International Financial Law Prof Blog

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

Saturday, August 31, 2019

Activities of U.S. Multinational Enterprises, 2017

Worldwide employment by U.S. multinational enterprises (MNEs) increased 0.4 percent to 42.5 million workers in 2017 from 42.3 million in 2016, according to statistics released by the Bureau of Economic Analysis on the operations and finances of U.S. parent companies and their foreign affiliates.

Employment in the United States by U.S. parents increased 0.2 percent to 28.1 million workers in 2017. U.S. parents accounted for 66.1 percent of worldwide employment by U.S. MNEs, down from 66.3 percent in 2016. Employment abroad by majority-owned foreign affiliates (MOFAs) of U.S. MNEs increased 0.9 percent to 14.4 million workers and accounted for 33.9 percent of employment by U.S. MNEs worldwide.

Employment by U.S. MNEs

U.S. parents accounted for 22.0 percent of total private industry employment in the United States. Employment by U.S. parents was largest in manufacturing and retail trade. Employment abroad by MOFAs was largest in China, United Kingdom, Mexico, India, and Canada.

Worldwide current-dollar value added of U.S. MNEs increased 2.0 percent to $5.3 trillion. Value added by U.S. parents, a measure of their direct contribution to U.S. gross domestic product, was nearly unchanged at $3.9 trillion, representing 22.9 percent of total U.S. private-industry value added. MOFA value added increased to $1.4 trillion. Value added by MOFAs was largest in the United Kingdom, Canada, and Ireland.

Worldwide expenditures for property, plant, and equipment of U.S. MNEs increased 2.0 percent to $853.2 billion. Expenditures by U.S. parents accounted for $653.6 billion and MOFA expenditures for $199.6 billion.

Worldwide research and development expenditures of U.S. MNEs increased 3.3 percent to $354.9 billion. U.S. parents accounted for expenditures of $298.3 billion and MOFAs for $56.6 billion.

Activities of U.S. MNEs

August 31, 2019 in Economics | Permalink | Comments (0)

Friday, August 30, 2019

BEA News: GDP, 2nd quarter 2019 (second estimate); Corporate Profits, 2nd quarter 2019

Real gross domestic product (GDP) increased at an annual rate of 2.0 percent in the second quarter of 2019 (table 1), according to the "second" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 3.1 percent.

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 2.1 percent. The revision primarily reflected downward revisions to state and local government spending, exports, private inventory investment, and residential investment that were partly offset by an upward revision to personal consumption expenditures (PCE). Imports which are a subtraction in the calculation of GDP, were unrevised (see "Updates to GDP" on page 2).

Real GDP: Percent change from preceding quarter

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

The deceleration in real GDP in the second quarter primarily reflected downturns in inventory investment, exports, and nonresidential fixed investment. These downturns were partly offset by accelerations in PCE and federal government spending.

Real gross domestic income (GDI) increased 2.1 percent in the second quarter, compared with an increase of 3.2 percent in the first quarter. The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, increased 2.1 percent in the second quarter, compared with an increase of 3.2 percent in the first quarter (table 1).

Current dollar GDP increased 4.6 percent, or $240.3 billion, in the second quarter to a level of $21.34 trillion. In the first quarter, current-dollar GDP increased 3.9 percent, or $201.0 billion (tables 1 and 3).

The price index for gross domestic purchases increased 2.2 percent in the second quarter, compared with an increase of 0.8 percent in the first quarter (table 4). The PCE price indexincreased 2.3 percent, compared with an increase of 0.4 percent. Excluding food and energy prices, the PCE price index increased 1.7 percent, compared with an increase of 1.1 percent.

Updates to GDP

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

  Advance Estimate Second Estimate
(Percent change from preceding quarter)
Real GDP 2.1 2.0
Current-dollar GDP 4.6 4.6
Real GDI 2.1
Average of Real GDP and Real GDI 2.1
Gross domestic purchases price index 2.2 2.2
PCE price index 2.3 2.3

For the first quarter of 2019, revised tabulations from the BLS Quarterly Census of Employment and Wages program were incorporated into the estimates; the percent change in real GDI was unrevised at 3.2 percent.

Corporate Profits (table 10)

Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased $105.8 billion in the second quarter, in contrast to a decrease of $78.7 billion in the first quarter (table 10).

Profits of domestic financial corporations increased $4.0 billion in the second quarter, compared with an increase of $22.2 billion in the first quarter. Profits of domestic nonfinancial corporations increased $43.5 billion, in contrast to a decrease of $108.2 billion. Rest-of-the-world profits increased $58.3 billion, compared with an increase of $7.3 billion. In the second quarter, receipts increased $39.9 billion, and payments decreased $18.5 billion.

August 30, 2019 in Economics | Permalink | Comments (0)

Tuesday, August 27, 2019

Orthodontist Indicted for Bribery and Fraud Scheme with Former Arkansas State Senator

An orthodontist who owned several businesses that operated orthodontic clinics in Arkansas was indicted for perpetrating a bribery and fraud scheme involving former Arkansas State Senator Jeremy Hutchinson, announced Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division and U.S. Attorney Duane "DAK" Kees for the Western District of Arkansas. Download Burris Indictment

Benjamin Gray Burris, 47, of Windermere, Florida, was charged today in the Western District of Arkansas with 14 counts of honest services wire fraud and one count of conspiracy to commit honest services wire fraud.  Burris’s arraignment will be scheduled at a later date.

As alleged in the indictment, beginning in or about February 2014, Burris and Hutchinson devised a scheme in which Burris hired and retained Hutchinson as an attorney and paid Hutchinson retainer payments in exchange in part for Hutchinson to take official action as an Arkansas legislator to benefit Burris and his orthodontic companies.  Between February 2014 and November 2016, Burris paid Hutchinson, through Hutchinson’s law firm, approximately $157,500 and provided Hutchinson with gifts including free orthodontic services for his family and the use of a private plane to travel to a college football game.  Hutchinson, in return, used his official position as a state senator to draft and file legislation to amend a law restricting dental practices that Burris wanted to change.  In addition, Hutchinson advised and influenced members of the Arkansas Department of Human Services to expedite the approval of Medicaid applications for physician employees of Burris’s clinics.

On June 25, 2019, Hutchinson, 45, of Little Rock, Arkansas, pleaded guilty to one count of conspiracy to commit federal program bribery in the Eastern District of Arkansas, before U.S. District Judge Kristine G. Baker, for his role in this scheme.  Hutchinson’s sentencing has not yet been scheduled.

August 27, 2019 in AML | Permalink | Comments (0)

Monday, August 26, 2019

University of Kansas Researcher Indicted for Fraud for Failing to Disclose Conflict of Interest with Chinese University

A researcher at the University of Kansas (KU) was indicted today on federal charges of hiding the fact he was working full time for a Chinese university while doing research at KU funded by the U.S. government. 

 

Feng “Franklin” Tao, 47, of Lawrence, Kansas, an associate professor at KU’s Center for Environmentally Beneficial Catalysis (CEBC), is charged with one count of wire fraud and three counts of program fraud.  He was employed since August 2014 by the CEBC, whose mission is to conduct research on sustainable technology to conserve natural resources and energy.

“Tao is alleged to have defrauded the U.S. government by unlawfully receiving federal grant money at the same time that he was employed and paid by a Chinese research university — a fact that he hid from his university and federal agencies,” said Assistant Attorney General Demers for National Security.  “Any potential conflicts of commitment by a researcher must be disclosed as required by law and university policies.  The Department will continue to pursue any unlawful failure to do so.”

The indictment alleges that in May 2018 Tao signed a five-year contract with Fuzhou University in China that designated him as a Changjiang Scholar Distinguished Professor.  The contract required him to be a full time employee of the Chinese university.  While Tao was under contract with Fuzhou University, he was conducting research at KU that was funded through two U.S. Department of Energy contracts and four National Science Foundation contracts.

Kansas Board of Regents’ policy requires staff to file an annual conflict of interest report.  In Tao’s reports to KU, he falsely claimed to have no conflicts of interest.  The indictment alleges that he fraudulently received more than $37,000 in salary paid for by the Department of Energy and the National Science Foundation.

If convicted, he faces up to 20 years in federal prison and a fine up to $250,000 on the wire fraud count, and up to 10 years and a fine up to $250,000 on each of the program fraud counts.

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

Sunday, August 25, 2019

Tax Treaties Scrutinized, Re-negotiated in Wake of Mauritius Leaks Investigation

ICIJ collaborated with 54 journalists from 18 countries, including first-of-a-kind partnerships with reporters in Tanzania, Mauritius and the United States. Journalists explored more than 200,000 records, ranging from tax advice from major audit firms to audio recordings.  Read the ICIJ findings here.

