Bruce Zagaris, Author at IELR Blog

Duterte Announces Philippines Will Withdraw from the International Criminal Court

March 15, 2018 by Bruce Zagaris Leave a Comment

On March 15, 2018, Philippine President Rodrigo Duterte announced his government will withdraw the Philippines from the Rome Treaty that established the International Criminal Court.

The announcement follows approximately five weeks after the ICC opened a preliminary examination into thousands of death connected to Duterte’s violent campaign against suspected drug users and dealers. On February 7, 2018, the ICC Prosecutor announced she was opening a preliminary examination into crimes allegedly committed in this State Party since at least July 1, 2016.

Art. 127(1) of the Rome Treaty provides that a state party’s withdrawal takes effect one year after the United Nations secretary general receives written notification.

Art. 127(2) provides that a state party must continue to cooperate with the Court even after it withdraws and its withdrawal does not prejudice in any way the continued consideration by the Court of any matter that was already under consideration by the Court prior to the effective date of the withdrawal.

In practice, the announcement will give the ICC one year to complete its preliminary examination and, if confirmed, to then conduct its case.

Duterte’s statement said the decision to withdraw was due to “baseless, unprecedented and outrageous attacks ” by U.N. officials and an effort by the ICC prosecutor to obtain jurisdiction “in violation of due process and presumption of innocence.” (Emily Rauhala, Duterte pulls out of treaty of court probe, Wash. Post, Mar. 15, 2018).

The Prosecutor started her investigation as a result of submissions by bar associations and civil society in the Philippines.

The IELR will have an article on this matter.

World Bank Office of Suspension and Debarment Publishes New Report

March 7, 2018 by Bruce Zagaris Leave a Comment

On March 6, 2018, the World Bank Office of Suspension and Debarment (OSD) announced that it has recently published its 10-Year Update on Case Data & Metrics in a new report,

Called the Suspension and Debarment: 10-Year Update on Case Data & Metrics 2007-2017: Addendum to the Second Edition (World Bank Office of Suspension and Debarment), it contains information related to the OSD’s sanctions system.

The Addendum contains a series of charts and provides a glimpse into the OSD case review process from a number of angles, and also provides information about the performance of the World Bank’s suspension and debarment system in general. The case tracking data shown reveals no detail about individual cases beyond generic identifiers such as case numbers and milestone dates.

OSD provides the first level of adjudication in the World Bank’s suspension and debarment, or “sanctions,” system. Since 2007, more than 60% of sanctions cases have been resolved on the basis of OSD’s determinations and recommendations. All appealed cases are decided by the World Bank Group Sanctions Board.

OSD works to ensure that the World Bank has an efficient, effective and fair sanctions process. This 10-Year Update furthers the World Bank’s commitment to transparency and accountability regarding its process for sanctioning firms and individuals accused of fraud and corruption in Bank-financed projects. A more detailed description of how the sanctions system operates and the role of OSD can be found in the second edition of OSD’s Report on Functions, Data and Lessons Learned, published in 2015.

This report marks the second edition of OSD’s Report on Functions, Data and Lessons Learned. The first edition was published in 2014 and included data and statistics covering OSD’s first six fiscal years of operations, through June 30, 2013.

The second edition updates these figures to include the next two fiscal years, through June 30, 2015, and includes other revisions necessary to reflect events that have occurred since the first edition’s publication. As with the first edition, the data and statistics in the second edition pertain only to sanctions cases arising from projects financed by the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA) within the World Bank Group.

The 10-Year Update provides updated data and information on the following:

Charts and metrics showcasing OSD’s caseload and the general performance of the World Bank’s sanctions system
Updated detailed breakdown of statistics (types of cases, processing times and case outcomes.

All of the proceedings from the World Bank’s Fourth Colloquium on Suspension and Debarment can be accessed. Held on September 14, 2017, the proceedings showcase recent developments in suspension and debarment systems worldwide, examining the various uses of suspension and debarment in the procurement and anti-corruption contexts.

