International Financial Law Prof Blog

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

Thursday, February 28, 2019

Two Businessmen Charged with Foreign Bribery in Connection with Venezuela Bribery Scheme

A former sales representative and the president of a U.S.-based company were charged in an indictment unsealed today on foreign bribery, wire fraud and money laundering charges for their alleged roles in a scheme to corruptly secure business advantages, including contracts and payment on past due invoices, from Venezuela’s state-owned and state-controlled energy company, Petroleos de Venezuela S.A. (PDVSA).

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Ryan K. Patrick of the Southern District of Texas and Special Agent in Charge Mark Dawson of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI) Houston Field Office made the announcement.

Rafael Enrique Pinto Franceschi (Pinto), 40, of Miami, Florida, and Franz Herman Muller Huber (Muller), 68, of Weston, Florida, were charged in a five-count indictment returned in the Southern District of Texas on Feb. 21, and unsealed today.  Pinto and Muller made their initial appearances today before U.S. Magistrate Judge Jonathan Goodman of the Southern District of Florida.  Pinto and Muller are each charged with one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA), one count of conspiracy to commit wire fraud, two counts of wire fraud, and one count of conspiracy to launder money.

The indictment alleges that beginning in or around 2009 and continuing through at least 2013, Pinto, a sales representative for a Miami-based PDVSA supplier (“Company A” in the indictment), and Muller, the President of Company A, conspired with others to bribe three PDVSA officials in exchange for providing assistance in connection with Company A’s PDVSA business.  According to the indictment, in exchange for bribe payments the PDVSA officials allegedly assisted Company A in obtaining additional PDVSA contracts, inside information and payment on past due invoices.  The indictment alleges that when Company A received a payment from PDVSA, Pinto would alert one of the PDVSA officials who would, in turn, create a fictitious invoice from a Panamanian shell company charging Company A three percent of whatever payment Company A had received from PDVSA and directing Company A to send payment to a Swiss bank account.  According to the charges, the false invoice would be sent to Muller, who would ensure that the invoices were paid. 

The wire fraud charges against Pinto and Muller are based on allegations that, in addition to directing Company A money to the three PDVSA officials to benefit Company A, Pinto and Muller received kickbacks in connection with the scheme.  In total, Pinto is alleged to have received over $985,000 in kickback payments, and Muller over $258,000. 

Two of the three officials that Pinto and Muller are accused of bribing – Jose Camacho and Ivan Guedez, both of Houston – have already pleaded guilty in connection with the case and are pending sentencing. 

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

With the unsealing of the indictment today, the Justice Department has announced charges against 21 individuals, 15 of whom have pleaded guilty, as part of a larger, ongoing investigation by the U.S. government into bribery at PDVSA.  HSI Houston is conducting the ongoing investigation with assistance from HSI Boston and Miami.  Trial Attorneys Sarah E. Edwards and Sonali D. Patel of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys John P. Pearson and Robert S. Johnson of the Southern District of Texas are prosecuting the case.  Assistant U.S. Attorney Kristine Rollison of the Southern District of Texas is handling the forfeiture aspects of the case. 

The Criminal Division’s Office of International Affairs, the Swiss Federal Office of Justice, and the Cayman Mutual Legal Assistance Authority and Cayman Office of the Director of Public Prosecution also provided assistance. 

February 28, 2019 in AML | Permalink | Comments (0)

Wednesday, February 27, 2019

Gross Domestic Product by State, 3rd quarter 2018

Real gross domestic product (GDP) increased in 49 states and the District of Columbia in the third quarter of 2018, according to statistics released today by the U.S. Bureau of Economic Analysis. The percent change in real GDP in the third quarter ranged from 5.8 percent in Washington to 0.0 percent in West Virginia (table 1).

Percent Change in Real GDP by State, 2018:Q2-2018:Q3

Wholesale trade, information services, finance and insurance, and retail trade were the leading contributors to the increase in real GDP nationally (table 2). Information services and retail trade were the leading contributors to the increase in real GDP in Washington, the fastest growing state.

Other highlights

  • Nationally, wholesale trade, information services, finance and insurance, and retail trade increased 7.4 percent, 7.6 percent, 5.5 percent, and 6.3 percent, respectively (GDP by Industry table 1). Wholesale trade contributed to growth in 49 states, while information services, finance and insurance, and retail trade contributed to growth in all 50 states and the District of Columbia.
  • Finance and insurance was the leading contributor to growth in Utah–the second fastest growing state.
  • Information services was the leading contributor to growth in Arizona–the third fastest growing state.
  • For the nation, real GDP for mining was virtually unchanged from the second quarter. This industry subtracted from growth in Wyoming, Alaska, and West Virginia–the three slowest growing states.

February 27, 2019 in Economics | Permalink | Comments (0)

Sunday, February 24, 2019

OECD Releases Peer Review Reports for Stopping Treaty Abuse and MAPs

Latest releases
Progress continues with the implementation of the BEPS package, as the OECD releases additional peer review reports assessing countries’ efforts to implement the Action 6 and Action 14 minimum standards as agreed under the OECD/G20 BEPS Project. 

February 24, 2019 in BEPS, OECD | Permalink | Comments (0)

OECD Offers Revenue Officials International Tax E-Learning

The OECD’s Global Relation Programme offers tax officials from developing countries the necessary training to tackle today’s most pressing challenges in international taxation. These events are offered free of charge in three formats: face-to-face, blended learning and, soon, in e-learning.

 

The Global Relations Programme is launching the first OECD e-learning project: 13 e-learning courses covering 7 different topics related to international taxation will be open in 2019.

 

E-learning courses will be offered free of charge to government tax officials from all countries through the Knowledge Sharing Platform (KSP). These interactive courses will give participants a solid knowledge base on key topics of international taxation, providing a certificate to those who complete them successfully.

 

LIST OF E-LEARNING COURSES

e-learning icon

Courses

Language

Registration

BEPS Minimum Standards

EN

Click here

BEPS Actions 2, 3, 4 and 12: Hybrids, Interests and CFCs

EN

Click here

Basic concepts of Transfer Pricing

EN/ES Click here

Introduction to Transfer Pricing

EN/FR Click here

 

Tentative list of e-learning topics available by the end of 2019

  • 10 Global Principles: Fighting Tax Crime 
  • Beneficial Ownership
  • BEPS Action 5: Harmful Tax Practices
  • Exchange of Information on Request
  • Global Forum: A Tool to Combat Tax Evasion 
  • Introduction to Tax Treaties
  • Tax & Crime
  • Toolkit for Addressing Difficulties in Accessing Comparables Data for Transfer Pricing Analyses 
  • VAT

 

February 24, 2019 in Education, OECD | Permalink | Comments (0)

Saturday, February 23, 2019

Former President and Former Chief Legal Officer of Publicly Traded Fortune 200 Technology Services Company Indicted in Connection with Alleged Multi-Million Dollar Foreign Bribery Scheme

A federal grand jury returned an indictment against Gordon Coburn, the former president and the former chief legal officer, of Cognizant Technology Solutions Corporation, a publicly traded Fortune 200 technology services company based in Teaneck, New Jersey, in connection with an alleged foreign bribery scheme.

Gordon Coburn, 55, of Beaver Creek, Colorado, and Steven Schwartz, 51, of Greenwich, Connecticut, were charged in a 12-count indictment with one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA), three counts of violating the FCPA, seven counts of falsifying books and records, and one count of circumventing and failing to implement internal accounting controls.  The charges stem from an alleged scheme to bribe one or more government officials in India to ensure the issuance of a construction permit necessary to complete the development of an office campus that would support thousands of employees and become one of Cognizant’s largest facilities in India.

The case is assigned to U.S. District Judge Kevin McNulty of the District of New Jersey.  The defendants are scheduled to appear this afternoon before U.S. Magistrate Judge Mark Falk in Newark federal court.

“The allegations in the indictment filed yesterday describe a sophisticated international bribery scheme authorized and concealed by C-suite executives of a publicly-traded multinational company,” said Assistant Attorney General Benczkowski.  “The indictment of Gordon Coburn and Steven Schwartz demonstrates the Department’s commitment to relentlessly pursuing corporate fraud and corruption wherever it is found.”

According to the indictment, in or about April 2014, Coburn and Schwartz allegedly authorized an unlawful payment of approximately $2 million to one or more foreign government officials in India to secure and obtain a necessary permit to open a new office campus.  To conceal Cognizant’s involvement in the scheme, Coburn, Schwartz and others allegedly agreed that a third-party construction company would obtain the permit by making the illegal bribe payment and that Cognizant would reimburse the construction company through phony construction invoices at the end of the project.  The indictment further alleges that in or about late June 2014, after the co-conspirators had agreed that the construction company would make the bribe payment on behalf of Cognizant, the construction company secured the necessary government order for Cognizant to obtain the permit, allowing Cognizant to complete the development of the office campus and avoid millions of dollars in costs.  Months later, the co-conspirators are alleged to have knowingly caused Cognizant to funnel over $2 million to the construction company disguised as payment for cost overruns on the office campus when they knew that the actual purpose of the payment was to reimburse the construction company for the bribe payment.  According to the indictment, as Coburn, Schwartz and others had previously agreed, they hid the bribe reimbursement payment within a series of line items in a construction change order request to be paid to the construction company, thereby concealing the true nature and purpose of the reimbursement, falsifying Cognizant’s books and records, and circumventing and failing to implement its internal controls.

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

The Department of Justice and the U.S. Attorney’s Office for the District of New Jersey also announced today that they have declined prosecution of Cognizant after considering the factors set forth in the Department of Justice’s Principles of Prosecution of Business Organizations and the Corporate Enforcement Policy, including Cognizant’s prompt voluntary self-disclosure, cooperation and remediation, as well as Cognizant’s disgorgement to the Department and the U.S. Securities and Exchange Commission (SEC) of the cost savings that resulted from the bribery scheme. 

In the related case with the SEC, Cognizant entered into a cease and desist order and agreed to pay the SEC a civil penalty, disgorgement and prejudgment interest totaling approximately $25 million.

The Department appreciates the significant cooperation provided by the SEC in this case.

The case is being investigated by the FBI’s Newark Field Office.  Assistant Chief David A. Last of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Courtney A. Howard and Nicholas P. Grippo of the District of New Jersey are prosecuting the case.

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

February 23, 2019 in AML | Permalink | Comments (0)

Friday, February 22, 2019

EU Parliament and Council Agree Open Access to Person's Financial Information To All EU States, Final Step is Adoption of Directive

The European Parliament and the Council reached a political agreement on the Commission's proposal to facilitate cross-border access to financial information by law enforcement authorities.

political priority for 2018-2019, the new measures will allow police to quickly access crucial financial information for criminal investigations, boosting the EU's response to terrorism and other serious crime.

Welcoming the agreement, Commissioner for Migration, Home Affairs and Citizenship Dimitris Avramopoulos said: “If you want to catch criminals and terrorists, you need to be able to follow their money. The new rules agreed today will ensure swift access to financial information and smoother cooperation across Europe so that no criminal or suspect can slip under the radar any longer or get away with dirty money.”

Commissioner for the Security Union Julian King said: “We have been closing down the space in which terrorists and criminals operate, denying them the means to carry out their deadly attacks. Today, we are cutting this space even further, making it easier for law enforcement to access financial information to help them crack down on the financing of terrorism. I would like to thank the European Parliament and the Council for delivering on an important commitment to building a safer Europe.”  

Commissioner for Justice, Consumers and Gender Equality Věra Jourová said: “Improving the cooperation between Financial Intelligence Units and law enforcement in the EU will allow us to crack down faster and more effectively on money laundering. We need to be vigilant towards suspicious transfers of money, which can be one of the signals that a terrorist attack is being prepared. Such information needs to be relayed fast, and this can only be done if we have a strong network."

With modern technology, criminals and terrorists can transfer money between financial institutions in a matter of minutes. Law enforcement's access to financial information is often too slow and too cumbersome, preventing them from completing criminal investigations and effectively cracking down on terrorists and serious criminals. Complementing the EU Anti-Money Laundering framework, the measures agreed today will:

  • Allow timely access to financial information: Law enforcement authorities and Asset Recovery Offices (AROs) will have direct access to bank account information contained in national centralised bank account registries or data retrieval systems. Europol will also be able to access this information indirectly.
  • Improve cooperation: The new rules enhance cooperation between national authorities, Europol and the Financial Intelligence Units (FIUs).
  • Safeguard data protection: Law enforcement will have access to limited information only on the identity of the bank account holder and in specific cases of serious crime or terrorism, ensuring that the rights and freedoms of individuals are fully protected, in particular the right to the protection of personal data.

Next steps

The Directive will now need to be formally adopted by the European Parliament and the Council. Once it enters into force, Member States will have 24 months to implement the new rules into national legislation.

Background

Criminal groups and terrorists are increasingly operating across borders with their assets located both within and beyond EU territory. While the EU has a strong EU Anti-Money Laundering framework, the current rules do not set out the precise conditions under which national authorities can use financial information for the prevention, detection, investigation or prosecution of certain criminal offences.

Following up on the Action Plan set out in February 2016, in April 2018 the Commission proposed to facilitate the use of financial and other information to prevent and combat serious crimes, such as terrorist financing, more effectively. The measures, agreed today by the European Parliament and the Council, strengthen the existing EU anti-money laundering framework as well as Member States capacity to combat serious crime.

For More Information

Press Release – Security Union: Commission presents new measures to deny terrorists and criminals the means and space to act (17 April 2018)

Frequently Asked Questions – Security Union: Denying terrorists the means to act (17 April 2018)

February 22, 2019 in AML | Permalink | Comments (0)

Thursday, February 21, 2019

Extension of the comment period for the public consultation document on the possible solutions to the tax challenges of digitalisation

In order to ensure all stakeholders are given the full opportunity to provide feedback on the publication consultation document relating to the possible solutions to the tax challenges of digitalisation, the OECD has extended the comment period to 6 March 2019.
The public consultation meeting remains scheduled for 13-14 March 2019 and the deadline for registration to attend the public consultation remains 1 March 2019.
Access the public
consultation document
 
OECD invites taxpayer input on the eighth batch of dispute resolution peer reviews

The OECD is now gathering input for the Stage 1 peer reviews of Brunei Darussalam, Curaçao, Guernsey, Isle of Man, Jersey, Monaco, San Marino and Serbia, 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.

Deadline: 19 March 2019

February 21, 2019 in OECD | Permalink | Comments (0)

Does your financial center company have economic substance?

Applyby information

Ernst Young information 

BDO information

PwC information

Cayman Laws

The International Tax Co-operation (Economic Substance) Bill, 2018

PASSED : By the House for the Third Meeting of the 2018/2019 Session of the Legislative Assembly on December 17th 2018.

[A Bill For A Law To Provide For An Economic Substance Test To Be Satisfied By Certain Entities; And For Incidental And Connected Purposes.]
The Companies (Amendment) (No. 2) Bill, 2018

PASSED : By the House for the Third Meeting of the 2018/2019 Session of the Legislative Assembly on December 17th 2018.