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

Saturday, August 24, 2019

ICIJ Publishes List of Mauritian Companies Used by Conyers’ Corporate Clients

ICIJ is publishing details of more than 200 companies as part of the investigation – that the Mauritius office of Conyers Dill & Pearman assisted.


DOWNLOAD THE DATA

August 24, 2019 in Tax Compliance | Permalink | Comments (0)

Friday, August 23, 2019

‘Moustache,’ ‘Little Pillow’ Among Odebrecht Code Names Revealed in New Testimony

In dramatic testimony, former executives of the disgraced multinational Odebrecht revealed to Peruvian prosecutors yesterday code names the company used to mask secret payments to high-ranking local officials.

read all about it on the ICIJ Panama Papers website here

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

Thursday, August 22, 2019

former head of banking giant HSBC’s private Swiss unit pleads guilty in France to helping wealthy clients hide $1.8 billion

Peter Braunwalder, who led HSBC Private Bank (Switzerland) from 2000 until his retirement in 2008, was fined $560,000 and received a one-year suspended sentence,

read all about it at ICIJ Panama Papers website here

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

Wednesday, August 21, 2019

Trial Date Set for US Panama Papers Case

The first people charged with crimes in the United States arising from the Panama Papers investigation will face trial in January 2020, according to new court filings.

Read all about it on ICIJ Panama Papers Leaks website here

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

Tuesday, August 20, 2019

Toledo man indicted for allegedly trying to launder drug profits at casino

A Toledo man was indicted on charges that he attempted to for attempting to launder more than $138,000 in drug profits at the Hollywood Casino. Todd A. Brown, 40, was indicted on 15 counts of concealment money laundering.  According to the indictment:

Brown, on 15 different occasions between March 2016 and June 217, went to the Hollywood Casino in Toledo, where he “fast fed” currency into gaming machines. “Fast feeding” is a practice of taking large sums of cash to casino, inserting the cash into a slot machine, playing the slot machine for a brief period of time, then receiving a cash-out ticket for the unused currency and redeeming the ticket. Fast feeding is often used to make cash obtained from unlawful activity appear to be casino winnings.

Brown took proceeds from drug trafficking and fast-fed the cash to gaming machines at the Hollywood Casino in Toledo. He fast-fed approximately $138,843 at the casino in an effort to launder the money, according to the indictment.

________

The good news is that the casino reported it as a suspicious activity report (SAR)  because it was clearly suspicious in the context of this man, and the casino has a legal obligation to report suspicious activities. Casinos also has currency transaction reports (CTRs) to file just like a bank if you deposit cash. See https://www.fincen.gov/frequently-asked-questions-casino-recordkeeping-reporting-and-compliance-program-requirements-0

Fast feeding is simply putting a lot of credits unto a slot machine.  Older machines still allow real coins, albeit extremely cumbersome, but one can feed, by example, one-thousands of dollars of quarters into a machine, the machine will read $1,000 in credits.  Vegas casino machines accept $100 bills so one can put a lot of credit on the machine.   The money launderer plays $100 of pulls at the lever (ok, it's just a button push nowadays).  With $900 remaining, the money launderer decides not to play anymore, so pushes to receive a refund the remaining credits. A ticket pops out.  Money launderer cashes out ticket at casino cage (the banker's window).  Sounds easy to spot - someone comes up to the window seeking $150,000 in credit refunds? File an SAR, right?

But check out China Medical Technologies, Inc. (in liquidation) & CMED Technologies Ltd vs Wu Xiaodong & Bi Xiaoqiong (https://www.borrelliwalsh.com/wp-content/uploads/2018/09/Binder3.pdf).  The husband / wife founders stole about $600 million from the IPO and credit lines (at least, it could not be accounted for on the corporate books), pushing the corporation into insolvency and leaving many USA investors and vendors out of pocket all that money.  Hard to imagine but the wife Bi Xiaoqiong fast fed $60 million over 4 years, about $15 million a year, just through Bellagio (Vegas) slots.  That's a lot of hundred dollars bills.  Vegas sports $5,000 a pull slot machines now though - each pull.  Not that she played a $5,000 pull.  But those high roller machines allow a lot of credit, so the best opportunity for fast feeding.  Still, to pull the money out requires a claim ticket and a claim ticket for a significant amount, certainly $25,000 or more, is going to lead to a casino check which is exactly what the money launderer wants.  A clean bill of health casino check to deposit into a legitimate financial institution.   But casinos do file CTRs and SARs, as I mentioned above, albeit just alerts to a FinCEN database (U.S. government database run by the Financial Crimes Enforcement Network see here:   https://www.fincen.gov/resources/financial-institutions/casinos) So if a US federal agency, or even state agency, is investigating a person, example FBI, eventually if the casinos are doing their required compliance, the trail can be tracked.  The casinos are collecting and tracking this type of information for security and for client marketing reasons anyway. 

Zhenli Ye Gon’s, Mexico's amphetamine king, famously spent $175 million in Vegas casinos, about $75 million in less than 2 years of that at the Venetian.  Venetian did not file a SAR.  Venetian was fined $47 million  https://www.justice.gov/usao-cdca/pr/operator-venetian-resort-las-vegas-agrees-return-over-47-million-after-receiving-money  

The Bi Xiaoqiong and the Zhenli Ye Gon cases woke Vegas.  Especially because The Sands had to stop all management bonuses the year it paid the fine.  

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

Monday, August 19, 2019

IRS has begun sending letters to virtual currency owners advising them to pay back taxes, file amended returns; part of agency's larger efforts

he Internal Revenue Service has begun sending letters to taxpayers with virtual currency transactions that potentially failed to report income and pay the resulting tax from virtual currency transactions or did not report their transactions properly.

"Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest and penalties," said IRS Commissioner Chuck Rettig. "The IRS is expanding our efforts involving virtual currency, including increased use of data analytics. We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations."

The IRS started sending the educational letters to taxpayers last week. By the end of August, more than 10,000 taxpayers will receive these letters. The names of these taxpayers were obtained through various ongoing IRS compliance efforts.

For taxpayers receiving an educational letter, there are three variations: Letter 6173, Letter 6174 or Letter 6174-A, all three versions strive to help taxpayers understand their tax and filing obligations and how to correct past errors.

Taxpayers are pointed to appropriate information on IRS.gov, including which forms and schedules to use and where to send them.

Last year the IRS announced a Virtual Currency Compliance campaign to address tax noncompliance related to the use of virtual currency through outreach and examinations of taxpayers. The IRS will remain actively engaged in addressing non-compliance related to virtual currency transactions through a variety of efforts, ranging from taxpayer education to audits to criminal investigations.

Virtual currency is an ongoing focus area for IRS Criminal Investigation.

IRS Notice 2014-21 (PDF) states that virtual currency is property for federal tax purposes and provides guidance on how general federal tax principles apply to virtual currency transactions. Compliance efforts follow these general tax principles. The IRS will continue to consider and solicit taxpayer and practitioner feedback in education efforts and future guidance.

The IRS anticipates issuing additional legal guidance in this area in the near future.

Taxpayers who do not properly report the income tax consequences of virtual currency transactions are, when appropriate, liable for tax, penalties and interest. In some cases, taxpayers could be subject to criminal prosecution.

August 19, 2019 in Tax Compliance | Permalink | Comments (0)

Saturday, August 17, 2019

Will Amazon and Altera Lead to an En Banc Redux?

A Ninth Circuit panel handed down the Amazon[1] decision on Friday (August 16) in favor of Amazon. On June 7, a different Ninth Circuit panel handed down Altera[2] in favor of the IRS.

Let's take ‘it must be the politics of the judges’ off the table.  Altera’s panel included the majority decision by two President Bill Clinton appointees and a vigorous dissent by a President Barack Obama appointee.  Amazon’s three-judge unanimous decision panel includes an appointee each of President’s Clinton and Obama, and a President George W. Bush appointee who wrote it (and received a unanimous Senate confirmation vote).  

The salient issue of both cases, and the cost sharing arrangement (CSA) cases that precede them, is whether the IRS’ can disregard the behavior of third-party comparable transactions and if so, then which U.S. inputs may the IRS insist be included.   

In Altera (i.e. the 2003 CSA regulations version), based on its re-do of the 1995 CSA regulations applicable to Amazon, the IRS sought to include the sharing of the stock-based compensation (SBC) costs incurred by the U.S. corporation.  In Amazon, the IRS doubled down and required Amazon’s foreign subsidiary, for the privilege of building out Amazon throughout Europe, to pay for Amazon’s U.S. intangible assets of value, including “residual-business assets” such as Amazon’s culture of innovation, the value of Amazon’s workforce in place, Amazon’s going concern value, goodwill, and growth options. 