The panelists discussed recent trends and developments in the suspension and debarment arena, both at the national and international level, and compared and contrasted a range of national suspension and debarment systems and their impact on small versus large businesses. Panelists examined the following questions, among others: How has suspension and debarment changed over the years? How are national procurement systems making use of suspension and debarment? How often is suspension and debarment being applied to individuals and small and medium enterprises, and how do their experiences differ from larger corporations? Building on themes discussed in the previous Colloquia, the Colloquium also examined suspension and debarment as it relates to the development missions of several of the multilateral development banks.

The link to the proceedings enables a person to access a video of the proceedings.

U.S. Senate Holds Hearing on Beneficial Ownership: Fighting Illicit International Financial Networks Through Transparency

February 6, 2018 by Bruce Zagaris Leave a Comment

On February 6, 2018, the Senate Judiciary Committee held a hearing on “Beneficial Ownership: Fighting Illicit International Financial Networks Through Transparency.” The hearing and testimony are available on the Committee’s website. The hearing was the latest in a series of Congressional hearings on the issue of anonymous corporations.

Sen Chuck Grassley (R-Iowa and Chair of the Committee), opened the hearing by expressing his disappointment that no Treasury witness has appeared despite the Committee’s invitation. He underscored that beneficial ownership is a huge problem, as confirmed by the Panama Papers and the Treasury’s 2015 Money Laundering Assessment report. On November 2017, Congress held a hearing on S.1241, the Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017, concerning cross border money laundering.. Bad actors from all over the world have come to the U.S. as their financial safe haven Victor Bout, convicted of arms trafficking, used six shell companies in the U.S. to launder his money.

Kleptocracy is a threat to U.S. national security and that U.S. secrecy contributes to this. The asset forfeiture case, such as the one against Mr. Teodoro Obiang, the son of the President of Equatorial Guinea, illustrates the problem. Obiang agreed to relinquish $30 million in assets in settlement of the suit brought by DOJ.

The problem plays out in the purchase of U.S. real estate, where shell companies are used. Lawyers for kleptocrats are complicit as the Global Witness undercover sting, which was shown on Sixty Minutes, illustrates. Even the former President of the ABA participated.

Sheldon Whitehouse (D-Rhode Island and ranking minority member on the Committee, said the Panama and Paradise Papers show the wide use by criminals of money laundering. The U.S. is a facilitator and target. Fraudsters, kleptocrats, and tax cheats all use shell companies, which are used to own real estate and other assets secretly. It affects and warps the U.S. housing markets. The answer to shell companies is to require private U.S. companies to report and update beneficial ownership information of U.S. entities.

Testifying in support of S. 1454, the True Incorporation Transparency for Law Enforcement (TITLE) Act, the proposed legislation was Panel I – Mr. Kendall Day, Acting Assistant Attorney General and head of the Anti-Money Laundering and Asset Forfeiture Unit, Criminal Division, U.S. Department of Justice, Washington , D.C.

Testifying in support of S. 1454 on Panel 2 were Mr. Gary Kalman, FACT Coalition, Washington , DC; and Mr. Chip Poncy, Financial Integrity Network, Washington, D.C. Poncy provided a ten-point plan to responding to the problem of anonymous companies. He called for a centralized data base with access to U.S. and other law enforcement agencies.

Mr. Brian O’Shea, Senior Director, Center For Capital Markets Competitiveness, U.S. Chamber of Commerce, Washington, DC, testified that S. 1454 does not properly balance privacy and law enforcement requirements. It would subject small and medium businesses to excessive bureaucracy and unnecessary expense.

As Congress continues to hold hearings on entity transparency, two of the main bills are S.1454 and the Corporate Transparency Act (H.R.3089/S.1717). They both have similar definitions of beneficial ownership. Similarly, they both make the information easily available to law enforcement and financial institutions. Both bills make $40 million available to states for transitional costs from the Treasury and Justice Departments’ asset forfeiture funds.

Both bills exempt publicly-traded companies. Similarly, each bill also exempts companies that have a physical presence in the U.S., more than $5 million in annual revenues, and at least 20 employees in the U.S., so that it narrowly targets those shell entities most likely to be abused by money launderers. In the Q & A period, the rationale for the thresholds was discussed.

