International Financial Law Prof Blog

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

Saturday, October 31, 2020

USA Gross Domestic Product 3rd Quarter 2020 jumps 33%, but disposable personal income decreased 16%

Real gross domestic product (GDP) increased at an annual rate of 33.1 percent in the third quarter of 2020 (table 1), according to the "advance" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP decreased 31.4 percent.

The GDP estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see "Source Data for the Advance Estimate" on page 2). The "second" estimate for the third quarter, based on more complete data, will be released on November 25, 2020.

Real GDP: Percent change from preceding quarter, Q3 2020 (Adv)

Chart showing Real GDP: Percent change from preceding quarter
COVID-19 Impact on the Third-Quarter 2020 GDP Estimate
The increase in third quarter GDP reflected continued efforts to reopen businesses and resume activities that were postponed or restricted due to COVID-19. The full economic effects of the COVID-19 pandemic cannot be quantified in the GDP estimate for the third quarter of 2020 because the impacts are generally embedded in source data and cannot be separately identified. For more information, see the Technical Note.

The increase in real GDP reflected increases in personal consumption expenditures (PCE), private inventory investment, exports, nonresidential fixed investment, and residential fixed investment that were partly offset by decreases in federal government spending (reflecting fewer fees paid to administer the Paycheck Protection Program loans) and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased (table 2).

The increase in PCE reflected increases in services (led by health care as well as food services and accommodations) and goods (led by motor vehicles and parts as well as clothing and footwear). The increase in private inventory investment primarily reflected an increase in retail trade (led by motor vehicle dealers). The increase in exports primarily reflected an increase in goods (led by automotive vehicles, engines, and parts as well as capital goods). The increase in nonresidential fixed investment primarily reflected an increase in equipment (led by transportation equipment). The increase in residential fixed investment primarily reflected an increase in brokers' commissions and other ownership transfer costs.

Current‑dollar GDP increased 38.0 percent, or $1.64 trillion, in the third quarter to a level of $21.16 trillion. In the second quarter, GDP decreased 32.8 percent, or $2.04 trillion (tables 1 and 3).

The price index for gross domestic purchases increased 3.4 percent in the third quarter, in contrast to a decrease of 1.4 percent in the second quarter (table 4). The PCE price index increased 3.7 percent, in contrast to a decrease of 1.6 percent. Excluding food and energy prices, the PCE price index increased 3.5 percent, in contrast to a decrease of 0.8 percent.

Personal Income

Current-dollar personal income decreased $540.6 billion in the third quarter, in contrast to an increase of $1.45 trillion in the second quarter. The decrease in personal income was more than accounted for by a decrease in personal current transfer receipts (notably, government social benefits related to pandemic relief programs) that was partly offset by increases in compensation and proprietors' income (table 8). Additional information on several factors impacting personal income can be found in "Effects of Selected Federal Pandemic Response Programs on Personal Income."

Disposable personal income decreased $636.7 billion, or 13.2 percent, in the third quarter, in contrast to an increase of $1.60 trillion, or 44.3 percent, in the second quarter. Real disposable personal income decreased 16.3 percent, in contrast to an increase of 46.6 percent.

Personal saving was $2.78 trillion in the third quarter, compared with $4.71 trillion in the second quarter. The personal saving rate—personal saving as a percentage of disposable personal income—was 15.8 percent in the third quarter, compared with 25.7 percent in the second quarter.

October 31, 2020 in Economics | Permalink | Comments (0)

Friday, October 30, 2020

Egypt is 54th Country for the Multilateral BEPS Convention

On October 29, Egypt deposited its instrument of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Multilateral Convention or MLI), which now covers almost 1700 bilateral tax treaties, with the OECD’s Secretary-General, Angel Gurría, thus underlining its strong commitment to prevent the abuse of tax treaties and base erosion and profit shifting (BEPS) by multinational enterprises. The MLI will enter into force on 1 January 2021 for Egypt.

With 94 jurisdictions currently covered by the MLI, this ratification now brings to 54 the number of jurisdictions which have ratified, accepted or approved it. The Convention will become effective on 1 January 2021 for over 600 treaties concluded among the 54 jurisdictions, with an additional 1100 treaties to become effectively modified once the MLI will have been ratified by all Signatories. The text of the Multilateral Convention, the explanatory statement, background information, database, and positions of each signatory are available at http://oe.cd/mli.

October 30, 2020 in BEPS | Permalink | Comments (0)

Thursday, October 29, 2020

Chinese Energy Company, U.S. Oil & Gas Affiliate and Chinese National Indicted for Theft of Trade Secrets

A federal grand jury has returned an indictment alleging corporate entities conspired to steal technology from a Houston-area oil & gas manufacturer, announced U.S. Attorney Ryan K. Patrick and Assistant Attorney General John C. Demers of the Department of Justice’s National Security Division.

Jason Energy Technologies Co. (JET) in Yantai, People’s Republic of China; Jason Oil and Gas Equipment LLC (JOG) USA and Chinese national Lei Gao aka Jason Gao, 45, are charged with conspiracy, theft of trade secrets and attempted theft of trade secrets. 

Gao previously resided in Houston but is now believed to be in China. A warrant remains outstanding for his arrest.

Also charged in relation to the case is Robert Erford Jr., 41, Dayton, who worked for a Houston-area company. He previously pleaded guilty to conspiracy to commit trade secrets.

On or about Nov. 7, 2019, Gao allegedly met with Erford at the JOG offices located in Houston. According to the indictment, Erford signed a consultancy agreement that Gao provided at that time, indicating Erford would work in China as a consultant to assist JOG in coiled tubing technology. Erford was to be $1,000 each day of a 15-day visit, according to the charges.

This agreement allegedly also included a confidentiality provision. 

At that meeting, Erford was also provided a letter from the JET general manager inviting him to visit in order to have a technical exchange and discussion, according to the charges. That letter allegedly indicated a goal of helping to promote the company’s manufacturing efficiency, reduce machine failure and increase production capacity.

Without authorization, on or about Nov. 22, 2019, Erford allegedly transferred a victim company document that contained a trade secret from the United States to the China for JET’s benefit. The indictment further alleges that from approximately Nov. 25-29, 2019, Erford held meetings with Gao and JET officials at JET’s offices in China and its coiled tubing facilities. At those meetings, they allegedly discussed coiled tubing technology, including victim company proprietary technology, practices and procedures.

The charges also allege authorities obtained evidence that Erford and Gao used encrypted messaging app WeChat in December 2019 to obtain, collect and copy victim company manufacturing information.

The corporate entities could be fined up to $5 million or three times the value of the stolen trade secret, whichever is greater. Gao faces the same potential fine as well as a possible prison sentence of up to 10 years.

The FBI conducted the investigation. Assistant U.S. Attorneys Carolyn Ferko and S. Mark McIntyre of the Southern District of Texas are prosecuting the case along with Trial Attorney William Mackie from the Department of Justice’s National Security Division’s Counterintelligence and Export Control Section.

October 29, 2020 in AML | Permalink | Comments (0)

Friday, October 23, 2020

Goldman Sachs Charged in Foreign Bribery Case and Agrees to Pay Over $2.9 Billion

The Goldman Sachs Group Inc. (Goldman Sachs or the Company), a global financial institution headquartered in New York, New York, and Goldman Sachs (Malaysia) Sdn. Bhd. (GS Malaysia), its Malaysian subsidiary, have admitted to conspiring to violate the Foreign Corrupt Practices Act (FCPA) in connection with a scheme to pay over $1 billion in bribes to Malaysian and Abu Dhabi officials to obtain lucrative business for Goldman Sachs, including its role in underwriting approximately $6.5 billion in three bond deals for 1Malaysia Development Bhd. (1MDB), for which the bank earned hundreds of millions in fees.  Goldman Sachs will pay more than $2.9 billion as part of a coordinated resolution with criminal and civil authorities in the United States, the United Kingdom, Singapore, and elsewhere. 

Goldman Sachs entered into a deferred prosecution agreement with the department in connection with a criminal information filed today in the Eastern District of New York charging the Company with conspiracy to violate the anti-bribery provisions of the FCPA.  GS Malaysia pleaded guilty in the U.S. District Court for the Eastern District of New York to a one-count criminal information charging it with conspiracy to violate the anti-bribery provisions of the FCPA. 

Previously, Tim Leissner, the former Southeast Asia Chairman and participating managing director of Goldman Sachs, pleaded guilty to conspiring to launder money and to violate the FCPA.  Ng Chong Hwa, also known as “Roger Ng,” former managing director of Goldman and head of investment banking for GS Malaysia, has been charged with conspiring to launder money and to violate the FCPA.  Ng was extradited from Malaysia to face these charges and is scheduled to stand trial in March 2021.  The cases are assigned to U.S. District Judge Margo K. Brodie of the Eastern District of New York.

In addition to these criminal charges, the department has recovered, or assisted in the recovery of, in excess of $1 billion in assets for Malaysia associated with and traceable to the 1MDB money laundering and bribery scheme.   

“Goldman Sachs today accepted responsibility for its role in a conspiracy to bribe high-ranking foreign officials to obtain lucrative underwriting and other business relating to 1MDB,” said Acting Assistant Attorney General Brian C. Rabbitt of the Justice Department’s Criminal Division.  “Today’s resolution, which requires Goldman Sachs to admit wrongdoing and pay nearly three billion dollars in penalties, fines, and disgorgement, holds the bank accountable for this criminal scheme and demonstrates the department’s continuing commitment to combatting corruption and protecting the U.S. financial system.”

“Over a period of five years, Goldman Sachs participated in a sweeping international corruption scheme, conspiring to avail itself of more than $1.6 billion in bribes to multiple high-level government officials across several countries so that the company could reap hundreds of millions of dollars in fees, all to the detriment of the people of Malaysia and the reputation of American financial institutions operating abroad,” said Acting U.S. Attorney Seth D. DuCharme of the Eastern District of New York.  “Today’s resolution, which includes a criminal guilty plea by Goldman Sachs’ subsidiary in Malaysia, demonstrates that the department will hold accountable any institution that violates U.S. law anywhere in the world by unfairly tilting the scales through corrupt practices.”

“When government officials and business executives secretly work together behind the scenes for their own illegal benefit, and not that of their citizens and shareholders, their behavior lends credibility to the narrative that businesses don’t succeed based on the quality of their products, but rather their willingness to play dirty,” said Assistant Director in Charge William F. Sweeney Jr. of the FBI’s New York Field Office.  “Greed eventually exacts an immense cost on society, and unchecked corrupt behavior erodes trust in public institutions and government entities alike.  This case represents the largest ever penalty paid to U.S. authorities in an FCPA case.  Our investigation into the looting of funds from 1MDB remains ongoing. If anyone has information that could assist the case, call us at 1-800-CALLFBI.”

