International Financial Law Prof Blog

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

Tuesday, April 30, 2019

Zurich Life Insurance Company Ltd. and Zurich International Life Limited Enter Agreement With U.S. Regarding Insurance Products

Zurich Life Insurance Company Ltd (Zurich Life), headquartered in Zurich, Switzerland, and Zurich International Life Limited (Zurich International Life), headquartered in the Isle of Man (collectively Zurich) reached a resolution with the United States Department of Justice yesterday, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Department of Justice’s Tax Division.  As part of the agreement, Zurich will pay a penalty of $5,115,000 to the United States.

According to the terms of the non-prosecution agreement, Zurich agrees to cooperate in any related criminal or civil proceedings, to implement controls to stop misconduct involving undeclared U.S. accounts, and to pay a penalty in return for the Department’s agreement not to prosecute the insurance providers for tax-related criminal offenses.

“The Tax Division remains steadfast in its goal of ending the use of offshore banking and insurance products when used to commit tax evasion,” said Principal Deputy Assistant Attorney General Zuckerman. “This resolution with Zurich should serve as a strong message to those who use offshore bank accounts and insurance products to evade taxation that the Department of Justice is committed to stopping such fraud.”

Zurich Life was founded in 1922 and operates in Switzerland as an insurance carrier offering life insurance and investment products. As of 2016, Zurich Life had approximately $21.3 billion in assets under management and over 300,000 policies in force. Zurich International Life is based in the Isle of Man and operates as an insurance carrier offering life insurance and investment products. Zurich International Life focuses its business on the international expatriate market. As of 2016, Zurich International Life had approximately $10.6 billion in assets under management and approximately 300,000 policies in force. Zurich Life and Zurich International Life are indirectly owned subsidiaries of Zurich Insurance Group Ltd, a Swiss holding company headquartered in Zurich, Switzerland.

From Jan. 1, 2008, through June 30, 2014, Zurich issued or had certain insurance policies and accounts of U.S. taxpayer customers, who used their policies to evade U.S. taxes and reporting requirements. In particular, Zurich had approximately 420 U.S. related policies, 127 with Zurich Life and 293 with Zurich International Life, with an aggregate maximum value of approximately $102 million, for which the U.S. taxpayer customers did not provide evidence that they had declared their policies to U.S. tax authorities.

To qualify for favorable tax treatment under the U.S. tax code, insurance must meet certain minimal requirements. The policies offered by Zurich Life and Zurich International Life did not meet these requirements. The increase of the principal in these policies was therefore subject to taxation, and the policies were required to be disclosed to the Internal Revenue Service (IRS) on FinCEN Form 114 Foreign Bank Account Report, commonly referred to as an FBAR. In issuing or having undeclared U.S. related policies, Zurich knew or should have known that they were helping U.S. taxpayers conceal from the IRS ownership of undeclared assets, maintained as insurance policies or accounts.

Zurich International Life, in particular, sold insurance products to U.S. taxpayers that were “unit linked,” meaning the cash surrender value and death benefit amount were linked to the value of specified investments. With such policies, the U.S. taxpayer had a suite of specialized investment options, allowing them to access potentially higher returns by taking on the market risk associated with the policies. Some of these unit-linked policies offered a base death benefit that was nearly equivalent to the cost of the policy itself, and in some instances was fully funded by transfers from offshore bank accounts. Upon redemption, the U.S. taxpayer would receive the premium amount plus any investment earnings on the policy less a very small percentage for putative risk and fees.

Despite knowing that some of these policies, which had minimal-to-no risk mitigation function and specialized investment options, were held by U.S. taxpayers, Zurich International Life failed to act appropriately to ensure timely compliance by the policyholders with U.S. tax laws. In at least one instance, uncovered during the course of Zurich Life’s internal review, a former U.S. citizen, who pled guilty to a federal fraud offense after purchasing a Zurich International Life policy, used that insurance policy to hide substantial assets, despite owing approximately $900,000 in restitution to his victims.

Following the commencement of the Department’s Swiss Bank Program, the Zurich Group initiated a global review of the life insurance, savings and pension business sold by all of its non-U.S. operating companies to identify policies or accounts with U.S. indicia. This review prompted an extensive customer outreach to current and former customers with a possible nexus to the United States to confirm the customers’ status as U.S. taxpayers, assess their compliance with applicable U.S. tax and reporting rules, and encourage participation in an IRS voluntary disclosure program.

In July 2015, Zurich contacted the Department to inform it of the initial findings of the self-review. Prior to the self-reporting, Zurich was neither a subject nor a target of any investigation being conducted by the Tax Division. Since this self-disclosure, Zurich has conducted a thorough investigation and reported substantial findings to the Tax Division, including dozens of detailed summaries of account information and comprehensive reports for the U.S. related policies.

In addition to these efforts, the Companies have worked closely with non-U.S. regulators to ensure full disclosure to the Department. For instance, in 2016, Zurich Life applied to the Swiss Federal Department of Finance and received approval to waive Article 271 of the Swiss Criminal Code, which restricted the disclosures that Zurich Life could make to the Department, thereby facilitating Zurich Life’s production of certain information that would have otherwise been prohibited.

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

Monday, April 29, 2019

FinCEN Penalizes Peer-to-Peer Virtual Currency Exchanger for Violations of Anti-Money Laundering Laws

The Financial Crimes Enforcement Network (FinCEN) has assessed a civil money penalty against Eric Powers for willfully violating the Bank Secrecy Act’s (BSA) registration, program, and reporting requirements.  Mr. Powers failed to register as a money services business (MSB), had no written policies or procedures for ensuring compliance with the BSA, and failed to report suspicious transactions and currency transactions. Download Assessment Eric Powers Final for Posting 04.18.19_1

Mr. Powers operated as a peer-to-peer exchanger of convertible virtual currency.  As “money transmitters,” peer-to-peer exchangers are required to comply with the BSA obligations that apply to MSBs, including registering with FinCEN; developing, implementing, and maintaining an effective AML program; filing Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs); and maintaining certain records.

“Obligations under the BSA apply to money transmitters regardless of their size,” said FinCEN Director Kenneth A. Blanco.  “It should not come as a surprise that we will take enforcement action based on what we have publicly stated since our March 2013 Guidance—that exchangers of convertible virtual currency, such as Mr. Powers, are money transmitters and must register as MSBs.  In fact, there were indications that Mr. Powers specifically was aware of these obligations, but willfully failed to honor them.  Such failures put our financial system and national security at risk and jeopardize the safety and well-being of our people, as well as undercut responsible innovation in the financial services space.”

Mr. Powers advertised his intent to purchase and sell bitcoin on the internet.  He completed transactions by either physically delivering or receiving currency in person, sending or receiving currency through the mail, or coordinating transactions by wire through a depository institution. Mr. Powers processed numerous suspicious transactions without ever filing a SAR, including doing business related to the illicit darknet marketplace “Silk Road,” as well as servicing customers through The Onion Router (TOR) without taking steps to determine customer identity and whether funds were derived from illegal activity.

Mr. Powers conducted over 200 transactions involving the physical transfer of more than $10,000 in currency, yet failed to file a single CTR.  For instance, Mr. Powers conducted approximately 160 purchases of bitcoin for approximately $5 million through in-person cash transactions, conducted in public places such as coffee shops, with an individual identified through a bitcoin forum.  Of these cash transactions, 150 were in-person and were conducted in separate instances for over $10,000 during a single business day.  Each of these 150 transactions necessitated the filing of a CTR.

FinCEN notes that this is its first enforcement action against a peer-to-peer virtual currency exchanger and the first instance in which it has penalized an exchanger of virtual currency for failure to file CTRs.  FinCEN also notes that since his infractions, Mr. Powers has cooperated with FinCEN efforts.  In addition to paying a $35,000 fine, Mr. Powers has agreed to an industry bar that would prohibit him from providing money transmission services or engaging in any other activity that would make him a “money services business” for purposes of FinCEN regulations.

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

Proposed India profit attribution rules reject OECD approach, add “sales” and “users” as apportionment factors

India’s Central Board of Direct Taxes (CBDT) on April 18 asked for public feedback on proposed new rules for attributing profits to Indian permanent establishments (PEs) that differ from the authorized OECD approach (AOA).

read the full analysis here at MNE Tax News

April 29, 2019 in BEPS, Tax Compliance | Permalink | Comments (0)

Sunday, April 28, 2019

determinations of whether a company has the ability to exercise a controlling influence over another company for purposes of the Bank Holding Company Act or the Home Owners’ Loan Act.