In the next issue of the IELR, the differences of the bill and the high points of the debate in the hearing will be discussed.

Treasury Issues CAATSA Reports on Russian Senior Foreign Political Figures and Oligarchs

January 30, 2018 by Bruce Zagaris Leave a Comment

On January 29, 2018, the U.S. Department of the Treasury, pursuant to the Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA), delivered five reports to the designated Congressional committees:

Sec. 241: Report on Senior Foreign Political Figures and Oligarchs in the Russian Federal;

Sec. 104(e): Report on Contributions to Iran’s Ballistic Missile Program:

Sec. 242: Report on Effects of Expanding Sanctions to Include Sovereign Debt and Derivative Products;

Sec. 273: Examining the Counter-Terror Financing Role of the Department of the Treasury in Embassies; and,

Sec. 311(d): Designation of Additional Persons Related to North Korea.

Section 241 of CAATSA required Treasury, in consultation with the Department of State and the Director of National Intelligence, to provide a report regarding senior political figures and oligarchs in the Russian Federation and Russian parastatal entities.

The names of senior political figures and oligarchs in the unclassified version of the report were selected based on objective criteria drawn from publicly available sources.

Senior political figures: The report included individuals who are: i) senior members of the Russian Presidential Administration; ii) members of the Russian Cabinet, Cabinet-rank ministers, and heads of other major executive agencies; iii) other senior political leaders, including the leadership of the State Duma and Federation Council, other members of the Russian Security Council, and senior executives at state-owned enterprises.
Oligarchs: The report included Russian individuals with an estimated net worth of $1 billion or more.
Parastatals: The report analyzed entities that are at least 25% owned by the Government of Russia and that had about $2 billion or more in revenues in 2016.

Treasury’s press release states the report is not a sanctions list. The inclusion of individuals or entities in any portion of the report does not impose sanctions on those individuals or entities. Nor does it create any other restrictions, prohibitions, or limitations on dealings with such persons by either U.S. or foreign persons. Treasury states that inclusion in the report does not constitute the determination by any agency that any of the individuals or entities meet the criteria for designation under the sanctions program.

The law is designed to punish Russia for its alleged interference in the 2016 U.S. elections and its actions in Ukraine.

The unclassified sections has 210 https://www.cnn.com/2018/01/30/politics/full-us-list-of-russian-oligarchs-with-putin-ties-intl/index.html names, 114 senior political figures and 96 oligarchs.

On Jan. 30, 2018, the Trump administration said it will not implement Russia-related sanctions mandated by Congress last year because the threat itself is acting as a “deterrent.”

Although inclusion on the so-called “Putin” list does not mean the persons have been sanctioned, the consequences are potentially significant; (1) financial institutions who subscribe to anti-money laundering and international enforcement watch lists will now encounter their names and some compliance officers will likely determine that the individuals are “high-risk” persons, requiring financial institutions to either close their accounts or pay enhanced due diligence; (2) some of the listed individuals may encounter problems when they travel internationally; and (3) some of the listed persons will likely have trouble doing business, because of the potential negative taint of doing business with listed persons, especially due to the risk that the may be sanctioned in the future.

A more comprehensive discussion will appear in the February issue of the IELR.

Court Sentences S. Korean National & US Resident to 6 Months in Jail for FBAR Violations on Swiss account

January 29, 2018 by Bruce Zagaris Leave a Comment

On June 25, 2018, U.S. District Court Judge Brinkema in the U.S. District Court for the Eastern District of Virginia sentenced Hyong Kwon Kim, a citizen of South Korea and, since 1998, a legal permanent resident of the United States, resided in Massachusetts and later in Connecticut, to serve a sentence of six-months imprisonment for failing to report accounts in Switzerland with a value exceeding $28 million. The sentence took into account Kim’s cooperation with the government, which occurred for more than a five-year span.

Kim conspired with a host of foreign enablers, including Dr. Edgar H. Paltzer, his Swiss attorney who pleaded guilty in 2013 in the Southern District of New York, and bankers to conceal his assets and income in Swiss accounts held in his own name, the name of a relative, and in the names of sham corporate entities.

