EU Ministers Agree to Legislation Aimed At Ending Bank Secrecy Laws of Member States

On December 7, 2010, the European Union (“EU”) announced an agreement that will require its members to exchange tax information on nonresident citizens in an effort to fight tax fraud. When fully implemented, the agreement is expected to end the use of bank secrecy of members such as Luxembourg and Austria that have allowed EU citizens to hide money from tax authorities.

Under the agreement, the Organization for Economic Development (“OECD”) standard for information exchange on request will be implemented in the EU. However, when the exchange of information is with EU tax authorities and not individual member states, the EU must identify the person under investigation and the tax purpose for which the information is sought.

Additionally, the agreement provides for the automatic exchange of information to be introduced on a step-by-step basis. Starting in 2015, member states will automatically communicate information in five categories: 1) income from employment; 2) director fees; 3) certain life insurance products; 4) pensions; 5) ownership of and income from immovable property. However, member states will not be required to send more information than they receive from the requesting member state in return. By 2018, automatic reporting will extend to dividends, royalty payments, and capital gains.

The EU legislation comes at a time when countries around the world once thought of as tax havens are moving away from tight bank secrecy laws and into an era of openness and transparency. As we previously reported, the United States and Panama recently entered into a bi-lateral tax information exchange agreement for many of the same reasons. A complete list of tax information exchange agreements has been published by the Organization for Economic Cooperation and Development (“OECD”) and can be found here.

The OECD is one of the leading groups calling for more transparency in banking laws. With the backing of the G20, the OECD has taken steps to encourage tax information exchange agreements by proposing a model tax exchange agreement. The OECD also maintains its “blacklist” of uncooperative tax haven nations, its “grey list”, which names nations that have committed to OECD standards but have yet to fully implement the required changes, and its “white list” of countries that have substantially implemented the tax rules. As countries commit to transparency and enter into fully enforceable information exchange agreements, the OCED reclassifies nations.

If you have any questions regarding the potential impact the EU tax exchange agreement may have on your business or any other tax provision, please contact Fuerst Ittleman at contact@fidjlaw.com.

FinCEN Proposes AML Plan for Non-Bank Mortgage Lenders and Originators

On December 6, 2010, the Financial Crimes Enforcement Network (“FinCEN”) of the United States Department of the Treasury announced a proposed rule that would require non-bank residential mortgage lenders and originators to establish anti-money laundering (“AML”) programs and comply with suspicious activity report (“SAR”) regulations. The announcement comes as FinCEN leads an inter-agency effort, along with the Department of Justice and the Federal Trade Commission, targeting foreclosure rescue scams and loan modification fraud. A full copy of the proposed rule can be read here.

Currently, the only mortgage originators that FinCEN regulations require to file SARs are banks and insured depository institutions. The proposed rule would extend AML program and SAR reporting compliance requirements to those mortgage brokers and lenders not affiliated with banks that, under current law, have been able to avoid such requirements. FinCEN believes that the proposed AML and SAR requirements are consistent with these non-bank institutions due diligence and information collection processes to assess creditworthiness when lending. Additionally, FinCEN believes that the effectiveness of the proposed regulations will be enhanced by the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (“SAFE Act”). The SAFE Act requires the development of a nationwide licensing system and registry for certain mortgage professionals including loan originators, processors, and underwriters.

Under the Bank Secrecy Act, FinCEN can issue regulations requiring financial institutions to keep records and file reports determined to have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings. One of the key weapons in FinCENs arsenal for investigating and combating mortgage fraud is the SAR. FinCEN mortgage fraud reports have found that non-bank mortgage lenders and originators initiated many of the mortgages that were associated with SAR filing. FinCEN believes that the proposed AML and SAR requirements will help mitigate some of the activities, such as false statements, straw buyers, fraudulent flipping and identity theft, that criminals have exploited when committing mortgage fraud.

If you have questions pertaining to FinCEN regulations, anti-money laundering compliance or how to ensure that your business maintains regulatory compliance, contact Fuerst Ittleman PL at contact@fidjlaw.com.