The Board is seeking comment on proposed revisions to its rules regarding the definition of control in the Bank Holding Company Act (“BHC Act”), and the Home Owners’ Loan Act
(“HOLA”). Download Control-proposal-fr-notice-20190423

Under the BHC Act, control is defined by a three-pronged test: a company has control over another company if the first company (i) directly or indirectly or acting through one or more other persons owns, controls, or has the power to vote 25 percent or more of any class of voting securities of the other company; (ii) controls in any manner the election of a majority of the directors of the other company; or (iii) directly or indirectly exercises a controlling influence over the management or policies of the other company. 

HOLA includes a substantially similar definition of control. The proposed revisions are intended to provide bank holding companies, savings, and loan holding companies, depository institutions, investors, and the public with a better understanding of the facts and circumstances that the Board generally considers most relevant when assessing controlling influence. The increase in transparency due to the proposed rule should provide greater clarity and ensure consistency of decision-making, thereby reducing regulatory burden for banking organizations and investors.

April 28, 2019 in Financial Regulation | Permalink | Comments (0)

Saturday, April 27, 2019

Gross Domestic Product, First Quarter 2019 greatly exceeds expectation at 3.2% instead of less than 2%

Real gross domestic product (GDP) increased at an annual rate of 3.2 percent in the first quarter of 2019 (table 1), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2018, real GDP increased 2.2 percent.

The Bureau’s first-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see “Source Data for the Advance Estimate” on page 2). The "second" estimate for the first quarter, based on more complete data, will be released on May 30, 2019.

Real GDP: Percent change from preceding quarter

The increase in real GDP in the first quarter reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, state and local government spending, and nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased (table 2). These contributions were partly offset by a decrease in residential investment.

The acceleration in real GDP growth in the first quarter reflected an upturn in state and local government spending, accelerations in private inventory investment and in exports, and a smaller decrease in residential investment. These movements were partly offset by decelerations in PCE and nonresidential fixed investment, and a downturn in federal government spending. Imports, which are a subtraction in the calculation of GDP, turned down.

Current dollar GDP increased 3.8 percent, or $197.6 billion, in the first quarter to a level of $21.06 trillion. In the fourth quarter, current-dollar GDP increased 4.1 percent, or $206.9 billion (table 1 and table 3).

The price index for gross domestic purchases increased 0.8 percent in the first quarter, compared with an increase of 1.7 percent in the fourth quarter (table 4). The PCE price index increased 0.6 percent, compared with an increase of 1.5 percent. Excluding food and energy prices, the PCE price index increased 1.3 percent, compared with an increase of 1.8 percent.

Personal Income (table 8)

Current-dollar personal income increased $147.2 billion in the first quarter, compared with an increase of $229.0 billion in the fourth quarter. The deceleration reflected downturns in personal interest income, personal dividend income, and proprietors’ income that were partly offset by an acceleration in personal current transfer receipts.

Disposable personal income increased $116.0 billion, or 3.0 percent, in the first quarter, compared with an increase of $222.9 billion, or 5.8 percent, in the fourth quarter. Real disposable personal income increased 2.4 percent, compared with an increase of 4.3 percent.

Personal saving was $1.11 trillion in the first quarter, compared with $1.07 trillion in the fourth quarter. The personal saving rate -- personal saving as a percentage of disposable personal income -- was 7.0 percent in the first quarter, compared with 6.8 percent in the fourth quarter.

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

Friday, April 26, 2019

FINRA Statistics 2018

Key Statistics for 2018

Registered Representatives 629,847
Securities Firms 3,607
Cycle Exams 1,171
Branch Exams 446
Reviews for Cause in the Examination Program 4,728
Market Events Processed 66.7 billion every day
Fines $61.0 million
Restitution $25.5 million
Individuals Barred 386
Individuals Suspended 472
Firms Expelled 16
Firms Suspended 23
Fraud and Insider Trading Cases Referred for Prosecution 919

Regulatory Actions and Corporate Financing Review 2014 – 2018

Regulatory Actions 2018 2017 2016 2015 2014

Investor Complaints Received1

3,136

3,002

3,070

3,250

2,802

New Disciplinary Actions Filed2

921

1,369

1,434

1,512

1,397

Fines3 (in millions)

$61.0

$64.9

$173.8

$93.8

$132.6

Restitution (in millions)

$25.5

$66.8

$27.9

$96.6

$32.3

Firms Expelled4

16

20

24

31

18

Firms Suspended

23

29

26

25

5

Individuals Barred

386

492

517

496

481

Individuals Suspended

472

733

727

736

705

Advertisements and Sales Communications Reviewed

75,071

79,941

92,489

99,776

113,646

Corporate Financing 2018 2017 2016 2015 2014
Total Public Offering Filings 1,014 979 755 972 1,139
> Corporate Filings5 973 914 693 901 958
> Other Filings6 41 65 62 71 181
Private Placement Filings 2,471 2,579 4,018 3,249 3,159

Current Registration Statistics for February 2019

Registered Reps Member Firms Branch Offices

629,862

3,607

155,358

Registered Representatives Statistical Review 2004 - 2018

Year Total Registered Reps
at End of Year
Individuals Leaving % of Total Individuals Entering % of Total

2018

629,847

-44,095

-7%

+43,810

+7%

2017

630,132

-46,676

-7%

+40,906

+6%

2016

635,902

-50,641

-8%

+43,221

+7%

2015

643,322

-40,421

-6%

+47,036

+7%

2014

636,707

-40,694

-6%

+46,605

+7%

2013

630,796

-43,238

-7%

+43,643

+7%

2012

630,391

-48,136

-8%

+49,009

+8%

2011

629,518

-45,555

-7%

+44,381

+7%

2010

630,692

-47,237

-7%

+44,649

+7%

2009

633,280

-72,564

-11%

+40,869

+6%

2008

664,975

-68,429

-10%

+60,716

+9%

2007

672,688

-54,167

-8%

+68,682

+10%

2006

658,173

-60,368

-9%

+62,709

+10%

2005

655,832

-66,592

-10%

+63,212

+10%

2004

659,212

-59,041

-9%

+64,366

+10%

Certain data presented here reflect minor adjustments from previously reported data due to technical database corrections.

Member Firm Statistical Review 2004 - 2018

Year Total Firms at End of Year Firms Leaving % of Total Firms Added % of Total

2018

3,607

-219

-6%

+100

+3%

2017

3,726

-205

-6%

+96

+3%

2016

3,835

-232

-6%

+124

+3%

2015

3,943

-244

-6%

+119

+3%

2014

4,068

-222

-5%

+144

+3%

2013

4,146

-249

-6%

+105

+2%

2012

4,290

-303

-7%

+136

+3%

2011

4,457

-294

-6%

+173

+4%

2010

4,578

-330

-7%

+190

+4%

2009

4,718

-339

-7%

+166

+3%

2008

4,891

-323

-6%

+215

+4%

2007

4,999

-312

-6%

+289

+6%

2006

5,022

-327

-6%

+247

+5%

2005

5,102

-379

-7%

+294

+6%

2004

5,187

-376

-7%

+302

+6%

Certain data presented here reflect minor adjustments from previously reported data due to technical database corrections.

Member Firm Branch Offices Statistical Review 2005 - 20187

Year Total Branches at End of Year Branches Closed % of Total Branches Opened % of Total
2018

154,772

-20,866

-13%

+20,153

+13%

2017

156,107

-21,796

-14%

+16,397

+11%

2016

159,529

-20,100

-12%

+18,123

+11%

2015

161,506

-18,291

-11%

+18,153

+11%

2014

161,644

-16,537

-10%

+17,608

+11%

2013

160,573

-19,358

-12%

+18,667

+12%

2012

161,264

-25,167

-16%

+25,948

+16%

2011

160,483

-24,838

-15%

+22,474

+14%

2010

162,847

-26,289

-16%

+22,243

+13%

2009

166,893

-37,709

-22%

+32,943

+19%

2008

171,659

-28,539

-17%

+28,912

+17%

2007

171,286

-29,705

-18%

+31,514

+19%

2006

169,477

-28,058

-26%

+91,288

+86%

2005

106,247

-7,243

n/a7

+113,490

n/a7

Certain data presented here reflect minor adjustments from previously reported data due to technical database corrections.


