International Financial Law Prof Blog

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

Friday, November 29, 2019

Two Former Executives of the China Subsidiary of a Multi-Level Marketing Company Charged for Scheme to Pay Foreign Bribes and Circumvent Internal Accounting Controls

The former head of the China subsidiary of a publicly traded international multi-level marketing company (Company-1) and the former head of the external affairs department of the China subsidiary of the same company were charged today for their roles in a scheme to violate the anti-bribery and the internal control provisions of the Foreign Corrupt Practices Act (FCPA).    Download Yanliang Li et al Indictment

Yanliang Li, aka “Jerry Li,” 51, a citizen of China, the former head and managing director of the China subsidiary of Company-1, was charged with one count of conspiracy to violate the FCPA, one count of perjury and one count of destruction of records in federal investigations.  Hongwei Yang, aka “Mary Yang,” 51, also a citizen of China, the former head of the external affairs department of the China subsidiary of Company-1, was charged with one count of conspiracy to violate the FCPA.

“Li and Yang allegedly led a brazen, decade-long corruption scheme, bribing foreign Chinese officials and then covering it up by providing false sworn testimony to the SEC and wiping clean computer files,” said Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division.  “The Department of Justice will continue to hold individuals accountable who undermine the integrity of our financial markets by participating in these corrupt bribery schemes.”

“Li and Yang, both former top executives of a global multi-level marketing company headquartered in Los Angeles, allegedly approved the extensive and systematic payments of bribes to Chinese government officials over a 10-year period to promote and expand the company’s business in China and to avoid regulatory scrutiny in China,” said U.S. Attorney Geoffrey S. Berman of the Southern District of New York.  “Moreover, in an effort to obstruct the government’s investigation into this widespread corruption scheme, Li lied under oath about the bribe payments when interviewed by the SEC and also destroyed evidence.  This case signifies this office’s commitment to ensuring that companies operating in the U.S. do not gain an unfair advantage through corruption and illegal bribes of foreign officials.”

According to the allegations in the indictment, from approximately 2007 through February 2017, Li, Yang and others agreed to pay, and paid bribes to Chinese officials for the purpose of obtaining and retaining licenses for Company-1 to operate as a direct-selling enterprise in provinces throughout China.  The conspirators also are alleged to have paid bribes to corruptly influence Chinese governmental investigations into Company-1’s compliance with Chinese laws and to corruptly influence Chinese state-owned and state-controlled media for the purpose of suppressing negative media reports about the company. 

In order to carry out the scheme, Li, Yang and others allegedly obtained reimbursement for the bribes they paid to Chinese officials by submitting false and fraudulent expense claims designed to conceal the true nature of the expenditures at issue, thereby circumventing Company-1’s internal accounting controls.  In addition, Li made false statements under oath in sworn investigative testimony before the U.S. Securities and Exchange Commission in New York, New York. Additionally, the indictment alleges that during the course of the federal SEC and DOJ investigations Li, with knowledge of these investigations, installed a “Wiping Application” onto his Company-1 issued laptop, which enabled him to erase 200 files from the laptop in a manner that would render the deleted files unrecoverable.   

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

Wednesday, November 27, 2019

Last Defendant in Stanford Investment Fraud Scheme Extradited to U.S.

The former chief of Antigua’s Financial Services Regulatory Commission has been extradited from Antigua to face charges for his alleged role in connection with the Stanford International Bank (SIB) $7 billion investment fraud scheme. Download Stanford et al Indictment

Leroy King, 74, of Dickerson Bay, Antigua, is the last remaining defendant in the SIB Ponzi scheme. He has been a fugitive since 2009.

King was charged in June 2009 along with R. Allen Stanford, of Houston, and others. The indictment charges King with one count of conspiracy to commit mail, wire and securities fraud; seven counts of wire fraud, 10 counts of mail fraud, one counts each of conspiracy to obstruct and obstruction of a Securities and Exchange Commission (SEC) investigation; and conspiracy to commit money laundering.

The indictment alleges King accepted more than $100,000 in bribes from Stanford in exchange for ignoring the actual value of SIB’s assets. He also allegedly assisted Stanford and others in obstructing the SEC’s investigation into the bank.

A federal jury found Stanford guilty in June 2012 for his role in orchestrating a 20-year investment fraud scheme in which he misappropriated $7 billion from SIB to finance his personal businesses. He is serving a 110-year prison sentence. Five others were also convicted for their roles in the scheme and received sentences ranging from three to 20 years in federal prison.

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

Tuesday, November 26, 2019

Jose Carlos Grubisich, Former Chief Executive Officer of a Brazilian Petrochemical Company Charged for in Brazil's Ongoing Bribery Car Wash Scandal

An indictment was unsealed charging a former chief executive officer (CEO) of Braskem S.A. (Braskem), a publicly traded Brazilian petrochemical company, for his role in a massive bribery and money laundering scheme involving Braskem and its parent company, Odebrecht S.A. (Odebrecht), that resulted in the diversion of hundreds of millions of dollars from Braskem into a secret slush fund that was used, in part, to pay bribes to government officials, political parties and others in Brazil to obtain and retain business. Download Grubisich Indictment

Jose Carlos Grubisich, 62, a citizen of Brazil who served as the CEO and a member of the board of directors of Braskem, as well as in various capacities for Odebrecht, was charged with one count of conspiracy to violate the anti-bribery provision of the Foreign Corrupt Practices Act (FCPA), one count of conspiracy to violate the books and records provision of the FCPA and to fail as a corporate officer to certify financial reports and one count of conspiracy to commit international money laundering.  Grubisich was arrested this morning, and is scheduled to be arraigned this afternoon before U.S. District Judge Raymond J. Dearie of the Eastern District of New York.

“Grubisich and other senior executives at Braskem and Odebrecht allegedly engaged in a massive and sophisticated international bribery and money laundering scheme, employing secret slush funds, shell companies, and false accounting,” said Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division.  “As demonstrated by the charges unsealed today, the Department continues to work closely with our domestic and international partners to root out and prosecute corporate fraud and corruption at the highest levels.”

“As alleged in the indictment, Jose Carlos Grubisich used his position as CEO of a major publicly-traded petrochemical company to funnel hundreds of millions of dollars through offshore accounts to bribe power brokers and serve the interests of his company,” said U.S. Attorney Richard P. Donoghue for the Eastern District of New York.  “Today’s indictment once again demonstrates the commitment of the U.S. Department of Justice to investigate and prosecute those who take advantage of the United States financial system to further their financial crimes.”                                     

As alleged in the indictment, between approximately 2002 and 2014, Grubisich, together with other co-conspirators, including certain former Braskem and Odebrecht employees, engaged in a widespread bribery and money laundering scheme that resulted in the diversion of approximately $250 million of Braskem’s funds into a secret slush fund, which was used, in part, to pay bribes to government officials, political parties and others in Brazil to obtain and retain business and certain business advantages for Braskem.  The slush fund was allegedly generated by payments from Braskem’s bank accounts in Brazil, New York and Florida pursuant to fraudulent contracts with offshore shell companies that were secretly controlled by Braskem.  These shell companies funneled the slush funds to a department within Odebrecht responsible for making bribe payments, which ultimately made corrupt payments on Braskem’s behalf, the indictment alleges.