[A Bill For A Law To Amend The Companies Law (2018 Revision) To Make Miscellaneous Changes To The Provisions Relating To Accounting Records And Exempted Companies; And To Provide For Incidental And Connected Purposes.]
The Local Companies (Control) (Amendment) Bill, 2018

PASSED: By the House for the Third Meeting of the 2018/2019 Session of the Legislative Assembly on December 17th 2018.

[A Bill For A Law To Amend The Local Companies (Control) Law (2015 Revision) To Provide For Exempted Companies Carrying On Business In The Islands; And For Incidental And Connected Purposes.]

British Virgin Islands Law - VIRGIN ISLANDS ECONOMIC SUBSTANCE (COMPANIES AND LIMITED PARTNERSHIPS) ACT, 2018

ARRANGEMENT OF SECTIONS
Section
1. Short title and commencement.
2. Interpretation.
3. Meaning of finance and leasing business.
4. Meaning of financial period.
5. General obligations.
6. Meaning of relevant activities.
7. Meaning of Core income-generating activities.
8. Economic substance requirements.
9. Presumptions of non-compliance for intellectual property business.
10. Assessment of compliance.
11. Requirement to provide information.
12. Penalties for non-compliance with economic substance requirements.
13. Right of appeal.
14. Procedure on appeal.
15. Time for compliance with section 12 notice.
16. Amendments to the 2017 Act.
17. Regulations and Rules.
SCHEDULE

February 21, 2019 in BEPS, Tax Compliance | Permalink | Comments (0)

Wednesday, February 20, 2019

Isle of Man Must Adopt New AML/CFT Framework by July 2019 To Address MONEYVAL Concerns

The Isle of Man Financial Services Authority, in conjunction with the Department of Home Affairs and the Isle of Man Treasury has issued Consultation Paper (CP19-01/T19) on proposed changes to the Island’s AML/CFT framework. The updated framework needs to be in force by July 2019 in order to coincide with the Island’s next follow up report to MONEYVAL and its consideration at their plenary scheduled for July 2019. The purpose of this consultation is to seek views on the proposed Anti-Money Laundering and Countering the Financing of Terrorism (Specified Non-Profit Organisations) Code.  Download IOM Code consultation 2019 14.2.2019

The documents included in this consultation are:

  • the Anti-Money Laundering and Countering the Financing of Terrorism Code 2019 (Department of Home Affairs legislation);
  • section 157 of the Proceeds of Crime Act 2008 and section 68 of Terrorism and Other Crime (Financial Restrictions) Act 2014 (Department of Home Affairs legislation);
  • the Anti-Money Laundering and Countering the Financing of Terrorism (Civil Penalties) Regulations 2019 (Isle of Man Treasury legislation);
  • Schedule 4 to the Proceeds of Crime Act 2008 (Department of Home Affairs legislation); and
  • Schedule 1 to the Designated Businesses (Registration and Oversight) Act 2015 (Isle of Man Treasury legislation)

The consultation is relevant to:

  • All persons that are licensed, authorised or registered under the Financial Services Act 2008, Insurance Act 2008, Retirement Benefits Schemes Act 2000, Designated Businesses (Registration and Oversight) Act 2015 or that have responsibility for collective investment schemes under the Collective Investment Schemes Act 2008. It is also relevant to advisers to those persons, or potential applicants for permissions under these Acts or their advisers.
  • The consultation is also relevant to a society registered as a credit union within the meaning of the Credit Unions Act 1993, a building society within the meaning of section 7 of the Industrial and Building Societies Act 1892, and, the Post Office in respect of certain activities.
  • Schedule 4 to POCA includes a proposed new definition of “payroll agent” which may bring new businesses into the regulated sector. If you believe your business will be affected by this proposed change please contact the Authority.
  • Additionally, the sections of the consultation regarding Schedule 4 to POCA are also relevant to all persons supervised in relation to AML/CFT by the Isle of Man Gambling Supervision Commission.

Responses to the consultation are requested by 27th March 2019. Please refer to the consultation webpage for further information.

The Authority will be offering appointments on 7th March 2019 for persons who wish to discuss certain matters or have specific areas of concern. Should you wish to book a 30 minute slot please email Ashley.Whyte@iomfsa.im (slots are limited to 30 minutes in order for the Authority to be able to meet with a number of parties). Should there be sufficient interest the Authority will be offering appointments on an additional date.

Previous 2018 AML amendment not sufficient ....

The Anti-Money Laundering and Countering the Financing of Terrorism (Amendment) Code 2018 (‘the Amendment Code’) was signed on 13 September 2018 and came into effect on 14 September 2018.  This Amendment Code gives effect to recommendations made in the Mutual Evaluation Report issued by MONEYVAL following its Fifth Round Mutual Evaluation of the Isle of Man. The main additions to the Anti-Money Laundering and Countering the Financing of Terrorism Code 2015 contained within the Amendment Code are:

  • The introduction of requirements to establish, maintain and operate procedures in relation to sanctions screening;
  • The introduction of the need to consider whether the relevant person has met the customer in the course of business when conducting business and customer risk assessments;
  • The introduction of Paragraph 10A which places requirements on a relevant person to undertake certain considerations where an introducer is assisting with the customer due diligence process;
  • Expansion of the requirements of Paragraph 21 to address recommended actions from MONEYVAL; and,
  • Amendment of Paragraph 23 to ensure that it only deals with instances where a relevant person places reliance on an eligible introducer.

A copy of the Amendment Code can be found here. A tracked changes version of the full Anti-Money Laundering and Countering the Financing of Terrorism Code 2015 (as amended) and an updated version of Appendix A of the Anti-Money Laundering and Countering the Financing of Terrorism Handbook are now available.

The Authority would like to thank everyone who participated in the consultation regarding the Amendment Code. Following comments received a number of changes were made to the draft Amendment Code with a view to providing further clarity of the new provisions. The responses received also indicated a number of areas were further guidance is required to assist firms in applying the new provisions to their business. This work has begun and an updated version of the Anti-Money Laundering and Countering the Financing of Terrorism Handbook will be issued in due course.

Related

 

 

February 20, 2019 | Permalink | Comments (0)

Tuesday, February 19, 2019

Anti-money laundering: Q & A on the EU list of high-risk third countries

European Commission - Fact Sheet

Anti-money laundering: Q & A on the EU list of high-risk third countries

Strasbourg, 13 February 2019

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See IP/19/781

 

Why does the Commission present a new list of high-risk third countries?

As defined under the Fourth and Fifth Anti-Money Laundering Directives, the EU has to establish a list of high-risk third countries, to make sure the EU financial system is equipped to prevent money laundering and terrorist financing risks coming from third countries. Therefore the aim is to protect the integrity of the EU financial system from financial flows involving countries with strategic deficiencies in their anti-money laundering and countering terrorist financing regimes. 

The Commission issued the first such list in 2016 and updated it subsequently in the last years. Since the adoption of the Fifth Anti-Money Laundering Directive, the criteria against which a third country is assessed have been substantially extended, and required an adaptation of the listing process. This is the first list adopted using the new criteria and methodology.

Which countries does the Commission propose to list on the new EU list of high-risk third countries? 

The Commission's new list includes 12 countries listed by the Financial Action Task Force, as well as an additional 11 jurisdictions. Some of the countries listed today are already on the current EU list, which includes 16 countries. The Commission proposes also today to de-list a number of countries previously included on the EU-list: Bosnia-Herzegovina, Guyana, Lao PDR, Uganda and Vanuatu.

12 countries also listed by the Financial Action Task Force:

(1)             The Bahamas,

(2)             Botswana,

(3)             Democratic People's Republic of Korea,

(4)             Ethiopia,

(5)             Ghana,

(6)             Iran,

(7)             Pakistan,

(8)             Sri Lanka,

(9)             Syria,

(10)          Trinidad and Tobago,

(11)          Tunisia,

(12)          Yemen. 

11 additional jurisdictions identified by the Commission:

(1)             Afghanistan,

(2)             American Samoa,

(3)             Guam,

(4)             Iraq,

(5)             Libya,

(6)             Nigeria,

(7)             Panama,

(8)             Puerto Rico,

(9)             Samoa,

(10)          Saudi Arabia,

(11)          US Virgin Islands. 

What are the criteria used to establish the list?

As regards the criteria to assess countries in the listing phase, these were initially set by the 4th Anti-Money Laundering Directive. The criteria were strengthened by the Fifth Anti-Money Laundering Directive and now include:

  •     the strategic deficiencies of those countries, in particular in relation to the legal and institutional anti-money laundering and counter-terrorist financing framework such as

o    criminalisation of money laundering and terrorist financing,

o    customer due diligence and record keeping requirements,

o    reporting of suspicious transactions,

o    the availability and exchange of information on beneficial ownership of legal persons and legal arrangements,

o    the powers and procedures of competent authorities,

o    their practice in international cooperation,

o    the existence of dissuasive, proportionate and effective sanctions.

The Commission has to check how effectively the anti-money laundering and counter-terrorist financing safeguards are implemented in practice.

What are the consequences of the listing for financial institutions?

Under to the Fourth Anti-Money Laundering Directive, banks and other financial institutions have to apply extra checks ("enhanced customer due diligence requirements") for transactions involving high-risk third countries identified on the list.

Customer due diligence corresponds to a series of checks and measures that a bank or an obliged entity has to use in case they have suspicions of high risk of money laundering or terrorist financing. Enhanced due diligence measures include extra checks and monitoring of those transactions by banks and obliged entities in order to prevent, detect and disrupt suspicious transactions.

The Fifth Anti-Money Laundering Directive clarifies the type of enhanced vigilance to be applied, which includes obtaining additional information on the customer and on the beneficial owner or obtaining the approval of senior management for establishing a business relationship.

The listing does not entail any type of sanctions, restrictions on trade relations or impediment to development aid; but requires banks and obliged entities to apply enhanced vigilance measures on transactions involving these countries. 

Does the Commission cooperate with the Financial Action Task Force? 

The Commission is a member of the Financial Action Task Force and supports its work in ensuring global compliance with international standards – in particular by identifying and working with countries having strategic deficiencies in their anti-money laundering/counter terrorist financing regime in order to reduce risks of money laundering worldwide. Therefore the Commission considers countries identified by the Financial Action Task Force as having strategic deficiencies, as a starting point for its assessment on high risk third countries. The Commission increased its engagement in the work done by the Financial Action Task Force and will continue to do so as part of its commitment to foster international co-operation in this field.  The Commission considers as a starting point that any third country presenting a risk for the international financial system, as identified by the Financial Action Task Force, also represents a risk for the EU internal market.

In addition, the Commission has its own autonomous measures to protect the integrity of the EU financial system. This approach will complement the efforts of the Financial Action Task Force by addressing risks that are specific for the EU. The Financial Action Task Force listing process depends on the timing of the evaluation cycle (planned over several years), observation periods and priority setting. The purpose, process and priority-setting for the EU list of high risk third countries are different than that of Financial Action Task Force. Limiting the application of enhanced vigilance to transactions involving countries listed by the Financial Action Task Force would fall short in ensuring sufficient safeguards for the EU financial system.

How does the list of high-risk third countries differ from the common EU tax list of uncooperative tax jurisdictions?

The high-risk third country list aims to address risks to the EU's financial system caused by third countries with deficiencies in their anti-money laundering and counter-terrorist financing regimes. On the basis of this list, banks must apply higher due diligence controls to financial flows to the high risk third countries.

On the other hand, the common EU list of uncooperative tax jurisdictions addresses the external risks to Member States' tax bases, posed by third countries that do not adhere to international tax good governance standards. The two lists may overlap on some of the countries they feature, but they have different objectives, criteria and different compilation processes. . While the EU list of uncooperative tax jurisdictions is a Council-led process, the EU list of high-risk third countries is established by the Commission based on EU anti-money laundering rules. The two lists complement each other in ensuring a double protection for the Single Market from external risks.

 

METHODOLOGY

Why a new methodology to identify high-risk third countries?

The Fourth Anti-Money Laundering Directive sets the criteria for identifying high-risk third countries. These requirements have been strengthened by the Fifth Anti-Money Laundering Directive; the criteria included the availability and access to beneficial ownership information, existence of effective, proportionate and dissuasive sanctions in case of breaches of anti-money laundering and counter terrorist financing obligations, as well as third countries' practice in cooperation and exchange of information with Member States' competent authorities In June 2018, the Commission released a new methodology for identifying high-risk third countries setting out an objective, fair and transparent process. This methodology provides for the main milestones, the assessment criteria and follow-up process.

This initiative is part of the broader Commission's efforts in order to reinforce enforcement of anti-money laundering/counter terrorism financing measures and support global efforts in addressing money laundering and terrorist financing risks. 

Why did the Commission decide to list these 23 jurisdictions?

In parallel to the procedure of the Financial Action Task Force, the Commission developed its own methodology to identify high-risk countries. It relies on wider criteria set by EU anti-money laundering legislation, the Commission's own expertise and other information sources such as Europol, information from the European External Action Service or the EU list of non-cooperative tax jurisdictions.

The Commission's methodology defines two steps:

  •     The scoping phase:  the Commission carried out a pre-assessment to determine the scope of countries to be assessed and identify the level of priority of those countries. Countries with a very low integration with the EU financial system and not exposed to money laundering or terrorist financing threats were excluded. This pre-assessment is based on objective criteria using information sources, such as Europol. At this step, the Commission identified 132 jurisdictions. The results of this phase were published on 15 November 2018.
  •     The listing phase: amongst these 132, the Commission identified 54 countries as "priority 1". In addition to being countries listed by the Financial Action Task Force, these  countries met at least one of the following criteria:

o  Countries exposed to a high level of threat identified by Europol / European External Action Service;

o  Countries on the EU list of non-cooperative tax jurisdictions;

o  Countries de-listed by the Financial Action Task Force since July 2016 (but still listed on the former EU list);

o  Countries identified by Europol and by the Financial Action Task Force during their mutual evaluation processes.

  •        The assessment phase: the Commission assessed these 54 countries and ultimately identified 23 jurisdictions with strategic deficiencies in their anti-money laundering and counter-terrorist financing regimes according to the following criteria from the methodology:

o    Insufficient criminal sanctions in place in case of money laundering or terrorist financing;

o    Insufficient application of customer due diligence requirements by financial institutions or non-financial;

o    intermediaries;

o    Low level of reporting of suspicious transactions by intermediaries;

o    Insufficient powers of competent authorities and low levels of sanctions in case of breaches;

o    Insufficient international cooperation with Member States;

o    Lack of transparency on the real owners of companies and trusts («the beneficial owners»);

o  Insufficient implementation of targeted financial sanctions based on United Nations resolutions. 

The remaining countries are considered as "priority 2" countries and the Commission will carry out its assessment gradually until 2025. 

How does the high-risk third country list differ from the Financial Action Task Force's list?

The Commission's approach follows the one already existing at global level by Financial Action Task Force, the main standard-setting body in this field. The Commission considers countries identified by the Financial Action Task Force as having strategic deficiencies, as a starting point for its assessment on high risk third countries.The Commission joins global efforts for dealing with countries having strategic deficiencies and hence posing a risk to the international financial system.