Pinnacle Aircraft Parts, Inc. Reaches Settlement With OFAC For Violation Of Reporting, Procedures, And Penalties Regulations

On November 16, 2010, the Office of Foreign Assets Control (“OFAC”), of the U.S. Department of the Treasury announced that it reached a settlement with Pinnacle Aircraft Parts, Inc. (“Pinnacle”) for alleged violations of OFACs Reporting, Procedures, and Penalties Regulations (“RPPR”). The alleged violations stem from Pinnacles sale and delivery of a jet engine destined for Iran in February 2004. OFAC is a part of the U.S. Department of the Treasury and administers and enforces economic sanctions against targeted foreign countries, regimes, terrorists, international narcotics traffickers, among others.

OFAC alleged that Pinnacle violated the RPPR, found at 31 C.F.R. part 501, when it failed to provide documents in response to an administrative subpoena issued by OFAC as part of its investigation into Pinnacles jet engine sale. The administrative subpoena ordered Pinnacle to provide copies of all transactional documents and all other documents pertaining to the payment or transportation of the jet engine shipment. According to OFAC, while Pinnacle responded to the subpoena with 260 pages of documents, Pinnacles outside counsel failed to submit a copy of an e-mail that indicated that the engine was likely destined for Iran as well as other documents concerning the terms of sale.

Compounding the problem for Pinnacle was the fact that Pinnacle did not voluntarily self-disclose the error to OFAC. As a result of Pinnacles actions, Pinnacle faced a penalty of $250,000. However, this amount was reduced in the settlement agreement to $225,000. The settlement amount reflects OFACs consideration of several factors including that Pinnacle had no prior OFAC enforcement history, Pinnacle agreed to settle the matter, and that Pinnacle relied in good faith on the advice of legal counsel in not producing the e-mail and other documents. OFAC did note that while Pinnacle did rely on the advice of counsel, it remained the party that is legally responsible for compliance with OFAC regulations. As a result, the actions of Pinnacles counsel are attributable to Pinnacle for the purposes of calculating a base penalty and settlement amount.

For more information regarding OFAC and strategies on maintaining compliance with federal regulations, please contact Fuerst Ittleman at 305-350-5690 or contact@fidjlaw.com.

US Department Of The Treasury Continues Its Implementation Of Tougher Sanctions Against Iran

On September 28, 2010, the Office of Foreign Assets Control (“OFAC”) of the United States Department of the Treasury issued new regulations amending the Iranian Transactions Regulations, (“ITR”), of the Code of Federal Regulations. The new regulations come as OFAC continues its efforts at implementing the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (“CISADA”). Passed on July, 1, 2010, CISADA supplements the Iran Sanctions Act of 1996 by expanding sanctionable activities and providing for additional types of sanctions.

The new regulations revoke 31 C.F.R. §§ 560.534 and 560.535 from the ITR. As a result, OFAC will no longer authorize, by either general or specific license, the commercial importation or dealing in of certain foodstuffs and carpets of Iranian origin into the United States. Additionally, the new regulations implement the import and export prohibitions in section 103 of the CISADA. Section 103 economic sanctions include prohibitions on the importation of goods or services of Iranian origin directly or indirectly into the US and on US origin goods, services, or technology from the US or a US person to Iran. A copy of the OFAC Federal Register announcement can be at Iranian Transactions Regulations amendment.

While the new regulations prohibit the import and export of goods and services to and from Iran, numerous exceptions, such as the exportation of goods for humanitarian assistance and the exportation of technology necessary for personal internet communication, exist under both the CISADA and the ITR. Additionally, importers must be aware of the definition of “goods of Iranian origin” under the ITR. Under the ITR, goods “of Iranian origin” not only include goods grown, produced, manufactured, extracted, or processed in Iran but also goods which have entered into the stream of commerce in Iran. Therefore, foodstuffs and carpets of third-country origin which are transshipped through Iran become goods of Iranian origin under the ITR and thus prohibited from importation into the US.

For more information regarding OFAC and strategies on maintaining compliance with federal regulations, please contact Fuerst Ittleman at 305-350-5690 or contact@fidjlaw.com.