Additionally, as alleged in the indictment, while CEO of Braskem, Grubisich was involved in negotiating and approving bribes to government officials using money from the slush fund.  These included alleged payments made to ensure that Braskem could retain a contract for a significant petrochemical project in Brazil, and to ensure that Braskem could obtain favorable pricing in contract negotiations with Petroleo Brasileiro S.A. – Petrobras, Brazil’s state-owned and state-controlled oil company.  Grubisich regularly discussed the bribe payments with other co-conspirators, and was kept informed about bribe payments made on behalf of Braskem, the indictment alleges.  Certain of the bribe payments that were allegedly negotiated and authorized by Grubisich were ultimately paid after Grubisich left his position as CEO of Braskem in 2008, but while he continued to serve in other capacities at Odebrecht and Braskem, and while he was a stockholder of Braskem.

Furthermore, as alleged in the indictment, while CEO of Braskem, Grubisich agreed to falsify Braskem’s books and records by causing Braskem to falsely record the payments to the offshore shell companies controlled by Braskem as “commissions.”  Grubisich also signed false certifications submitted to the SEC that, among other things, attested that Braskem’s annual reports fairly and accurately represented Braskem’s financial condition, and that Grubisich, as Braskem’s principal officer, had disclosed all fraudulent conduct by Braskem’s management and other employees with control over Braskem’s financial reporting, the indictment alleges.

The charges in the indictment are allegations, and the defendant is presumed innocent unless and until proven guilty.

Braskem and Odebrecht have each pleaded guilty in the Eastern District of New York to one-count criminal informations separately charging each with conspiracy to violate the anti-bribery provisions of the FCPA for their involvement in the widespread bribery and money laundering scheme.  The cases are also assigned to Judge Dearie.

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

Monday, November 25, 2019

Public consultation on FATF draft guidance on digital identity

The Financial Action Task Force (FATF) is developing guidance to clarify how digital identity (digital ID) systems can be used for customer due diligence (CDD). The draft guidance intends to help governments, financial institutions and other relevant entities apply a risk-based approach to the use of digital ID for CDD.

The FATF is consulting private sector stakeholders before finalising the guidance. We welcome your views on the areas of focus below, in addition to specific proposals to the text of the guidance. We primarily seek views from banks, virtual asset service providers and other regulated entities, but also welcome views from authorities.

The FATF will revise the text of the guidance and particular sections (for example – Appendix B that contains case studies) in parallel to the public consultation.



Areas of focus

  1. Are there any specific money laundering / terrorist financing risks, that arise from the use of digital identity systems for CDD, other than those already mentioned in Section IV of the guidance?
    If so, how can they be addressed and by whom? Are there specific opportunities for combatting money laundering / terrorist financing that are not already mentioned in the guidance?

  2. What is the role of digital ID systems in ongoing due diligence or transaction monitoring?
    a. What information do you capture under authentication at on-boarding and during authorisation for account access? Who captures this data?
    b. Is the authentication data you capture relevant to ongoing anti-money laundering and counter terrorist financing due diligence and/or transaction monitoring? If yes, how?

  3. How can digital ID systems support financial inclusion?
    a. How can digital ID systems with different assurance levels for identity proofing/enrolment and/or authentication be used to implement tiered CDD, allowing clients a range of account functionalities depending on the extent of CDD performed, and particularly in situations of lower risk? Please provide any practical examples.
    b. Have you adopted lower assurance levels for identity proofing to support financial inclusion? What additional measures do you apply to mitigate risks? Please provide any practical examples.
    c. How can progressive CDD via digital ID systems aid financial inclusion (i.e. establishing greater confidence in a customer’s identity over time)?

  4. Does the use of digital ID systems for CDD raise distinct issues for implementing the FATF record-keeping requirements?
    a. What records do you keep when you use digital ID systems for CDD?
    b. What are the challenges in meeting record-keeping requirements when you use digital ID systems for CDD?
    c. If you keep different records when using digital ID systems for on-boarding, does this impact other anti-money laundering and counter-terrorist financing measures (for example ongoing due diligence or transaction monitoring)?

Please provide your response to with subject-line “Comments of [author] on the draft Digital ID Guidance”, by 29 November 2019 (18:00 UTC). 


While submitting your response, please indicate the name of your organisation, the nature of your business (financial institution or designated non-financial business and profession, digital ID service provider, certification or assurance body, industry group, others), and your contact details. You may insert any specific drafting proposals directly in the attached text of the draft guidance in tracked changes. The contact information you provide will be used for the purpose of this public consultation only. The FATF will not share this information with third parties without your consent. 

At this stage, the FATF has not approved he current draft of the guidance. The FATF will make further amendments at its February 2020 meetings.

November 25, 2019 in AML | Permalink | Comments (0)

Sunday, November 24, 2019

Former Beaufort Securities Investment Manager Pleads Guilty to Conspiracies to Commit Securities Fraud and to Defraud the United States by Failing to Comply With Foreign Account Tax Compliance Act

Panayiotis Kyriacou, a former investment manager at Beaufort Securities Limited, a brokerage firm in London, pleaded guilty to conspiring to commit securities fraud and to defraud the United States by failing to comply with the Foreign Account Tax Compliance Act (FATCA).  FATCA is a federal law that requires foreign financial institutions to identify their U.S. customers and report information about financial accounts held by U.S. taxpayers, either directly or through a foreign entity (FATCA Information).  FATCA’s primary aim is to prevent U.S. taxpayers from using foreign accounts to facilitate the commission of federal tax offenses.  TWhen he is sentenced, Kyriacou faces a maximum of 10 years’ imprisonment.

Richard P. Donoghue, United States Attorney for the Eastern District of New York; Richard E. Zuckerman, Principal Deputy Assistant Attorney General of the Justice Department’s Tax Division; William F. Sweeney, Jr., Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI); and Jonathan D. Larsen, Special Agent-in-Charge, Internal Revenue Service Criminal Investigation, New York (IRS-CI), announced the guilty plea.  

In announcing the guilty plea, Mr. Donoghue thanked the U.S. Securities and Exchange Commission’s (SEC) New York Regional Office and the Washington, D.C. Office, the City of London Police, the U.K.’s Financial Conduct Authority and the Hungarian National Bureau of Investigation for their significant cooperation and assistance during the investigation.

In the fall of 2016, an Undercover Agent contacted Kyriacou and stated that he was a U.S. citizen interested in opening brokerage accounts at Beaufort Securities to execute trades in several multi-million dollar stock manipulation deals in stocks traded on U.S. over-the-counter markets.  In furtherance of the scheme, Kyriacou and Beaufort Securities opened six brokerage accounts.  Notwithstanding that a U.S. citizen would be the beneficial owner of each of the accounts, at no time did Kyriacou request FATCA Information from the Undercover Agent.  The brokerage accounts were opened for the Undercover Agent in the names of various international business corporations based in Belize, with Belizean nominees listed as the beneficial owners. 

