International Financial Law Prof Blog

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

Sunday, March 31, 2019

Office Depot and Tech Support Firm Will Pay $35 Million to Settle FTC Allegations That They Tricked Consumers into Buying Costly Computer Repair Services

Office Depot, Inc. and a California-based tech support software provider have agreed to pay a total of $35 million to settle Federal Trade Commission allegations that the companies tricked customers into buying millions of dollars’ worth of computer repair and technical services by deceptively claiming their software had found malware symptoms on the customers’ computers.

Office Depot has agreed to pay $25 million while its software supplier,, Inc., has agreed to pay $10 million as part of their settlements with the FTC. The FTC intends to use these funds to provide refunds to consumers.

“Consumers have a hard enough time protecting their computers from malware, viruses, and other threats,” said FTC Chairman Joe Simons. “This case should send a strong message to companies that they will face stiff consequences if they use deception to trick consumers into buying costly services they may not need.”

PC Health Check software screenshot.  Checking any of the four boxes triggered a deceptive report of malware on the consumer's computer.In its complaint, the FTC alleges that worked with Office Depot for nearly a decade to sell technical support services at its stores. Office Depot and used PC Health Check, a software program, as a sales tool to convince consumers to purchase tech repair services from Office Depot and OfficeMax, Inc., which merged in 2013.

The Office Depot companies marketed the program as a free “PC check-up” or tune-up service to help improve a computer’s performance and scan for viruses and other security threats., which received tens of millions of dollars in revenue from Office Depot, remotely performed the tech repair services once consumers made the purchase.

The FTC alleges that while Office Depot claimed the program detected malware symptoms on consumers’ computers, the actual results presented to consumers were based entirely on whether consumers answered “yes” to four questions they were asked at the beginning of the PC Health Check program. These included questions about whether the computer ran slow, received virus warnings, crashed often, or displayed pop-up ads or other problems that prevented the user from browsing the Internet.

The complaint alleges that Office Depot and configured the PC Health Check Program to report that the scan found malware symptoms or infections whenever consumers answered yes to at least one of these four questions, despite the fact that the scan had no connection to the “malware symptoms” results. After displaying the results of the scan, the program also displayed a “view recommendation” button with a detailed description of the tech services consumers were encouraged to purchase—services that could cost hundreds of dollars—to fix the problems.

The FTC alleges that both Office Depot and have been aware of concerns and complaints about the PC Health Check program since at least 2012. For example, one OfficeMax employee complained to corporate management in 2012, saying “I cannot justify lying to a customer or being TRICKED into lying to them for our store to make a few extra dollars.” Despite this and other internal warnings, Office Depot continued until late 2016 to advertise and use the PC Health Check program and pushed its store managers and employees to generate sales from the program, according to the complaint.

The Commission alleges that both companies violated the FTC Act’s prohibition against deceptive practices.

In addition to the monetary payment, the proposed settlement also prohibits Office Depot from making misrepresentations about the security or performance of a consumer’s electronic device and requires the company to ensure its existing and future software providers do not engage in such conduct. As part of its proposed settlement, cannot make, or provide others with the means to make, misrepresentations about the performance or detection of security issues on consumer electronic devices.

March 31, 2019 in Financial Regulation | Permalink | Comments (0)

Saturday, March 30, 2019

Former Lobbyist Guilty - 5 Year Multi-Million High-Yield Investment Fraud Scheme

A former lobbyist pleaded guilty today to making a false statement to U.S. Postal Inspectors in connection with an ongoing federal investigation and proceedings concerning a five-year multi-million dollar high-yield investment fraud scheme, announced Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division.  

Christopher Petrella, 51, of Greer, South Carolina, pleaded guilty before U.S. Magistrate Judge David S. Cayer of the Western District of North Carolina to one count of making a false statement.  Sentencing, which has not yet been scheduled, will be before U.S. District Judge Robert J. Conrad of the Western District of North Carolina.

Petrella was indicted in October 2018 for one count of obstruction of justice. Under the plea agreement, the government will move to dismiss the indictment at sentencing.   

As part of his guilty plea, Petrella admitted that, in an attempt to mislead federal law enforcement about his involvement in a high-yield investment scheme involving Niyato Industries Inc (Niyato), he knowingly and willfully made the false claim that he had filed a “quarterly report” with U.S. Congress pursuant to certain requirements applicable to federal lobbyists, such as himself.  The “quarterly report” purportedly disclosed to authorities that certain individuals had made false and misleading statements about Niyato’s business and operations on Niyato’s Twitter and Facebook pages. 

Ten individuals had been previously indicted by a Charlotte grand jury for their alleged roles in a high-yield investment scheme involving Niyato.  The charges in that case allege that the defendants raised money from investors by representing that Niyato manufactured electric and compressed natural gas automobiles when, in truth, the company had no facilities, no operations and no capability to manufacture anything.  Two defendants were recently found guiltyof conspiracy to commit mail and wire fraud, mail fraud, wire fraud, and money laundering, following a three-week trial and are awaiting sentencing.  Four other defendants have pleaded guilty and are awaiting sentencing.  One additional defendant has pleaded guilty and received a sentence of 102 months in prison in connection with his role in the Niyato case and in an unrelated Costa Rican sweepstakes fraud.  Daniel Thomas Broyles, Sr., 61, of Beverly Hills, California, was also charged and remains a fugitive.  An indictment is merely an allegation and all defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

March 30, 2019 in AML | Permalink | Comments (0)

Friday, March 29, 2019

Resolving Foreign Bribery Cases with Non-Trial Resolutions

Settlements and Non-Trial Agreements by Parties to the Anti-Bribery Convention

Ever since the entry into force of the OECD Anti-Bribery Convention, bribery offences, including the bribery of foreign public officials, have increasingly been resolved through non-trial resolutions. Of the 890 cases concluded under the Anti-Bribery Convention to date, close to 80% have been through non-trial resolutions. Download Resolving-foreign-bribery-cases-with-non-trial-resolutions

Non-trial resolutions, commonly known as “settlements”, are generally viewed as a pragmatic and efficient way to resolve cases that would otherwise require tremendous time and resources to investigate and prosecute before reaching a court. Advocates for settlements argue that their compromising rather than adversarial nature constitute an incentive for wrongdoers to self-report to prosecutors and increase the prospects of corporate governance reforms. However, they also present legal, institutional and procedural challenges and some experts question their ability to fairly and effectively deliver justice. Questions of transparency, the level of deterrence and victims’ compensation are generally at the heart of these concerns.

This Study is the first cross-country examination of the different types of resolutions that can be used to resolve foreign bribery cases. Covering 27 of the 44 Parties to the Anti-Bribery Convention, the Study documents the non-trial resolution mechanisms available to resolve foreign bribery cases with individuals and/or legal persons with the imposition of sanctions and/or confiscation. The Study was undertaken by the OECD Working Group on Bribery in International Business Transactions. It relies on governmental data gathered through both the rigourous country monitoring process, and a comprehensive survey circulated to all Parties to the Convention. It also relies on the OECD database of concluded foreign bribery cases and specific case studies of the most prominent multi-jurisdictional cases.

March 29, 2019 in AML | Permalink | Comments (0)

CFTC Finalizes Rule to Help US Small Businesses and Job Creators

The Commodity Futures Trading Commission (CFTC) in an open meeting of the Commission adopted the final rule for the de minimis exception for swaps entered into by Insured Depository Institutions (IDIs) in connection with loans to customers.

 “This proposal will allow small and medium size commercial borrowers – manufacturers, home builders, agricultural cooperatives, community hospitals and small municipalities - to conduct prudent risk management that is difficult for them under the current rule,” said CFTC Chairman J. Christopher Giancarlo in the open meeting. “Today’s rule is about prudent risk management by America’s small business borrowers and job creators.  It is about investment in local communities in the real economy.  It is about increasing prosperity and employing our fellow Americans.  Frankly, things just don’t get more important than that.”

 The final rule is an amendment to the de minimis exception within the swap dealer definition in the Commission’s regulations that establishes as a factor in the de minimis threshold determination whether a given swap has specified characteristics of swaps entered into by IDIs in connection with loans to customers.

 This amendment will better allow small and medium-size commercial borrowers to conduct prudent risk management, and promote investment in American communities.  The Commission expects that the amendment will facilitate the provision of swaps by IDIs, particularly small and mid-sized banks, to their loan customers because the IDIs will be able to provide risk-mitigating swaps to these customers in connection with originating loans without counting the swaps towards their de minimis threshold.