FinCEN Proposes Reporting Regulations For Cross-Border Electronic Transmittals Of Funds By Financial Institutions

On September 27, 2010, the Financial Crimes Enforcement Network (“FinCEN), of the U.S. Department of the Treasury, issued a notice of proposed rulemaking for publication in the Federal Register. The proposed rule would require money services businesses (“MSB”) and certain depository institutions to affirmatively report records of certain cross-border electronic transmittals of funds (“CBETF”) to FinCEN. Under the proposed rules, MSBs would be required to report all CBETF transactions of $1,000 or more.

Under the current regulatory scheme, the financial institutions that would be subject to the proposed rule must maintain and make available upon request to FinCEN records of CBETF information. However, the proposed rule goes further and affirmatively requires these institutions to report such transactions.

The proposed rules were issued pursuant to the requirements of the Intelligence Reform and Terrorist Prevention Act of 2004. This act gave the Secretary of the Treasury the power to require financial institutions to report CBETF if the Secretary determined that reporting is reasonably necessary to prevent money laundering and terrorist financing. If the proposed rule takes effect, U.S. depository institutions that are either the first to receive funds transferred electronically from outside the US or the last to transmit funds internationally would be required to report all such transmittals of funds of $1,000 or more.

FinCEN has also proposed a rule to require an annual filing by all depository institutions of a list of taxpayer identification numbers of accountholders who transmitted or received a CBETF. FinCEN believes that this proposed rule would allow for greater utilization of the CBETF data that would be gathered, and enhance law enforcement efforts to combat tax evasion by those seeking to hide assets offshore. A copy of the proposed rules can be read at FinCEN Proposes Rule On Reporting Requirements For Cross-Border Transactions.

For more information regarding FinCEN regulations please contact us at contact@fidjlaw.com.

$30 Million Seized From Vatican Bank In Money Laundering Probe

Italian monetary authorities have seized $30 million from a Vatican bank account and placed the Vatican Banks director general, Paolo Cipriani, and its chairman, Ettore Gotti Tedeschi, under investigation for possible violations of Italys anti-money laundering laws. Italian prosecutors have announced that the money was seized as a precaution until the investigation can be completed.

The investigation comes as the Italian government is implementing anti-money laundering directives issued by the European Union. The new measures, designed to prevent money laundering and the financing of terrorism, require all foreign banks operating in Italy, including those of the sovereign Vatican City, to provide detailed information about the origins of money transfers.

Authorities began their investigation after the Bank of Italy notified the Italian government of two suspicious transfers on September 6, 2010, from a Vatican bank account at a Rome branch of Credito Artigiano S.p.A., an Italian bank. The suspicious transactions involved the transfer of $26 million to an account held by the Vatican at a Frankfurt, Germany branch of J.P. Morgan, and a $4 million transfer directed to an account held at the Banca del Fucino in Rome. Authorities are investigating whether the Vatican Bank violated anti-money laundering regulations for failing to reveal to financial authorities where the money involved in the transfers came from.

This new investigation is not the first investigation of the Vatican Bank, formally known as the Institute for Religious Works, for potential money laundering violations. Last year, Italian authorities launched a broad investigation into Italian bank accounts that received transfers from the Vatican Bank. The Vatican Bank was also implicated in the 1980s in a money laundering scandal that lead to the collapse of Italys then largest private bank, Banco Ambrosiano. In the 1980s Banco Ambrosiano collapsed after the disappearance of $1.3 billion in loans to Latin American companies. Though the Vatican Bank denied any wrongdoing, it agreed to pay $250 million to Banco Ambrosiano creditors after the collapse.

If you have questions pertaining anti-money laundering compliance or how to ensure that your business maintains regulatory compliance, contact Fuerst Ittleman PL at contact@fidjlaw.com.

U.S. Government successfully forfeits $13 .3 million from online poker sites

The federal government recently forfeited $13.3 million in proceeds derived from two online poker sites for being in violation of the Unlawful Internet Gambling Enforcement Act (“UIGEA”). According to the civil forfeiture complaint filed in the case, the funds constituted proceeds of operating an illegal gambling business that were deposited between January 2009 and May 2009 in an account at Goldwater Bank in Scottsdale, Arizona. Those funds were traceable to PokerStars, the worlds biggest online poker firm, and other offshore online gambling companies, and include “proceeds of the illegal transmission of gambling information and operating an illegal gambling business.”