In January 2018, Kyriacou facilitated the manipulation of trading in the stock of HD View 360, Inc., a publicly traded U.S. company that traded under the ticker symbol HDVW, by executing a match trade of HDVW stock.  In addition, Kyriacou agreed to launder what the Undercover Agent represented to be the proceeds of securities fraud through the purchase and sale of artworks.

The case is being handled by the Office’s Business and Securities Fraud Section.  Assistant United States Attorneys Jacquelyn M. Kasulis, David Gopstein and Michael T. Keilty are in charge of the prosecution. 

The DefendantPETER KYRIACOU Age: 28 London, England

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

Friday, November 22, 2019

FinCEN Reissues Real Estate Geographic Targeting Orders for 12 Metropolitan Areas

The Financial Crimes Enforcement Network (FinCEN) announced the renewal of its Geographic Targeting Orders (GTOs) that require U.S. title insurance companies to identify the natural persons behind shell companies used in all-cash purchases of residential real estate.  The purchase amount threshold remains $300,000 for each covered metropolitan area.

These renewed GTOs will be identical to the May 2019 GTOs with one modification: the new GTOs will not require reporting for purchases made by legal entities that are U.S. publicly-traded companies.  Real estate purchases by such entities are identifiable through other business filings.

The terms of this Order are effective beginning November 12, 2019 and ending on May 9, 2020.  GTOs continue to provide valuable data on the purchase of residential real estate by persons possibly involved in various illicit enterprises.  Reissuing the GTOs will further assist in tracking illicit funds and other criminal or illicit activity, as well as inform FinCEN’s future regulatory efforts in this sector.

Today’s GTOs cover certain counties within the following major U.S. metropolitan areas:  Boston; Chicago; Dallas-Fort Worth; Honolulu; Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; and Seattle. 

FinCEN appreciates the continued assistance and cooperation of the title insurance companies and the American Land Title Association in protecting the real estate markets from abuse by illicit actors.

Any questions about the Orders should be directed to the FinCEN Resource Center at

A copy of the GTO is available here.

Frequently asked questions regarding these GTOs are available here.

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

Thursday, November 21, 2019

Activities of U.S. Affiliates of Foreign Multinational Enterprises, 2017

Majority-owned U.S. affiliates (MOUSAs) of foreign multinational enterprises (MNEs) employed 7.4 million workers in the United States in 2017, a 2.8 percent increase from 7.2 million in 2016, according to statistics on MOUSA operations and finances released by the Bureau of Economic Analysis.

MOUSAs accounted for 5.8 percent of total private-industry employment in the United States. Employment by MOUSAs was largest in manufacturing and in retail trade. MOUSAs with ultimate beneficial owners in the United Kingdom, Japan, and Germany were the largest contributors to total MOUSA employment. (See the Additional Information for definitions of  MOUSAs and other terminology used in this release.)

Employment by Majority Owned US Affiliates

Current-dollar value added of MOUSAs, a measure of their direct contribution to U.S. gross domestic product (GDP), increased 8.3 percent to $1.0 trillion. MOUSAs accounted for 6.9 percent of total U.S. business-sector GDP.   

Expenditures for property, plant, and equipment by MOUSAs increased 2.2 percent to $258.6 billion. MOUSAs accounted for 16.4 percent of total U.S. private business capital expenditures. Research and development (R&D) performed by MOUSAs increased 8.1 percent to $62.6 billion. MOUSAs accounted for 15.6 percent of total U.S. business R&D.

MOUSA Share of Private Industry Employment by State

By state, private-industry employment accounted for by MOUSAs was  highest in Kentucky (8.5 percent), South Carolina (8.3 percent), and New Jersey (8.1 percent). In all three states, MOUSAs in the manufacturing industry employed the most workers.

Additional statistics on the activities of U.S. affiliates of foreign multinationals including sales, balance sheet and income statement items, compensation of employees, trade, and more are available on BEA’s website. More industry, country, and state level detail are available on the website and will be highlighted in the December issue of the Survey of  Current Business. 

Updates to the statistics

Statistics for 2016 are revised to incorporate newly available and revised source data. Preliminary statistics for 2016 were released in November 2018 and highlighted in “Activities of U.S. Affiliates of Foreign Multinational Enterprises in  2016” in the December 2018 issue of the Survey of Current Business.


Updates to Statistics on 2016 Activities of U.S. Affiliates of Foreign Multinational Enterprises
Billions of dollars, except as noted

Number of employees (thousands) 7,087.9 7,155.5
Value added 910.6 941.7
Expenditures for property, plant, and equipment 258.9 253.2
Research and development expenditures 60.1 57.9

Next release: November 13, 2020
Activities of U.S. Affiliates of Foreign Multinational Enterprises, 2018

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

Wednesday, November 20, 2019

Public Hearing on FATCA and its extraterritorial impact on EU citizens

On 12 November 2019 the Committee on Petitions organised a hearing on "FATCA and its extraterritorial impact on EU Citizens.” The aim of the hearing was to facilitate an exchange of views between the various stakeholders and listen to the issues faced by EU citizens affected by FATCA. The hearing consisted of two panels, focusing on financial services and the exchange of tax information with the US and on potential conflicts between European data protection rules and FATCA.

November 20, 2019 in GATCA | Permalink | Comments (0)

Thursday, November 14, 2019

Trade war leaves both US and China worse off

Tariffs imposed by the United States on China are economically hurting both countries, UNCTAD warnes in a new paper

The study, Trade and Trade Diversion Effects of United States Tariffs on China, shows that the ongoing US-China trade war has resulted in a sharp decline in bilateral trade, higher prices for consumers and trade diversion effects (increased imports from countries not directly involved in the trade war).

By analysing recently released trade statistics, the study finds that consumers in the US are bearing the heaviest brunt of the US tariffs on China, as their associated costs have largely been passed down to them and importing firms in the form of higher prices.

However, the study also finds that Chinese firms have recently started absorbing part of the costs of the tariffs by reducing the prices of their exports.

“The results of the study serve as a global warning. A lose-lose trade war is not only harming the main contenders, it also compromises the stability of the global economy and future growth,” cautioned UNCTAD’s director of international trade and commodities, Pamela Coke Hamilton. “We hope a potential trade agreement between the US and China can de-escalate trade tensions.”

The analysis shows that US tariffs caused a 25% export loss, inflicting a US$35 billion blow to Chinese exports in the US market for tariffed goods in the first half of 2019.

This figure also shows the competitiveness of Chinese firms which, despite the substantial tariffs, maintained 75% of their exports to the US.

The office machinery and communication equipment sectors were hit the hardest, suffering a $15 billion reduction of US imports from China as trade in tariffed goods in those sectors fell by an average of 55%.

Trade of tariffed goods in sectors such as chemicals, furniture, and electrical machinery also dropped substantially according to the analysis.