The Amazon Ninth Circuit panel stated:

The dispositive issue in this case is whether, under the 1994/1995 regulations, the “buy-in” required for “pre-existing intangible property” must include compensation for residual-business assets. To answer this legal question, we consider the regulatory definition of an “intangible,” the overall transfer pricing regulatory framework, the rulemaking history of the regulations, and whether the Commissioner’s position is entitled to deference under Auer v. Robbins, 519 U.S. 452 (1997). We agree with the tax court that the definition of an “intangible” in § 1.482-4(b) was not intended to embrace residual-business assets.

Today’s Amazon decision and June’s Altera decision are incongruent and certainly will lead the full Ninth Circuit en banc to reconsider these cases and establish judicial consistency.  This is not a matter of distinguishing decisions because Amazon was determined under 1995 cost sharing regulations versus Altera under the 2003 regulations.  The fundamental issue is whether the IRS is allowed to disregard its own regulations about the arm’s length standard, ignoring evidence of third-party comparable transactions, when it does not like the outcome. The Ninth Circuit called the IRS out when it stated:

“The Commissioner’s reliance on Xilinx thus suffers the same defect as his “made available” argument based on § 1.482-7A(g)—he assumes the very conclusion he’s aiming to prove. Although the regulatory provisions the Commissioner cites are consistent with his position, they do not provide independent support and they are likewise consistent with Amazon’s view.”

In Xilinx, the Ninth Circuit relied upon the arm’s length standard to determine the intragroup cost allocation.  Xilinx was more similar to Altera in that the IRS position hinged on the sharing of the employee stock option costs. In Xilinx, the Ninth Circuit held that that employee stock option (“ESO”) expenses in cost-sharing agreements related to developing intangible property are not subject to reallocation under the applicable CSA pre-2003 regulations.  The Court concluded that third parties jointly developing intangibles and transacting on an arm’s length basis would not include ESO expenses in a cost sharing agreement.  The IRS issued an Action on Decision whereby the IRS acquiesced in the Xilinx outcome but with two caveats.[3]  The acquiescence only applied for taxable years prior to August 26, 2003 and the IRS did not acquiesce to the Court’s analysis of why the IRS lost. The IRS explained its acquiescence

“The Service acquiesces in the result only for such ESOs because the significance of the Ninth Circuit’s opinion is mooted by the 2003 amendments…”

I think that the IRS arguments in Amazon are more of a stretch than it made in Xilinx and I do not think that its 2003 amended regulations mooted the Xilinx issue, much less the Amazon one. I appreciate that the IRS attorneys are doing what good litigators do (I am not a litigator, just a transfer pricing academic): generate innovative arguments and keep probing when the law and the facts don’t support the client’s position. I like the IRS’ proposals for accounting for the value of the residual business assets of Amazon. It makes business sense from an integrated group, managerial economics, perspective.  But not from a transfer pricing tax-regulatory framework perspective that purports to measure itself by an arm’s length reflection of 3rd party transactions. At least, not for the years in question in either case.

To come back to the title of this post, will Amazon and Altera be left to stand side-by-side, the appearance of a split intra-circuit? Or will these two cases be onward distinguished by other panels based on the date of the applicable regulations?  The Amazon panel, in a footnote at page 6, might appear to favor the appearance of harmony:

This case is governed by regulations promulgated in 1994 and 1995. In 2009, more than three years after the tax years at issue here, the Department of Treasury issued temporary regulations broadening the scope of contributions for which compensation must be made as part of the buy-in payment. … In 2017, Congress amended the definition of “intangible property” …. If this case were governed by the 2009 regulations or by the 2017 statutory amendment, there is no doubt the Commissioner’s position would be correct.

However, Altera is a 2003 CSA regulation case, and thus not meant to be included in the pronouncement of the footnote.

Amazon @ Tax Court Level

In a 207 page opinion the Tax Court ruled March 23, 2017 that the IRS’s adjustment with respect to Amazon.Inc buy-in payment for an intragroup cost-sharing agreement (CSA) is arbitrary, capricious, and unreasonable.[1] Not a surprising loss given the decisions against the IRS on CSAs: VERITAS[2] in 2009 and the following year Xilinx[3]  The Tax Court held that Amazon’s choice of the comparable uncontrolled transaction (CUT) method with appropriate upward adjustments in several respects is the best method to determine the requisite buy-in payment.  Moreover, the Court found that the IRS abused its discretion in determining that 100 percent of Technology and Content costs constitute Intangible Development Costs (IDCs), and that Amazon’s cost-allocation method with adjustments supplies a reasonable basis for allocating costs to IDCs.

The Court found that the IRS committed a series of errors in calculating the buy-in value of the preexisting intangibles. Amazon’s valuation was based upon a limited useful life of seven years or less for the preexisting intangibles whereas the IRS’ commissioned Horst Frisch Report assumed that the intangibles have a perpetual useful life.  Under Amazon’s approach, after decaying or “ramping down” in value over a seven-year period, Amazon’s website technology as it existed in January 2005 would have had relatively little value left by year-end 2011. But approximately 58 percent of the Horst Frisch Report proposed buy-in payment, or roughly $2 billion, is attributable to cash flows beginning in 2012 and continuing in perpetuity.

One does not need a Ph.D. in economics to appreciate the essential similarity between the DCF methodology that Dr. Hatch employed in Veritas and the DCF methodology that Dr. Frisch employed here. (Amazon.com Inc., Tax Court 2017 at 76.)

Amazon cited the court’s decision in VERITAS[6] as one of the basis that the IRS’ adjustment with respect to the buy-in payment was arbitrary, capricious, and unreasonable.  Like in VERITAS, in Amazon.com Inc the Tax Court again rejected the IRS’ approach of “aggregation” of the intangibles to determine valuation, holding it neither yields a reasonable means nor the most reliable one.[7]   Specifically, the Court rejected the business-enterprise approach of aggregating pre-existing intangibles which are subject to the buy-in payment and subsequently developed intangibles which are not. Secondly, the Court noted that the business-enterprise approach improperly aggregates compensable “intangibles” such as software programs and trademarks with residual business assets such as workforce in place and growth options that do not constitute “pre-existing intangible property” under the cost-sharing regulations in effect during 2005-2006.  Finally, in this regard, the Court stated that the IRS ignored its own regulations whereby even if the IRS determines that a realistic alternative exists, the Commissioner “will not restructure the transaction as if the alternative had been adopted by the taxpayer,” so long as the taxpayer’s actual structure has economic substance.[8]

Amazon.com Inc. (2017), VERITAS, Xilinx, Altera, and Medtronic involved restructurings that transferred ownership of intellectual property and technology intangibles from a United States parent to a foreign subsidiary.  VERITAS granted its Ireland subsidiary the right to use certain preexisting intangibles in Europe, the Middle East, Africa, and Asia pursuant to its intragroup CSA. As consideration for the transfer of preexisting intangibles, its Ireland subsidiary made a $166 million buy-in payment to VERITAS based upon a CUT to calculate the payment.  The IRS in a notice of deficiency chose a discounted cash flow income method with a resulting buy-in payment adjustment of $2.5 billion.  Moreover, the IRS argued that the buy-in payment must take into account access to VERITAS’ research and development team, marketing team, distribution channels, customer lists, trademarks, trade names, brand names, and sales agreements.  The Tax Court found the IRS’s determinations arbitrary, capricious, and unreasonable, and that instead VERITAS’ CUT method with appropriate adjustments is the best method to determine the requisite buy-in payment. The Tax Court found that the IRS’ discounted cash flow method was improperly used when the IRS valued the buy-in payment as if the intangibles had a perpetual useful life.  The IRS issued an ‘action on decision’ that it disagreed with the Court’s factual determination and reasoning and thus would disregard the decision.[9]

How Do 3rd Parties Transact?

In Altera I, the Tax Court held that Treasury failed to support its belief with any evidence in the administrative record that third parties would share ESO costs, failed to articulate why all CSAs should be treated identically, and failed to respond to significant comments from the industry received during the regulatory drafting process.  Thus the Court held that Treasury’s final CSA regulations invalid because these failed to satisfy the U.S. Administrative Procedural Act required ‘reasoned decision making’ standard.[11]

The Court in Altera reported the following regarding 3rd party transactions:

Several of the commentators informed Treasury that they knew of no transactions between unrelated parties, including any cost-sharing arrangement, service agreement, or other contract, that required one party to pay or reimburse the other party for amounts attributable to stock-based compensation.

