complaint and second superseding indictment are merely allegations, and the defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

The case was investigated by the FBI and Department of State Office of Inspector General.  The case is being prosecuted by Trial Attorney William E. Johnston of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Suzanne Elmilady of the Southern District of Texas.  Forfeiture aspects of the case are being handled by Assistant U.S. Attorney Kristine Rollinson of the Southern District of Texas.

December 22, 2018 in AML | Permalink | Comments (0)

Friday, December 21, 2018

How does the 2017 Tax Cuts and Jobs Act affect BEA's business income statistics?

The 2017 Tax Cuts and Jobs Act includes several provisions that impact the business income statistics in the national income and product accounts (NIPAs), including corporate taxes and capital transfers.  Major provisions are highlighted below.

One-time Deemed Repatriation Tax on Accumulated Foreign Earnings

A one-time deemed repatriation tax is imposed on foreign earnings accumulated after 1986 until the end of a company's most recent fiscal year.  Under this provision, accumulated foreign earnings are deemed repatriated whether or not they are actually repatriated.  The tax rate is 15.5 percent on earnings held in cash and cash equivalents and 8.0 percent on earnings held in illiquid assets. Parent corporations may elect to pay this tax in prescribed installments over a period of eight years.

In the NIPAs, the deemed repatriation tax is classified as a capital transfer from business to government and recorded on an accrual basis in the fourth quarter of 2017 (Lines 2 and 35 of NIPA table 5.11U. Capital Transfers Paid and Received, by Sector and by Type.)  This tax is classified as a capital transaction because the tax applies to previously accumulated earnings and is not related to current period production. It is effectively a wealth tax in economic accounting terms. The one-time capital transfer affects net lending/borrowing of business and government, resulting in a redistribution of net worth from business to government but not affecting any measures in the current accounts.

BEA's estimate of the one-time repatriation tax is $250 billion at a quarterly rate ($1 trillion at an annual rate) and will be recorded (in its entirety) on an accrual basis in the fourth quarter of 2017.  This estimate was based on analysis of data from BEA's international transactions accounts (ITAs), international investment position (IIP), and activities of multinational enterprises (AMNE), as well as estimates from the Joint Committee on Taxation (JCT), and the Treasury Department's Office of Tax Analysis (OTA). This estimate may be updated as source data become available from the IRS Statistics of Income (SOI) reports. The SOI data are available on a two-year lag and will reflect the tax payments on a cash basis.

Decrease in Corporate Tax Rates

The tax law also changes the nominal domestic corporate tax rate from 35 percent to 21 percent beginning with the first quarter of 2018.  This will reduce the amount of taxes paid by corporations and received by the government.  This will not affect Gross Domestic Income (GDI) because profits before tax is the featured measure included in GDI.

Actual amounts of taxes paid by industry will be available in the SOI data with a two-year lag.  Until SOI data are available, estimates of corporate taxes are based on extrapolations that will be adjusted to reflect the new tax rates.   Estimates made for taxes will be replaced with SOI source data once they are available.

Taxation of U.S. Multinational Companies

For U.S. multinational companies, the tax law moves the tax system from a worldwide system to a modified territorial tax system. Under the worldwide system, companies were effectively taxed on all profits overseas at the statutory U.S. corporate tax rate.  These taxes, however, were deferred until the profits were repatriated and brought back to the United States.  In the NIPAs, repatriated profits are classified as dividends from the rest of the world.

Under the new modified territorial system, companies are no longer taxed on funds that are repatriated back to the United States, but they are potentially subject to new taxes. The Global Intangible Low-Taxed Income tax (GILTI) is a minimum tax on the excess income of foreign subsidiaries over a 10 percent rate of return on tangible business assets. The Base Erosion Anti-Abuse Tax (BEAT) is effectively an alternative minimum tax applied to companies with excessive interest or services payments to related parties.

These new taxes will be recorded in the NIPA's as taxes on corporate income beginning with the first quarter of 2018. The amounts of the taxes will be captured in the source data for corporate taxes from SOI reports. For time periods before SOI data are available, BEA will estimate these news taxes based on estimates from the JCT.