In 2008, as Credit Suisse closed accounts held in the names of sham entities owned by persons residing in the United States, Kim refused to bring his assets to the United States. Instead, he transferred his assets to another Swiss bank. Kim send coded messages from the United States to his Swiss banker in order to maintain control of his account. Undoubtedly, Kim’s conduct to continue to try to hide his assets was an exacerbating fact.

The Department of Justice announced the sentence in a press release.

The IELR will discuss the case in more detail in the February issue.

IRS Issues Notice for Denying, Canceling, and Limiting Passports to Seriously Delinquent Taxpayers

January 16, 2018 by Bruce Zagaris Leave a Comment

On January 16, 2018, the Internal Revenue Service issued a notice, furnishing taxpayers with information about the implementation of new section 7345 of the Internal Revenue Code (Code), enacted by Section 32101 of Fixing America’s Surface Transportation (FAST) Act, Pub. L.114–94, on December 4, 2015.

Section 32101(a) of the FAST Act added new Code section 7345. Under it the Department of the Treasury (Treasury) must notify the Department of State (State Department) if a certification is made that an individual has a “seriously delinquent tax debt.”

Such certification or a reversal of such certification may only be made by the Commissioner of Internal Revenue, the Deputy Commissioner for Services and Enforcement of the Internal Revenue Service (IRS), or the Commissioner of an operating division of the IRS (collectively, Commissioner or specified delegate).

Upon receipt of a section 7345 certification, section 32101(e) of the FAST Act provides that the State Department will generally deny an application for issuance or renewal of a passport from such individual, and may revoke or limit a passport previously issued to such individual. The IRS and State Department will begin implementation of these provisions in January of 2018.

Under section 7345(b)(1), a “seriously delinquent tax debt” is an unpaid, legally enforceable, and assessed federal tax liability of an individual, greater than $50,000, and for which:

A notice of federal tax lien has been filed under section 6323, and the taxpayer’s right to a hearing under section 6320 has been exhausted or lapsed; or
A levy has been issued under section 6331.

Pursuant to section 7345(f), the $50,000 amount is adjusted for inflation each calendar year beginning after 2016.

The $50,000 federal tax liability threshold is calculated by aggregating the total amount of all current tax liabilities for all taxable years and periods meeting the above criteria (including penalties and interest) assessed against an individual.

Analysis

The Joint Committee on Taxation estimated that the bill’s revocation or denial of passports to some individuals with tax debts of over $50,000 should net the government $395 million through 2025.

One of the potential problems will be, in the case of taxpayer living or temporarily out of the U.S., the taxpayer may not receive notice of the seriously delinquent tax debt until late in the 30 or 90 day time limits. Since it may take time for the taxpayer to receive forwarded mail abroad and since resource-deprived agencies, such as the IRS and State Department, may not act, as required by statute, due to lack of capacity, a taxpayer may have difficulties meeting the time limits.

Since the $50,000 threshold triggering the denial, cancellation, or limitation on passports includes the total amount of all current tax liabilities for all taxable years and periods meeting the above criteria (including penalties and interest) assessed against an individual, this amount can be reached easily without knowledge of a taxpayer.

The new law illustrates how the U.S. government is increasingly connect tax debts with travel. Another recent change is that the names of taxpayers owing more than $100,000 to the IRS are put into the Treasury Enforcement Computer Service (TECS). When the taxpayer enters the country, his name is flagged by TECS. An Immigration Customs Enforcement official must then take the taxpayer to secondary inspection and ask a series of questions about his assets, so that the IRS can be able to more easily collect the tax debt.

In 2006, the so called “Reed Amendment” provision was part of immigration reform. The Reed Amendment provision bars re-entry to the U.S. of former citizens who expatriated for a principal tax avoidance purpose in the opinion of the Attorney General. The responsibility to administer and enforce the provisions was formerly within the Immigration and Nationality Service, which was within the Department of Justice at the time. In 1996, Janet Reno was the Attorney General of the United States and did not want to implement the law. Now the INS has been transferred to U.S. Customs and Immigration Service within the Department of Homeland Security.