Ahmad Khawaja, together with his firms, Allied Wallet and Allied Systems, reached the civil settlement to end a year-long struggle that began when the FBI seized the $13.3 million in June 2009. According to the civil forfeiture complaint, all of the funds were linked to allegations of money laundering, and some of the funds were traceable to wire transfers from outside the U.S. by individuals who knew that the funds represented the proceeds of the illegal transmission of gambling.

This case is significant in that it shows that the government is focusing on enforcement in the area of internet gambling, a growing entertainment business in the U.S., often run from internet sites based outside the U.S.

The UIGEA makes it a crime for anyone engaged in “unlawful internet gambling ” across state lines to accept credit cards, wires, checks or other forms of financial transactions in connection with such gambling. In other words, it makes it illegal to pay money in regard to a bet, or receive money in connection with a bet in the U.S.

Under the UIGEA, “unlawful internet gambling” means to place, receive or transmit a bet or wager through the internet where the bet or wager is illegal, under among other things, any state law where the bet or wager is initiated or received. In addition, “unlawful internet gambling” does not include bets or wagers initiated or received entirely within a single state, or expressly authorized by that states laws.

The vast majority of states make it illegal to engage in gambling except under limited circumstances, such as tribal casinos, pari-mutuel horse racing, penny-ante poker games or regulated poker card rooms or slot machines. Currently, some states have proposed legislation to allow internet poker under restricted and regulated circumstances, but such legislation is still pending. Until the federal or state governments can figure out how to regulate, tax and otherwise obtain fees from internet gambling, it will most likely remain unlawful and the forfeiture of gambling proceeds from online gambling sites under the UIGEA will continue.

Department of Treasury Releases Updated Guidance To Financial Institutions On Informal Value Transfer Systems

On September 1, 2010, the Financial Crimes Enforcement Network (“FinCEN”) of the US Department of the Treasury issued a guidance for financial institutions on Suspicious Activity Reports (“SAR”) involving Informal Value Transfer Systems (“IVTS”).

The Department of the Treasury defines an IVTS as “any system, mechanism, or network of people that receives money for the purpose of making the funds or an equivalent value payable to a third party in another geographic location, whether or not in the same form.” IVTS transfers usually occur through non-bank financial institutions whose primary business may not be the transmission of money.

IVTS are allowed to operate in the US as Money Services Businesses (“MSB”) as long as they follow applicable federal and state laws. IVTS are required to register with FinCEN to operate within the US. Additionally, IVTS must comply with the Bank Secrecy Act’s provisions regarding anti-money laundering and counter-terrorist financing. More information on how IVTS operate, how financial institutions may be used in the IVTS process, and potential indicators of IVTS activity can be found in FinCEN Advisory 33.

In its most recent guidance FinCEN states “if a financial institution knows, suspects, or has reason to suspect that an ITVS is operating in violation of the registration requirement under the BSA for money transmitters not acting solely as agents of others, or, even if registered, is being used in the illegal transmittal of funds, a SAR should be filed.” FinCEN also advised that when financial institutions complete a SAR involving an IVTS that it note the abbreviation IVTS in the narrative of the SAR and include an explanation as to why the financial institution suspects that an IVTS is involved in reportable activity. The full guidance can be read at FinCEN September 1, 2010 Guidance.

FinCEN’s purpose in issuing this guidance is to make SARs involving IVTS more helpful to law enforcement. FinCEN reports that IVTS can be used to launder money and possibly fund terrorist activities throughout the world. For insight and strategies on maintaining compliance with state and federal regulation of financial services, please contact Fuerst Ittleman at 305-350-5690 or contact@fidjlaw.com.