1. Includes complaints directly reported by investors to FINRA.
2. Beginning in 2017, FINRA changed its methodology in compiling aggregate data for Actions Filed.
3. Fines billed by FINRA, excluding amounts billed by FINRA on behalf of another self-regulatory organizations, including the Municipal Securities Rulemaking Board.
4. Beginning in 2017, FINRA changed its methodology in compiling aggregate data for Firms Expelled.
5. Includes equity and debt filings.
6. Includes unlisted REIT and direct participation program filings.
7. The revised definition of “branch office” took effect on July 3, 2006 (NASD) and September 9, 2005 (NYSE). The Branch Office Registration System launched on October 29, 2005.

April 26, 2019 in Financial Regulation | Permalink | Comments (0)

Thursday, April 25, 2019

A BILL FOR A LAW TO AMEND THE SECURITIES INVESTMENT BUSINESS LAW (2019 REVISION) TO ADJUST THE EXCLUDED PERSONS REGIME; AND FOR INCIDENTAL AND CONNECTED PURPOSES

The amendments to the Securities Investment Business Law (2019 Revision) stem from the review conducted by the Cayman Islands Monetary Authority of the entities that are allowed to be excluded from the Law’s licensing requirements. Those entities are known as “excluded persons”. The review identified a number of weaknesses and challenges that may pose regulatory and reputational risk to the Authority and the Islands. The Bill seeks to provide for the adjustment of the excluded persons regime and for incidental and connected purposes.

Download Cayman new exempt co law

Clause 5 of the Bill seeks to amend section 5 of the principal Law to make provision for a person to apply for a licence or registration. The clause also provides that a person who carries on a securities investment business for which a licence or registration is required must also maintain, among other things, staff and premises. The clause also sets out the procedure for registration as a “registered person”. A person listed in Schedule 4 of the principal Law is required to apply for registration as opposed to a licence.

April 25, 2019 in Financial Regulation | Permalink | Comments (0)

Wednesday, April 24, 2019

Indian National Extradited to United States to Face Charges for Leadership Role in Multimillion Dollar India-Based Call Center Scam Targeting U.S. Victims

An Indian national has been extradited to the United States from Singapore to face charges related to his role as an operator of a call center network that targeted U.S victims.  The massive India-based telephone impersonation fraud and money laundering conspiracy defrauded thousands of U.S. residents out of hundreds of millions of dollars.

Hitesh Madhubhai Patel, 42, of Ahmedabad, India, arrived in the United States and is scheduled to be arraigned today before a U.S. magistrate judge in federal court in Houston, Texas.  The indictment, which was unsealed in October 2016, charged Patel and 60 other individuals and entities with general conspiracy, wire fraud conspiracy and money laundering conspiracy.  The case is assigned to the Honorable David Hittner of the Southern District of Texas.

“Today’s extradition should serve as a strong deterrent to anyone considering taking part in similar scams, and I hope it provides a sense of justice for the victims as well,” said HSI Executive Associate Director Benner.  “HSI will continue to utilize its unique investigative mandate, in conjunction with our local, state and federal partners, to attack and dismantle the criminal enterprises who would seek to manipulate U.S. institutions and taxpayers.”

“Since 2013, the IRS impersonation scam has been on a relentless path, claiming more than 15,000 victims who have collectively suffered over $75 million in losses,” said Treasury Inspector General for Tax Administration J. Russell George.  “TIGTA’s investigations, often conducted with other Federal agencies, have identified 140 scammers, including Patel, who have preyed upon taxpayers.  Today’s extradition and arraignment are proof that TIGTA and its law enforcement partners will be equally relentless in rooting out individuals who fraudulently identify themselves as IRS employees in order to extort money from taxpayers.  We especially appreciate the cooperation of the Government of Singapore for its role in the extradition.”

“This historic extradition should serve as notice to transnational criminal organizations of the lengths DHS is willing to go to arrest those who would enrich themselves by extorting the most vulnerable in our society,” said Special Agent in Charge David Green of DHS-OIG Houston, Texas Field Office.  “The owners, managers and employees of overseas call centers who target U.S. residents should know that our pursuit of justice for victims of their scams does not stop at the water’s edge.  We will continue to work with our international partners to identify these fraudsters, track them down and hold them accountable for their crimes.”

Singapore authorities apprehended Patel at the request of the United States pursuant to a provisional arrest warrant on Sept. 21, 2018, after flying from India to Singapore.  The Singaporean Minister for Law issued a warrant on March 25, 2019 for Patel to be delivered into custody of the United States.

The indictment alleges that Patel operated the HGlobal call center conglomerate and participated in a complex fraudulent scheme involving a network of call centers based in Ahmedabad, India.  Using information obtained from data brokers and other sources, India-based conspirators allegedly called potential victims while impersonating officials from the IRS or U.S. Citizenship and Immigration Services.  According to the indictment, the call center conspirators then threatened victims with arrest, imprisonment, fines or deportation if they did not pay taxes or penalties to the government.  When victims agreed to pay, the call centers used a network of U.S.-based conspirators to quickly liquidate and launder the extorted funds through the use of stored value cards or via wire transfers.  As alleged in the indictment, the stored value cards were often registered by the scammers using misappropriated personal identifying information of thousands of identity theft victims, and conspirators collected the wire transfers by using fake names and fraudulent identifications.

According to the indictment, the call center conspirators also defrauded victims through other schemes, including via offering fake short-term loans or grants.  The indictment alleges that the conspirators would then request a good-faith deposit to show the victims’ ability to pay back the loan or a fee to process the grant.  The victims of the alleged scam never received any money after making the requested payment.

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

A total of 24 domestic defendants associated with this transnational criminal scheme have previously been convicted and sentenced to terms of imprisonment of up to 20 years in the Southern District of Texas, District of Arizona and Northern District of Georgia.  The defendants were also ordered to pay millions of dollars in victim restitution and money judgments and to forfeit seized assets.  Some defendants were ordered to be deported based on their illegal immigration status, with another defendant having his U.S. citizenship revoked due to a separate conviction for immigration fraud.  The remaining India-based defendants have yet to be arraigned in this case.

HSI, DHS-OIG and TIGTA conducted the investigation.  The Department of Justice’s Office of International Affairs and HSI Singapore provided significant support in securing and coordinating Patel’s arrest and extradition, working in concert with their counterparts at the Singapore Attorney General’s-Chambers and the Singapore Police Force. 

Trial Attorneys Michael Sheckels and Mona Sahaf of the Criminal Division’s Human Rights and Special Prosecutions Section, Amanda Wick of the Criminal Division’s Money Laundering and Asset Recovery Section, and Assistant U.S. Attorneys Mark McIntyre and Craig Feazel of the Southern District of Texas are prosecuting the case.

A Department of Justice website has been established to provide information about the case to victims and the public.  Anyone who believes they may be a victim of fraud or identity theft in relation to this investigation or other telefraud scam phone calls may contact the FTC via this website.

April 24, 2019 in AML | Permalink | Comments (0)

Tuesday, April 23, 2019

UniCredit Group Settles with U.S. Treasury for $1.3 Billion for OFAC Violations

Treasury Settlement Part of Combined $1.3 Billion Settlement for Banks’ Apparent Violations of Multiple Sanctions Programs

WASHINGTON – As part of a combined $1.3 billion settlement with federal and state government partners, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced three separate agreements totaling $611 million with the following UniCredit Group banks: UniCredit Bank AG in Germany, UniCredit Bank Austria AG in Austria, and UniCredit S.p.A. in Italy.  The settlements resolve OFAC’s investigations into apparent violations of a number of U.S. sanctions programs, including those related to weapons of mass destruction proliferation.

Specifically, between January 2007 and December 2011, UniCredit Bank AG processed over 2,000 payments totaling over $500 million through financial institutions in the United States in apparent violation of multiple U.S. sanctions programs.  During this time period, UniCredit operated U.S. dollar accounts on behalf of the Islamic Republic of Iran Shipping Lines (IRISL) and several companies owned by or otherwise affiliated with IRISL, and managed the accounts of those companies in a manner that obscured the interest or involvement of IRISL in transactions sent to or through U.S. intermediaries.  For a number of years up to and including 2011 (UniCredit Bank AG) and 2012 (UniCredit Bank Austria AG and UniCredit Bank S.p.A.), all three banks processed payments to or through the United States in a manner that did not disclose underlying sanctioned persons or countries to U.S. financial institutions which were acting as financial intermediaries.