The Commission complements this work by reviewing additional countries and managing in a timely manner risks that are specific for the EU, based on its own priorities setting and assessment criteria. Compared to the lists of the Financial Action Task Force, the Commission has developed a methodology with additional assessment criteria, based on the Fourth and Fifth Anti-Money Laundering directives. The EU requirements are therefore different compared to the Financial Action Task Force listing criteria.

How many countries will be assessed by the Commission? 

The countries not listed today will be monitored and re-assessed when new information becomes available. In parallel, the Commission will assess 'priority 2' countries until 2025.

 

NEXT STEPS

When will the EU list based on the new methodology be available?

The first EU list based on the new methodology has been published on 13 February 2019. It includes countries identified as "priority 1". Further assessments will be carried out over time to cover all relevant countries (Priority 2 countries). The autonomous EU list is an ongoing effort, taking due account of new information sources / updated information becoming available.

How often will the Commission update this list?

The Commission will continue monitoring countries already reviewed, monitor progress made by listed countries in removing their strategic deficiencies, and assess additional countries when new information sources become available.

Updating the list will happen regularly, with the aim of further identifying third countries as being of high-risk and reflecting progress made by listed countries.

How can a country be taken off the list?

In order to delist a country, the following requirements must be met:

  •     complying with EU anti-money laundering criteria, such as criminalising money laundering and terrorism financing; customer due diligence requirements, record keeping and suspicious transactions reporting in the financial and in the non-financial sector; transparency of beneficial ownership; international cooperation; 
  •     Ensuring in practice that information on beneficial owners of companies and trusts is available. This is particularly relevant since opaque structures are regularly involved in money laundering, terrorist financing and tax evasion. Further efforts are needed since too many countries are lagging behind with respect to transparency      on beneficial ownership; 
  •     Showing positive and tangible progress in improving effectiveness in all areas where significant deficiencies were identified.

How does the Commission support third countries to improve anti-money laundering and countering terrorist financing ongoing efforts?  

The Commission will continue its engagement with the countries identified as having strategic deficiencies in the present Delegated Regulation and will further engage especially on the delisting criteria. This list enables the countries concerned to better identify the areas for improvement in order to pave the way for a possible delisting once strategic deficiencies are addressed.

The Commission informed third countries in advance of its intention to include them on the list and provided them with the results of its analysis. A number of these countries provided additional information and clarification, which was taken into account in the Commission's final assessment.

As outlined in the Action plan on Terrorist Financing, the Commission is committed to assist third countries and to provide technical assistance to promote implementation of Financial Action Task Force's recommendations and relevant UN Security Council Resolutions. Finally the Commission will monitor developments and update its list accordingly.

The Commission is also rolling out a programme of 16 million EUR under the Instrument contributing to Stability and Peace on anti-money laundering and counter-terrorist financing to support countries in the Middle East and North Africa region (MENA) and South/South East Asia to monitor, disrupt and deny the financing of terrorism and money-laundering. 

Another programme of 6 million EUR is being rolled out in the Horn of Africa to raise awareness of the need, and strengthen capacity of the financial sector and criminal justice actors, for effective anti-money laundering and counter terrorist financing actions nationally and regionally.

As regards Balkans, the Commission is supporting countries in the region to implement strategic priority measures for the fight against money laundering and financing of terrorist activities and reinforce the prevention of money laundering system through Instrument of Pre-Accession Assistance (IPA) funds.

February 19, 2019 in AML | Permalink | Comments (0)

Monday, February 18, 2019

OECD invites public input on the possible solutions to the tax challenges of digitalisation

As part of the ongoing work of the Inclusive Framework on BEPS, the OECD is seeking public comments on key issues identified in a public consultation document on possible solutions to the tax challenges arising from the digitalisation of the economy. The publication of the consultation document was foreshadowed with the release of a Policy Note by the Inclusive Framework on 29 January 2019 and follows the agreement of members of the Inclusive Framework to examine proposals involving two pillars; one pillar that focusses on the allocation of taxing rights and a second pillar that addresses remaining BEPS issues. The work will be carried out as the Inclusive Framework continues to work towards a consensus-based long-term solution in 2020. 

Following a mandate by G20 Finance Ministers in March 2017, the Inclusive Framework on BEPS, working through its Task Force on the Digital Economy (TFDE), delivered an Interim Report in March 2018, Tax Challenges Arising from Digitalisation – Interim Report 2018. One of the important conclusions of this report is that members agreed to review the impact of digitalisation on nexus and profit allocation rules and committed to continue working together towards a final report in 2020 aimed at providing a consensus-based long-term solution, with an update in 2019.

Since the delivery of the Interim Report, the Inclusive Framework further intensified its work and several proposals emerged that could form part of a long-term solution to the broader challenges arising from the digitalisation of the economy and the remaining BEPS issues. The work on these proposals is being conducted on a “without prejudice” basis; their examination does not represent a commitment of any member of the Inclusive Framework beyond exploring these proposals. In this context, the Inclusive Framework agreed to hold a public consultation on possible solutions to the tax challenges arising from the digitalisation of the economy on 13 and 14 March 2019 at the OECD Conference Centre in Paris, France. The objective of the public consultation is to provide external stakeholders an opportunity to provide input early in the process and to benefit from that input.

As part of this public consultation, this consultation document describes the proposals discussed by the Inclusive Framework at a high level and seeks comments from the public on a number of policy issues and technical aspects. The comments provided will assist members of the Inclusive Framework in the development of a solution for its final report to the G20 in 2020.

Interested parties are invited to send their comments on this consultation document. Comments should be sent by no later than Friday, 1 March 2019 to TFDE@oecd.org in Word format (in order to facilitate their distribution to government officials). All comments submitted should be addressed to the Tax Policy and Statistics Division, Centre for Tax Policy and Administration.

Please note that all comments on this consultation document will be made publicly available. Comments submitted in the name of a collective “grouping” or “coalition”, or by any person submitting comments on behalf of another person or group of persons, should identify all enterprises or individuals who are members of that collective group, or the person(s) on whose behalf the commentator(s) are acting. Speakers and other participants at the upcoming public consultation in Paris will be selected from among those providing timely written comments on this consultation document.

The proposals included in this consultation document do not represent the consensus views of the Inclusive Framework, the Committee on Fiscal Affairs (CFA) or their subsidiary bodies. Instead, they intend to provide stakeholders with substantive proposals for analysis and comment.

Public Consultation

A public consultation meeting will be held at the OECD Conference Centre in Paris on Wednesday, 13 March and Thursday morning, 14 March 2019. Further information about attending the public consultation is available online. Those wishing to attend are invited to register by no later than Friday, 1 March 2019.

Media queries should be directed to Pascal Saint-Amans (+33 1 45 24 91 08), Director of the OECD Centre for Tax Policy and Administration (CTPA) or Grace Perez-Navarro (+33 1 45 24 18 80), Deputy-Director of the CTPA.

February 18, 2019 in BEPS | Permalink | Comments (0)

Dark Web Trafficker Convicted of Drug Importation Conspiracy

Christopher Bantli pleaded guilty today in U.S. District Court for the District of Columbia to a conspiracy to import fentanyl into the United States, announced Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division and Special Agent in Charge Adolphus P. Wright of the U.S. Drug Enforcement Administration’s (DEA) Miami Field Division.

Bantli, 39, pleaded guilty before U.S. District Judge Amy Berman Jackson for the District of Columbia.  Bantli had been extradited to the United States from Canada following his indictment in the District of Columbia.  According to court records, beginning in or around Nov. 2015 and continuing through Sept. 8, 2016, Bantli advertised, distributed, and imported controlled substances, including powerful fentanyl analogues and synthetic opiates, through the encrypted website AlphaBay.  Bantli accepted virtual currency such as Bitcoin as payment for the illegal substances, and used Canadian and U.S. mail to distribute the illicit substances to consumers.  To assist with his distribution enterprise, Bantli used his apartment in Calgary, Canada, as a drug laboratory and de facto fulfillment center for the orders placed on his AlphaBay profile.  Bantli’s apartment contained a pill press, packaging, cutting agents, as well as the controlled substances themselves.

Bantli will be sentenced on May 29 before Judge Berman Jackson.

The case was investigated by the DEA, in cooperation with Canadian law enforcement authorities.  The U.S. Marshals Service provided critical assistance in Bantli’s extradition.  The U.S. Department of Justice thanks the Government of Canada for its assistance in this case, in particular the Calgary Police Service Cybercrime Support Team.  This case is also the result of the ongoing efforts by the Organized Crime Drug Enforcement Task Forces (OCDETF), a partnership that brings together the combined expertise and unique abilities of federal, state, and local enforcement agencies.  The principal mission of the OCDETF program is to identify, disrupt, dismantle, and prosecute high-level members of drug trafficking, weapons trafficking, and money laundering organizations and enterprises.

Trial Attorneys Anthony Aminoff and Kaitlin Sahni of the Criminal Division’s Narcotic and Dangerous Drug Section (NDDS) are prosecuting the case. Trial Attorney Brian Nicholson of the Department of Justice’s Office of International Affairs provided significant assistance in bringing Bantli to the United States and procuring foreign evidence during the investigation.

February 18, 2019 in AML | Permalink | Comments (0)

Sunday, February 17, 2019

Assistant Attorney General for National Security John C. Demers Delivers Remarks on the Unsealing of United States v. Monica Witt, et al.

Good morning.

Today, we announce that a federal grand jury in the District of Columbia has indicted a former U.S. Air Force counterintelligence officer, Monica Witt, for espionage on behalf of the Government of Iran.  It further charges four Iranians, acting on behalf of the Iranian Revolutionary Guard Corps (IRGC), with attempting malign computer intrusions and aggravated identity theft targeting members of the U.S. intelligence community who were former colleagues of Monica Witt. 

It is a sad day for America when one of its citizens betrays our country.  It is sadder still when this person, as a member of the American armed forces, previously invoked the aid of God to bear true faith and allegiance to the Constitution of the United States and to defend her country against foreign enemies.  Monica Witt is alleged to have done just this.

My colleagues, Jessie Liu, the U.S. Attorney for the District of Columbia, and Jay Tabb, the FBI Executive Assistant Director for National Security, will explain the charges against the defendants in greater detail.  Andrea Gacki, Director of the Office of Foreign Assets Controls, will announce certain related Treasury Department actions, and Terry Phillips of the US. Air Force will make a brief statement on behalf of the Office of Special Investigations, where Ms. Witt worked.

From the perspective of the National Security Division, this indictment stands at the confluence of two streams of our national security cases.  The first charging Iran and other foreign adversaries with engaging in malign cyber activity.  Whether by disrupting the internet through DDOS attacks, stealing intellectual property, or hacking and dumping emails, Iran and others continue to use cyber tools against the United States. 

The second stream involves former members of the intelligence community charged with, and in the case of Kevin Mallory, convicted of, espionage.  The case unsealed today underscores the dangers to our intelligence professionals and the lengths our adversaries will go to identify them, expose them, target them, and, in a few rare cases, ultimately turn them against the nation they swore to protect.  Espionage by past or present members of the intelligence community poses a significant threat to our country and a heightened danger to their former colleagues.

Ms. Witt was recruited by Iran as part of a program that targets former intelligence officers and others who have held security clearances.  Following her defection to Iran in 2013, she is alleged to have revealed to the Iranian government the existence of a highly classified intelligence collection program and the true identity of a U.S. intelligence officer, thereby risking the life of this individual.  In addition, she is alleged to have conspired with the Government of Iran to research, in some instances through social media, and create target packages – documents that enabled the Government of Iran to identify, track, and neutralize U.S. counterintelligence agents.  The other four defendants in this indictment, Iranian hackers working on behalf of the IRGC, targeted, through social media and other cyber-enabled means, at least eight U.S. government agents, all of whom at one time worked or interacted with Monica Witt.     

Our intelligence professionals swear an oath to protect our country, and we trust them to uphold that oath.  With good reason.  These brave women and men give us their all.  But every great while, one of these trusted people fails us.  When this happens, the National Security Division will relentlessly pursue justice against them no matter where they are.  We will do so to protect this country.  We will do so to protect their colleagues.  And we will do so to protect all of us.

February 17, 2019 in AML | Permalink | Comments (0)

Saturday, February 16, 2019

Former U.S. Counterintelligence Agent Charged With Espionage on Behalf of Iran; Four Iranians Charged With a Cyber Campaign Targeting Her Former Colleagues

Indictment Unsealed as U.S. Treasury Department Announces Economic Sanctions

Monica Elfriede Witt, 39, a former U.S. service member and counterintelligence agent, has been indicted by a federal grand jury in the District of Columbia for conspiracy to deliver and delivering national defense information to representatives of the Iranian government.  Witt, who defected to Iran in 2013, is alleged to have assisted Iranian intelligence services in targeting her former fellow agents in the U.S. Intelligence Community (USIC).  Witt is also alleged to have disclosed the code name and classified mission of a U.S. Department of Defense Special Access Program. An arrest warrant has been issued for Witt, who remains at large.

The same indictment charges four Iranian nationals, Mojtaba Masoumpour, Behzad Mesri, Hossein Parvar and Mohamad Paryar (the “Cyber Conspirators”), with conspiracy, attempts to commit computer intrusion and aggravated identity theft, for conduct in 2014 and 2015 targeting former co-workers and colleagues of Witt in the U.S. Intelligence Community.  The Cyber Conspirators, using fictional and imposter social media accounts and working on behalf of the Iranian Revolutionary Guard Corps (IRGC), sought to deploy malware that would provide them covert access to the targets’ computers and networks.  Arrest warrants have been issued for the Cyber Conspirators, who also remain at large.

The announcement was made by Assistant Attorney General for National Security John Demers, U.S. Attorney Jessie K. Liu for the District of Columbia, Executive Assistant Director for National Security Jay Tabb of the FBI, U.S. Treasury Secretary Steven Mnuchin, Special Agent Terry Phillips of the Air Force Office of Special Investigations, and Assistant Director in Charge Nancy McNamara of the FBI’s Washington Field Office.

“Monica Witt is charged with revealing to the Iranian regime a highly classified intelligence program and the identity of a U.S. Intelligence Officer, all in violation of the law, her solemn oath to protect and defend our country, and the bounds of human decency,” said Assistant Attorney General Demers.  “Four Iranian cyber hackers are also charged with various computer crimes targeting members of the U.S. intelligence community who were Ms. Witt’s former colleagues. This case underscores the dangers to our intelligence professionals and the lengths our adversaries will go to identify them, expose them, target them, and, in a few rare cases, ultimately turn them against the nation they swore to protect.  When our intelligence professionals are targeted or betrayed, the National Security Division will relentlessly pursue justice against the wrong-doers.” 

“This case reflects our firm resolve to hold accountable any individual who betrays the public trust by compromising our national security,” said U.S. Attorney Liu.  “Today’s announcement also highlights our commitment to vigorously pursue those who threaten U.S. security through state-sponsored hacking campaigns.”