March 29, 2019 in Financial Regulation | Permalink | Comments (0)

Wednesday, March 27, 2019

FTC and CFPB Report on 2018 Activities to Combat Illegal Debt Collection Practices

The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (Bureau or CFPB) reported on their 2018 activities to combat illegal debt collection practices. The annual report to Congress on the administration of the Fair Debt Collection Practices Act (FDCPA) highlights both agencies’ efforts to stop unlawful debt collection practices, including robust law enforcement, education and public outreach, and policy initiatives.

In the report, the FTC states that it filed or resolved a total of seven cases against 52 defendants, and obtained more than $58.9 million in judgments. The FTC also banned 32 companies and individuals that engaged in serious and repeated law violations from ever working in debt collection again. The FTC continued its aggressive efforts to curb egregious debt collection practices, including initiating or resolving four actions involving phantom debt collections. The FTC returned $853,715 to consumers who lost money to two phantom debt collection operations previously stopped by the FTC. In 2018, the FTC also:

  • Initiated or resolved three other actions, in addition to the phantom debt cases, to protect consumers from unlawful debt collections practices;
  • Deployed educational materials through multiple channels and formats to inform consumers about their rights and educate debt collectors about their responsibilities under the FDCPA and FTC Act;
  • Collaborated with an informal network of about 16,000 community-based organizations and national groups as part of its outreach efforts;
  • Distributed 13.4 million print publications to various organizations, businesses, and government agencies;
  • Logged more than 60 million views of its business and consumer education websites, with more than 592,000 views of the consumer videos on the FTC’s channel at, and over 280,000 email subscribers to its consumer blogs;
  • Supplied more than 24,000 copies of a fotonovela (graphic novel) on debt collection, developed for Spanish speakers, to raise awareness about scams targeting the Latino community;
  • Logged more than 4.7 million page views on its Business Center that houses business education resources; and
  • Issued a new Staff Perspective discussing the various financial issues that military servicemembers face, including the unique challenges that can arise in the debt collection context.

In the report, the Bureau states its intent to issue a Notice of Proposed Rulemaking on debt collection that will address issues ranging from communication practices to consumer disclosures. The Bureau highlights in the report that it handled approximately 81,500 debt collection complaints related to first-party (creditors collecting on their own debts) and third-party collections. Debt collection is among the most prevalent topics of consumer complaints about financial products or services received by the Bureau. In 2018, the Bureau engaged in six public enforcement actions arising from alleged FDCPA violations. The Bureau brought an action that resulted in an $800,000 civil penalty. It also accepted a judgment in favor of the defendant in a second case. Four other FDCPA cases remain in active litigation. In 2018, the Bureau also:

  • Filed briefs as amicus curiae in two cases arising under the FDCPA – one in the Supreme Court and one in federal court of appeals;
  • Identified one or more violations of the FDCPA through its supervisory examinations;
  • Conducted a number of non-public investigations of companies to determine whether they engaged in collection practices that violated the FDCPA or the Dodd-Frank Act (DFA);
  • Provided consumer debt collection educational materials, which have consistently remained among the most-viewed categories in “Ask CFPB,” an interactive online consumer education tool;
  • Trained, as of the end of 2018, over 26,535 staff and volunteers in social service organizations on Your Money Your Goals – a financial empowerment toolkit;
  • Continuously operated the 21-day email course called “Get a Handle on Debt Boot Camp,” a program to get periodic messages about steps to manage debt effectively, which attracted 19,294 sign-ups since launching in November 2017;
  • Offered five sample letters that consumers may use when they interact with debt collectors, which have now been downloaded more than 607,000 times as of December 2018;
  • Offered print publications on financial topics including debt collections, such as the bilingual brochure “Know Your Rights When a Debt Collector Calls”; and
  • Continued research projects and market monitoring and outreach activities to improve its understanding of the debt collection market, and to better understand the benefits, costs and impacts of potential rules, including a report on collecting telecommunication debt, which have aided in the ongoing development of a potential debt collection rule.

The FTC and the Bureau share enforcement responsibilities under the FDCPA. Last month, the agencies reauthorized their memorandum of understanding that continues coordination between the agencies in enforcement, sharing of supervisory information and consumer complaints, and collaboration on consumer education.

The FTC and the Bureau remain vigilant in their efforts to monitor the debt collection industry and stop unlawful conduct that harms both consumers and legitimate businesses. The CFPB’s annual report to Congress on the FDCPA, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, includes information provided by the FTC in its letter to the CFPB.

March 27, 2019 in Financial Regulation | Permalink | Comments (0)

Tuesday, March 26, 2019

Former Candidate for U.S. House Guilty for Fraud PAC "Keeping America in Republican Control" (KAIRC), Spending $1 Million on Personal Expenses

A former candidate for the U.S. House of Representatives pleaded guilty today to wire fraud and willfully violating the Federal Election Campaign Act (FECA) by operating fraudulent and unregistered political action committees.

Harold Russell Taub, 30, of Cranston, Rhode Island, pleaded guilty to one count of wire fraud and one count of willfully violating FECA before U.S. District Judge William E. Smith for the District of Rhode Island.  Sentencing is set for July 12, 2019.

According to the Information, in late 2016, Taub began soliciting donations to an organization he called Keeping America in Republican Control (KAIRC), which he represented to be a legitimate political committee, organized in accordance with federal law to support Republican candidates at the state and federal level.  In March 2018, Taub began soliciting donations to another purported political action committee, Keeping Ohio in Republican Control (KOIRC), with the stated purpose of supporting Republican candidates in Ohio.  Taub collected a total of approximately $1,630,439 in contributions to KAIRC and KOIRC, but never registered either entity with the FEC or made required reports to the FEC, as required by FECA.

Taub admitted as part of the plea that he held KAIRC and KOIRC out as legitimate, federally-registered political actions committees on his website, in social media posts, and in email solicitations that reached hundreds of donors.  Taub represented that all of KAIRC and KOIRC’s staff were volunteers and that “100 percent” of donations were used to support candidates.  However, of the more than $1.6 million in contributions to KAIRC and KOIRC, Taub used more than $1 million for purely personal expenses.  In furtherance of his fraudulent scheme, Taub also repeatedly used the name of a former Ambassador and high-level military officer without the knowledge or permission of the person, even after being instructed not to do so. 

The FBI investigated the case.  Trial Attorney Peter M. Nothstein of the Criminal Division’s Public Integrity Section is prosecuting the case.

March 26, 2019 in AML | Permalink | Comments (0)

Monday, March 25, 2019

IRS Suspends to Revenue Rulings Requiring Active Trade or Business For a Tax Free Spin Off

This revenue ruling suspends Rev. Rul. 57-464, 1957-2 C.B. 244, and Rev. Rul. 57-492, 1957-2 C.B. 247, pending the completion of a study by the Department of the Treasury (Treasury Department) and the Internal Revenue Service (Service) regarding the active trade or business (ATB) requirement under sections 355(a)(1)(C) and (b) of the Internal Revenue Code. Download Irs pulls 1957 ATB rulings to allow tax free spin offs

Section 355(a)(1) provides that, if certain requirements are met, a corporation may distribute stock and securities of a controlled corporation to its shareholders and security holders without recognition of gain or loss or income to the recipient shareholders or security holders.

Among those requirements, both the distributing corporation and the controlled corporation must be engaged in an ATB immediately after the distribution. [IRC Sections 355(a)(1)(C) and (b), and Treas Reg §1.355-3(a)(1)(i).]

Each trade or business must have been actively conducted throughout the five-year period ending on the date of the distribution. [IRC Section 355(b)(2)(B) and Treas Reg §1.355-3(b)(3).]

Treas Reg Section 1.355-3(b)(2)(ii) describes a “trade or business” as “a specific group of activities [that] are being carried on by the corporation for the purpose of earning income or profit, and the activities included in such group include every operation that forms a part of, or a step in, the process of earning income or profit.” In particular, “[s]uch group of activities ordinarily must include the collection of income and the payment of expenses.” [Treas Reg Section 1.355-3(b)(2)(ii).]

The Treasury Department and the Service are conducting a study to determine, for purposes of section 355, “whether a business can qualify as an ATB if entrepreneurial activities, as opposed to investment or other non-business activities, take place with the purpose of earning income in the future, but no income has yet been collected.” [See IRS statement regarding the active trade or business requirement for section 355 distributions, dated September 25, 2018, available at]

The ATB analysis underlying the holdings in Rev. Rul. 57-464 and Rev. Rul. 57-492 focuses, in significant part, on the lack of income generated by the activities under consideration.