Estimates of taxes on corporate income can be found on line 16 of NIPA table 1.10. Gross Domestic Income by Type of Income.

December 21, 2018 in Economics | Permalink | Comments (0)

Thursday, December 20, 2018

TCJA International Tax Reform Impact: How are the International Transactions Accounts affected by an increase in direct investment dividend receipts?

In the international transactions accounts, income on equity, or earnings, of foreign affiliates of U.S. multinational enterprises in a period consists of a portion that is repatriated to the parent company in the United States in the form of dividends and a portion that is reinvested in foreign affiliates. At times, repatriation of dividends exceeds current-period earnings, resulting in negative values being recorded for reinvested earnings. For the first half of 2018, dividends exceeded earnings, reflecting the repatriation of accumulated prior earnings by foreign affiliates of U.S. multinational enterprises to their parent companies in the United States in response to the 2017 Tax Cuts and Jobs Act (TCJA), which generally eliminates taxes on repatriated earnings. The negative reinvested earnings in the first half of 2018 reflect the fact that U.S. parent companies withdrew accumulated prior earnings from their foreign affiliates. Preliminary statistics for the third quarter show positive reinvested earnings and lower dividends (see table below). The reinvested earnings are also reflected in the net acquisition of direct investment assets in the financial account, which was $76.8 billion in the third quarter and −$207.4 billion in the first half of 2018 (table 6).

An increase in the amount of direct investment income repatriated as dividends will have little effect on the current or financial account balances of the U.S. International Transactions Accounts (ITAs). For each account, the net effect is limited to a small change related to foreign taxes withheld on the increased dividends. Much larger, nearly offsetting flows are spread across several different components of the accounts.  

Direct investment income receipts recorded in the ITAs consist of U.S. parent companies’ share of the income on equity, or earnings, of their foreign affiliates, plus interest received on debt claims (ITA table 4.1, lines 2 - 9). Earnings are the economic profits of the foreign affiliate. They can be distributed to the U.S. parent company as dividends or reinvested in the foreign affiliate. Therefore, reinvested earnings are the residual of a given period’s earnings less any dividends paid to the U.S. parent company. That is, payment of dividends affects only the form in which direct investment income is received—as distributed or undistributed earnings—and not the total amount. When dividends exceed a given period’s earnings, reinvested earnings are negative, which indicates that dividends are being paid out of accumulated prior earnings. An increase in direct investment dividends, for a given level of earnings, will result in an offsetting decrease in reinvested earnings. Therefore, the only effect on the current account balance is a small decrease related to more foreign taxes withheld on the increased dividends.

Because the reinvested earnings add to the U.S. parent companies' claims on their foreign affiliates, a transaction that reflects the deemed transmission of these funds back to the foreign affiliates for reinvestment is recorded in the financial account of the ITAs as reinvestment of earnings, a component of direct investment equity (ITA table 6.1, line 4). A decrease in reinvested earnings resulting from increased dividends would therefore result in smaller direct investment equity transactions. Depending on the form in which the dividends are repatriated—cash, debt, or other financial instrument—the smaller direct investment equity transactions would be balanced or offset by transactions in one or more of the other financial account components because of the double-entry accounting principles underlying the ITAs.

  • U.S. Bureau of Economic Analysis, “How are the International Transactions Accounts affected by an increase in direct investment dividend receipts?,” FAQ (June 28, 2018), available at https://www.bea.gov/help/faq/166 (last visited Dec. 19, 2018).

December 20, 2018 in Economics | Permalink | Comments (0)

Wednesday, December 19, 2018

Brazil: Brazil’s Andrade Gutierrez to pay $381 million fine to settle graft charges

BRASILIA (Reuters) - Andrade Gutierrez Engenharia, a construction company, has signed a 1.49 billion reais ($381.49 million) deal to settle corruption allegations against it, federal authorities said on Tuesday, as part of the so-called “Car Wash” graft investigation. 