These transactions constitute apparent violations of contemporaneous sanctions programs targeting proliferators of weapons of mass destruction, global terrorism, and the following countries:  Burma, Cuba, Iran, Libya, Sudan, and Syria.

“UniCredit Group banks routed transactions through the United States in a non-transparent manner, when those payments would have been blocked or rejected if their true nature had been clear, in violation of multiple sanctions programs,” said Sigal P. Mandelker, Under Secretary for Terrorism and Financial Intelligence.  “These banks have agreed to implement and maintain commitments to enhance their sanctions compliance.  As the United States continues to enhance our sanctions programs, incorporating compliance commitments in OFAC settlement agreements is a key part of our broader strategy to ensure that the private sector implements strong and effective compliance programs that protect the U.S. financial system from abuse.”

Pursuant to the settlement agreements, each bank is required to implement and maintain compliance commitments designed to minimize the risk of the recurrence of the conduct giving rise to the apparent violations.  The full set of commitments are identified in each of the banks’ public settlement agreements (UniCredit Bank AG [LINK], UniCredit Bank Austria AG [LINK], UniCredit S.p.A. [LINK]) and focus on areas that led to the apparent violations, including (1) a commitment from senior management to promote a “culture of compliance” throughout each organization, (2) a commitment that each bank implements internal controls that adequately address the results of its OFAC risk assessment and profile, and (3) a commitment to providing adequate training to support each bank’s OFAC compliance efforts.

OFAC worked closely and collaboratively with its counterparts at other government agencies in the course of these investigations.  Today’s settlements are being announced in conjunction with actions involving the U.S. Department of Justice, the New York County District Attorney’s Office, the Federal Reserve Board of Governors, and the Department of Financial Services of the State of New York.

“Today’s settlements are the result of a years-long interagency effort and reinforce OFAC’s commitment to working with partner agencies at the federal and state levels to ensure the U.S. financial infrastructure is protected from the risks inherent in this type of illicit activity,” said OFAC Director Andrea M. Gacki.  “We will continue to investigate institutions that utilize the U.S. financial system in a manner that undermines U.S. sanctions programs and aggressively enforce U.S. sanctions rules and regulations.”

The banks’ obligations to pay OFAC such settlement amounts were deemed satisfied up to an equal amount by payments in satisfaction of penalties assessed by U.S. federal officials arising out of the same patterns of conduct during the same time periods.  UniCredit Bank AG will remit $105,876,230 to OFAC to settle civil liability relating to the apparent violations.

View settlement agreements: UniCredit Bank AG, UniCredit Bank Austria AG, UniCredit S.p.A..

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

Fifth Defendant Pleads Guilty to Laundering Millions of Dollars of Hard Narcotics Proceeds for Sinaloa Cartel

A Culiacan, Mexico man pleaded guilty to international money laundering in connection with his operation of a currency exchange house that received the proceeds of multi-kilogram quantities of cocaine, methamphetamine and heroin smuggled into the United States by the Sinaloa Cartel, announced Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division and U.S. Attorney Robert S. Brewer Jr. of the Southern District of California. 

Gibran Rodriguez-Mejia, 31, was extradited from Mexico to San Diego in September 2018, and is the fifth Mexican-based defendant in this case to enter a guilty plea, doing so before U.S. Magistrate Judge Mitchell D. Dembin.  Rodriguez-Mejia will be sentenced on July 8, 2019 before U.S. District Judge Roger T. Benitez. 

Through his plea agreement, Rodriguez-Mejia admitted to laundering $3.5 million in drug proceeds.  He coordinated with couriers, primarily located in Southern California, who smuggled the bulk of U.S. currency from the United States to Mexico.  Rodriguez-Mejia also admitted that he arranged for currency to be smuggled to an exchange house in Tijuana, Mexico owned and operated by co-defendant Cesar Hernandez-Martinez, who pleaded guilty on April 4, 2019 and will be sentenced on July 8, 2019.  After the money was converted to Mexican pesos, Rodriguez-Mejia provided financial accounts in Mexico into which the money was deposited for the benefit of the Mexican-based cartel drug traffickers.

In addition to the five defendants in this case, approximately 20 other individuals have entered guilty pleas and have been previously sentenced in related cases.  Those cases have involved individuals based in the United States or individuals who have frequently crossed into the United States and served as money couriers, drug couriers and drug stash-house operators and who were part of, or related to, the same money laundering and drug trafficking organization.

Omar Ayon-Diaz, Osvaldo Contreras-Arriaga and Joel Acedo-Ojeda have also pleaded guilty in this case and have been sentenced to 120 months, 132 months and 135 months in prison, respectively.

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

Sunday, April 21, 2019

U.S. International Trade in Goods and Services, February 2019

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced that the goods and services deficit was $49.4 billion in February, down $1.8 billion from $51.1 billion in January, revised.

U.S. International Trade in Goods and Services Deficit
Deficit: $49.4 Billion -3.4%°
Exports: $209.7 Billion +1.1%°
Imports: $259.1 Billion +0.2%°

Next release: May 9, 2019

(°) Statistical significance is not applicable or not measurable.
Data adjusted for seasonality but not price changes

Source: U.S. Census Bureau, U.S. Bureau of Economic Analysis; U.S. International Trade in Goods and Services, April 17, 2019

Goods and Services Trade Deficit, February 2019

Exports, Imports, and Balance (exhibit 1)

February exports were $209.7 billion, $2.3 billion more than January exports. February imports were $259.1 billion, $0.6 billion more than January imports.

The February decrease in the goods and services deficit reflected a decrease in the goods deficit of $1.2 billion to $72.0 billion and an increase in the services surplus of $0.5 billion to $22.6 billion.

Year-to-date, the goods and services deficit decreased $8.3 billion, or 7.6 percent, from the same period in 2018. Exports increased $11.1 billion or 2.7 percent. Imports increased $2.8 billion or 0.5 percent.

Three-Month Moving Averages (exhibit 2)

The average goods and services deficit decreased $0.4 billion to $53.5 billion for the three months ending in February.

  • Average exports increased $0.1 billion to $207.5 billion in February.
  • Average imports decreased $0.3 billion to $261.0 billion in February.

Year-over-year, the average goods and services deficit decreased $0.1 billion from the three months ending in February 2018.

  • Average exports increased $3.8 billion from February 2018.
  • Average imports increased $3.7 billion from February 2018.

Exports (exhibits 3, 6, and 7)

Exports of goods increased $2.1 billion to $139.5 billion in February.

  Exports of goods on a Census basis increased $1.9 billion.

  • Capital goods increased $2.1 billion.
    • Civilian aircraft increased $2.2 billion.
  • Automotive vehicles, parts, and engines increased $0.6 billion.
  • Industrial supplies and materials decreased $0.4 billion.

  Net balance of payments adjustments increased $0.2 billion.

Exports of services increased $0.2 billion to $70.1 billion in February.

  • Transport increased $0.2 billion.
  • Other business services, which includes research and development services; professional and management services; and technical, trade-related, and other services, increased $0.1 billion.

Imports (exhibits 4, 6, and 8)

Imports of goods increased $0.9 billion to $211.6 billion in February.

  Imports of goods on a Census basis increased $0.8 billion.

  • Consumer goods increased $1.6 billion.
    • Cell phones and other household goods increased $2.1 billion.
  • Other goods increased $0.5 billion.
  • Industrial supplies and materials decreased $1.2 billion.

  Net balance of payments adjustments increased $0.1 billion.

Imports of services decreased $0.3 billion to $47.5 billion in February.

  • Transport decreased $0.2 billion.
  • Travel (for all purposes including education) decreased $0.1 billion.
  • Government goods and services increased $0.1 billion.

Real Goods in 2012 Dollars – Census Basis (exhibit 11)

The real goods deficit decreased $1.8 billion to $81.8 billion in February.

  • Real exports of goods increased $0.8 billion to $150.7 billion.
  • Real imports of goods decreased $0.9 billion to $232.5 billion.

Revisions

Revisions to January exports

  • Exports of goods were revised up $0.1 billion.
  • Exports of services were revised down less than $0.1 billion.