Though the study does not examine the impact of the most recent phase of the trade war, it warns that the escalation in summer of 2019 is likely to have added to the existing losses.

While it does not consider the impact of Chinese tariffs on US imports, the study indicates that qualitative results are most likely to be analogous: higher prices for Chinese consumers, losses for US exporters and trade gains for other countries.

While China loses, other economies gain

US tariffs on China have made other players more competitive in the US market and led to a trade diversion effect.

Of the $35 billion Chinese export losses in the US market, about $21 billion (or 63%) was diverted to other countries, while the remainder of $14 billion was either lost or captured by US producers.

According to the report, US tariffs on China resulted in Taiwan (province of China) gaining $4.2 billion in additional exports to the US in the first half of 2019 by selling more office machinery and communication equipment.

Mexico increased its exports to the US by $3.5 billion, mostly in the agri-food, transport equipment and electrical machinery sectors.

The European Union gained about $2.7 billion due to increased exports, largely in the machineries sectors.

Viet Nam’s exports to the US swelled by $2.6 billion, driven by trade in communication equipment and furniture. 

Trade diversion benefits to Korea, Canada and India were smaller but still substantial, ranging from $0.9 billion to $1.5 billion.

The remainder of the benefits were largely to the advantage of other South East Asian countries.

Trade diversion effects favouring African countries have been minimal.

November 14, 2019 in Economics | Permalink | Comments (0)

Wednesday, November 13, 2019

Italy Implements EU Directive AML5 (aka AMLD5) Expanding PEP Definition and Dealing with Digital Currency

LEGISLATIVE DECREE 4 October 2019, n. 125 

Changes and additions to legislative decrees 25 May 2017, n. 90 and n. 92, implementing directive (EU) 2015/849, as well as implementing directive (EU) 2018/843 amending directive (EU) 2015/849 concerning the prevention of the use of the financial system for money laundering or financing of terrorism and amending directives 2009/138 / EC and 2013/36 / EU. (19G00131) (General GU Series n.252 dated 10-26-2019)

note: Entry into force of the provision: 10/11/2019

Example (using Google Translate on the legislation)

Art. 50 (Ban on accounts or savings accounts in anonymous form or with fictitious header and products of anonymous electronic money). 
1. Opening in any f
orm of accounts or savings books anonymously or with fictitious header as well as the issue of products of anonymous electronic money is prohibited. 2. The use, in any form, of accounts or booklets of savings in anonymous form or with fictitious header as well as the use of electronic money products anonymous, open or issued in foreign countries, is forbidden. 2-bis. The prohibition of issuing and using products of anonymous electronic money, provided by paragraphs 1 and 2, starts from 10 June 2020.

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

Tuesday, November 12, 2019

Two Former Twitter Employees and a Saudi National Charged as Acting as Illegal Agents of Saudi Arabia

Defendants Allegedly Acted as Illegal Agents of a Foreign Government by Providing Information About Twitter Users to Representatives of the Kingdom of Saudi Arabia

Ali Alzabarah, Ahmad Abouammo, and Ahmed Almutairi, aka Ahmed Aljbreen, were charged for their respective roles in accessing private information in the accounts of certain Twitter users and providing that information to officials of the Kingdom of Saudi Arabia.  Abouammo was arrested in Seattle, Washington, on Nov. 5, 2019.  All three defendants are charged with acting as illegal agents of a foreign government; and Abouammo also is charged with destroying, altering, or falsifying records in a federal investigation.

“Acting in the United States under the direction and control of Saudi officials, the defendants are alleged to have obtained private, identifying information about users of Twitter who were critical of the Saudi government,” said Assistant Attorney General for National Security John C. Demers.  “Two of the defendants – Alzabarah and Abouammo – are former Twitter employees who violated their terms of employment to access this information in exchange for money and other benefits.  Aside from being criminal, their conduct was contrary to the free speech principles on which this country was founded.”  

“These charges make clear that the FBI will diligently pursue those who show a blatant disregard for the laws and democratic principles that define us as a country," said Executive Assistant Director Jay Tabb of the FBI’s National Security Branch. “We will continue to use all of the tools at our disposal to carry out our mission. I would like to thank the men and women of the FBI's San Francisco and Seattle Field Offices as well as the Counterintelligence Division for their tireless commitment to bring these individuals to justice.”

“The FBI will not stand by and allow foreign governments to illegally exploit private user information from U.S. companies.  These individuals are charged with targeting and obtaining private data from dissidents and known critics, under the direction and control of the government of Saudi Arabia,” said FBI Special Agent in Charge John F. Bennett.  “Insider threats pose a critical threat to American businesses and our national security.”

Alzabarah, 35, of Saudi Arabia, and Abouammo, 41, of Seattle, Washington, were Twitter employees.  According to the complaint, between November of 2014 and May of 2015, Almutairi, 30, of Saudi Arabia, and foreign officials of the Kingdom of Saudi Arabia convinced Abouammo and Alzabarah to use their employee credentials to gain access without authorization to certain nonpublic information about the individuals behind certain Twitter accounts.  Specifically, representatives of the Kingdom of Saudi Arabia and the Saudi Royal Family sought the private information of Twitter users who had been critical of the regime.  Such private user information included their email addresses, phone numbers, IP addresses, and dates of birth.  This information could have been used to identify and locate the Twitter users who published these posts.  The complaint alleges that Abouammo was compensated for his illicit conduct, including through the provision of a luxury watch and cash.  Almutairi is alleged to have arranged meetings, acted as a go-between, and facilitated communications between the Saudi government and the other defendants.

The complaint also contains allegations regarding the reaction of Alzabarah upon being confronted by Twitter about his violations of Twitter policy.  According to the complaint, when Alzabarah was confronted by Twitter’s management about accessing users’ information, he sought assistance from Almutairi and others to flee the United States.  Alzabarah left the country the next day and submitted his resignation from Twitter by email while en route.  Shortly after his return to Saudi Arabia, Alzabarah obtained employment through which he continued to work on behalf the Kingdom.  With respect to Abouammo, the complaint alleges FBI agents confronted him in October 2018 about his activities on behalf of officials of the Kingdom of Saudi Arabia.  In response, Abouammo allegedly lied to the agents and provided them with a falsified invoice in an effort to obstruct the investigation.

Abouammo was arrested in Seattle, Washington, on Nov. 5, 2019, and made his initial federal court appearance in Seattle at 2:00 p.m.on Nov. 6, 2019.  Alzabarah and Almutairi are believed to be in Saudi Arabia.  Federal warrants have been issued for their arrest.  

November 12, 2019 in AML | Permalink | Comments (0)

Monday, November 11, 2019

FTC Releases Results of 2017 Mass-Market Consumer Fraud Survey

The Federal Trade Commission has released the results of a comprehensive survey conducted in 2017 that examined the prevalence of mass-market consumer fraud, how it is perpetrated, and what factors are associated with a greater likelihood that a consumer may fall victim to fraud. The FTC conducted similar surveys in 2003, 2005, and 2011.  Download Massmarketconsumerfraud2017report

The survey results show that 15.9 percent of the respondents were victims of fraud in 2017, which represents approximately 40 million U.S. adults.