Carwash involved billions of dollars of bribes and graft pilfered by politicians from the state oil company, Petrobras.

read the full story on Reuters here

December 19, 2018 in AML | Permalink | Comments (0)

U.S. International Transactions, 3rd Quarter 2018

Current-Account Balance

The U.S. current-account deficit increased to $124.8 billion (preliminary) in the third quarter of 2018 from $101.2 billion (revised) in the second quarter of 2018, according to statistics released by the Bureau of Economic Analysis (BEA). The deficit was 2.4 percent of current-dollar gross domestic product (GDP) in the third quarter, up from 2.0 percent in the second quarter.

Quarterly U.S. Current-Account and Component Balances

The $23.6 billion increase in the current-account deficit mainly reflected a $24.0 billion increase in the deficit on goods.

Quarterly U.S. Current-Account Transactions

Current-Account Transactions (tables 1-5)

Exports of goods and services and income receipts

Exports of goods and services and income receipts decreased $6.2 billion in the third quarter to $930.3 billion.

  • Goods exports decreased $7.7 billion to $421.8 billion, mostly reflecting a decrease in foods, feeds, and beverages, primarily soybeans.
  • Primary income receipts decreased $1.8 billion to $264.5 billion, primarily reflecting a decrease in direct investment income. An increase in portfolio investment income partly offset the decrease. For more information on direct investment income, see the box “Effects of the 2017 Tax Cuts and Jobs Act on Components of the International Transactions Accounts.”
  • Services exports increased $1.8 billion to $207.6 billion, mostly reflecting increases in charges for the use of intellectual property, in financial services, and in other business services, primarily professional and management services.

Imports of goods and services and income payments

Imports of goods and services and income payments increased $17.4 billion in the third quarter to $1,055.1 billion.

  • Goods imports increased $16.3 billion to $648.8 billion, mostly reflecting increases in consumer goods, primarily cell phones, in industrial supplies and materials, primarily petroleum and products, and in automotive vehicles, parts, and engines.

Effects of the 2017 Tax Cuts and Jobs Act on Components of the International Transactions Accounts

In the international transactions accounts, income on equity, or earnings, of foreign affiliates of U.S. multinational enterprises in a period consists of a portion that is repatriated to the parent company in the United States in the form of dividends and a portion that is reinvested in foreign affiliates. At times, repatriation of dividends exceeds current-period earnings, resulting in negative values being recorded for reinvested earnings. For the first half of 2018, dividends exceeded earnings, reflecting the repatriation of accumulated prior earnings by foreign affiliates of U.S. multinational enterprises to their parent companies in the United States in response to the 2017 Tax Cuts and Jobs Act (TCJA), which generally eliminates taxes on repatriated earnings. The negative reinvested earnings in the first half of 2018 reflect the fact that U.S. parent companies withdrew accumulated prior earnings from their foreign affiliates. Preliminary statistics for the third quarter show positive reinvested earnings and lower dividends (see table below). The reinvested earnings are also reflected in the net acquisition of direct investment assets in the financial account, which was $76.8 billion in the third quarter and −$207.4 billion in the first half of 2018 (table 6).

Direct Investment Income Receipts and Components
Direct Investment Earnings
Billions of dollars, seasonally adjusted
  2017 2018 Sum of First
Three Quarters
  I II III IV I II r III p 2017 2018
Direct investment earnings 114.1 114.4 120.3 128.9 128.1 132.9 129.8 348.8 390.8
   Dividends 38.2 34.9 55.1 26.9 294.9 183.7 92.7 128.2 571.3
   Reinvested earnings 75.9 79.5 65.2 102.0 -166.8 -50.8 37.1 220.6 -180.5
p Preliminary   r Revised

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

In addition to the repatriation of accumulated earnings, some companies made other changes to their business practices in reaction to the TCJA. For example, some insurance companies changed how they operate in response to the base erosion and anti-abuse tax (BEAT) provision of the TCJA. BEAT is a tax on certain payments from a U.S. company to a related foreign party, which can include premium payments for reinsurance. In response to the new tax, many U.S. insurance companies terminated these intracompany reinsurance contracts. As a result, premiums paid by U.S. insurers to foreign insurers in the first three quarters of 2018 were $73.9 billion, down from $98.4 billion for the same period in 2017 (table 3). Similarly, insurance services imports in the first three quarters of 2018 were $28.8 billion, down from $38.2 billion for the same period in 2017.**

For more information on the estimation methods used to compile insurance services, see the insurance section in "U.S. International Economic Accounts: Concepts and Methods."

