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Archive for the ‘Compliance’ Category

Tax Facts for Choosing the Right Tax Filing Status

Posted by William Byrnes on December 14, 2015


Using the correct filing status is very important when filing a tax return. The right status affects how much is owed in taxes. It may even affect whether a tax return must be filed.

When choosing a filing status, keep in mind that marital status on Dec. 31 is the status for the entire year.  If more than one filing status applies, choose the one that will result in the lowest tax.

Note for same-sex married couples that new rules apply if legally married in a state or foreign country that recognizes same-sex marriage.  The same sex spouses generally must use a married filing status on the 2015 federal tax return and forward.  This is true even if the same sex spouses now live in a state or foreign country that does not recognize same-sex marriage.

Here is a list of the five filing statuses to help you choose:

1. Single.  This status normally applies if you aren’t married or are divorced or legally separated under state law.

2. Married Filing Jointly.  A married couple can file one tax return together. If your spouse died in 2013, you usually can still file a joint return for that year.

3. Married Filing Separately.  A married couple can choose to file two separate tax returns instead of one joint return. This status may be to your benefit if it results in less tax. You can also use it if you want to be responsible only for your own tax.

4. Head of Household.  This status normally applies if you are not married. You also must have paid more than half the cost of keeping up a home for yourself and a qualifying person. Some people choose this status by mistake. Be sure to check all the rules before you file.

5. Qualifying Widow(er) with Dependent Child.  If your spouse died during 2014 or 2015 and you have a dependent child, this status may apply. Certain other conditions also apply.

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UK Income From Its Offshore Disclosure Facilities | Kluwer International Tax Blog

Posted by William Byrnes on August 3, 2015


UK Income From Its Offshore Disclosure Facilities | Kluwer International Tax Blog.

In 2011, HMRC forecast that it would receive “billions” from the Swiss Disclosure Facility.  In 2012, HMRC stated that this number would be five billion sterling, and another three billion sterling from the Liechtenstein Disclosure Facility (LDF).  This implies that at least a couple hundred thousand United Kingdom tax residents are non tax compliant through not disclosing income and income-producing assets overseas, in offshore countries.  

So what have the results been?  What are the future results likely to be?  Read Byrnes and Perryman at UK Income From Its Offshore Disclosure Facilities | Kluwer International Tax Blog.

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EU Asset Management Careers and Compliance Expenditures Report   

Posted by William Byrnes on August 3, 2015


see it on International Financial Law Prof Blog.

 

 

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UK Amnesty Not Leading to Disclosure of Tax Evasion in Channels. Is It “Much To Do About Nothing” ?

Posted by William Byrnes on July 22, 2015


In 2011, HMRC forecast that it would receive “billions” from the Swiss Disclosure HM_Treasury_logo.svgFacility.  In 2012, HMRC stated that this number would be 5 billion sterling, and another 3 billion sterling from the LDF.  This implies that a couple hundred thousand United Kingdom tax residents are non tax compliant by not disclosing income and income-producing assets overseas, in offshore countries.  As of that report of data up to 2012, 50,000 taxpayers had come forward through all offshore disclosure facilities, generating one billion in tax, interest, and tax penalties, thus on average 20,000 sterling per disclosure.

My tables and figures are available at International Financial Law Prof Blog.

The offshore noncompliance problem in the context of all non-tax compliance, and all taxpayers, requires first asking how many individual taxpayers file in the UK? see International Financial Law Prof Blog.

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UK HMRC Releases New Policy Documents to Tackle Offshore Evasion

Posted by William Byrnes on July 20, 2015


The government announced four consultations as part of its publication Tackling Evasion andHM_Treasury_logo.svgAvoidance.  These take forward HMRC’s strategy for tackling offshore evasion, No Safe Havens.

The four consultations are:  see International Financial Law Prof Blog.

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Lehman Brothers case study of strong then weak risk management. Why did its risk management protocols change?

Posted by William Byrnes on April 15, 2015


http://lawprofessors.typepad.com/intfinlaw/2015/04/the-lehman-brothers-bankruptcy-b-risk-limits-and-stress-tests.html

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Bitcoin – Survey of Regulation By State and Federal

Posted by William Byrnes on April 10, 2015


http://lawprofessors.typepad.com/intfinlaw/2015/04/the-block-is-hot-a-survey-of-the-state-of-bitcoin-regulation-and-suggestions-for-the-future.html #bitcoin

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Swiss Asset Manager Peter Amrein Pleads Guilty To Conspiring With U.S. Taxpayers To Evade Tax

Posted by William Byrnes on April 2, 2015


International Financial Law Prof Blog

Peter Amrein worked as a client advisor at a Swiss bank and, later, as an asset manager at a Swiss asset management firm. In those roles, between 1998 and 2012, Peter Amrein helped U.S. taxpayers evade taxes and hide millions of dollars in undeclared accounts at various Swiss banks, including Wegelin & Co., which was charged and pleaded guilty in the Southern District of New York for its conduct in conspiring with U.S. taxpayers to evade taxes. Peter Amrein, among other things, worked with an attorney based in Zurich, Switzerland, to establish sham foundations, which were organized under the laws of non-U.S. countries such as Liechtenstein, so that the undeclared assets of certain of Peter Amrein’s U.S. taxpayer-clients could be maintained in the names of these foreign foundations rather than in the clients’ own names. read the entire case at International Financial Law Prof Blog

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Is HSBC Complying With its Non Prosecution Agreement? Outside Monitor Report is Critical!

Posted by William Byrnes on April 1, 2015


Is HSBC Complying With its Non Prosecution Agreement?  There is much reference within news articles to the 1,000 page report of the outside monitor, former New York prosecutor Michael Cherkasky, and summary letter by Justice.  Read on at International Financial Law Prof Blog.

HSBC’s April 1st DOJ Court Filing About AML Non-Prosecution Available Here

image from www.lexisnexis.comThe International Financial Law Professor Blogger William Byrnes is the author of Money Laundering, Asset Forfeiture and Recovery, and Compliance- A Global Guide is an eBook designed to provide the compliance officer, BSA counsel, and government agent with accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources.  Special topic chapters will assist the compliance officer design and maintain effective risk management programs.  Over 100 country and topic experts from financial institutions, government agencies, law, audit and risk management firms have contributed analysis to develop this practical compliance guide.

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Commerzbank Admits to Sanctions and Money Laundering Violations, Will Pay $1.45 Billion Penalties! 

Posted by William Byrnes on March 17, 2015


“If for whatever reason CB New York inquires why our turnover has increase[d] so dramatically, under no circumstances may anyone mention that there is a connection to the clearing of Iranian banks!!!!!!!!!!!!!.”  Why did Commerzbank get off with only $1.45 billion in penalties when BNP paid nearly $9 billion for very similar conduct?  See International Financial Law Prof Blog

 

 

 

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FINRA Changes Regulatory Priorities – Pushing “Best Interest of Client” in 2015 Over “Suitability Standard”

Posted by William Byrnes on January 26, 2015


read about it on International Financial Law Prof Blog

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Is Insider Trading Still a Crime after U.S. v Newman?

Posted by William Byrnes on January 26, 2015


read about it at International Financial Law Prof Blog and download the case.

Citing U.S. v. Newman, judge throws out insider trading guilty pleas over IBM deal, more insider trading cases expected to be dropped ….

 

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The FDIC Wants to Sell You a Failing Bank – Interested?

Posted by William Byrnes on January 20, 2015


The FDIC has opened an online market place to dispose of failing banks — read about it at International Financial Law Prof Blog.

The ability to bid applies to FDIC-insured financial institutions of any size that may be interested in acquiring a failing institution from the FDIC.

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The Ghost of Meyer Lansky? Cuba is Back in Business ! But Still Illegal To Have Fun… Analysis of OFAC’s Regulations Released Today

Posted by William Byrnes on January 15, 2015


“Don’t worry, don’t worry. Look at the Astors and the Vanderbilts, all those big society people. They were the worst thieves – and now look at them. It’s just a matter of time.” Meyer Lansky

International Financial Law Prof Blog post … Academics, conference attendees, and business persons may travel to Cuba under blanket authorization to attend conferences, teaching programs, and transact business.

However, the US Treasury Department has left it illegal under the OFAC regulations to undertake tourist activities, including “excessive” free time sitting about puffing cigars and sipping rum.  At least a professor can bring one small box of cigars back home now (not over $100 value). And smart phones will work in the future!  read my analysis of the OFAC Cuba Amendments Released Today – read the full analysis at International Financial Law Prof Blog.

 

 

 

 

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OFAC Focuses on Banks Detecting Persons & Entities on the International Black List With New Global Format

Posted by William Byrnes on January 15, 2015


This new sanctions list format was jointly developed by the United Nations (U.N.) and the Wolfsberg Group of International Banks in an effort to create a universal sanctions list format that can be efficiently used by governments worldwide and enhances sanctions compliance.  The United States is the first U.N. member state to implement this advanced sanctions data model.  In an effort to ensure a greater level of global sanctions compliance the Treasury Department supports the new sanctions list model and appreciates the efforts of the U.N. and the Wolfsberg Group in their creation of a universal format.

The new format incorporates a variety of features that ensure maximum flexibility for sanctions list creators, while also limiting the need for future changes to the underlying data specification due to the standard’s adaptability.  The new capabilities associated with the advanced sanctions list format are discussed are International Financial Law Prof Blog.

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Is HSBC a Bad Actor or Is Argentina About To Go Out of Business (Again)? 

Posted by William Byrnes on January 14, 2015


See the full analysis at International Financial Law Prof Blog.

The Argentina Government has stopped HSBC Argentina from transferring money abroad, for 30 days.  See the Reuters and the Fox Latino articles linked at International Financial Law Prof Blog.  The Central Bank stated the reason for such a drastic action is HSBC’s lack of ability to correctly document such transfers.  The Argentina revenue authority has also recently raided HSBC’s offices, accusing it of assisting Argentina’s wealthy commit tax evasion through Swiss accounts.

Yet, one cannot help but ponder whether this is an isolated move against a bad actor, authorized by the requisite legislation and pursuant to due process, or whether this is politically motivated for other reasons?  Read this article at International Financial Law Prof Blog

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What Is the Impact of the Overturned Convictions of United States v. Newman on Insider Trading Prosecutions, such as SAC Capital’s ?

Posted by William Byrnes on January 8, 2015


read the analysis at International Financial Law Prof Blog.

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FATF Summary of Outcomes on Corruption

Posted by William Byrnes on October 24, 2014


International Financial Law Prof Blog.

The key objectives for this meeting were:

  • to discuss the FATF’s draft Guidance on Transparency and Beneficial Ownership, and incorporate feedback from anti-corruption experts to enhance the paper, and
  • to build on the previous discussions between the FATF and the G20 on anti-corruption issues, with a particular focus on measures to combat the misuse of corporate vehicles.

PREVENTING THE MISUSE OF CORPORATE VEHICLES … read on at International Financial Law Prof Blog.

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SEC Investor Bulletin: Trading Suspensions

Posted by William Byrnes on October 13, 2014


SECThe SEC’s Office of Investor Education and Advocacy is issuing this Investor Bulletin to help educate investors about the SEC’s rules and regulations related to trading suspensions.  The federal securities laws generally allow the SEC to suspend trading in any stock for up to ten business days.  This bulletin answers some of the typical questions we receive from investors about trading suspensions.  A list of companies whose stock is currently subject to an SEC trading suspension, or which previously has been subject to an SEC trading suspension, may be found here.

Why would the SEC suspend trading in a stock?

The SEC may suspend trading in a stock when the Commission is of the opinion that a suspension is required to protect investors and the public interest.  Circumstances that might lead the Commission to suspend trading include:

  • A lack of current, accurate, or adequate information about the company, for example, when a company is not current in its filings of periodic reports;
  • Questions about the accuracy of publicly available information, including in company press releases and reports, about the company’s current operational status, financial condition, or business transactions;
  • Questions about trading in the stock, including trading by insiders, potential market manipulation, and the ability to clear and settle transactions in the stock.

Why couldn’t the SEC forewarn investors that it was about to suspend trading in a stock?

The SEC cannot announce that it’s working on a suspension.  We conduct this work confidentially to maintain the effectiveness of any related investigation we may be conducting.  Confidentiality also protects a company and its shareholders if the SEC ultimately decides not to issue a trading suspension.  The SEC is mindful of the seriousness of suspensions, and carefully considers whether it is in the public interest and for the protection of investors to order a trading suspension.

What happens when the ten business day suspension period ends?

The SEC will not comment publicly on the status of a company when the ten-day suspension period ends because the company may still have serious legal problems.  For instance, the SEC may continue to investigate a company to determine whether it has defrauded investors.  The public would not know if the SEC is continuing its investigation unless the SEC publicly announces an enforcement action against the company.

Furthermore, when an SEC trading suspension ends, a broker-dealer generally may not solicit investors to buy or sell the previously-suspended over-the-counter (“OTC”) stock until certain requirements are met.  Before soliciting quotations or resuming quotations in an OTC stock that has been subject to a trading suspension, a broker-dealer must file a Form 211 with the Financial Industry Regulatory Authority (“FINRA”) representing that it has satisfied all applicable requirements, including those of Rule 15c2-11 and FINRA Rule 6432.

Among other things, Rule 15c2-11 requires broker-dealers to review and maintain certain documents and information about the company, including in certain cases:

  1. the company’s state of organization, business line, and names of certain control affiliates;
  2. the title and class of the securities outstanding; and
  3. the company’s most recent balance sheet and its profit and loss and retained earnings statement.

No broker-dealer may solicit or recommend that an investor buy an OTC stock that has been subject to a trading suspension unless and until FINRA has approved a Form 211 relating to the stock.  If there are continuing regulatory concerns about the company, its disclosures, or other factors, such as a pending regulatory investigation, a Form 211 application may not be approved.

However, limited or “unsolicited” trading can occur in an OTC stock that has been subject to a trading suspension after the suspension ends but before a Form 211 is approved.  This may allow investors to trade the stock when a broker or adviser has not solicited or recommended such a transaction.  Even though such trading is allowed, it can be very risky for investors without current and reliable information about the company.

Will trading automatically resume after ten days?

It depends on the market where the stock trades.  Different rules apply in different markets.

For stocks that quote in the OTC market (which includes stocks quoted on the Bulletin Board and OTC Link (f/k/a Pink Sheets)), quoting doesnot automatically resume when a ten-day suspension ends.  Before OTC stock quoting can resume after a suspension period, SEC regulations require a broker-dealer to review specific information about the company in accordance with Exchange Act Rule 15c2-11 and FINRA Rule 6432.  If a broker-dealer does not have confidence that a company’s financial statements are reasonably current and accurate in all material respects, especially in light of the questions that may have been raised by the SEC suspension action, then a broker-dealer may not publish a quote for the company’s stock.  The OTC markets function through dealer systems where only broker-dealers may quote and facilitate trading in OTC stocks.

In contrast to stocks that trade in the OTC market, stocks that trade on an exchange resume trading as soon as an SEC suspension ends.

If the suspended stock resumes trading, why is it trading at a much lower price?

The trading suspension may raise serious questions and cast doubts about the company in the minds of investors.  While some investors may be willing to buy the company’s stock, they will do so only at significantly lower prices.

Take precautions following an SEC trading suspension: check for reliable information.

Investors should be very cautious in considering an investment in a stock following a trading suspension.  At the very least, investors should assure themselves that they have current and reliable information about a company before investing.

  • Research the Company: Always research a company before buying its stock, especially following a trading suspension.  Consider the company’s finances, organization, and business prospects.  This type of information often is included in filings that a company makes with the SEC.
  • Review the Company’s SEC Filings: This information is free and can be found on the Commission’s EDGAR filing system.  Some companies are not required to file reports with the SEC.  These are known as “non-reporting” companies.  Investors should be aware of the risks of trading the stock of such companies, as there may not be current and accurate information that would allow investors to make an informed investment decision.
  • Be Skeptical: Investors should always ask why someone provides them a “hot” tip. Investors should also do their own research and be aware that information from online blogs, social networking sites, and even a company’s own website  may be inaccurate and sometimes intentionally misleading:

If current, reliable information about a company and its stock is not available, investors should consider seriously whether this may be a good investment.

Why would the SEC suspend trading of a stock when it knows that such action will hurt current shareholders?

The SEC suspends trading in a security when it is of the opinion that the suspension is required in the public interest and to protect investors.  Because a suspension often causes a dramatic decline in the price of the security, the SEC suspends trading only when it believes that the public may be making investment decisions based on a lack of information, or false or misleading information.  A suspension may prevent potential investors from being victimized by a fraud.