Revisions to January imports

  • Imports of goods were revised down less than $0.1 billion.
  • Imports of services were revised up less than $0.1 billion.

Goods by Selected Countries and Areas: Monthly – Census Basis (exhibit 19)

The February figures show surpluses, in billions of dollars, with South and Central America ($3.7), Hong Kong ($2.8), United Kingdom ($0.9), Brazil ($0.6), Singapore ($0.4), Canada ($0.4), and OPEC ($0.3). Deficits were recorded, in billions of dollars, with China ($30.1), European Union ($12.4), Mexico ($7.7), Japan ($6.7), Germany ($5.5), Italy ($2.8), South Korea ($2.4), India ($2.2), France ($2.2), Taiwan ($1.7), and Saudi Arabia ($0.3).

  • The deficit with China decreased $3.1 billion to $30.1 billion in February. Exports increased $1.6 billion to $9.2 billion and imports decreased $1.5 billion to $39.3 billion.
  • The surplus with Hong Kong increased $1.0 billion to $2.8 billion in February. Exports increased $0.9 billion to $3.2 billion and imports decreased $0.1 billion to $0.3 billion.
  • The deficit with Japan increased $1.3 billion to $6.7 billion in February. Exports decreased $1.1 billion to $5.7 billion and imports increased $0.2 billion to $12.4 billion.

April 21, 2019 in Economics | Permalink | Comments (0)

Saturday, April 20, 2019

Former Manager for International Airline Pleads Guilty to Acting as an Agent of the Chinese Government

Defendant Placed Packages on Flights from JFK Airport to Beijing at the Direction of Military Officers Assigned to the Chinese Mission to the United Nations

Ying Lin pleaded guilty to acting as an agent of the People’s Republic of China (PRC), without notification to the Attorney General, by working at the direction and control of military officers assigned to the Permanent Mission of the People’s Republic of China to the United Nations.  Lin, a former manager with an international air carrier headquartered in the PRC (the Air Carrier), abused her privileges to transport packages from John F. Kennedy International Airport (JFK Airport) to the PRC aboard Air Carrier flights at the behest of the PRC military officers and in violation of Transportation Security Administration (TSA) regulations.  The proceeding was held before United States District Judge Ann M. Donnelly.

Assistant Attorney General for National Security John C. Demers, U.S. Attorney Richard P. Donoghue for the Eastern District of New York, Assistant Director in Charge William F. Sweeney, Jr of the FBI’s New York Field Office, and Special Agent in Charge Angel M. Melendez, Department of Homeland Security, Homeland Security Investigations (HSI) announced the guilty plea.

“This case is a stark example of the Chinese government using the employees of Chinese companies doing business here to engage in illegal activity,” said Assistant Attorney General Demers.  “Covertly doing the Chinese military’s bidding on U.S. soil is a crime, and Lin and the Chinese military took advantage of a commercial enterprise to evade legitimate U.S. government oversight.”

“The defendant’s actions as an agent of the Chinese government helped Chinese military officers to evade U.S. law enforcement scrutiny of packages that they sent from New York to Beijing,” stated United States Attorney Donoghue.  “This case demonstrates how seriously we address counterintelligence threats posed by individuals in the United States who work for foreign governments, such as China.” 

“The FBI and our law enforcement partners do all we can every day to protect this country from the threats we can see, and we work even harder to find the threats we can’t see,” said FBI Assistant Director-in-Charge Sweeney.  “Ms. Lin was secreting packages through some of the country's busiest airports, using her work with the Chinese government to thwart our security measures.  We believe this case isn’t unique and hope it serves as an example that the Chinese and other foreign governments can't break our laws with impunity.”

“Lin’s criminal actions exploited the international boundary of the United States as she used her position to smuggle packages onto planes headed to China,” said HSI Special Agent-in-Charge Melendez. “We are committed to ensuring the integrity of our international airports so they are not used as a front for illicit activities.”

Lin worked for the Air Carrier from 2002 through the fall of 2015 as a counter agent at JFK Airport and from the fall of 2015 through April 2016 as the station manager at Newark Liberty International Airport.  During her employment with the Air Carrier, Lin accepted packages from the PRC military officers, and placed those packages aboard Air Carrier flights to the PRC as unaccompanied luggage or checked in the packages under the names of other passengers flying on those flights.  As the PRC military officers did not travel on those flights, Lin’s actions were contrary to a security program that required that checked baggage be accepted only from ticketed passengers, thereby violating TSA regulations.  In addition, Lin encouraged other Air Carrier employees to assist the PRC military officers, instructing those employees that because the Air Carrier was a PRC company, their primary loyalty should be to the PRC.

In exchange for her work at the direction and under the control of PRC military officers and other PRC government officials, Lin received benefits from the PRC Mission and PRC Consulate in New York.  These benefits included tax-exempt purchases of liquor, cigarettes and electronic devices worth tens of thousands of dollars.  These benefits also included free contracting work at the defendant’s two residences in Queens, New York, by PRC construction workers who were permitted under the terms of their visas to work only on PRC government facilities.

When sentenced, Lin faces up to 10 years’ imprisonment.  As part of the guilty plea, Lin agreed to forfeit approximately $25,000 as well as an additional $145,000 in connection with her resolution of the government’s forfeiture verdict in United States v. Zhong, No. 16-CR-614 (AMD).

Mr. Demers and Mr. Donoghue expressed their appreciation to the Transportation Security Administration for their assistance on the case.  The government’s case is being handled by the National Security and Cybercrime Section.  Assistant United States Attorneys Douglas M. Pravda, Alexander A. Solomon, Ian C. Richardson and Sarah M. Evans are in charge of the prosecution, with assistance from Trial Attorney Matthew R. Walczewski of the Department of Justice’s Counterintelligence and Export Control Section.  The forfeiture aspect of the case is being handled by EDNY Assistant United States Attorney Brian Morris of the Office’s Civil Division.

April 20, 2019 in AML | Permalink | Comments (0)

Friday, April 19, 2019

Japanese Investment Company Executives Extradited on Charges Relating to $1.5 Billion Ponzi Scheme

Japanese authorities have extradited to the United States two former executives of a Las Vegas, Nevada, investment company in connection with their alleged roles in a $1.5 billion Ponzi scheme.

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Nicholas A. Trutanich of the District of Nevada and Special Agent in Charge Aaron C. Rouse of the FBI’s Las Vegas Division made the announcement.

Junzo Suzuki, 70, and Paul Suzuki, 40, who are father and son and are both Japanese nationals, were each charged in a July 2015 indictment filed in the District of Nevada with eight counts of mail fraud and nine counts of wire fraud.  Japanese authorities arrested the Suzukis in January 2019 at the request of the United States, and extradited them to the United States on April 17.  The Suzukis will make their initial appearance this afternoon before U.S. Magistrate Judge Cam Ferenbach of the District of Nevada.

According to the indictment, Junzo Suzuki previously was executive vice president for Asia Pacific of MRI International (MRI), an investment company which was headquartered in Las Vegas and had an office in Japan.  Paul Suzuki previously was the company’s general manager for Japan operations, based in Tokyo.  MRI purportedly specialized in “factoring,” whereby the company purchased accounts receivable from medical providers at a discount, and then attempted to recover the entire amount, or at least more than the discounted amount, from the debtor.

According to allegations in the indictment, from at least 2009 to 2013, the Suzukis and their co-defendant Edwin Fujinaga, 72, of Las Vegas, fraudulently solicited investments from thousands of Japanese residents.  When MRI collapsed, it allegedly owed investors over $1.5 billion.  Specifically, the indictment alleges that Fujinaga and the Suzukis promised investors a series of interest payments that would accrue over the life of the investment and that would be paid out along with the face value of the investment at the conclusion of the investments’ duration.  The defendants allegedly solicited investments by, among other things, promising investors that their investments would be used only for the purchase of medical accounts receivable (MARS) and by representing that investors funds would be managed and safeguarded by an independent third-party escrow company.

The indictment further alleges that MRI operated as a Ponzi scheme, in which the defendants used new investors’ money to pay prior investors’ maturing investments.  According to the indictment, the defendants also allegedly used investors’ funds for purposes other than the purchase of MARS, including paying themselves sales commissions, subsidizing gambling habits, funding personal travel by private jet and other personal expenses.