Capital Account (table 1)

Capital transfer receipts were $0.6 billion in the third quarter. The transactions reflected receipts from foreign insurance companies for losses resulting from Hurricane Florence. For information on transactions associated with hurricanes and other disasters, see “How do losses recovered from foreign insurance companies following natural or man-made disasters affect foreign transactions, the current account balance, and net lending or net borrowing?

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

Net U.S. borrowing measured by financial-account transactions was $31.3 billion in the third quarter, a decrease from net borrowing of $153.7 billion in the second quarter.

Financial assets

Net U.S. acquisition of financial assets excluding financial derivatives was $132.7 billion in the third quarter following net U.S. liquidation of $199.9 billion in the second quarter.

  • Net U.S. acquisition of direct investment assets was $76.8 billion following net U.S. withdrawal of $68.1 billion in the second quarter. The net withdrawal of direct investment assets in the first half of 2018 reflected U.S. parent repatriation of previously reinvested earnings in response to the TCJA. For more information, see the box "Effects of the 2017 Tax Cuts and Jobs Act on Components of the International Transactions Accounts."
  • Net U.S. liquidation of other investment assets decreased $104.1 billion to $16.6 billion. The decrease in the net liquidation mostly reflected a decrease in the net foreign repayment of loans.
  • Net U.S. purchases of portfolio investment assets were $72.6 billion following net U.S. sales of $14.3 billion in the second quarter. This change mostly reflected net U.S. purchases of foreign equity and investment fund shares following net sales in the second quarter.

Liabilities

Net U.S. incurrence of liabilities excluding financial derivatives was $151.7 billion in the third quarter following net U.S. repayment of $63.3 billion in the second quarter.

  • Net U.S. incurrence of other investment liabilities was $16.9 billion following net U.S. repayment of $100.4 billion in the second quarter. This change primarily reflected net foreign provision of loans following net U.S. repayment in the second quarter.
  • Net U.S. incurrence of direct investment liabilities increased $105.8 billion to $122.3 billion, mostly reflecting an increase in equity liabilities.
  • Net U.S. incurrence of portfolio investment liabilities decreased $8.1 billion to $12.5 billion. This decrease reflected largely offsetting transactions in U.S. equity and debt liabilities.

Financial derivatives

Transactions in financial derivatives other than reserves reflected third-quarter net borrowing of $12.3 billion, a $4.7 billion decrease in net borrowing from the second quarter.

Statistical Discrepancy (table 1)

The statistical discrepancy was $93.0 billion in the third quarter following a statistical discrepancy of −$52.4 billion in the second quarter.

Updates to Second Quarter 2018 International Transactions Accounts Aggregate
Billions of dollars, seasonally adjusted
  Preliminary estimate Revised estimate
Current-account balance –101.5 –101.2
    Goods balance –202.2 –203.1
    Services balance 69.3 68.5
    Primary-income balance 60.8 62.3
    Secondary-income balance –28.5 –29.0
Net lending (+)/borrowing (–) from financial-account transactions –134.3 –153.6
Statistical discrepancy –32.9 –52.4

*  *  *

Next release: March 21, 2019 at 8:30 A.M. EDT

** 10.96. Insurance services. Insurance services include the direct insurance services of providing life insurance (including annuities) and nonlife (property and casualty) insurance, reinsurance, and auxiliary insurance services. Direct insurance and reinsurance are measured as gross premiums earned plus premium supplements less claims payable, with an adjustment for claims volatility. Premium supplements represent investment income from insurance reserves attributed to policyholders who are treated as paying the income back to the insurer. Auxiliary insurance is measured separately and includes agents’ commissions, brokerage services, insurance consulting services, actuarial services, and other insurance services. BEA does not include the BPM6 component pension services due to a lack of source data.