How can investors find out if the stock will trade again after a suspension?

Investors can contact the broker-dealer who sold you the stock or a broker-dealer who quoted the stock before the suspension. Ask the broker-dealer if it intends to resume publishing a quote in the company’s stock.

If there is no market to sell my security, what can investors do with their shares?

If there is no market to trade the shares, they may be worthless.  Investors may want to contact their financial or tax advisers to determine how to treat such a loss on their tax returns.

What can investors do if the company acted wrongfully and they have lost money?

If investors want to get their money back, they will need to consider taking legal action on their own.  The SEC cannot act as their lawyer.  Investors must pursue all of their legal remedies themselves or with the assistance of legal counsel they engage themselves.  For more information about how to protect your legal rights, including finding a lawyer who specializes in securities law, read our flyer, How the SEC Handles Your Complaint or Inquiry.

To learn how to file an arbitration action against a broker-dealer, investors can contact the Director of Arbitration at FINRA.  FINRA also offers mediation as an option before going to arbitration.

Where can investors get information about trading suspensions?

Investors can find a list of companies whose stocks have been suspended by the SEC since October 1995 on our website.

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ÉTICA Y COMPLIANCE: AMORES REÑIDOS

Posted by William Byrnes on October 3, 2014


ÉTICA Y COMPLIANCE: AMORES REÑIDOS.

a colleagues blog about compliance (in Spanish)

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FDIC Forces Merrick Bank To Stop Deceptive Payment Protection Credit Card Practices

Posted by William Byrnes on October 1, 2014


International Financial Law Prof Blog.

The Bank marketed the “PAYS Plan,” a payment protection credit card add-on product that was sold from 2008 to 2013 to consumers who had a Bank credit card. The PAYS Plan provided a benefit payment towards a consumer’s monthly credit card payment following certain life events such as involuntary unemployment, disability, and hospitalization.

The FDIC determined that the Bank violated federal law prohibiting unfair and deceptive practices by, among other things: …

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Inside the New York Fed: Secret Recordings from a Whistle Blower

Posted by William Byrnes on September 29, 2014


International Financial Law Prof Blog.

Segarra had made a series of audio recordings while at the New York Fed. Worried about what she was witnessing, Segarra wanted a record in case events were disputed. So she had purchased a tiny recorder at the Spy Store and began capturing what took place at Goldman and with her bosses.

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Rethinking Virtual Currency Regulation in the Bitcoin Age

Posted by William Byrnes on September 28, 2014


International Financial Law Prof Blog

This Article investigates an increasingly important yet under-developed body of law: regulation of virtual currency. At its peak in March of 2014, the daily volume of Bitcoin transactions in U.S. Dollars exceeded $575,000,000. …

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Wolf of Wall Street Back With a Pack, Seeking Vengeance

Posted by William Byrnes on September 22, 2014


International Financial Law Prof Blog

…bankers and brokers defiantly have hardened in their quest for bigger and bigger paydays. Wolf of Wall Street? What we’re seeing is a pack of wild dogs that continue to use any means necessary to line their pockets no matter the fines, convictions and settlements that regulators throw at them.

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Willingness to Pay to Reduce White Collar and Corporate Crime?

Posted by William Byrnes on September 21, 2014


International Financial Law Prof Blog

Utilizing a contingent valuation survey approached that has been used to estimate the cost of street crimes, the average willingness to pay for a 10% reduction in each of these four offenses is estimated to range between $70 and $75 per household. In the case of consumer fraud and financial fraud – where estimates of prevalence are available, this translates into a willingness to pay of $2,700 per consumer fraud and $21,000 for financial fraud. In contrast, the out-of-pocket costs to victims of consumer fraud have been estimated to average about $100, and about $200 to $250 for various types of financial frauds. These figures also compare favorably to the willingness to pay for a reduced household burglary of $18,000.

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Mark Cuban joins critics of SEC’s ‘broken windows’ policy

Posted by William Byrnes on September 15, 2014


International Financial Law Prof Blog.

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Six Indicted For $500 Million FATCA Avoidance Scheme for 100 US Clients

Posted by William Byrnes on September 10, 2014


International Financial Law Prof BlogFor example, in response to a request received by a U.S. corrupt client from a U.S. transfer agent who had to determine whether the proceeds from manipulative stock trading transaction were taxable under U.S. law, the defendant Bandfield forwarded an IRS Form signed by co-defendant Godfrey as the nominee for the shell company which had been set up at the request of the client.  At one point during the government’s investigation, Bandfield boasted to an undercover law enforcement agent that he had specifically designed this “slick” corporate structure to counter President Barack Obama’s new laws, a reference to FATCA….

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FinCEN Proposes New Customer ID Rules

Posted by William Byrnes on August 29, 2014


International Financial Law Prof Blog – According to a Treasury press release and ThinkAdvisor, “The Treasury Department’s Financial Crimes Enforcement Network (FinCEN), recently issued proposed rules under the Bank Secrecy Act to clarify and strengthen customer due diligence requirements — including anti-money laundering rules — for banks, brokers or dealers in securities, mutual funds, and futures commission merchants as well as introducing brokers in commodities.” … read on at International Financial Law Prof Blog

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SEC Adopts Credit Rating Agency Reform Rules

Posted by William Byrnes on August 28, 2014


International Financial Law Prof Blog:

The Securities and Exchange Commission Wednesday, August 27 adopted new requirements for credit rating agencies to enhance governance, protect against conflicts of interest, and increase transparency to improve the quality of credit ratings and increase credit rating agency accountability.  The new rules and amendments, which implement 14 rulemaking requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act, apply to credit rating agencies registered with the Commission as nationally recognized statistical rating organizations (NRSROs). …. 

International Financial Law Prof Blog

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Goldman Sachs’ $3.15 billion Settlement with FHFA

Posted by William Byrnes on August 25, 2014


International Financial Law Prof Blog.  … Under the terms of the settlement, Goldman Sachs will pay $3.15 billion in connection with releases and the purchase of securities that were the subject of statutory claims in the lawsuit FHFA v. Goldman Sachs & Co., et al., in the U.S. District Court of the Southern District of New York …

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IRS releases Circular 230 update webinar

Posted by William Byrnes on July 31, 2014


Treasury-Dept.-Seal-of-the-IRSwatch the IRS Circular 230 webinar

see Revised Circular 230 (June 2014)

What is Circular 230?

Circular 230 is a document containing the statute and regulations detailing a tax professional’s duties and obligations while practicing before the IRS; authorizing specific sanctions for violations of the duties and obligations; and, describing the procedures that apply to administrative proceedings for discipline. Circular 230 is the common name given to the body of regulations promulgated from the enabling statute found at Title 31, United States Code § 330. This statute and the body of regulations are the source of OPR’s authority. Title 31 seeks to insure tax professionals possess the requisite character, reputation, qualifications and competency to provide valuable service to clients in presenting their cases to the IRS. In short, Circular 230 consists of the “rules of engagement” for tax practice. The underlying issue in all Circular 230 cases is the tax professional’s “fitness to practice” before the IRS.

 

 

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Compliance Careers Far Outstrip Available Talent

Posted by William Byrnes on July 30, 2014


– very few persons graduating with compliance degrees, so positions go unfilled – listen to the podcast by the nation’s lead Compliance Recruiter and read the WSJ comment: 

“Most firms have hired their chief compliance officer in the last two years and now are further building out their compliance infrastructure. They need more hands on deck.”

contact me if you are interested in discussing how the degree in compliance and anti money laundering works… profbyrnes@gmail.com

 

 

 

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Can the IRS learn from the UK’s Voluntary Compliance Program

Posted by William Byrnes on July 21, 2014


The UK HMRC announced on July 17, 2014 that its High Net Worth Unit (HNWU) has brought in £1bn in compliance yield (approximately US$1.7 billion).

The HNWU, which was set up in 2009, is made up of about 400 staff in 31 customer teams.  HNWU deals with the tax affairs of the 6,200 wealthiest individual customers of HM Revenue and Customs (HMRC) – those with a net worth of £20 million or more.

s630_HMRC_sign__media_library__960_When the unit takes ownership of a customer’s tax affairs, both the customer and their authorised tax agent or adviser will receive a letter welcoming them to HNWU.  This letter also contains contact details for their Customer Relationship Manager.  The relationship manager has detailed oversight over the customer and develops a close understanding of the wealthy individuals tax risks.

The High Net Worth Unit (HNWU) deals with the tax affairs of HM Revenue & Customs (HMRC) wealthiest individual customers. By focusing primarily on this customer group, the unit aims to:

  • build relationships to better understand these customers and make it easier for them to pay the right amount of tax
  • tailor service delivery for these customers through proactive engagement and provide a single point of contact and a holistic approach to their tax affairs

The program, through good customer engagement with a focus on influencing behaviour, has led  to voluntary compliance of the majority of customers, enabling HMRC to allocate its audit resources against noncompliant taxpayers.

What is cooperative compliance

Cooperative compliance means enhancing the relationship between HMRC and our customers to deliver an outcome where both parties work together to achieve the highest possible level of compliance at appropriate cost. This approach is increasingly being recommended as a feature for revenue  organisations for customers with complex affairs. It reflects the growing  mutual interest in being as certain as possible about tax liabilities and in  ensuring that there are no surprises in any later reviews of these liabilities.

Cooperative compliance is not any kind of preferential treatment which compromises the legal position.  In essence it forms part of the compliance risk management process – adding deeper and broader understanding of  the world in which your client operates to our ongoing dialogue.  This approach is one that we wish to have with our HNWU customers.  It does of course rely on the foundation stones of a relationship characterised  by trust, openness and transparency.  We want to move away from only using reactive time consuming formal enquiries to a position where we can have productive pre-filing discussions which help us better understand our  customers’ actions, processes and intentions.

Certainty of Positions

…  The objective is to give earlier assurance, where  appropriate, that we don’t intend to open an enquiry or don’t require  further information. Where we are able, we will write to you and your client if no further action is needed to let you know this, rather than letting you wait until the end of the statutory enquiry period.  This is more likely to be the case where we have established an ongoing dialogue  about your client’s tax affairs. Customers who participated in the trial were  positive about the benefits of this approach.

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Taxpayer Advocate Chimes In On Taxpayer Identification Numbers (TINs)

Posted by William Byrnes on July 21, 2014


Taxpayer AdvocateOn July 16, 2014 Nina Olson, the Taxpayer Advocate released her midyear report to Congress.  Volume 2 of the report contains the IRS’s responses to the administrative recommendations the National Taxpayer Advocate made in her 2013 annual report to Congress, along with additional TAS comments.

Individual Taxpayer Identification Numbers (ITINs)

The Taxpayer Advocated noted that in November 2012, the IRS announced permanent changes to its application procedures for ITINs.  As a result, found the Taxpayer Advocate, dependent ITIN applicants now face a substantial burden because they can no longer use a certifying acceptance agent (CAA) to certify their documents.  Dependents must mail original documents or copies certified by the issuing agency, or have the documents certified at an IRS taxpayer assistance center (TAC) or at one of just four U.S. tax attaché offices overseas.

What is an ITIN?

An Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the Internal Revenue Service. It is a nine-digit number that always begins with the number 9 and has a range of 70-88 in the fourth and fifth digit.  The range was extended to include 900-70-0000 through 999-88-9999, 900-90-0000 through 999-92-9999 and 900-94-0000 through 999-99-9999.

The IRS issues ITINs to individuals who are required to have a U.S. taxpayer identification number but who do not have, and are not eligible to obtain a Social Security Number (SSN) from the Social Security Administration (SSA).  ITINs are issued regardless of immigration status because both resident and nonresident aliens may have a U.S. filing or reporting requirement under the Internal Revenue Code.  Individuals must have a filing requirement and file a valid federal income tax return to receive an ITIN, unless they meet an exception.

What is an ITIN used for?

ITINs are for federal tax reporting only, and are not intended to serve any other purpose. IRS issues ITINs to help individuals comply with the U.S. tax laws, and to provide a means to efficiently process and account for tax returns and payments for those not eligible for Social Security Numbers (SSNs).  See my previous article on completing the W-8BEN.

An ITIN does not authorize work in the U.S. or provide eligibility for Social Security benefits or the Earned Income Tax Credit.

Who needs an ITIN?

IRS issues ITINs to foreign nationals and others who have federal tax reporting or filing requirements and do not qualify for SSNs. A non-resident alien individual not eligible for a SSN who is required to file a U.S. tax return only to claim a refund of tax under the provisions of a U.S. tax treaty needs an ITIN.  IRS processes returns showing SSNs or ITINs in the blanks where tax forms request SSNs.  IRS does not accept, and will not process, forms showing “SSA”, 205c”, “applied for”, “NRA”, & blanks, etc.

Other examples of individuals who need ITINs include:

  • A nonresident alien required to file a U.S. tax return
  • A U.S. resident alien (based on days present in the United States) filing a U.S. tax return
  • A dependent or spouse of a U.S. citizen/resident alien
  • A dependent or spouse of a nonresident alien visa holder

If a person does not have a SSN and is not eligible to obtain a SSN, but has a requirement to furnish a federal tax identification number or file a federal income tax return, then that person must apply for an ITIN.   By law, an alien individual cannot have both an ITIN and a SSN.

Why Are ITIN Applications Falling, ITIN Application Rejections Increasing?

From January through October 2013, applicants filed only one million ITIN applications with returns, compared to 1.8 million during the same period in 2012. During this period, ITIN applications and accompanying returns declined nearly 50%, while the percentage of applications rejected by the IRS soared to 50.2%.

The Taxpayer Advocate reports that an explanation for these numbers is the burden caused by the new ITIN procedures.

ITIN applicants report problems, including a lack of communication about why the IRS suspended or rejected an application, an inability to speak with IRS employees, a lack of notice about the status of the application, the rejection of applications with legitimate supporting documents, and lost original documents. The IRS’s policy of generally accepting ITIN applications only during the filing season forces the IRS to process applications under short timelines and does not provide sufficient time to review them for potential fraud.

The IRS stated in response that it does not plan to pursue electronic filing of the ITIN application. The IRS provided several reasons why its Form W-7, Application for IRS Individual Taxpayer Identification Number (ITIN) is not a suitable candidate for electronic filing:

In order to strengthen the ITIN program, when requesting an ITIN taxpayers are required to submit documentation that supports the information provided on the Form W-7. The applicant can submit original documents or certified copies from the issuing agency. The attachment of an electronic copy of the documents, such as a .pdf version of the supporting documentation, will not allow IRS to authenticate the documents as outlined in IRM 3.21.263. In addition, taxpayers are required to submit their original tax return(s) for which the ITIN is needed with the W-7 attached. The Modernized e-File (MeF) system is not able to accept both the W-7 and associated tax return(s) in the same transaction.

IRS Cancelling Unused ITINs

Individual Taxpayer Identification Numbers (ITINs) will expire if not used on a federal income tax return for five consecutive years, the Internal Revenue Service announced today. To give all interested parties time to adjust and allow the IRS to reprogram its systems, the IRS will not begin deactivating ITINs until 2016.

The new, more uniform policy applies to any ITIN, regardless of when it was issued. Only about a quarter of the 21 million ITINs issued since the program began in 1996 are being used on tax returns. The new policy will ensure that anyone who legitimately uses an ITIN for tax purposes can continue to do so, while at the same time resulting in the likely eventual expiration of millions of unused ITINs.

ITINs play a critical role in the tax administration system and assist with the collection of taxes from foreign nationals, resident and nonresident aliens and others who have filing or payment obligations under U.S. law. Designed specifically for tax administration purposes, ITINs are only issued to people who are not eligible to obtain a Social Security Number.

Under the new policy:

  • An ITIN will expire for any taxpayer who fails to file a federal income tax return for five consecutive tax years.
  • Any ITIN will remain in effect as long as a taxpayer continues to file U.S. tax returns. This includes ITINs issued after Jan. 1, 2013. These taxpayers will no longer face mandatory expiration of their ITINs and the need to reapply starting in 2018, as was the case under the old policy.
  • To ease the burden on taxpayers and give their representatives and other stakeholders time to adjust, the IRS will not begin deactivating unused ITINs until 2016. This grace period will allow anyone with a valid ITIN, regardless of when it was issued, to still file a valid return during the upcoming tax-filing season.
  • A taxpayer whose ITIN has been deactivated and needs to file a U.S. return can reapply using Form W-7. As with any ITIN application, original documents, such as passports, or copies of documents certified by the issuing agency must be submitted with the form.