AeA provided to Treasury the results of a survey of its members. AeA member companies reviewed their arm's-length codevelopment and joint venture agreements and found none in which the parties shared stock-based compensation. For those agreements that did not explicitly address the treatment of stock-based compensation, the  [companies reviewed their accounting records and found none in which any costs associated with stock-based compensation were shared.

AeA and PwC represented to Treasury that they conducted multiple searches of the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system and found no cost-sharing agreements between unrelated parties in which the parties agreed to share either the exercise spread or grant date value of stock-based compensation.

Several commentators identified arm's-length agreements in which stock-based compensation was not shared or reimbursed. For example, (1) AeA identified, and PwC provided, a 1997 collaboration agreement between Amylin Pharmaceuticals, Inc., and Hoechst Marion Roussel, Inc. (Amylin-HMR collaboration agreement), that did not include stock options in the pool of costs to be shared; (2) PwC identified a joint development agreement between the biotechnology company AgraQuest, Inc., and Rohm & Haas under which only "out-of-pocket costs" would be shared; (3) PwC identified a 1999 cost-sharing agreement between software companies Healtheon Corp. and Beech Street Corp. that expressly excluded stock options from the pool of expenses to be shared. Additionally, in written comments, and again at the November 20, 2002, hearing, Ms. Hurley offered to provide Treasury with more detailed information regarding several agreements involving AeA member companies, provided that the companies received adequate assurances that their proprietary information would not be disclosed.

FEI submitted model accounting procedures from the Council of Petroleum Accountant Societies (COPAS) for sharing costs among joint operating agreement partners in the petroleum industry. FEI noted that COPAS recommends that joint operating agreements should not allow stock  options to be charged against the joint account because they are difficult to accurately value.

AeA, SoFTEC, KPMG, and PwC cited the practice of the Federal Government, which regularly enters into cost-reimbursement contracts at arm's length. They noted that Federal acquisition regulations prohibit reimbursement of amounts attributable to stock-based compensation.

AeA, Global, and PwC explained that, from an economic perspective, unrelated parties would not agree to share or reimburse amounts related to stock-based compensation because the value of stock-based compensation is speculative, potentially large, and completely outside the control of the parties. SoFTEC provided a detailed economic analysis from economists William Baumol and Burton Malkiel reaching the same conclusion.

Finally, the Baumol and Malkiel analysis concluded that there is no net economic cost to a corporation or its shareholders from the issuance of stock-based compensation. Similarly, Mr. Grundfest asserted that a company's "decision to grant options to employees * * * does not change its operating expenses" and does not factor into its pricing decisions.

AeA, SoFTEC, KPMG, and PwC cited regulations that prohibit contractors from charging the Federal Government for stock-based compensation. Treasury responded to this evidence by stating that "[g]overnment contractors that are entitled to reimbursement for services on a cost-plus basis under government procurement law assume substantially less entrepreneurial risk than that assumed by service providers that participate in QCSAs". ... However, this distinction rings hollow in the face of other evidence submitted by commentators that showed that even parties to agreements in which the parties assume considerable entrepreneurial risk do not share stock-based compensation costs.

AeA, Global, and PwC explained that, from an economic perspective, unrelated parties would be unwilling to share stock-based compensation costs because the value of stock-based compensation is speculative, potentially large, and completely outside the control of the parties. SoFTEC submitted Baumol and Malkiel's detailed economic analysis reaching the same conclusion. We found similar evidence to be relevant in Xilinx. See Xilinx Inc. v. Commissioner, 125 T.C. at 61. Treasury never directly responded to this evidence. Instead, Treasury construed these comments as objections to Treasury's selection of the exercise spread method and the grant date method as the only available valuation methods. ... Treasury responded that these methods are consistent with the arm's-length standard and are administrable. See id. Treasury, however, never explained how these methods could be consistent with the arm's-length standard if unrelated parties would not share them or why unrelated parties would share stock-based compensation costs in any other way.

The Baumol and Malkiel analysis also concluded that there is no net economic cost to a corporation or its shareholders from the issuance of stock-based compensation. Treasury identified  this evidence in the preamble to the final rule but did not directly respond to it. ... Instead, the preamble states that "[t]he final regulations provide that stock-based compensation must be taken into account in the context of QCSAs because such a result is consistent with the arm's length standard." Treasury, however, never explained why unrelated parties would share  stock-based compensation costs--or how the commensurate-with-income standard could justify the final rule--if stock-based compensation is not an economic cost to the issuing corporation or its shareholders. 

History of Cost Sharing Arrangement Regulations

Multinational groups share intellectual property (“IP”) within the group through license agreements or a cost sharing arrangement.  A cost sharing arrangement involves related parties (the “controlled participants”) sharing among themselves the costs and risks associated with efforts to develop intangible property in return for each having an interest in any intangible property that may be produced (referred to in the 1995 QCSA Regulations, amended in 2003, as covered intangibles and in the 2009 Temporary Regulations and 2011 Final Regulations as cost shared intangibles.  The QCSA Regulations were issued in 1995 and liberalized in 1996. The QCSA regulations were tightened with respect to stock-based compensation in 2003, proposed regulations to replace the QCSA Regulations were issued in 2005, and a CSA-Audit Checklist was issued for existing CSAs which effectively required increased buy-in payments for pre-existing intangibles.[12] The tightening process continued with the CSA-CIP issued in September 2007 (withdrawn), the Temporary Regulations effective January 5, 2009, and the Final Regulations effective December 16, 2011.  The CSA-CIP provided that certain transfer pricing methods (the Income Method and the Acquisition Price Method) which are similar to the specified transfer pricing methods, set forth in the Temporary Regulations and the Final Regulations would typically be the best methods under the QCSA Regulations, even though they constituted unspecified methods under the QCSA Regulations.

>My comments about the Nike case here<

[1] Amazon.Com, Inc. v. Comm’r, No. 17-72922 (9th Cir. Aug. 16, 2019). Available at http://cdn.ca9.uscourts.gov/datastore/opinions/2019/08/16/17-72922.pdf (accessed Aug. 16, 2019).

[2] Altera Corp. v Commr, __ F.3d. __ (9th Cir., June 7, 2019) (case no. 16-70496) [hereafter “Altera II”] reversing Altera Corp. v. Commr, 145 TC No 3 (July 27, 2015) [hereafter “Altera I”]. Available at http://cdn.ca9.uscourts.gov/datastore/opinions/2019/06/07/16-70496.pdf (accessed Aug. 16, 2019).

[3] IRS AOD 2010-03 (July 28, 2010). Available at https://www.irs.gov/pub/irs-aod/aod201003.pdf (accessed Aug. 16, 2019).

[1] Amazon.Com, Inc. v. Comm’r, 148 T.C. No. 8, Docket No. 31197-12, (March 23, 2017).  Available at https://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=11148 (accessed March 23, 2017).  (Hereafter Amazon.com Inc. (2017)).

[2] Veritas Software Corp. v. Commissioner, 133 T.C. 297 (2009).

[3] Xilinx v. Comm’r, 598 F.3d 1191 (9th Cir. 2010).

[4] Altera v. Comm’r, 145 T.C. No. 3, Docket Nos. 6253-12, 9963-12 (July 27, 2015).

[5] Medtronic v. Comm’r, T.C. Memo. 2016-112, Docket No. 6944-11 (June 9, 2016).

[6] Veritas Software Corp. v. Commissioner, 133 T.C. 297 (2009).

[7] Amazon.com Inc. (2016) at 84.

[8] Amazon.com Inc. (2017)) at 84 referring to Sec. 1.482-1(f)(2)(ii)(A).

[9] IRS AOD 2010-05 (December 6, 2010). Available at https://www.irs.gov/pub/irs-aod/aod201005.pdf (accessed March 23, 2017).

[10] IRS AOD 2010-03 (July 28, 2010). Available at https://www.irs.gov/pub/irs-aod/aod201003.pdf (accessed March 23, 2017).

[11] Motor Vehicles Manufacturers Association v. State Farm, 463 U.S. 29 (1983).

[12] CSA-Audit Checklist is available at https://www.irs.gov/pub/irs-utl/tierisec482.pdf (accessed March 23, 2017).

August 17, 2019 in Tax Compliance | Permalink | Comments (0)

Friday, August 16, 2019

Will London Legal Services Market Lose its Cache Post Brexit?

Britain’s legal sector set for significant slowdown in event of no-deal Brexit

Britain – Europe’s biggest international provider of legal services and number two in the world – could take a £3.5bn hit from a no deal Brexit, solicitors' leaders warned today.

“According to our estimates, the volume of work in legal services would be down £3.5bn* – nearly 10% lower than under an orderly Brexit,” said Law Society of England and Wales president Simon Davis as the Law Society launched its UK-EU future partnership - legal services sector report.