10.97. While premiums and premium supplements are relatively stable, claims payable, which are subtracted from premiums, can be quite volatile from quarter to quarter. The resulting measure of insurance services could thus be erratic, or even negative, in periods of catastrophic events. To deal with fluctuating loss settlements, insurance services are measured as premiums less claims payable adjusted for claims volatility, a concept called “expected losses.” Expected losses are inferred from the relationship between actual losses and premiums averaged over six years. An additional adjustment is made for losses related to certain catastrophic events, which are averaged over 20 years. This treatment removes much of the volatility in insurance services that can be caused by large swings in actual losses. 

10.98. Expected losses are considered transfers from the policyholders to the insurance company and are recorded in secondary income as a current transfer. Claims payable are transfers from the insurance company back to the policyholder and are also recorded in secondary income. An exception to this treatment is for catastrophic losses, which BEA defines as events where the total impact, insured and uninsured, is greater than one percent of gross domestic product. For catastrophic losses, the full amount of the insured loss is entered as a transfer in the capital account in the quarter in which the event occurs. This treatment considers the recovery of losses as an increase in financial assets, rather than an increase in current economic activity that would have been implied if it were combined with regular losses in current transfers. The treatment also removes a significant source of volatility in the current-account balance.

10.99. Statistics for insurance services are based on BEA survey data and company reports. The BEA surveys include the Quarterly Survey of Insurance Transactions by U.S. Insurance Companies With Foreign Persons (BE–45) and the Benchmark Survey of Insurance Transactions by U.S. Insurance Companies With Foreign Persons (BE–140). Direct insurance and reinsurance are estimated separately. An amount collected on BEA surveys is added for auxiliary services such as agents’ commissions and insurance brokerage and agency services. Most crossborder activity occurs in reinsurance where U.S. purchases from foreign reinsurance companies greatly exceed foreign purchases of reinsurance from companies in the United States. 

December 19, 2018 in Economics | Permalink | Comments (0)

Monday, December 17, 2018

TESLA is first plug-in electric vehicle manufacturer to cross 200,000 sold; Tax credit for remaining eligible buyers begins to be eliminated from Jan. 1

The IRS announced today that Tesla, Inc. has sold more than 200,000 vehicles eligible for the plug-in electric drive motor vehicle credit during the third quarter of 2018.This triggers a phase out of the tax credit available for purchasers of new Tesla plug-in electric vehicles beginning Jan. 1, 2019.

Qualifying vehicles by the manufacturer are eligible for a $7,500 credit if acquired before Jan. 1, 2019. Beginning Jan. 1, 2019, the credit will be $3,750 for Tesla’s eligible vehicles. On July 1, 2019, the credit will be reduced to $1,875 for the remainder of the year. After Dec. 31, 2019, no credit will be available.

The plug-in electric drive motor vehicle credit was enacted in the Energy Improvement and Extension Act of 2008 and subsequently modified in later law. It provides a credit for eligible passenger vehicles and light trucks. By law, five quarters after reaching the sales threshold, the credit ends for the manufacturer. Tesla Inc.’s vehicles are eligible for some portion of a credit until Jan. 1, 2020.

Notice 2018-96 details the phase-out. More information on plug-in electric drive motor vehicle credit can be found on IRS.gov. The amounts of the credit for a specific vehicle can also be found at IRS.gov. 

December 17, 2018 | Permalink | Comments (0)

Two Men Charged with Conspiracy and Acting as Agents of a Foreign Government

An indictment was unsealed today charging Bijan Rafiekian, aka Bijan Kian, 66, of San Juan Capistrano, California, and Kamil Ekim Alptekin, 41, of Istanbul, and a Turkish national, with conspiracy, acting in the United States as illegal agents of the government of Turkey, and making false statements to the FBI.