“1MDB was established to drive strategic initiatives for the long-term economic development of Malaysia. Goldman Sachs admitted today that one billion dollars of the money earmarked to help the people of Malaysia was actually diverted and used to pay bribes to Malaysian and Abu Dhabi officials to obtain their business,” said Special Agent in Charge Ryan L. Korner of IRS Criminal Investigation’s (IRS-CI) Los Angeles Field Office.  “Today’s guilty pleas demonstrate that the law applies to everyone, including large investment banks like Goldman Sachs.  IRS Criminal Investigation will work tirelessly alongside our law enforcement partners to identify and bring to justice those who engage in fraud and deceit around the globe.  When the American financial system is misused for corruption, the IRS will take notice and we will take action.”

According to Goldman’s admissions and court documents, between approximately 2009 and 2014, Goldman conspired with others to violate the FCPA by engaging in a scheme to pay more than $1.6 billion in bribes, directly and indirectly, to foreign officials in Malaysia and Abu Dhabi in order to obtain and retain business for Goldman from 1MDB, a Malaysian state-owned and state-controlled fund created to pursue investment and development projects for the economic benefit of Malaysia and its people.  Specifically, the Company admitted to engaging in the bribery scheme through certain of its employees and agents, including Leissner, Ng, and a former executive who was a participating managing director and held leadership positions in Asia (Employee 1), in exchange for lucrative business and other advantages and opportunities.  These included, among other things, securing Goldman’s role as an advisor on energy acquisitions, as underwriter on three lucrative bond deals with a total value of $6.5 billion, and a potential role in a highly anticipated and even more lucrative initial public offering for 1MDB’s energy assets.  As Goldman admitted — and as alleged in the indictment pending in the Eastern District of New York against Ng and Low — in furtherance of the scheme, Leissner, Ng, Employee 1, and others conspired to pay bribes to numerous foreign officials, including high-ranking officials in the Malaysian government, 1MDB, Abu Dhabi’s state-owned and state-controlled sovereign wealth fund, International Petroleum Investment Company (IPIC), and Abu Dhabi’s state-owned and state-controlled joint stock company, Aabar Investments PJS (Aabar). 

Goldman admitted today that, in order to effectuate the scheme, Leissner, Ng, Employee 1, and others conspired with Low Taek Jho, aka Jho Low, to promise and pay over $1.6 billion in bribes to Malaysian, 1MDB, IPIC, and Aabar officials.  The co-conspirators allegedly paid these bribes using more than $2.7 billion in funds that Low, Leissner, and other members of the conspiracy diverted and misappropriated from the bond offerings underwritten by Goldman.  Leissner, Ng and Low also retained a portion of the misappropriated funds for themselves and other co-conspirators.  Goldman admitted that, through Leissner, Ng, Employee 1 and others, the bank used Low’s connections to advance and further the bribery scheme, ultimately ensuring that 1MDB awarded Goldman a role on three bond transactions between 2012 and 2013, known internally at Goldman as “Project Magnolia,” “Project Maximus,” and “Project Catalyze.” 

Goldman also admitted that, although employees serving as part of Goldman’s control functions knew that any transaction involving Low posed a significant risk, and although they were on notice that Low was involved in the transactions, they did not take reasonable steps to ensure that Low was not involved.  Goldman further admitted that there were significant red flags raised during the due diligence process and afterward — including but not limited to Low’s involvement — that either were ignored or only nominally addressed so that the transactions would be approved and Goldman could continue to do business with 1MDB. As a result of the scheme, Goldman received approximately $606 million in fees and revenue, and increased its stature and presence in Southeast Asia.

Under the terms of the agreements, Goldman will pay a criminal penalty and disgorgement of over $2.9 billion.  Goldman also has reached separate parallel resolutions with foreign authorities in the United Kingdom, Singapore, Malaysia, and elsewhere, along with domestic authorities in the United States.  The department will credit over $1.6 billion in payments with respect to those resolutions.

The department reached this resolution with Goldman based on a number of factors, including the Company’s failure to voluntarily disclose the conduct to the department; the nature and seriousness of the offense, which included the involvement of high-level employees within the Company’s investment bank and others who ignored significant red flags; the involvement of various Goldman subsidiaries across the world; the amount of the bribes, which totaled over $1.6 billion; the number and high-level nature of the bribe recipients, which included at least 11 foreign officials, including high-ranking officials of the Malaysian government; and the significant amount of actual loss incurred by 1MDB as a result of the co-conspirators’ conduct.  Goldman received partial credit for its cooperation with the department’s investigation, but did not receive full credit for cooperation because it significantly delayed producing relevant evidence, including recorded phone calls in which the Company’s bankers, executives, and control function personnel discussed allegations of bribery and misconduct relating to the conduct in the statement of facts.  Accordingly, the total criminal penalty reflects a 10 percent reduction off the bottom of the applicable U.S. sentencing guidelines fine range. 

Low has also been indicted for conspiracy to commit money laundering and violate the FCPA, along with Ng, E.D.N.Y. Docket No. 18-CR-538 (MKB).  Low remains a fugitive.  The charges in the indictment as to Low and Ng are merely allegations, and those defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

The investigation was conducted by the FBI’s International Corruption Unit and IRS-CI.  The prosecution is being handled by the Criminal Division’s Fraud Section and the Money Laundering and Asset Recovery Section (MLARS), and the Business and Securities Fraud Section of the U.S. Attorney’s Office for the Eastern District of New York.  Trial Attorneys Katherine Nielsen, Nikhila Raj, Jennifer E. Ambuehl, Woo S. Lee, Mary Ann McCarthy, Leo Tsao, and David Last of the Criminal Division, and Assistant U.S. Attorneys Jacquelyn M. Kasulis, Alixandra Smith and Drew Rolle of the Eastern District of New York are prosecuting the case.  Additional Criminal Division Trial Attorneys and Assistant U.S. Attorneys within U.S. Attorney’s Offices for the Eastern District of New York and Central District of California have provided valuable assistance with various aspects of this investigation, including with civil and criminal forfeitures.  The Justice Department’s Office of International Affairs of the Criminal Division provided critical assistance in this case. 

Remarks as Prepared for Delivery

Good Afternoon.  I am Brian Rabbitt, Acting Assistant Attorney General for the Department of Justice’s Criminal Division.  I am joined today by Acting U.S. Attorney Seth DuCharme of the Eastern District of New York, Assistant Director in Charge Bill Sweeney of the FBI, Stephanie Avakian, Director of the Enforcement Division at the Securities and Exchange Commission, and Assistant General Counsel for Enforcement Jason Gonzalez of the Federal Reserve Board.  We are here today to announce enforcement actions of historic significance.

This morning, the department filed criminal charges in New York against The Goldman Sachs Group and its Malaysian subsidiary, charging each with conspiracy to violate the anti-bribery provisions of the Foreign Corrupt Practices Act.  These charges stem from Goldman’s central role in a massive global scheme to loot billions of dollars from the government-run Malaysian investment fund known as “1MDB” and the subsequent use of those funds by senior Goldman bankers and their co-conspirators to pay billions of dollars in bribes to senior government officials and others around the world.

Goldman Sachs (Malaysia) pleaded guilty to those charges just a short while ago, and its parent entity, The Goldman Sachs Group, has entered into an agreement with the department deferring prosecution for three years provided the bank meets certain conditions.  In a reflection of the seriousness of the bank’s conduct, today’s resolution includes the largest monetary penalty ever paid to the United States in a corporate criminal foreign bribery resolution and requires the bank to pay a total of over 2.9 billion dollars in criminal fines, penalties, and disgorgement. 

1MDB was a multi-billion-dollar investment fund created by the Malaysian government to promote economic development.  In 2012 and 2013, Goldman received approximately $600 million in fees — an unusually large amount — for its work helping 1MDB raise $6.5 billion by issuing and selling bonds on international markets, and for other services.

However, billions of dollars were later stolen from 1MDB, some of which was then used to bribe corrupt officials from Malaysia and Abu Dhabi.   These criminal proceeds were laundered through U.S. and other financial institutions and used to make extravagant purchases around the world, including high-end real estate, yachts, art, and other luxury goods.

As the bank admitted today, senior Goldman bankers played a central role in this scheme, conspiring with others to siphon over $2.7 billion from 1MDB.  They used those funds to line their own pockets and to pay $1.6 billion in bribes.  In addition to the involvement of several Goldman executives, other personnel at the bank allowed this scheme to proceed by overlooking or ignoring clear red flags.

Today’s resolution is significant.  It includes criminal charges against the bank and a guilty plea by its Malaysian subsidiary.  It also requires Goldman to disgorge the entirety of its 600 million dollars in fees, pay a $2.3 billion penalty, and admit wrongdoing.  In short, it imposes serious consequences that reflect the central role that Goldman and its employees played in this serious criminal scheme.

Today’s charges and plea are the culmination of years of work by the department’s Criminal Division, the U.S. Attorney’s Office for the Eastern District of New York, the FBI’s International Corruption Unit, and the Internal Revenue Service – Criminal Investigation. 

This resolution marks a major milestone in our efforts to fight foreign corruption involving U.S. businesses. 

As I mentioned, it involves $1.6 billion in bribes — the largest amount of bribes ever paid by a company to secure business in violation of the FCPA. 

Those bribes, in turn, resulted in $2.7 billion in losses to 1MDB which is the greatest loss amount ever charged in an FCPA matter brought by the department.

Those bribes also ensured that Goldman received approximately $600 million in fees, which is one of the largest profits ever secured by a company through foreign bribery. 

And as I mentioned, in recognition of the seriousness of this misconduct, today’s resolution involves the largest monetary penalty ever paid to the United States in a corporate criminal foreign bribery resolution.

Beyond numbers, this case is also significant because it involved a massive corruption scheme carried out by executives of a preeminent American bank that caused significant harm.  That harm was borne principally by the people of Malaysia, who saw a fund created to benefit them — and for which they remain financially responsible — instead turned into a piggy bank for corrupt public officials and their cronies.  

This scheme also undercut confidence in the Malaysian government and allowed billions of dollars in tainted funds to move through the U.S. and global financial systems.  The United States is home to many of the world’s preeminent financial institutions.  As today’s charges and guilty plea show, the department will not hesitate to hold them accountable for harm they cause here and abroad.  

