Internal Revenue Service (IRS)

I am honored to be part of a panel on March 1, 2018 at the Florida Tax Institute in Tampa, Florida regarding potential money laundering risks, reporting obligations and related ethical issues facing U.S. tax professionals with foreign clients bringing money and assets into the United States.  The panel, entitled Working with Inbound Investors & Businesses – Some Things You May Not Think About May Hurt You, will be moderated by Fred Murray of the University of Florida Levin College of Law and also will include attorneys Jeffrey A. Neiman, A. Brian Phillips and Shawn P. Wolf.

This is a key topic with real-world implications. We previously have blogged about potential AML and money laundering issues facing U.S. lawyers, who are under increasing scrutiny in light of: evolving international standards on professionals as AML gate keepers; global criticisms of the United States as a possible haven for money launderers and tax cheats; and scandals — such as the Panama Papers — involving legal professionals as the alleged facilitators of laundering and tax evasion by their clients.

Specifically, both the Financial Action Task Force (“FATF”) and the European Parliament have called for U.S. lawyers to meet higher standards in performing due diligence to detect clients’ potential money laundering, and found U.S. lawyers to be “non-compliant” with entity transparency standards. Further, the U.S. Congress has tried to enact legislation over the years to address the issue of beneficial ownership and the role of lawyer (see our discussion of the Corporate Transparency Act here). More recently, and as we have blogged, the ABA’s Task Force on the Gatekeeper and the Profession has prepared and discussed a new ABA Model Rule of Professional Conduct that would impose basic “client due diligence” requirement on lawyers.  The panel should be interesting.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. To learn more about Ballard Spahr’s Anti-Money Laundering Team, please click here.

IRS Will Obtain Identifying Information Regarding Clients Who Conducted Any Transaction Equal to $20,000 or More

Last week, a federal magistrate judge in the Northern District of California granted in part and denied in part a motion by the IRS to enforce a “John Doe” summons served on Coinbase, Inc., which operates a virtual currency wallet and exchange business headquartered in San Francisco. As we have blogged, the court granted last year the IRS’s application to serve the summons on Coinbase, which then resisted and moved to quash. The recent ruling paves the way for potential criminal or civil tax investigations involving Coinbase customers, as well as potential money laundering investigations.  The ruling also indicates that the IRS might be able to seek more information from Coinbase about specific individuals as its investigation progresses.

Needless to say, the semi- or pseudo-anonymity offered by virtual currency – traits which historically have made virtual currency attractive to some of its users – are the same traits which have made the IRS and other law enforcement agencies and regulators intensely interested in the use of virtual currency. Although the use of virtual currency generally may cloak the user and create practical problems for investigators, the Coinbase action demonstrates that virtual currency is not truly anonymous in the face of a focused law enforcement inquiry. Continue Reading Court Enforces — Partially — IRS “John Doe” Summons Served on Virtual Currency Exchanger

Forfeiture actions by Internal Revenue Service Criminal Investigation (IRS CI) based on alleged structuring activity have come under fire, yet again. Specifically, the Treasury Inspector General for Tax Administration (TIGTA) issued on March 30, 2017 a detailed report (Report) which evaluates IRS CI’s use of seizures for property owners suspected of structuring financial transactions. The Report sets forth detailed criticisms of past practices, as well as nine pointed recommendations for future forfeiture actions, which received a mixed response from IRS CI. This report was followed very shortly by the bipartisan re-introduction on April 3, 2017 of the “Restraining Excessive Seizure of Property through the Exploitation of Civil Asset Forfeiture Tools Act,” or RESPECT Act, which seeks to limit the ability of the IRS to conduct civil forfeitures based on structuring activity without underlying criminal activity.Suitcase full of money

We previously have discussed the growing resistance to IRS forfeiture actions based on the structuring of “legal source” funds, and the initial introduction of the RESPECT Act. In this two-part blog entry, we discuss in detail immediately below the new TIGTA Report and the mixed reaction to it by IRS CI.

However, it is not just IRS CI that is undergoing criticism. We will follow up tomorrow with a related post on the recent report by the Office of the Inspector General for the Department of Justice (DOJ). The DOJ report provides some similar critiques of the entire landscape of federal forfeiture, and makes additional recommendations on asset seizure and forfeiture in general.

These two Inspector General reports set forth some common criticisms of forfeiture enforcement. They also can be interpreted as suggesting that law enforcement agents could minimize some of the criticisms of civil forfeiture by reducing the total amount of forfeiture cases undertaken, while simultaneously increasing the amount of time and effort spent on investigating the remaining cases which are pursued. This is because the reports suggest that additional investigation – which often seems to be scant – may produce in many cases facts supporting forfeiture that could satisfy even some critics of civil forfeiture.
Continue Reading Civil Forfeiture Enforcement Under Fire – Part I

House and cashThe field of forfeiture saw significant action in 2016. The IRS offered to return forfeited funds used in structuring, but Congress still may clip its ability to forfeit such funds. Meanwhile, DOJ renewed a controversial program that incentivizes local law enforcement to aggressively pursue forfeiture. It filed a major forfeiture action which reminds law firms of their own need to vet the source of funds flowing into firm bank accounts. Finally, the U.S. Supreme Court made it clear that “clean” funds cannot be restrained pretrial when a defendant needs those funds for his criminal defense, even if the government wants to restrain the money in order to pay for forfeiture or restitution if the defendant is convicted. Continue Reading 2016 Year in Review: Forfeiture

As part of the U.S. Treasury Department’s ongoing efforts to prevent possible bad actors from using U.S. companies to conceal money laundering, tax evasion, and other illicit financial activities, FinCEN issued, on May 11, 2016, a final rule to strengthen the customer due diligence (CDD) efforts of “covered financial institutions.” This was one of the most important, if not the most important, AML developments in 2016. Covered institutions have until May 11, 2018, to comply with the new CDD rule, which requires covered financial institutions, including banks, federally insured credit unions, broker-dealers, mutual funds, futures commission merchants, and introducing brokers in commodities, to identify the natural persons that own and control legal entity customers—the entities’ “beneficial owners.”

Continue Reading 2016 Year in Review: FinCEN Finalizes Regulations Regarding Customer Due Diligence

The Financial Action Task Force (FATF) highlighted in its December 2016 Mutual Evaluation Report on the United States’ Measures to Combat Money Laundering and Terrorist Financing the “excellent results” in compliance and supervision in the U.S. gaming industry during the period of 2007 to 2016. The report noted that efforts by regulators and the gaming industry have led to enhanced AML and Combating the Financing of Terrorism (CFT) compliance. The assessors specifically mentioned the efforts of the American Gaming Association (AGA), including its study, Investing in America’s Financial Security: Casinos’ Commitment to AML Compliance. The FATF report also included several recommended actions related to gaming.

Continue Reading 2016 Year in Review: FATF Report Recommends Expanding Gaming Examinations and Section 314 Efforts; Praises Progress in Gaming Industry Compliance