Assistant Attorney General for National Security John C. Demers, U.S. Attorney G. Zachary Terwilliger for the Eastern District of Virginia, and Assistant Director in Charge Nancy McNamara of the FBI’s Washington Field Office, made the announcement.

According to allegations in the indictment, the two men were involved in a conspiracy to covertly influence U.S. politicians and public opinion against a Turkish citizen living in the United States whose extradition had been requested by the Government of Turkey. The plot included using a company founded by Rafiekian and a person referred to as “Person A” in the indictment. The company, referred to as “Company A” in the indictment, provided services based upon Person A’s national security expertise.

The indictment charges that the purpose of the conspiracy was to use Company A to delegitimize the Turkish citizen in the eyes of the American public and United States politicians, with the goal of obtaining his extradition, which was meeting resistance at the U.S. Department of Justice. At the same time, the conspirators sought to conceal that the Government of Turkey was directing the work. However, not only did Turkish cabinet-level officials approve the budget for the project, but Alptekin provided the Turkish officials updates on the work, and relayed their directions on the work to Rafiekian, Person A, and others at Company A.

According to allegations in the indictment, the scheme included using a Dutch company owned by Alptekin to appear to be the “client” of Company A and to pay the company’s fee of $600,000, which was to be paid in three installments. Alptekin made the payments from an account in Turkey. The indictment alleges that after Alptekin made the payments to Company A, it was to kick back 20 percent of the payments to Alptekin’s company in the Netherlands, and two such kickbacks were made.

Rafiekian is charged with conspiracy and acting in the United States as an illegal agent of the government of Turkey.  If convicted, he faces a maximum penalty of 5 years in prison for the conspiracy charge, and 10 years in prison for the charge of acting as an agent of a foreign government.

Alptekin is charged with conspiracy, acting in the United States as an illegal agent of the government of Turkey, and four counts of making false statements to the FBI.  If convicted, he faces a maximum penalty of 5 years in prison for the conspiracy charge, 10 years in prison for the charge of acting as an agent of a foreign government, and 5 years in prison for each of the four false statement charges.

Assistant U.S. Attorney James P. Gillis of the Eastern District of Virginia and Trial Attorney Evan N. Turgeon of the National Security Division’s Counterintelligence and Export Control Section are prosecuting the case.

December 17, 2018 in AML | Permalink | Comments (0)

Sunday, December 16, 2018

Gross Domestic Product by County, 2012-2015

 

The Bureau of Economic Analysis released prototype statistics for gross domestic product (GDP) by county for 2012-2015. Combined with BEA's county estimates of personal income, GDP by county offers a more complete picture of local area economic conditions. In conjunction with their release, BEA is requesting feedback and comments on these prototype statistics to assist in improving their quality, reliability and usefulness.

"This is the first time the Bureau of Economic Analysis is providing GDP statistics for each and every county in the United States," said Secretary of Commerce Wilbur Ross. "The prototype data addresses one of the last remaining gaps in economic knowledge, offering policymakers and businesses a new tool to inform their decision-making."

Percent Change in Real GDP by County, 2014-2015

These prototype GDP statistics, which provide detail for 3,113 counties, include industry breakouts for private goods-producing industries, private services-producing industries, and the government and government enterprises industry group. These statistics represent another step forward in meeting BEA's long-standing goal of providing a more detailed geographic distribution of the nation's economic activity. County-level GDP statistics will assist analysts in the assessment of local economic performance and policymakers in the development of strategies to promote economic growth. They will also help answer important questions related to the size and condition of local area economies, industrial composition, and comparative growth trends.

GDP by county statistics provide a richer picture not only of the distribution of national economic output, but also of national economic trends and their manifestation at finer and alternative levels of geographic detail. They can be used to inform resource allocation decisions and support economic development strategies that target areas with the greatest need by identifying strengths and weaknesses of local economies. GDP by county statistics can also support research into understanding local economic dynamics, the longer-term impacts of different development strategies, and the effectiveness of incentive programs used to support these strategies.

