International Tax Evasion

The Office of Foreign Assets Control (“OFAC”) wrapped up 2017 by issuing a series of high-profile designations generally prohibiting U.S. persons from conducting financial or other transactions with the identified individuals and entities, and freezing any assets which these individuals and entities may have under U.S. jurisdiction. Specifically, OFAC, acting in conjunction with a new Executive Order issued by the President pursuant to the Global Magnitsky Human Rights Accountability Act (“Magnitsky Act”), sanctioned on December 21 a list of alleged international bad actors, including Dan Gertler, a billionaire and international businessman from Israel who has been involved in, among other notorious ventures, alleged corruption in the mining of diamonds and copper in the Democratic Republic of the Congo. The next day, OFAC then sanctioned individuals and entities allegedly associated with Thieves-in-Law, an alleged and unapologetically-named Eurasian criminal entity; according to the U.S. government, Thieves-in-Law originated in Stalinist prison camps and has grown over time into a “vast criminal organization” stretching across the globe and into the United States. Continue Reading OFAC Designates Diamond Mining Billionaire, “Thieves in Law,” and Many Other International Targets as Subject to U.S. Sanctions and Asset Freezes

After over a year of negotiations, the European Parliament and its executive arm, the European Council, recently agreed to an amendment to the Fourth Anti-Money Laundering Directive to include measures targeting exchange platforms for virtual currencies, such as Bitcoin, as well as prepaid cards.  These new regulations will require an increase in transparency by the trusts and trading companies to reveal the holders of virtual currency to thwart potential money laundering, tax evasion, and anonymous funding of terrorism. Primary among these regulations is a requirement to provide beneficial ownership information to authorities and “any persons that can demonstrate a legitimate interest” to access data on the beneficial owners of trusts.

This focus on beneficial ownership in regards to virtual currency is entirely consistent with the general AML regulatory efforts in the United States and around the globe over the last few years, which have emphasized heavily the need to identify the beneficial owners of financial accounts, real estate and other assets in order to attain a more transparent financial system.

The regulation adopted by the European Parliament and European Council also comes as Bitcoin’s prices surged over 1,700 percent since the start of 2017.  This outstanding growth has increased main stream interest in the virtual currency while also sounding alarm bells as some fear that Bitcoin is a bubble bound to burst.  A key part of the amendment is that access to beneficial ownership information should be provided to authorities and “any persons that can demonstrate a legitimate interest.”  Continue Reading EU Adopts Regulations Increasing Transparency in Virtual Currency Trading to Combat Money Laundering, Tax Evasion, and Terrorism Financing

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

PANA Issues Recommendations to European Parliament: Tougher Enforcement, Greater Transparency, Improved Information Sharing and Prohibitions Against Outsourcing of Customer Due Diligence

In the wake of the Panama Papers, the European Parliament (“EP”) formed PANA, a Committee of Inquiry into Money Laundering, Tax Avoidance, and Tax Evasion. We previously wrote about PANA in May when it was examining the role of lawyers in money laundering and tax evasion schemes. After opening their October 19 meeting with a moment of silence to honor the life of Maltese investigative journalist Daphne Coruana Galizia, who recently was killed by a car bomb, PANA approved a draft report and recommendations for review by the EP. The findings and recommendations range from reporting standardization to outsourcing to illicit real estate transactions to attorney-client privilege.

European parliament in Brussels, Belgium.

A few themes emerged from the PANA report:

  • the European Union (“EU”) has strong law, but lacks vigorous enforcement;
  • the EU’s many regulators are stymied by a severe lack of communication, both within nations and between countries;
  • beneficial owners (“BOs”) are mostly unknown because regulated entities are not fulfilling their reporting obligations and the BO register is not robust, accessible, or standardized;
  • intermediaries, like banks, lawyers, accountants, wealth managers, and other financial institutions, are not living up to their obligations because they are engaging in “creative compliance” and leaving compliance responsibility to third parties.

Based on these findings, PANA recommends:

  • uniform definitions and punishments for money laundering and tax-related infractions,
  • “automatic exchange of information,” reciprocity, and “Common Reporting Standards” between regulators to facilitate better information sharing,
  • the creation of a “publically accessible,” standardized BO register that includes the ultimate beneficial owner (“UBO”),
  • the EP pass legislation to “make it illegal to outsource [customer due diligence (“CDD”)] procedures to third parties,”
  • adoption of stronger forfeiture laws that allow cross-border confiscation of illegally obtained assets,
  • stronger sanctions against banks and other intermediaries that “are knowingly, willfully, and systematically implicated in illegal tax schemes,”
  • lawyers should no longer be able to hide behind the attorney-client privilege to escape reporting requirements, like suspicious transaction reports (“STRs”),
  • countries devote more resources to fighting money laundering and tax evasion,
  • the EP vest more oversight powers in PANA.