The most common types of fraud reported by the survey respondents were fraudulent weight-loss products, fraudulent computer repairs, and being falsely told that they owed money to the government. Other commonly reported types of fraud included unauthorized billing for buying club memberships, unauthorized billing for an item for a cell phone, and fraudulent prize promotions. The survey results indicate that each of these types of fraud had more than two million U.S. adult victims.

Internet transactions, which continue to grow, accounted for a substantial share of fraudulent incidents. According to the survey, 54 percent of all incidents of fraud involved Internet promotion of products and services, up from 33 percent in the 2011 survey.

The survey results indicate that consumers aged 35 to 54 were more likely to be victims of fraud compared to consumers in other age categories. According to the survey, 22 percent of respondents between 35 and 44, and 20 percent of respondents between 45 and 54, were victims of fraud. The survey also found that women were more likely to be fraud victims than men, with 19 percent of women reporting that they were victims of fraud, compared to 13 percent for men.

The survey results indicate that people who were more willing to take risks, and those who had recently experienced a negative life event (such as a severe illness or the death of a loved one), were more likely to have been fraud victims. Those experiencing high levels of debt and those who predicted that their incomes would rise substantially in the next few years were also more likely to have been fraud victims.

Download P105502massmarketconsumerfraud2017reportappendices

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

Sunday, November 10, 2019

BEA News: U.S. International Trade in Goods and Services, September 2019

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

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced that the goods and services deficit was $52.5 billion in September, down $2.6 billion from $55.0 billion in August, revised.

U.S. International Trade in Goods and Services Deficit
Deficit: $52.5 Billion -4.7%°
Exports: $206.0 Billion -0.9%°
Imports: $258.4 Billion -1.7%°

Next release: December 5, 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, November 5, 2019

Goods and Services Trade Deficit, Seasonally adjusted

Exports, Imports, and Balance 

September exports were $206.0 billion, $1.8 billion less than August exports. September imports were $258.4 billion, $4.4 billion less than August imports.

The September decrease in the goods and services deficit reflected a decrease in the goods deficit of $2.7 billion to $71.7 billion and a decrease in the services surplus of $0.1 billion to $19.3 billion.

Year-to-date, the goods and services deficit increased $24.8 billion, or 5.4 percent, from the same period in 2018. Exports decreased $7.0 billion or 0.4 percent. Imports increased $17.8 billion or 0.8 percent.

Three-Month Moving Averages

The average goods and services deficit decreased $1.0 billion to $53.8 billion for the three months ending in September.

  • Average exports decreased $0.1 billion to $207.1 billion in September.
  • Average imports decreased $1.1 billion to $260.9 billion in September.

Year-over-year, the average goods and services deficit decreased $0.6 billion from the three months ending in September 2018.

  • Average exports decreased $1.7 billion from September 2018.
  • Average imports decreased $2.3 billion from September 2018.


Exports of goods decreased $1.8 billion to $136.8 billion in September.

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

  • Foods, feeds, and beverages decreased $1.5 billion.
    • Soybeans decreased $1.0 billion.
  • Automotive vehicles, parts, and engines decreased $1.0 billion.
    • Passenger cars decreased $0.3 billion.
    • Trucks, buses, and special purpose vehicles decreased $0.3 billion.
  • Capital goods increased $0.8 billion.
    • Civilian aircraft increased $0.7 billion.
    • Civilian aircraft engines increased $0.6 billion.

   Net balance of payments adjustments increased $0.1 billion.

Exports of services decreased $0.1 billion to $69.2 billion in September.

  • Travel decreased $0.1 billion.


Imports of goods decreased $4.5 billion to $208.6 billion in September.

   Imports of goods on a Census basis decreased $4.3 billion.

  • Consumer goods decreased $2.5 billion.
    • Cell phones and other household goods decreased $0.8 billion.
    • Toys, games, and sporting goods decreased $0.6 billion.
    • Artwork, antiques, stamps, and other collectibles decreased $0.4 billion.
  • Capital goods decreased $1.1 billion.
    • Semiconductors decreased $0.6 billion.
  • Automotive vehicles, parts, and engines decreased $1.1 billion.
    • Trucks, buses, and special purpose vehicles decreased $0.4 billion.
    • Automotive parts and accessories decreased $0.3 billion.
    • Passenger cars decreased $0.3 billion.

   Net balance of payments adjustments decreased $0.2 billion.

Imports of services increased $0.1 billion to $49.9 billion in September, reflecting small (less than $50 million) changes in all major service categories.

Real Goods in 2012 Dollars – Census Basis

The real goods deficit decreased $3.1 billion to $82.6 billion in September.

  • Real exports of goods decreased $1.5 billion to $148.8 billion.
  • Real imports of goods decreased $4.6 billion to $231.5 billion.


Revisions to August exports

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

Revisions to August imports

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

Goods by Selected Countries and Areas: Monthly – Census Basis 

The September figures show surpluses, in billions of dollars, with South and Central America ($5.0), Hong Kong ($2.1), Brazil ($1.0), OPEC ($1.0), Singapore ($0.9), United Kingdom ($0.7), and Saudi Arabia ($0.3). Deficits were recorded, in billions of dollars, with China ($28.0), European Union ($15.7), Mexico ($9.1), Japan ($5.9), Germany ($5.0), Italy ($3.0), Canada ($2.5), Taiwan ($2.1), India ($2.0), France ($1.7), and South Korea ($1.2).

  • The deficit with Germany decreased $1.9 billion to $5.0 billion in September. Exports increased $0.7 billion to $5.6 billion and imports decreased $1.2 billion to $10.7 billion.
  • The deficit with China decreased $0.9 billion to $28.0 billion in September. Exports decreased $1.0 billion to $9.0 billion and imports decreased $1.9 billion to $37.0 billion.
  • The deficit with Canada increased $0.9 billion to $2.5 billion in September. Exports decreased $0.3 billion to $24.5 billion and imports increased $0.6 billion to $27.0 billion.

November 10, 2019 in Economics | Permalink | Comments (0)

Saturday, November 9, 2019

IRS Releases Statistics of Income Data

2.  Foreign Recipients of U.S. Income, Tax Year 2017

Three tables from SOI's Foreign Recipients of U.S. Income Study, Tax Year 2017, are now available on SOI's Tax Stats Webpage. Tables 1 and 2 present data from Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, and include statistics for the number of returns, total income, tax withheld, income subject to withholding, income exempt from withholding, and income by category. Data are available by selected countries and recipient types. Table 3 presents data for returns reporting payments and amounts withheld pursuant to Chapter 4 of the Internal Revenue Code and includes statistics for the number of returns, total income, tax withheld, income subject to withholding, and income exempt from withholding. Data are available by selected income types.