Consequently, these rulings could be interpreted as requiring income generation for a business to qualify as an ATB. Accordingly, Rev. Rul. 57-464 and Rev. Rul. 57-492 are suspended pending completion of the study. [See IRM, para. 9 (Aug. 11, 2004) (providing that a revenue ruling can be suspended “only in rare situations to show that previously published guidance will not be applied pending some future action, such as … the outcome of a Service study”).]

March 25, 2019 in Tax Compliance | Permalink | Comments (0)

IRS issues proposed regulations on new tax reform reporting requirements for life insurance contract transactions; New reporting forms available

The Internal Revenue Service issued proposed regulations on the new information reporting requirements for certain life insurance contracts under the Tax Cuts and Jobs Act (TCJA): "A Proposed Rule by the Internal Revenue Service on 03/25/2019"

As enacted, the new reporting requirements under Internal Revenue Code 6050Y apply to reportable policy sales and payments of reportable death benefits occurring after Dec. 31, 2017. Consistent with guidance issued last April, the proposed regulations contain transitional guidance delaying any reporting until final regulations are issued. The proposed regulations provide taxpayers additional time to satisfy any reporting obligations for sales or payments made prior to publication of final regulations. 

Among other things, these reporting requirements are designed to help persons who sell life insurance contracts properly report any gain from that sale.

Every person who acquires a life insurance contract, or any interest in a life insurance contract, in a reportable policy sale during the taxable year must file a return with the IRS. The acquirer must also furnish written statements to each payment recipient and the issuer named in the return. The issuer, upon receiving such a statement, must file a return with the IRS and must also furnish a written statement to the seller. The IRS has released Form and Instructions for 1099-LS and Form and Instructions for Form 1099-SB, which provide specific instructions on these reporting requirements. 

The proposed regulations also provide guidance on new reporting requirements applicable to each person who makes a payment of reportable death benefits (reportable on Form 1099-R) and how to calculate the amount of death benefits excluded from gross income.  

March 25, 2019 in Tax Compliance | Permalink | Comments (0)

Sunday, March 24, 2019

FATCA Final Regulations Released With Changes to Proposed Regs Relating to Verification and Certification Requirements for Certain Entities and Reporting by Foreign Financial Institutions

This final regulation document finalizes (with limited revisions) certain proposed regulations. The final regulations provide compliance requirements and verification procedures for sponsoring entities of foreign financial institutions (FFIs) and certain non-financial foreign entities (NFFEs), trustees of certain trustee-documented trusts, registered deemed-compliant FFIs, and financial institutions that implement consolidated compliance programs (compliance FIs). These final regulations affect certain financial institutions and NFFEs.

Download Reporting officer regs 2019

The proposed regulations require a sponsoring entity of a sponsored FFI to appoint a responsible officer to oversee the compliance of the sponsoring entity with respect to each sponsored FFI. The term responsible officer with respect to a sponsoring entity is an officer of the sponsoring entity with sufficient authority to fulfill the duties of a responsible officer. The proposed regulations require the responsible officer of a sponsoring entity to be an individual who is an officer of the sponsoring entity because the certifications required under these regulations should be made by the individual in the best position to know and represent whether the sponsoring entity is complying with its obligations.

The IRS understands that in practice, the person in the best position to know and represent if the sponsoring entity is complying with its obligations under these regulations may be an individual other than an officer of the sponsoring entity given industry practices established by managers and administrators of investment funds and similar vehicles for both chapter 4 and operational purposes. Therefore, these final regulations define responsible officer with respect to a sponsoring entity to include an officer of an entity that establishes and maintains policies and procedures for, and has general oversight over, the sponsoring entity, provided such individual has sufficient authority to fulfill the duties of a responsible officer.

These final regulations revise the definition of a responsible officer of a financial institution or sponsoring entity that is an investment entity to include, in addition to an officer of such entity, an individual who is a director, managing member, or general partner of such entity, or, if the general partner or managing member of the investment entity is itself an entity, an individual who is an officer, director, managing member, or general partner of such other entity.

Coordination of Certification Requirements for Compliance FIs and Sponsoring Entities of Sponsored FFIs or Sponsored Direct Reporting NFFEs

No changes.

The requirement for a Written Sponsorship Agreement

These final regulations retain the requirement that a sponsoring entity have a written sponsorship agreement in place with each sponsored FFI. A written sponsorship agreement memorializes the agreement between the parties, which helps to ensure compliance. However, these final regulations provide that the written sponsorship agreement may be part of another agreement between the sponsoring entity and the sponsored FFI provided it refers to the requirements of a sponsored FFI under FATCA. For example, a provision in a fund manager agreement that states that the sponsoring entity agrees to satisfy the sponsored FFI's FATCA obligations would be sufficient.

Additionally, the proposed regulations do not specify when a sponsorship agreement must be in place for purposes of a sponsoring entity's certification requirements. To allow sufficient time for a sponsoring entity to enter into sponsorship agreements (or revise existing agreements), these final regulations provide that a sponsoring entity of a sponsored FFI must have the written sponsorship agreement in place with such sponsored FFI by the later of March 31, 2019, or the date when the sponsoring entity begins acting as a sponsoring entity for such sponsored FFI. [See § 1.1471-5(j)(6)]. These final regulations include similar rules for a sponsoring entity of a sponsored direct reporting NFFE regarding the date by which the written sponsorship agreement must be in place and that it need not be a standalone agreement. [See § 1.1472-1(f)(4)].

Extension of Time for Certifications for the Certification Period Ending on December 31, 2017, for Sponsoring Entities of Sponsored FFIs or Sponsored Direct Reporting NFFEs and Trustees of Trustee-Documented Trusts

These final regulations address the comment by providing additional time for sponsoring entities to make certifications that would otherwise be due on July 1, 2018. Under these final regulations, certifications by sponsoring entities and trustees of trustee-documented trusts for the certification period ending on December 31, 2017, must be submitted on or before March 31, 2019.

Registration by a Sponsored FFI or Sponsored Direct Reporting NFFE After Termination of the Sponsoring Entity by the IRS

IRC Section 267(b) describes certain relationships among individuals, corporations, trusts, tax-exempt organizations, and S corporations. The rules described in this paragraph are intended to prevent a sponsored FFI or sponsored direct reporting NFFE from registering under an entity that is related to the terminated sponsoring entity, such as an entity under common control with the terminated sponsoring entity. However, the proposed regulations inadvertently omitted certain relationships between sponsoring entities that are partnerships.

These final regulations correct this omission by providing that the rules described in this paragraph generally prohibit registration by a sponsored FFI or sponsored direct reporting NFFE under a sponsoring entity that has a relationship described in IRC Sections 267(b) or 707(b) to the terminated sponsoring entity. Thus, for example, a sponsored FFI of a terminated sponsoring entity that is a partnership may not register under another sponsoring entity that is a partnership if the same person owns, directly or indirectly, more than 50 percent of capital interests or profits interests of both sponsoring entities. Additionally, these final regulations conform the rule for sponsored direct reporting NFFEs with the rule for sponsored FFIs by allowing a sponsored direct reporting NFFE to register under a sponsoring entity, notwithstanding that there is the impermissible relationship described in this paragraph, if the sponsored direct reporting NFFE obtains written approval from the IRS.

Sponsored Entities Located in a Model 1 IGA Jurisdiction

The preamble to the proposed regulations provides that a financial institution covered by a Model 1 IGA that chooses to qualify as a sponsored FFI under § 1.1471-5(f) instead of Annex II of the Model 1 IGA must satisfy all of the requirements of the regulations applicable to such an entity. 82 FR 1629 at 1631. Comments requested that a financial institution located in a jurisdiction with a Model 1 IGA that does not include a sponsored entity as a type of nonreporting financial institution in Annex II be allowed to comply with local guidance on sponsored entities or the Model 1 IGA Annex II rather than the regulations. The Treasury Department and the IRS are open to discussing the issue with the competent authorities of affected jurisdictions.

Nonsubstantive Changes

These final regulations include several minor nonsubstantive changes to the proposed regulations. Section 1.1471-4(f)(2)(ii)(B)(1) was reorganized for clarity. Minor clarifying edits were made in §§ 1.1471-4(f)(3)(i), 1.1471-5(f)(1)(i)(F)(4), (f)(1)(iv) introductory text, (f)(1)(iv)(A) and (B), (f)(2)(iii)(E), (j)(3)(ii) and (iii), (j)(4)(ii), (j)(5) and (6), (k)(4)(i), (ii), (iii), and (v), and (l)(2)(ii) and (iii), and 1.1472-1(f)(2)(ii) and (iii), (f)(3)(ii), (f)(4)(vii), and (g)(4)(i), (ii), and (iii).