In an appropriate case, the Revenue Officer can request a Prevent Departure Order. An ICE Departure Control Order or a Prevent Departure Order is an administrative action similar to the Writ Ne Exeat Republica.

A Prevent Departure Order can prevent a non-U.S. citizen from exiting the U.S., pending the resolution of a collection matter.

The authority for the Prevent Departure Order is contained in 22 C.F.R. § 46.2(a), which states in part: “…No alien shall depart, or attempt to depart from the United States if his departure would be prejudicial to the interest of the United States under the provisions of 46.3.”

In I.R.M., the IRS concludes that 22 C.F.R. § 26.3(h) applies to a collection investigation because it allows ICE to prevent the departure of:

Any alien who is needed in the United States in connection with any investigation or proceeding being, or soon to be, conducted by any official executive, legislative, or judicial agency in the United States or by any governmental committee, board, bureau, commission, or body in the United States, whether national, state, or local.

The writ ne exeat republica is designed to enable the IRS to collect against a non-U.S. citizen who is about to depart from the U.S. or who no longer resides in the U.S., but is temporarily present in the U.S. and who has transferred his assets outside of the country to avoid payment of his federal tax liability.

The writ ne exeat is a court order, by which a U.S. Marshall is required to arrest and jail a defendant who fails to post bail or other security in a specified amount – I.R.C. § 7402(a) and 28 U.S.C. § 1651.

Litigation is likely against the provisions in FAST to deny, cancel, or limit passports. Whatever the outcome, linking travel, migration and tax enforcement seems to be gaining momentum.

Motion Challenges Indefinite Detention of 11 Guantanamo Detainees for 16 Years Without Charges or Trial

January 15, 2018 by Bruce Zagaris Leave a Comment

On January 11, 2018, on the 16^th anniversary of the Guantánamo prison’s opening, the Center for Constitutional Rights (CCR), Reprieve, and co-counsel filed a motion on behalf of 11 men held at the military facility for 16 years, challenging indefinite detention without charges or trial.

The motion argues that Trump’s proclamation against releasing anyone from Guantánamo, regardless of their circumstances, which has borne out for the first full year of the Trump presidency, is arbitrary and unlawful and amounts to “perpetual detention for detention’s sake.”

In a press release CCR Senior Staff Attorney Pardiss Kebriaei, who represents Sharqawi Al Hajj, said that “continuing indefinite detention after all this time is unprecedented and experimental. Another three or seven years under President Trump may mean a death sentence for men like Sharqawi Al Hajj, who is in poor health and damaged by past torture.”

According to the filing the continued detention is unconstitutional because any legitimate rationale for initially detaining these men has long since expired. Detention 16 years into Guantánamo’s operation, is based only on Trump’s raw antipathy towards Guantánamo prisoners – all foreign-born Muslim men – and Muslims more broadly.

Some of the men participating in the filing allegedly have been detained in Guantánamo for nearly 16 years without charge or trial—detention that has spanned three presidential administrations and five presidential terms.

Two of the petitioners have even been approved for transfer, narrowly missing their chance at release in the final days of the Obama administration.

The CCR press release states that Reprieve attorney Shelby Sullivan-Bennis, who represents prisoners at Guantánamo, said, “Since Guantánamo opened, it’s been clear to all – including U.S. officials – that the detainees were being held on the basis of mistakes, faulty evidence, and forced ‘confessions’. The U.S. has had 16 years to build a case against these men, and yet 28 of 41 prisoners are held without charge or a trial of any kind – a shocking violation of America’s founding principles.

On January 11, 2018, human rights activists, torture survivors, Guantánamo attorneys, 9/11 family members, and members of diverse faith communities rallied outside the White House to mark the 16th anniversary and the continued operation of the Guantánamo Bay prison. The coalition issued a press release about the rally. The coalition included the Center for Constitutional Rights, Close Guantanamo, Codepink, Council on American Islamic Relations, Defending Rights and Dissent, Justice for Muslims Collective, National Religious Campaign Against Torture, No More Guantanamos, Reprieve, September 11th Families for Peaceful Tomorrows, Torture Abolition and Survivors Support Coalition, Veterans For Peace, Voices for Creative Nonviolence, Witness Against Torture, and World Can’t Wait.