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  3.  U.S. Corporation Returns with a Foreign Tax Credit, Tax Year 2016

Table 2, which presents statistics from Form 1118, Foreign Tax Credit—Corporations, for Tax Year 2016, is now available on SOI's Tax Stats Web page. The data provided include foreign-source gross income, deductions, and taxes paid, accrued, or deemed paid by selected country to which foreign taxes were paid.

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  4.  Controlled Foreign Corporations, Tax Year 2016

Two new tables presenting data from Form 5471, Controlled Foreign Corporations, are now available on SOI's Tax Stats Webpage. The tables present data from the estimated population of returns filed for Tax Year 2016. Table 1 displays number, assets, receipts, earnings, taxes, distributions, subpart F income, and related party transactions for U.S. corporations and their controlled foreign corporations classified by NAICS industrial sector. Table 2 displays number, assets, receipts, earnings, taxes, distributions, subpart F income, and related party transactions for U.S. corporations and their controlled foreign corporations classified by selected country of incorporation.

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November 9, 2019 in Economics | Permalink | Comments (0)

Friday, November 8, 2019

Human Smuggler Indicted On U.S. Charges and Arrested as Part of Brazilian Takedown of Significant Alien Smugglers

Extensive coordination and cooperation efforts between United States and Brazilian law enforcement authorities culminated in the Brazil Federal Police (DPF) conducting a significant enforcement operation to disrupt and dismantle a transnational alien smuggling organization, including the arrest on Brazilian charges of an alleged alien smuggler who has also been indicted in the United States.  The alien smugglers targeted in this operation are alleged to be responsible for the illicit smuggling of scores of individuals from South Asia and elsewhere, into Brazil, and ultimately to the United States.

Saifullah Al-Mamun aka Saiful Al-Mamun, 32, was arrested in Brazil.  Al-Mamun is charged in a superseding indictment unsealed today in the U.S. District Court for the Southern District of Texas – Laredo Division, charging him with eight conspiracy and alien smuggling counts.  The enforcement operation included the execution of multiple search warrants and the additional arrests of seven Brazil-based human smugglers on Brazilian charges: Saifullah Al-Mamun, 32; Saiful Islam, 32; Tamoor Khalid, 31; Nazrul Islam, 41; Mohammad Ifran Chaudhary, 39; Mohammad Nizam Uddin, 28; and Md Bulbul Hossain, 36.

According to the indictment, Al-Mamun is alleged to have housed the aliens in São Paulo, Brazil and arranged for their travel through a network of smugglers operating out of Brazil, Peru, Ecuador, Colombia, Panama, Costa Rica, Nicaragua, Honduras, Guatemala, and Mexico to the United States. In return for smuggling the aliens into the United States, Al-Mumun and his two co-conspirators, are alleged to have arranged to be paid in Mexico, Central America, South America, Bangladesh, and elsewhere.

“Today’s indictment shows our commitment to prosecute here in the United States those alien smugglers who put our country’s public safety at risk by attempting to thwart our system of legal immigration,” said Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division.  “We will continue to collaborate with our foreign law enforcement partners to hold international human smugglers accountable for the threat they pose to the national security of Brazil, the United States, and other nations.”

“Transnational human smuggling organizations threaten the security of the United States,” said Special Agent in Charge Scott Brown of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI) Phoenix.  “Through a significant joint effort with our domestic and international law enforcement partners, these arrests signify another victory as we continue to investigate and dismantle those who conspire to undermine our nation’s immigration laws for their own profit.”

Milon Miah, a Bangladeshi national who was residing in Tapachula, Mexico, was arrested Aug. 31 on arrival at George Bush Intercontinental Airport in Houston, Texas, to face charges in the superseding indictment for his role in the scheme to smuggle aliens into the United States.  Moktar Hossain, 31, a Bangladeshi national formerly residing in Monterrey, Mexico, pleaded guilty on Aug. 27 for his role in the scheme to smuggle aliens to the United States for the purpose of commercial advantage or private financial gain.

Both the indictment against Al-Mamun and assistance provided by U.S. authorities to Brazilian law enforcement were coordinated under the Extraterritorial Criminal Travel Strike Force (ECT) program, a joint partnership between the Justice Department Criminal Division’s Human Rights and Special Prosecutions Section (HRSP) and HSI.  The ECT program focuses on human smuggling networks that may present particular national security or public safety risks, or present grave humanitarian concerns. ECT has dedicated investigative, intelligence and prosecutorial resources.  ECT coordinates and receives assistance from other U.S. government agencies and foreign law enforcement authorities.  HSI Phoenix led U.S. investigative efforts, working in concert with HSI Brasilia, HSI Laredo, the HSI Human Smuggling Unit ECT program, ICE’s Enforcement and Removal Operations, U.S. Customs and Border Protection National Targeting Center, the International Organized Crime Intelligence and Operations Center, the HSI Liaison to the U.S. Department of Defense, U.S. Southern Command, Operation CITADEL, BITMAP, and the National Targeting Center. The Justice Department, both Criminal Division’s HRSP and the Office of International Affairs, provided significant assistance in this matter.

Trial Attorneys James Hepburn, Erin Cox, and Mona Sahaf of the Criminal Division’s Human Rights and Special Prosecutions Section are handling the U.S. investigation, with assistance from the U.S. Attorney’s Office for the Southern District of Texas.

November 8, 2019 in AML | Permalink | Comments (0)

Thursday, November 7, 2019

U.S. Navy Officer, His Wife, and Two Chinese Nationals Charged with Conspiring to Smuggle Military Style Inflatable Boats and Evinrude Military Outboard Motors to China

Assistant Attorney General John C. Demers and U.S. Attorney Maria Chapa Lopez for the Middle District of Florida announces the return of an indictment of four individuals, including two Chinese nationals, an active-duty United States Navy officer, and his wife, on charges relating to a conspiracy to unlawfully smuggle military-style inflatable boats, with Evinrude MFE military outboard motors, to the People’s Republic of China.  The Navy officer and two other defendants have also been charged with conspiring to violate firearms law, and the Navy officer has been charged with an additional firearms-related offense and with making false official statements. Download yang_indictment.pdf

The four defendants charged in the indictment are:

Fan Yang, 34, a naturalized citizen of the United States and Lieutenant in the United States Navy residing in Jacksonville, Florida; Yang Yang, 33, wife of Fan Yang, and a naturalized citizen of the United States residing in Jacksonville, Florida; Ge Songtao, 49, a citizen and resident of the People’s Republic of China; and Zheng Yan, 27, a citizen and resident of the People’s Republic of China.

The defendants were arrested on Oct. 17, 2019, and are currently detained.

All four defendants have been charged with conspiring to submit false export information and to fraudulently attempt to export articles from the United States.  Additionally, Yang Yang, Ge Songtao, and Zheng Yan have been charged with causing the submission of false and misleading information into the U.S. Automated Export System, and fraudulently attempting to export seven vessels and eight engines.  If convicted for conspiracy or for the submission of false export information, the charged defendants each face a maximum penalty of five years in federal prison.  If convicted on the attempted-smuggling charge, the defendants each face a maximum sentence of 10 years in federal prison.