How Many Impacted Entities?

The collection of information is on a certification filed with the IRS regarding the filer's compliance with its chapter 4 requirements. This information is required to enable the IRS to verify that a taxpayer is complying with its requirements under chapter 4. Certifications are required from compliance FIs, sponsoring entities, and Start Printed Page 10979trustees of trustee-documented trusts. Information on the estimated number of compliance FIs, sponsoring entities, and trustees of trustee-documented trusts required to submit a certification under these final regulations is shown in table 1.

Table 1

Number of respondents (estimated)
Compliance FIs 5,000-10,000
Sponsoring entities and trustees of trustee-documented trusts 10,000-15,000

Information on the number of compliance FIs, sponsoring entities, and trustees of trustee-documented trusts shown in table 1 is from the IRS's FATCA registration data. Comments are requested on the estimated number of respondents.

FATCALexisNexis® Guide to FATCA and CRS Compliance

This two-volume set provides a framework for meaningful interactions regarding legal analysis of term and compliance criteria among enterprise stakeholders, between the FATCA Compliance Officer and the FATCA advisors, and with the government authorities. by William H. Byrnes, IV (Author)
The LexisNexis® Guide to FATCA & CRS Compliance provides a framework for meaningful interactions among enterprise stakeholders, and between the FATCA Compliance Officer and the FATCA advisors/vendors. Analysis of the complicated regulations, recognition of overlapping complex regime and intergovernmental agreement requirements (e.g. FATCA, Qualified Intermediary, source withholding, national and international information exchange, European Union tax information exchange, information confidentiality laws, money laundering prevention, risk management, and the application of an IGA) is balanced with substantive analysis and descriptive examples. The contributors hail from several countries and an offshore financial center and include attorneys, accountants, information technology engineers, and risk managers from large, medium and small firms and from large financial institutions. Thus, the challenges of the FATCA Compliance Officer are approached from several perspectives and contextual backgrounds.

This eight edition (2019) of LexisNexis® Guide to FATCA & CRS Compliance has been vastly improved based on over 50 in-house workshops and interviews with tier 1 banks, with company and trusts service providers, with government revenue departments, and with central banks. The enterprises are headquartered in the Caribbean, Latin America, Asia, Europe, and the United States, as are the revenue departments and the central bank staff interviewed.

Several new contributing authors joined the FATCA/CRS Expert Contributor team this edition. This eigth edition has been expanded by new chapters and now totals 98 chapters, growing to over 2,100 pages of regulatory and compliance analysis based upon industry feedback of internal challenges with systems implementation. All chapters have been substantially updated and expanded in this edition, including many more practical examples to assist a compliance officer contextualize the FATCA and CRS regulations, IGA provisions, and national rules enacted pursuant to an IGA. The new chapters include by example an in-depth analysis of designing a FATCA and CRS internal policy, designing an equivalent form to the W-8 that captures CRS criteria, reporting accounts, reporting payments, operational specificity of the mechanisms of information capture, management and exchange by firms and between countries, insights as to the application of FATCA and the IGAs within BRIC, Asian, and European country chapters, and a project management schedule for the compliance officer.

March 24, 2019 in GATCA | Permalink | Comments (0)

Saturday, March 23, 2019

New Beneficial Ownership Toolkit will help tax administrations tackle tax evasion more effectively

The first ever beneficial ownership toolkit was released today in the context of the OECD’s Global Integrity and Anti-Corruption Forum. The toolkit, prepared by the Secretariat of the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes in partnership with the Inter-American Development Bank, is intended to help governments implement the Global Forum’s standards on ensuring that law enforcement officials have access to reliable information on who the ultimate beneficial owners are behind a company or other legal entity so that criminals can no longer hide their illicit activities behind opaque legal structures. 

Download Beneficial-ownership-toolkit

The toolkit was developed to support Global Forum members and in particular developing countries because the current beneficial ownership standard does not provide a specific method for implementing it.  To assist policy makers in assessing different implementation options,  the toolkit contains policy considerations that Global Forum members can use in implementing the legal and supervisory frameworks to identify, collect and maintain the necessary beneficial ownership information.

“Transparency of beneficial ownership information is essential to deterring, detecting and disrupting tax evasion and other financial crimes.  The Global Forum’s standard on beneficial ownership offers jurisdictions flexibility in how they implement the standard to take account of different legal systems and cultures.  However, that flexibility can pose challenges particularly to developing countries.” said Pascal Saint-Amans, Head of the OECD’s Centre for Tax Policy and Administration. “This new toolkit is an invaluable new resource to help them find the best approach.”

The toolkit covers a variety of important issues regarding beneficial ownership, including:

  • the concepts of beneficial owners and ownership, the criteria used to identify them, the importance of the matter for transparency in the financial and non-financial sectors;
  • technical aspects of beneficial ownership requirements, distinguishing between legal persons and legal arrangements (such as trusts), and measures being taken internationally to ensure the availability of information on beneficial ownership a series of checklists that may be useful in pursuing a specific beneficial ownership framework;
  • ways in which the principles on beneficial ownership can play out in practice in Global Forum EOIR peer reviews;
  • why beneficial ownership information is also a crucial component of the automatic exchange of information  regimes being adopted by jurisdictions around the world.

With 154 members, a majority of whom are developing countries, the Global Forum has been heavily engaged in providing technical assistance on the new beneficial ownership requirements, often with the support of partner organisations including the IDB. The Toolkit offers another means to further equip members to  comply with the international tax transparency standards.

The Toolkit is the first practical guide freely available for countries implementing the international tax transparency standards. It will be frequently updated to incorporate new lessons learned from the second-round EOIR peer reviews conducted by the Global Forum, as well as best practices seen and developed by supporting organisations.

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

Global Forum on tax transparency reveals compliance ratings for further seven jurisdictions

The Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum) published today seven peer review reports assessing compliance with the international standard on transparency and exchange of information on request(EOIR).


These reports are part of the second round of Global Forum reviews which assess jurisdictions against the updated standard which incorporates beneficial ownership information of all relevant legal entities and arrangements, in line with the definition used by the Financial Action Task Force Recommendations.

The seven jurisdictions reviewed – Hong Kong (China)LiechtensteinLuxembourgthe NetherlandsNorth MacedoniaSpain and the Turks and Caicos Islands were rated “Largely Compliant”. These jurisdictions have demonstrated their progress on the deficiencies identified in the first round of reviews, including improving access to information, developing broader EOI agreement networks, monitoring the handling of increasing incoming EOI requests.  These new reports also issue recommendations to the seven jurisdictions, in particular towards improving the measures related to the availability of beneficial ownership of all relevant entities and arrangements, as required in the strengthened standard.

The Global Forum, which will be celebrating its 10th year anniversary later this year, is the leading multilateral body mandated to ensure that jurisdictions around the world adhere to and effectively implement both the standard of transparency and exchange of information on request and the standard of automatic exchange of financial account information. This objective is achieved through a robust monitoring and peer review process. The Global Forum also runs an extensive technical assistance programme to provide support to its members in implementing the standards and helping tax authorities to make the best use of cross-border information sharing channels.

For additional information on the Global Forum, its peer review process, and to read all reports to date, go to:


March 23, 2019 in GATCA | Permalink | Comments (0)

Friday, March 22, 2019

Cayman Islands Responds to Evaluation Deficiencies in its Money Laundering Prevention

The Cayman Islands is committed to the implementation of international standards on Anti-Money Laundering (AML) and the Countering the Financing of Terrorism (CFT) as set out in  the Financial Action Task Force (FATF) Recommendations. In the Cayman Islands, we are constantly refining the regulatory regime to address emerging threats and vulnerabilities.
Although we have made significant progress, the Government recognizes the need to take ongoing measures to update the AML/CFT regime to address the full range of risks relating to money laundering, the financing of terrorism and proliferation to the Cayman Islands and to communicate its strategy to relevant stakeholders.