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Practical Compliance Aspects of FATCA

Over 600 pages of in-depth analysis of the practical compliance aspects of financial service business providing for exchange of information of information about foreign residents with their national competent authority or with the IRS (FATCA),

free chapter download here —> http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671   Number of Pages in PDF File: 58

 

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New York to Bit- License Virtual Currency Firms

Posted by William Byrnes on July 20, 2014


Bitcoin_euro

 

Benjamin M. Lawsky, Superintendent of Financial Services, announced July 17, 2014 that the New York State Department of Financial Services (DFS) has issued for public comment a proposed “BitLicense” regulatory framework for New York virtual currency businesses. The proposed regulatory framework – which is the product of a nearly year-long DFS inquiry, including public hearings that the Department held in January 2014 – contains consumer protection, anti-money laundering compliance, and cyber security rules tailored for virtual currency firms.

 

 

The new DFS BitLicenses will be required for firms engaged in the following virtual currency businesses:

  • Receiving or transmitting virtual currency on behalf of consumers;
  • Securing, storing, or maintaining custody or control of such virtual currency on the behalf of customers;
  • Performing retail conversion services, including the conversion or exchange of Fiat Currency or other value into Virtual Currency, the conversion or exchange of Virtual Currency into Fiat Currency or other value, or the conversion or exchange of one form of Virtual Currency into another form of Virtual Currency;
  • Buying and selling Virtual Currency as a customer business (as distinct from personal use); or
  • Controlling, administering, or issuing a Virtual Currency. (Note: This does not refer to virtual currency miners.)

The license is not requiredfor merchants or consumers that utilize Virtual Currency solely for the purchase or sale of goods or services; or those firms chartered under the New York Banking Law to conduct exchange services and are approved by DFS to engage in Virtual Currency business activity.

Key requirements for firms holding BitLicenses include:

  • Safeguarding Consumer Assets. Each firm must hold Virtual Currency of the same type and amount as any Virtual Currency owed or obligated to a third party. Companies are also prohibited from selling, transferring, assigning, lending, pledging, or otherwise encumbering assets, including Virtual Currency, it stores on behalf of another person. Each licensee must also maintain a bond or trust account in United States dollars for the benefit of its customers in such form and amount as is acceptable to DFS for the protection of the licensee’s customers.
  • Virtual Currency Receipts. Upon completion of any transaction, each firm shall provide to a customer a receipt containing the following information: (1) the name and contact information of the firm, including a telephone number established by the Licensee to answer questions and register complaints; (2) the type, value, date, and precise time of the transaction; (3) the fee charged; (4) the exchange rate, if applicable; (5) a statement of the liability of the Licensee for non-delivery or delayed delivery; (6) a statement of the refund policy of the Licensee.
  • Consumer Complaint Policies. Each firm must establish and maintain written policies and procedures to resolve consumer complaints in a fair and timely manner. The company must also provide notice to consumers, in a clear and conspicuous manner, that consumers can bring complaints to DFS’s attention for further review and investigation.
  • Consumer Disclosures. Companies must provide clear and concise disclosures to consumers about potential risks associated with virtual currencies, including the fact that: transactions in Virtual Currency are generally irreversible and, accordingly, losses due to fraudulent or accidental transactions may not be recoverable; the volatility of the price of Virtual Currency relative to Fiat Currency may result in significant loss or tax liability over a short period of time; there is an increased risk of loss of virtual currency due to cyber attacks; virtual currency is not legal tender, is not backed by the government, and accounts and value balances are not subject to FDIC or SIPC protections; among others.
  • Anti-money Laundering Compliance. As part of its anti-money laundering compliance program, each firm shallmaintain the following information for all transactions involving the payment, receipt, exchange or conversion,purchase, sale, transfer, or transmission of Virtual Currency: (1) the identity and physical addresses of the parties involved; (2) the amount or value of the transaction, including in what denomination purchased, sold, or transferred, and the method of payment; (3) the date the transactionwas initiated and completed, and (4)a description of the transaction.
    • Verification of Accountholders. Firms must, at a minimum, when opening accounts for customers, verify their identity, to the extent reasonable and practicable, maintain records of the information used to verify such identity, including name, physical address, and other identifying information, and check customers against the Specially Designated Nationals (“SDNs”) list maintained by the U.S. Treasury Department’s Office of Foreign Asset Control (“OFAC”). Enhanced due diligence may be required based on additional factors, such as for high-risk customers, high-volume accounts, or accounts on which a suspicious activity report has been filed. Firms are also subject to enhanced due diligence requirements for accounts involving foreign entities and a prohibition on accounts with foreign shell entities.
    • Reporting of Suspected Fraud and Illicit Activity. Each Licensee shall monitor for transactions that might signify money laundering, tax evasion, or other illegal or criminal activity and notify the Department, in a manner prescribed by the superintendent, immediately upon detection of such a transactions. When a Licensee is involved in a transaction or series of transactions for the receipt, exchange or conversion, purchase, sale, transfer, or transmission of Virtual Currency, in an aggregate amount exceeding the United States dollar value of $10,000 in one day, by one Person, the Licensee shall also notify the Department, in a manner prescribed by the superintendent, within 24 hours. In meeting its reporting requirements Licensees must utilize an approved methodology when calculating the value of Virtual Currency in Fiat Currency.
  • Cyber Security Program: Each licensee must maintain a cyber security program designed to perform a set of core functions, including: identifying internal and external cyber risks; protecting systems from unauthorized access or malicious acts; detecting systems intrusions and data breaches; and responding and recovering from any breaches, disruptions, or unauthorized use of systems.  Among other safeguards, each firm shall also conduct penetration testing of its electronic systems, at least annually, and vulnerability assessment of those systems, at least quarterly.
  • Chief Information Security Officer. Each Licensee shall designate a qualified employee to serve as the Licensee’s Chief Information Security Officer (“CISO”) responsible for overseeing and implementing the Licensee’s cyber security program and enforcing its cyber security policy.
  • Independent DFS Examinations: Examinations of licensees will be conducted whenever the superintendent deems necessary – but no less than once every two calendar years – to determine the licensee’s financial condition, safety and soundness, management policies, and compliance with laws and regulations.
  • Books and Records: Licensees are required to keep certain books and records, including transaction information, bank statements, records or minutes of the board of directors or governing body, records demonstrating compliance with applicable laws including customer identification documents, and documentation related to investigations of consumer complaints.
  • Reports and Financial Disclosures, Audit Requirements. Each firm must submit to DFS quarterly financial statements within 45 days following the close of the Licensee’s fiscal quarter. Each firm must also submit audited annual financial statements, prepared in accordance with generally accepted accounting principles, together with an opinion of an independent certified public accountant and an evaluation by such accountant of the accounting procedures and internal controls of the firm within 120 days of its fiscal year end.
  • Capital Requirements: Necessary capital requirements will be determined by DFS based on a variety of factors, including the composition of the licensee’s total assets and liabilities, whether the licensee is already licensed or regulated by DFS, the amount of leverage used by the firm, the liquidity position of the firm, and extent to which additional financial protection is provided for customers.
  • Compliance Officer. Each Licensee shall designate a qualified individual or individuals responsible for coordinating and monitoring compliance with NYDFS’ BitLicense regulatory framework and all other applicable federal and state laws, rules, and regulations.
  • Business Continuity and Disaster Recovery. Each Licensee shall establish and maintain a written business continuity and disaster recovery plan reasonably designed to ensure the availability and functionality of the Licensee’s services in the event of an emergency or other disruption to the Licensee’s normal business activities.
  • Notification of Emergencies or Disruptions.Each firm must promptly notify DFS of any emergency or other disruption to its operations that may affect its ability to fulfill regulatory obligations or that may have a significant adverse effect on the Licensee, its counterparties, or the market.
  • Transitional Period. Applications for the license will be accepted beginning on the date the proposed regulations become effective. Those already engaged in virtual currency business activity will have a 45-day transitional period to apply for a license from the date regulations become effective. The superintendent will issue or deny the license within 90 days of a complete application submission.

See full press release here.

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Ernst & Young pays $4 million for lobbying, violating auditor independence

Posted by William Byrnes on July 18, 2014


OSECn July 14, 2014 the Securities and Exchange Commission (SEC) filed a public administrative and cease-and-desist proceedings against Ernst & Young (E&Y) for E&Y’s violation of audit independence conduct regarding legislative lobbying on behalf of its audit clients.

E&Y has agreed to pay disgorgement of $1,240,000, together with prejudgment interest thereon of $351,925.98, and a civil money penalty of $2,480,000, for a total of $4,071,925.98 and it has agreed to cease & desist the activity.  See http://www.sec.gov/litigation/admin/2014/34-72602.pdf

The SEC public administrative and cease-and-desist proceedings against E&Y arose out of certain legislative advisory services provided by Washington Council EY (“WCEY”), which has been part of EY since 2000. Prior to 2009, certain conduct related to WCEY’s provision of legislative advisory services violated the independence rules with respect to two of EY’s SEC-registrant audit clients.

WCEY sent letters urging passage of bills to congressional staff on behalf of one of its clients.  These bills were important to this client’s business interests.  WCEY also asked congressional staff to insert into a bill a provision favorable to this client.

For another audit client, WCEY attempted to persuade congressional offices to withdraw their support for legislation detrimental to that client’s business interests. In addition, WCEY worked closely with congressional staff in drafting an alternative bill more favorable for the client.   WCEY also marked up a draft of the alternative bill, inserting specific language written by the client and sent the mark-up to congressional staff.

Despite providing the services described herein, E&Y repeatedly represented that it was “independent” in audit reports issued the clients’ financial statements.

By doing so, E&Y violated Rule 2-02(b)(1) of Regulation S-X and caused the clients to violate Section 13(a) of the Exchange Act and Rule 13a-1.  E&Y’s conduct also constituted improper professional conduct pursuant to Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.

 

 

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Dodd Frank Progress Report – 4th Year Anniversary

Posted by William Byrnes on July 18, 2014


On July Wall_Street_Sign18, 2014, Davis Polk LLC released its special Dodd-Frank Progress Report to mark the four-year anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Progress Report concluded that a total of 280 Dodd-Frank rulemaking requirement deadlines have passed.  Of these 280 passed deadlines, 127 (45.4%) have been missed and 153 (54.6%) have been met with finalized rules.

In addition, 208 (52.3%) of the 398 total required rulemakings have been finalized, while 96 (24.1%) rulemaking requirements have not yet been proposed.

 

Contents of Davis Polk’s Dodd Frank Progress Report

o   Dodd-Frank Rulemaking Progress by Agency

o   Title VII Progress on Required Rulemakings

o   Dodd-Frank Rulemaking Progress on Passed Deadlines

o   Dodd-Frank Rulemaking Progress in Select Categories

o   Dodd-Frank Rulemaking Progress by Due Date

o   Dodd-Frank Statutory Deadlines for Required Rulemakings

o   Dodd-Frank Study Progress by Due Date

o   Dodd-Frank Statutory Deadlines for Required Studies

o   Tasks for Swap Dealers and Major Swap Participants

 

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How does a small California Chinese sourcing operation end up violating Weapons of Mass Destruction Sanctions?

Posted by William Byrnes on July 17, 2014


Tofasco Inc. of La Verne, California, according to its website, sources Chinese manufactured consumer goods for sale to US retailers.   In an OFAC enforcement announcement of of July 17, 2014, US Treasury described Tofasco as a “small company lacking the sophistication of a larger company conducting international trade”.    Yet, Tofasco settled potential civil liability for an alleged violation of the Weapons of Mass Destruction Proliferators Sanctions Regulations (the “WMDPSR”).  How does a small California Chinese sourcing operation and importer allegedly violate the Weapons of Mass Destruction Proliferators Sanctions Regulations?

Tofasco initially presented trade documents to a bank in connection with a blocked letter of credit transaction representing payment for a shipment of recreational chairs with a substitute bill of lading omitting reference to the Islamic Republic of Iran Shipping Lines (“IRISL”), an entity whose property and interests in property are blocked pursuant to the WMDPSR. However, the bank refused to advise the letter of credit transaction due to IRISL’s involvement.  Tofasco knew of IRISL’s involvement in the transactions.   The Treasury stated that on or about April 16, 2009, Tofasco approached another bank to undertake the blocked property transaction.  Tofasco undertook deliberate steps to evade or avoid U.S. sanctions requirements by obtaining and submitting altered bill of lading documents that concealed IRISL’s involvement.

Thus, the US Treasury found that Tofasco demonstrated reckless disregard for U.S. sanctions requirements in its presentation of trade documents to a second bank and by making payment for ocean freight for an underlying shipment of recreational chairs after the trade documents were rejected by a prior bank.  Moreover, US Treasury found that Tofasco did not appear to have had an OFAC compliance program in place at the time of the apparent violation and Tofasco did not make a voluntary self-disclosure.

Treasury stated that Tofasco appeared to have violated §544.201(a) and §544.205 of the WMDPSR.  §544.201(a) addresses prohibited transactions involving blocked property.

(a) … all property and interests in property that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of U.S. persons, including their overseas branches, of the following persons are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in:

(1) Any person listed in the Annex to Executive Order 13382 of June 28, 2005…;

(2) Any foreign person determined … to have engaged, or attempted to engage, in activities or transactions that have materially contributed to, or pose a risk of materially contributing to, the proliferation of weapons of mass destruction or their means of delivery (including missiles capable of delivering such weapons), including any efforts to manufacture, acquire, possess, develop, transport, transfer or use such items, by any person or foreign country of proliferation concern;

(3) Any person determined … to have provided, or attempted to provide, financial, material, technological or other support for, or goods or services in support of, any activity or transaction described in paragraph (a)(2) of this section, or any person whose property and interests in property are blocked pursuant to this section; and

(4) Any person determined… to be owned or controlled by, or acting or purporting to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked ….

Although US Treasury determined that Tofasco demonstrated reckless disregard, it did not find that the conduct constituted an “egregious case”.   An egregious case, and the penalty enhancement, is described in my previous article about BNP Paribas’ transactions with Sudan and Iran.   The maximum statutory penalty amount for this was $250,000, and
the base penalty amount was $25,000.  Tofasco did not have a prior OFAC sanctions history.  Tofasco settled the potential civil liability for $21,375.

book cover

LexisNexis’ Money Laundering, Asset Forfeiture and Recovery and Compliance: A Global Guide – This eBook with commentary and analysis by hundreds of AML experts from over 100 countries,  is designed to provide the compliance officer accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources. The eBook is organized around five main themes: 1. Money Laundering Risk and Compliance; 2. The Law of Anti-Money Laundering and Compliance; 3. Criminal and Civil Forfeiture; 4. Compliance and 5. International Cooperation.  As these unlawful activities can occur in any given country, it is important to identify the international participants who are cooperating to develop methods to obstruct these criminal activities.

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Why are regulators so alarmed about Stored Value Cards? and Virtual Currency?

Posted by William Byrnes on July 11, 2014


Why are regulators so alarmed about Stored Value Cards?  Citron Research published a report about the impact on a financial institution’s share value when the financial institution ignores its anti money laundering compliance (and receives a regulatory warning consent order, and worst, a cease & desist order).

Citron Research’s report indicates that stored value cards pose a substantial risk for funding of terrorist activities.  The Report states:

“The Government crackdown on the stored value card business is real and not going anywhere.  In a banking industry article published TODAY, we read “I would think this action sends a message to every other prepaid issuer that they better be buttoned up on AML processes and work very closely with their clients,” Colgan said.

On another topic of money laundering concerns, the LexisNexis chapter on Virtual Currency (e.g. Bitcoin) is being updated by its authors: Emmanuel Rayes (TJSL alumni) and Dr. David Utzke (MAFF, CFE, CFI is a Sr. Agent and lead agent for Virtual Currency and Digital Transactions for the IRS).

Virtual currencies have caught mainstream popularity and use the past 24 months. It was only a matter of time before an internet currency would catch mass adoption because of the convenience, speed, and ease of use that the internet provides. Governments all over the world have had a difficult time regulating virtual currencies due to their unconventional structure that is not typical of paper or fiat currencies and due to the rapid evolution of technology. Bitcoin is one such virtual currency that has caught the attention of government regulators all over the world.