In November 2018, after a five-week trial, Fujinaga was found guilty of eight counts of mail fraud, nine counts of wire fraud and three counts of money laundering in connection with this Ponzi scheme.  His sentencing hearing is scheduled for May 23, 2019.  Download Suzuki MRI Indictment

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

Tuesday, April 16, 2019

Two Romanian Cybercriminals Convicted of All 21 Counts Relating to Infecting Over 400,000 Victim Computers with Malware and Stealing Millions of Dollars

A federal jury convicted two Bucharest, Romania, residents of 21 counts related to their scheme to infect victim computers with malware in order to steal credit card and other information to sell on dark market websites, mine cryptocurrency and engage in online auction fraud, announced Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division and U.S. Attorney Justin E. Herdman of the Northern District of Ohio.

Bogdan Nicolescu, 36, and Radu Miclaus, 37, were convicted after a 12-day trial of conspiracy to commit wire fraud, conspiracy to traffic in counterfeit service marks, aggravated identity theft, conspiracy to commit money laundering and 12 counts each of wire fraud.  Sentencing has been set for Aug. 14, 2019 before Chief Judge Patricia A. Gaughan of the Northern District of Ohio.

According to testimony at trial and court documents, Nicolescu, Miclaus, and a co-conspirator who pleaded guilty, collectively operated a criminal conspiracy from Bucharest, Romania.  It began in 2007 with the development of proprietary malware, which they disseminated through malicious emails purporting to be legitimate from such entities as Western Union, Norton AntiVirus and the IRS. When recipients clicked on an attached file, the malware was surreptitiously installed onto their computer.

This malware harvested email addresses from the infected computer, such as from contact lists or email accounts, and then sent malicious emails to these harvested email addresses.  The defendants infected and controlled more than 400,000 individual computers, primarily in the United States.

Controlling these computers allowed the defendants to harvest personal information, such as credit card information, user names and passwords.  They disabled victims’ malware protection and blocked the victims’ access to websites associated with law enforcement.

Controlling the computers also allowed the defendants to use the processing power of the computer to solve complex algorithms for the financial benefit of the group, a process known as cryptocurrency mining.

The defendants used stolen email credentials to copy a victim’s email contacts.  They also activated files that forced infected computers to register email accounts with AOL.  The defendants registered more than 100,000 email accounts using this method.  They then sent malicious emails from these addresses to the compromised contact lists.  Through this method, they sent tens of millions of malicious emails.

When victims with infected computers visited websites such as Facebook, PayPal, eBay or others, the defendants would intercept the request and redirect the computer to a nearly identical website they had created.  The defendants would then steal account credentials.  They used the stolen credit card information to fund their criminal infrastructure, including renting server space, registering domain names using fictitious identities and paying for Virtual Private Networks (VPNs) which further concealed their identities.

The defendants were also able to inject fake pages into legitimate websites, such as eBay, to make victims believe they were receiving and following instructions from legitimate websites, when they were actually following the instructions of the defendants.

They placed more than 1,000 fraudulent listings for automobiles, motorcycles and other high-priced goods on eBay and similar auction sites.  Photos of the items were infected with malware, which redirected computers that clicked on the image to fictitious webpages designed by the defendants to resemble legitimate eBay pages.

These fictitious webpages prompted users to pay for their goods through a nonexistent “eBay Escrow Agent” who was simply a person hired by the defendants.  Users paid for the goods to the fraudulent escrow agents, who in turn wired the money to others in Eastern Europe, who in turn gave it to the defendants.  The payers/victims never received the items and never got their money back.

This resulted in a loss of millions of dollars.

The Bayrob group laundered this money by hiring “money transfer agents” and created fictitious companies with fraudulent websites designed to give the impression they were actual businesses engaged in legitimate financial transactions.  Money stolen from victims was wired to these fraudulent companies and then in turn wired to Western Union or Money Gram offices in Romania.  European “money mules” used fake identity documents to collect the money and deliver it to the defendants. 

The FBI investigated the case, with assistance from the Romanian National Police.  Senior Counsel Brian Levine of the Criminal Division’s Computer Crime and Intellectual Property Section (CCIPS) and Assistant U.S. Attorneys Duncan T. Brown and Brian McDonough of the Northern District of Ohio prosecuted the case.  The Office of International Affairs also provided assistance in this case.

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

Monday, April 15, 2019

UniCredit Bank AG Agrees to Plead Guilty and Pay Over $1.3 Billion for Violation of Iranian Sanctions

UniCredit Bank AG (UCB AG), a financial institution headquartered in Munich, operating under the name HypoVereinsbank, and part of the UniCredit Group has agreed to enter a guilty plea to conspiring to violate the International Emergency Economic Powers Act (IEEPA) and to defraud the United States by processing hundreds of millions of dollars of transactions through the U.S. financial system on behalf of an entity designated as a weapons of mass destruction proliferator and other Iranian entities subject to U.S. economic sanctions.  UniCredit Bank Austria (BA), another financial institution in the UniCredit Group, headquartered in Vienna, Austria, agreed to forfeit $20 million and entered into a non-prosecution agreement to resolve an investigation into its violations of IEEPA.  UniCredit SpA, the parent of both UCB AG and BA, has agreed to ensure that UCB AG and BA’s obligations are fulfilled. Download UniCredit Bank AG Information and Download UniCredit Bank Austria Non-Prosecution Agreement

According to court documents, over the course of almost 10 years, UCB AG knowingly and willfully moved at least $393 million through the U.S. financial system on behalf of sanctioned entities, most of which was for an entity the U.S. Government specifically prohibited from accessing the U.S. financial system.  UCB AG engaged in this criminal conduct through a scheme, formalized in its own bank polices and designed to conceal from U.S. regulators and banks the involvement of sanctioned entities in certain transactions.  UCB AG routed illegal payments through U.S. financial institutions for the benefit of the sanctioned entities in ways that concealed the involvement of the sanctioned entities, including through the use of companies that UCB AG knew would appear unconnected to the sanctioned entity despite being controlled by the sanctioned entity.

“When the United States sanctioned Iranian entities for proliferating weapons of mass destruction, UCB AG went to great lengths to help one such entity – Islamic Republic of Iran Shipping Lines – evade sanctions to gain access to the U.S. financial system,” said Assistant Attorney General Benczkowski.  “The integrity of our financial system requires financial institutions to comply with our laws, and UCB AG willfully failed to do so.  Today’s guilty plea and $1.3 billion penalty are just punishments for undermining U.S. sanctions and putting our financial system at risk.”

“UCB AG’s actions in deliberately providing a designated weapons-of-mass-destruction proliferator with access to the U.S. financial system for almost two years after such access was prohibited by U.S. law were particularly egregious,” said U.S. Attorney Liu.  “The bank’s impending guilty plea and the accompanying monetary penalty announced today send a clear message that financial institutions that subvert U.S. sanctions, and therefore our national security, should expect severe consequences.”

"This case is a prime example of how some institutions erroneously believe they can game the U.S. financial system and conceal their nefarious activity,” said Assistant Director in Charge Sweeney.  "The FBI will root out and aggressively investigate institutions, like UCB AG, that conspire to violate U.S. sanctions on behalf of prohibited entities."

“The financial penalty announced today should dissuade other financial institutions around the world from scheming and circumventing U.S. sanctions by moving money around using various institutions and companies,” said Special Agent in Charge Jackson.  “Following the money is what we do—so too is holding those accountable who try to avoid following the law.”

UCB AG will waive indictment and be charged in a one-count felony criminal information, according to documents to be filed in federal court in the District of Columbia, charging UCB AG with knowingly and willfully conspiring to commit violations of IEEPA and to defraud the United States, from 2002 through 2011.  UCB AG has agreed to plead guilty to the information, has entered into a written plea agreement and has accepted responsibility for its criminal conduct.  UCB AG will enter its guilty plea before a judge in the District of Columbia.  UniCredit Group banks will pay total financial penalties of approximately $1.3 billion.  The plea agreement, subject to approval by the court, provides that UCB AG will forfeit $316,545,816 and pay a fine of $468,350,000.  

According to admissions in the non-prosecution agreement and accompanying statement of facts, between 2002 and 2012, BA used non-transparent methods to send payments related to sanctioned jurisdictions such as Iran through the United States.  BA conspired to violate IEEPA and defraud the United States by processing transactions worth at least $20 million through the United States on behalf of customers located or doing business in Iran and other countries subject to U.S. economic sanctions or customers otherwise subject to U.S. economic sanctions.  As a result of its crimes, BA will forfeit $20 million and has agreed to additional compliance and sanctions enhancements. 