“The charges unsealed today are the result of years of investigative work by the FBI to uncover Monica Witt’s betrayal of the oath she swore to safeguard America’s intelligence and defense secrets” said Executive Assistant Director for National Security Tabb.  “This case also highlights the FBI’s commitment to disrupting those who engage in malicious cyber activity to undermine our country’s national security. The FBI is grateful to the Department of Treasury and the United States Air Force for their continued partnership and assistance in this case.”

Treasury is taking action against malicious Iranian cyber actors and covert operations that have targeted Americans at home and overseas as part of our ongoing efforts to counter the Iranian regime’s cyber-attacks,” said Treasury Secretary Steven Mnuchin.  “Treasury is sanctioning New Horizon Organization for its support to the IRGC-QF.  New Horizon hosts international conferences that have provided Iranian intelligence officers a platform to recruit and collect damaging information from attendees, while propagating anti-Semitism and Holocaust denial.  We are also sanctioning an Iran-based company that has attempted to install malware to compromise the computers of U.S. personnel.”

“The alleged actions of Monica Witt in assisting a hostile nation are a betrayal of our nation’s security, our military, and the American people,” said Special Agent Phillips. “While violations like this are extremely rare, her actions as alleged are an affront to all who have served our great nation.”  

“This investigation exemplifies the tireless work the agents and analysts of the FBI do each and every day to bring a complex case like this to fruition,’ said Assistant Director in Charge McNamara.  “Witt's betrayal of her country and the actions of the cyber criminals - at the behest of the IRGC - could have brought serious damage to the United States, and we will not stand by and allow that to happen.  The efforts by the Iranian government to target and harm the U.S. will not be taken lightly, and the FBI will continue our work to hold those individuals or groups accountable for their actions.”

According to the allegations contained in the indictment unsealed today:

Monica Witt’s Espionage

Monica Witt, a U.S. citizen, was an active duty U.S. Air Force Intelligence Specialist and Special Agent of the Air Force Office of Special Investigations, who entered on duty in 1997 and left the U.S. government in 2008.  Monica Witt separated from the Air Force in 2008 and ended work with DOD as a contractor in 2010.  During her tenure with the U.S. government, Witt was granted high-level security clearances and was deployed overseas to conduct classified counterintelligence missions.

In Feb. 2012, Witt traveled to Iran to attend the Iranian New Horizon Organization’s “Hollywoodism” conference, an IRGC-sponsored event aimed at, among other things, condemning American moral standards and promoting anti-U.S. propaganda.  Through subsequent interactions and communications with a dual United States-Iranian citizen referred to in the indictment as Individual A, Witt successfully arranged to re-enter Iran in Aug. 2013.  Thereafter, Iranian government officials provided Witt with a housing and computer equipment.  She went on to disclose U.S. classified information to the Iranian government official.  As part of her work on behalf of the Iranian government, she conducted research about USIC personnel that she had known and worked with, and used that information to draft “target packages” against these U.S. agents.   

Iranian Hacking Efforts Targeting Witt’s Former Colleagues

Beginning in late 2014, the Cyber Conspirators began a malicious campaign targeting Witt’s former co-workers and colleagues.  Specifically, Mesri registered and helped manage an Iranian company, the identity of which is known to the United States, which conducted computer intrusions against targets inside and outside the United States on behalf of the IRGC.  Using computer and online infrastructure, in some cases procured by Mesri, the conspiracy tested its malware and gathered information from target computers or networks, and sent spearphishing messages to its targets.  Specifically, between Jan. and May 2015, the Cyber Conspirators, using fictitious and imposter accounts, attempted to trick their targets into clicking links or opening files that would allow the conspirators to deploy malware on the target’s computer.  In one such instance, the Cyber Conspirators created a Facebook account that purported to belong to a USIC employee and former colleague of Witt, and which utilized legitimate information and photos from the USIC employee’s actual Facebook account. This particular fake account caused several of Witt’s former colleagues to accept “friend” requests.

*          *          *

The case is being investigated by the FBI’s Washington Field Office with assistance from the Air Force Office of Special Investigations.  The prosecution is being handled by Assistant U.S. Attorneys Deborah Curtis, Jocelyn Ballantine and Luke Jones of the U.S. Attorney’s Office for the District of Columbia with assistance from Trial Attorney Evan N. Turgeon of the National Security Division’s Counterintelligence and Export Control Section.

February 16, 2019 in AML | Permalink | Comments (0)

Friday, February 15, 2019

Six Convicted for Roles in Multi-Million Dollar Black Market Peso Exchange Money-Laundering Scheme

A federal jury in Laredo, Texas found four men and two women guilty for their roles in a two-year multi-million dollar black market peso exchange money-laundering scheme, the Justice Department announced.

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 Will R. Glaspy of the U.S. Drug Enforcement Administration (DEA) and Special Agent in Charge D. Richard Goss of the IRS Criminal Investigation (IRS-CI) made the announcement.

Adrian Arciniega-Hernandez, 36, of Nuevo Laredo, Mexico; Adriana Alejandra Galvan-Constantini, 36, and Luis Montes-Patino, 57, both of Irving, Texas, and Ravinder Reddy Gudipati, 61; Harsh Jaggi, 54; and Neeru Jaggi, 51, all of Laredo, Texas, were each convicted of a money laundering conspiracy following a five-week jury trial.  In addition, Harsh Jaggi and Adrian Arcinieg-Hernandez were each convicted of two counts of money laundering and Neeru Jaggi was convicted of one count of money laundering.  Gudipati was convicted of two counts of money laundering, two counts of causing a trade or business to fail to file a Form 8300, and one count of causing a trade or business to file a Form 8300 containing a material omission and misstatement of facts. Arciniega-Hernandez was found not guilty of a third count of money laundering.  Sentencing before U.S. District Judge Marina Garcia Marmalejo of the Southern District of Texas, Laredo Division, who presided over the trial, has not yet been scheduled.

Arciniega-Hernandez, Galvan-Constantini, Montes-Patino, Gudipati, Harsh Jaggi, and Neeru Jaggi were part of a complex money laundering scheme whereby money derived from the sale of drugs in the United States were laundered through businesses in Laredo, in order to return these proceeds to Mexican drug dealers. 

According to the evidence presented at trial, from 2011 through 2013, Galvan-Constantini, Montes-Patino and other co-conspirators helped to move millions of dollars derived from the sale of drugs throughout the United States, including New York, Kentucky, North Carolina, Illinois, Mississippi, and multiple cities in Texas to Laredo, Texas.  The U.S. currency was moved by couriers, including Galvan-Constantini and Montes-Patino, via cars, commercial buses, commercial planes, and a private plane in bulk cash amounts of up to hundreds of thousands of dollars at a time.  The money, in heat sealed packs, uneven rubber-banded money stacks, or loose U.S. currency, arrived in plastic bags, cloth bags, suitcases, backpacks, and even cereal boxes.  The money was then distributed among downtown Laredo, Texas perfume stores, including El Reino International Inc., and NYSA Impex LLC.  The owner of NYSA Impex LLC, Gudipati, and the owners of El Reino International Inc., Harsh Jaggi, and Neeru Jaggi, accepted loose bulk-cash, even after being told it was “narco dinero.”  The store owners also failed to file Form 8300s which are required when more than $10,000 in cash is received by a business, or filed Form 8300s which omitted pertinent information such as the name of the courier who brought the bulk cash.    

Co-defendant Carlos Velasaquez, 55, of Laredo, pleaded guilty to conspiracy to launder money on Nov. 7, 2018, and is pending sentencing. 

February 15, 2019 in AML | Permalink | Comments (0)

Treasury Statement on European Commission List of Jurisdictions with Strategic AML/CFT Deficiencies

The European Commission issued a list of purportedly high-risk jurisdictions “posing significant threats” to the European Union’s financial system as a result of strategic deficiencies in their Anti-Money Laundering and Countering the Financing of Terror (AML/CFT) regimes.  The U.S. Department of the Treasury has significant concerns about the substance of the list and the flawed process by which it was developed. 

The Financial Action Task Force (FATF) is the global standard-setting body for combating money laundering, terrorist financing, and proliferation financing.  The FATF, which includes the United States, the European Commission, 15 EU member states, and 20 other jurisdictions, already develops a list of high-risk jurisdictions with AML/CFT deficiencies as part of a careful and comprehensive process.  Because of the FATF’s work, virtually all countries around the world are subject to a rigorous peer-review methodology that examines the legal frameworks to counter illicit finance as well as how effectively jurisdictions implement them.  These reviews are an intensive process involving careful review of the legal framework, extensive fact-gathering, and onsite visits in which assessors engage in robust, iterative dialogues with assessed jurisdictions. 

The European Commission’s process for developing its list contrasts starkly with FATF’s thorough methodology.  First, the Commission’s process did not include a sufficiently in-depth review necessary to conduct an assessment related to such a serious and consequential issue.  Second, the Commission provided affected jurisdictions with only a cursory basis for its determination.  Third, the Commission notified affected jurisdictions that they would be included on the list only days before issuance.  Fourth, the Commission failed to provide affected jurisdictions with any meaningful opportunity to challenge their inclusion or otherwise address issues identified by the Commission.  As a result, the European Commission produced a list that diverges from the FATF list without reasonable support.

Beyond our concerns with the listing methodology, the Treasury Department rejects the inclusion of American Samoa, Guam, Puerto Rico, and the U.S. Virgin Islands on the list.  The commitments and actions of the United States in implementing the FATF standards extend to all U.S. territories.  The same AML/CFT legal framework that applies to the continental United States also generally applies to U.S. territories.  Moreover, the Treasury Department was not provided any meaningful opportunity to discuss with the European Commission its basis for including the listed U.S. territories.

The Treasury Department does not expect U.S financial institutions to take the European Commission’s list into account in their AML/CFT policies and procedures. 

U.S. Official Treasury Response here

February 15, 2019 in AML | Permalink | Comments (0)

Thursday, February 14, 2019

EU Commission blacklists 4 USA territories for weak money laundering and terrorist financing prevention

On 13 Feb 2019 the EU Commission adopted a new black list of 23 third countries with strategic deficiencies in their anti-money laundering and counter-terrorist financing frameworks.

The aim of this list is to protect the EU financial system by better preventing money laundering and terrorist financing risks. As a result of the listing, banks and other entities covered by EU anti-money laundering rules will be required to apply increased checks (due diligence) on financial operations involving customers and financial institutions from these high-risk third countries to better identify any suspicious money flows. On the basis of a new methodology, which reflects the stricter criteria of the 5th anti-money laundering directive in force since July 2018, the list has been established following an in-depth analysis.  

Věra Jourová, Commissioner for Justice, Consumers and Gender Equality said: “We have established the strongest anti-money laundering standards in the world, but we have to make sure that dirty money from other countries does not find its way to our financial system. Dirty money is the lifeblood of organised crime and terrorism. I invite the countries listed to remedy their deficiencies swiftly. The Commission stands ready to work closely with them to address these issues in our mutual interest. "   

The Commission is mandated to carry out an autonomous assessment and identify the high-risk third countries under the Fourth and Fifth Anti-Money Laundering Directives.

The list has been established on the basis of an analysis of 54 priority jurisdictions, which was prepared by the Commission in consultation with the Member States and made public on 13 November 2018. The countries assessed meet at least one of the following criteria:

  •          they have systemic impact on the integrity of the EU financial system,
  •          they are reviewed by the International Monetary Fund as international offshore financial centres;
  •          they have economic relevance and strong economic ties with the EU.

For each country, the Commission assessed the level of existing threat, the legal framework and controls put in place to prevent money laundering and terrorist financing risks and their effective implementation. The Commission also took into account the work of the Financial Action Task Force (FATF), the international standard-setter in this field.

The Commission concluded that 23 countries have strategic deficiencies in their anti-money laundering/ counter terrorist financing regimes. This includes 12 countries listed by the Financial Action Task Force and 11 additional jurisdictions. Some of the countries listed today are already on the current EU list, which includes 16 countries.

Next steps

The Commission adopted the list in the form of a Delegated Regulation. It will now be submitted to the European Parliament and Council for approval within one month (with a possible one-month extension). Once approved, the Delegated Regulation will be published in the Official Journal and will enter into force 20 days after its publication.

The Commission will continue its engagement with the countries identified as having strategic deficiencies in the present Delegated Regulation and will further engage especially on the delisting criteria. This list enables the countries concerned to better identify the areas for improvement in order to pave the way for a possible delisting once strategic deficiencies are addressed.

The Commission will follow up on progress made by listed countries, continue monitoring those reviewed and start assessing additional countries, in line with its published methodology. The Commission will update this list accordingly. It will also reflect on further strengthening its methodology where needed in light of experience gained, with a view to ensuring effective identification of high-risk third countries and the necessary follow-up.

Background 

The fight against money laundering and terrorist financing is a priority for the Juncker Commission. The adoption of the Fourth – in force since June 2015- and the Fifth Anti-Money Laundering Directives – in force since 9 July 2018 - has considerably strengthened the EU regulatory framework.

Following the entry into force of the Fourth Anti-Money Laundering Directive in 2015, the Commission published a first EU list of high-risk third countries based on the assessment of the Financial Action Task Force. The Fifth Anti-Money Laundering Directive broadened the criteria for the identification of high-risk third countries, including notably the availability of information on the beneficial owners of companies and legal arrangements. This will help better address risks stemming from the setting up of shell companies and opaque structures which may be used by criminals and terrorists to hide the real beneficiaries of a transaction (including for tax evasion purposes). The Commission developed its own methodology to identify high-risk countries, which relies on information from the Financial Action Task Force, complemented by its own expertise and other sources such as Europol. The result is a more ambitious approach for identifying countries with deficiencies posing risks to the EU financial system. The decision to list any previously unlisted country reflects the current assessment of the risks in accordance with the new methodology. It does not mean the situation has deteriorated since the list was last updated.

The new list published today replaces the one currently in place since July 2018. 

For more information                                                                  

Delegated Regulation: EU list of high-risk third countries

Q&A

Methodology for identifying high-risk third countries

Fourth Anti-Money Laundering Directive

Fifth Anti-Money Laundering Directive 

 

ANNEX 

The 23 jurisdictions are:

(1)            Afghanistan,

(2)            American Samoa,

(3)            The Bahamas,

(4)            Botswana,

(5)            Democratic People's Republic of Korea,

(6)            Ethiopia,

(7)            Ghana,

(8)            Guam,

(9)            Iran,

(10)          Iraq,

(11)          Libya,

(12)          Nigeria,

(13)          Pakistan,

(14)          Panama,

(15)          Puerto Rico,

(16)          Samoa,

(17)          Saudi Arabia,

(18)          Sri Lanka,

(19)          Syria,

(20)          Trinidad and Tobago,

(21)          Tunisia,

(22)          US Virgin Islands,

(23)          Yemen.