Bitcoin is not a typical currency, but rather it is a crypto-currency. In addition, Bitcoin is based on a decentralized peer-to-peer network that’s not only responsible for the issuing of the currency but also for the transfers of the currency. The general currency model followed by almost every government in the world designates a central authority or bank for the issuing of the currency along with intermediary banking institutions responsible for the transfers and record keeping of user transactions. In the Bitcoin model, the middleman, or bank, is completely removed and the user controls the issuance of the currency in addition to facilitating, verifying and recording every transaction.

book coverA greater concern is that criminals use the anonymity features of Bitcoin to launder money obtained from criminal activities or to fund criminal activities. The transactions made with Bitcoin are disclosed on a public ledger but the identity of the parties conducting the transactions are pseudo-anonymous which makes it laborious to identify the parties making the transfers. This creates increasing difficulty in charging and convicting criminals for crimes committed using Bitcoin.  Read the full crypto-currency chapter, which forms part of the 5,000 page treatise and compendium of LexisNexis’ Money Laundering, Asset Forfeiture and Recovery and Compliance: A Global Guide

 

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SunTrust Bank Pays $1.2 Billion for Mortgage and Foreclosure Abuses, Non-Prosecution Agreement

Posted by William Byrnes on July 3, 2014


On July 3, Sun Trust resolved the criminal investigation into its “Home Affordable Modification Program” (HAMP) by agreeing to pay $320 million.  Less than a month ago, SunTrust Mortgage Inc. (SunTrust) entered into a $968 million consent judgment to address mortgage origination, servicing, and foreclosure abuses, announced the  Justice Department, Department of Housing and Urban Development (HUD), and the Consumer Financial Protection Bureau (CFPB), along with 49 state attorneys general and the District of Columbia’s attorney general.

“SunTrust’s conduct is a prime example of the widespread underwriting failures that helped bring about the financial crisis,” Attorney General Eric Holder said. “From mortgage origination to servicing to securitization, the Department of Justice is attacking every facet of conduct that led to the Great Recession. We will continue to hold accountable financial institutions that, in the pursuit of their own financial interests, misuse public funds and cause harm to hardworking Americans. We expect that there will be more cases like this to come.”

“Deceptive and illegal mortgage servicing practices have pushed families into foreclosure and devastated communities across the nation,” said CFPB Director Richard Cordray.  “Today’s action will help homeowners and consumers harmed by SunTrust’s unlawful foreclosure practices.  The Consumer Bureau will continue to investigate mortgage servicers that mistreat consumers, and we will not hesitate to take action against any company that violates our new servicing rules.”

What is HAMP?

The federal government launched HAMP as an opportunity for homeowners in dire straits to save their homes from foreclosure.  However, SunTrust Mortgage, rather than assist homeowners in need, financially ruined many through an utter dereliction of its HAMP program. SunTrust Banks, Inc. received $4.85 billion in federal taxpayer funds through the U.S. Department of the Treasury Troubled Asset Relief Program (TARP) in 2008.

What SunTrust did? 

  • Unwilling to put resources into HAMP despite holding billions in TARP funds, SunTrust simply placed piles of unopened homeowners’ HAMP applications and paperwork on an office floor until at one point, the floor buckled under the sheer weight of the document packages.  Documents and paperwork were lost.
  • SunTrust issued “mass denials” to HAMP applicants and lied to the Treasury Department about the reasons for the denials. SunTrust’s statements to customers were false.
  • SunTrust improperly commenced foreclosure proceedings on homeowners in active HAMP trial periods, and some of those homeowners saw their homes listed by SunTrust for sale in local newspapers.
  • Rather than reviewing HAMP applications in 20 days and rendering modification decisions within an “as advertised” three- to four-month trial period, in the worst cases, some homeowners were confined to extended trial periods of two or more years.
  • SunTrust misreported current borrowers as delinquent to major credit bureaus.
  • SunTrust denied HAMP modifications to eligible homeowners and instead placed the homeowners in alternative, private modifications that were less favorable to borrowers.
  • SunTrust improperly capitalized amounts of interest onto borrowers’ unpaid principal balances.
  • Other borrowers who were transferred from SunTrust to another servicer while on active HAMP trial modifications were penalized.
  • SunTrust admitted that between January 2006 and March 2012, it originated and underwrote FHA-insured mortgages that did not meet FHA requirements, that it failed to carry out an effective quality control program to identify non-compliant loans, and that it failed to self-report to HUD even the defective loans it did identify.
  • SunTrust also admitted that numerous audits and other documents disseminated to its management between 2009 and 2012 described significant flaws and inadequacies in SunTrust’s origination, underwriting, and quality control processes, and notified SunTrust management that as many as 50% or more of SunTrust’s FHA-insured mortgages did not comply with FHA requirements.
  • SunTrust failed to promptly and accurately apply payments made by borrowers, and charged unauthorized fees for default-related services.
  • SunTrust failed to provide accurate information about loan modification and other loss-mitigation services, failed to properly process borrowers’ applications and calculate their eligibility for loan modifications, and provided false or misleading reasons for denying loan modifications.
  • Engaged in illegal foreclosure practices by providing false or misleading information to consumers about the status of foreclosure proceedings where the borrower was in good faith actively pursuing a loss mitigation alternative also offered by SunTrust.
  • SunTrust robo-signed foreclosure documents, including preparing and filing affidavits whose signers had not actually reviewed any information to verify the claims.

Read about the $968 million consent judgment at CFSB and DOJ.

Read about the $320 million non-prosecution agreement at SIGTARP.

book cover

LexisNexis’ Money Laundering, Asset Forfeiture and Recovery and Compliance: A Global Guide – This eBook with commentary and analysis by hundreds of AML experts from over 100 countries,  is designed to provide the compliance officer accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources. The eBook is organized around five main themes: 1. Money Laundering Risk and Compliance; 2. The Law of Anti-Money Laundering and Compliance; 3. Criminal and Civil Forfeiture; 4. Compliance and 5. International Cooperation.  As these unlawful activities can occur in any given country, it is important to identify the international participants who are cooperating to develop methods to obstruct these criminal activities.

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BNP Paribas Pays $8.9 Billion for Sanction Violations With Iran, Sudan & Cuba

Posted by William Byrnes on June 30, 2014


$8.9 Billion Settlement of $19 Billion Possible Penalty

On June 30th, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), as part of a combined $8.9 billion settlement (settlement agreement here) with federal and state government agencies, today announced a $963 million agreement with BNP Paribas (BNPP) to settle its potential liability for apparent violations of U.S. sanctions regulations.  The $8.9 billion is the largest OFAC settlement to date.  However, the statutory maximum and base civil monetary penalties in this case were $19,272,380,006.

What Did BNP Paribas Do Exactly?

For a number of years, up to and including 2012, BNPP processed thousands of transactions to or through U.S. financial institutions that involved countries, entities, and/or individuals subject to the sanctions programs listed above.  BNPP appears to have engaged in a systematic practice, spanning many years and involving multiple BNPP branches and business lines, that concealed, removed, omitted, or obscured references to, or the interest or involvement of, sanctioned parties in U.S. Dollar Society for Worldwide Interbank Financial Telecommunication payment messages sent to U.S. financial institutions.

The specific payment practices the bank utilized in order to process sanctions-related payments to or through the United States included omitting references to sanctioned parties; replacing the names of sanctioned parties with BNPP’s name or a code word; and structuring payments in a manner that did not identify the involvement of sanctioned parties in payments sent to U.S. financial institutions.  While these payment practices occurred throughout multiple branches and subsidiaries of the bank, BNPP’s subsidiary in Geneva and branch in Paris facilitated or conducted the overwhelming majority of the apparent violations.

How Bad Was BNP Paribas Conduct?

OFAC determined that BNPP did not voluntarily self-disclose its violations (it was a whistleblower), and that the apparent violations constitute an egregious case: BNPP’s systemic practice of concealing, removing, omitting, or obscuring references to information about U.S.-sanctioned parties in 3,897 financial and trade transactions routed to or through banks in the United States between 2005 and 2012, including:

$8 Billion with Sudan

BNPP officials have described Darfur as a “humanitarian catastrophe” and, while discussing the Sudanese business, noted that certain Sudanese banks “play a pivotal part in the support of the Sudanese government which…has hosted Osama Bin Laden and refuses the United Nations intervention in Darfur.”  BNPP’s senior compliance personnel agreed to continue the Sudanese business and rationalized the decision by stating that “the relationship with this body of counterparties is a historical one and the commercial stakes are significant. For these reasons, Compliance does not want to stand in the way.”

BNPP processed 2,663 wire transfers totaling approximately $8,370,372,624 between September , 2005, and July 24, 2009, involving Sudan.  The total base penalty for this set of apparent violations was $16,826,707,625.  $8 billion in four years – approximately $2 billion a year.

$1 Billion with Iran

BNPP processed 318 wire transfers totaling approximately $1,182,075,543 between July 15, 2005, and November 27, 2012, involving Iran.  The total base penalty for this set of apparent violations was $2,382,634,677.

$700 Million With Cuba

BNPP processed 909 wire transfers totaling approximately $689,237,183 between July 18, 2005, and September 10, 2012.  The total base penalty for this set of apparent violations was $59,085,000.

$1.5 Million with Burma

BNPP processed seven wire transfers totaling approximately $1,478,371 between November 3, 2005, and approximately May 2009, involving Burma.  The total base penalty for this set of apparent violations was $3,952,704.

Who Was Involved?

Benjamin M. Lawsky, New York’s Superintendent of Financial Services, said, “BNPP employees – with the knowledge of multiple senior executives – engaged in a long-standing scheme that illegally funneled money to countries involved in terrorism and genocide. As a civil regulator, we are taking action today not only to penalize the bank, but also expose and sanction individual BNPP employees for wrongdoing. In order to deter future offenses, it is important to remember that banks do not commit misconduct – bankers do.”

– COO Signed Off on Continuing Illicit Transactions at Meeting Where He Asked Minutes Not to be Taken”;

– North American Head of Ethics/Compliance wrote: “The Dirty Little Secret Isn’t So Secret Anymore, Oui?”

Did Anyone Go to Prison?

No.  No charges have been brought.

If Not Prison, Then What Was the Discipline?

Some executives were merely ‘separated’.  What does separated mean?  Asked to resign?  Awarded severance?  Kept the high salaries and bonuses derived from the illicit business – yes.  What of the COO who “signed off on continuing illicit transactions at a meeting where he asked minutes not to be taken“?  He was allowed to retire.  He keeps his pension, retirement funds, bonuses …

What BNP states: “As a result of BNP Paribas’ internal review, a number of managers and employees from relevant business areas have been sanctioned, a number of whom have left the Group.”

But what the Department of Financial Services states: At DFS’s direction, 13 individuals were terminated by or separated from the Bank as a result of the investigation, including the following senior executives:

  • George Chodron de Courcel, Group Chief Operating Officer
  • Vivien Levy-Garboua, Current Senior Advisor to the BNPP Executive Committee and Former Group Head of Compliance
  • Christopher Marks, Group Head of Debt Capital Markets
  • Dominique Remy, Group Head of Structured Finance for the Corporate Investment Bank (CIB)
  • Stephen Strombelline, Head of Ethics and Compliance for North America

In total, including those terminated, the Department of Financial Services reports that the Bank disciplined 45 employees, with levels of discipline ranging from dismissals, to cuts in compensation, demotion, and other sanctions, while 27 additional BNPP employees who would have been subject to potential disciplinary action during the investigation had already resigned.

Who Is Paying the Fine?

BNP Paribas shareholders inevitably.  No fines have been levied against the employees involved.  BNP shareholders include:

Belgian State (through SFPI (1)) 10.3%
Grand Duché de Luxembourg 1.0%
Employees 5.5%
Retail shareholders 4.9%
European institutional Investors 46.1%
Non-European institutional investors 30.0%
Other and unidentified 2.2%
Total 100%

How Will BNP Minimize the Risk of Its Doing It Again?  

Under the settlement agreement, BNPP is required to put in place and maintain policies and procedures to minimize the risk of the recurrence of such conduct in the future.  BNPP is also required to provide OFAC with copies of submissions to the Board of Governors relating to the OFAC compliance review that it will be conducting as part of its settlement with the Board of Governors.

BNP states that it has designed new robust compliance and control procedures:

  • a new department called Group Financial Security US, part of the Group Compliance function, will be headquartered in New York and will ensure that BNP Paribas complies globally with US regulation related to international sanctions and embargoes.
  • all USD flows for the entire BNP Paribas Group will be ultimately processed and controlled via the branch in New York.

Read my previous analysis warning to financial institutions about lack of education

Is AML Training Effective or Whitewashing?

Is AML Training Effective or Whitewashing? Part II

Are Financial Service Firms Serving High Net Wealth Suffering As a Result of Compliance Costs?

book cover

LexisNexis’ Money Laundering, Asset Forfeiture and Recovery and Compliance: A Global Guide – This eBook with commentary and analysis by hundreds of AML experts from over 100 countries,  is designed to provide the compliance officer accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources. The eBook is organized around five main themes: 1. Money Laundering Risk and Compliance; 2. The Law of Anti-Money Laundering and Compliance; 3. Criminal and Civil Forfeiture; 4. Compliance and 5. International Cooperation.  As these unlawful activities can occur in any given country, it is important to identify the international participants who are cooperating to develop methods to obstruct these criminal activities.

Selected Settlement Agreements:

2014 Information

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and BNP Paribas SA

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Clearstream Banking, S.A.

2013 Information

The U.S. Department of the Treasury’s Office of Foreign Assets Control has issued a Finding of Violation to VISA International Service Association

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and the Royal Bank of Scotland plc.

2012 Information

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and HSBC Holdings plc

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Standard Chartered Bank

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and ING Bank, N.V.

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Online Micro, LLC

2011 Information

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Sunrise Technologies and Trading Corporation

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and JPMorgan Chase Bank N.A.

2010 Information

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Barclays Bank PLC.

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Innospec, Inc

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Aviation Services International, B.V.

2009 Information

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Lloyds TSB Bank, plc.

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Credit Suisse AG.

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Australia and New Zealand Banking Group, Ltd.

Posted in Compliance, Money Laundering | Tagged: , , , , , , | 5 Comments »

new Offshore Voluntary Disclosure Program (OVDP) announced with carrot of reduced penalties or stick of 50% penalty

Posted by William Byrnes on June 18, 2014


As an update to my article – https://profwilliambyrnes.com/2014/06/11/why-is-the-irs-softening-the-offshore-voluntary-compliance-program/  – the IRS today formally announced the new, softer approach.

IRS Commissioner John Koskinen disclosed that the 2009, 2011, and ongoing 2012 OVDPs have generated more than 45,000 disclosures and the collection of about $6.5 billion in taxes, interest and penalties.  The substantial majority of this collection is FBAR penalty (see my previous articles on the OVDP and FBAR within this blog),

Commissioner Koskinen stated that in 2012 the IRS added the streamlined filing compliance procedures for a limited group of U.S. taxpayers living abroad who were not aware that they were out of compliance.  The streamlined process allows this group to catch up on their U.S. filing requirements without paying steep penalties.

He then announced two sets of actions:

“First, we’re expanding the streamlined procedures to cover a much broader group of U.S. taxpayers we believe are out there who have failed to disclose their foreign accounts but who aren’t willfully evading their tax obligations. To encourage these taxpayers to come forward, we’re expanding the eligibility criteria, eliminating a cap on the amount of tax owed to qualify for the program, and doing away with a questionnaire that applicants were required to complete.”

“Second, we will be reshaping the terms for taxpayers to participate in the OVDP. This is designed to cover those whose failure to comply with reporting requirements is considered willful in nature, and who therefore don’t qualify for the streamlined procedures. These changes will help focus this program on people seeking certainty and relief from criminal prosecution. From now on, people who want to participate in this program will have to provide more information than in the past, submit all account statements at the time they apply for the program, and in some cases pay more in penalties than they would have done had they entered this program earlier.”

Thus, in the first case, the IRS is removing the $1,500 cap for tax owed to be able to enter the non willful OVDP, and eliminating the submission of the extensive questionnaire.

But in the second case, the penalty will be increased from 27.5% to 50% if the bank that holds (held) the taxpayer’s account has come under investigation by the IRS before the taxpayer receives the IRS OVDP clearance letter.  The questionnaire will be expanded.

The formal new Streamlined Procedures program has been published as a set of FAQs with relevant links.   The 2012 program is as per the below.  An analysis of the new 2014 program will be published on this blog June 26, 2014.

50% Penalty

Beginning on August 4, 2014 (see Q&A 7.2), any taxpayer who has an undisclosed foreign financial account will be subject to a 50% miscellaneous offshore penalty if, at the time of submitting the preclearance letter to IRS Criminal Investigation, an event has already occurred that constitutes a public disclosure that either

(a) the foreign financial institution where the account is held, or another facilitator who assisted in establishing or maintaining the taxpayer’s offshore arrangement, is or has been under investigation by the IRS or the Department of Justice in connection with accounts that are beneficially owned by a U.S. person;

(b) the foreign financial institution or other facilitator is cooperating with the IRS or the Department of Justice in connection with accounts that are beneficially owned by a U.S. person or

(c) the foreign financial institution or other facilitator has been identified in a court- approved issuance of a summons seeking information about U.S. taxpayers who may hold financial accounts (a “John Doe summons”) at the foreign financial institution or have accounts established or maintained by the facilitator.