In addition, UCB AG has entered into a plea agreement with the New York County District Attorney’s Office (DANY) for violating New York State law pursuant to which it will pay $316,545,816.  BA has also entered into a non-prosecution agreement with DANY for violating New York State law.  DANY conducted its own investigation alongside the Justice Department.

UniCredit SpA, UCB AG and BA have also entered into various settlement agreements with the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), the Board of Governors of the Federal Reserve System (the Federal Reserve) and the New York State Department of Financial Services (DFS) under which they will pay additional penalties of approximately $660 million as follows:  $611,023,421 to OFAC, which will be satisfied in part by payments to the Justice Department and the Federal Reserve, $157,770,000 to the Federal Reserve and $405 million to DFS.

The case was prosecuted by Senior Trial Attorney Margaret A. Moeser of the Bank Integrity Unit in the Criminal Division’s Money Laundering and Asset Recovery Section, and Assistant U.S. Attorney Michelle Zamarin of the District of Columbia.  The case was investigated by the FBI and the IRS-CI.

The Bank Integrity Unit investigates and prosecutes complex, multi-district, and international criminal cases involving financial institutions.  The Unit’s prosecutions focus on banks and other financial institutions, including their officers, managers, and employees, whose actions threaten the integrity of the individual institution or the wider financial system.

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

Tax Statistics of Income (SOI) Bulletin - Tax Day

Featured Articles

Individual Income Tax Shares, Tax Year 2016
by Adrian Dungan

For Tax Year 2016, taxpayers filed 140.9 million individual income tax returns, excluding returns filed by dependents. The average adjusted gross income (AGI) reported on these returns was $72, 090, in comparison with $71,829 for the previous year. Total AGI increased slightly by 0.1 percent to $10.16 trillion, while total income tax decreased 0.8 percent to $1.44 trillion. For 2016, the AGI threshold for the top 50 percent of all individual income tax returns was $40,078 for the year. These taxpayers accounted for 88.4 percent of total AGI, and paid 97 percent of total income tax. The top 0.001 percent of tax returns had an AGI of $53,052,900 or more. These taxpayers accounted for 2 percent of total AGI, and paid 3.2 percent of total income tax. The average tax rate of 14.2 percent for all returns in 2016 was the second highest of this 10-year study, Tax Year 2007-2016.

Excel Tables:

Individual Income Tax Rates and Tax Shares

Personal Wealth, 2013
by Aaron Barnes

For 2013, the threshold was $5.25 million or more in gross estate. In 2013, there were an estimated 584 thousand adults in the United States (U.S.) representing the top .25 percent of all adults in the population. Together, these top wealth holders owned nearly $7.3 trillion in assets and held $432 billion in debt, making their combined net worth $6.9 trillion. The Federal Reserve Board's Survey of Consumer Finance estimated the net worth of all U.S. adults to be $65.5 trillion in 2013. By this measure, 10.5 percent of the Nation's net worth was accounted for by these top wealth holders.

Excel Tables:

Related Link: Personal Wealth Statistics

Individual Income Tax Returns, Preliminary Data, Tax Year 2017
by Michael Parisi

For Tax Year 2017, taxpayers filed 153.1 million U.S. individual income tax returns, an increase of 1.8 percent from the 150.3 million returns filed for Tax Year 2016.  For 2017, adjusted gross income (AGI) increased 7.1 percent to $10.9 trillion. This large increase in AGI was reflected in increases in most components of income, including increases in salaries and wages (5.0 percent), taxable pensions and annuities (5.5 percent), net capital gains (33.5 percent), partnership and S corporation net income less loss (4.8 percent), and ordinary dividends (13.4 percent).

April 15, 2019 in Economics | Permalink | Comments (0)

Charity Executives, Former Arkansas State Senator Indicted for Embezzlement and Public Corruption Scheme

Two former executives of a Springfield, Missouri-based charity and a former Arkansas state senator have been indicted by a federal grand jury for their roles in a multi-million-dollar public corruption scheme that involved embezzlement, bribes and illegal campaign contributions for elected public officials in Missouri and Arkansas, announced Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division and U.S. Attorney Tim Garrison of the Western District of Missouri. Download Goss Indictment

Bontiea Bernedette Goss, 63, her husband, Tommy Ray Goss, aka “Tom,” 63, both residents of Springfield, Missouri, and Boulder, Colorado, and Jeremy Young Hutchinson, 45, of Little Rock, Arkansas, were charged on March 29, 2019, in a 32-count indictment by a federal grand jury in Springfield, which was unsealed today.

The indictment alleges that the Gosses, who were high-level executives at Preferred Family Healthcare Inc. (formerly known as Alternative Opportunities Inc.), and Hutchinson, who is an attorney and served as a state senator in the Arkansas Senate from 2011 to 2018, along with others, participated in a conspiracy from 2005 to November 2017 to embezzle and misapply the funds of a charitable organization that received federal funds, to pay bribes and kickbacks to elected officials (including Hutchinson), and to deprive the citizens of Arkansas of their right to the honest services of those elected officials.  According to the indictment, in exchange for the bribes and kickbacks offered by the Gosses and other co-conspirators, Hutchinson and other elected officials allegedly provided favorable legislative and official action for the charity, including directing funds from the state’s General Improvement Fund (GIF).

The indictment also alleges that the Gosses and others defrauded the charity, and the governmental entities that funded the charity, by embezzling and misapplying charity funds for their personal benefit, including, but not limited to:

  • causing the charity to pay for chartered air flights for the Gosses to commute between their home in Colorado and their work at the charity’s office in Springfield;
  • providing millions of dollars in interest-free loans to their for-profit companies;
  • charging the charity inflated prices to lease vehicles from their for-profit companies;
  • renting charity-owned commercial real estate to one of their for-profit companies at below-market rates or, in some instances, for free; and
  • using charity funds to pay for personal services for themselves, including child and pet care, housekeeping and cleaning their personal residences, picking up and delivering groceries, and shoveling snow, among other personal services paid for by the charity.

The indictment also contains a forfeiture allegation, which would require the Gosses and Hutchinson to forfeit to the government any property obtained from the proceeds of the alleged offenses.

The charity was known as Alternative Opportunities Inc. from its founding in 1991 until its 2015 merger with Preferred Family Healthcare.  The charity, which is cooperating with federal investigators, provided a variety of services to individuals in Arkansas, Illinois, Kansas, Missouri and Oklahoma, including mental and behavioral health treatment and counseling, substance abuse treatment and counseling, employment assistance, aid to individuals with developmental disabilities and medical services.

An indictment contains only allegations.  A defendant is presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

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

Sunday, April 14, 2019

Univar USA Inc. to Pay U.S. $62.5 Million to Resolve Allegations that it Evaded $36 Million in Antidumping Duties on Imported Chinese Saccharin

Univar USA Inc. (Univar), a subsidiary of Univar Inc., of Downers Grove, Illinois, has agreed to pay the United States $62.5 million to settle allegations under the customs penalty statute that it was grossly negligent or negligent when it imported 36 shipments of transshipped saccharin between 2007 and 2012. The saccharin was manufactured in China and transshipped through Taiwan to evade a 329 percent antidumping duty that applied to saccharin from China.  The antidumping duty was a remedial measure in response to injury sustained by the domestic saccharin industry by reason of dumping of Chinese saccharin. The transshipment resulted in the evasion of approximately $36 million in antidumping duties. 

“Transshipment of merchandise through third countries to evade antidumping duties undermines the integrity of our trade laws and puts domestic manufacturers at risk from unfairly traded merchandise,” said Assistant Attorney General Jody Hunt for the Department of Justice’s Civil Division. “We enforce our laws against importers who fail to take all reasonable steps to vet their suppliers and determine the true country of origin of their merchandise.” 

The settlement resolves a lawsuit brought in the United States Court of International Trade seeking recovery of unpaid antidumping duties and penalties under 19 U.S.C. § 1592 totaling $84 million plus interest. In that action, the government alleged that Univar was grossly negligent or negligent in failing to determine that its supplier in Taiwan was not a manufacturer but, instead, imported saccharin into Taiwan from China for transshipment to the United States. This is the largest recovery under section 1592 ever reached in the Court of International Trade.      