The goals identified in the Strategy arise out of a year-long evaluation of the risks identified in the NRA
and an assessment of the measures to be taken to address them. The goals include:

  • Enhancing the jurisdiction’s AML/CFT legal and regulatory framework;
  • Implementing a comprehensive risk-based supervisory framework;
  • Strengthening of sanctions, intelligence and enforcement;
  • Enhancing domestic cooperation and coordination;
  • Ensuring an efficient and effective system for international cooperation; and
  • Raising AML/CFT awareness among all stakeholders and the general public.

Download Full Cayman Response to CFATF Evaluation

Download Cayman National Risk Assessment for Money Laundering

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

Thursday, March 21, 2019

Michel Temer: Brazil ex-president arrested in corruption probe

Former Brazilian President Michel Temer has been arrested in São Paulo as part of a massive corruption investigation. (BBC)

NY Times: former President Luiz Inácio Lula da Silva, who was sentenced to 12 years in prison for corruption and money laundering

Reuters states: Prosecutors alleged that Temer was the leader of a “criminal organization” that took in 1.8 billion reais ($472 million) in bribes or pending future kickbacks as part of numerous schemes, including one related to the Angra nuclear power plant complex on the Rio de Janeiro coast and other state firms. 

Former Minister Moreira Franco (Mines and Energy) was also arrested. (Estadão  - in Portuguese)


March 21, 2019 in AML | Permalink | Comments (0)

How did the TCJA impact charitable giving?

The Tax Policy Center has concluded that the 2017 Tax Cuts and Jobs Act will discourage charitable giving by reducing the number of taxpayers claiming a deduction for charitable giving and by reducing the tax saving for each dollar donated. Overall, the TCJA will reduce the marginal tax benefit of giving to charity by more than 30 percent in 2018, raising the after-tax cost of donating by about 7 percent. Unless taxpayers increase their net sacrifice—that is, charitable gifts less tax subsidies—charities and those who benefit from their charitable works, not the taxpayers, will bear the brunt of these changes.

However, what we don't know is whether the increase in the standard deduction (and thus much less need for the itemization of deductions) will lead to less charitable giving.  It may, or it may lead to less growth in charitable giving (but perhaps an acceptable trade-off for the TCJA depending on one's perspective), or it may have negligible impact.  Taxpayers may still give but of course not claim the itemized deduction.  Unlikely, I suspect, that a weekly churchgoer will stop providing for the church because of the increase in the standard deduction. 

Giving USA reported that in 2018, "Americans Gave $410.02 Billion to Charity in 2017, Crossing the $400 Billion Mark for the First Time".

Fundraising Effectiveness Project Quarterly Fundraising Report™ reported that for 2018, giving rose albeit by a modest 1.6%.  Less donors gave in 2017, but more big donors gave, and this group gave more, enough to offset the loss of small donors and grow all donations by 1.6%. 

So I think that the TCJA has had an impact, but primarily on who gives, as opposed to a reduction in overall charitable giving.  


March 21, 2019 in Wealth | Permalink | Comments (0)

Cayman Islands Evaluation Report Finds Money Laundering

The Cayman Islands has a high level of commitment to ensuring their AML/CFT framework is robust and capable of safeguarding the integrity of the jurisdiction’s financial sector. The jurisdiction’s AML/CFT regime is complemented by a well-developed legal and institutional framework. As a major international financial centre, the Cayman Islands is confronted with inherent ML/TF risks, threats and associated vulnerabilities emanating from domestic and foreign criminal activities (e.g. tax evasion, fraud, drug trafficking).

  • The Cayman Islands has not provided the FRA with the tools to assist investigative authorities in the identification of cases. While the FRA is able to triage the SARs they receive, they have not been able to sufficiently analyse and disclose these reports in a timely manner. They also do not have access to the widest possible level of relevant information nor does the jurisdiction collect relevant information from its reporting entities (e.g. wire transfers) that would allow for the proactive identification of cases for investigation. The result is that there is a low level of usage of FRA’s disclosures to supplement investigations and they have been used to a negligible extent to initiate investigations.
  • While the Cayman Islands has trained and experienced investigators in the Financial Crimes Unit (FCU) to pursue TF, training to improve awareness and understanding of TF among the competent authorities and the judiciary is required. There has been to a limited extent, TF investigations and no TF prosecutions in the jurisdiction.
  • The jurisdiction may benefit from further training and outreach to relevant stakeholders in the areas of TF and PF so as to effectively implement the requirements of TFS measures.
  • The AML/CFT supervisory/regulatory regime for Financial Institutions (FIs) and Trust and Corporate Service Providers (TCSPs) is established and understood by relevant stakeholders. Customer due diligence (CDD) measures and controls are well entrenched in the financial sector. FIs particularly the larger and established banks as well as the TCSPs have an understanding of their ML threats, appear to be more vigorous in their mitigating efforts, but lack understanding of their TF threats. Nonetheless, a portion of the securities sector is subject to limited supervision and not subject to monitoring for AML/CFT compliance or risk assessment (e.g. 55% of excluded persons under SIBL). This is a potential source of ML/TF risks, particularly with respect to the excluded persons that perform the higher ML/TF risk activities of portfolio management and broker/dealing. Due to limited assessment and compliance information on the persons conducting these activities, the extent to which the AML/CFT regime is understood by these persons has not been determined.

Download Cayman Mutual Evaluation bv Carribean FATF

March 21, 2019 in AML | Permalink | Comments (0)

Sunday, March 17, 2019

Mizrahi-Tefahot Bank LTD. Admits Its Employees Helped U.S.Taxpayers Conceal Income and Assets

Bank Admits for Years It Opened and Maintained Customer Accounts in Violation of Agreement with the Internal Revenue Service; Agrees to Pay $195 Million as Part of a Deferred Prosecution Agreement with the Justice Department

Mizrahi-Tefahot Bank Ltd., (Mizrahi-Tefahot) and its subsidiaries, United Mizrahi Bank (Switzerland) Ltd. (UMBS) and Mizrahi Tefahot Trust Company Ltd.  (Mizrahi Trust Company), entered into a deferred prosecution agreement (DPA) with the Department of Justice filed today in the U.S. District Court for the Central District of California, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Department of Justice’s Tax Division, First Assistant United States Attorney Tracy L. Wilkison, and Chief Don Fort for Internal Revenue Service-Criminal Investigation.  As part of the agreement, Mizrahi-Tefahot will pay $195 million to the United States.

Mizrahi-Tefahot is one of Israel’s largest banks, with more than 4,000 employees, and is publicly traded on the Tel-Aviv Stock Exchange. During the relevant period of criminal activity, Mizrahi-Tefahot had branches in Los Angeles, California, the Cayman Islands, and London, England. In 2014, the Cayman Islands branch surrendered its license and was closed. UMBS, a subsidiary of Mizrahi-Tefahot, had one branch in Zurich, Switzerland. Mizrahi Trust Company, a fully owned subsidiary of Mizrahi-Tefahot, operated under the regulatory authority of the Bank of Israel. Collectively, Mizrahi-Tefahot, UMBS, and Mizrahi Trust Company provided private banking, wealth management, and financial services to high-net-worth individuals and entities around the world, including U.S. citizens, resident aliens and permanent residents.

“Mizrahi-Tefahot’s admission of guilt and agreement with the United States to pay significant penalties and pay over the fees earned from knowingly assisting tax evading Americans reflects the continuing efforts of the Tax Division to end the criminal role of international financial institutions in perpetuating offshore tax fraud,” said Principal Deputy Assistant Attorney General Zuckerman. “A financial institution is not a faceless entity, but is the embodiment of the acts of its bankers, relationship managers and all employees. When a bank’s employees, at any level, facilitate U.S. tax fraud, the bank facilitates tax fraud and will be held responsible.”

“For over a decade, this Israeli bank, through its employees, engaged in conduct designed to hide its clients’ funds so they could avoid paying U.S. income taxes,” said First Assistant United States Attorney Tracy L. Wilkison, “Mizrahi-Tefahot solicited customers in Los Angeles and other U.S. cities to open offshore accounts with the hope they would never be linked to the American clients. As a result of this criminal conduct, the bank will surrender fees it earned, repay the United States for lost tax revenue, and pay a substantial fine.”

“Today’s announcement sends a clear message that banks, who promote the use of offshore tax schemes against the United States, will be held accountable and face substantial fines and penalties,” said Don Fort, Chief, IRS-Criminal Investigation. “Any financial institution – no matter where it operates – will be held accountable if it helps U.S. residents dodge their tax responsibilities. This agreement with Mizrahi-Tefahot is the latest notice to American taxpayers, who might flout the law, that we can and will uncover your hidden assets.”