In fact, today’s resolution is just the latest action the department has taken to hold wrongdoers accountable for, and to assist victims of, the 1MDB corruption scheme. 

In addition to today’s charges and plea, the department has announced charges against three individuals in connection with this corruption scheme, including two Goldman executives.  One of those executives — a former participating managing director and chairman of the bank’s Southeast Asia operations — has pleaded guilty.  The other — a former managing director and head of investment banking for Goldman Malaysia — awaits trial.  The third, a foreign national, remains a fugitive.

The allegations against these latter two individuals are, of course, just allegations unless and until they are proven beyond a reasonable doubt.  But these individual prosecutions, together with the significant resolution we are announcing today, demonstrate the department’s steadfast commitment to punishing corporate misconduct by prosecuting not only corporations, but also culpable executives where appropriate. 

I would also like to note that the department’s involvement in the 1MDB matter has not been limited to criminal prosecutions.  It began more than four years ago when, in the largest collections of forfeiture actions ever brought by the department, we filed civil suits that collectively sought to recover more than $1.5 billion in assets connected with this scheme. 

The department’s work has led to the identification and forfeiture of over $1.1 billion in assets traceable to 1MDB.  Of that, the department has already returned, or assisted Malaysia in recovering, more than $620 million — and we expect that many millions of dollars more will be returned in the future. 

These forfeiture efforts were led by the Criminal Division’s Money Laundering and Asset Recovery Section, in partnership with our colleagues in the U.S. Attorney’s Office for the Central District of California, the FBI, and the IRS.  They were also made possible through cooperation with partners in Switzerland, Singapore, Luxembourg, Malaysia, and the United Kingdom.   

This case is also historic because of the unprecedented coordination that made it possible.  Today’s resolution includes crediting of Goldman’s parallel resolutions with no fewer than nine other U.S. and foreign authorities — the largest number ever in a foreign corruption case. 

Beyond sheer numbers, this unprecedented coordination is notable for two additional reasons.

First, it shows criminals cannot escape responsibility simply because their misconduct spans jurisdictions and law enforcement authorities.  The Department of Justice and its partners — in the U.S. and abroad — will work in parallel to investigate and prosecute fraud and corruption, no matter where it occurs. 

Second, it demonstrates that the department will ensure that fraud and corrupt conduct is punished appropriately, but not unfairly.  Where companies work in good faith to facilitate a coordinated resolution, we will do our part by providing appropriate crediting and not “piling on” or imposing duplicative penalties. 

Finally, I would like to note that this case was investigated and prosecuted in part during a global pandemic.  It is a tribute to our team and our partners that they overcame that challenge and worked diligently to resolve this case.  As this resolution shows, the Criminal Division and the rest of the department remain “open for business.”

Let me end by returning to an earlier point: American financial institutions, and the U.S. financial system, are the envy of the world.  We have a duty to ensure that they remain free from corruption and that their considerable influence and power is used for good, not to harm others. 

The 1MDB fund held tremendous promise for the Malaysian people.  But instead of realizing that promise, it was looted by corrupt officials and their co-conspirators, including senior Goldman bankers.  This criminal conduct is antithetical to good government.  It hurts free markets, undermines the rule of law, creates an unlevel playing field, and puts our national security at risk by enabling corrupt regimes.  It also erodes global confidence in our American financial institutions and the U.S. financial system. 

Today’s resolution, coupled with other actions the department has taken over the last five years, represents a major step towards restoring that confidence and making the people of Malaysia whole.   It imposes serious consequences on Goldman for the bank’s serious misconduct.    

October 23, 2020 in AML | Permalink | Comments (0)

Wednesday, October 21, 2020

J&F Investimentos S.A. Pleads Guilty and Agrees to Pay Over $256 Million to Resolve Criminal Foreign Bribery Case

J&F Investimentos S.A. (J&F), a Brazil-based investment company that owns and controls companies involved in multiple industries, including the meat and agriculture industry, has agreed to pay a criminal monetary penalty of $256,497,026 to resolve the department’s investigation into violations of the Foreign Corrupt Practices Act (FCPA).  The resolution arises out of J&F’s scheme to pay millions of dollars in bribes to government officials in Brazil in exchange for obtaining financing and other benefits for J&F and J&F-owned entities.

J&F pleaded guilty and entered into a cooperation plea agreement with the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Eastern District of New York in connection with a criminal information filed today in the Eastern District of New York charging J&F with one count of conspiracy to violate the anti-bribery provisions of the FCPA.

“With today’s guilty plea, J&F has admitted to engaging in a long-running scheme to bribe corrupt officials in Brazil to obtain financing and other benefits for the company,” said Acting Assistant Attorney General Brian C. Rabbitt of the Justice Department’s Criminal Division.  “As part of this scheme, executives at the very highest levels of the company used U.S. banks and real estate to pay tens of millions of dollars in bribes to corrupt government officials in Brazil in order to obtain hundreds of millions of dollars in financing for the company and its affiliates.  Today’s resolution demonstrates the department’s continuing commitment to combating international corruption and holding companies accountable for violations of the FCPA.”

“Today’s resolution and guilty plea, including a $256 million fine, demonstrates our office’s full commitment to holding accountable those entities that seek to gain an improper advantage over competitors by bribing foreign officials and using the U.S. financial system to carry out the crimes,” said Acting U.S. Attorney Seth D. DuCharme for the Eastern District of New York.  “Protecting the integrity of the financial system is a core priority of the Department of Justice.” 

“No matter where it occurs, the FBI and our global partners are committed to diligently rooting out corruption which betrays public trust and threatens a fair economy,” said Special Agent in Charge James A. Dawson of the FBI Washington Field Office Criminal Division.  “Today’s plea demonstrates the FBI’s commitment to combatting foreign corruption reaching the United States, and today’s actions send a strong message that we will not relent in our efforts to uphold the law and hold everyone accountable to play by the same, fair rules.”

According to admissions by J&F, between 2005 and 2017, the company conspired with others to violate the FCPA by paying bribes to government officials in Brazil in order to ensure that Brazilian state-owned and state-controlled banks would enter into debt and equity financing transactions with J&F and J&F-owned entities, as well as to obtain approval for a merger from a Brazilian state-owned and state-controlled pension fund. 

Specifically, between 2005 and 2014, J&F engaged in a bribery scheme involving more than $148 million in corrupt payments that were promised and made to and for the benefit of high-level Brazilian government officials, including a then-high-ranking executive at Banco Nacional de Desenvolvimento Econômico e Social (BNDES), a Brazilian state-owned and state-controlled bank.  In exchange for the bribe payments, J&F was able to obtain hundreds of millions of dollars in financing from BNDES.  In addition, J&F paid bribes worth more than $4.6 million to and for the benefit of a high-ranking executive of Fundação Petrobras de Seguridade Social (Petros), a Brazilian state-controlled pension fund in exchange for obtaining Petros’s approval for a significant merger that benefited J&F.  J&F also paid approximately $25 million in bribes to a high-ranking official in the legislative branch of the Brazilian government in order to secure hundreds of millions of dollars of financing from Caixa Econômica Federal (Caixa), a Brazilian state-owned and state-controlled bank. 

In furtherance of the bribery scheme, among other things, J&F executives used New York-based bank accounts to facilitate the bribery scheme and to make corrupt payments, purchased and transferred a Manhattan apartment as a bribe, and met in the United States to discuss and further aspects of the illegal scheme.

As part of the plea agreement, for a three-year period, J&F agreed to continue to cooperate with the U.S. government in any ongoing or future criminal investigations concerning J&F, its executives, employees, or agents; enhance its compliance program; and report to the government on the implementation of its enhanced compliance program.

The department reached this resolution with J&F based on a number of factors, including the company’s failure to voluntarily disclose the conduct to the department and the nature, seriousness, and pervasiveness of the offense, which included executives at the highest levels of the company and the payment of tens of millions of dollars in bribes to high-level government officials in Brazil over a period of years.  The criminal monetary penalty for J&F reflects a 10 percent reduction off the bottom of the U.S. Sentencing Guidelines fine range because J&F received partial credit for its remediation and cooperation with the department’s investigation.

In a related matter with the U.S. Securities and Exchange Commission (SEC) announced today, a J&F majority-owned subsidiary, JBS S.A., agreed to pay the SEC disgorgement and prejudgment interest totaling approximately $26,866,565.  Download Information

J&F previously entered into a resolution with the Ministério Público Federal (Public Prosecutor’s Office) in Brazil relating to the same conduct that forms the basis of J&F’s plea agreement announced today.  Pursuant to the Brazilian resolution, J&F agreed to pay a fine of BRL 8,000,000,000 (the approximate equivalent of $1,441,505,636) and to contribute BRL 2,300,000,000 (the approximate equivalent of $414,432,870) to social projects in Brazil.  Under the J&F plea agreement announced today, the Fraud Section and the Eastern District of New York will credit up to 50 percent ($128,248,513) of the criminal penalty owed to the United States to payments J&F makes pursuant to the resolution with the Brazilian authorities.  The department determined that partial crediting was appropriate based on the specific facts and circumstances of this case in light of, among other things, the company’s prior efforts to coordinate with the department and Brazilian authorities. 

October 21, 2020 in AML | Permalink | Comments (0)

Tuesday, October 20, 2020

Private Equity CEO Enters into Non-prosecution Agreement on International Tax Fraud Scheme and Agrees to Pay $139 Million, to Abandon $182 Million in Charitable Contribution Deductions, and to Cooperate with Government Investigations

Robert F. Smith, the Chairman and Chief Executive Officer of a San Francisco based private equity company, entered into a Non-Prosecution Agreement (the agreement) with the Department of Justice, for his involvement from 2000 through 2015 in an illegal scheme to conceal income and evade millions in taxes by using an offshore trust structure and offshore bank accounts, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Tax Division, U.S. Attorney David L. Anderson for the Northern District of California, and Chief of Internal Revenue Service (IRS) Criminal Investigation Jim Lee. In that agreement, Smith admits his involvement in the illegal scheme and agrees to cooperate with ongoing investigations and to pay back taxes and penalties in full. 

“It is never too late to do the right thing,” said U.S. Attorney Anderson. “It is never too late to tell the truth. Smith committed serious crimes, but he also agreed to cooperate. Smith’s agreement to cooperate has put him on a path away from indictment.”