“Our sector contributed £27.9 billion to the UK in 2018 – 1.4% of GDP – and in 2017 posted a trade surplus of £4.4 billion, according to the Office for National Statistics (ONS). Much of this balance of payments surplus is down to access provided by EU Lawyers’ Directives.

“In general, we have a trade surplus with the EU27 when it comes to services. We have a trade deficit when it comes to manufacturing.

“And in 2018 the total tax contribution of legal and accounting activities was estimated to be £19.1 billion – potentially funding the salaries of doctors, nurses, teachers and police officers.

“That is why we are urging the UK government to negotiate a future agreement that enables broader access for legal services so that English and Welsh solicitors can maintain their right to practise in the EU.

“Such an agreement should replicate the Lawyers’ Directives, which provide EU-wide rights on services and establishment, as other models are unlikely to deliver the comprehensive practice rights that have substantially contributed to the UK legal sector’s large export surplus of £4.4bn as of 2017.

“There are precedents for such agreements providing necessary in-depth frameworks on legal services: the EU has association agreements through the EEA with Norway, Liechtenstein and Iceland and with Switzerland. These extend the application of the Lawyers’ Directives to EFTA countries.

"The UK legal system is globally respected and the liberalisation of services in the EU has directly contributed to its success."

Notes to editors

*Using constant 2017 prices, the Law Society research unit estimates that the volume of work in the legal services sector would be down £3.5 billion in a no-deal Brexit scenario.

The Law Society’s UK-EU future partnership and legal services report outlines with case studies some of the practical challenges of leaving the EU without a deal or with a deal that pays no attention to professional and business services.

At present, the EU legal services framework allows solicitors in England and Wales to:

  1. advise their clients across the EU on all matters of concern to them and in all types of law, including English law, EU law and the law of the host state
  2. have their qualifications recognised and requalify under EU rules with few barriers compared to non-EU lawyers
  3. to employ local lawyers in a different member state and retain the ability to form partnerships with lawyers from all EU member states (provided the jurisdiction in question allows the employment of lawyers)
  4. be employed by EU law firms and companies (provided the jurisdiction in question allows the employment of lawyers)
  5. retain their freedom to establish a permanent presence in EU states, and extends this to English and Welsh law firms
  6. have all communications with their EU clients and vice versa protected by the EU legal professional privilege (LPP) at EU level, i.e. they cannot be disclosed without the permission of the client
  7. represent their clients in the Court of Justice of the European Union (CJEU), domestic courts and other fora (such as arbitral proceedings and alternative dispute resolution mechanisms)

For more information, the Law Society’s August 2018 Legal sector forecast report includes our most recent estimates of the effects of Brexit on the legal sector.

If you are a legal services business owner in the UK or the EU you need to make sure you can continue to practise after a no-deal Brexit.

If you are a UK lawyer with ownership interests in the EU, Norway, Iceland or Liechtenstein (EEA-EFTA) you need to contact the local regulator for specific advice.

Lawyers with qualifications from EU, Norway, Iceland or Liechtenstein (EEA-EFTA) and Registered European Lawyers (RELs) need to take one or more of the following actions to continue to own, or part own, a legal services business in England, Wales or Northern Ireland after Brexit:

  • requalify in England, Wales or Northern Ireland
  • become a Registered Foreign Lawyer
  • make the necessary changes to their practice or business structure to comply with the new regulatory arrangements

This will need to be done before Brexit for lawyers who are not RELs, and the end of December 2020 for RELs.

EU lawyers and Registered European Lawyers (RELs) who own or part own regulated legal services firms in England, Wales or Northern Ireland should contact their UK regulator for specific advice.

Registered European Lawyers (RELs) may also own unregulated legal businesses.

3. Employing lawyers from the EU, EEA and Switzerland after Brexit

There will be no change to the way EU, EEA and Swiss citizens prove their right to work until 1 January 2021. This remains the case in a no-deal Brexit. Irish citizens will continue to have the right to work in the UK and prove their right to work as they do now, for example by using their passport.

You can find more information in the guidance on employing EU, EEA and Swiss citizens.

EU and EEA-EFTA businesses in England, Wales or Northern Ireland employing EU, and/or EEA-EFTA lawyers should contact their relevant UK regulator for specific advice.

4. Scotland

Legal services business owners in Scotland should contact the relevant Scottish regulators - see further information for specific advice.

5. Further information

August 16, 2019 in Financial Regulation | Permalink | Comments (0)

Thursday, August 15, 2019

Financial Conduct Authority (FCA) provides clarity on current cryptoassets regulation

The FCA is today publishing Final Guidance which sets out the cryptoasset activities it regulates. This is in response to the FCA’s consultation published earlier this year.

The Guidance will help firms understand whether their cryptoasset activities fall under FCA regulation. This will allow firms to have a better understanding of whether they need to be authorised and what they need to do to ensure they are compliant.

Christopher Woolard, executive director of Strategy and Competition at the FCA, commented:

'This is a small, complex and evolving market covering a broad range of activities. Today’s guidance will help clarify which cryptoasset activities fall inside our regulatory perimeter.'

The majority of respondents supported the proposals outlined in the consultation. The FCA is therefore publishing the Final Guidance as consulted on with some amendments to provide greater clarity on what is and isn’t regulated. This includes making the important distinction as to which cryptoassets fall inside the regulatory perimeter clearer.

Consumers should be mindful of the absence of certain regulatory protections when considering purchasing unregulated cryptoassets. Unregulated cryptoassets (e.g. Bitcoin, Ether, XRP etc.) are not covered by the Financial Services Compensation Scheme and consumers do not have recourse to the Financial Ombudsman Service.

Consumers should be cautious when investing in such cryptoassets and should ensure they understand and can bear the risks involved with assets that have no intrinsic value.

Notes to editors

  1. PS19/22: Guidance on Cryptoassets
  2. CP19/3: Guidance on Cryptoassets
  3. This consultation follows the Cryptoasset Taskforce report(link is external) published in October 2018 that laid out a broad overview of the benefits and risks of cryptoassets and distributed ledger technology (DLT), as well as the UK’s policy and regulatory approach. The Taskforce report committed the FCA to consult on guidance in relation to existing regulatory perimeter.
  4. Find out more information about the FCA.

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

Sunday, August 11, 2019

Lebanese Businessman Tied by Treasury Department to Hezbollah is Sentenced to Prison for Money Laundering Scheme Involving the Evasion of U.S. Sanctions

The operator of a network of businesses in Lebanon and Africa whom the U.S. Department of the Treasury designated as a financier of  Hezbollah, the Lebanon-based terrorist group, was sentenced to five years in prison and ordered to forfeit $50 million by U.S. District Judge Reggie B. Walton of the District of Columbia.

Kassim Tajideen, 63, had previously pleaded guilty to one count of conspiracy to launder monetary instruments in furtherance of violating the International Emergency Economic Powers Act (IEEPA).  In 2009, the U.S. Department of the Treasury designated Tajideen as a Specially Designated Global Terrorist based on his tens of millions of dollars of financial support of Hezbollah.  The designation prohibited Tajideen from being involved in, or benefiting from, transactions involving U.S. persons or companies without a license from the Department of the Treasury.

“This defendant knowingly violated sanctions and put our nation’s security at risk,” said Assistant Attorney General Brian A. Benczkowski of the Criminal Division.  “His sentencing and the $50 million forfeiture in this case are just the latest public examples of the Department of Justice’s ongoing efforts to disrupt and dismantle Hezbollah and its support networks.”

“Today’s sentencing highlights our efforts to prosecute those who violate sanctions meant to stem the flow of money to terrorists groups,” said U.S. Attorney Jessie K. Liu for the District of Columbia. “Our message to those who violate sanctions is that you will be found, and you will be prosecuted to the full extent of the law.”

“This is the latest example of DEA’s success against Hezbollah’s global criminal support network and our commitment to interagency collaboration in combatting the overall threat posed by this transnational criminal organization,” said Acting Special Agent in Charge of DEA’s Special Operations Division Michael J. Machak.

According to the statement of facts signed by Tajideen in conjunction with his plea, after his designation, Tajideen conspired with at least five other persons to conduct over $50 million in transactions with U.S. businesses that violated these prohibitions.  In addition, Tajideen and his co-conspirators knowingly engaged in transactions outside of the United States, which involved transmissions of as much as $1 billion through the United States financial system from places outside the United States.