Examples of a public disclosure include, without limitation:  a public filing in a judicial proceeding by any party or judicial officer; or public disclosure by the Department of Justice regarding a Deferred Prosecution Agreement or Non-Prosecution Agreement with a financial institution or other facilitator.   A list of foreign financial institutions or facilitators meeting this criteria is available.

Description of the Streamlined Procedure

This streamlined procedure is designed for taxpayers that present a low compliance risk. All submissions will be reviewed, but, as discussed below, the intensity of review will vary according to the level of compliance risk presented by the submission. For those taxpayers presenting low compliance risk, the review will be expedited and the IRS will not assert penalties or pursue follow-up actions.  Submissions that present higher compliance risk are not eligible for the streamlined processing procedures and will be subject to a more thorough review and possibly a full examination, which in some cases may include more than three years, in a manner similar to opting out of the Offshore Voluntary Disclosure Program.

Taxpayers utilizing this procedure will be required to file delinquent tax returns, with appropriate related information returns (e.g. Form 3520 or 5471), for the past three years and to file delinquent FBARs for the past six years. Payment for the tax and interest, if applicable, must be remitted along with delinquent tax returns. For a summary of information about federal income tax return and FBAR filing requirements and potential penalties, see IRS Fact Sheet FS-2011-13. (December 2011).

In addition, retroactive relief for failure to timely elect income deferral on certain retirement and savings plans where deferral is permitted by relevant treaty is available through this process. The proper deferral elections with respect to such arrangements must be made with the submission. See instructions below.

Eligibility

This procedure is available for non-resident U.S. taxpayers who have resided outside of the U.S. since January 1, 2009, and who have not filed a U.S. tax return during the same period. These taxpayers must present a low level of compliance risk as described below

Amended returns submitted through this program will be treated as high risk returns and subject to examination, except for those filed for the sole purpose of submitting late-filed Forms 8891 to seek relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by relevant treaty. It should be noted that this relief is also available under the Offshore Voluntary Disclosure Program.  See below for the information required to be submitted with such requests. (If you need to file an amended return to correct previously reported or unreported income, deductions, credits, tax etc, you should not use this streamlined procedure. Depending on your circumstances, you may want to consider participating in the Offshore Voluntary Disclosure Program.)

All tax returns submitted under this procedure must have a valid Taxpayer Identification Number (TIN). For U.S. citizens, a TIN is a Social Security Number (SSN). For individuals that are not eligible for an SSN, an Individual Taxpayer Identification Number (ITIN) is a valid TIN. Tax returns filed without a valid SSN or ITIN will not be processed. For those who are ineligible for an SSN, but who do not have an ITIN, a submission may be made through this program if accompanied by a complete ITIN application. For information on obtaining an SSN, see http://www.ssa.gov. For information on obtaining an ITIN, see the ITIN page.

Compliance Risk Determination

The IRS will determine the level of compliance risk presented by the submission based on information provided on the returns filed and based on additional information provided in response to a Questionnaire required as part of the submission. Low risk will be predicated on simple returns with little or no U.S. tax due. Absent any high risk factors, if the submitted returns and application show less than $1,500 in tax due in each of the years, they will be treated as low risk and processed in a streamlined manner.

The risk level may rise if any of the following are present:

  • If any of the returns submitted through this program claim a refund;
  • If there is material economic activity in the United States;
  • If the taxpayer has not declared all of his/her income in his/her country of residence;
  • If the taxpayer is under audit or investigation by the IRS;
  • If FBAR penalties have been previously assessed against the taxpayer or if the taxpayer has previously received an FBAR warning letter;
  • If the taxpayer has a financial interest or authority over a financial account(s) located outside his/her country of residence;
  • If the taxpayer has a financial interest in an entity or entities located outside his/her country of residence;
  • If there is U.S. source income; or
  • If there are indications of sophisticated tax planning or avoidance.

For additional information about what information will be requested to evaluate risk, please see the Questionnaire.

Instructions for Using This Procedure

Taxpayers wishing to use these streamlined procedures must:

1. Submit complete and accurate delinquent tax returns, with appropriate related information returns, for the last three years for which a U.S. tax return is due.

  • Please note that all delinquent information returns being filed under this procedure should be sent to the address below with the rest of the submission.

2. Include at the top of the first page of each tax return “Streamlined” to indicate that the returns are being submitted under this procedure. This is very important to ensure that your returns get processed through these procedures.

3. Submit payment of all tax due and owing as reflected on the returns and statutory interest due and owing.

  • For returns determined to be high risk, failure to file and failure to pay penalties may be imposed in accordance with U.S. federal tax laws and FBAR penalties may be imposed in accordance with U.S. law. Reasonable cause statements may be requested during review or examination of the returns determined to be high risk. For a summary of information about federal income tax return and FBAR filing requirements and potential penalties, see IRS Fact Sheet FS-2011-13(December 2011).

4. Submit copies of filed FBARs for the last six years for which an FBAR is due. (You should file delinquent FBARs according to the FBAR instructions and include a statement explaining that the FBARs are being filed as part of the Streamlined Filing Compliance Procedures for Non-Resident, Non-Filer U.S. Taxpayers. Through June 30, 2013, you may file electronically (http://bsaefiling.fincen.treas.gov) or by sending paper forms to Department of Treasury, Post Office Box 32621, Detroit, MI 48232-0621. After June 30, 2013, you must file electronically (http://bsaefiling.fincen.treas.gov.)) If you are unable to file electronically, you may contact FinCEN’s Regulatory Helpline at 1-800-949-2732 or (if calling from outside the United States) 1-703-905-3975 to determine possible alternatives for timely reporting.

NOTE: Taxpayers filing FBARs electronically do not currently have the technological ability to include a statement explaining that the FBARs are being filed as part of the Streamlined Filing Compliance Procedures for Non-Resident, Non-Filer U.S. Taxpayers. Until such time that they have the ability, it is not necessary to include the statement. (July 18, 2013)

5. Submit a complete, accurate and signed Questionnaire.

6. If the taxpayer must apply for an ITIN in order to file delinquent returns under this procedure, the application and other documents required for applying for an ITIN must be attached to the the required forms, information and documentation required under this streamlined procedure. See the ITIN page for more.

7. Any taxpayer seeking relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by relevant treaty will be required to submit:

  • a statement requesting an extension of time to make an election to defer income tax and identifying the pertinent treaty provision;
  • for relevant Canadian plans, a Form 8891 for each tax year and each plan and a description of the type of plan covered by the submission; and
  • a dated statement signed by the taxpayer under penalties of perjury describing:
    • the events that led to the failure to make the election,
    • the events that led to the discovery of the failure, and
    • if the taxpayer relied on a professional advisor, the nature of the advisor’s engagement and responsibilities.

8. This program has been established for non-resident non-filers. Generally, amended returns will not be accepted in this program. The only amended returns accepted through this program are those being filed for the sole purpose of submitting late-filed Forms 8891 to seek relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by relevant treaty. Non-resident taxpayers who have previously filed returns but wish to request deferral provisions will be required to submit:

  • an amended return reflecting no adjustments to income deductions, or credits; and
  • all documents required in item 7 above.

9. The documents listed above must be sent to:

Internal Revenue Service
3651 South I-H 35
Stop 6063 AUSC
Attn: Streamlined
Austin, TX 78741

Other Considerations

Taxpayers who are concerned about the risk of criminal prosecution should be advised that this new procedure does not provide protection from criminal prosecution if the IRS and Department of Justice determine that the taxpayer’s particular circumstances warrant such prosecution. Taxpayers concerned about criminal prosecution because of their particular circumstances should be aware of and consult their legal advisers about the Offshore Voluntary Disclosure Program (OVDP), announced on Jan. 9, 2012, which offers another means by which taxpayers with undisclosed offshore accounts may become compliant. For additional information go to the OVDP page. It should be noted, however, that once a taxpayer makes a submission under the new procedure described in this document, OVDP is no longer available. It should also be noted that taxpayers who are ineligible to use OVDP are also ineligible to participate in this procedure.

Posted in Compliance, FATCA | Tagged: , , | 2 Comments »

Why Is The IRS Softening the Offshore Voluntary Compliance Program ?

Posted by William Byrnes on June 11, 2014


On June 3, 2014 the IRS Commissioner John A. Koskinen stated before The U.S. Council For International Business-OECD International Tax Conference:

“Now while the 2012 OVDP and its predecessors have operated successfully, we are currently considering making further program modifications to accomplish even more. We are considering whether our voluntary programs have been too focused on those willfully evading their tax obligations and are not accommodating enough to others who don’t necessarily need protection from criminal prosecution because their compliance failures have been of the non-willful variety. For example, we are well aware that there are many U.S. citizens who have resided abroad for many years, perhaps even the vast majority of their lives. We have been considering whether these individuals should have an opportunity to come into compliance that doesn’t involve the type of penalties that are appropriate for U.S.-resident taxpayers who were willfully hiding their investments overseas. We are also aware that there may be U.S.-resident taxpayers with unreported offshore accounts whose prior non-compliance clearly did not constitute willful tax evasion but who, to date, have not had a clear way of coming into compliance that doesn’t involve the threat of substantial penalties.

 We are close to completing our deliberations on these respects and expect that we will soon put forward modifications to the programs currently in place. … We believe that re-striking this balance between enforcement and voluntary compliance is particularly important at this point in time, given that we are nearing July 1, the effective date of FATCA. …”

Amount Recovered Thus Far from Non-Compliant Taxpayers 

According to the GAO Reports and the Senate Subcommittee report, the 2008, 2011, and the ongoing 2012 offshore voluntary disclosure initiative (OVDI) have led to 43,000 taxpayers paying back taxes, interest and penalties totaling $6 billion to date, with more expected.

However, the vast majority of this recovered $6 billion is not tax revenue but instead results from the FBAR penalties (anti money laundering financial reporting form sent by June 30 to FINCEN, separate from the 1040 tax filing to the IRS sent by April 15) assessed for not reporting a foreign account.  The Taxpayer Advocatefound that for noncompliant taxpayers with small accounts, the FBAR and tax penalties reached nearly 600% of the actual tax due!  The median offshore penalty was about 381% of the additional tax assessed for taxpayers with median-sized account balances.

From the IRS OVDP FAQ:

“For example, assume the taxpayer has the following amounts in a foreign account over the period covered by his voluntary disclosure. It is assumed for purposes of the example that the $1,000,000 was in the account before 2003 and was not unreported income in 2003.

 

Year Amount on Deposit Interest Income Account Balance
2003 $1,000,000 $50,000 $1,050,000
2004   $50,000 $1,100,000
2005   $50,000 $1,150,000
2006   $50,000 $1,200,000
2007   $50,000 $1,250,000
2008   $50,000 $1,300,000
2009   $50,000 $1,350,000
2010   $50,000 $1,400,000

(NOTE: This example does not provide for compounded interest, and assumes the taxpayer is in the 35-percent tax bracket, does not have an investment in a Passive Foreign Investment Company (PFIC), files a return but does not include the foreign account or the interest income on the return, and the maximum applicable penalties are imposed.)

If the taxpayers in the above example come forward and their voluntary disclosure is accepted by the IRS, they face this potential scenario:

They would pay $518,000 plus interest. This includes:

  • Tax of $140,000 (8 years at $17,500) plus interest,
  • An accuracy-related penalty of $28,000 (i.e., $140,000 x 20%), and
  • An additional penalty, in lieu of the FBAR and other potential penalties that may apply, of $385,000 (i.e., $1,400,000 x 27.5%).

If the taxpayers didn’t come forward, when the IRS discovered their offshore activities, they would face up to $4,543,000 in tax, accuracy-related penalty, and FBAR penalty.”

The IRS example to enter the OVDP has 75% of the OVDP collection amount from the FBAR penalty.  The FBAR penalty is 2.75 larger than the tax due.  But not entering leads to owing an amount four times the account value.

Thus, judged by the amount of tax funds recovered, the OVDP has substantially underperformed to date.  But by leveraging a taxpayer’s lack of compliance with the non-tax FBAR, the OVDP and IRS civil prosecutions appear to meet performance goals of raising revenue and obtaining overall tax compliance for US persons with foreign accounts and/or residing abroad.  Or do they?

Have These Initiatives Increased Taxpayer Compliance?

The Taxpayer Advocate, replying on State Department statistics, cited that 7.6 million U.S. citizens reside abroad and many more U.S. residents have FBAR filing requirements, yet the IRS received only 807,040 FBAR submissions as recently as 2012.  The Taxpayer Advocate noted that in Mexico alone, more than one million U.S. citizens reside, and many Mexican citizens reside in the U.S. (and thus are required to file a FBAR for any Mexican accounts of $10,000 or greater).  Moreover, Non-Resident Aliens (NRAs) must file a FBAR as well.  Thus, all the initiatives to date have produced a compliance rate below 10% compliance.  Sounds more like the War on Drugs rather than a drive to increase tax compliance.

This is not to say that obtaining a highly level of compliance with the tax law, like compliance with the drug laws and DUI laws, is not a public good in itself – such tax compliance is a public good that the public has chosen, via Congress (and its investigatory hearings), for resource allocation. But like the War on Drugs, there are many potential strategies to bring about compliance.  The ones used to date just haven’t worked very well, and caused more problems (the War on Drugs has led to one of the highest rates of imprisonment of the world, that some have called a scorched earth policy against young male minorities in particular).

Have These Initiatives Met the Tax Collection Goals?

The Subcommittee Report states: “Offshore tax evasion has been an issue of concern … because lost tax revenues contribute to the U.S. annual deficit, which today exceeds $500 billion. Collecting unpaid taxes is one way to reduce the deficit without raising taxes.”

The Senate Subcommittee reported that: “According to the IRS, the current estimated annual U.S. tax gap is $450 billion, which represents the total amount of U.S. taxes owed but not paid on time, despite an overall tax compliance rate among American taxpayers of 83 percent. Contributing to that annual tax gap are offshore tax schemes responsible for lost tax revenues totaling an estimated $150 billion each year.”

To justify the reporting of the number of $150 billion a year of lost tax revenue due to “offshore tax schemes”, the Senate Report primarily cites its own investigatory reports and third party articles that refer to transfer pricing issues.  While transfer pricing regulations have been under scrutiny, at least by the Democrats, in the Senate, it is certainly not commonly held by those same Democrats that transfer pricing is illegal or constitutes an “offshore scheme”.

It is proven beyond a doubt by the UBS, Credit Suisse, and other similar investigations, validated by the OVDI disclosures, that some Americans are noncompliant, and that some of those noncompliant Americans would owe tax if disclosing foreign income on their tax returns.  There is also no doubt that the total number of noncompliant Americans between 2008 and 2013 was more than the 43,000 who were brought in from the wilderness.

There is also no doubt that the tax that would have been collected from these noncompliant taxpayers had they been compliant during their time in the wilderness is in fact, relative to the reported figure of $150 billion lost annually, miniscule (somewhere probably between $300 million and $500 million a year for lost tax (recalling the majority of the $6 billion collected representing FBAR penalties, tax penalties, and interest).  To date, of the $150 billion referred to as lost a year to offshore schemes, only approximately .003% (a third of one percent) has been collected – and that assuming the higher number of $500 million a year.  Not a good result by any measure.  And not going to dent the annual $450B – $500B deficit (not including unfunded liabilities).

Are More Than 90% of Taxpayers with Foreign Accounts Tax Evaders?

The Taxpayer Advocate, relying on State Department statistics, cited that 7.6 million U.S. citizens reside abroad.  Most are required to file a FBAR.  The Taxpayer Advocate noted that in Mexico alone, more than one million U.S. citizens reside, and many Mexican citizens reside in the U.S. (and thus are required to file a FBAR for any Mexican accounts of $10,000 or greater).

Many more U.S. residents have FBAR filing requirements because of having signatory, control, or ownership of an overseas account.  The Department of Homeland Security reported in Population Estimates (July 2013) that an estimated 13.3 million LPRs lived in the United States as of January 1, 2012, some of who will have FBAR filing requirements.

For 2011, approximately four million individual returns included foreign source income and 450,000 included the Foreign Earned Income Exclusion.  Yet the IRS received only 807,040 FBAR submissions as recently as 2012.