According to the agreement, Smith, a resident of Austin, Texas, formed the Excelsior Trust in Belize, and a shell company, Flash Holdings, in Nevis in 2000. Smith used third-parties to conceal his beneficial ownership and control of the Excelsior Trust and Flash Holdings. In reality, Smith controlled both offshore structures and made all substantive decisions regarding Flash Holdings’ operations, transactions, income, investments and assets. Smith used the Excelsior Trust to conceal his ultimate ownership and control over Flash Holdings. He further used Flash Holdings to hide his interest in private equity investments. Smith admits that he formed these foreign entities in order to use them to avoid the payment of U.S. taxes.

Furthermore, Smith admits that he knowingly and intentionally used the Excelsior Trust and Flash Holdings and their associated foreign bank accounts in the British Virgin Islands and Switzerland to conceal from the IRS, and the U.S. Treasury Department, income earned and distributed to Flash Holdings from private equity funds. As a result of the overall scheme, Smith willfully did not report to the IRS over $200 million of partnership income. Smith also failed to report his ownership of his foreign bank accounts in BVI and Switzerland as required by law.

Over the years, Smith used millions of this unreported income to acquire and make improvements to real estate used for his personal benefit. Smith admits that, in 2005, he used approximately $2.5 million in untaxed funds to purchase and renovate a vacation home in Sonoma, California. In 2010, Smith again used untaxed funds to purchase two ski properties and a piece of commercial property in France. In 2011 and 2012, Smith used approximately $13 million of untaxed funds to build and make improvement to a residence in Colorado and to fund charitable activities at the property.

Under the terms of the agreement, Smith has agreed to continue cooperating with the Department of Justice in other related investigations. Further, Smith has agreed to pay approximately $56 million in taxes and penalties stemming from the unreported income and another $82 million in penalties stemming from his concealment of his offshore bank accounts. Taken altogether, Smith will pay more than $139 million in taxes and penalties.

Additionally, Smith agrees to abandon his protective claims for a refund totaling approximately $182 million that were filed with the IRS. The protective refund claims consisted, in part, of claims filed with the IRS for charitable contribution deductions on Sept. 21, 2018, and Oct. 11, 2019. As a result of the agreement, Smith shall take no further direct or indirect tax benefit from such claims.

October 20, 2020 in AML | Permalink | Comments (0)

Monday, October 19, 2020

Robert Brockman, CEO of Multibillion-dollar Software Company Indicted for $2 Billion Decades-long Tax Evasion and Wire Fraud Schemes

Allegedly Used Secret Swiss and Bermudian Bank Accounts in Scheme to Conceal Approximately Two Billion Dollars of Capital Gains Income

A federal grand jury in San Francisco, California, returned a 39 count indictment charging Robert T. Brockman, the Chief Executive Officer of an Ohio-based software company, with tax evasion, wire fraud, money laundering, and other offenses, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Tax Division, U.S. Attorney David L. Anderson for the Northern District of California, and Chief of Internal Revenue Service (IRS) Criminal Investigation Jim Lee. The charges stem from an alleged decades-long scheme to conceal approximately $2 billion in income from the IRS as well as a scheme to defraud investors in the software company’s debt securities.

“Today’s indictment reflects the Department of Justice’s commitment to finding and prosecuting the costliest and most sophisticated tax crimes in the United States,” said Principal Deputy Assistant Attorney General of the Tax Division Richard E. Zuckerman.

“Complexity will not hide crime from law enforcement,” said U.S. Attorney Anderson. “Sophistication is not a defense to federal criminal charges. We will not hesitate to prosecute the smartest guys in the room.”

“As alleged, Mr. Brockman is responsible for carrying out an approximately two billion dollar tax evasion scheme,” said Jim Lee, Chief of IRS Criminal Investigation. “IRS Criminal Investigation aggressively pursues tax cheats domestically and abroad. No scheme is too complex or sophisticated for our investigators. Those hiding income or assets offshore are encouraged to come forward and voluntarily disclose their holdings.”

According to the indictment, Brockman, a resident of Houston, Texas, and Pitkin County, Colorado, used a web of offshore entities based in Bermuda and Nevis to hide from the IRS income earned on his investments in private equity funds which were managed by a San Francisco-based investment firm. As part of the alleged scheme, Brockman directed untaxed capital gains income to secret bank accounts in Bermuda and Switzerland. The indictment further alleges that to execute the fraud, between 1999 and 2019, Brockman took measures such as backdating records and using encrypted communications and code words to communicate with a co-conspirator, among other alleged actions.

In addition to the tax offenses, the indictment alleges that, between 2008 and 2010, Brockman engaged in a fraudulent scheme to obtain approximately $67.8 million in the software company’s debt securities. As CEO, Brockman was contractually restricted from purchasing any of the software company’s debt securities without prior notice, full disclosure, and amending the associated credit agreements. The indictment alleges that Brockman used a third-party to circumvent those requirements, to acquire the debt securities, and to conceal from the sellers valuable economic information. The indictment further alleges that Brockman used material, non-public information about the software company to make decisions about purchasing the debt. In addition, Brockman allegedly persuaded another individual to alter, destroy, and mutilate documents and computer evidence with the intent to impair the use of such evidence in a grand jury investigation.

Brockman is charged with conspiracy, in violation of 18 U.S.C. § 371; seven counts of tax evasion, in violation of 26 U.S.C. § 7201; six counts of failing to file foreign bank account reports, in violation of 31 U.S.C. §§ 5314 & 5322(b); 20 counts of wire fraud affecting a financial institution, in violation of 18 U.S.C. § 1343; two counts of concealment money laundering, in violation of 18 U.S.C. § 1956(a)(1)(B)(i)), and tax evasion money laundering, in violation of 18 U.S.C. § 1956(a)(1)(A)(ii)); and one count each of international concealment money laundering, in violation of 18 U.S.C. § 1956(a)(2)(B)(i)); evidence tampering, in violation of 18 U.S.C. § 1512(b)(2)(B), and destruction of evidence, in violation of 18 U.S.C. § 1512(c)(1).

October 19, 2020 in AML | Permalink | Comments (0)

Friday, October 16, 2020

Officials Announce International Operation Targeting Transnational Criminal Organization QQAAZZ that Provided Money Laundering Services to High-Level Cybercriminals

U.S. Victims of Various Cybercriminal Malware Schemes throughout the United States Had Stolen Multi-Million Dollar Funds Laundered by QQAAZZ
 

Fourteen members of the transnational criminal organization, QQAAZZ, were charged by a federal grand jury in the Western District of Pennsylvania in an indictment unsealed today.  A related indictment unsealed in October 2019 charged five members of QQAAZZ.  One additional conspirator, a Russian national, was arrested by criminal complaint in late March 2020 while visiting the United States, bringing the total number of charged defendants to 20.  Acting Assistant Attorney General Brian C. Rabbitt of the U.S. Department of Justice’s Criminal Division and U.S. Attorney Scott W. Brady for the Western District of Pennsylvania, made the announcement today.

The QQAAZZ members, acting in concert with cybercriminals across the world, are accused of conspiring to launder money stolen from victims of computer fraud in the United States and elsewhere.  More than 40 house searches were conducted in Latvia, Bulgaria, the United Kingdom, Spain and Italy, with criminal prosecutions initiated in the United States, Portugal, Spain and the United Kingdom.  The largest number of searches and arrests were carried out in Latvia by the Latvian State Police (Latvijas Valsts Policija), and an extensive bitcoin mining operation associated with the group was seized in Bulgaria.  Today’s announcement is in coordination with announcements by Europol and several law enforcement agencies across Europe who collaborated with the United States to develop parallel investigations and prosecutions of the QQAAZZ members in their own countries. 

“Today’s charges, brought in coordination with our European law enforcement partners, reflect the Criminal Division’s steadfast efforts to work with authorities worldwide to protect the public from fraudsters and the money launderers who help them hide their stolen money,” said Acting Assistant Attorney General Brian C. Rabbitt.  “Our message to money laundering organizations like QQAAZZ is simple: international borders will not stop the dedicated efforts of law enforcement across the globe to bring you to justice.  In addition to the Criminal Division team, I would like to recognize the outstanding efforts of the team led by U.S. Attorney Scott BradyFBI Pittsburgh, and our European partners.”

“Cybercrime victimizes individuals and companies all over the world, so our work to identify and disrupt cybercriminals requires global collaboration,” said U.S. Attorney Scott W. Brady for the Western District of Pennsylvania.  “For the past several years, law enforcement from 16 countries has been conducting coordinated investigations of this criminal gang, and now parallel prosecutions will commence in the United States, Portugal, United Kingdom and Spain.  As this case demonstrates, we will be relentless in our pursuit of cybercriminals regardless of where they reside.”

“This was an extensive investigation that had implications around the world,” said FBI Pittsburgh Special Agent in Charge Michael Christman. “Partnerships are essential, as no one agency can combat cybercrime alone. This case highlights the FBI’s strategy to target and dismantle the most significant cybercriminal enterprises through a global task force approach. I can assure everyone that the FBI and our partners will continue to work tirelessly to combat these cyber threats.”

“Cybercriminals are constantly exploring new possibilities to abuse technology and financial frameworks to victimize millions of users in a moment from anywhere in the world,” said Fernando Ruiz, Head of Europol’s European Cybercrime Centre.  “Today’s operation shows how through a proper law enforcement international coordination we can turn the table on these criminals and bring them to justice.”

The indictment alleges that the QQAAZZ network laundered, or attempted to launder, tens of millions of dollars’ worth of stolen funds from victims of cybercrimes since 2016.

Comprised of several layers of members from Latvia, Georgia, Bulgaria, Romania, and Belgium, among other countries, the QQAAZZ network opened and maintained hundreds of corporate and personal bank accounts at financial institutions throughout the world to receive money from cybercriminals who stole it from bank accounts of victims.  The funds were then transferred to other QQAAZZ-controlled bank accounts and sometimes converted to cryptocurrency using “tumbling” services designed to hide the original source of the funds.  After taking a fee of up to 40 to 50 percent, QQAAZZ returned the balance of the stolen funds to their cybercriminal clientele.  

The QQAAZZ members secured these bank accounts by using both legitimate and fraudulent Polish and Bulgarian identification documents to create and register dozens of shell companies which conducted no legitimate business activity. Using these registration documents, the QQAAZZ members then opened corporate bank accounts in the names of the shell companies at numerous financial institutions around the world, thereby generating hundreds of QQAAZZ-controlled bank accounts available to receive stolen funds from cyber thieves.

QQAAZZ advertised its services as a “global, complicit bank drops service” on Russian-speaking online cybercriminal forums where cybercriminals gather to offer or seek specialized skills or services needed to engage in a variety of cybercriminal activities. The criminal gangs behind some of the world’s most harmful malware families (e.g.: Dridex, Trickbot, GozNym, etc.) are among those cybercriminal groups that benefited from the services provided by QQAAZZ. 