Tajideen’s case falls under DEA’s Project Cassandra, which targets Hezbollah’s global criminal support network, which operates as a logistics, procurement and financing arm for Hezbollah.  This investigation and others are part of the Department of Justice’s Hezbollah Financing and Narcoterrorism Team (HFNT).  The HFNT was formed in January 2018 to ensure an aggressive and coordinated approach to prosecutions and investigations, including Project Cassandra cases, targeting the individuals and networks supporting Hezbollah.  Comprised of experienced international narcotics trafficking, terrorism, organized crime, and money laundering prosecutors and investigators, the HFNT works closely with partners like the DEA, the Department of the Treasury, and the FBI, among others, to advance and facilitate prosecutions of Hezbollah and its support network in appropriate cases.

This case was investigated by DEA SOD’s Counter Narcoterrorism Operations Center (CNTOC) and the DEA New Jersey Field Division, with support from the CPB’s National Targeting Center/Counter Network Division, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and Office of Foreign Assets Control (OFAC), the Criminal Division’s Office of International Affairs, and the Counterintelligence and Export Control Section of the National Security Division.

August 11, 2019 in AML | Permalink | Comments (0)

Saturday, August 10, 2019

Former CEO of Israeli Company Found Guilty of Orchestrating $145 Million Binary Options Fraud Scheme

The former CEO of the Israel-based company Yukom Communications, a purported sales and marketing company, was found guilty yesterday for orchestrating a scheme to defraud investors in the United States and worldwide by fraudulently marketing approximately $145 million in financial instruments known as “binary options.”

Lee Elbaz, 38, a citizen of Israel, was found guilty after a three-week jury trial of one count of conspiracy to commit wire fraud and three counts of wire fraud.  Sentencing is scheduled for Dec. 9, 2019, before U.S. District Judge Theodore D. Chuang of the District of Maryland, who presided over the trial.  Elbaz was arrested on a criminal complaint in September 2017 and indicted in March 2018.

“This verdict demonstrates that the Department will hold accountable those who deceive American investors with false claims and rates of returns,” said Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division.  “We are committed to prosecuting financial fraud, even when perpetrated from abroad.”

“I would like to commend the FBI agents, analysts and our DOJ colleagues for their hard work to seek justice for the victims of Lee Elbaz’s fraud,” said Acting Assistant Director in Charge of the FBI's Washington Field Office, John P. Selleck.   “We would not be successful in our work if not for our partners around the world; and this investigation demonstrates that no matter where fraudsters and criminals try to hide, we will work tirelessly to locate them.”

According to the evidence presented at trial, the defendant and her co-conspirators fraudulently sold and marketed binary options to investors located in the United States and throughout the world through two websites, known as BinaryBook and BigOption.  The evidence showed that in her role as CEO of Yukom, Elbaz, along with her co-conspirators and subordinates, misled investors using BinaryBook and BigOption by falsely claiming to represent the interests of investors when, in fact, the owners of BinaryBook and BigOption profited when investors lost money; by misrepresenting the suitability of and expected return on investments through BinaryBook and BigOption; by providing investors with false names and qualifications and falsely claiming to be working from London; and by misrepresenting whether and how investors could withdraw funds from their accounts.  Representatives of BinaryBook and BigOption, working under Elbaz’s supervision, misrepresented the terms of so-called “bonuses,” “risk free trades” and “insured trades,” and deceptively used these supposed benefits in a manner that in fact harmed investors, the evidence showed.  

August 10, 2019 in AML | Permalink | Comments (0)

Friday, August 9, 2019

Justice Department Announces Resolution with LLB Verwaltung (Switzerland) AG

Assistance to U.S. Taxpayers to Commit Tax Evasion Results in $10.6 Million Penalty

LLB Verwaltung (Switzerland) AG, formerly known as “Liechtensteinische Landesbank (Schweiz) AG” (LLB-Switzerland), a Swiss-based private bank, reached a resolution with the United States Department of Justice, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division today. As part of the agreement, LLB-Switzerland will pay a penalty of $10,680,554.64 to the United States.

“This resolution is another step forward in the Department of Justice’s pursuit of tax evaders, who use foreign bank accounts to commit criminal activity, and those institutions, who enable such criminal tax activity,” said Principal Deputy Assistant Attorney General Zuckerman. “The Department is dedicated to holding both financial institutions and individual offenders accountable for tax evasion.”

According to the terms of the non-prosecution agreement, in addition to paying a penalty, LLB-Switzerland has agreed to cooperate in any related criminal or civil proceedings in return for the Department’s agreement not to prosecute the company for tax-related criminal offenses committed by LLB-Switzerland.

According to the statement of facts agreed to by the parties, LLB-Switzerland and some of its employees, including members of the bank’s management, conspired with a Swiss asset manager and U.S. clients to conceal those U.S. clients’ assets and income from the Internal Revenue Service (IRS) through various means, including using Swiss bank secrecy protections and nominee companies set up in tax haven jurisdictions. At its peak, LLB-Switzerland had approximately one hundred U.S. clients holding nearly $200 million in assets. The majority of those accounts were in the names of nominee entities.

In 1997, Liechtensteinische Landesbank AG (LLB-Vaduz), a bank headquartered in Liechtenstein, acquired LLB-Switzerland (LLB-Vaduz reached a separate agreement with the Justice Department in 2013 that excluded LLB-Switzerland from the resolution). At that time, LLB-Switzerland provided banking and asset management services to individuals and entities, including citizens and residents of the United States, principally through private bankers based in Zurich, Geneva and Lugano, Switzerland. LLB-Switzerland also acted as a custodian of assets managed by third-party external investment advisers.

In 2003, LLB-Switzerland began a relationship with a Swiss asset manager. The asset manager offered to create nominee structures, including corporations, foundations, and trusts, to conceal accounts owned by his U.S. clients at Swiss financial institutions. LLB-Switzerland delegated to the Swiss asset manager the authority to prepare account opening and “know your customer” (KYC) documents. 

The Swiss asset manager provided prospective customers with a sales letter, pitching his ability to conceal a client’s assets and income from taxing authorities through the use of multiple layers of sham offshore entities and nominee directors in countries or regions that the Swiss asset manager thought would resist requests for information and assistance from foreign law enforcement, including law enforcement in the United States. LLB-Switzerland and its management knew that the Swiss asset manager was marketing structures to clients as a means of tax evasion as the bank kept a copy of the manager’s sales letter in the bank’s files.

In 2008, after it became publicly known that UBS AG, Switzerland’s largest bank, was the target of a U.S. criminal investigation focusing on tax and other violations, the amounts that LLB-Switzerland held for U.S. clients swelled. At the end of 2007, the Bank had 72 U.S. clients with almost $80 million in assets. By the end of the next year, the number of U.S. clients increased to 107, but the assets more than doubled to over $176 million. LLB-Switzerland’s management knew that many of the U.S. clients coming to LLB‑Switzerland were bringing undeclared funds with them. 

Although LLB-Switzerland’s management monitored the United States’ investigation of UBS, LLB-Switzerland failed to take actions to cease assisting U.S. taxpayers to evade their taxes. While in August 2008, LLB-Vaduz prohibited U.S. persons from becoming clients of the Liechtenstein bank, LLB-Switzerland did not implement a similar policy. Despite press reports, indicating the Swiss asset manager was under investigation for helping clients evade U.S. taxes, LLB-Switzerland waited two years – until a grand jury had indicted the Swiss asset manager - to close the accounts he managed. 

LLB-Switzerland’s remediation efforts since 2012 have been comprehensive. It halted and terminated all U.S. cross-border business with U.S. clients. All of LLB-Switzerland’s U.S. clients and its relationship with the Swiss asset manager ended. It also dismissed its managers and employees implicated in the Department’s investigation of the bank’s U.S. cross-border business, and LLB-Vaduz has shut down the operations of LLB-Switzerland. In 2013, LLB-Vaduz closed LLB-Switzerland and returned LLB-Switzerland’s banking license to the Swiss Financial Market Supervisory Authority.

Principal Deputy Assistant Attorney General Zuckerman thanked Senior Litigation Counsel Mark F. Daly and Assistant Chief Jason Poole of the Tax Division, who served as counsel on this matter. Zuckerman also thanked the Internal Revenue Service for its assistance.

Additional information about the Tax Division and its enforcement efforts may be found on the division’s website.

August 9, 2019 in AML | Permalink | Comments (0)

Thursday, August 8, 2019

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

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced today that the goods and services deficit was $55.2 billion in June, down $0.2 billion from $55.3 billion in May, revised.

U.S. International Trade in Goods and Services Deficit
Deficit: $55.2 Billion -0.3%°
Exports: $206.3 Billion -2.1%°
Imports: $261.5 Billion -1.7%°

Next release: September 4, 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, August 2, 2019

Exports, Imports, and Balance (exhibit 1)

June exports were $206.3 billion, $4.4 billion less than May exports. June imports were $261.5 billion, $4.6 billion less than May imports.