Highlights

In 2015, real (inflation adjusted) GDP increased in 1,931 counties, decreased in 1,159, and was unchanged in 23. Real GDP ranged from $4.6 million in Loving County, TX to $656.0 billion in Los Angeles County, CA.

Large County Highlights

  • Of the 138 large counties, those with populations greater than 500,000, real GDP increased in 125 and decreased in 13 in 2015.
  • Real GDP ranged from $13.9 billion in Volusia County, FL to $656.0 billion dollars in Los Angeles County, CA.
  • Denton County, TX (12.2 percent) and Santa Clara County, CA (11.1 percent) had the largest increases in real GDP in 2015. Growth in both counties was led by increases in private services-producing industries.
  • The largest decreases in real GDP in 2015 were in Marion County, IN (-4.2 percent) and Montgomery County, TX (-2.3 percent). The private goods-producing industries led declines in both counties.

Medium County Highlights

  • Of the 461 medium-sized counties, those with populations between 100,000 and 500,000, real GDP increased in 336, decreased in 120, and was unchanged in 5 in 2015.
  • Real GDP ranged from $1.7 billion in Flagler County, FL to $52.3 billion dollars in Morris County, NJ.
  • Whatcom County, WA (26.9 percent) and Guadalupe County, TX (22.0 percent) had the largest increases in real GDP in 2015. Growth in Whatcom County, WA was led by increases in private services-producing industries, while growth in Guadalupe County, TX was led by increases in private goods-producing industries.
  • The largest decreases in real GDP in 2015 were in Waukesha County, WI (-16.1 percent) and Tazewell County, IL (-13.4 percent). The private services-producing industries led declines in Waukesha County, WI, while private goods-producing industries led declines in Tazewell County, IL.

Small County Highlights

  • Of the 2,514 small counties, those with populations less than 100,000, real GDP increased in 1,470, decreased in 1,026, and was unchanged in 18 in 2015.
  • Real GDP ranged from $4.6 million in Loving County, TX to $8.7 billion dollars in St. Charles Parish, LA.
  • Roberts County, TX (72.3 percent) and Briscoe County, TX (68.4 percent) had the largest increases in real GDP in 2015. Growth in both counties was led by increases in private services-producing industries.
  • The largest decreases in real GDP in 2015 were in Slope County, ND (-37.8 percent) and Sanders County, MT (-34.9 percent). The private goods-producing industries led declines in Slope County, ND, while private services-producing industries led declines in Sanders County, MT.

December 16, 2018 in Economics | Permalink | Comments (0)

Saturday, December 15, 2018

The United Kingdom's measures to fight money laundering and the financing of terrorism and proliferation

The United Kingdom has a well-developed and robust regime to effectively combat money laundering and terrorist financing. However, it needs to strengthen its supervision, and increase the resources of its financial intelligence unit. 

The FATF has conducted an assessment of the United Kingdom’s anti-money laundering and counter terrorist financing (AML/CFT) system. The assessment is a comprehensive review of the effectiveness of the UK’s measures and their level of compliance with the FATF Recommendations.

The UK is the largest financial services provider in the world. As a result of the exceptionally large volume of funds that flows through its financial sector, the country also faces a significant risk that some of these funds have links to crime and terrorism.  This is reflected in the country’s strong understanding of these risks, as well as national AML/CFT policies, strategies and proactive initiatives to address them.

The UK aggressively pursues money laundering and terrorist financing investigations and prosecutions, achieving 1400 convictions each year for money laundering. UK law enforcement authorities have powerful tools to obtain beneficial ownership and other information, including through effective public-private partnerships, and make good use of this information in their investigations. However, the UK financial intelligence unit needs a substantial increase in its resources and the suspicious activity reporting regime needs to be modernised and reformed.