February 14, 2019 in AML | Permalink | Comments (0)

EU Court of Justice Overrules EU Commission on State Aid (Decision Below)

Loyens and Loeff summary -

The General Court then turned to assessing whether the Belgian rules and the related rulings effectively constituted a scheme and found that the criteria were not met:

  • Implementing measures were needed and the tax authorities had a genuine margin of discretion in deciding whether it was appropriate to grant the downward adjustment to the Belgian company’s taxable profits.
  • The beneficiaries could not be identified on the sole basis of the tax provision in the law without further implementing measures.
  • The Commission’s analysis of a limited sample of rulings did not meet the requisite standard of proof to establish a systematic approach. Deficiencies in the contested decision could not be remedied by additional information provided during the proceedings.

Case Below ...

APPLICATION pursuant to Article 263 TFEU for annulment of Commission Decision (EU) 2016/1699 of 11 January 2016 on the excess profit exemption State aid scheme SA.37667 (2015/C) (ex 2015/NN) implemented by Belgium (OJ 2016 L 260, p. 61), THE GENERAL COURT (Seventh Chamber, Extended Composition), composed of M. van der Woude, President, V. Tomljenović (Rapporteur), E. Bieliūnas, A. Marcoulli and A. Kornezov, Judges, Registrar: S. Spyropoulos, Administrator, having regard to the written part of the procedure and further to the hearing on 28 June 2018.

The contested decision may be found here

15      By Decision (EU) 2016/1699 of 11 January 2016 on the excess profit exemption State aid scheme SA.37667 (2015/C) (ex 2015/NN) implemented by Belgium (OJ 2016 L 260, p. 61, ‘the contested decision’), the European Commission found that the exemptions granted by the Kingdom of Belgium, by means of advance rulings under Article 185(2)(b) of the CIR 92, constituted an aid scheme within the meaning of Article 107(1) TFEU that was incompatible with the internal market and had been put into effect in breach of Article 108(3) TFEU.

16      Furthermore, the Commission ordered that the aid granted be recovered from the beneficiaries, a definitive list of which was to be drawn up by the Kingdom of Belgium following the decision. The annex to the contested decision contained an indicative list of 55 beneficiaries – including Magnetrol International, the applicant in Case T‑263/16 – identified on the basis of information provided by the Kingdom of Belgium in the course of the administrative procedure.

28      The operative part of the contested decision is worded as follows:

‘Article 1

The Excess Profit exemption scheme, based on Article 185(2)(b) of the [CIR 92], pursuant to which [the Kingdom of] Belgium granted tax rulings to Belgian entities of multinational corporate groups authorising those entities to exempt part of their profit from corporate income taxation constitutes aid within the meaning of Article 107(1) [TFEU] that is incompatible with the internal market and that was unlawfully put into effect by Belgium in breach of Article 108(3) [TFEU].

Article 2

(1) [The Kingdom of] Belgium shall recover all incompatible and unlawful aid referred to in Article 1 from the recipients of that aid.

(2) Any sums that remain unrecoverable from the recipients of the aid, following the recovery described in the paragraph 1, shall be recovered from the corporate group to which the recipient belongs.

(3) The sums to be recovered shall bear interest from the date on which they were put at the disposal of the beneficiaries until their actual recovery.

(4) The interest on the sums to be recovered shall be calculated on a compound basis in accordance with Chapter V of Regulation (EC) No 794/2004.

(5) [The Kingdom of] Belgium shall stop granting the aid referred to in Article 1 and shall cancel all outstanding payments of such aid with effect from the date of adoption of this decision.

(6) [The Kingdom of] Belgium shall also reject all requests for an advance ruling concerning the aid referred to in Article 1 submitted to the Ruling Commission and pending on the date of the adoption of this decision.

Article 3

(1) Recovery of the aid granted referred to in Article 1 shall be immediate and effective.

(2) [The Kingdom of] Belgium shall ensure that this Decision is fully implemented within four months following the date of notification of this Decision.

Article 4

(1) Within two months following notification of this Decision, [the Kingdom of] Belgium shall submit the following information:

(a)      the list of beneficiaries that have received the aid referred to in Article 1 and the total amount of aid received by each of them;

(b)      the total amount (principal and recovery interests) to be recovered from each beneficiary;

(c)      a detailed description of the measures already taken and planned to comply with this Decision;

(d)      documents demonstrating that the beneficiaries have been ordered to repay the aid.

(2) [The Kingdom of] Belgium shall keep the Commission informed of the progress of the national measures taken to implement this Decision until recovery of the aid referred to in Article 1 has been completed. It shall immediately submit, on simple request by the Commission, information on the measures already taken and planned to comply with this Decision. It shall also provide detailed information concerning the amounts of aid and recovery interest already recovered from the beneficiaries.

Article 5

This Decision is addressed to the Kingdom of Belgium.’

 Procedure and forms of order sought

 Procedure and forms of order sought by the parties in Case T131/16

29      By application lodged at the Court Registry on 22 March 2016, the Kingdom of Belgium brought an action seeking the annulment of the contested decision.

30      By a separate document, lodged at the Court Registry on 26 April 2016, the Kingdom of Belgium brought an application for interim measures, in which it claimed that the President of the General Court should suspend the operation of Articles 2 to 4 of the contested decision until the General Court has delivered its judgment on the main action. By order of 19 July 2016, the President of the General Court dismissed the application for interim measures and reserved the costs.

31      On 11 July 2016, the Court requested the Kingdom of Belgium to reply to a question. The Kingdom of Belgium complied with that request by letter of 19 July 2016.

32      By document lodged at the Court Registry on 11 July 2016, Ireland applied for leave to intervene in support of the form of order sought by the Kingdom of Belgium. By decision of 25 August 2016, the President of the Fifth Chamber of the General Court granted Ireland’s application to intervene. Ireland lodged its written submissions and the main parties lodged their observations on those submissions within the prescribed periods.

33      Following a change in the composition of the Chambers of the General Court on 21 September 2016, pursuant to Article 27(5) of the Rules of Procedure of the General Court, the Judge Rapporteur was assigned to the Seventh Chamber, to which the present case was accordingly allocated.

34      By document lodged at the Court Registry on 26 January 2017, the Kingdom of Belgium requested that the case be decided by a Chamber sitting in extended composition. On 15 February 2017, the Court took formal note, in accordance with Article 28(5) of the Rules of Procedure, of the fact that the case had been allocated to the Seventh Chamber, Extended Composition.

35      As a Member of the Seventh Chamber, Extended Composition, was unable to sit in the present case, by decision of 28 March 2017, the President of the General Court designated the Vice-President of the General Court to complete the Chamber.

36      Acting on a proposal from the Judge-Rapporteur, the President of the Seventh Chamber, Extended Composition, decided, on 12 December 2017, pursuant to Article 67(2) of the Rules of Procedure, to give the present case priority over others.

37      Acting on a proposal from the Judge-Rapporteur, the General Court (Seventh Chamber, Extended Composition) decided to open the oral part of the procedure and, by way of measures of organisation of procedure pursuant to Article 64 of the Rules of Procedure, requested the Kingdom of Belgium and the Commission to reply to a number of questions in writing. The parties complied with those requests within the prescribed periods.

38      By order of 17 May 2018, after hearing the parties, the President of the Seventh Chamber, Extended Composition, of the General Court decided to join Cases T‑131/16, Belgium v Commission, and T‑263/16, Magnetrol International v Commission, for the purposes of the oral part of the procedure, pursuant to Article 68(2) of the Rules of Procedure, and granted Magnetrol International’s request for confidential treatment vis-à-vis Ireland.

39      The parties presented oral argument and answered questions put to them by the Court at the hearing on 28 June 2018.

40      The Kingdom of Belgium claims that the Court should:

–        annul the contested decision;

–        in the alternative, annul Articles 1 and 2 of the operative part of the contested decision;

–        order the Commission to pay the costs.

41      Ireland requests the General Court to annul the contested decision, as specified in the form of order sought by the Kingdom of Belgium.

42      The Commission contends that the General Court should:

–        dismiss the action;

–        order the Kingdom of Belgium to pay the costs.

 Procedure and forms of order sought by the parties in Case T263/16

43      By application lodged at the Court Registry on 25 May 2016, Magnetrol International brought an action seeking the annulment of the contested decision.

44      On 20 June 2016, the Commission applied for proceedings to be stayed pending judgment in Case T‑131/16, Belgium v Commission, to which the applicant objected on 26 July 2016. By decision notified to the main parties on 9 August 2016, the President of the Fifth Chamber of the General Court rejected the Commission’s request for the proceedings to be stayed.

45      Following a change in the composition of the Chambers of the General Court on 21 September 2016, pursuant to Article 27(5) of the Rules of Procedure of the General Court, the Judge Rapporteur was assigned to the Seventh Chamber, to which the present case was accordingly allocated.

46      Acting on a proposal from the Seventh Chamber, the General Court decided, on 12 March 2018, pursuant to Article 28(3) of the Rules of Procedure, to assign the case to a Chamber sitting in extended composition.

47      As a Member of the Seventh Chamber, Extended Composition, was unable to sit in the present case, by decision of 15 March 2018, the President of the General Court designated the Vice-President of the General Court to complete the Chamber.

48      Acting on a proposal from the Judge-Rapporteur, the President of the Seventh Chamber, Extended Composition, decided, on 16 April 2018, pursuant to Article 67(2) of the Rules of Procedure, to give the present case priority over others.

49      Acting on a proposal from the Judge-Rapporteur, the General Court (Seventh Chamber, Extended Composition) decided to open the oral part of the procedure and, by way of measures of organisation of procedure pursuant to Article 64 of the Rules of Procedure, requested Magnetrol International and the Commission to reply to a number of questions in writing. The parties complied with those requests within the prescribed periods.

50      By order of 17 May 2018, after hearing the parties, the President of the Seventh Chamber, Extended Composition, of the General Court decided to join Cases T‑131/16, Belgium v Commission, and T‑263/16, Magnetrol International v Commission, for the purposes of the oral part of the procedure, pursuant to Article 68(2) of the Rules of Procedure, and granted Magnetrol International’s request for confidential treatment vis-à-vis Ireland.

51      As noted in paragraph 39 above, the parties presented oral argument and answered questions put to them by the Court at the hearing on 28 June 2018.

52      Magnetrol International contends that the General Court should:

–        annul the contested decision;

–        in the alternative, annul Articles 2 to 4 of the contested decision;

–        in any event, annul Articles 2 to 4 of the contested decision in so far as those articles, first, require any recovery from entities other than the entities that have been issued an advance ruling and, secondly, require the recovery of an amount equal to the beneficiary’s tax savings, without allowing the Kingdom of Belgium to take into account an actual upwards adjustment by another tax administration;

–        order the Commission to pay the costs.

53      The Commission claims that the General Court should:

–        dismiss the action;

–        order Magnetrol International to pay the costs.

 Law

54      After hearing the views of the parties in that regard at the hearing, the Court has decided to join the present cases for the purposes of the judgment also, in accordance with Article 68 of the Rules of Procedure.

 Preliminary observations

55      In support of its action, the Kingdom of Belgium raises five pleas in law. The first plea alleges a breach of Article 2(6) TFEU and of Article 5(1) and (2) TEU, in that the Commission encroached upon the tax jurisdiction of the Kingdom of Belgium. The second plea alleges an error of law and a manifest error of assessment, in that the Commission classified the measures as an aid scheme. It is divided into two parts disputing, first, the identification of the acts on which the alleged aid scheme at issue is based and, secondly, the finding relating to the lack of further implementing measures. The third plea alleges a breach of Article 107 TFEU, in that the Commission considered that the excess profit ruling system constituted a State aid measure. The fourth plea alleges that the Commission made a manifest error of assessment regarding the identification of the beneficiaries of the alleged aid. The fifth plea, raised ‘in the alternative’, alleges infringement of the general principle of legality and of Article 16(1) of Council Regulation (EU) 2015/1589 of 13 July 2015 laying down detailed rules for the application of Article 108 [TFEU] (OJ 2015, L 248, p. 9), in that the contested decision orders recovery from the multinational groups to which the Belgian entities that were issued an advance ruling belong.

56      In support of its action, Magnetrol International raises four pleas in law. The first plea alleges a manifest error of assessment, excess of power and failure to provide adequate reasoning in so far as the contested decision alleges the existence of an aid scheme. The second plea alleges a breach of Article 107 TFEU and of the duty to state reasons and a manifest error of assessment in so far as the contested decision classifies the purported scheme as a selective measure. The third plea alleges a breach of Article 107 TFEU and of the duty to state reasons and a manifest error of assessment in so far as the contested decision asserts that the purported scheme gives rise to an advantage. The fourth plea, raised ‘in the alternative’, alleges a breach of Article 107 TFEU, infringement of the principle of the protection of legitimate expectations, a manifest error of assessment, excess of power, and failure to provide adequate reasoning, as regards the recovery of the aid ordered in the contested decision, the identification of the beneficiaries and the amount to be recovered.

57      It follows from the presentation of all of the above pleas that the Kingdom of Belgium and Magnetrol International raise, albeit in a different order, pleas in law alleging, in essence:

–        first, that the Commission exceeded its powers in relation to State aid by encroaching upon the exclusive tax jurisdiction of the Kingdom of Belgium in the field of direct taxation (first plea in Case T‑131/16 and first part of the third plea in Case T‑263/16);

–        secondly, that the Commission erred in finding a State aid scheme in the present case, within the meaning of Article 1(d) of Regulation 2015/1589, inter alia because of the incorrect identification of the acts on which the alleged scheme was said to be based and the erroneous finding that the aid scheme did not require further implementing measures (second plea in Case T‑131/16 and the first plea in Case T‑263/16);

–        thirdly, that the Commission erred in regarding advance rulings in relation to excess profit as State aid, given inter alia the lack of an advantage and the lack of selectivity (third plea in law in Case T‑131/16 and third plea in law in Case T‑263/16);

–        fourthly, that the Commission infringed, inter alia, the principles of legality and of the protection of legitimate expectations in that it erroneously ordered the recovery of the alleged aid, including from the groups to which the beneficiaries of that aid belong (fourth and fifth pleas in law in Case T‑131/16 and the fourth plea in law in Case T‑263/16).

58      The General Court will examine the pleas in law in the order set out in paragraph 57 above.

 The Commission’s alleged encroachment upon the Kingdom of Belgium’s exclusive jurisdiction in the field of direct taxation

59      The Kingdom of Belgium and Magnetrol International submit, in essence, that the Commission exceeded its powers by using the State aid rules of EU law in order to determine unilaterally matters falling within the exclusive tax jurisdiction of a Member State. The determination of taxable income remains an exclusive competence of the Member States, as does the manner of taxing profits generated by cross-border transactions within groups of undertakings, even if it leads to double non-taxation. The Commission’s position of regarding advance rulings on excess profit as State aid because they are not in line with what the Commission considers to be the correct application of the arm’s length principle is tantamount to forced harmonisation of rules relating to the determination of taxable income, which does not fall within the competences of the European Union.

60      Ireland submits, in essence, that the contested decision seriously disturbs the balance of competences between the European Union and the Member States established, inter alia, by Article 3(6) TEU and Article 5(1) and (2) TEU, and confirmed by settled case-law.