Banco Colpatria, S.A. Settles Narcotics Trafficking Sanctions Violations

On August 19, 2010, the Office of Foreign Assets Control, (“OFAC”), of the U.S. Department of the Treasury announced that it has reached a settlement with Banco Colpatria, S.A., (“Colpatria”), for alleged violations of OFACs Narcotics Trafficking Sanctions Regulations. The alleged violations stem from activities of Colpatrias Miami Agency which discontinued operations in 2007. OFAC is a part of the U.S. Department of the Treasury and administers and enforces economic sanctions against targeted foreign countries, regimes, terrorists, international narcotics traffickers, among others.

OFAC alleged that Colpatria Miami violated the Narcotics Regulations through a series of wire transfers which occurred between November 22, 2004 and May 24, 2005. OFAC stated that Colpatria Miami made 26 wire transfers on behalf of one corporate client after OFAC had designated the clients beneficial owners are Special Designated Narcotics Traffickers, (“SDN”).

Colpatria initially screened the names of the beneficial owners against the Specially Designated Nationals and Blocked Persons List when the account was opened; however, it did not screen the names after the list was updated by OFAC.

The penalty for these violations was initially set at $229,623; however, this amount was reduced by OFAC to $91,849. OFAC stated that the settlement amount was reduced because Colpatria voluntarily self reported to OFAC though it did not admit or deny liability, Colpatria revised its software to review automatically the names of beneficial owners of accounts rather than just names of account holders when performing account opening and periodic name checks, and because Colpatria signed a tolling agreement with OFAC.

This case highlights the importance of 2 crucial aspects of international banking. First, this case highlights the importance of monitoring government announcements, such as OFACs SDN list which is regularly updated and publicly available. Additionally, this case highlights the importance of self reporting OFAC violations. Indeed, self reporting can help otherwise compliant banks avoid criminal prosecution and aggravated fines, and can also help banks maintain good working relationships with OFAC and other agencies within the Department of Treasury.

For more information regarding OFAC and the laws governing international banking please contact us at contact@fidjlaw.com.

Barclays Bank PLC Reaches Settlement With US Authorities

On August 18, 2010, the United States Department of Treasury Office of Foreign Assets Control announced that it has reached a settlement with Barclays Bank PLC to settle allegations of violations of multiple sanctions programs relating to transactions Barclays conducted with customers from Cuba, Sudan, Burma, and Iran. Barclays Bank is the United Kingdoms second largest bank earning $14.8 billion in net income last year. The Office of Foreign Assets Control (“OFAC”) administers and enforces economic sanctions against targeted foreign countries, regimes, terrorists, international narcotics traffickers, among others.

On August 16, 2010, a criminal information was filed in the U.S. District Court for the District of Columbia charging Barclays with one count of violating the International Emergency Economic Powers Act (“IEEPA”) and one count of violating the Trading with the Enemy Act (“TWEA”). It is a crime to willfully violate, or attempt to violate, any regulation issued under IEEPA and TWEA. Barclays has waived indictment and accepted responsibility for the criminal violations.

Barclays has agreed to forfeit $298,000,000 to the Department of Justice and the New York County District Attorneys Office for violations of the Sudanese Sanctions Regulations, the Iranian Transactions Regulations, and the Cuban Assets Control Regulations promulgated pursuant to IEEPA and TWEA.

According to the complaint, Barclays intentionally engaged in banking practices designed to avoid filters at U.S. Banks created to detect transactions in violation of OFAC regulations. Such practices included not naming or removing the names in payment messages in order to conceal the identity of sanctioned entities, routing payments through internal Barclays accounts to hide connections to sanctioned entities, and using cover payments to hide referencing parties targeted by U.S. sanctions.

Barclays voluntarily self-disclosed the violations under the terms of OFACs Economic Sanctions Enforcement Guidelines. In addition to forfeiting $298 million U.S.D., Barclays has also agreed to enter into a Deferred Prosecution Agreement for the next 2 years. This will require Barclays to improve its U.S. economic sanctions compliance programs as well as require Barclays to conduct annual reviews of its policies and procedures in regards to OFAC compliance. The British Financial Services Authority will assist OFAC in assuring future compliance by Barclays.

For more information regarding OFAC please contact us at contact@fidjlaw.com.