Fan Yang, Yang Yang, and Ge Songtao are charged with other offenses as well.  All three have been charged with conspiring to violate laws prohibiting an alien admitted under a nonimmigrant visa from possessing a firearm and prohibiting the transfer of a firearm to a nonresident.  Fan Yang has also been charged with making a false statement to a firearms dealer, which carries a maximum penalty of 10 years’ imprisonment, and with making false official statements in his application for a security clearance, which carries a maximum penalty of five years’ imprisonment. 

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

Wednesday, November 6, 2019

Texas Man Pleads Guilty to Fraud Scheme Involving Fake Letters of Credit and Bank Documents

A Texas man pleaded guilty to defrauding victims around the United States by selling them fake “standby letters of credit” and other forged and fraudulent bank documents. James Pierce, 43, of Spring, Texas, pleaded guilty to a three-count indictment charging him with wire fraud and conspiracy to commit wire fraud.

As part of his guilty plea, Pierce admitted that he and his co-conspirators falsely represented to their victims that they had a relationship with a bank located in the Dominican Republic (“Bank 1”), that they could use to secure financing for the victims’ large commercial transactions. In exchange for six-figure fees paid by the victims, the defendant and his co-conspirators falsely promised that the victims could gain access to credit at Bank 1.  They further represented that Bank 1 would issue Society for Worldwide Interbank Financial Telecommunication (SWIFT) inter-bank messages to banks designated by the victims, showing that the victims had access to such credit.  In reality, the defendant and his co-conspirators had no such relationship with Bank 1, and provided the victims with fake Bank 1 documentation falsely showing that it had transmitted the promised bank instruments.  When the victims did not receive their SWIFT messages, the defendant and his co-conspirators gave the victims excuses and false statements, and in several instances, fraudulently induced the victims to pay additional money to have their bank documentation “re-issued” – which also never happened.  Pierce also used a website and email address at to carry out the fraud.

The FBI investigated the case.  Trial Attorney Blake Goebel and Assistant Chief Justin Weitz of the Criminal Division’s Fraud Section are prosecuting the case. 

November 6, 2019 in AML | Permalink | Comments (0)

Tuesday, November 5, 2019

South Florida Resident Arrested for Attempting to Illegally Export Controlled Items to Libya

Peter Sotis, 55, of Delray Beach, Florida, was arrested based on an indictment charging him with conspiracy to violate and attempted violation of the International Emergency Economic Powers Act (IEEPA) and the Export Administration Regulations (EAR), as well as smuggling of goods.  

John C. Demers, Assistant Attorney General for National Security; Ariana Fajardo Orshan, U.S. Attorney for the Southern District of Florida; Robert Luzzi, Special Agent in Charge of the Department of Commerce’s Office of Export Enforcement (DOC) Miami Field Office; and Anthony Salisbury, Special Agent in Charge of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations’ (ICE-HSI) Miami Field Office, made the announcement. 

The indictment alleges Sotis was the owner and principal of Add Helium, a Fort Lauderdale diving company. Sotis was charged with smuggling, conspiracy to violate and attempted violation of the IEEPA and the EAR by transferring dual-use goods, that is, articles that have both civilian and military application, for export to Libya without the required Department of Commerce license.

In particular, court documents indicated that Sotis and a co-defendant at Add Helium transferred four rebreathers, which were controlled under the EAR for national security reasons, to a shipping company for export to Libya after being informed by a Commerce agent that the items could not be exported while a license determination was pending.  A rebreather is an apparatus that absorbs the carbon dioxide of a scuba diver's exhaled breath to permit the rebreathing (recycling) of each breath. This technology produces no bubbles, thereby concealing the diver’s activities from those on the surface, and allowing a diver to stay underwater longer compared with normal diving equipment.

November 5, 2019 in AML | Permalink | Comments (0)

Monday, November 4, 2019

Does the 16th Amendment Require the Allowance of Deductions for a Business' Operating Expenses? (the battle to really legalize marijuana)

Every day I comb through my Law360 Tax Authority list of articles in order to update one of my tax treatises.  I found a really interesting one though today for my Money Laundering treatise.  It's about fitting an elephant through a keyhole.  With enough pressure, it can be done, but by breaking down the entire door.  The case is Northern California Small Business Assistants Inc. v. Commissioner, 153 T.C. No. 4 (Oct. 23, 2019).  The Law360 Tax Authority analysis is here:

My take away ....

Of course, it's not a violation of 8th because not a penalty, albeit I appreciate the (losing) argument.  Yet, at this stage, cross-aisle agree both federal Cannabis-leaf-hempand state, marijuana, at least at defined dosages, it is more like Valium on Schedule IV then Vicodin Schedule II.  The Schedules allow for dosage amounts. Only ardent prohibitionists I think (I am no expert) want the Schedule I classification to remain.  I am sure state leaders, the financial industry (because of the AML provisions of the BSA), the IRS, and the AG industry want it reduced to at least Schedule II but preferably Schedule IV where it belongs.  Or break it up by THC levels into Sch II, III, and IV.

But the DEA is the real problem. I do not understand why the DEA will not remove marijuana from the blacklist (Schedule I) unless the DEA needs it on Schedule 1 to maintain its significant funding for global marijuana crop eradication programs because govt agencies never shrink themselves by giving up jurisdiction or budget. But I do not believe that the FDA, HHS, et al who inform the DEA want to keep it at Schedule I.  

So lots of pressure on Treasury to fix two insurmountable issues to marijuana state-licensed businesses from being federally legit and compliant. The BSA problem for AML compliance (keeps this a cash business) and the IRC 280E problem (makes marijuana industry a federal tax evader or unprofitable because effective rates of taxation of state and federal are in many cases greater than 100% of net income).  And Treasury wants to fix it.  But its hands are technically tied because the DEA will not delist marijuana from Schedule I.  That forces 280E and AML rules to kick in.  I'd be happy for Treasury to ignore the law but it's too dangerous for Treasury or any agency to pick and choose what laws to adhere to. Of course, the discretion of enforcement is a totally different issue.  

The AML issue Treasury issued, albeit the former prohibitionist AG basically said DOJ is not playing ball, a soft guidance explaining to banks how to distinguish good and bad marijuana dollars (the Marijuana SAR guidance). (See marijuana SAR results for 2018) For 280E though, Treasury would need to tell the IRS to ignore 280E marijuana stated licensed businesses fraudulent filed returns to circumvent the prohibition of deductions.  It would be really hard to administer the audits. 

If Treasury cannot do it, but wants to do it, that leaves the Tax Court.  The Tax Court judges have over the past two years have concluded that marijuana should be removed from Schedule I so that 280E is not an issue.  In this case, once again the conclusion is:

"Congress, rather than this Court, is the proper body to redress petitioner’s grievances. We are constrained by the law, and Congress has not carved out an exception in section 280E for businesses that operate lawfully under State law."