In the DPA and related court documents, Mizrahi-Tefahot admitted that from 2002 until 2012 the actions of its bankers, relationship managers, and other employees defrauded the United States and specifically the Internal Revenue Service (IRS) with respect to taxes by conspiring with U.S. taxpayer-customers and others. Mizrahi-Tefahot employees’ acts of opening and maintaining bank accounts in Israel and elsewhere around the world and violating Mizrahi-Tefahot’s Qualified Intermediary Agreement (QI Agreement) with the IRS enabled U.S. taxpayers to hide income and assets from the IRS.

According to the filed statement of facts and the DPA, these employees took steps to assist U.S. customers in concealing their ownership and control of assets and funds held at Mizrahi-Tefahot, Mizrahi Trust Company and UMBS, which enabled those U.S. customer-taxpayers to evade their U.S. tax obligations, including:

  • Assisting and referring U.S. customers to professionals to open and maintain accounts at Mizrahi-Tefahot and UMBS in the names of pseudonyms, code names, Mizrahi Trust, and foreign nominee entities in offshore locations, such as St. Kitts and Nevis (Nevis), Liberia, Turks & Caicos, and the British Virgin Islands (BVI), and thereby enabling those U.S. taxpayers to conceal their beneficial ownership in the accounts and maintain undeclared accounts;
  • Opening customer accounts at Mizrahi-Tefahot and UMBS for known U.S. customers using non-U.S. forms of identification, and failing to maintain copies of required identification and account opening documents;
  • Opening and maintaining foreign nominee bank accounts for certain U.S. clients holding U.S. securities, enabling those U.S. taxpayers to evade U.S reporting requirements on securities’ earnings in violation of Mizrahi-Tefahot’s QI Agreement with the IRS;
  • Entering into “hold mail” agreements with U.S. customers whereby Mizrahi-Tefahot and UMBS employees held bank statements and other account-related mail in their offices in Israel and Switzerland, and by doing so enabling documents reflecting the existence of the offshore accounts to remain outside the U.S.;
  • Until 2008, providing U.S. customers at Mizrahi-Tefahot’s Los Angeles branch use of their funds held in offshore Mizrahi-Tefahot and UMBS accounts (pledge accounts) through back-to-back loans, while excluding any record of the offshore pledge account at its Los Angeles branch to take advantage of Israeli and Swiss privacy laws and prevent disclosure of the funds to U.S tax authorities;
  • Failing to adhere to the requirements of Mizrahi-Tefahot’s QI Agreement by (i) permitting U.S. customers who refused to provide the bank with the proper IRS Forms W-8BEN and/or W-9 to continue trading in accounts holding U.S. securities, (ii) transferring assets to foreign entity accounts controlled by U.S. customers to avoid the proper QI reporting requirements, and (iii) failing to timely address compliance deficiencies in U.S. customer accounts holding U.S. securities; and
  • Until 2008, periodically sending “Roving Representatives,” to the United States to solicit new customers and to meet with existing U.S. customers in Los Angeles, California, New York, and other locations in the U.S. for the purposes of opening accounts and surreptitiously reviewing and managing existing customers’ offshore accounts.

According to the terms of the DPA, Mizrahi-Tefahot, UMBS, and Mizrahi Trust Company will cooperate fully, subject to applicable laws and regulations, with the United States, the IRS, and other U.S. authorities.  The DPA provides that Mizrahi-Tefahot will ensure that all of its overseas branches and other companies under its control that provide financial services to customers covered by the Foreign Account Tax Compliance Act, 26 U.S.C. §§ 1471-1474 (FATCA), will continue to implement and maintain an effective program of internal controls with respect to compliance with FATCA in their affiliates and subsidiaries.  The DPA also requires Mizrahi-Tefahot and its subsidiaries affirmatively to disclose certain material information it may later uncover regarding U.S.-related accounts, as well as to disclose certain information consistent with the Department’s Swiss Bank Program with respect to accounts closed between Jan. 1, 2009, and October 2017.  Under the DPA, prosecution against the bank for conspiracy will be deferred for an initial period of two years to allow Mizrahi-Tefahot, UMBS, and Mizrahi Trust Company to comply with the DPA’s terms. 

The $195 million payment consists of: 1) restitution in the amount of $53 million, representing the approximate unpaid pecuniary loss to the United States as a result of the criminal conduct; 2) disgorgement in the amount of $24 million, representing the approximate gross fees paid to the bank by U.S. taxpayers with undeclared accounts at the bank from 2002 through 2012; and 3) a fine of $118 million.

This agreement marks the second time an Israeli bank has admitted to similar criminal conduct.  In December 2014, the Bank Leumi Group entered into a DPA with the Department of Justice admitting that it conspired to aid and assist U.S. taxpayers to prepare and present false tax returns to the IRS by hiding income and assets in offshore bank accounts in Israel and elsewhere around the world. 

Principal Deputy Assistant Attorney General Zuckerman, First Assistant United States Attorney Wilkison and Chief Fort commended special agents of IRS-Criminal Investigation, who investigated this case, and Western Criminal Enforcement Section Chief Larry J. Wszalek and Trial Attorneys Melissa S. Grinberg and Lisa L. Bellamy of the Tax Division, who prosecuted this case.  Principal Deputy Assistant Attorney General Zuckerman also thanked the United States Attorney’s Office for the Central District of California for their substantial assistance.  

March 17, 2019 in AML, GATCA | Permalink | Comments (0)

Friday, March 15, 2019

in 2018, China convicted over 30,000 of taking bribes, 288,000 IP cases concluded, 28 million law suits filed

Among them were 18 officials at or above ministerial level, including Sun Zhengcai.

Another 2,466 people were convicted of offering bribes last year, according to the annual work report of the Supreme People's Court.

Local courts at all levels handled 28 million lawsuits and concluded 25 million, up 8.8 and 10.6 percent, respectively.

The number of concluded intellectual property cases reached 288,000, an increase of 42 percent year-on-year, according to the work report.

read the full story and follow the stats at ECNS here

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

Florida A&M University College of Law Seeking Interested Visiting Professors 2019 - 2020

Letters of Interest Solicited Visiting Faculty Positions

Florida A&M University College of Law seeks experienced faculty members interested in serving as full-time visiting professors for the 2019-2020 academic year (one or both semesters).  Our primary areas of interest are Property, Evidence, Civil Procedure, Business Organizations and Legal Research & Writing.  Interested candidates must have law school teaching experience.  It is contemplated that the successful candidates will be current full-time faculty members at ABA-approved law schools, although others with extraordinary credentials may be considered.

Florida A&M University College of Law is located in downtown Orlando, Florida in close proximity to federal and state courthouses.  Orlando enjoys a tropical climate year-round.  In addition, the College of Law’s location in bustling downtown Orlando offers opportunities for a number of social and cultural events.  More information about the school can be found at

Letters of interest and current resumes should be e-mailed to Interim Dean Leroy Pernell and Associate Dean for Academic Affairs Nicky Boothe 

March 15, 2019 in Academia | Permalink | Comments (0)

Father and Son Convicted of Multimillion-Dollar Investment Fraud Scheme

A federal jury in Birmingham, Alabama found a father and son guilty of multiple charges for their roles in investment fraud and bank fraud schemes in which they stole over $10 million from individual investors—including multiple former professional athletes—and Alamerica Bank of Birmingham, Alabama.

Donald Watkins Sr., 70, of Atlanta, Georgia, was convicted on seven counts of wire fraud, two counts of bank fraud and one count of conspiracy.  Donald Watkins Jr., 46, of Birmingham was convicted on one count of wire fraud and one count of conspiracy.  Sentencing is set for July 16 before U.S. District Court Judge Karon O. Bowdre of the Northern District of Alabama, who presided over the trial.

“The jury’s verdict today sends a clear message: Donald Watkins Sr. and Donald Watkins Jr. are frauds, plain and simple,” said Assistant Attorney General Benczkowski.  “They induced their victims to part with more than $10 million of supposed ‘investment capital’ and used it to support their lavish lifestyle. I want to thank the prosecutors and law enforcement agents for their hard work investigating and prosecuting this case.” 

“This was a case about deception and greed at the expense of too many,” said U.S. Attorney Town.  “The findings of guilt for these two individuals should forewarn anyone who would seek to defraud investors so brazenly.  We appreciate the labor of the jurors whose role as citizens in this process is so critical to our system of justice.  We are also grateful to the Alabama Securities Commission and the Department of Justice’s Fraud Section for allowing their personnel to engage in this prosecution.”