The 14 defendants named in the indictment unsealed today are:

  1. Nika Nazarovi, aka “Nika Utiashvili,” aka “Mihail Atansov,” aka “Stefan Trifonov Zhelyazkov,” 32, of Georgia;
  2. Martins Ignatjevs, aka “Yordan Angelov Stoyanov,” aka “Aleksander Tihomirov,” aka “Svetlin Iliyanov Asenov,” 33, of Latvia;
  3. Aleksandre Kobiashvili, aka “Antonios Nastas,” aka “Ognyan Krasimirov Trifonov,” 32, of Georgia;
  4. Dmitrijs Kuzminovs, aka “Parush Gospodinov Genchev,” 35, of Latvia;
  5. Valentins Sevecs, aka “Marek Jaswilko,” aka “Rafal Szczytko,” 32, of Latvia;
  6. Dmitrijs Slapins, 35, of Latvia;
  7. Armens Vecels, 24, of Latvia;
  8. Artiom Capacli, 31, of Bulgaria;
  9. Ion Cebanu, 26, of Romania;
  10. Tomass Trescinkas, 25, of Latvia;
  11. Ruslans Sarapovs, 19, of Latvia;
  12. Silvestrs Tamenieks, 21, of Latvia;
  13. Abdelhak Hamdaoui, 48, of Belgium; and
  14. Petar Iliev, 37, of Bulgaria.

The five defendants charged in the indictment unsealed in October 2019 are:

  1. Aleksejs Trofimovics, aka “Aleksejs Trofimovich,” aka “Alexey Trofimovich,” aka “Aleko Stoyanov Angelov,” 24, of Latvia;
  2. Ruslans Nikitenko, aka “Krzysztof Wojciech Lewko,” aka “Milen Nikolchev Nikolov,” aka “Rafal Zimnoch,” 41, of Latvia;  
  3. Arturs Zaharevics, aka “Piotr Ginelli,” aka “Arkadiusz Szuberski,” 33, of Latvia;
  4. Deniss Ruseckis, aka “Denis Rusetsky,” aka “Sevdelin Sevdalinov Atanasov,” 24, of Latvia; and
  5. Deinis Gorenko, 25, of Latvia.                

The Russian national charged by criminal complaint and arrested in late March 2020 while visiting the United States is Maksim Boiko, aka “Maxim Boyko” aka “gangass,” 30, of Russia.

The U.S. victims who had funds stolen, or attempted to be stolen, from their online bank accounts (including from banks headquartered in Pittsburgh, Pennsylvania) and destined for QQAAZZ-controlled bank accounts overseas include:

  • a technology company in Windsor, Connecticut;
  • a Jewish Orthodox Synagogue in Brooklyn, New York;
  • a medical device manufacturer in York, Pennsylvania;
  • an individual in Montclair, New Jersey;
  • an architecture firm in Miami, Florida;
  • an individual in Acworth, Georgia;
  • an automotive parts manufacturer in Livonia, Michigan;
  • a homebuilder in Skokie, Illinois;
  • an individual in Carrollton, Texas; and
  • an individual in Villa Park, California.  

Acting Assistant Attorney General Rabbitt and U.S. Attorney Brady praised the outstanding investigative work of the FBI’s Pittsburgh Field Office and their law enforcement partners from Portugal, Spain, the United Kingdom, Latvia, Bulgaria, Georgia, Italy, Switzerland, Poland, Czech Republic, Australia, Sweden, Austria, Germany and Belgium.  Acting Assistant Attorney General Rabbitt and U.S. Attorney Brady also thanked Europol in The Hague, Netherlands for coordinating the investigative efforts of the law enforcement agencies from the 15 participating countries.  The Justice Department’s Office of International Affairs of the Department’s Criminal Division provided significant assistance by coordinating requests to foreign countries for searches, arrests, extraditions and evidence sharing.  Assistance was also provided by the National Cyber-Forensics and Training Alliance (NCFTA) in Pittsburgh.   

The case is being prosecuted by Assistant U.S. Attorney Charles A. “Tod” Eberle, Chief of the National Security and Cybercrime Section for the Western District of Pennsylvania, Assistant U.S. Attorney Brian Czarnecki of the Western District of Pennsylvania, and Trial Attorney Michael Parker of the Money Laundering and Asset Recovery Section of the U.S. Department of Justice’s Criminal Division.

October 16, 2020 in AML | Permalink | Comments (0)

U.S. International Trade in Goods and Services, August 2020

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced today that the goods and services deficit was $67.1 billion in August, up $3.7 billion from $63.4 billion in July, revised.

U.S. International Trade in Goods and Services Deficit
Deficit: $67.1 Billion +5.9%°
Exports: $171.9 Billion +2.2%°
Imports: $239.0 Billion +3.2%°

Next release: November 4, 2020

(°) 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, October 6, 2020

Goods and Services Trade Deficit: Seasonally adjusted
Coronavirus (COVID-19) Impact on International Trade in Goods and Services

Exports and imports in August reflect both the ongoing impact of the COVID-19 pandemic and the continued recovery from the sharp declines earlier this year. The full economic effects of the pandemic cannot be quantified in the trade statistics because the impacts are generally embedded in source data and cannot be separately identified. The Census Bureau and the Bureau of Economic Analysis continue to monitor data quality and have determined estimates in this release meet publication standards. For more information, see the frequently asked questions on goods from the Census Bureau and on services from BEA.

Exports, Imports, and Balance (exhibit 1)

August exports were $171.9 billion, $3.6 billion more than July exports. August imports were $239.0 billion, $7.4 billion more than July imports.

The August increase in the goods and services deficit reflected an increase in the goods deficit of $3.0 billion to $83.9 billion and a decrease in the services surplus of $0.7 billion to $16.8 billion.

Year-to-date, the goods and services deficit increased $22.6 billion, or 5.7 percent, from the same period in 2019. Exports decreased $296.1 billion or 17.6 percent. Imports decreased $273.5 billion or 13.1 percent.

Three-Month Moving Averages (exhibit 2)

The average goods and services deficit increased $3.1 billion to $61.3 billion for the three months ending in August.

  • Average exports increased $10.0 billion to $165.2 billion in August.
  • Average imports increased $13.1 billion to $226.6 billion in August.

Year-over-year, the average goods and services deficit increased $10.1 billion from the three months ending in August 2019.

  • Average exports decreased $44.8 billion from August 2019.
  • Average imports decreased $34.7 billion from August 2019.

Exports (exhibits 3, 6, and 7)

Exports of goods increased $3.5 billion to $119.1 billion in August.

  Exports of goods on a Census basis increased $3.4 billion.

  • Industrial supplies and materials increased $3.9 billion.
    • Nonmonetary gold increased $1.8 billion.
  • Foods, feeds, and beverages increased $1.1 billion.
    • Soybeans increased $1.0 billion.
  • Capital goods decreased $1.4 billion.
    • Semiconductors decreased $1.2 billion.

  Net balance of payments adjustments increased $0.1 billion.

Exports of services increased $0.1 billion to $52.8 billion in August.

  • Other business services increased $0.2 billion.
  • Transport increased $0.1 billion.
  • Charges for the use of intellectual property increased $0.1 billion.
  • Travel decreased $0.2 billion.

Imports (exhibits 4, 6, and 8)

Imports of goods increased $6.5 billion to $203.0 billion in August.

  Imports of goods on a Census basis increased $6.5 billion.

  • Consumer goods increased $3.8 billion.
    • Pharmaceutical preparations increased $2.7 billion.
  • Automotive vehicles, parts, and engines increased $1.7 billion.
    • Passenger cars increased $1.0 billion.
  • Other goods increased $1.1 billion.
  • Industrial supplies and materials decreased $1.5 billion.
    • Nonmonetary gold decreased $2.1 billion.
    • Finished metal shapes decreased $1.6 billion.
    • Crude oil increased $1.0 billion.

  Net balance of payments adjustments increased less than $0.1 billion.

Imports of services increased $0.8 billion to $36.1 billion in August.

  • Travel increased $0.3 billion.
  • Transport increased $0.3 billion.

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

The real goods deficit increased $1.2 billion to $92.3 billion in August.

  • Real exports of goods increased $3.5 billion to $136.7 billion.
  • Real imports of goods increased $4.7 billion to $229.0 billion.

Revisions

Revisions to July exports

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

Revisions to July imports

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

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

The August figures show surpluses, in billions of dollars, with South and Central America ($2.4), Hong Kong ($1.7), OPEC ($1.3), Brazil ($1.0), United Kingdom ($1.0), Saudi Arabia ($0.2), and Singapore ($0.1). Deficits were recorded, in billions of dollars, with China ($26.4), European Union ($15.7), Mexico ($12.5), Germany ($4.6), Japan ($4.3), Italy ($2.6), Taiwan ($2.6), India ($2.3), France ($2.2), South Korea ($2.2), and Canada ($1.2).

  • The deficit with Germany increased $1.6 billion to $4.6 billion in August. Exports decreased $0.3 billion to $4.9 billion and imports increased $1.2 billion to $9.6 billion.
  • The deficit with Japan increased $1.0 billion to $4.3 billion in August. Exports increased $0.6 billion to $5.3 billion and imports increased $1.5 billion to $9.6 billion.
  • The deficit with China decreased $1.9 billion to $26.4 billion in August. Exports increased $1.7 billion to $11.2 billion and imports decreased $0.2 billion to $37.7 billion.

October 16, 2020 in Economics | Permalink | Comments (0)

Thursday, October 15, 2020

IRS sending soft letters to encourage compliance with foreign trust reporting

Practice Area:  Withholding & International Individual Compliance

Lead Executive: John Cardone, Director, WIIC

Campaign Point of Contact: Robert G. Davis

This campaign will take a multifaceted approach to improving compliance with respect to the timely and accurate filing of information returns reporting ownership of and transactions with foreign trusts. The Service will address noncompliance through a variety of treatment streams PDF including, but not limited to, examinations and penalties assessed by the campus when the forms are received late or are incomplete.

 

October 15, 2020 in Tax Compliance | Permalink | Comments (0)

Wednesday, October 14, 2020

U.S. International Investment Position, Second Quarter 2020

The U.S. net international investment position, the difference between U.S. residents’ foreign financial assets and liabilities, was –$13.05 trillion at the end of the second quarter of 2020, according to statistics released by the U.S. Bureau of Economic Analysis (BEA). Assets totaled $28.87 trillion and liabilities were $41.92 trillion.