61      The Commission contends, in essence, that although the Member States enjoy fiscal autonomy in the field of direct taxation, any fiscal measure a Member State adopts must comply with the State aid rules of EU law.

62      In that respect, it must be noted that, according to settled case-law, while direct taxation, as EU law currently stands, falls within the competence of the Member States, they must nonetheless exercise that competence consistently with EU law (see judgment of 12 July 2012, Commission v Spain, C‑269/09, EU:C:2012:439, paragraph 47 and the case-law cited). On the other hand, it is undisputed that the Commission is competent to ensure compliance with Article 107 TFEU.

63      Thus, interventions by Member States in areas which have not been harmonised in the European Union, such as direct taxation, are not excluded from the scope of the State aid rules. Accordingly, the Commission may find that a tax measure constitutes State aid provided that the conditions for making such a finding are met (see, to that effect, judgments of 2 July 1974, Italy v Commission, 173/73, EU:C:1974:71, paragraph 13; of 22 June 2006, Belgium and Forum 187 v Commission, C‑182/03 and C‑217/03, EU:C:2006:416, paragraph 81; and of 25 March 2015, Belgium v Commission, T‑538/11, EU:T:2015:188, paragraphs 65 and 66). The Member States must therefore exercise their competence in the field of taxation consistently with EU law (judgment of 3 June 2010, Commission v Spain, C‑487/08, EU:C:2010:310, paragraph 37). Accordingly, they must refrain from adopting any measure, in that context, liable to constitute State aid incompatible with the internal market.

64      It is true that, in the absence of EU rules governing the matter, it falls within the competence of the Member States to designate tax bases and to spread the tax burden across the different factors of production and economic sectors (see, to that effect, judgment of 15 November 2011, Commission and Spain v Government of Gibraltar and United Kingdom, C‑106/09 P and C‑107/09 P, EU:C:2011:732, paragraph 97).

65      However, that does not mean that every tax measure which affects inter alia the tax base taken into account by the tax authorities falls outside the scope of Article 107 TFEU. If such a measure in practice discriminates between companies that are in a comparable situation with regard to the objective of the measure in question and thereby grants the beneficiaries of the measure selective advantages which favour ‘certain’ undertakings or the production of ‘certain’ goods, it may be regarded as State aid for the purpose of Article 107(1) TFEU (see, to that effect, judgment of 15 November 2011, Commission and Spain v Government of Gibraltar and United Kingdom, C‑106/09 P and C‑107/09 P, EU:C:2011:732, paragraph 104).

66      In addition, a measure by which the public authorities grant certain undertakings advantageous tax treatment which – although it does not involve the transfer of State resources – places the beneficiaries in a more favourable position than other taxpayers is capable of constituting State aid for the purpose of Article 107(1) TFEU. On the other hand, advantages resulting from a general measure applicable without distinction to all economic operators do not constitute State aid for the purpose of Article 107(1) TFEU (see judgment of 21 December 2016, Commission v World Duty Free Group and Others, C‑20/15 P and C‑21/15 P, EU:C:2016:981, paragraph 56 and the case-law cited).

67      It follows from the foregoing that, since the Commission is competent to ensure compliance with Article 107 TFEU, it cannot be accused of having exceeded its powers by examining the measures comprising the alleged scheme at issue in order to determine whether they constituted State aid and, if they did, whether they were compatible with the internal market, within the meaning of Article 107(1) TFEU.

68      That conclusion is not called into question by the Kingdom of Belgium’s arguments concerning, first, its lack of tax jurisdiction in respect of the taxation of the excess profits and, secondly, its own competence to adopt measures to avoid double taxation.

69      The Kingdom of Belgium submits that, since the excess profits cannot be attributed to Belgian entities subject to tax in Belgium, those profits do not fall within the Belgian tax jurisdiction. Accordingly, the Commission cannot question the non-taxation of those profits in Belgium.

70      In so far as those arguments are to be understood as challenging the Commission’s competence to examine the measures in question, it should be noted that those measures concern advance rulings, issued by the Belgian tax authorities in the context of their competence in the field of direct taxation. In that respect, the case-law cited in paragraph 65 above should be borne in mind, according to which any tax measure that meets the conditions for the application of Article 107(1) TFEU constitutes State aid. It follows that the Commission, in the exercise of its competence relating to the application of Article 107(1) TFEU, must be able to examine the measures in question in order to determine whether they meet those conditions.

71      As regards the arguments concerning the Kingdom of Belgium’s competence to adopt measures in order to avoid double taxation, it indeed follows from the case-law that it is for the Member States to take the measures necessary to prevent situations of double taxation, by applying, in particular, the apportionment criteria followed in international tax practice (see, to that effect, judgment of 14 November 2006, Kerckhaert and Morres, C‑513/04, EU:C:2006:713, paragraph 23). However, as noted in paragraph 63 above, the Member States must exercise their tax competences in accordance with EU law and refrain from adopting any measure liable to constitute State aid incompatible with the internal market. Accordingly, the Kingdom of Belgium cannot invoke the need to avoid double taxation as an objective pursued by the Belgian tax authorities’ practice as regards excess profit, in order to justify an exclusive competence in that respect, the exercise of which would fall outside the scope of the Commission’s power to verify compliance with Article 107 TFEU.

72      Moreover, and in any event, it must be noted that, in the present case, it does not appear that the non-taxation of excess profit, as applied by the Belgian tax authorities, pursued the objective of avoiding double taxation. The application of the measures at issue was not subject to the condition that it be demonstrated that the excess profit in question had been included in the profit of another company. Nor was it necessary to demonstrate that that excess profit had actually been taxed in another country.

73      Article 185(2)(b) of the CIR 92 provides for a downward adjustment of a company’s profit only if that profit has been included in the profit of another company. However, the Kingdom of Belgium has not denied the findings made by the Commission in recitals 173 to 181 of the contested decision concerning the practice of the Belgian tax authorities – as explained, inter alia, by the Minister for Finance’s replies, mentioned in paragraphs 12 to 14 above – according to which the downward adjustment of the tax base of a company requesting an advance ruling was carried out without it being verified whether the profit deducted from that company’s tax base, as excess profit, was actually included in the profit of another company.

74      In the light of the foregoing considerations, the plea alleging that the Commission encroached upon the tax jurisdiction of the Kingdom of Belgium must be rejected as unfounded.

 The existence of an aid scheme, within the meaning of Article 1(d) of Regulation 2015/1589

75      The Kingdom of Belgium and Magnetrol International submit, in essence, that the Commission incorrectly identified the acts on the basis of which the excess profit system allegedly constituted an aid scheme and wrongly found that those acts did not require further implementing measures, within the meaning of Article 1(d) of Regulation 2015/1589. They also submit that the conclusion concerning the existence of an aid scheme is based on contradictory reasoning.

76      The Commission contends, in essence, that it followed a consistent line of reasoning throughout the contested decision, in that it considered that the excess profit scheme was based on Article 185(2)(b) of the CIR 92, as applied by the Ruling Commission, in the light of the interpretation given by the explanatory memorandum to the Law of 21 June 2004, the Circular of 4 July 2006 and the Minister for Finance’s replies to parliamentary questions on the application of that provision. Those acts show a systematic and consistent approach by which the Belgian tax authorities exempted so-called excess profit from tax, without further implementing measures being required.

77      Under Article 1(d) of Regulation 2015/1589, ‘aid scheme’ means any act on the basis of which, without further implementing measures being required, individual aid awards may be made to undertakings defined within the act in a general and abstract manner and any act on the basis of which aid which is not linked to a specific project may be awarded to one or several undertakings for an indefinite period of time or for an indefinite amount.

78      It follows from the case-law that, in the case of an aid scheme, the Commission may confine itself to examining the characteristics of the scheme at issue in order to assess, in the grounds for its decision, whether, by reason of the arrangements provided for under the scheme, the latter gives an appreciable advantage to beneficiaries in relation to their competitors and is likely to benefit in particular undertakings engaged in trade between Member States. Thus, in a decision which concerns such a scheme, the Commission is not required to carry out an analysis of the aid granted in individual cases under the scheme. It is only at the stage of recovery of the aid that it is necessary to look at the individual situation of each undertaking concerned (see judgment of 9 June 2011, Comitato ‘Venezia vuole vivere’ and Others v Commission, C‑71/09 P, C‑73/09 P and C‑76/09 P, EU:C:2011:368, paragraph 63 and the case-law cited).

79      In addition, it has been held that, in examining an aid scheme, where no legal act establishing that scheme is identified, the Commission may rely on a set of circumstances which taken as a whole indicate the de facto existence of an aid scheme (see, to that effect, judgment of 13 April 1994, Germany and Pleuger Worthington v Commission, C‑324/90 and C‑342/90, EU:C:1994:129, paragraphs 14 and 15).

80      It must be borne in mind that, in the contested decision, first of all, in recital 97 thereof, it is indicated that the excess profit exemption was granted on the basis of Article 185(2)(b) of the CIR 92. Next, in recital 98 of that decision, it is indicated that the application of Article 185(2)(b) of the CIR 92 by the Belgian tax administration is explained in the explanatory memorandum to the Law of 21 June 2004, the Circular of 4 July 2006 and the Minister for Finance’s replies to parliamentary questions on the application of that provision. Lastly, in recital 99 of the contested decision, the Commission concluded that Article 185(2)(b) of the CIR 92, the explanatory memorandum to the Law of 21 June 2004, the Circular of 4 July 2006 and the Minister for Finance’s replies to parliamentary questions on the application of Article 185(2)(b) of the CIR 92 constitute the acts on the basis of which the excess profit exemption is granted.

81      However, in recital 125 of the contested decision, it is indicated that no provision of the CIR 92 provides for an abstract unilateral exemption of a fixed part or percentage of the profit actually recorded by a Belgian entity forming part of a group. It is also indicated that Article 185(2)(b) of the CIR 92 allows downward transfer pricing adjustments subject to the condition that the profit to be exempted, generated by the international transaction or arrangement in question, has been included in the profit of the foreign counterparty to that transaction or arrangement.

82      It is true that the Commission’s reasoning appears somewhat ambivalent, since, on the one hand, it refers to all of the acts listed in recital 99 of the contested decision as the acts on which the scheme at issue is based, whereas, on the other hand, in its analysis of the reference system, in the course of examining whether there is a selective advantage, it states that no provision of the CIR 92 prescribes an exemption such as that applied by the Belgian tax authorities.

83      However, it follows from a reading of the contested decision in its entirety that Article 185(2)(b) of the CIR 92, as applied by the Belgian tax authorities, constitutes the basis for the alleged aid scheme at issue and that the application of that provision may be deduced from the explanatory memorandum to the Law of 21 June 2004, the Circular of 4 July 2006 and the Minister for Finance’s replies to parliamentary questions on the application of that provision.

84      Accordingly, it must be examined whether the alleged aid scheme, based on the acts identified by the Commission, requires further implementing measures within the meaning of Article 1(d) of Regulation 2015/1589.

85      The following observations may be made on the basis of the definition of an aid scheme in Article 1(d) of Regulation 2015/1589, set out in paragraph 77 above, as interpreted by the case-law.

86      First, if individual aid awards are made without further implementing measures being adopted, the essential elements of the aid scheme in question must necessarily emerge from the provisions identified as the basis for the scheme.

87      Secondly, where the national authorities apply that scheme, those authorities cannot have any margin of discretion as regards the determination of the essential elements of the aid in question and whether it should be awarded. For the existence of such implementing measures to be precluded, the national authorities’ power should be limited to the technical application of the provisions that allegedly constitute the scheme in question, if necessary after verifying that the applicants meet the pre-conditions for benefiting from that scheme.

88      Thirdly, it follows from Article 1(d) of Regulation 2015/1589 that the acts on which the aid scheme is based must define the beneficiaries in a general and abstract manner, even if the aid granted to them remains indefinite.

89      It is therefore necessary to assess the extent to which the elements highlighted above emerge from the acts identified by the Commission as the basis for the aid scheme at issue, so that the alleged aid measures, namely the excess profit exemptions, could be granted on the basis of those acts without it being necessary to adopt further implementing measures.

 The essential elements of the aid scheme at issue

90      In recitals 13 to 22 of the contested decision, the Commission describes the aid scheme at issue as consisting of an exemption of excess profit and sets out the elements which, in essence, constitute the essential elements for the grant of that exemption, which are summarised in recital 102 of the contested decision. Thus, first, the fact that the Belgian entities concerned are entities of a multinational group is taken into account. Secondly, account is taken of the fact that the entities concerned have obtained an advance ruling by the Ruling Commission, which is linked to a new situation, such as a reorganisation leading to the relocation of a central entrepreneur to Belgium, the creation of jobs, or investments. Thirdly, the existence of profit in excess of the profit that would have been made by comparable standalone entities operating in similar circumstances is taken into consideration. Fourthly, on the other hand, no account is taken of whether a primary upward adjustment was carried out in another Member State.

91      In that respect, it must be examined whether the essential elements of the alleged aid scheme, indicated above, emerge from the acts that the Commission referred to as the basis of the excess profit exemption system.

92      At the outset, it must be underlined that the Commission stated, in recitals 101 and 139 of the contested decision, that the essential elements of the alleged aid had been identified on the basis of an analysis of a sample of advance rulings. Thus, the Commission itself acknowledged that those essential elements did not emerge from the acts on which it considered the scheme was based, but from the advance rulings themselves or, rather, from a sample of those rulings.

93      In any event, although some of the essential elements of the scheme identified by the Commission may emerge from the acts identified in recitals 97 to 99 of the contested decision, that is not the case however for all of those essential elements.

94      As the Kingdom of Belgium and Magnetrol International have rightly submitted, neither the two-step methodology for calculating the excess profit nor the requirement of investments, the creation of jobs or the centralisation or increase of activities in Belgium follow, even implicitly, from the acts referred to by the Commission in recitals 97 to 99 of the contested decision as the basis of the scheme at issue. If those elements which, according to the Commission itself, constitute essential elements of the alleged aid scheme do not feature in the acts that supposedly constitute the basis of the scheme, the implementation of those acts and thus the grant of the alleged aid necessarily depends on the adoption of further implementing measures, with the result that there is no aid scheme within the meaning of Article 1(d) of Regulation 2015/1589.

95      First, the acts identified in recitals 97 to 99 of the contested decision, set out in paragraph 80 above, do not mention the two-step methodology, including the TNMM, for the calculation of excess profit. It follows from the contested decision, in particular from Section 6.3.2 thereof (recitals 133, 144 and 152 to 168 of that decision), that that methodology was applied systematically and constitutes an essential element of the scheme, since it is precisely the application of that methodology that makes the scheme selective.

96      Accordingly, without prejudging the question as to whether the determination of the excess profit using the two-step methodology, described in the contested decision, could lead to a selective advantage, it must be held that that constituent element of the scheme at issue nevertheless does not stem from the acts on which that scheme is based and could not therefore be applied without further implementing measures.