The country is a global leader in promoting corporate transparency and it is using the results of its risk assessment to further strengthen the reporting and registration of corporate structures. Financial institutions as well as all designated non-financial businesses and professions such as lawyers, accountants and real estate agents are subject to comprehensive AML/CFT requirements. Strong features of the system include the outreach activities conducted by supervisors and the measures to prevent criminals or their associates from being professionally accredited or controlling a financial institution. However, the intensity of supervision is not consistent across all of these sectors and UK needs to ensure that supervision of all entities is fully in line with the significant risks the UK faces.

The UK has been highly effective in investigating, prosecuting and convicting a range of terrorist financing activity and has taken a leading role in designating terrorists at the UN and EU level.  The UK is also promoting global implementation of proliferation-related targeted financial sanctions, as well as achieving a high level of effectiveness in implementing targeted financial sanctions domestically

The UK’s overall AML/CFT regime is effective in many respects. It needs to address certain areas of weakness, such as supervision and the reporting and investigation of suspicious transactions.  However, the country has demonstrated a robust level of understanding of its risks, a range of proactive measures and initiatives to counter the significant risks identified and plays a leading role in promoting global effective implementation of AML/CFT measures.

FATF adopted this report at its Plenary meeting in October 2018.

Outcomes FATF Plenary, 17-19 October 2018

 

Download the report: 

Mutual Evaluation Report of the United Kingdom - 2018

Mutual Evaluation Report, United Kingdom 2018 - Executive Summary

More information:  

FATF Recommendations

Methodology for assessing technical compliance with the FATF Recommendations and the Effectiveness of AML/CFT Systems

Consolidate assessment ratings - an overview of ratings that assessed countries obtained for effectiveness and technical compliance.

December 15, 2018 in AML | Permalink | Comments (0)

Friday, December 14, 2018

Affordable Care Act Found Unconstitutional By Federal Court Because TCJA Repealed Individual Mandate Tax

The Plaintiffs allege that, following passage of the Tax Cuts and Jobs Act of 2017 (TCJA), the Individual Mandate in the Patient Protection and Affordable Care Act (ACA) is unconstitutional. They say it is no longer fairly readable as an exercise of Congress’s Tax Power and continues to be unsustainable under the Interstate Commerce Clause. They further urge that, if they are correct, the balance of the ACA is untenable as inseverable from the Invalid Mandate.

Resolution of these claims rests at the intersection of the ACA, the Supreme Court’s decision in NFIB, and the TCJA. In NFIB, the Supreme Court held the Individual Mandate was unconstitutional under the Interstate Commerce Clause but could fairly be read as an exercise of Congress’s Tax Power because it triggered a tax. The TCJA eliminated that tax. The Supreme Court’s reasoning in NFIB—buttressed by other binding precedent and plain text—thus compels the conclusion that the Individual Mandate may no longer be upheld under the Tax Power. And because the Individual Mandate continues to mandate the purchase of health insurance, it remains unsustainable under the Interstate Commerce Clause—as the Supreme Court already held.

Finally, Congress stated many times unequivocally—through enacted text signed by the President—that the Individual Mandate is “essential” to the ACA. And this essentiality, the ACA’s text makes clear, means the mandate must work “together with the other provisions” for the Act to function as intended. All nine Justices to review the ACA acknowledged this text and Congress’s manifest intent to establish the Individual Mandate as the ACA’s “essential” provision. The current and previous Administrations have recognized that, too. Because rewriting the ACA without its “essential” feature is beyond the power of an Article III court, the Court thus adheres to Congress’s textually expressed intent and binding Supreme Court precedent to find the Individual Mandate is inseverable from the ACA’s remaining provisions.

For the reasons stated above, the Court grants Plaintiffs partial summary judgment and declares the Individual Mandate, 26 U.S.C. § 5000A(a), UNCONSTITUTIONAL. Further, the
Court declares the remaining provisions of the ACA, Pub. L. 111-148, are INSEVERABLE and therefore INVALID. The Court GRANTS Plaintiffs’ claim for declaratory relief in Count I of the Amended Complaint.

Download 55-page decision ruling ACA unconstitutional

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December 14, 2018 in Tax Compliance | Permalink | Comments (0)