At the end of the first quarter, the net investment position was –$12.16 trillion (Table 1).

U.S. Net International Investment Position
U.S. Assets and Liabilities: Quarterly, not seasonally adjusted

The –$882.6 billion change in the net investment position from the first quarter to the second quarter came from net financial transactions of –$77.5 billion and net other changes in position, such as price and exchange rate changes, of –$805.1 billion (Table A).

Coronavirus (COVID-19) Impact on Second Quarter 2020 International Investment Position
In the second quarter of 2020, U.S. assets and liabilities increased following the first quarter decreases that reflected the impact of the COVID-19 pandemic. A recovery in global stock prices, responding to monetary accommodation and fiscal stimulus measures in the United States and abroad, drove the increases in portfolio investment and direct investment assets and liabilities. Both U.S. deposit assets and liabilities decreased, as some currency swap transactions between the U.S. Federal Reserve System and several foreign central banks in Europe and Japan were allowed to expire amid improved liquidity conditions in the global dollar funding markets. These currency swaps were initiated in the first quarter to alleviate the dollar shortage overseas. The full economic effects of the COVID-19 pandemic cannot be quantified in the IIP statistics because the impacts are generally embedded in source data and cannot be separately identified. For more information on the currency swaps, see the technical note that accompanied the September 18 international transactions accounts news release.

Table A. Quarterly Change in the U.S. Net International Investment Position
Billions of dollars, not seasonally adjusted

  Position,
2020 Q1
Change in position in 2020 Q2 Position,
2020 Q2
Total Attributable to:
Financial
transactions
Other changes
in position 1
U.S. net international investment position -12,163.3 -882.6 -77.5 -805.1 -13,045.9
   Net position excluding financial derivatives -12,197.0 -871.1 -137.8 -733.3 -13,068.1
   Financial derivatives other than reserves, net 33.7 -11.5 60.3 -71.7 22.2
   U.S. assets 26,921.3 1,951.5 (2) (2) 28,872.8
      Assets excluding financial derivatives 23,925.2 2,196.8 -141.1 2,337.9 26,122.0
      Financial derivatives other than reserves 2,996.1 -245.3 (2) (2) 2,750.8
   U.S. liabilities 39,084.5 2,834.1 (2) (2) 41,918.6
      Liabilities excluding financial derivatives 36,122.1 3,067.9 -3.3 3,071.3 39,190.1
      Financial derivatives other than reserves 2,962.4 -233.8 (2) (2) 2,728.6
1. Disaggregation of other changes in position into price changes, exchange rate changes, and other changes in volume and valuation is only presented for annual statistics released in June each year.
2. Financial transactions and other changes in financial derivatives positions are available only on a net basis; they are not separately available for U.S. assets and U.S. liabilities.

U.S. assets increased by $1.95 trillion, to a total of $28.87 trillion, at the end of the second quarter, mostly reflecting increases in portfolio investment and direct investment assets that were partly offset by decreases in financial derivatives and other investment assets. Portfolio investment assets increased by $1.39 trillion, to $12.39 trillion, and direct investment assets increased by $938.8 billion, to $7.94 trillion, driven mainly by increases in foreign stock prices that raised the value of these assets. Global stock prices recovered from the decreases that occurred in the first quarter at the onset of the COVID-19 pandemic.

U.S. liabilities increased by $2.83 trillion, to a total of $41.92 trillion, at the end of the second quarter, mostly reflecting increases in portfolio investment and direct investment liabilities that were partly offset by decreases in other investment liabilities and financial derivatives. Portfolio investment liabilities increased by $2.10 trillion, to $22.03 trillion, and direct investment liabilities increased by $1.34 trillion, to $10.10 trillion, driven mainly by increases in U.S. stock prices that raised the value of these liabilities.

U.S. Assets: Quarterly, not seasonally adjusted
U.S. Liabilities: Quarterly, not seasonally adjusted

Updates to First Quarter 2020 International Investment Position Aggregates

Trillions of dollars, not seasonally adjusted
  Preliminary estimate Revised estimate
U.S. net international investment position -12.06 −12.16
    U.S. assets 26.77 26.92
    U.S. liabilities 38.82 39.08

*          *          *

Next release: December 29, 2020 at 8:30 A.M. EST
U.S. International Investment Position, Third Quarter 2020

October 14, 2020 in Economics | Permalink | Comments (0)

Monday, October 12, 2020

Africa could gain $89 billion annually by curbing illicit financial flows

UNCTAD’s Economic Development in Africa Report 2020 says stopping illicit capital flight could almost cut in half the annual financing gap of $200 billion that the continent faces to achieve the Sustainable Development Goals.

Every year, an estimated $88.6 billion, equivalent to 3.7% of Africa’s GDP, leaves the continent as illicit capital flight, according to UNCTAD’s Economic Development in Africa Report 2020.

Illicit financial flows (IFFs) are movements of money and assets across borders which are illegal in source, transfer or use, according to the report entitled “Tackling illicit financial flows for sustainable development in Africa.”

It shows that these outflows are nearly as much as the combined total annual inflows of official development assistance, valued at $48 billion, and yearly foreign direct investment, pegged at $54 billion, received by African countries – the average for 2013 to 2015.

“Illicit financial flows rob Africa and its people of their prospects, undermining transparency and accountability and eroding trust in African institutions,” said UNCTAD Secretary-General Mukhisa Kituyi.

These outflows include illicit capital flight, tax and commercial practices like mis-invoicing of trade shipments and criminal activities such as illegal markets, corruption or theft. 

From 2000 to 2015, the total illicit capital flight from Africa amounted to $836 billion. Compared to Africa’s total external debt stock of $770 billion in 2018, this makes Africa a “net creditor to the world”, the report says.

IFFs are concentrated in high-value, low-weight commodities, especially gold

The report’s analysis also demonstrates that IFFs in Africa are not endemic to specific countries, but rather to certain high-value, low-weight commodities.

Of the estimated $40 billion of IFFs derived from extractive commodities in 2015, 77% were concentrated in the gold supply chain, followed by diamonds (12%) and platinum (6%).

This finding offers new insights for researchers and policymakers studying how to identify and curb IFFs and is relevant to all gold-exporting countries in Africa, for example, despite their differing local conditions.

The report aims to equip African governments with knowledge on how to identify and evaluate risks associated with IFFs, as well as solutions to curb IFFs and redirect the proceeds towards the achievement of national priorities and the SDGs.

It calls for global efforts to promote international cooperation to combat IFFs. It also advocates for strengthening good practices on the return of assets to foster sustainable development and the achievement of the 2030 Agenda for Sustainable Development.

Need to collect better trade data to detect risks related to IFFs

Specific data limitations affected efforts to estimate IFFs. Only 45 out of 53 African countries provide data to the UN International Trade Statistics Database (UN Comtrade) in a continuous manner allowing trade statistics to be compared over time.  

The report highlights the importance of collecting more and better trade data to detect risks related to IFFs, increase transparency in extractive industries and tax collection.

The UNCTAD Automated System for Customs Data (ASYCUDA), including its new module for mineral production and export, called MOSES (Mineral Output Statistical Evaluation System), are potential available solutions.

African countries also need to enter automatic exchange of tax information agreements to effectively tackle IFFs.

Africa should improve regional cooperation on IFFs and tax

Although IFFs are a major constraint to domestic resource mobilization in Africa, African governments are not yet sufficiently engaging in the reform of the international taxation system.

Transparency and cooperation between tax administrations globally and within the continent is key to the fight against tax evasion and tax avoidance.

Regarding regional cooperation on taxation within the continent, the African Tax Administration Forum can provide a platform for regional cooperation among African countries.

Regional knowledge networks to enhance national capacities to tackle proceeds of money laundering and recover stolen assets, including within the context of the African Continental Free Trade Area (AfCFTA), are crucial in the fight against corruption and crime-related IFFs, the report says.

Tackling IFFs requires international action

Tax revenues lost to IFFs are especially costly for Africa, where public investments and spending on the SDGs are most lacking. In 2014, Africa lost an estimated $9.6 billion to tax havens, equivalent to 2.5% of total tax revenue.

Tax evasion is at the core of the world's shadow financial system. Commercial IFFs are often linked to tax avoidance or evasion strategies, designed to shift profits to lower-tax jurisdictions.

Due to the lack of domestic transfer pricing rules in most African countries, local judicial authorities lack the tools to challenge tax evasion by multinational enterprises.

But IFFs are not just a national concern in Africa. Nigeria’s President Muhammadu Buhari said: “Illicit financial flows are multidimensional and transnational in character. Like the concept of migration, they have countries of origin and destination, and there are several transit locations. The whole process of mitigating illicit financial flows, therefore, cuts across several jurisdictions.”

Solutions to the problem must involve international tax cooperation and anti-corruption measures. The international community should devote more resources to tackle IFFs, including capacity-building for tax and customs authorities in developing countries.

African countries need to strengthen engagement in international taxation reform, make tax competition consistent with protocols of the AfCFTA and aim for more taxing rights.

October 12, 2020 in AML | Permalink | Comments (0)

Sunday, October 11, 2020

OECD Tax Policy Reviews: Kazakhstan 2020

This report is part of the OECD Tax Policy Reviews publication series. The Reviews are intended to provide independent, comprehensive and comparative assessments of OECD member and non-member countries’ tax systems as well as concrete recommendations for tax policy reform. By identifying tailored tax policy reform options, the objective of the Reviews is to enhance the design of existing tax policies and to support the adoption of new reforms. This report provides an assessment of Kazakhstan's tax system and recommendations for tax reform. Chapter 1 gives an overview of the main findings and Chapter 2 sets the scene for tax reform. Chapter 3 considers tax revenue trends and analysis of the tax mix. Chapter 4 examines equity issues in Kazakhstan and provides recommendations on the personal income tax, social security contributions and value added taxes. Chapter 5 focuses on tax competitiveness issues and provides recommendations on how to strengthen the design of both the corporate income tax and special tax regimes for SMEs.
 

October 11, 2020 in OECD | Permalink | Comments (0)

131 jurisdictions auto-share corporate CbCR tax, financial, and operation information

The OECD has released the outcomes of the third phase of peer reviews of the BEPS Action 13 Country-by-Country (CbC) reporting initiative, demonstrating strong progress in continuing efforts to improve the taxation of multinational enterprises (MNEs) worldwide.