97      Secondly, as regards investments, the creation of jobs or the centralisation or increase of activities in Belgium by applicants for advance rulings, it should be noted that, in Section 6.3.2.1 of the contested decision, the Commission stated that, even though those elements were not listed as conditions for the grant of the excess profit exemption under Article 185(2)(b) of the CIR 92, they were essential in order to be eligible for an advance ruling, which was compulsory for the application of the exemption in question.

98      As the Commission itself recognised, inter alia in recital 139 of the contested decision, those elements do not emerge from the acts on which the scheme at issue is based, but from the advance rulings themselves, according to the sample that the Commission examined. Accordingly, as the Kingdom of Belgium and Magnetrol International rightly submit, if those elements do not emerge from the acts which, according to the Commission, constitute the basis of the aid scheme, those acts must necessarily be the object of further implementing measures. If, as the Commission submits, such investments are taken into account by the Belgian tax authorities for the purpose of granting the excess profit exemption, that will necessarily entail an analysis and a specific evaluation of the investments proposed by the Belgian entities concerned, as regards inter alia the nature and amount of those investments, or other details concerning the manner in which they would be made. Such an analysis could be carried out only on a case-by-case basis and would therefore require further implementing measures.

 The margin of discretion of the Belgian tax authorities

99      As the Commission rightly noted, in recital 100 of the contested decision, the existence of further implementing measures, within the meaning of Article 1(d) of Regulation 2015/1589, entails a degree of discretion on the part of the tax authority adopting the measures in question, allowing it to influence the amount or the characteristics of the aid or the conditions under which it is granted. The Commission considers, by contrast, that the mere technical application of the act providing for the grant of the aid in question does not constitute a further implementing measure within the meaning of Article 1(d) of Regulation 2015/1589.

100    It should be noted that the fact that a prior request for approval must be submitted to the competent tax authorities in order to benefit from an aid does not imply that those authorities have a margin of discretion, when they merely verify whether the applicant meets the requisite criteria in order to benefit from the aid in question (see, to that effect and by analogy, judgment of 17 September 2009, Commission v Koninklijke FrieslandCampina, C‑519/07 P, EU:C:2009:556, paragraph 57).

101    In the present case, it is undisputed that the non-taxation of excess profit is subject to the grant of an advance ruling. In that respect, it must be noted that Article 20 of the Law of 24 December 2002 defines an ‘advance ruling’ as the legal act by which the Federal Public Service for Finance determines, in accordance with the applicable provisions, how the law will apply to a particular situation or transaction that has not yet had tax consequences.

102    It must therefore be examined whether, in issuing such advance rulings, that service had a margin of discretion allowing it to influence the amount and the essential elements of the excess profit exemption and the conditions under which it was granted.

103    First, it is apparent from the explanatory memorandum to the Law of 21 June 2004 amending the CIR 92 (as summarised in paragraph 7 above) and from the Circular of 4 July 2006 (as described in paragraphs 9 to 11 above) that the downward adjustment provided for in Article 185(2)(b) of the CIR 92 must be carried out on a case-by-case basis in the light of the available information provided, in particular, by the taxpayer. In addition, it is indicated that no criteria may be established in respect of that adjustment, since the latter must be carried out on a case-by-case basis. However, it is stated that a correlative adjustment should be made only if the tax administration or the Ruling Commission considers both the principle and the amount of the primary adjustment to be justified. Furthermore, the Minister for Finance’s replies to parliamentary questions on the application of Article 185(2)(b) of the CIR 92 (as summarised in paragraphs 12 to 14 above) merely refer in general terms to the position of the Belgian tax administration as regards excess profit and the arm’s length principle.

104    It may be inferred from a combined reading of the acts mentioned in paragraph 103 above that, when the Belgian tax authorities issued advance rulings on excess profit, they did not carry out a technical application of the applicable regulatory framework, but, rather, carried out a qualitative and quantitative assessment of each request on a ‘case-by-case’ basis, in the light of the reports and evidence provided by the entity concerned, in order to decide whether it was justified to grant the downward adjustment provided for in Article 185(2)(b) of the CIR 92. Accordingly, contrary to the Commission’s assertions, inter alia in recital 106 of the contested decision, and in the absence of any other instructions that would limit the decision-making power of the Belgian tax administration, that administration necessarily enjoyed a genuine margin of discretion in deciding whether it was appropriate to grant such downward adjustments.

105    Secondly, as indicated in paragraph 73 above, Article 185(2)(b) of the CIR 92 provides for a downward adjustment of a company’s profit only if that profit has been included in the profit of another company. In practice however, as explained, inter alia, by the Circular of 4 July 2006 and the Minister for Finance’s replies to parliamentary questions on the application of Article 185(2)(b) of the CIR 92, the downward adjustment was carried out by the Ruling Commission without it having been determined to which foreign companies the excess profit should be attributed.

106    In addition, it follows from recitals 67 and 68 of the contested decision that the scheme at issue does not cover all the advance rulings issued on the basis of Article 185(2)(b) of the CIR 92. It concerns only advance rulings which granted downward adjustments without the administration having verified whether the profit concerned had been included in the profit of another company of the group established in another jurisdiction. By contrast, advance rulings which, in accordance with the wording of Article 185(2)(b) of the CIR 92, grant a downward adjustment corresponding to an upward adjustment of the taxable profit of another company of the group established in another jurisdiction do not form part of the aid scheme at issue.

107    Accordingly, as the Kingdom of Belgium and Magnetrol International rightly submit, if, on the basis of that provision, the Belgian tax administration may adopt both decisions which, according to the Commission, grant State aid and decisions which do not grant such aid, it cannot reasonably be maintained that the role of that administration is limited to the technical application of the scheme at issue.

108    Thirdly, on the basis of the information provided by the Kingdom of Belgium to the Commission concerning the operation of the Ruling Commission, it is necessary to examine how the Ruling Commission determined, in its individual examination of requests for advance rulings, whether there was a situation giving rise to excess profit, whether a downward adjustment should be carried out under Article 185(2)(b) of the CIR 92 and what the characteristics, the amount and the conditions of that adjustment should be.

109    As regards the characteristics of the excess profit exemption and the conditions in which it is granted, it suffices to recall the considerations set out in paragraphs 90 to 98 above, according to which certain essential elements of the alleged scheme do not emerge from the acts on which, according to the Commission, that scheme is based.

110    As regards the amount to be exempted, it should be noted that the percentage of profit considered to be excess profit is not defined in the acts on which the alleged aid scheme is based. Indeed, it is not possible to deduce from those acts a specific percentage, a range or even a ceiling, and no specific element is provided concerning the method of calculation to be applied. On the contrary, it can be seen from the contested decision (recital 103 thereof) that the individual facts, the amounts involved and the transactions to be taken into account differ from one advance ruling to another. Likewise, the description of excess profit, in recital 15 of the contested decision, shows that determining that profit requires an assessment, on a case-by-case basis, of studies submitted by the tax payer as regards, first, the company’s residual profit, generated from transactions with companies in the same group, and, secondly, the excess profit generated because of that company’s membership of a group, which is deducted from the residual profit, as calculated in the first step.

111    More specifically, as the Kingdom of Belgium and Magnetrol International rightly submit, the parameters for calculating the excess profit and the instructions necessary for the purpose of taking account, when issuing advance rulings, of synergies, investments, the centralisation of activities and the creation of jobs in Belgium are not set out in the acts on which, according to the Commission, the scheme at issue is based. It is therefore the Ruling Commission which (i) determined the essential elements that were required in order to obtain a downward adjustment and (ii) verified whether that requirement was met where it agreed to grant that adjustment. It cannot therefore be maintained that the margin of discretion of the Belgian tax authorities was limited to the mere technical application of the provisions identified in recital 99 of the contested decision.

112    Fourthly, it must be noted that the procedure before the Ruling Commission includes a preliminary phase during which the requests for an advance ruling are analysed and at the end of which some of the requests are officially taken into account. It is apparent from the annual reports of the Ruling Commission identified by the Kingdom of Belgium, in particular the 2014 report, that only around half of open files at the pre-notification stage result in an advance ruling. That is an indication that, contrary to the Commission’s submissions, the Ruling Commission has a margin of discretion which it actually exercises when granting or rejecting requests relating to excess profit, including at the pre-notification stage.

113    Lastly, it should be noted that, in recital 106 of the contested decision, the Commission indicates that the Ruling Commission has a limited margin of discretion to agree the exact percentage of the downward adjustment. However, it follows from the considerations set out in paragraphs 101 to 112 above that, in the present case, the Belgian tax authorities had a margin of discretion over all of the essential elements of the alleged aid scheme.

 Definition of the beneficiaries

114    As regards the definition of the beneficiaries, it should be noted that, in recital 109 of the contested decision, the Commission refers to Article 185(2)(b) of the CIR 92. That article, the wording of which is set out in paragraph 8 above, provides that it applies to companies which are part of a multinational group, as regards their reciprocal cross-border relationships.

115    It could indeed be considered that Article 185(2)(b) of the CIR 92 covers a general and abstract category of entities, namely companies forming part of a multinational group in the context of their reciprocal cross-border relationships. However, the beneficiaries of the scheme, as referred to in the contested decision, cannot be identified on the sole basis of that provision, without further implementing measures.

116    In the present case, the beneficiaries of the scheme, as the latter is found to exist by the Commission, correspond to a much more specific category than that of companies forming part of a multinational group in the context of their reciprocal cross-border relationships. According to the Commission’s assessments, inter alia in recital 102 of the contested decision, relating to the essential elements of the aid scheme at issue, that scheme applies to companies forming part of a multinational group which, on the basis of transfer pricing reports and the existence of excess profit calculated using those reports, seek the exemption of that profit by a request for an advance ruling and which, moreover, make investments, create jobs or centralise activities in Belgium.

117    In addition, it should be noted that the other acts on which the Commission found the scheme was based do not provide any additional details as regards the definition of the beneficiaries of the scheme at issue.

118    As regards, specifically, the Law of 24 December 2002, although Article 20 thereof sets out the requirement for a particular situation or transaction that has not yet had tax consequences, that law does not contain provisions intended to define the beneficiaries of the alleged scheme. Nor do the Circular of 4 July 2006 or the Minister for Finance’s replies of 13 April 2005, 11 April 2007 and 6 January 2015 provide details concerning the beneficiaries of the alleged scheme. Moreover, it must be noted that the latter acts were adopted after 2004, the year from which, according to the Commission, the scheme in question was applied.

119    Accordingly, it cannot be concluded that the beneficiaries of the alleged aid scheme are defined in a general and abstract manner by the acts on which the Commission found the scheme was based. Further implementing measures therefore necessarily have to be taken in order to define such beneficiaries.

120    It follows from the foregoing considerations that the Commission wrongly concluded that the excess profit exemption scheme, as defined by the Commission in the contested decision, did not require further implementing measures and therefore constituted an aid scheme, within the meaning of Article 1(d) of Regulation 2015/1589.

 The existence of a systematic approach

121    The conclusion in paragraph 120 above cannot be called into question by the Commission’s arguments alleging the existence of a systematic approach, which it identified by examining a sample of 22 of the 66 existing advance rulings.

122    It is necessary to bear in mind the case-law, cited in paragraph 79 above, according to which, in examining an aid scheme, where no legal act establishing that scheme is identified, the Commission may rely on a set of circumstances which taken as a whole indicate the de facto existence of an aid scheme (see, to that effect, judgment of 13 April 1994, Germany and Pleuger Worthington v Commission, C‑324/90 and C‑342/90, EU:C:1994:129, paragraphs 14 and 15).

123    Accordingly, it cannot be ruled out that the Commission may conclude that there is an aid scheme where it is able to demonstrate, to the requisite legal standard, a systematic approach, the characteristics of which meet the requirements set out in Article 1(d) of Regulation 2015/1589.

124    However, the Commission has not succeeded in demonstrating that the approach that it had identified met the requirements set out in Article 1(d) of Regulation 2015/1589.

125    In the first place, as regards the arguments put forward by the Commission inter alia at the hearing, according to which a systematic approach may constitute the very basis of the aid scheme, it suffices to note that it is not the basis of the scheme relied on in the contested decision. As noted in paragraph 80 above, in recitals 97 to 99 of the contested decision, the Commission stated that Article 185(2)(b) of the CIR 92, as applied by the Belgian tax administration, formed the basis of the alleged aid scheme at issue and that that application could be deduced from the explanatory Memorandum to the Law of 21 June 2004, the Circular of 4 July 2006 and the Minister for Finance’s replies to parliamentary questions concerning the application of that provision.

126    In the second place, even if the Commission’s arguments are to be understood as meaning that the essential elements of the aid scheme emerge from a systematic approach which, in turn, is said to emerge from the sample of advance rulings that it examined, it must be pointed out that, in the contested decision, the Commission was not able to demonstrate to the requisite legal standard the existence of such a systematic approach.

127    First of all, it must be noted that, in recitals 65 and 103 of the contested decision, the Commission acknowledged that it examined a sample of 22 of the 66 advance rulings concerned. As the Kingdom of Belgium and Magnetrol International rightly submit, the Commission did not explain, in the contested decision, either the choice of that sample or why it had been considered to be representative of all of the advance rulings. In response inter alia to a written question from the Court, which response was also clarified at the hearing, the Commission indicated that it had requested the advance rulings issued in 2005 (no ruling having been issued in 2004), 2007, 2010 and 2013 so that its examination would cover rulings issued at the beginning, middle and end of the period during which the Ruling Commission had issued such rulings.

128    In addition, the contested decision contains, in recitals 62 to 64 and footnote 80, references to 6 of the 66 advance rulings concerned, which are described briefly and referred to as examples capable of illustrating all of the advance rulings. However, no explanation is given in the contested decision as to why those 6 examples were chosen, why those examined advance rulings are sufficiently representative of all 66 advance rulings or why those 6 examples are sufficient to justify the Commission’s conclusion regarding the existence of a systematic approach by the Belgian tax authorities.

129    Next, it is necessary to recall the considerations set out in paragraphs 103 to 112 above, according to which the Belgian tax authorities examined each request on a case-by-case basis and had a margin of discretion that went well beyond a mere technical application of the provisions identified in recital 99 of the contested decision, when they issued each advance ruling following that examination, which, in itself, undermines the systematic nature of the approach allegedly followed by the Belgian tax authorities. In addition, the existence of a systematic approach is called into question by the finding made in paragraph 98 above, concerning the further implementing measures necessary in order to implement the excess profit exemption system at issue in the present case.

130    Lastly, the Kingdom of Belgium and Magnetrol International submit that several advance rulings did not incorporate the essential elements of the alleged aid scheme identified by the Commission in the contested decision, in particular because the advance rulings did not all concern the role of central entrepreneur as taken into consideration by the Commission, a centralisation or recentralisation of activities did not take place in every case and the calculation of the excess profit was carried out on a case-by-case basis and not always according to the two-step calculation methodology criticised by the Commission.