Based on these numbers, more than 90% of taxpayers with foreign accounts are NOT compliant with the FBAR filing requirement.  Add it up: 7.6 million Americans abroad, 13.3 LPRs in the USA, at least 1 million NRAs in the US, and some number of American citizens in the US with foreign accounts.  Must equal at least 10 million taxpayers that should be filing the FBAR.   The IRS has stated that a substantial number of US taxpayers living abroad do not file tax returns at all.

The IRS reports that 87% of American residing taxpayers are tax compliant.  So the remaining 13% … statistically speaking, being an American residing in America and having a foreign account is indicative of tax evasion, especially if FBAR is considered a “tax” compliance obligation (which it is not).

Based on these numbers, being an American living in a foreign country is a leading cause of criminality.  What the statistics do not tell is which comes first: criminality or foreign activity?  A person tends toward criminality and thus opens a foreign account or moves to a foreign country?  Or the act of moving abroad to a foreign country leads to criminality?  Absurd questions?      

Is the FBAR form necessary?  Why has it not been combined with the 1040?  Why not with the new 8938?  Questions to ponder in another article.

Posted in Compliance, FATCA | Tagged: , , , , | 8 Comments »

3 Tax Facts for US Taxpayers Living Abroad or With Foreign Assets

Posted by William Byrnes on June 2, 2014


In Newswire 2014-52, IRS reminded US taxpayers living abroad of 3 Tax Facts concerning filing requirements.

1. Filing Requirements of a US taxpayer Living and / or Working in a Foreign Country?

The Internal Revenue Service reminds U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2013, that they may have a U.S. tax liability and a filing requirement in 2014.

The filing deadline for a tax return for a US taxpayer who lives or works outside the US (or serving in the military outside the U.S.) is Monday, June 16, 2014.  To use this automatic two-month extension, taxpayers must attach a statement to their return explaining which of these two situations applies. See U.S. Citizens and Resident Aliens Abroad for details.

2. Foreign Assets Reporting?

Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to fill out and attach Schedule B to their tax return. Certain taxpayers may also have to fill out and attach to their return Form 8938, Statement of Foreign Financial Assets.

Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on Form 8938 if the aggregate value of those assets exceeds certain thresholds. See the instructions for this form for details.

3. FBAR Reporting Also Required?

Separately, taxpayers with foreign accounts whose aggregate value exceeded $10,000 at any time during 2013 must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). This form replaces TD F 90-22.1, the FBAR form used in the past. It is due to the Treasury Department by June 30, 2014, must be filed electronically and is only available online through the BSA E-Filing System website. For details regarding the FBAR requirements, see Report of Foreign Bank and Financial Accounts (FBAR).

Any U.S. taxpayer here or abroad with tax questions can use the online IRS Tax Map and the International Tax Topic Index to get answers.

tax-facts-online_medium

Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

“Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

For an indepth analysis of deductions for donations to U.S. charities (and the government’s policy encouraging or discouraging these donations), download my article at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2304044

If you are interested in discussing the Master or Doctoral degree in the areas of financial services or international taxation, please contact me: profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour”

Posted in Compliance, FATCA, Taxation | Tagged: , , , , | 1 Comment »

Former Credit Suisse Banker Pleads Guilty

Posted by William Byrnes on May 2, 2014


Former Credit Suisse Banker Pleads Guilty

Josef Dörig, 72, plead guilty on April 30 to conspiring to defraud the IRS in connection with his work as the owner of Dorig Partner AG, a trust company in Switzerland.

In a statement of facts filed with the plea agreement, Dörig admitted that between 1997 and 2011, while owning and operating a trust company, he engaged in a wide-ranging conspiracy to aid and assist U.S. customers in evading their income taxes by concealing assets and income in secret bank accounts held in the names of sham entities at Credit Suisse.  In 1997, the Credit Suisse subsidiary spun off these sham entities into a trust company, Dorig Partner AG, owned and operated by Dorig, the Justice Department said.

Sentencing is set for Aug. 8th and Dörig faces a statutory maximum sentence of five years in prison.

Credit Suisse Agrees to Pay $196 Million and Admits Wrongdoing in Providing Unregistered Services to U.S. Clients

In the February 21, 2014 Press Release by the US Securities and Exchange Commission (SEC) “Credit Suisse Agrees to Pay $196 Million and Admits Wrongdoing in Providing Unregistered Services to U.S. Clients“, Credit Suisse agreed to pay $196 million and admit wrongdoing to settle the SEC’s charges.  According to the SEC’s order instituting settled administrative proceedings, Credit Suisse provided cross-border securities services to thousands of U.S. clients and collected fees totaling approximately $82 million without adhering to the registration provisions of the federal securities laws.  Credit Suisse relationship managers traveled to the U.S. to solicit clients, provide investment advice, and induce securities transactions.  These relationship managers were not registered to provide brokerage or advisory services, nor were they affiliated with a registered entity.  The relationship managers also communicated with clients in the U.S. through overseas e-mails and phone calls.

Credit Suisse Hearing 

The seven hour hearing of the US Senate’s Permanent Subcommittee on Investigations on tax evasion associated with unreported bank accounts of Americans held about Credit Suisse in February 2014 provides a good background to understand the Justice Department indictment and guilty plea.  Below I paraphrase and excerpt the most intriguing statements of the hearing.

Based upon its two-year investigation, the Subcommittee reported that Credit Suisse opened Swiss accounts for over 22,000 U.S. customers with assets that, at their peak, totaled roughly $10 billion to $12 billion.  The Subcommittee stated that the vast majority of these accounts were hidden from U.S. authorities and that U.S. law enforcement officials have been slow to collect the unpaid taxes or hold accountable the tax evaders and bank involved.

Sen. Carl Levin, D-Mich., the subcommittee chairman said “The Credit Suisse case study shows how a Swiss bank aided and abetted U.S. tax evasion, not only from behind a veil of secrecy in Switzerland, but also on U.S. soil by sending Swiss bankers here to open hidden accounts. In response, the Department of Justice has failed to use the U.S. legal tools that won the UBS case and has instead used treaty requests for U.S. client names, relying on Swiss courts with predictably poor results. It’s time to ramp up the collection of taxes due from tax evaders on the billions of dollars hidden offshore.”

“For too long, international financial institutions like Credit Suisse have profited from their offshore tax haven schemes while depriving the U.S. economy of billions of dollars in tax revenues by facilitating U.S. tax evasion,” said Senator John McCain, ranking member of the subcommittee. “As federal regulators begin to crack down on these banks’ illicit practices, it is imperative that they use every legal tool at their disposal to hold these banks fully accountable for willfully deceiving the U.S. government and seek penalties that will deter similar misconduct in the future.”

Amount Recovered Thus Far from Non-Compliant Taxpayers 

According to the GAO Reports and the Subcommittee report, the 2008, 2011, and the ongoing 2012 offshore voluntary disclosure initiative (OVDI) have led to 43,000 taxpayers paying back taxes, interest and penalties totaling $6 billion to date, with more expected.  However, the vast majority of this recovered money is not tax revenue but instead results from the FBAR penalties assessed for not reporting a foreign account.  The Taxpayer Advocate found that for noncompliant taxpayers with small accounts, the FBAR and tax penalties reached nearly 600% of the actual tax due!  The median offshore penalty was about381% of the additional tax assessed for taxpayers with median-sized account balances.

Have These Efforts Substantially Increased Taxpayer Compliance?

The Taxpayer Advocate, replying on State Department statistics,  cited that 7.6 million U.S. citizens reside abroad and many more U.S. residents have FBAR filing requirements, yet the IRS received only 807,040 FBAR submissions as recently as 2012.  The Taxpayer Advocate noted that in Mexico alone, more than one million U.S. citizens reside, and many Mexican citizens reside in the U.S. (and thus are required to file a FBAR for any Mexican accounts of $10,000 or greater).

Thus, at a current rate well below 10% compliance (because nonresident aliens in the US must file a FBAR on their non-US accounts of $10,000 and over), it appears that all the additional enforcement is producing similar results of the War on Drugs.  This is not to say that obtaining a highly level of compliance with the tax law , like compliance with the drug laws and DUI laws, is not a public good in itself – it indeed is a public good that the public has chosen, via Congress (and its investigatory hearings), for resource allocation. But like the War on Drugs, there are many potential strategies to bring about compliance, about which pundits such as law enforcement officials, social libertarians, the medical profession, and all their paid lobbyists, debate.

Credit Suisse Statement to Subcommittee:

Credit Suisse is a global financial services company with operations in more than 50 countries and over 45,000 employees including approximately 9,000 U.S. employees in 19 U.S. locations. In the United States, Credit Suisse is a Financial Holding Company regulated by the Federal Reserve. The Bank has a New York branch, which is supervised by the New York Department of Financial Services, and we have three regulated U.S. broker/dealer subsidiaries. Our primary U.S. broker/dealer has been designated a Systemically Important Financial Institution under the Dodd-Frank law. We have a substantial business presence here in the United States.

Credit Suisse Exit of U.S. Relationships

Following our decision to prohibit former U.S. clients of UBS from transferring their assets to Credit Suisse, in August 2008, Credit Suisse promptly turned to addressing issues highlighted by the UBS situation. In October 2008, Credit Suisse decided to allow relationships with non-U.S. entities that had U.S. beneficial owners only if they demonstrated U.S. tax compliance. We hired a leading Swiss law firm to review the tax status of U.S. clients that wanted to remain. By the end of the first year of review, all but 135 relationships with assets over $10,000 had been reviewed and resolved.

In April 2009, we extended our review to U.S. resident clients. Credit Suisse transferred virtually all U.S. resident accounts to one of the Bank’s U.S.-registered affiliates, or terminated the relationships. Credit Suisse simply shut down those client relationships that were unwilling to move or that did not meet the $1 million requirement for transfer to the Bank’s U.S.-regulated affiliates. By the end of the first full year of review, 2010, we had reviewed and resolved more than 85% of U.S.-resident relationships with assets over $10,000.

To ensure that the review was comprehensive, we also manually searched for accounts that, although not identified in our systems as U.S.-linked, could possibly have some U.S. connection – for example, a U.S. phone number or address in the paper client file, or a notation of a U.S. birthplace on a foreign passport. Credit Suisse also reviewed the private banking activities of its subsidiaries, including Clariden Leu, which was a nearly wholly owned Credit Suisse subsidiary between 2007 and 2012. Clariden Leu’s review and exit projects paralleled the projects at Credit Suisse.

Credit Suisse also engaged one of the Big Four accounting firms to conduct its own review to assess whether the Bank had effectively identified the account relationships with U.S. links. This firm carefully analyzed the Bank’s efforts – with an intense line-by-line analysis of account information – and concluded to an extremely high level of confidence that Credit Suisse had identified the complete population of U.S. account relationships. The results of this substantial effort have been presented to the Subcommittee staff.

Subcommittee “Undeclared Accounts” Methodologies Unreliable

Credit Suisse repeatedly discussed with the Subcommittee staff the fact that it is impossible for us to know the tax status of assets previously held by U.S. clients if those clients did not disclose that information to the Bank. Unfortunately, the Subcommittee has chosen to speculate based on a number of “methodologies,” each of which is problematic and generates results that are, at best, unreliable. The Subcommittee’s need to reference three conflicting “methodologies” is an implicit recognition that accurate estimates of unreported U.S. client assets previously held at Credit Suisse cannot be made based on the actual information available to the Bank and to the Subcommittee.

8,300 Accounts under $10,000 FBAR Reporting Requirement

In any event, the Subcommittee assumes that every U.S. client account held abroad was undeclared. As discussed below, that is a demonstrably inappropriate assumption. Moreover, U.S. Treasury Department regulations required U.S. citizens to report foreign accounts only if the balance exceeded $10,000 at some point during the year. While the Subcommittee staff has mentioned 22,000 accounts, more than 8,300 had balances below $10,000 as of December 31, 2008.

6,400 Accounts for US Expats Residing in Switzerland

Troublingly, these estimates also lump in categories of accounts where there is every reason to believe that the client had a valid reason for holding a Swiss account. For example, the Subcommittee’s estimates of “undeclared” accounts include approximately 6,400 accounts held by all U.S. expats who would ordinarily have a need for some form of local banking services outside of the U.S. Again, it should not be ignored that most expats resided in Switzerland, and therefore had a particularly valid reason for maintaining a bank near their homes.

Finally, each of the three “methodologies” that the Subcommittee staff has raised is problematic for different reasons:

First Methodology No Factual Basis

The first method wrongly suggests that the number of accounts closed during the Bank’s

“Exit Projects” may be a proxy for “undeclared” accounts. The Bank’s “Exit Projects” revealed that U.S. clients left the Bank for various reasons. For example, Credit Suisse decided to simply shut down around 11,000 U.S. resident accounts when the Bank decided to stop having Swiss-based private bankers service U.S. residents and because those clients’ balances did not meet the $1 million requirement for transfer to the U.S. regulated affiliates. Those clients never had the opportunity to demonstrate tax compliance because their accounts were simply terminated. There is no basis factually to assume that all of these clients were not tax compliant.

Second Methodology Unsupported

The second method, the “UBS method,” is simply unsupported. This method proposes to estimate accounts by considering all accounts without Forms W-9 to be “undeclared” U.S. accounts. The absence of a Form W-9 alone in no way supports an inference that a client failed to report the account to the IRS, or that the Bank was aware that the client failed to do so. The Qualified Intermediary Agreement with the IRS required the preparation of a Form W-9 only if the client maintained U.S. securities. If the client did not maintain U.S. securities, a Form W-9 was not required. These are the IRS’s rules. Because this method does not consider whether the client maintained U.S. securities, it is inaccurate to assume that the account was maintained to evade U.S. taxes.

Third Methodology Inconclusive

Nor is the third method conclusive. The so-called “DOJ Estimate” recounts a figure of $4 billion stated in an indictment of certain Bank relationship managers. Because the grand jury’s proceedings are secret, neither we nor the Subcommittee have any basis to assess the grand jury’s methodologies.

Credit Suisse Assets Under Management

As to Assets under Management (AuM), it should be noted that our exit projects established that an approximate amount of $5 billion of AuM was reviewed and verified for tax compliance over the years. This number includes AuM transferred to our U.S.-registered entities or closed after tax compliance was established. In addition, approximately $2.25 billion AuM lost its U.S. nexus over the years. Finally, of the accounts that were closed over the years we simply have no basis to assume that all of them were undeclared.

It was discussed between the Senators and the representatives of Credit Suisse that the actual amount of AUM compared to Credit Suisse’s AuM was miniscule, and that such AuM contributed less than 1% to Credit Suisse’s profits.  However, Senator John McCain, the minority ranking member, told the Credit Suisse representatives that, while small in the context of the bank, amounts of billions and the profits made therefrom, are large amounts to a American taxpayer if made aware of such conduct.  While listening to the Senator’s assessment (and agreeing), I wondered why in contrast hundreds of billions of annual deficits up to nearly a trillion deficit, and 15, 17, perhaps 20 trillion of national debt don’t seem to phase the same taxpayer referred to?

Internal Investigation

Nor did we turn a blind eye to the past. On the contrary, we invested enormous efforts to achieve as much clarity as possible about whether, and to what extent, Credit Suisse employees had violated U.S. laws or helped clients do so. Credit Suisse asked external counsel to investigate any instances of past improper conduct fully. That investigation was broad and deep.

The U.S. law firm King & Spalding and the Swiss law firm Schellenberg Wittmer led the investigation, with help from a major accounting firm. The investigation reviewed all aspects of the Bank’s Swiss-based private banking business with U.S. customers. It involved more than 100 interviews of Credit Suisse and Clariden Leu personnel, from line-level private bankers to senior leaders of the Bank. The investigation reviewed the conduct of bankers across the Swiss private bank who had a number of U.S. clients or traveled to the United States.

The investigation identified evidence of violations of Bank policy centered on a small group of Swiss-based private bankers. That conduct centered on a group of private bankers within a desk of 15 to 20 private bankers at any given time who were focused on larger accounts of U.S. residents. Most of the improper activity was focused on some private bankers who traveled to the United States once or twice a year; otherwise, the investigation found only scattered evidence of improper conduct.

The investigation did not find any evidence that senior executives of Credit Suisse knew these bankers were apparently helping U.S. customers hide income and assets. To the contrary, the evidence showed that some Swiss-based private bankers went to great lengths to disguise their bad conduct from Credit Suisse executive management.