CbC reporting, one of the four minimum standards of the BEPS Project, requires tax administrations to collect and share detailed information on all large MNEs doing business in their country. Information collected includes the amount of revenue reported, profit before income tax, and income tax paid and accrued, as well as the stated capital, accumulated earnings, number of employees and tangible assets, broken down by jurisdiction. CbC reporting provides an unprecedented level of transparency to tax administrations worldwide. As a result, tax administrations, often for the first time, will have received detailed information on all large MNEs doing business in their country. As CbC Reporting is one of the four minimum standards of the BEPS Project, all members of the Inclusive Framework on BEPS have committed to implement it, and to have their compliance with the standard reviewed and monitored by their peers. This is to ensure a timely and consistent implementation across the world, which is key to the success of CbC reporting.

This third annual peer review considers implementation of the CbC reporting minimum standard by jurisdictions as of April 2020. Highlights include:

  • Coverage increased to 131 jurisdictions. The peer review includes a comprehensive examination of 131 Inclusive Framework members. A small number of members were not included in this review either because they recently joined the Inclusive Framework or they faced capacity constraints, but these will be reviewed as soon as possible.

  • Practically all MNEs that are over the threshold for filing are now covered. Over 90 jurisdictions have already introduced legislation to impose a filing obligation on MNE groups, covering almost all MNE Groups with consolidated group revenue at or above the threshold of EUR 750 million. Remaining Inclusive Framework members are working towards finalising their domestic legal frameworks with the support of the OECD.

  • Implementation largely consistent with BEPS Action 13. Where legislation is in place, the implementation of CbC Reporting has been found largely consistent with the Action 13 minimum standard.

  • Jurisdictions acting on prior recommendations. A large number of recommendations made in the first two peer review phases have now been addressed and these recommendations have been removed.

  • Over 2500 exchange relationships now in place. Exchanges of CbC reports began in June 2018 and more than 2500 bilateral relationships for CbC exchanges are now in place.

Related work

In addition, work progresses on the 2020 review of the CbC reporting minimum standard, to be completed this year. This will take into account feedback received from a public consultation, including a meeting held in May 2020 via Zoom with around 270 participants from business and non-business stakeholders.

October 11, 2020 in BEPS, OECD | Permalink | Comments (0)

Saturday, October 10, 2020

John McAfee Indicted for Tax Evasion

Allegedly Hid Cryptocurrency, a Yacht, Real Estate and Other Properties in Nominee Names to Evade Taxes Download Indictment

An indictment was unsealed today charging John David McAfee with tax evasion and willful failure to file tax returns, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division and U.S. Attorney D. Michael Dunavant for the Western District of Tennessee. The June 15, 2020 indictment was unsealed following McAfee’s arrest in Spain where he is pending extradition.

According to the indictment, John McAfee earned millions in income from promoting cryptocurrencies, consulting work, speaking engagements, and selling the rights to his life story for a documentary. From 2014 to 2018, McAfee allegedly failed to file tax returns, despite receiving considerable income from these sources. The indictment does not allege that during these years McAfee received any income or had any connection with the anti-virus company bearing his name.

According to the indictment, McAfee allegedly evaded his tax liability by directing his income to be paid into bank accounts and cryptocurrency exchange accounts in the names of nominees. The indictment further alleges McAfee attempted to evade the IRS by concealing assets, including real property, a vehicle, and a yacht, in the names of others.

If convicted, McAfee faces a maximum sentence of five years in prison on each count of tax evasion and a maximum sentence of one year in prison on each count of willful failure to file a tax return. McAfee also faces a period of supervised release, restitution, and monetary penalties.

John McAfee has over the past decade been held responsible for a murder in a Florida court of his Belize neighbor, arrested in the Dominican Republic on weapons charges,  bragged about not filing tax returns, among other chaos:. See by example https://www.cnet.com/news/john-mcafee-released-from-confinement/ and Yahoo Finance story

October 10, 2020 in Tax Compliance | Permalink | Comments (0)

Friday, October 9, 2020

COVID-19 has changed online shopping forever, survey shows

The pandemic has accelerated the shift towards a more digital world and triggered changes in online shopping behaviours that are likely to have lasting effects

The COVID-19 pandemic has forever changed online shopping behaviours, according to a survey of about 3,700 consumers in nine emerging and developed economies.

The survey, entitled “COVID-19 and E-commerce”, examined how the pandemic has changed the way consumers use e-commerce and digital solutions. It covered Brazil, China, Germany, Italy, the Republic of Korea, Russian Federation, South Africa, Switzerland and Turkey.

Following the pandemic, more than half of the survey’s respondents now shop online more frequently and rely on the internet more for news, health-related information and digital entertainment.

Consumers in emerging economies have made the greatest shift to online shopping, the survey shows.

“The COVID-19 pandemic has accelerated the shift towards a more digital world. The changes we make now will have lasting effects as the world economy begins to recover,” said UNCTAD Secretary-General Mukhisa Kituyi.

He said the acceleration of online shopping globally underscores the urgency of ensuring all countries can seize the opportunities offered by digitalization as the world moves from pandemic response to recovery.

Online purchases rise but consumer spending falls

The survey conducted by UNCTAD and Netcomm Suisse eCommerce Association, in collaboration with the Brazilian Network Information Center (NIC.br) and Inveon, shows that online purchases have increased by 6 to 10 percentage points across most product categories.

The biggest gainers are ICT/electronics, gardening/do-it-yourself, pharmaceuticals, education, furniture/household products and cosmetics/personal care categories (Figure 1).

Figure 1: Percentage of online shoppers making at least one online purchase every two months

Figure 1 Percentage of online shoppers making at least one online purchase every two months
Source: UNCTAD and NetComm Suisse eCommerce Association

However, average online monthly spending per shopper has dropped markedly (Figure 2). Consumers in both emerging and developed economies have postponed larger expenditures, with those in emerging economies focusing more on essential products.

Tourism and travel sectors have suffered the strongest decline, with average spending per online shopper dropping by 75%.

Figure 2: Fall of average online spending per month since COVID-19, per product category

Figure 2 Fall of average online spending per month since COVID-19, per product category
Source: UNCTAD and NetComm Suisse eCommerce Association

“During the pandemic, online consumption habits in Brazil have changed significantly, with a greater proportion of internet users buying essential products, such as food and beverages, cosmetics and medicines,” said Alexandre Barbosa, manager of the Regional Center of Studies on the Development of Information Society (Cetic.br) at the Brazilian Network Information Center (NIC.br).

Increases in online shopping during COVID-19 differ between countries, with the strongest rise noted in China and Turkey and the weakest in Switzerland and Germany, where more people were already engaging in e-commerce.

The survey found that women and people with tertiary education increased their online purchases more than others. People aged 25 to 44 reported a stronger increase compared with younger ones. In the case of Brazil, the increase was highest among the most vulnerable population and women.

Also, according to survey responses, small merchants in China were most equipped to sell their products online and those in South Africa were least prepared.

“Companies that put e-commerce at the heart of their business strategies are prepared for the post-COVID-19 era,” said Yomi Kastro, founder and CEO of Inveon. “There is an enormous opportunity for industries that are still more used to physical shopping, such as fast-moving consumer goods and pharmaceuticals.”

“In the post-COVID-19 world, the unparalleled growth of e-commerce will disrupt national and international retail frameworks,” said Carlo Terreni, President, NetComm Suisse eCommerce Association.

“This is why policymakers should adopt concrete measures to facilitate e-commerce adoption among small and medium enterprises, create specialized talent pools and attract international e-commerce investors.”

Digital giants grow stronger

According to the survey, the most used communication platforms are WhatsApp, Instagram and Facebook Messenger, all owned by Facebook.

However, Zoom and Microsoft Teams have benefitted the most from increases in the use of video calling applications in workplaces.

In China, the top communication platforms are WeChat, DingTalk and Tencent Conference, the survey shows.

Changes are here to stay

The survey results suggest that changes in online activities are likely to outlast the COVID-19 pandemic.

Most respondents, especially those in China and Turkey, said they’d continue shopping online and focusing on essential products in the future.

They’d also continue to travel more locally, suggesting a lasting impact on international tourism.

October 9, 2020 in Economics | Permalink | Comments (0)

Thursday, October 8, 2020

Multilateral Convention to tackle tax evasion and avoidance continues to expand its reach in developing countries, as Botswana, Eswatini, Jordan and Namibia join

Today, at the OECD Headquarters in Paris, four countries have signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (the Convention), bringing the total number of jurisdictions that participate in the Convention to 141.

Today's signing by Botswana, Eswatini, Jordan and Namibia which takes place as the world addresses the impact of COVID-19, underlines the commitment of the signatories to participate in international tax co-operation and exchange of information and further strengthens the global reach of the Convention, in particular in Africa. In addition to over 8000 exchange relationships in place, these signings will trigger 554 new exchange relationships under the Convention for the four signing jurisdictions following their ratification, allowing them to engage in the exchange of information with 140 other jurisdictions, including all major financial centres.

The Convention enables jurisdictions to engage in a wide range of mutual assistance in tax matters: exchange of information on request, spontaneous exchange, automatic exchange, tax examinations abroad, simultaneous tax examinations and assistance in tax collection. It guarantees extensive safeguards for the protection of taxpayers' rights.

The Convention is the primary instrument for swift implementation of the Standard for Automatic Exchange of Financial Account Information in Tax Matters (CRS). The CRS – developed by the OECD and G20 countries – enables more than 100 jurisdictions to automatically exchange offshore financial account information.

Beyond the exchange of information on request and the automatic exchange pursuant to the Standard, the Convention is also a powerful tool in the fight against illicit financial flows and is a key instrument for the implementation of the transparency standards of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project.

October 8, 2020 in GATCA, Tax Compliance | Permalink | Comments (0)

United States Obtains Final Judgement Confiscating Proceeds of Edward Snowden's Book

On Sept. 29, 2020, the U.S. District Court for the Eastern District of Virginia entered a final judgement and permanent injunction against Edward Snowden, a former employee of the Central Intelligence Agency (CIA) and contractor for the National Security Agency (NSA).

In September 2019, the United States filed a lawsuit against Snowden, who published a book entitled Permanent Record in violation of the non-disclosure agreements he signed with both CIA and NSA. The lawsuit alleged that Snowden published his book without submitting it to the agencies for pre-publication review, in violation of his express obligations under the agreements he signed. Additionally, the lawsuit alleges that Snowden has given public speeches on intelligence-related matters, also in violation of his non-disclosure agreements.