“Both of the men found guilty today are financial predators who truly represent pure greed,” said FBI Special Agent in Charge Sharp.  “We are pleased that the defendants in this case are being held accountable for their crimes and we will continue to work with our law enforcement partners to investigate and prosecute those who commit these types of financial crimes.”

According to evidence presented at trial, between approximately 2007 and 2013, Donald Watkins Sr. sold “economic participations” and promissory notes connected with Masada Resource Group, a company that he ran as manager and CEO.  Investors paid millions of dollars after Donald Watkins Sr. and Donald Watkins Jr. falsely represented that the money would be used to grow Masada, which Donald Watkins Sr. described as a “pre-revenue” company that supposedly had technology that could convert garbage into ethanol.  Instead of investing the money into Masada, however, Donald Watkins Sr. and Donald Watkins Jr. diverted funds to pay personal bills and the debts of their other business ventures.  The evidence showed that victim money was used to pay for Donald Watkins Sr.’s alimony, hundreds of thousands of dollars in back taxes, personal loan payments, a private jet and clothing purchased by Donald Watkins Jr. and his wife.  Emails introduced at trial also showed that Donald Watkins Jr. and Donald Watkins Sr. planned to obtain millions of dollars for these purposes from one victim on multiple occasions, when they knew that their victims trusted them to put their money to use in growing Masada.  The defendants’ scheme eventually grew to include another business venture, Nabirm Global, a company that Donald Watkins Sr. claimed held mineral rights in Namibia.

Donald Watkins Sr. also defrauded Alamerica Bank, an entity in which Donald Watkins Sr. was the largest shareholder, the evidence showed.  In order to pay hundreds of thousands in litigation expenses associated with another one of Donald Watkins Sr.’s business ventures, the defendants, Donald Watkins Sr. executed a plan to use a straw borrower to take out money from Alamerica Bank and give it to them.  This straw borrower—Donald Watkins Sr.’s long-time mentor and a prominent figure in the Birmingham community—took over $900,000 in loans from Alamerica Bank and then immediately permitted Donald Watkins Sr. and Donald Watkins Jr. to use those funds for their personal benefit. 

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

Thursday, March 14, 2019

UK Economic Crime - Parliament's Conclusions and recommendations for anti-money laundering supervision and sanctions implementations


The threat of economic crime

1.The scale of economic crime in the UK is very uncertain. It seems that it can reasonably be said to run into the tens of billions of pounds, and probably the hundreds of billions. We note that those who gave evidence regarded it as being small in comparison to the total amount of financial activity in the UK, and especially the City of London—for example the daily value of foreign-exchange trading in the UK at around £1.8 trillion. Such a comparison provides no comfort to the Committee. Rather, it suggests that upper bound of the estimate is unknown, and almost unconstrained. (Paragraph 15)

2.It is exceptionally difficult to measure economic crime, given those undertaking it are actively trying to hide it. The Committee does not doubt the will of the authorities to combat economic crime. However, it considers there to be merit in attempting to measure its extent, since greater understanding of the scale of the problem will allow those responding to provide sufficient resources to tackle it, and potentially highlight where those resources should be targeted. The Committee therefore recommends that the Government undertakes more analysis to try and provide both more precision on the potential estimate of the size and scale of economic-related crime in the UK, as well as the exposure of different sectors to it. (Paragraph 16)

3.The UK holds a prime position in global financial services, with the City of London a dominant financial centre. Given Brexit challenges, the UK will work to keep it that way. A ‘clean’ City is important, so the Government must recognise the responsibility to combat economic crime that comes with that position. Recent moves by the Government in this area are welcome, but must be sustained, and match the UK’s ambitions to continue to be a global leader in financial services. (Paragraph 21)

4.The UK’s departure from the European Union will inevitably result in a change in international trading relationships. Such new trading relationships may also provide opportunities to those wishing to undertake economic crime in countries that are more vulnerable to corruption. The UK must remain alert to that risk, including when it conducts trade negotiations. The Government must be consistently clear about its intention to lead in the fight against economic crime, and not compromise that in an effort to swiftly secure new trading relationships. (Paragraph 26)

5.We recommend that the Government retains, or replicates, the arrangements with the EU to maintain the flow of information to UK law enforcement agencies on economic crime. We recommend that the Government work to develop strong relationships with other countries and strengthen mutual information sharing and law enforcement powers. (Paragraph 27)

6.The Committee may consider taking further evidence on the findings of the Financial Action Task Force (FATF) mutual evaluation in due course. The Committee does, however, note the zeal with which the Government has considered reform in this area as the FATF mutual evaluation has approached. With mutual evaluations occurring only on a 10-year cycle, the UK should not solely rely on prompting by FATF to ensure its economic crime prevention, detection and enforcement systems remain fit for purpose and it should not rely on FATF alone to identify areas where improvement is needed. The Committee therefore recommends the Government institutes a more frequent system of public review of the UK’s AML supervision, and law enforcement, that will ensure a constant stimulus to improvement and reform. This review should take a holistic view of the entire system, rather than be undertaken by each individual component supervisor or agency. There may be a role for the recently announced Economic Crime Strategic Board in this work. (Paragraph 33)

A fragmented approach to AML supervision

7.The property sector poses a risk from an anti-money laundering perspective. Yet the AML supervisory regime around property transactions is complicated. Banks are supervised by the Financial Conduct Authority, solicitors by their relevant professional body, and estate agents by HMRC. While there may be debate over which part of the transaction chain bears most responsibility from an AML perspective, each part has a role in reporting, or preventing, a transaction that may be used for money laundering. There is a risk that some estate agents may be unsupervised, having not registered with HMRC. We recommend that HMRC carries out further work to ensure estate agents are registered with them and following best anti-money laundering practice. (Paragraph 45)

8.There is a clearly identified risk that company formation may be used in money laundering. There are a number of entities that undertake company formation, and therefore a number of supervisors. More worryingly, there appears to be a number of unsupervised entities engaged in company formation. These should be identified by HMRC and dealt with as a matter of urgency. (Paragraph 51)

9.There must be no weak areas in the UK’s systems for preventing economic crime. At present, Companies House presents such a weakness. The UK cannot extol the virtue of a public register of beneficial ownership and yet not carry out the necessary rigorous checks of the information on that register. The Government must urgently consider reform of Companies House to ensure it has the statutory duties and powers to ensure it plays no role in helping those undertaking economic crime, whether here or abroad. It is welcome that the Economic Secretary has noted that BEIS is considering reform in this area, but the Government should move quickly and now publish detail of this reform by summer 2019. (Paragraph 63)

10.Though the emphasis has been on the risk presented by enablers, such as accountants or solicitors, there should also be a sharp focus on the supervision of the core financial services. To the extent that this risk is not ameliorated by supervision, the FCA needs to ensure that they keep up a constant pressure on the core financial services businesses and take appropriate enforcement action against them. (Paragraph 72)

11.The evidence we have received has directed our attention to those who act on the periphery of the financial system, rather than its core, the so-called enablers or facilitators. External witnesses suggested that there is a requirement for education as well as enforcement—the Security Minister pointed towards the responsibility of the enablers to play their part. It is welcome that in its Serious and Organised Crime Strategy, the Government has acknowledged a similar focus. The Committee recommends that the Government steps up education of facilitators, to ensure they have all information about their role, recouping any additional costs through fees. Once this has been completed, it should be followed with an enforcement campaign to ensure compliance. (Paragraph 78)

12.The Committee supports the role that The Office of Professional Body Anti-Money Laundering Supervision (OPBAS) has been given in relation to the Professional Body Anti-Money Laundering Supervisors. The inherent conflict in a membership organisation also monitoring its own members means that there is a need for external supervision. The number of such supervisors also shows there is a need for a single organisation to look at the system as a whole, and identify weaknesses across the piece. We consider the concerns around whether the statutory AML supervisors also need such a coordinating body later in this Report. (Paragraph 86)

13.At present, OPBAS also has the responsibility of recommending to the Treasury whether a professional body should remain an AML supervisor. It is not clear how the Treasury would consider such an OPBAS recommendation, and where it would envisage placing such AML supervisory responsibilities in such a case. Without adequate preparation in this area, AML supervisors may become too important to fail, and therefore risk undermining standards in this area. We recommend that the Treasury publishes—within six months—a detailed consideration of how it would respond to such a recommendation from OPBAS. (Paragraph 87)

14.In evidence to this Committee, the Chief Executive Officer of HMRC noted that he was considering, as part of the 2019 Spending Round, querying whether HMRC should retain its role in Anti-Money Laundering supervision. The Committee agrees that this should be given proper consideration, not only to support HMRC concentrating on its core tasks but also to address concerns expressed to the Committee about HMRC’s work as an AML supervisor, and whether its approach to its supervisory responsibilities may be unduly influenced by its role as a tax authority. The Treasury must send the Committee a report on this consideration well ahead of the Spending Review. (Paragraph 106)

15.Notwithstanding the above recommendation, the Committee has heard a number of concerns around the work of HMRC as an AML supervisor, including around its work on unregistered firms. If it is to retain its AML supervisory responsibilities, HMRC should: (Paragraph 107)

  • include within its departmental objectives a single stand-alone objective related to its anti-money laundering supervisory work; and
  • keep a clear reporting line between its AML supervisory work and its work investigating tax crime and associated money laundering offences. HMRC should have a separate strategy for its AML supervisory work which would include key performance indicators on which HMRC can report.