Meanwhile, a spokeswoman for the Department of Justice declined to comment, saying that officials were reviewing the filing.

As defense counsel to United States citizens abroad, I used to be able to successfully argue that the foreign government had detained my clients for days and weeks without filing charges and/or affording them right to counsel, consular access, etc. In view of conduct by the U.S. government with respect to Guantánamo detainees, such arguments no longer resonate.

Another consequence of the continued detentions is that, in extradition requests by the U.S. government, especially with respect to national security and Muslim defendants, courts from democratic countries no longer accord the U.S. the benefit of the doubt as they did previously.

OECD Issues Mandatory Disclosure Rules to Combat CRS Avoidance and Offshore Structures

January 10, 2018 by Bruce Zagaris Leave a Comment

In December, the OECD issued a public consultation document, requiring mandatory disclosure rules to combat CRS avoidance and offshore structures. Comments are due January 15, 2018.

The consultation document is prepared in response to the Bari Declaration, issued by the G7 Finance Ministers on 13 May, 2017. It calls on the OECD to start “discussing possible ways to address arrangements designed to circumvent reporting under the Common Reporting Standard or aimed at providing beneficial owners with the shelter of non-transparent structures.”

The Declaration states that these discussions should include consideration of “model mandatory disclosure rules inspired by the approach taken for avoidance arrangements outlined within the BEPS Action 12 Report.” The consultation document sets forth at the end of the document model legislation.

The reason for the consultation document is that the International Consortium for Investigative Journalists (ICIJ) has shown, especially through the publication of the Panama Papers and the Paradise Papers, certain professional advisers continue to design, market, or assist in the implementation of offshore structures and arrangements that can be used by non-compliant taxpayers to circumvent the correct reporting of relevant information to the tax administration of their jurisdiction of residence.

Due to these continuing offshore structures and arrangements and in response to the mandate from the G7 Finance Ministers, the OECD is currently considering a range of approaches that could be taken to address arrangements designed to circumvent or attempt to circumvent the CRS (“CRS Avoidance Arrangements”) and the use of non-transparent offshore structures to conceal actual beneficial ownership (“Offshore Structures”). Such approaches include measures focussed on improving intelligence for tax administrations within the existing information exchange and legislative framework (e.g. improved collaboration through JITSIC,as well as the use of group requests and spontaneous exchanges of information), as well as policy measures, such as additional regulatory intervention or additional disclosure obligation.

The proposed model rules contained in the consultation require an Intermediary (or taxpayer) to disclose certain relevant information to its tax administration regarding CRS Avoidance Arrangements an d Opaque Offshore Structures. Disclosures of such information can assist tax administrations in gathering intelligence on schemes that are being used or marketed to taxpayers in their respective jurisdictions. In addition, the model rules were designed to facilitate the spontaneous exchange of information where the information provided by Intermediaries relates to one or more specific Reportable Taxpayers.

It is contemplated that such information would be spontaneously exchanged with the tax administration(s) of the jurisdictions in which the concerned Reportable Taxpayer is resident for tax purposes pursuant to the applicable international legal instruments. The modalities, timing and form of the information to be spontaneously exchanged will be further defined in an operational agreement.

A mandatory disclosure regime contains five key elements:

(a) A description of the arrangements that are required to be disclosed (i.e. the hallmarks of a disclosable scheme).

(b) A description of the persons required to disclose such arrangements (i.e. the Intermediaries that are subject to reporting obligations under the rules);

(c) A trigger for the imposition of a disclosure obligation (i.e. the point in time when an obligation to disclose crystallises under the rules)

(d) A description of what information is required to be reported (including any exceptions from reporting).

(e) Appropriate penalties for non-compliance.

The hallmarks are very broadly worded.

In some cases the requirement to report is retroactive to July 15, 2014, the date the CRS became effective.

The consultation paper says the requirements respect legal professional privacy, but it appears narrowly defined.