The United States’ lawsuit did not seek to stop or restrict the publication or distribution of Permanent Record. Rather, under well-established Supreme Court precedent, Snepp v. United States, the government sought to recover all proceeds earned by Snowden because of his failure to submit his publication for pre-publication review in violation of his alleged contractual and fiduciary obligations.

In December 2019, the U.S. District Court for the Eastern District of Virginia, found in favor of the United States in the suit against Snowden on the issue of liability and held that Snowden breached his contractual and fiduciary obligations to the CIA and NSA by publishing Permanent Record and giving prepared remarks within the scope of his pre-publication review obligations, but reserved judgment on the scope of these violations or the remedies due to the government.  On Tuesday, the court entered judgment in the government’s favor in an amount exceeding $5.2 million and imposed a constructive trust for the benefit of the United States over those sums and any further monies, royalties, or other financial advantages derived by Snowden from Permanent Record and 56 specific speeches. 

“Edward Snowden violated his legal obligations to the United States, and therefore, his unlawful financial gains must be relinquished to the government,” said Deputy Attorney General Jeffrey A. Rosen.  “As this case demonstrates, the Department of Justice will not overlook the wrongful actions of those who seek to betray the trust reposed in them and to personally profit from their access to classified national security information.”

“Intelligence information should protect our nation, not provide personal profit,” said G. Zachary Terwilliger, U.S. Attorney for the Eastern District of Virginia. “This judgment will ensure that Edward Snowden receives no monetary benefits from breaching the trust placed in him.”

“We will pursue those who take advantage of sensitive positions in government to profit from the classified information learned during their government service,” said Jeffrey Bossert Clark, Acting Assistant Attorney General of the Civil Division.

This lawsuit is separate from the criminal charges brought against Snowden for his alleged disclosures of classified information. This lawsuit is a civil action, and based solely on Snowden’s failure to comply with the clear pre-publication review obligations included in his signed non-disclosure agreements.

October 8, 2020 in AML | Permalink | Comments (0)

Wednesday, October 7, 2020

Gross Domestic Product, Corporate Profits, and GDP by Industry (Annual Update), Second Quarter 2020

Real gross domestic product (GDP) decreased at an annual rate of 31.4 percent in the second quarter of 2020 (table 1), according to the "third" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 5.0 percent.

The “third” estimate of GDP released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the decrease in real GDP was 31.7 percent. The upward revision with the third estimate primarily reflected an upward revision to personal consumption expenditures (PCE) that was partly offset by downward revisions to exports and to nonresidential fixed investment (see "Updates to GDP" on page 3).

Real GDP: Percent change from preceding quarter
Coronavirus (COVID-19) Impact on the Second-Quarter 2020 GDP Estimate
The decline in second quarter GDP reflected the response to COVID-19, as “stay-at-home” orders issued in March and April were partially lifted in some areas of the country in May and June, and government pandemic assistance payments were distributed to households and businesses. This led to rapid shifts in activity, as businesses and schools continued remote work and consumers and businesses canceled, restricted, or redirected their spending. The full economic effects of the COVID-19 pandemic cannot be quantified in the GDP estimate for the second quarter of 2020 because the impacts are generally embedded in source data and cannot be separately identified. For more information, see the Technical Note.

The decrease in real GDP reflected decreases in PCE, exports, nonresidential fixed investment, private inventory investment, residential fixed investment, and state and local government spending that were partly offset by an increase in federal government spending. Imports, which are a subtraction in the calculation of GDP, decreased (table 2).

The decrease in PCE reflected decreases in services (led by health care) and goods (led by clothing and footwear). The decrease in exports primarily reflected a decrease in goods (led by capital goods). The decrease in nonresidential fixed investment primarily reflected a decrease in equipment (led by transportation equipment). The decrease in private inventory investment primarily reflected a decrease in retail (led by motor vehicle dealers). The decrease in residential investment primarily reflected decreases in new single-family housing.

Current-dollar GDP decreased 32.8 percent, or $2.04 trillion, in the second quarter to a level of $19.52 trillion. In the first quarter, GDP decreased 3.4 percent, or $186.3 billion (tables 1 and 3). More information on the source data that underlie the estimates is available in the "Key Source Data and Assumptions" file on BEA’s website.

The price index for gross domestic purchases decreased 1.4 percent in the second quarter, in contrast to an increase of 1.4 percent in the first quarter (table 4). The PCE price index decreased 1.6 percent, in contrast to an increase of 1.3 percent. Excluding food and energy prices, the PCE price index decreased 0.8 percent, in contrast to an increase of 1.6 percent.

Gross Domestic Income and Corporate Profits

Real gross domestic income (GDI) decreased 33.5 percent in the second quarter, compared with a decrease of 2.5 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, decreased 32.5 percent in the second quarter, compared with a decrease of 3.7 percent in the first quarter (table 1).

Real GDP by Industry

Today’s release includes estimates of GDP by industry, or value added—a measure of an industry’s contribution to GDP. Private goods-producing industries decreased 34.4 percent, private services-producing industries decreased 33.1 percent, and government decreased 16.6 percent (table 12). Overall, 20 of 22 industry groups contributed to the second-quarter decline in real GDP.

Within private goods-producing industries, the leading contributor to the decrease was durable goods manufacturing (led by motor vehicles, bodies and trailers, and parts) (table 13).

Within private services-producing industries, the leading contributors to the decrease were accommodation and food services (led by food services and drinking places); health care and social assistance (led by ambulatory health care); transportation and warehousing (led by air transportation); arts, entertainment, and recreation; wholesale trade; and professional, scientific, and technical services. Offsetting these decreases was an increase in finance and insurance (led by the securities and banking industries).

The decrease in government was more than accounted for by a decrease in state and local government which was partly offset by an increase in federal government.

Real GDP by Sector: Percent change from preceding period

Gross Output by Industry

Real gross output—principally a measure of an industry’s sales or receipts, which includes sales to final users in the economy (GDP) and sales to other industries (intermediate inputs)—decreased 29.5 percent in the second quarter. This reflected a decrease of 32.6 percent for private services-producing industries, a decrease of 29.7 percent for private goods-producing industries, and a decrease of 7.6 percent for government (table 16). Overall, 20 of 22 industry groups contributed to the decrease in real gross output. Finance and insurance as well as federal government gross output increased.

Annual Update of the Industry Economic Accounts

The industry estimates released today reflect the results of the 2020 Annual Update of the Industry Economic Accounts. The update covers the first quarter of 2015 through the first quarter of 2020. Major improvements introduced with this update include:

  • Incorporation of the results from the 2020 Annual Update of the National Income and Product Accounts. For details on methodology improvements, major source data incorporated, and results, see “The 2020 Annual Update of the National Income and Product Accounts” in the August Survey of Current Business.
  • Incorporation of newly available and revised source data, including the Census Bureau’s Service Annual Survey (SAS), the Bureau of Labor Statistics’ (BLS) Quarterly Census of Employment and Wages, and the Department of Treasury’s Statistics of Income.
  • Introduction of a new implicit price deflator for import duties recorded in wholesale trade that conceptually captures changes in both the price of the underlying duties as well as changes in duty rates to improve the deflation of customs duties.
  • Adoption of several retail trade producer price indexes (PPIs) due to the discontinuation of various detailed retail trade industries in the BLS PPI program.
  • Incorporation of new educational services output indicators based on SAS revenue and taxable and tax-exempt expense data.
  • Adoption of new commercial fishing indicators for quarterly estimates from 2017 onward using BLS PPIs and Census Manufacturers’ Shipments, Inventories, and Orders (M3) survey data due to the discontinuation of National Oceanic and Atmospheric Administration data on monthly commercial fishing landings and prices.

The full results of the annual update of the industry economic accounts, including updated annual supply-use tables, can be found on the BEA Web site. Additional information will be available in an article in the October 2020 issue of the Survey of Current Business.

Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) decreased $208.9 billion in the second quarter, compared with a decrease of $276.2 billion in the first quarter (table 10).

Profits of domestic financial corporations increased $26.5 billion in the second quarter, in contrast to a decrease of $42.2 billion in the first quarter. Profits of domestic nonfinancial corporations decreased $145.9 billion, compared with a decrease of $190.5 billion. Rest-of-the-world profits decreased $89.5 billion, compared with a decrease of $43.5 billion. In the second quarter, receipts decreased $134.5 billion, and payments decreased $45.0 billion.

Updates to GDP

In the third estimate, the second-quarter change in real GDP was revised up 0.3 percentage point from the second estimate. PCE, residential investment, and state and local government spending were revised up. These upward revisions were partly offset by downward revisions to exports and to private nonresidential fixed investment (mainly intellectual property products). For more information, see the Technical Note and the "Additional Information" section that follows.

 
Advance Estimate Second Estimate Third Estimate
(Percent change from preceding quarter)
Real GDP -32.9 -31.7 -31.4
Current-dollar GDP -34.3 -33.3 -32.8
Real GDI -33.1 -33.5
Average of Real GDP and Real GDI -32.4 -32.5
Gross domestic purchases price index -1.5 -1.5 -1.4
PCE price index -1.9 -1.8 -1.6
PCE price index excluding food and energy -1.1 -1.0 -0.8

October 7, 2020 in Economics | Permalink | Comments (0)

Tuesday, October 6, 2020

Chinese National Sentenced for Laundering Millions for Mexican Drug Cartels

A Chinese national was sentenced today to five years in prison and ordered to forfeit more than $4.2 million for laundering drug proceeds generated by large-scale cocaine trafficking in the United States.

Acting Assistant Attorney General Brian C. Rabbitt of the Justice Department’s Criminal Division; U.S. Attorney G. Zachary Terwilliger for the Eastern District of Virginia; Special Agent in Charge Wendy C. Woolcock for the U.S. Drug Enforcement Administration’s (DEA) Special Operations Division; Special Agent in Charge Jeffrey T. Scott of DEA's Louisville, Kentucky Field Division; Chief Jason Crosby of the Criminal Investigations Division of the U.S. Department of State’s Diplomatic Security Service (DSS); and Special Agent in Charge James Gibbons of U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI) Chicago, Illinois made the announcement after sentencing by U.S. District Judge Leonie M. Brinkema for the Eastern District of Virginia.

According to court documents, Xueyong Wu, 40, cultivated relationships with Latin American drug trafficking organizations to transport and launder their United States-based drug proceeds. Much of this money was repatriated to Mexico through a complex series of international financial transactions. Wu received a percentage of the money involved in these transactions as compensation for organizing these laundering activities. Much of this money was generated through movement of cocaine or payment for cocaine that took place within the Eastern District of Virginia.

October 6, 2020 in AML | Permalink | Comments (0)