16.With the creation of OPBAS, the Government acknowledged that consistency across AML supervisors was important. The Committee recommends that it should go one stage further, by creating a supervisor of supervisors. The aim of this institution would be to ensure that there is consistency of supervision across all the AML supervisors, whether statutory or professional body. There is a strong case for this to be OPBAS, given it already has a role in the coordination of the professional body AML supervisors, and a role in information sharing. (Paragraph 111)

17.The Government should then also consider moving the supervisory responsibilities of HMRC to OPBAS. This would reduce fragmentation in the current supervisory landscape and allow HMRC to focus on its tax authority responsibilities. It would also mean that OPBAS could act as supervisor of last resort in the case of a failure of a professional body supervisor. The close relationship between OPBAS and the FCA, a fellow supervisor, would also be beneficial. (Paragraph 112)

18.OPBAS should be placed on a firmer statutory footing, more akin to the Financial Ombudsman Service, in having its own distinct identity protected under primary legislation. (Paragraph 113)

Other issues

19.The resources to combat economic crime available to the private sector dwarf those currently available to the public sector. The private sector support to the public sector, provided either through direct payments or through undertaking tasks one might expect Government to undertake on AML, is therefore welcome. (Paragraph 124)

20.One significant issue is the maintenance of expertise in the public sector to undertake this work, considering the salaries available in the private sector. The Government and public sector bodies should consider whether there is the pay flexibility available to ensure that the appropriate skills are maintained. (Paragraph 125)

21.The Committee is also concerned that the Government may have not allocated enough resource to effectively marshal the private sector resources to achieve a ‘hostile environment’. The Economic Secretary confirmed that there is no cross-government assessment of public resources being brought to bear in this area. The Committee recommends that such an assessment is made, and that any potential funding shortfalls are rectified. (Paragraph 126)

22.There has been great emphasis on the need for information sharing in combatting economic crime. Such information should be shared both within sectors, and between sectors. Banks have asked for additional powers to share information between each other. Such a move would require significant consideration of the privacy impact on consumers of financial services. At the very least, there should be a number of safeguards to protect both consumers’ information, and to ensure that as a consequence of such information sharing no consumers unfairly lose their access to financial services. We recommend that the Government reviews the scope to increase information flows at the bank level and report back to this Committee within six months. (Paragraph 135)

23.The Government has placed a lot of emphasis on the benefits the National Economic Crime Centre will bring. It is welcome that a single centre will provide an element of leadership to this complex web of interacting agencies and firms. The Committee will continue to monitor the impact of NECC, and recommend that annual updates of the measures of success of the NECC are published or provided to the Committee. (Paragraph 141)

24.Suspicious Activity Reports (SARs) are one way in which the authorities can receive intelligence from the private sector. The SARs reform programme is therefore an exceptionally important piece of work for the AML regime. The Committee’s evidence suggests that reform should focus on increasing the number of SARs reports by those outside the core of the financial system, the so-called enablers. We have heard a number of reasons why SARs may not be submitted by the enablers. It is a legal requirement for SARs to be submitted, so the system needs to be as robust and simple to use as possible. Thought should also be given, in a world of faster payments, to how NCA requested delays to payments can be better handled. Confidence in the SARs system, at present, appears to be weak outside the core financial service. In its response to this Report, the Government should set out how it will increase confidence in the SARs regime. (Paragraph 165)

25.We also heard evidence that quality, rather than the quantity of SARs, should be encouraged. While an increase in quality is always desirable, modern data analytics means that quantity may also be useful. The review will have to be careful not to stifle SARs that in and of themselves may seem of low quality, but when analysed in the round may provide far more useful information. (Paragraph 166)

26.The Politically Exposed Persons regime is an important part of the system for preventing money laundering. We have heard that defining PEPs remains difficult for institutions, both large and small. While commercial solutions are available, they may be beyond the resources of very small companies. We recommend that the Government creates a centralised database of PEPs for the use of those registered by AML supervisors. (Paragraph 171)

27.Derisking, where financial institutions cease customer relationships with certain ‘high risk’ customers, can have a significant impact on both individuals and businesses. As we have seen, it can also potentially move illicit flows underground. While there has seemingly been much effort, progress in tackling derisking has been achingly slow. We recommend that the Government publishes its strategy on how to address disproportionate derisking strategies within six months. That strategy must include how it will take the conclusions of the G20 taskforce forward. (Paragraph 183)

Legislative reform

28.The Government’s proposals on reforming the law on corporate liability around economic crime have stalled. Though the Solicitor General realises the importance of this issue, preparations for Brexit seem, in part, to have waylaid this important work. Despite Brexit, the Government must progress domestic priorities must not be forestalled any longer by Brexit. Without reform in this area, multi-national firms appear beyond the scope of legislation designed to counter economic crime. That is manifestly unfair, and weakens the deterrent effect a more stringent corporate liability regime may bring. (Paragraph 199)

29.There is clear evidence that legislative reform is required to strengthen the hand of law enforcement in the fight against economic crime. We recommend that the Government sets out a timetable for bringing forward legislation to improve the enforcement of corporate liability for economic crime. The Serious Fraud Office’s suggested reforms should be considered as part of those proposals. (Paragraph 200)

30.The Solicitor General emphasised the importance of getting the detail of new legislation right. The consultation process can help with that task and need not be delayed until proposed legislation is in near final form. (Paragraph 201)

31.We recommend that the Government responds to the evidence submitted in response to the 2017 Corporate liability for economic crime: call for evidence and undertake further consultation on proposals for legislation by the next Queen’s speech. (Paragraph 202)

Financial sanctions

32.The Office of Financial Sanctions Implementation (OFSI) has only been in existence for a year and a half. It has a number of potential sanctions breaches under investigation. While all breaches will have to be investigated thoroughly, and treated on their own merits, public examples of enforcement will be necessary if OFSI is to be recognised as an effective deterrent. It is necessary for the Government to review the effectiveness of OFSI. We recommend that two years after its formation marks the time for such a review to take place. (Paragraph 213)

33.The EN+ listing occurred due to a weakness in sanctions policy, not implementation. The evidence heard by the Committee suggests that while the proposed listing was carefully analysed given its sensitivities, the narrowness of the sanctions regime meant that the listing could not be blocked. (Paragraph 222)

34.In the face of this seeming failure of the sanctions regime, the Economic Secretary has suggested that there should be a power for the Government to block a listing on National Security grounds. On the face of it, this would create a new focussed power outside the sanctions regime. If the Committee is to be persuaded that such a power is necessary and appropriate, the Government needs to set out very clearly when such a power would be used, what effect it might have on UK listings and financial services, and most importantly, why it would be needed, especially when sanctions are in the full control of the UK post-Brexit. We would expect full, wide and timely consultation on such a power to inform its scope and design. (Paragraph 223)

35.There has been, without doubt, a malign influence on the UK financial system from certain elements of Russian money. This fact has been acknowledged by both financial services and law enforcement. However, as noted by the FCA, illicit Russian money does not need to use novel or unique ways to enter the UK. The UK must achieve a balance between focussing on financial flows from one country, while not distorting the AML system, and creating a risk that other criminals slip by while attention is focussed on individuals with a specific nationality. (Paragraph 230)

36.The United Kingdom’s departure from the European Union could allow additional flexibility in its use of sanctions. The Government must ensure it is ready to introduce any new powers it believes are necessary as soon as any further flexibility has become available, having consulted appropriately.(Paragraph 236)

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