It's only doing so because the IRS Counsel (must I think) express this in arguments to the Court, begging the Court for a way out of this mess. So the Tax Court has written that Congress or an agency needs to fix the problem.  It hasn't been fixed.   And then this case where a powerful voice on the Tax Court said to the DEA and Congress: 'do not force us to rectify the problem because you are not going to like the theoretical hoop we must jump through to do it.'  

So, the theoretical argument that could gain some traction about the denial of all deductions by 280E is that it imposes the tax rate (say 37%) on revenue which may violate the intention of the 16th Amendment.  This is what Gustafon is musing about at page 23. I agree.

At page 26 the point is driven home (pun coming..): 

"Very different would be an attempt by Congress to tax gross proceeds from the sale of a capital asset, without allowing a taxpayer to account for his “basis” in the property in calculating his taxable gain." 

So imagine Congress imposes the ordinary tax rate on the sale price of a individual taxpayer's sale of the home.  Say 37% on $500,000.  Taxpayer not allowed the basis reduction of the acquisition cost of $450,000 three years ago.  TP owes $185,000 tax (and also the additional 3.8% Net Investment Income Tax), on the $50,000 - expenses of the transaction gain.  Of course, this is absurd because property requires financing and the remaining would be less than any mortgage secured loan.  Same scenario but now shares in Apple bought at $220 last year by our home owing taxpayer and 13 months later sold for $250.  Economic collapse.  TP rebellion.  Not a pretty civil scenario.

Well, 280E does not deny deductions for the cost of goods (of the narcotics like marijuana or heroin - I do not think marijuana should be a black-listed scheduled narcotic).  But why not?  Because, simply put, an 'income' tax on business 'income' should be imposed on the 'income' and not on the revenue which is not income.  You get that point - you teach about this in your business accounting class.  A tax imposed on a business revenue is something other than an 'income tax'.  Excise tax maybe, but not an income tax.  See Judge Gustafson explain this at page 26-27.

"Likewise, a congressional attempt to tax the gross receipts of a business engaged in sales should fail. A taxpayer who purchased 100 widgets at a cost of $10 each and sold them at a price of $9 each would have gross receipts or sales of $900, which after being reduced by the “cost of goods sold” (“COGS”) of $1,000 (analogous to basis in the Blackacre example) would yield a loss of $100. Given that obvious loss, Congress could not tax the gross receipts of $900 as if it were “income”. Rather, as the Court of Appeals for the Tenth Circuit has explained: “To ensure taxation of income rather than sales, the ‘cost of goods sold’ is a mandatory exclusion from the calculation of a taxpayer’s gross income.”"

Can Congress levy a tax on revenue under the 16th?  We know the answer is no because that is why COG is allowed to be above the line to derive an income, and then 280E applies.  Well settled.  See page 27.

"The taxation of “income” must take account of the “basis” in a capital asset and of the COGS of inventory--not merely as an exercise of “legislative grace” but as mandatory under the Sixteenth Amendment of the Constitution."

So some expenses are allowed being COG, and other, operating expenses, not allowed.  Already 280E is in a quagmire of discriminating between good and bad expenses to fit into the 16th.  Thus, the Tax Court could force a bushel of marijuana through a 280E keyhole using the pressure of the 16th Amend if it must to deal with this situation.  Gustafson's push through the keyhole is the second part of his sentence highlighted below at page 29.

"Congress taxes something other than a taxpayer’s “income” when it taxes gross receipts without accounting for basis or COGS--and, I would hold, when it taxes gross receipts without accounting for the ordinary and necessary expenses that are incurred in the course of business and must be paid before one can be said to have gain."

The argument requires stretching the keyhole with a lot of 16th Amend pressure (though I personally quite like the 16th argument) and Appellate Circuits may want to keep the keyhole rather small and deflate that pressure.  But I think that the 1st, 9th, and 10th judges have to live in states where education or other government funding is significantly helped by the state-legal licensed marijuana industry.  Judges look at neighbor farmers who cannot sell to China about to go belly up with their grains and soybean - where marijuana can save the farm.  I have no litigation or controversy experience but I imagine some Appellate judges know these situations from reading or table talk. 

So if the stretch of the 280E keyhole is not totally implausible by using the 16th Amend, a panel may just agree to send a message like the Tax Court to the DEA and failing that, Congress.  Anyway, the Supremes can sort out the ramifications of using the 16th to stretch the 280E keyhole.  And by that time, maybe the DEA did what the public pressure wants it to do, and is the right thing to do based on medical evidence being generated, move marijuana, based on amount of THC, to the relevant schedules of II through IV.  

Anyway, my take on this case.  Look forward to receiving your thoughts.

November 4, 2019 in AML | Permalink | Comments (0)

Friday, November 1, 2019

Oil Executives Plead Guilty for Roles in Bribery Scheme Involving Foreign Officials

The former CEO and chief operations officer (COO) of a Monaco-based intermediary company have pleaded guilty for their roles in a scheme to corruptly facilitate millions of dollars in bribe payments to officials in multiple countries. These included Algeria, Angola, Azerbaijan, the Democratic Republic of Congo, Iran, Iraq, Kazakhstan, Libya and Syria. The company’s former business development director also pleaded guilty for his role in paying bribes in Libya.

Cyrus Ahsani, 51, and Saman Ahsani, 46, both of United Kingdom (UK), each pleaded guilty March 25 to one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA), for conspiring to facilitate bribes on behalf of companies in foreign countries in order to secure oil and gas contracts. UK resident Steven Hunter, 50, former business development director, pleaded guilty Aug. 2, 2018, to one count of conspiracy to violate the FCPA. Cyrus and Saman Ahsani are set for sentencing April 20, 2020, before U.S. District Judge Vanessa Gilmore of the Southern District of Texas. Hunter’s sentencing is scheduled for March 13, 2020, before U.S. District Judge David Hittner.    

According to court documents, former U.S. resident and CEO Cyrus Ahsani and former COO Saman Ahsani managed a Monaco-based intermediary company that provided services for multinational companies operating in the energy sector. From approximately 1999 to 2016, the Ahsanis conspired with others, including multiple companies and individuals, to make millions of dollars in bribe payments to government officials in Algeria, Angola, Azerbaijan, the Democratic Republic of Congo, Iran, Iraq, Kazakhstan, Libya and Syria. 

Additionally, court documents reflect Cyrus and Saman Ahsani laundered the proceeds of their bribery scheme in order to promote and conceal the schemes and to cause the destruction of evidence in order to obstruct investigations in the United States and elsewhere. Hunter participated in the conspiracy to violate the FCPA by, among other things, facilitating bribe payments to Libyan officials between about 2009 and 2015.

The governments of Australia, Canada, France, Guernsey, Italy, Monaco, the Netherlands, Portugal, Switzerland and UK provided significant assistance in this matter as did the U.S. Securities and Exchange Commission and Eurojust.

The Fraud Section is responsible for investigating and prosecuting all FCPA matters. 

November 1, 2019 in AML | Permalink | Comments (0)