“We are committed to ensuring the laws that protect legitimate trade and US domestic industry, including anti-dumping and countervailing duties laws, are vigorously enforced,” said CBP’s Office of Trade Executive Assistant Commissioner Brenda Smith. “And to that end, we applaud the agencies that came together to settle this case.”

“I applaud the outcome of this investigation and commend the efforts of the special agents and CBP personnel who worked so diligently on this,” said Homeland Security Investigations (HSI) Executive Associate Director Derek Benner. “This is a tremendous example of the agencies’ collaborative commitment to enforce the trade laws of the United States.”

The settlement announced today was the result of an investigation by the U.S. Customs and Border Protection (CBP), Immigration and Customs Enforcement (ICE), and the Commercial Litigation Branch of the Justice Department’s Civil Division.  The investigating ICE agent was Special Agent Patrick C. Deas. The case was handled by Commercial Litigation Branch Attorneys Patricia M. McCarthy, Stephen C. Tosini and Reta E. Bezak, and CBP Assistant Chief Counsel Currita C. Waddy.

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

Saturday, April 13, 2019

BiPartisan STATES Act To Effectively Legalize Marijuana at Federal Level (other than for the Tax Code)

Today, 46 states have laws permitting or decriminalizing marijuana or marijuana-based products. Washington D.C., Puerto Rico, Guam, and a number of tribes have similar laws. (Previous version of the bipartisan bill is here)

 As states began developing their own approaches to marijuana enforcement the Department of Justice issued guidance to support these state actions and focus law enforcement resources.

 However, this guidance was withdrawn in 2018, causing legal uncertainty that severely limits these state laboratories of democracy, creates public health and safety issues, and undermines the state regulatory regimes.

 As more states, territories, and tribes thoughtfully consider updates to marijuana regulations, often through voter-initiated referendums, it is critical that Congress take immediate steps to safeguard their right to do so.

The Strengthening the Tenth Amendment Through Entrusting States (STATES) Act ensures that each State has the right to determine for itself the best approach to marijuana within its borders.

 Amends the Controlled Substances Act (21 U.S.C. § 801 et seq.) (CSA) so that -- as long as states and tribes comply with a few basic protections -- its provisions no longer apply to any person acting in compliance with State or tribal laws relating to the manufacture, production, possession, distribution, dispensation, administration, or delivery of marijuana.

 Amends the definition of “marihuana” under the CSA (21 U.S.C. § 802(16)) to exclude industrial hemp, as defined in section 7606(b) of the Agricultural Act of 2014 (7 U.S.C. §
5940(b)).

 The bill does not alter CSA Section 417 (prohibition on endangering human life while manufacturing a controlled substance) and maintains the prohibition on employing persons under age 18 in marijuana operations, two federal requirements with which states, territories, and tribes must continue to comply.

 The bill prohibits the distribution of marijuana at transportation safety facilities such as rest areas and truck stops (Section 409).

 The bill does not allow for the distribution or sale of marijuana to persons under the age of 21 (Section 418) other than for medical purposes.

 To address financial issues caused by federal prohibition, the bill clearly states that compliant transactions are not trafficking and do not result in proceeds of an unlawful transaction.

April 13, 2019 in AML | Permalink | Comments (0)

Friday, April 12, 2019

General Electric Agrees to Pay $1.5 Billion Penalty for Alleged Misrepresentations Concerning Subprime Loans Included in Residential Mortgage-Backed Securities

By late third quarter 2006, managers responsible for quality control and risk management at WMC and GECC had expressed concerns that WMC’s quality and fraud controls were so lax that WMC received more mortgage applications containing fraud or other defects than its competitors. As a member of GE’s Corporate Audit Staff (CAS) involved in audits of WMC observed in April 2007, WMC “jacked up volume without controls.”

The Department of Justice today announced that General Electric (GE) will pay a civil penalty of $1.5 billion under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) to resolve claims involving subprime residential mortgage loans originated by WMC Mortgage (WMC), a GE subsidiary. WMC, GE, and their affiliates allegedly misrepresented the quality of WMC’s loans and the extent of WMC’s internal quality and fraud controls in connection with the marketing and sale of residential mortgage-backed securities (RMBS). FIRREA authorizes the federal government to seek civil penalties for violations of various predicate criminal offenses, including wire and mail fraud where the violation affects a federally insured financial institution.

“The financial system counts on originators, which are in the best position to know the true condition of their mortgage loans, to make accurate and complete representations about their products. The failure to disclose material deficiencies in those loans contributed to the financial crisis,” said Assistant Attorney General Jody Hunt. “As today’s resolution demonstrates, the Department of Justice will continue to employ FIRREA as a powerful tool for protecting our financial markets against fraud.”

General Electric Capital Corporation (GECC), then the financial services unit of GE, acquired WMC, a subprime residential mortgage loan originator, in 2004. WMC originated more than $65 billion dollars in mortgage loans between 2005 and 2007. WMC sold the vast majority of its loans to investment banks, which, in turn, issued and sold RMBS backed by WMC loans to investors. The United States alleged that a majority of the mortgage loans WMC originated and sold for inclusion in RMBS in 2005-2007 did not comply with WMC’s representations about the loans, and that certain of WMC’s representations were reviewed by, approved by, or made with the knowledge of personnel from GE or GECC. Investors, including federally insured financial institutions, suffered billions of dollars in losses as a result of WMC’s fraudulent origination and sale of loans for inclusion in RMBS. 

In particular, the United States alleged that in 2005-2007, WMC attempted to increase its profits and meet profit goals by increasing originations. WMC loan analysts responsible for underwriting mortgage loans were encouraged to approve loans in order to meet volume targets, even where the loan applications did not meet the criteria outlined in WMC’s published underwriting guidelines, and received additional compensation based on the number of mortgages they approved. At the same time, there were significant deficiencies with respect to WMC’s quality control, which was viewed by some as an impediment to volume.

In 2005, a WMC quality control manager described his department as a “toothless tiger” with inadequate resources and no authority to prevent the approval or sale of loans his department had determined were fraudulent or otherwise defective.

By late third quarter 2006, managers responsible for quality control and risk management at WMC and GECC had expressed concerns that WMC’s quality and fraud controls were so lax that WMC received more mortgage applications containing fraud or other defects than its competitors. As a member of GE’s Corporate Audit Staff (CAS) involved in audits of WMC observed in April 2007, WMC “jacked up volume without controls.”

The United States alleged that the investment banks that purchased WMC’s loans declined to buy certain mortgage loans that WMC attempted to sell due to defects in the loan file or suspected fraud. When it declined, or “kicked out” a loan, the potential purchaser typically notified WMC of its reasons for rejecting the file, including the defects identified. WMC’s general practice was to re-offer certain kicked loans to a second potential purchaser for inclusion in RMBS without disclosing that the mortgage had previously been rejected or the reasons why the first potential purchaser concluded the mortgage had defects. 

The United States alleged that by late 2005 and early 2006, investment banks were kicking out more of WMC’s loans than ever, and investors in RMBS backed by WMC loans raised concerns about the quality of loans originated by WMC because WMC borrowers were failing to repay their loans at unexpectedly high rates. WMC also began receiving increased numbers of requests from investment banks to buy back, or repurchase, loans. In March 2006, WMC reviewed a representative sample of the 1,276 loans it had repurchased in 2005, and concluded that 78 percent of the loan files reviewed contained at least one piece of false information. The results of this review were shared with WMC’s senior executive team and discussed on multiple occasions with personnel from GECC.

The United States alleged that in fall 2006, GECC took control over the strategic direction of WMC. Even in the face of increasing repurchase demands, kick-outs, and concerns about WMC’s underwriting quality, WMC continued selling its loans and making false representations about their qualities and attributes. GECC became closely involved in WMC’s whole loan sales and provided WMC with input and direction on how to sell off WMC’s remaining loans. Beginning in 2007, GECC also assumed control over WMC’s ability to grant repurchase requests. 

The investigation of WMC, GE, and GECC and this settlement were handled by the Civil Division’s Commercial Litigation Branch, with assistance from the San Francisco Field Office of the Federal Bureau of Investigation. 

April 12, 2019 in Financial Regulation, Financial Services | Permalink | Comments (0)