Because the model law has penal provisions, the consultation paper has important potential consequences.

A fuller discussion of the consultation paper will appear in the January 2018 issue of the International Enforcement Law Reporter.

Use of Digital Currency to Evade U.S. Sanctions

January 5, 2018 by Bruce Zagaris 2 Comments

In the last month, the Venezuelan and Russian governments have discussed the use of digital currency to evade U.S. sanctions.

In particular, on December 3, 2017, Nicolas Maduro suggested the idea in a television speech. His plans are to create the Petro, which would be backed by Venezuela’s commodities (gold, oil, gas and diamond reserves) similar to the way gold has in the past supported the dollar.

Although the Russian government has expressed concern about the potential use of virtual currencies to commit crimes, more recently Russian President Vladimir Putin has indicated a willingness to explore the use of virtual currency to counteract U.S.. sanctions.

A recent book, Bitcoin and Cryptocurrency Technologies: A Comprehensive Introduction by Arvind Narayanan, Joseph Bonneau, Edward Felten, Andrew Miller & Steven Goldfeder, addresses fundamental questions about the pros and cons of using virtual currency. How does virtual currency operate? What makes it different? How secure is virtual currency? How anonymous are virtual currency users? What applications can we build using virtual currency (i.e., Bitcoin) as a platform? Can cryptocurrencies be regulated? If we were to design a new cryptocurrency today, what would we change? What might the future hold?

One obstacle for users of virtual currency involves ensuring that the payments are made without having to use a third party, such as a government agency. A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party (i.e., financial regulator) is still required to prevent double-spending.

Some experts have proposed a solution to the double-spending problem using a peer-to-peer network.

A recent article has mapped the design space for numerous proposed modifications, providing comparative analyses for alternative consensus mechanisms, currency allocation mechanisms, computational puzzles, and key management tools.

The same article surveys anonymity issues in Bitcoin and provides an evaluation framework for analyzing a variety of privacy-enhancing proposal.

In addition, the article provides new insights on what we term disintermediation protocols, which absolve the need for trusted intermediaries in an interesting set of applications.

As governments and other persons seek to evade sanctions regimes and otherwise circumvent international treaties and national laws, governments and stakeholders in those regimes, laws, and treaties will also seek to regulate virtual currency and crack the anonymity in order to implement and enforce the treaties and laws.

OECD Global Forum on Tax Transparency Highlights Enforcement Initiatives in Annual Report

January 2, 2018 by Bruce Zagaris Leave a Comment

On December 20, 2017, the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes issued its annual report.

It noted the fact that 50 jurisdictions have committed to starting Automatic Exchange of Information in September 2017 pursuant to the OECD Common Reporting Standard (CRS). As the jurisdictions that participated in the 2017 exchanges are preparing to use the data for enforcement purposes, most of the remaining jurisdictions are preparing now to make their initial exchanges in September 2018. Already the report on the 2017 implementation period is ready. The Global Forum is preparing to conduct full reviews of the implementation of automatic exchange of information (AEOI) by 2020.

The OECD has developed a plan of action to expand AEOI to developing countries.

The Global Forum has finished the first round of peer reviews on exchange of information on request (EOIR). Almost all the jurisdictions have received a satisfactory level of implementation. The GF will now conduct a second round of peer reviews against the 2016 Terms of Reference.

As of November 2017, the number of countries participating in the Multilateral Convention on Assistance in Tax Matters (CAM) reached 115. An additional 11 countries have requested to join.

More than 96% of the jurisdictions that have committed to implement the AEOI Standard also have decided to join the CRS Multilateral Competent Authority Agreement (the CRS MCAA) for putting in place necessary arrangements for exchanging financial account information. Hence, multilateralism on exchange of information is gaining momentum.

The GF’s annual report highlights the progress made in exchange of information and the targets set for 2018.

Clearly, EOIR and AEOI have developed gateways to facilitating the access to financial information by tax authorities. The authorities are increasingly using the data to develop enforcement cases against taxpayers and tax intermediaries.

The January issue of the IELR will have an article on these developments.