The June decrease in the goods and services deficit reflected a decrease in the goods deficit of $0.8 billion to $75.1 billion and a decrease in the services surplus of $0.6 billion to $20.0 billion.

Year-to-date, the goods and services deficit increased $23.2 billion, or 7.9 percent, from the same period in 2018. Exports increased $0.5 billion or less than 0.1 percent. Imports increased $23.8 billion or 1.5 percent.

Three-Month Moving Averages (exhibit 2)

The average goods and services deficit increased $1.1 billion to $53.9 billion for the three months ending in June.

  • Average exports decreased $1.7 billion to $207.8 billion in June.
  • Average imports decreased $0.6 billion to $261.7 billion in June.

Year-over-year, the average goods and services deficit increased $7.2 billion from the three months ending in June 2018.

  • Average exports decreased $3.3 billion from June 2018.
  • Average imports increased $4.0 billion from June 2018.

Exports (exhibits 3, 6, and 7)

Exports of goods decreased $3.9 billion to $137.1 billion in June.

   Exports of goods on a Census basis decreased $3.8 billion.

  • Consumer goods decreased $1.9 billion.
    • Gem diamonds decreased $0.8 billion.
    • Pharmaceutical preparations decreased $0.5 billion.
    • Jewelry decreased $0.4 billion.
  • Capital goods decreased $1.2 billion.
    • Computer accessories decreased $0.4 billion.
    • Other industrial machinery decreased $0.2 billion.
    • Telecommunications equipment decreased $0.2 billion.
  • Automotive vehicles, parts, and engines decreased $0.5 billion.

   Net balance of payments adjustments decreased $0.1 billion.

Exports of services decreased $0.5 billion to $69.2 billion in June.

  • Travel (for all purposes including education) decreased $0.4 billion.
  • Transport decreased $0.1 billion.

Imports (exhibits 4, 6, and 8)

Imports of goods decreased $4.7 billion to $212.3 billion in June.

   Imports of goods on a Census basis decreased $4.4 billion.

  • Industrial supplies and materials decreased $3.2 billion.
    • Crude oil decreased $1.4 billion.
    • Other petroleum products decreased $1.0 billion.
    • Fuel oil decreased $0.3 billion.
  • Consumer goods decreased $0.9 billion.
    • Cell phones and other household goods decreased $1.4 billion.
    • Pharmaceutical preparations increased $0.6 billion.

   Net balance of payments adjustments decreased $0.2 billion.

Imports of services increased $0.1 billion to $49.2 billion in June, reflecting small (less than $50 million) changes in all major service categories.

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

The real goods deficit decreased $0.3 billion to $86.1 billion in June.

  • Real exports of goods decreased $2.8 billion to $148.1 billion.
  • Real imports of goods decreased $3.1 billion to $234.2 billion.

Revisions

Revisions to May exports

  • Exports of goods were revised up $0.2 billion.
  • Exports of services were revised down $0.1 billion.

Revisions to May imports

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

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

The June figures show surpluses, in billions of dollars, with South and Central America ($4.8), Hong Kong ($2.3), Brazil ($1.3), and United Kingdom ($0.1). Deficits were recorded, in billions of dollars, with China ($30.2), European Union ($15.9), Mexico ($9.2), Japan ($6.2), Germany ($5.2), Canada ($3.3), Italy ($2.6), France ($1.9), Taiwan ($1.7), India ($1.6), South Korea ($1.4), OPEC ($0.3), Saudi Arabia ($0.3), and Singapore ($0.1).

  • The deficit with the European Union decreased $1.0 billion to $15.9 billion in June. Exports decreased $0.5 billion to $26.7 billion and imports decreased $1.5 billion to $42.7 billion.
  • The surplus with Brazil increased $0.8 billion to $1.3 billion in June. Exports increased $0.3 billion to $3.9 billion and imports decreased $0.5 billion to $2.6 billion.
  • The balance with Singapore shifted from a surplus of $0.6 billion to a deficit of $0.1 billion in June. Exports decreased $0.2 billion to $2.5 billion and imports increased $0.4 billion to $2.6 billion.

Next release: September 4, 2019: U.S. International Trade in Goods and Services, July 2019

August 8, 2019 in Economics | Permalink | Comments (0)

Wednesday, August 7, 2019

Tuition Waiver for International Tax online curriculum starting August 26, 2019 - 2 weeks left to apply

Texas A&M University School of Law will launch August 26, 2019 an International Tax online curriculum for graduate degree candidates. Admissions is open for the inaugural cohort of degree candidates to pilot the launch of the Fall semester introductory courses of international taxation and tax treaties, and provide weekly feedback on content, support, and general experience in exchange for waiving the tuition and providing the books free.

What is the tuition waiver offer?

For new degree candidates who apply and enroll for this inaugural Fall semester of the international tax curriculum 2019 semester, Texas A&M University will waive the tuition for this Fall 2019 semester in exchange for the candidates providing weekly feedback and engagement to improve the Fall courses and learning experience. Moreover, the Fall semester textbook and companion study guide are provided free.

Normal Texas A&M University tuition and available financial aid applies after the Fall term and is available at https://law.tamu.edu/llm-mjur-programs/tuition Texas A&M University is a public university of the state of Texas and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018). 

How do I apply for the inaugural cohort?

Only for this inaugural cohort, completed applications may be submitted directly, via the below-expedited process, to the law school’s admission office until noon central daylight time (CDT – Dallas) on August 22, 2019.   A completed Fall application must include four items:

(1) the completed and signed law school application (application fees and letters of recommendation are waived for Fall 2019 international tax);

(2) statement of interest for the international tax program that includes mention of prior tax or related experience.

(3) resume/CV reflecting at least three years of employment as a tax advisor or five years employment in a related field; and

(4) an official transcript from the highest academic degree awarded by an accredited University sent to Texas A&M University: Official electronic transcripts can be sent to law-admissions@law.tamu.edu  FedEx, UPS, DHL express mail can be sent to Attn: Office of Graduate Admissions 1515 Commerce Street Fort Worth, TX 76102-6509

To apply for the inaugural cohort opportunity, contact Jeff Green, Graduate Programs Coordinator, T: +1 (817) 212-3866, E: jeffgreen@law.tamu.edu or contact David Dye, Assistant Dean of Graduate Programs, T (817) 212-3954, E: ddye@law.tamu.edu.

What is the proposed curriculum of 12 international tax courses?

International Taxation & Treaties I (3 credits)                  International Taxation & Treaties II (3 credits)

Transfer Pricing I (3 credits)                                          Transfer Pricing II (3 credits)

Tax Risk Management (3 credits)                                  FATCA & CRS (3 credits)

International Tax Planning (3 credits)                             Country Tax Systems (3 credits)

U.S. Int’l Tax (3 credits)                                                 EU Taxation (3 credits)

VAT/GST/Sales (3 credits)                                            Customs & Excises (3 credits)

Ethics in Decision Making (1 credit required to graduate)

What distinguishes Texas A&M’s International Tax curriculum?

Since the original 1994 curriculum focus on tax risk management and methodology, the curriculum and the program operational structure continue to evolve based on in-depth industry research. “The central function of the tax office has evolved from strategy and planning into risk management”, says William Byrnes, professor of law and associate dean at Texas A&M University. “This evolution has been accelerated by trends — primarily globalization, transparency and regulatory reform — and by the OECD (through the project on Base Erosion and Profit Shifting, or BEPS), the United States (through the Foreign Account Tax Compliance Act) and the European Union.”

In 2019, Hanover Research on behalf of Texas A&M undertook an extensive long-form survey, including interviews, of 146 tax executives about the needs and value-added of Texas A&M’s new international tax curriculum. The surveys 2019 tax professionals included: 29% U.S. and 71% foreign resident. Half the participants were tax professionals of AmLaw 100 firms (27%) or of Big 4 accounting (21%). The other half of participants were tax professionals of large multinational tax departments in the following industries: Finance / Banking / Insurance; Consulting; Business / Professional Services; Computers (Hardware, Desktop Software); Telecommunications; Aerospace / Aviation / Automotive; Healthcare / Medical; Manufacturing; Food Service; Internet; Mining; Pharmaceutical / Chemical; Real Estate; and Transportation / Distribution. Four percent of survey participants were executive-level government tax authority staff.

Besides the actual design of the course curriculum, two interesting outcomes from the industry interviews are:

  • The faculty and graduate degree candidates must be multidisciplinary, including both tax lawyers and non-lawyer tax professionals (e.g. accountants, finance executives, and economists) engaged together in learning teams with practical case studies and projects that are “applicable in a real-world context”.
  • The curriculum must include the perspectives of tax mitigation and of tax-risk management with exposure to state-of-the-industry data analytics.