131    In that respect, it must be noted that the deficiencies identified in paragraphs 127 and 128 above cannot be remedied by the additional information provided by the Commission in response to the Court’s questions, mentioned in paragraph 49 above, concerning the sample of advance rulings that it had analysed. The Court cannot, without exceeding the limits of its power to review the legality of the contested decision, rely, in order to reject a plea for annulment submitted to it, on grounds which did not form part of that decision (see, to that effect, judgment of 22 April 2016, Ireland and Aughinish Alumina v Commission, T‑50/06 RENV II and T‑69/06 RENV II, EU:T:2016:227, paragraph 145).

132    In any event, and as the Kingdom of Belgium and Magnetrol International rightly submit, it follows from the additional information submitted by the Commission in response to the Court’s questions that the advance rulings in the sample examined by the Commission show individual responses given by the Belgian tax authorities to various situations before them. The information provided concerning the 22 rulings show that those rulings were issued in different situations, such as the merger or restructuring of production activities, the construction of new facilities, the increase of the production capacity of existing facilities or the internalisation of supply activities. Thus, contrary to recital 15 of the contested decision and to the reasoning followed by the Commission in order to prove that the alleged scheme granted the beneficiaries a selective advantage (Section 6.3.2.2 of the contested decision), the advance rulings in the sample examined do not all concern situations in which the Belgian entity concerned operated as a ‘central entrepreneur’.

133    In addition, it follows from the information provided by the Commission in its reply to the Court’s questions, referred to in paragraph 49 above, that the two-step approach to calculating the excess profit –– identified by the Commission as one of the essential elements of the alleged aid scheme and described by the Commission in recital 15 of the contested decision –– involving inter alia the use of transfer pricing reports and the TNMM, was not followed systematically.

134    Accordingly, apart from the deficiencies identified in paragraphs 127 and 128 above, which would undermine the arguments concerning the existence of a systematic approach on the part of the Belgian tax authorities, the sample to which the Commission refers in the contested decision cannot necessarily prove that such a systematic approach actually existed and that it was followed in all of the advance rulings concerned.

 Conclusion on the classification of the measures in question as an aid scheme

135    It follows from the foregoing considerations that the Commission erroneously considered that the Belgian excess profit system at issue, as presented in the contested decision, constituted an aid scheme.

136    Accordingly, it is necessary to uphold the pleas raised by the Kingdom of Belgium and Magnetrol International, alleging the infringement of Article 1(d) of Regulation 2015/1589, as regards the conclusion set out in the contested decision regarding the existence of an aid scheme. Consequently, without it being necessary to examine the other pleas raised against the contested decision, that decision must be annulled in its entirety, inasmuch as it is based on the erroneous conclusion concerning the existence of such a scheme.

 Costs

137    Under Article 134(1) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings. Since the Commission has been unsuccessful, it must be ordered to pay, in addition to its own costs, those incurred by the Kingdom of Belgium, including those relating to the proceedings for interim measures, and by Magnetrol International, in accordance with the forms of order sought by them.

138    Under Article 138(1) of the Rules of Procedure, the Member States which have intervened in the proceedings are to bear their own costs. Ireland must therefore bear its own costs.

On those grounds,

THE GENERAL COURT (Seventh Chamber, Extended Composition)

hereby:

1.      Joins Cases T‑131/16 and T‑263/16 for the purposes of the present judgment;

2.      Annuls Commission Decision (EU) 2016/1699 of 11 January 2016 on the excess profit exemption State aid scheme SA.37667 (2015/C) (ex 2015/NN) implemented by Belgium;

3.      Orders the European Commission to pay, in addition to its own costs, those incurred by the Kingdom of Belgium, including those relating to the proceedings for interim measures, and by Magnetrol International;

4.      Orders Ireland to bear its own costs.

17      In the first place, as regards the assessment of the aid measure (recitals 94 to 110 of the contested decision), the Commission considered that the measure in question constituted an aid scheme, based on Article 185(2)(b) of the CIR 92, as applied by the Belgian tax administration. That application is explained in the explanatory memorandum to the Law of 21 June 2004, the Circular of 4 July 2006 and the Minister for Finance’s replies to parliamentary questions on the application of Article 185(2)(b) of the CIR 92. According to the Commission, those acts constitute the basis on which the exemptions in question were granted. In addition, the Commission considered that those exemptions were granted without further implementing measures being required, since the advance rulings were merely technical applications of the scheme at issue. Furthermore, the Commission stated that the beneficiaries of the exemptions were defined in a general and abstract manner by the acts on which the scheme was based. Those acts referred to entities that form part of a multinational group of companies.

18      In the second place, as regards the conditions for applying Article 107(1) TFEU (recitals 111 to 117 of the contested decision), first, the Commission indicated that the excess profit exemption constituted an intervention by the State, imputable to it, and gave rise to a loss of State resources, since it resulted in a reduction of the tax liability in Belgium of undertakings benefiting from the scheme. Secondly, it considered that the scheme at issue was liable to affect intra-Union trade, since the undertakings that benefited from the scheme were multinational companies operating in several Member States. Thirdly, the Commission underlined that the scheme at issue relieved the undertakings benefiting from it from a burden they would otherwise be obliged to bear and that, consequently, that scheme distorted or threatened to distort competition by strengthening the financial position of those undertakings. Fourthly, the Commission considered that the scheme at issue conferred a selective advantage on Belgian entities and thus benefited only the multinational groups to which those entities belonged.

19      As regards, specifically, the existence of a selective advantage, the Commission considered that the excess profit exemption was a derogation from the reference system, identified as the Belgian corporate income tax system, since the tax was not applied to the total profit actually recorded by the company concerned but to an adjusted arm’s length profit (recitals 118 to 134 of the contested decision).

20      In that regard and primarily (recitals 135 to 143 of the contested decision), the Commission considered that the scheme at issue was selective, first of all, because it was available only to entities that were part of a multinational group, not to standalone entities or entities forming part of domestic corporate groups. Next, the scheme at issue resulted in selectivity between, on the one hand, multinational groups that amended their business model by establishing new operations in Belgium and, on the other hand, any other economic operators that continued to operate under existing business models in Belgium. Lastly, the scheme at issue was de facto selective since only Belgian entities forming part of a large or medium-sized multinational group could effectively benefit from the excess profit exemption, not entities that were part of a small multinational group.

21      As a secondary point (recitals 144 to 170 of the contested decision), the Commission stated that, even if it were accepted that the Belgian corporate income tax system contained a rule according to which the profit recorded by multinational group entities that exceeded an arm’s length profit should not be taxed, which the Commission disputed, the excess profit exemption constituted a derogation from the reference system, since both the rationale for that exemption and the methodology used to establish the excess profit contravened the arm’s length principle. That methodology comprised two steps.

22      In the first step, the arm’s length prices charged in transactions between the Belgian entity of a group and the companies with which it is associated were fixed based on a transfer pricing report provided by the taxpayer. Those transfer prices were determined by applying the transactional net margin method (TNMM). A residual or arm’s length profit was thus established, which, according to the Commission, corresponded to the profit actually recorded by the Belgian entity.

23      In the second step, on the basis of a second report submitted by the taxpayer, the Belgian entity’s adjusted arm’s length profit was established by determining the profit that a comparable standalone company would have made in comparable circumstances. The difference between the profit arrived at following the first and second steps (namely the residual profit minus the adjusted arm’s length profit) constituted the amount of excess profit which the Belgian tax authorities regarded as being the result of synergies or economies of scale arising from membership of a corporate group and which, accordingly, could not be attributed to the Belgian entity.

24      Under the scheme at issue, that excess profit was not taxed. According to the Commission, that non-taxation granted the beneficiaries of the scheme a selective advantage, particularly since the methodology for determining the excess profit departed from a methodology that leads to a reliable approximation of a market-based outcome and thus from the arm’s length principle.

25      In addition, the Commission considered that the scheme at issue could not be justified by the nature and the general scheme of the Belgian tax system (recitals 173 to 181 of the contested decision). Contrary to the assertions of the Kingdom of Belgium, the scheme at issue did not pursue the objective of avoiding double taxation, since it was not necessary, in order to benefit from the excess profit exemption, to demonstrate that that profit was included in the tax base of another company.

26      In the third place, the Commission considered that the measures in question constituted operating aid and were therefore incompatible with the internal market. Furthermore, since those measures were not notified to the Commission pursuant to Article 108(3) TFEU, they constituted unlawful aid (recitals 189 to 194 of the contested decision).

27      As regards the recovery of the aid (recitals 195 to 211 of the contested decision), the Commission stated that the Kingdom of Belgium could not rely on the principle of the protection of the beneficiaries’ legitimate expectations or on the principle of legal certainty in order to justify a failure to fulfil its obligation to recover the incompatible aid unlawfully granted and that the amounts to be recovered from each beneficiary could be calculated on the basis of the difference between the tax that would have been due, based on the profit actually recorded, and the tax actually paid as a result of the advance ruling.

Loyens and Loeff Commentary can be read here.

February 14, 2019 in BEPS, Tax Compliance | Permalink | Comments (0)

Three Individuals Sentenced to Prison for Their Roles in Bribery Schemes Involving VA Program for Disabled Military Veterans

Two owners and an employee of for-profit, non-accredited schools were sentenced during the last two days for bribing a public official at the U.S. Department of Veterans Affairs (VA) in exchange for the public official’s facilitation of over $2 million in payments that were supposed to be dedicated to providing vocational training for military veterans with service-connected disabilities. 

Albert Poawui, 41, of Laurel, Maryland, was the owner of Atius Technology Institute (“Atius”), a school purporting to specialize in information technology courses.  Sombo Kanneh, 29, of McLean, Virginia, was Poawui’s employee at Atius.  Michelle Stevens, 57, of Waldorf, Maryland, was the owner of Eelon Training Academy, a school purporting to specialize in digital media courses.

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Jessie K. Liu for the District of Columbia, Assistant Director in Charge Nancy McNamara of FBI’s Washington Field Office and Special Agent in Charge Kim Lampkins of U.S. Department of Veterans Affairs Office of Inspector General (OIG) Mid-Atlantic Field Office made the announcement.

All three defendants were sentenced by U.S. District Judge John D. Bates of the District of  Columbia.  Poawui was sentenced to serve 70 months in prison followed by three years of supervised release and ordered to pay $1.5 million in restitution to the VA.  Kanneh was sentenced to serve 20 months in prison followed by three years of supervised release and was ordered to pay $113,227.30 in restitution to the VA and to forfeit $1.5 million.  Stevens was sentenced to serve 30 months in prison followed by three years of supervised release and ordered to pay $83,000 in restitution to the VA and to forfeit $83,000.

James King, the VA official who all three defendants bribed, has pleaded guilty to bribery, wire fraud, and falsification of documents, and will be sentenced on Friday, Feb. 15. 

The Vocational Rehabilitation and Employment (VR&E) program is a VA program that provides disabled U.S. military veterans with education and employment-related services.  VR&E program counselors advise veterans under their supervision which schools to attend and facilitate payments to those schools for veterans’ tuition and necessary supplies.

According to admissions made in connection with Poawui and Kanneh’s pleas, in or about August 2015, Poawui and King agreed that Poawui would pay King a seven percent cash kickback of all payments made by the VA to Atius.  In exchange, King steered VR&E program veterans to Atius regardless of the veterans’ educational needs or interests and notwithstanding their repeated complaints about the poor quality of education at Atius.

Between Aug. 2015 and Dec. 2017, Poawui, King, and the scheme’s other participants caused the VA to pay Atius approximately $2,217,259.44.  Poawui paid King over $155,000 as part of the illicit bribery scheme.  These bribery payments were hand-delivered by Poawui or Kanneh to King or King’s assistant, who was a veteran enrolled in the VR&E program.  Kanneh admitted that she routinely moved money between Atius’s bank accounts to facilitate bribe payments to King.

Poawui also admitted that he made numerous false representations to the VA to enhance the scheme’s profits.  For example, Poawui certified to the VA that veterans attending Atius were enrolled in up to 32 hours of class per week, when in fact he knew that Atius offered a maximum of six weekly class hours.  After the VA initiated an administrative audit of Atius, Poawui and King took steps to conceal the truth about earlier misrepresentations they had made to the VA.

According to admissions made in connection with Stevens’ plea, she created Eelon Training Academy after learning about the VR&E program from King.  In or about Sept. 2016, King facilitated the first tuition payment from the VA to Eelon.  Shortly after receiving this payment, King told Stevens that she should give him seven percent of the monies paid by the VA to Eelon.  King proceeded to steer veterans under his supervision to Eelon regardless of their resistance to attending Stevens’ school.

Stevens admitted to later making two cash payments of $1,500 to King in furtherance of her scheme to bribe King in exchange for King sending veterans under his supervision to Eelon and facilitating the VA’s payments to Stevens.  In total, Stevens received approximately $83,000 from the VA for education that she purported to provide to veteran students.  Stevens submitted invoices to the VA amounting to no less than $300,000 for the tuition and equipment of seven students, but was not paid the balance of the invoice amount due to the VA’s ongoing investigation into Eelon following complaints by students about the poor quality of education. 

In an effort to procure the outstanding payments from the VA, Stevens made numerous fraudulent misrepresentations to the VA, and maintained fraudulent student files in the event of an audit by the VA.  For example, Stevens emailed to the VA an “attendance” sheet for eight students.  The attendance sheet was created by Stevens and included handwritten check marks purporting to represent the dates that the students attended class.  In fact, as Stevens well knew, the students had not attended class on many of those dates nor was class even held on many of those dates. 

February 14, 2019 in AML | Permalink | Comments (0)

FATCA - Do taxpayers need a right to know foreign government will receive their private financial information from IRS?

INTERGOVERNMENTAL AGREEMENTS (IGAS): Amend Internal Revenue Code § 1474 to Allow a Period of Notice and Comment on New Intergovernmental Agreements (IGAs) and to Require That the IRS Notify Taxpayers Before Their Data Is Transferred to a Foreign Jurisdiction Pursuant to These IGAs, Unless Unique and Compelling Circumstances Exist

EXAMPLE

Taxpayer is a citizen of the U.S. but is currently a resident of a foreign country. The U.S. and the foreign country enter into an IGA, which contemplates the reciprocal sharing of  axpayert information. Once the IGA is in force and the U.S. has done as much as it can to confirm that the cybersecurity measures of the foreign country are satisfactory, the reciprocal exchange of information begins. As part of that exchange, Taxpayer’s personal information is provided to the foreign country without Taxpayer’s specific knowledge. Once the information arrives in the foreign country and is beyond the continuing oversight of the IRS, a data breach occurs. As a result, Taxpayer’s personal information is exposed and taxpayer becomes the victim of identity theft.

Unlike in the U.S., the foreign country does not follow the practice of alerting taxpayers when data breaches occur. Thus, the identity theft results in substantial economic damage to Taxpayer in part because Taxpayer remains unaware of the data breach until unauthorized account activity begins to appear. Moreover, Taxpayer’s risk for subsequent damage has effectively been doubled by the circumstance that Taxpayer’s personal information now is maintained in two different jurisdictions, thereby increasing exposure to unauthorized disclosure or improper use of that information.

Read the proposal at Download ARC18_Volume1_LR_06_IGAS

February 14, 2019 in GATCA | Permalink | Comments (0)