Cooperation with U.S. Authorities

Credit Suisse has consistently cooperated with the investigations led by the Department of Justice, the SEC, and this Subcommittee, going to the greatest extent permissible by Swiss law to provide information to investigating U.S. authorities.

Since early 2011, Credit Suisse has produced hundreds of thousands of pages of documents, including translations of foreign-language documents. Our representatives have met with the Department of Justice to help them understand the information we provided and to describe the findings of our internal investigation and the Bank’s various compliance efforts.

Credit Suisse has also provided briefings to officials from the U.S. government, including the SEC and this Subcommittee. That includes more than 100 hours briefing the Subcommittee staff on details of the private banking business and the internal investigation and thousands more hours answering written questions from Subcommittee staff. Specifically, Credit Suisse produced over 580,000 pages of documents, provided 11 detailed briefings to the Subcommittee staff in all-day, or multi-day, sessions, provided 12 substantive written submissions, and made 17 witnesses available from both the United States and Switzerland, including the Bank’s General Counsel, co-heads of the Private Bank and Wealth Management Division, and the CEO.

Report Offshore Tax Evasion: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts

The 175-page bipartisan staff report released Tuesday February 25 outlines how Credit Suisse engaged in similar conduct from at least 2001 to 2008, sending Swiss bankers into the United States to recruit U.S. customers, opening Swiss accounts that were not disclosed to U.S. authorities, including accounts opened in the name of offshore shell entities, and servicing Swiss accounts here in the United States without leaving a paper trail.  For the complete analysis of the reportm see https://profwilliambyrnes.com/2014/02/26/senate-subcommittee-hearing-and-report-on-offshore-tax-evasion/

 

106 Swiss Banks Seek Non-Prosecution from US Justice Department for Past Tax Evasion by Clients

106 Swiss banks (of approximately 300 total) filed the requisite letter of intent to join the Program for Non-Prosecution Agreements or Non-Target Letters (the “Program“) by the December 31, 2013 deadline.  Renown attorney Jack Townsend reported on his blog on February 14th provided a list of 49 Swiss banks that had publicly announced the intention to submit the letter of intent, as well as each bank’s category for entry: six announced seeking category 4 status, eight for category 3, thirty-five for category 2.  106 was a large jump from the mid-December report by the international service of the Swiss Broadcasting Corporation (“SwissInfo”) that only a few had filed for non prosecution with the DOJ’s program (e.g. Migros Bank, Bank COOP, Valiant, Berner Kantonalbank and Vontobel).

What is the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks?

The Tax Division of the Department of Justice released a statement on December 12, 2013 strongly encouraging Swiss banks wanting to seek non-prosecution agreements to resolve past cross-border criminal tax violations to submit letters of intent by a Dec. 31, 2013 deadline required by the Program for Non-Prosecution Agreements or Non-Target Letters (the “Program“).  The Program was announced on Aug. 29, 2013, in a joint statement signed by Deputy Attorney General James M. Cole and Ambassador Manuel Sager of Switzerland (> See the Swiss government’s explanation of the Program < ).  Switzerland’s Financial Market Supervisory Authority (FINMA) has issued a deadline of Monday, December 16, 2013 for a bank to inform it with its intention to apply for the DOJ’s Program.[2]

The DOJ statement described the framework of the Program for Non-Prosecution Agreements: every Swiss bank not currently under formal criminal investigation concerning offshore activities will be able to provide the cooperation necessary to resolve potential criminal matters with the DOJ.  Currently, the department is actively investigating the Swiss-based activities of 14 banks.  Those banks, referred to as Category 1 banks in the Program, are expressly excluded from the Program.  Category 1 Banks against which the DoJ has initiated a criminal investigation as of 29 August 2013 (date of program publication).

On November 5, 2013 the Tax Division of the DOJ had released comments about the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks.

Swiss banks that have committed violations of U.S. tax laws and wished to cooperate and receive a non-prosecution agreement under the Program, known as Category 2 banks, had until Dec. 31, 2013 to submit a letter of intent to join the program, and the category sought.

To be eligible for a non-prosecution agreement, Category 2 banks must meet several requirements, which include agreeing to pay penalties based on the amount held in undeclared U.S. accounts, fully disclosing their cross-border activities, and providing detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest.  Providing detailed information regarding other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed is also a stipulation for eligibility. The Swiss Federal Department of Finance has released a > model order and guidance note < that will allow Swiss banks to cooperate with the DOJ and fulfill the requirements of the Program.

The DOJ’s November comments responded to such issues as: (a) Bank-specific issues and issues concerning individuals, (b) Choosing which category among 2, 3, or 4, (c) Qualifications of independent examiner (attorney or accountant), (d) Content of independent examiner report, (e) Information required under the Program – no aggregate account data, (f) Penalty calculation – permitted reductions, (g) Category 4 banks – retroactive application of FATCA Annex II, paragraph II.A.1, and (h) Civil penalties.

Which of Four Categories To File for Non-Prosecution Under?

Regarding which category to file under, the DOJ replied: “Each eligible Swiss bank should carefully analyze whether it is a category 2, 3 or 4 bank. While it may appear more desirable for a bank to attempt to position itself as a category 3 or 4 bank to receive a non-target letter, no non-target letter will be issued to any bank as to which the Department has information of criminal culpability. If the Department learns of criminal conduct by the bank after a non-target letter has been issued, the bank is not protected from prosecution for that conduct. If the bank has hidden or misrepresented its activities to obtain a non-target letter, it is exposed to increased criminal liability.”

Category 2

Banks against which the DoJ has not initiated a criminal investigation but have reasons to believe that that they have violated US tax law in their dealings with clients are subject to fines of on a flat-rate basis.  Set scale of fine rates (%) applied to the untaxed US assets of the bank in question:

– Existing accounts on 01.08.2008: 20%
– New accounts opened between 01.08.2008 and 28.02.2009: 30%
– New accounts after 28.02.2009: 50%

Category 2 banks must delivery of information on cross-border business with US clients, name and function of the employees and third parties concerned, anonymised data on terminated client relationships including statistics as to where the accounts re-domiciled.

Category 3

Banks have no reason to believe that they have violated US tax law in their dealings with clients and that can have this demonstrated by an independent third party. A category 3 bank must provide to the IRS the data on its total US assets under management and confirmation of an effective compliance programme in force.

Category 4

Banks are a local business in accordance with the FATCA definition.

Independence of Qualified Attorney or Accountant Examiner

Regarding the requirement of the independence of the qualified attorney or accountant examiner, the DOJ stated that the examiner “is not an advocate, agent, or attorney for the bank, nor is he or she an advocate or agent for the government. He or she must provide a neutral, dispassionate analysis of the bank’s activities. Communications with the independent examiner should not be considered confidential or protected by any privilege or immunity.”  The attorney / accountant’s report must be substantive, detailed, and address the requirements set out in the DOJ’s non-prosecution Program.  The DOJ stated that “Banks are required to cooperate fully and “come clean” to obtain the protection that is offered under the Program.”

In the ‘bottom line’ words of the DOJ: “Each eligible Swiss bank should carefully weigh the benefits of coming forward, and the risks of not taking this opportunity to be fully forthcoming. A bank that has engaged in or facilitated U.S. tax-related or monetary transaction crimes has a unique opportunity to resolve its criminal liability under the Program. Those that have criminal exposure but fail to come forward or participate but are not fully forthcoming do so at considerable risk.”

LexisNexis FATCA Compliance Manual

book cover

The LexisNexis® Guide to FATCA Compliance comprises 34 Chapters by 50 contributors grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of FATCA’s application for certain trading partners of the U.S. (Chapters 17–34), including intergovernmental agreements as well as the OECD’s TRACE initiative for global automatic information exchange protocols and systems. The 34 chapters include many practical examples to assist a compliance officer contextualize the regulations, IGA provisions, and national rules enacted pursuant to an IGA.  Chapters include by example an in-depth analysis of the categorization of trusts pursuant to the Regulations and IGAs, operational specificity of the mechanisms of information capture, management and exchange by firms and between countries, insights as to the application of FATCA and the IGAs within new BRIC and European country chapters.

If you are interested in discussing the Master or Doctorate degree in the areas of financial services or international taxation, please contact me https://profwilliambyrnes.com/online-tax-degree/

Posted in Compliance, FATCA, Financial Crimes | Tagged: , , , , | 1 Comment »

Employers Face Stiff Obama Care Excise Taxes (aka Penalties)

Posted by William Byrnes on April 4, 2014


The Affordable Health Care Act (ACA) (“Obama Care”) may lead to stiff excise taxes for midsize and larger employers that misclassify employees as independent contractors (see §4980H Shared responsibility for employers regarding health coverage).  The term “applicable large employer” means, with respect to a calendar year, an employer who employed an average of at least 50 full-time employees on business days during the preceding calendar year.  The term “full-time employee” means, with respect to any month, an employee who is employed on average at least 30 hours of service per week.  However, employers with less than a 100 employees have a transition period until 2016 for the application of §4980H.

Employers that misclassify employees as independent contractors already face potential tax liability and tax penalties for each misclassified employee.  In addition to these current potential liabilities and penalties for misclassification, employers will now face excise tax assessments under the ACA.   This new excise tax is $2,000 per employee not covered by a qualifying employer medical plan.  However, to encourage compliance with the ACA, if less than 95% of the employees of an employer are covered by a qualified medical employer plan, then a stiffer penalty of $2,000 for every employee of the company may be imposed, albeit with an exemption of the excise tax applying to the first 30 employees.

By example, an employer has 50 workers of which the employer has classified 80% (40) as employees and the remaining 20% (10) as independent contractors.  The employer provides a medical insurance plan for the 40 employees that qualifies for purposes of the ACA.  The §4980H issue is moot, meaning it does not need to be considered, because the employer does not reach the minimum 50 employee threshold.  But now the problem …

The IRS audits the employer and determines that the employer has misclassified the 10 independent contractors, and re-classifies them as employees.  The employer has employment tax issues, and penalties to contend with, regarding the 10 employees.  But also, §4980H now applies because the employer has reached 50 employees.  Worse yet, the employer has not covered 95% of its employees with qualified medical coverage.  Instead of 40 employees covered out of 40 covered for 100% coverage, after audit the employer is determined to have only covered 80% of employees (40 out of 50), missing the minimum 95% threshold.   Thus, the excise tax does not apply to just the 10 employees but instead applies to all employees, with an allowance for the first 30.  How much excise tax will be owed then?  50 employees, subtracting the allowance for the first 30, leaves 20 employees multiplied by the excise  tax of $2,000, thus $40,000 for the year (on top of normal employment taxes and penalties for the 10 misclassified employees).

Classification of a worker as either an “employee” or an “independent contractor” is based on the common law standard of an examination of the facts and circumstances of the relationship between the employer and the worker to assess whether the employer has the right to direct and control the performance of services.  Substantial case law has developed from disputes between employers and the IRS, and between workers, who may want to be classified as independent contractors to better leverage tax deductions, and the IRS.

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Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

“Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

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Posted in Compliance, Taxation | Tagged: , , , , , , | Leave a Comment »

Streamlined Filing Compliance Procedures for Non-Resident, Non-Filer U.S. Taxpayers

Posted by William Byrnes on February 8, 2014


Now that FATCA and its IGAs has attracted the attention of dual citizens (and “Green Card” holders) of the United States and other countries like Canada, Israel, Mexico, United Kingdom, Ireland, Caribbean Island, among many other citizens, I thought I ought remind the dual nationals of the streamlined compliance opportunity for filing delinquent United States tax returns.  This information is excerpted from the IRS website with relevant direct links thereto included.

In 2012 the IRS established new streamlined filing compliance procedures for non-resident U.S. taxpayers that went into effect Sept. 1, 2012.  These procedures were implemented in recognition that some U.S. taxpayers living abroad have failed to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs), but become aware of their filing obligations and seek to come into compliance with the law. These procedures are for non-residents including, but not limited to, dual citizens who have not filed U.S. income tax and information returns.

Description of the Streamlined Procedure

This streamlined procedure is designed for taxpayers that present a low compliance risk. All submissions will be reviewed, but, as discussed below, the intensity of review will vary according to the level of compliance risk presented by the submission. For those taxpayers presenting low compliance risk, the review will be expedited and the IRS will not assert penalties or pursue follow-up actions.  Submissions that present higher compliance risk are not eligible for the streamlined processing procedures and will be subject to a more thorough review and possibly a full examination, which in some cases may include more than three years, in a manner similar to opting out of the Offshore Voluntary Disclosure Program.

Taxpayers utilizing this procedure will be required to file delinquent tax returns, with appropriate related information returns (e.g. Form 3520 or 5471), for the past three years and to file delinquent FBARs for the past six years. Payment for the tax and interest, if applicable, must be remitted along with delinquent tax returns. For a summary of information about federal income tax return and FBAR filing requirements and potential penalties, see IRS Fact Sheet FS-2011-13. (December 2011).

In addition, retroactive relief for failure to timely elect income deferral on certain retirement and savings plans where deferral is permitted by relevant treaty is available through this process. The proper deferral elections with respect to such arrangements must be made with the submission. See instructions below.

Eligibility

This procedure is available for non-resident U.S. taxpayers who have resided outside of the U.S. since January 1, 2009, and who have not filed a U.S. tax return during the same period. These taxpayers must present a low level of compliance risk as described below

Amended returns submitted through this program will be treated as high risk returns and subject to examination, except for those filed for the sole purpose of submitting late-filed Forms 8891 to seek relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by relevant treaty. It should be noted that this relief is also available under the Offshore Voluntary Disclosure Program.  See below for the information required to be submitted with such requests. (If you need to file an amended return to correct previously reported or unreported income, deductions, credits, tax etc, you should not use this streamlined procedure. Depending on your circumstances, you may want to consider participating in the Offshore Voluntary Disclosure Program.)

All tax returns submitted under this procedure must have a valid Taxpayer Identification Number (TIN). For U.S. citizens, a TIN is a Social Security Number (SSN). For individuals that are not eligible for an SSN, an Individual Taxpayer Identification Number (ITIN) is a valid TIN. Tax returns filed without a valid SSN or ITIN will not be processed. For those who are ineligible for an SSN, but who do not have an ITIN, a submission may be made through this program if accompanied by a complete ITIN application. For information on obtaining an SSN, see http://www.ssa.gov. For information on obtaining an ITIN, see the ITIN page.

Compliance Risk Determination

The IRS will determine the level of compliance risk presented by the submission based on information provided on the returns filed and based on additional information provided in response to a Questionnaire required as part of the submission. Low risk will be predicated on simple returns with little or no U.S. tax due. Absent any high risk factors, if the submitted returns and application show less than $1,500 in tax due in each of the years, they will be treated as low risk and processed in a streamlined manner.

The risk level may rise if any of the following are present:

  • If any of the returns submitted through this program claim a refund;
  • If there is material economic activity in the United States;
  • If the taxpayer has not declared all of his/her income in his/her country of residence;
  • If the taxpayer is under audit or investigation by the IRS;
  • If FBAR penalties have been previously assessed against the taxpayer or if the taxpayer has previously received an FBAR warning letter;
  • If the taxpayer has a financial interest or authority over a financial account(s) located outside his/her country of residence;
  • If the taxpayer has a financial interest in an entity or entities located outside his/her country of residence;
  • If there is U.S. source income; or
  • If there are indications of sophisticated tax planning or avoidance.

For additional information about what information will be requested to evaluate risk, please see the Questionnaire.

Instructions for Using This Procedure

Taxpayers wishing to use these streamlined procedures must:

1. Submit complete and accurate delinquent tax returns, with appropriate related information returns, for the last three years for which a U.S. tax return is due.

  • Please note that all delinquent information returns being filed under this procedure should be sent to the address below with the rest of the submission.

2. Include at the top of the first page of each tax return “Streamlined” to indicate that the returns are being submitted under this procedure. This is very important to ensure that your returns get processed through these procedures.

3. Submit payment of all tax due and owing as reflected on the returns and statutory interest due and owing.

  • For returns determined to be high risk, failure to file and failure to pay penalties may be imposed in accordance with U.S. federal tax laws and FBAR penalties may be imposed in accordance with U.S. law. Reasonable cause statements may be requested during review or examination of the returns determined to be high risk. For a summary of information about federal income tax return and FBAR filing requirements and potential penalties, see IRS Fact Sheet FS-2011-13(December 2011).