In its Tax Insights magazine that is distributed globally to clients, the Big 4 firm EY stated: “Texas A&M University is among the pioneers of change in tax education”.

Texas A&M professor William Byrnes explains: “A risk management approach to tax means that the new model will by definition be multidisciplinary. Financial and managerial accounting– and law– will still be important, of course. But students will also need new “hard” skills involving big data and communications technologies and “soft” skills geared to working in multicultural settings both at home and abroad.” Says Byrnes, “You don’t want to have people who are living in the ‘Stone Age’ (pre-2015) trying to work in a 2016-onward world.” 

What is the proposed course schedule during an academic year?

Fall 2019 Part A (6 week term)                                    Fall 2019 Part B (6 week term)     

International Taxation & Treaties I                                  International Taxation & Treaties II 

Spring 2020 Part A (6 week term)                              Spring 2020 Part B (6 week term)

Transfer Pricing I                                                             Transfer Pricing II

Summer 2020 concurrent 6 week term

Tax Risk Management & Data Analytics             FATCA & CRS

Fall 2020 Part A                                                           Fall 2020 Part B

International Tax Planning                                             Country Tax Systems

International Taxation & Treaties I                                  International Taxation & Treaties II

Spring 2021 Part A                                                      Spring 2021 Part B

U.S. Int’l Tax                                                                 EU Taxation

Transfer Pricing I                                                           Transfer Pricing II

Summer 2021 concurrent term

VAT/GST/Sales             Customs & Excises

Tax Risk Management               FATCA & CRS

When are the semesters?

Fall:                 August 26 until December 14, 2019

Spring:             January 9 until April 30, 2020

Summer:          May 18 until July 11, 2020

Who is leading and creating this International Tax curriculum?

The International Tax curriculum has been developed and is led by Professor William Byrnes (Texas A&M University Law).  In 1994, Professor William Byrnes founded the first international tax program leveraging online education and in 1998 founded the first online international tax program to be acquiesced by the American Bar Association and the Southern Association of Colleges and Schools.  He is recognized globally as an online education pioneer focused on learner outcomes and best practices leveraging state of the art educational technology.  William Byrnes is also an international tax authority as LexisNexis’ leading published author of nine international tax treatises and compendium, annually updated, and a 10 volume service published by Wolters Kluwer.  His LinkedIn group International Tax Planning Professionals has over 25,000 members and is the largest international tax network on LinkedIn.

How much time per week does a course require?

Each course unfolds over six weeks, designed to require 15 to 20 hours of input each week. This weekly input includes reviewing materials, listening to podcasts, watching video content, participating in discussion forums, engaging in live class sessions, and working with classmates on team-based learning projects. Working with colleague groups on real-world case studies is critical to the educational experience.  Potential applicants must have available three to five hours per week to spend developing and working with colleagues on group case studies using communications technologies like Zoom video.

What is the title of this graduate degree?

For lawyers, it is a Master of Laws (LL.M.) and for accountants, tax professionals and economists, it is a Master of Jurisprudence (M.J.).  The degree is awarded by Texas A&M University via the School of Law. Completion of a curriculum, which is like a ‘major’ for university studies, is also recognized with a frameable certificate issued by the School of Law.

What are the minimum requirements of the application for each degree?

  • All applicants must have previous domestic tax or accounting professional experience reflected on the CV of work experience.
  • The Master of Laws (LL.M.) is awarded to successful graduates who hold a law degree from a law school or faculty of law that is accredited by the American Bar Association or if a foreign law degree then accredited by a governmental accreditation body and that allows the graduate eligibility for that country’s practice of law.
  • The Master of Jurisprudence (M.J.) is awarded to all other successful graduates. Applicants for the Master of Jurisprudence must hold a prior degree from an accredited academic institution in business, accounting, finance, economics, or related business field.

What are the program requirements to graduate?

The Master of Laws candidates must complete at least 24 credits to be eligible to graduate.  The Master of Jurisprudence candidates must complete at least 30 credits to be eligible to graduate.

All candidates must complete the Ethics in Decision Making course to be eligible to graduate, which presents networking opportunities with candidates of the Risk management and Wealth Management curricula. Master of Jurisprudence candidates must also complete an Introduction to U.S. Law course which will include networking among all law graduate curricula.

Candidates must complete at least six courses specific to a curriculum in order to be eligible for a degree. Without permission, candidates are allowed to enroll in up to two courses from another curriculum.

How many months to graduate?

Normally, candidates will enroll in two courses during Fall and Spring semester, focusing on one course each term (Fall and Spring have two terms of six weeks each).  Candidates may enroll in one or two courses for the Summer semester, which is only one six-week term.  Thus, most candidates will reach eligibility to graduate within two years.  Candidates have the flexibility as to how many or few courses to enroll each term, subject to university graduate program rules. Candidates may complete the program in one year to as long as four years.  Each course in a curriculum is offered once per year.

Are these degrees eligible for the Aggie Ring and membership in the Texas A&M Former Student Network (Texas A&M alumni)?

Yes, all international tax graduates will become a member of the Texas A&M family.  Texas A&M is renown for the loyalty and engagement among its former students within the Texas Aggie clubs established throughout the world. Texas A&M has graduated over 500,000 “Aggies” who are eligible to wear the Texas A&M ring to identify each other throughout the world. See https://www.aggienetwork.com/

Will there be on-campus opportunities?

Yes.  Graduation, with on-campus activities hosted at the law school, is May 1, 2020.  October 24-25, 2019 is a networking conference of the risk, wealth, and international tax graduate students piggybacking on Texas A&M’s Financial Planning conference: Thursday night networking banquet and Friday conference activities. See https://financialplanning.tamu.edu/events/conference/  Saturday, October 26, 2019 is a Texas A&M football game at the on-campus Kyle stadium that two years ago underwent a $485 million renovation. The graduate program office has inquired about a block of tickets in the same section for students interested in purchasing a ticket and staying over for the game.  Texas A&M football games are sold out with a capacity of over 100,000 seats and thus, Friday night hotel reservations in College Station should be made ASAP.  Other opportunities will be announced during the program year.

What is Texas A&M University?

Texas A&M, the second-largest U.S. public university, is one of the only 60 accredited U.S. members of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity), and one of the only 17 U.S. universities that hold a triple U.S. federal designation (Land, Sea, and Space).  As one of the world’s leading research institutions, Texas A&M is at the forefront in making significant contributions to scholarship and discovery: research conducted in fiscal year 2017 at Texas A&M represented an annual expenditure of more than $900 million.  The Texas A&M University system’s operating budget exceeds $4.6 billion and Texas A&M’s combined endowments are 7th largest among universities in the world.

Texas A&M is ranked 1st among national public universities for a superior education at an affordable cost (Fiske, 2018); ranked 1st of Texas public universities for best value (Money, 2018); and ranked 1st in nation for most graduates serving as CEOs of Fortune 500 companies (Fortune, 2019).  During the program, a candidate learns Texas A&M’s traditions and six core values that are grounded in its history as one of the six U.S. senior military colleges: Loyalty, Integrity, Excellence, Leadership, Respect, and Selfless Service.

Which government and professional organizations accredit Texas A&M University?

For the complete list, see https://www.tamu.edu/statements/accreditation.html

What are the other curricula’s courses that are available to international tax candidates? 

Risk Curriculum                                              Wealth Curriculum

Enterprise Risk & Data Analytics                        Taxation of Business Associations

Information Security Management Systems        Securities Regulations

Counter-Terrorism Risk Management                 Financial & Portfolio Management

Cybersecurity                                                   Income Tax Financial Planning

Anti-Money Laundering & Bank                          Principles of Wealth Management

Principles of Risk Management                          Estate Planning, Insurance, and Annuities

Foreign Corrupt Practices Act                            Advanced Wealth Management

Fiduciary & Risk Management                            Non-Profit & Fiduciary Administration

White-Collar Crime                                            Retirement & Benefits

Legal Risk Management                                    Insurance Law (& Alternative Risk Transfer)

Financial Innovations

August 7, 2019 in Education | Permalink | Comments (0)

Latest Artefact Trafficking Sting Seizes 18,000 Items, Arrests 59

Authorities in 29 countries joined forces and seized 18,000 items and arrested 59 people involved in the trafficking of cultural goods, Europol said on Monday.

Read the investigative news story at Organized Crime and Corruption Reporting Project (OCCRP)

August 7, 2019 in AML | Permalink | Comments (0)