Continue Reading Money Laundering Watchdog Criticizes Lax AML Enforcement and “Creative Compliance” in Wake of Panama Papers

A Guest Blog by Bruce Zagaris, Esq.

Today we are very pleased to welcome guest blogger Bruce Zagaris, who is a Partner at the Washington, D.C. law firm of Berliner, Corcoran & Rowe.  He is the editor of the International Enforcement Law Reporter; the author of International White Collar Crime: Cases and Materials; and an Adjunct Professor at the Texas A & M University School of  Law.  Mr. Zagaris also is a member of the Task Force on the Gatekeeper and the Profession of the American Bar Association (“ABA”).

As Mr. Zagaris explains immediately below, growing international trends have led the ABA Task Force to consider a new Model Rule of Professional Conduct that would impose basic “client due diligence” requirements on U.S. lawyers to determine whether their clients are engaging in money laundering or terrorist financing.  This development relates directly to issues about which we previously have blogged, including European perceptions of lawyers as potential gatekeepers and of the United States as a haven for money laundering and tax evasion.  The possible new Model Rule potentially would represent a significant shift in how the U.S. legal profession regards itself and its relationship to its clients.  We hope that you enjoy this discussion by Mr. Zagaris of these important issues. -Peter Hardy

Increasingly, international bodies are calling for higher standards for gatekeepers, known in the parlance of the Financial Action Task Force (“FATF”) as “designated non-financial businesses and professions” (“DNFBPs”). DNFBPs include lawyers, accountants, real estate agents, and trust and company service providers (other than trust companies).  In particular, in the United States, lawyers play a key role in areas that give rise to potential money laundering:  company formation; real estate transactions; business planning; tax planning; wealth management; trust and estate work; and formation and operation of charities, including transnational philanthropy.

In 2006 and again in 2016, the FATF, an intergovernmental body in charge of making and overseeing compliance with international money laundering standards, performed Mutual Evaluation Reports (“MERs”) to assess compliance by the United States with international standards.  While the FATF gave the U.S. high marks generally, both MERs found the U.S. “non-compliant” in gatekeepers and entity transparency.

As a result of this international trend, 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.  We discuss this potential new model rule, and the developments which have led to its consideration, below.  Clearly, due diligence for lawyers will increasingly be on the radars of banks, financial institutions, and law firms. Continue Reading AML Due Diligence Standards for U.S. Lawyers

FDICIn his remarks during last week’s launch of Case Western Reserve School of Law’s Financial Integrity Institute, FDIC Chairman Martin J. Gruenberg spoke on the historical context of today’s BSA/AML regulatory framework and the FDIC’s role in promoting and maintaining financial integrity.  The Financial Integrity Institute describes its mission as seeking “to advance financial integrity globally by conducting and promoting at the highest standards research, education and professional excellence in anti-money laundering, anti-corruption, targeted sanctions and countering the financing of terrorism and international tax evasion policies and practices.”

Chairman Gruenberg recounted the legislative history of money laundering and terrorist financing laws and reminded us that the BSA was originally developed to address the lack of data needed by law enforcement to prosecute financial crimes. The regulatory framework has evolved over time in response to continual technological advancements and the increasing volume and sophistication of financial crime being perpetrated. “[W]hat began as currency transaction reporting requirements to identify citizens evading tax payments,” he said, “has evolved into required BSA/AML compliance programs, suspicious activity monitoring, and new reporting requirements to identify money laundering and terrorist financing, among other financial crimes.” The Chairman also observed that anti-money laundering efforts continue to take on an increasingly international aspect, and that evolving technologies constitute a “double-edged sword” because they can represent new means to either commit, or detect and prevent, financial crime.

In his speech, the Chairman also touched on the FDIC’s supervisory program. He stated that the FDIC evaluates not only an institution’s compliance with the BSA but also whether an institution has established a “culture of compliance.” He further remarked that the BSA/AML compliance program failures seen by the FDIC “often reflect a failure on the part of an institution’s directors or senior management to establish a tone of compliance that permeates the institution.”

We previously have blogged about the regulatory focus on the importance of cultivating a culture of robust BSA/AML compliance within financial institutions. Chairman Gruenberg’s remarks suggest that this focus is not likely to diminish in the near future. As such, it is prudent for financial institutions to keep efforts to develop a culture of compliance top of mind. In particular, the Chairman noted that the FDIC looks for whether directors demonstrate strong corporate governance and have a general understanding of the BSA/AML regulations and the risks posed to their institution, and whether senior management and employees understand the importance of BSA/AML compliance.

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