4. Submit copies of filed FBARs for the last six years for which an FBAR is due. (You should file delinquent FBARs according to the FBAR instructions and include a statement explaining that the FBARs are being filed as part of the Streamlined Filing Compliance Procedures for Non-Resident, Non-Filer U.S. Taxpayers. Through June 30, 2013, you may file electronically (http://bsaefiling.fincen.treas.gov) or by sending paper forms to Department of Treasury, Post Office Box 32621, Detroit, MI 48232-0621. After June 30, 2013, you must file electronically (http://bsaefiling.fincen.treas.gov.)) If you are unable to file electronically, you may contact FinCEN’s Regulatory Helpline at 1-800-949-2732 or (if calling from outside the United States) 1-703-905-3975 to determine possible alternatives for timely reporting.

NOTE: Taxpayers filing FBARs electronically do not currently have the technological ability to include a statement explaining that the FBARs are being filed as part of the Streamlined Filing Compliance Procedures for Non-Resident, Non-Filer U.S. Taxpayers. Until such time that they have the ability, it is not necessary to include the statement. (July 18, 2013)

5. Submit a complete, accurate and signed Questionnaire.

6. If the taxpayer must apply for an ITIN in order to file delinquent returns under this procedure, the application and other documents required for applying for an ITIN must be attached to the the required forms, information and documentation required under this streamlined procedure. See the ITIN page for more.

7. Any taxpayer seeking relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by relevant treaty will be required to submit:

  • a statement requesting an extension of time to make an election to defer income tax and identifying the pertinent treaty provision;
  • for relevant Canadian plans, a Form 8891 for each tax year and each plan and a description of the type of plan covered by the submission; and
  • a dated statement signed by the taxpayer under penalties of perjury describing:
    • the events that led to the failure to make the election,
    • the events that led to the discovery of the failure, and
    • if the taxpayer relied on a professional advisor, the nature of the advisor’s engagement and responsibilities.

8. This program has been established for non-resident non-filers. Generally, amended returns will not be accepted in this program. The only amended returns accepted through this program are those being filed for the sole purpose of submitting late-filed Forms 8891 to seek relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by relevant treaty. Non-resident taxpayers who have previously filed returns but wish to request deferral provisions will be required to submit:

  • an amended return reflecting no adjustments to income deductions, or credits; and
  • all documents required in item 7 above.

9. The documents listed above must be sent to:

Internal Revenue Service
3651 South I-H 35
Stop 6063 AUSC
Attn: Streamlined
Austin, TX 78741

Other Considerations

Taxpayers who are concerned about the risk of criminal prosecution should be advised that this new procedure does not provide protection from criminal prosecution if the IRS and Department of Justice determine that the taxpayer’s particular circumstances warrant such prosecution. Taxpayers concerned about criminal prosecution because of their particular circumstances should be aware of and consult their legal advisers about the Offshore Voluntary Disclosure Program (OVDP), announced on Jan. 9, 2012, which offers another means by which taxpayers with undisclosed offshore accounts may become compliant. For additional information go to the OVDP page. It should be noted, however, that once a taxpayer makes a submission under the new procedure described in this document, OVDP is no longer available. It should also be noted that taxpayers who are ineligible to use OVDP are also ineligible to participate in this procedure.

Posted in Compliance, FATCA | 1 Comment »

Application of Anti Money Laundering Regulations to Virtual Currencies like BITCOIN

Posted by William Byrnes on February 1, 2014


The Financial Crimes Enforcement Network (FinCEN) on Thursday published two administrative rulings, providing additional information on whether a person’s conduct related to convertible virtual currency brings them within the Bank Secrecy Act’s (BSA) definition of a money transmitter. The first ruling states that, to the extent a user creates or “mines” a convertible virtual currency solely for a user’s own purposes, the user is not a money transmitter under the BSA. The second states that a company purchasing and selling convertible virtual currency as an investment exclusively for the company’s benefit is not a money transmitter.

The rulings further interpret FinCEN’s March 18, 2013 Guidance Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies to address these business models. The Financial Crimes Enforcement Network (“FinCEN”) issued the March 18, 2013 interpretive guidance to clarify the applicability of the regulations implementing the Bank Secrecy Act (“BSA”) to persons creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies.

Currency vs. Virtual Currency

FinCEN’s regulations define currency (also referred to as “real” currency) as “the coin and paper money of the United States or of any other country that [i] is designated as legal tender and that [ii] circulates and [iii] is customarily used and accepted as a medium of exchange in the country of issuance.” In contrast to real currency, “virtual” currency is a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency. In particular, virtual currency does not have legal tender status in any jurisdiction. This guidance addresses “convertible” virtual currency. This type of virtual currency either has an equivalent value in real currency, or acts as a substitute for real currency.

FIN-2014-R001: Application of FinCEN’s Regulations to Virtual Currency Mining Operations (http://www.fincen.gov/news_room/rp/rulings/pdf/FIN-2014-R001.pdf)

FIN-2014-R002: Application of FinCEN’s Regulations to Virtual Currency Software Development and Certain Investment Activity (http://www.fincen.gov/news_room/rp/rulings/pdf/FIN-2014-R002.pdf)

book cover

LexisNexis’ Money Laundering, Asset Forfeiture and Recovery and Compliance: A Global Guide – This eBook is designed to provide the reader with accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources. The eBook is organized around five main themes: 1. Money Laundering Risk and Compliance; 2. The Law of Anti-Money Laundering and Compliance; 3. Criminal and Civil Forfeiture; 4. Compliance and 5. International Cooperation.

Each chapter is made up of five parts. Part I, “Introduction,” begins with the analysis of money laundering risks and compliance with the recommendations of the Financial Action Task Force (FATF), and then concludes with the country’s rating based on the International Narcotics Control Strategy Report (INCSR) of the U.S. State Department.  Part II, “Anti-Money Laundering and Combating Terrorist Financing (AML/CTF)” and Part III, “Criminal and Civil Forfeiture,” evaluate the judicial and legislative structures of the country. Given the increasing global dimension of AML/CTF activities, these sections give special attention to how a country has created statutes, decisions, policies and the judicial enforcement procedures needed to combat money laundering and terrorist financing. Part IV, “Compliance,” examines the most critical processes for the prevention and detection of money laundering and terrorist financing. This section reflects on the practical elements that should be in place so that financial institutions can comply with AML/CTF requirements; these are categorized into the development and implementation of internal controls, policies and procedures. Part V, “International Cooperation,” reviews the compilation of international laws and treaties between countries working together to combat money laundering and terrorist financing.

As these unlawful activities can occur in any given country, it is important to identify the international participants who are cooperating to develop methods to obstruct these criminal activities. – See more at: http://www.lexisnexis.com/store/catalog/booktemplate/productdetail.jsp;jsessionid=0AE5A4DFFE9101B2B8254B9E9191D6C7.psc1706_lnstore_001?pageName=relatedProducts&catId=&prodId=prod-us-ebook-01701-epub#sthash.prR4HmVX.dpuf

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106 Swiss Banks seek Non-Prosecution Agreements and Non-Target Letter with the DOJ (but twice that, did not…)

Posted by William Byrnes on January 31, 2014


free chapter download here —> http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671   Number of Pages in PDF File: 58

On January 25, Kathryn Keneally, assistant attorney general of the Justice Department’s Tax Division, served as the keynote speaker for the American Bar Association Section of Taxation 2014 Midyear Meeting. to provide agency updates – including on the Switzerland banks non-prosecution agreement program that expired December 31.  

David Voreacos of Bloomberg News reported that Kathryn Keneally, in her keynote remarks, stated that 106 Swiss banks (of approximately 300 total) filed the requisite letter of intent to join the Program for Non-Prosecution Agreements or Non-Target Letters (the “Program“) by the December 31, 2013 deadline.  Renown attorney Jack Townsend reported on his blog on December 31st a list of 47 Swiss banks that had publicly announced the intention to submit the letter of intent, as well as each bank’s category for entry: six announced seeking category 4 status, eight for category 3, thirty-three for category 2.  106 is a large jump from the mid-December report by the international service of the Swiss Broadcasting Corporation (“SwissInfo”) that only a few had filed for non prosecution with the DOJ’s program (e.g. Migros Bank, Bank COOP, Valiant, Berner Kantonalbank and Vontobel). [1]

SwissInfo reported that Migros Bank selected Program Category 2 because “370 of its 825,000 clients, mostly Swiss citizens residing temporarily in the US or clients with dual nationality”, met the criteria of US taxpayer.  Valiant told SwissInfo that “an internal review showed it had never actively sought US clients or visited Americans to drum up business. The bank said less than 0.1% of its clients were American.”   The DOJ reported that in July 2013, Liechtensteinische Landesbank AG, a bank based in Vaduz, Liechtenstein, entered into a non-prosecution agreement and agreed to pay more than $23.8 million stemming from its offshore banking activities, and turned over more than 200 account files of U.S. taxpayers who held undeclared accounts at the bank.

William R. Davis and Lee A. Sheppard of Tax Analysts’ Worldwide Tax Daily reported that “one private practitioner estimated that some 350 banks holding 40,000 accounts have not come in.” (see “ABA Meeting: Keneally Reports Success With Swiss Bank Program”, Jan. 28, 2014, 2014 WTD 18-3.)

Two court orders entered in November 2013 in a New York federal court will further aid the offshore compliance investigations by authorizing the IRS to serve what are known as “John Doe” summonses on five banks to obtain information about possible tax fraud by individuals whose identities are unknown.  The John Doe summonses direct the five banks to produce records identifying U.S. taxpayers holding interests in undisclosed accounts at Zurcher Kantonalbank (ZKB) and its affiliates in Switzerland and at The Bank of N.T. Butterfield & Son Limited (Butterfield) and its affiliates in Switzerland, the Bahamas, Barbados, Cayman Islands, Guernsey, Hong Kong, Malta and the United Kingdom.  The summonses also direct the five banks to produce information identifying foreign banks that used ZKB’s and Butterfield’s correspondent accounts at the five banks to service U.S. clients.

Swiss banks Wegelin ceased operations because of the DOJ investigation and its consequent guilty plea.  Bank Frey followed suit because of the DOJ investigation and costs of future compliance with FATCA (its former head of private banking was indicted, and an > attorney in the same indictment pled guilty to conspiracy to commit tax fraud <).  Frey bank, in a November 28, 2013 statement, defended itself: “In October, the former Bank Frey & Co. AG decided to cease its banking activities and to terminate all of its client relationships. Beforehand, the Bank verified the tax compliance of all its US clients, and an external auditor confirmed so. In addition, the Bank examined all of its other clients to determine whether they had any link to the US. Again, an external auditor checked and confirmed these findings. As a result, it was determined that Bank Frey did not have any clients with potential US tax issues.”

What is the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks?

The Tax Division of the Department of Justice > released a statement on December 12 < strongly encouraging Swiss banks wanting to seek non-prosecution agreements to resolve past cross-border criminal tax violations to submit letters of intent by a Dec. 31, 2013 deadline required by the Program for Non-Prosecution Agreements or Non-Target Letters (the “Program“).  The Program was announced on Aug. 29, 2013, in a > joint statement < signed by Deputy Attorney General James M. Cole and Ambassador Manuel Sager of Switzerland (> See the Swiss government’s explanation of the Program < ).  Switzerland’s Financial Market Supervisory Authority (FINMA) has issued a deadline of Monday, December 16, 2013 for a bank to inform it with its intention to apply for the DOJ’s Program.[2]

The DOJ statement described the framework of the Program for Non-Prosecution Agreements: every Swiss bank not currently under formal criminal investigation concerning offshore activities will be able to provide the cooperation necessary to resolve potential criminal matters with the DOJ.  Currently, the department is actively investigating the Swiss-based activities of 14 banks.  Those banks, referred to as Category 1 banks in the Program, are expressly excluded from the Program.  Category 1 Banks against which the DoJ has initiated a criminal investigation as of 29 August 2013 (date of program publication).

On November 5, 2013 the Tax Division of the DOJ had released > comments about the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks < .

Swiss banks that have committed violations of U.S. tax laws and wished to cooperate and receive a non-prosecution agreement under the Program, known as Category 2 banks, had until Dec. 31, 2013 to submit a letter of intent to join the program, and the category sought. 

To be eligible for a non-prosecution agreement, Category 2 banks must meet several requirements, which include agreeing to pay penalties based on the amount held in undeclared U.S. accounts, fully disclosing their cross-border activities, and providing detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest.  Providing detailed information regarding other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed is also a stipulation for eligibility. The Swiss Federal Department of Finance has released a > model order and guidance note < that will allow Swiss banks to cooperate with the DOJ and fulfill the requirements of the Program.

The DOJ’s November comments responded to such issues as: (a) Bank-specific issues and issues concerning individuals, (b) Choosing which category among 2, 3, or 4, (c) Qualifications of independent examiner (attorney or accountant), (d) Content of independent examiner report, (e) Information required under the Program – no aggregate account data, (f) Penalty calculation – permitted reductions, (g) Category 4 banks – retroactive application of FATCA Annex II, paragraph II.A.1, and (h) Civil penalties.

Regarding which category to file under, the DOJ replied: “Each eligible Swiss bank should carefully analyze whether it is a category 2, 3 or 4 bank. While it may appear more desirable for a bank to attempt to position itself as a category 3 or 4 bank to receive a non-target letter, no non-target letter will be issued to any bank as to which the Department has information of criminal culpability. If the Department learns of criminal conduct by the bank after a non-target letter has been issued, the bank is not protected from prosecution for that conduct. If the bank has hidden or misrepresented its activities to obtain a non-target letter, it is exposed to increased criminal liability.”

Category 2 Banks against which the DoJ has not initiated a criminal investigation but have reasons to believe that that they have violated US tax law in their dealings with clients are subject to fines of on a flat-rate basis.  Set scale of fine rates (%) applied to the untaxed US assets of the bank in question:

– Existing accounts on 01.08.2008: 20%
– New accounts opened between 01.08.2008 and 28.02.2009: 30%
– New accounts after 28.02.2009: 50%

Category 2 banks must delivery of information on cross-border business with US clients, name and function of the employees and third parties concerned, anonymised data on terminated client relationships including statistics as to where the accounts re-domiciled.

Category 3 banks have no reason to believe that they have violated US tax law in their dealings with clients and that can have this demonstrated by an independent third party. A category 3 bank must provide to the IRS the data on its total US assets under management and confirmation of an effective compliance programme in force.

Category 4 banks are a local business in accordance with the FATCA definition.

Regarding the requirement of the independence of the qualified attorney or accountant examiner, the DOJ stated that the examiner “is not an advocate, agent, or attorney for the bank, nor is he or she an advocate or agent for the government. He or she must provide a neutral, dispassionate analysis of the bank’s activities. Communications with the independent examiner should not be considered confidential or protected by any privilege or immunity.”  The attorney / accountant’s report must be substantive, detailed, and address the requirements set out in the DOJ’s non-prosecution Program.  The DOJ stated that “Banks are required to cooperate fully and “come clean” to obtain the protection that is offered under the Program.”

In the ‘bottom line’ words of the DOJ: “Each eligible Swiss bank should carefully weigh the benefits of coming forward, and the risks of not taking this opportunity to be fully forthcoming. A bank that has engaged in or facilitated U.S. tax-related or monetary transaction crimes has a unique opportunity to resolve its criminal liability under the Program. Those that have criminal exposure but fail to come forward or participate but are not fully forthcoming do so at considerable risk.”

[1] See Mathew Allen, US tax deal could prove deadly for small banks, SwissInfo, December 10, 2013, available at http://www.swissinfo.ch/eng/politics/US_tax_deal_could_prove_deadly_for_small_banks.html?cid=37506872

[2] See Supermarket banks sign up to US tax probe, SwissInfo, December 11, 2013, available at http://www.swissinfo.ch/eng/business/Supermarket_banks_sign_up_to_US_tax_probe.html?cid=37516028 (accessed December 12, 2013).

FATCA Compliance Program and Manual

book coverFifty contributing authors from the professional and financial industry provide 600 pages of expert analysis within the LexisNexis® Guide to FATCA Compliance (2nd Edition): many perspectives – one voice crafted by the primary author William Byrnes.

The LexisNexis® Guide to FATCA Compliance (2nd Edition) comprises 34 Chapters grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of FATCA’s application for certain trading partners of the U.S. (Chapters 17–34), including intergovernmental agreements as well as the OECD’s TRACE initiative for global automatic information exchange protocols and systems. The 34 chapters include many practical examples to assist a compliance officer contextualize the regulations, IGA provisions, and national rules enacted pursuant to an IGA.  Chapters include by example an in-depth analysis of the categorization of trusts pursuant to the Regulations and IGAs, operational specificity of the mechanisms of information capture, management and exchange by firms and between countries, insights as to the application of FATCA and the IGAs within new BRIC and European country chapters.

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