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IRS using more data analytics to catch laundering, tax cheats, Philippines a ‘scammer’ paradise: OAC

Wednesday, May 1, 2019   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe
April 30, 2019

Scammers in places like the Philippines are more aggressively trying to fool you into investing in lies, usually with a British accent.

Banks and corporates are still using offshore secrecy and shell companies to escape the taxman, but the IRS is being more creative with the data at its disposal to find scofflaws. Whistleblowers, the allies of law enforcement, face more risks, but also stand to gain higher records for their courage.   

Those are just some of the takeaways from the OffshoreAlert 2019 conference, that took place April 28-30 at the Edition Hotel in Miami Beach, Fl. The conference focuses on financial intelligence and Investigations, with an emphasis on Offshore Financial Centers. 

To view the full agenda, click here.

The event brings together more than 300 investigators, providers, and buyers of high-value financial products and services, including fraud and asset recovery attorneys, insolvency practitioners, litigation funders, professional service providers, regulators, law enforcement, journalists, and others.

This year’s conference covered many of the overarching themes in financial crime and compliance circles making headlines today, including how countries allowing entities to create shell companies with impenetrable ownership structures can hide a range of criminal groups, including fraudsters, professional money launderers, corrupt oligarchs and even terror groups.

Speakers highlighted trends such as the Philippines overtaking India as the world’s largest scam hub for boiler room calling centers and that these operations are actively trying to thwart law enforcement by engaging with seasoned, professional third-party money launderers, typically from Israel.

Several sessions also touched on the promise, and pitfalls, of crypto currencies and related initial coin offerings, or ICOs, with investigators and analysts noting that in many cases these seemingly securitized digital offerings are nothing more than buzzwords, hot air and recycled stock photos and boilerplate bios.  Here are some snippets: 


Tax evasion

What’s next in offshore tax enforcement?

In this morning session on day one, Chief of IRS Criminal Investigation Don Fort and Commissioner of Large Business and International Douglas O’Donnell from the Internal Revenue Service discussed the latest trends and challenges related to offshore tax enforcement.

Following the success of the Swiss Bank Program, the IRS now has access to millions of records and data related to offshore tax issues that serve to assist with civil and criminal matters.

How does the IRS use this data, where is the money going now, and are there still opportunities to reconcile offshore tax issues without going to jail? Attendees got to found out that and much more.

The IRS is finally hiring again. Over the past seven years, the agency has lost more than 1,000 agents and only replaced a few hundreds of them.

Even with its resources strained, over the past decade, the IRS has prosecuted 20 financial institutions for tax failings, including banks like UBS, Credit Suisse, Wegelin, and others, levying more than $5 billion in fines and forfeitures, and indicted 30 bank advisors.

During this historic run, many pundits have stated the agency has done something once thought impossible: the cracked Swiss bank secrecy and have turned investigative blindspots into begrudging, yet erstwhile allies.

The agency is pairing a surge in hiring with a stronger focus on data analytics, both the depth and breadth of available data sources and the sophistication of algorithms and tactics to make more connections in this sea of swirling information to uncover criminal schemes.

IRS and IRS-CI are engaging an array of contractors, data scientists and agents to look at all the data they have access to, including documents filed with the IRS, evidence from prior investigations, data from the Swiss bank program, Panama Papers, Fatca, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) and anti-money laundering (AML) filings in FinCEN’s database.

They are also sending John Doe summonses to crypto firms for tax and financial crime compliance issue, with the result being some attempted to stymie the initiative while others were found to have weak to non-existent AML programs.

Overall, over several sessions of the conference, public and private investigators stated crypto firms have been tied to fraud, money laundering and other crimes.

One investigator stated, for instance, that more than 90 percent of crypto initial coin offerings were outright frauds, or could never back up their outlandish and grandiose ideals due to a lack of expertise, capital or both.

The IRS is even testing the waters of “behavioral economics” by sending different types of letters domestically and globally to see what terms, or even published guidance, will spur corporate and individual scofflaws to turn themselves and file, or give up the financial hub that aided their non-compliance.

Federal investigators are also looking at both sides of the coin, such as individuals stating they have funds at a foreign bank, and the bank is not responding to Fatca, or, conversely, a bank that states it has certain U.S. indicia, companies or individuals, and these entities are radio silent on their tax obligations.

The IRS has made a training set with an adjustable algorithm that can “look at the entire filing population of large companies within seconds,” according to IRS-CI Chief Don Fort, adding that such tactics have lead to uncovering some financial institutions “seem to be off the map completely. They are not reporting anything. We are following up with those.”


A Whistleblower’s Guide to The Bounty: How to confidentially blow the whistle and qualify for multi-million dollar rewards

In this session, whistleblowers' attorney Steve Kohn discussed how his client, Howard Wilkinson, blew the whistle on his former employer, Denmark-based Danske Bank, which has been implicated in a €200 billion Russian money laundering scandal and is now being criminally investigated in the UK, US, France, and Estonia.

Kohn discussed opportunities for whistleblowers to become multi-millionaires by exposing wrongdoing in global financial institutions and other types of companies, both in the United States and overseas.

In many of the world’s largest financial frauds and scandals, there weren’t initially uncovered by law enforcement efforts or undercover stings, they were revealed by courageous whistleblower, Kohn said.

But the risks are high, extraordinarily so.

“You can be debarred, be out of your profession forever,” he said. “Or, you can make millions (of dollars) and no one will ever know you did it.”

Even in firms meant to root out financial frauds and irregularities, such as audit companies, more than half of the time, 55 percent, auditors are pressured to omit or change their findings by the company or by their own bosses to keep the profitable account.

Moreover, while most large and publicly traded companies have whistleblower provisions and even hotlines, some have attempted to game the system in favor of themselves, requiring potential whistleblowers to go through the compliance function or corporate counsel first – in some cases go to attorneys who are representing the company they are attempting to out.

The result?

These whistleblowers lose their anonymity, usually their job, and face retaliation in the company and typically the broader sector they are in as well, being blacklisted in a sector they may have spend decades trying to build a stellar reputation.

“Careers can be destroyed by going to compliance,” Kohn said.


Whistleblowing snapshot: More risks, more retaliation against courageous insiders, but also more rewards

  • Criminal conduct at companies is dropping, but whistleblowing is rising.
  • The retaliation against whistleblowers has doubled since 2013.
  • More employees than ever are pressured to engage in misconduct.
  • India has the highest rate of misconduct.
  • Russia has the fewest reports of misconduct.
  • India has the highest rates of retaliation against whistleblowers.
  • Brazil highest rate of retaliation against whistleblowers.
  • Spain has the lowest rate of retaliation against whistleblowers.

Whistleblower awards spotlight:

  • The IRS has handed out $312 million across 217 awards last year, a tenfold increase from 2017.  
  • The SEC has handed down $168 million to 13 whistleblowers, more than all prior years combined.  
  • The CFTC has handed out $75 million in the past fiscal year to five whistleblowers.


Selling scams to foreigners: Inside boiler rooms and how alternative asset Recovery methods have been successful in SE Asia

In a late morning session on foreign telephone scammers, the Philippines has apparently taken the title away from India for the boiler room scam capital of the world, said Ken Gamble, executive chairman of IFW Global, a private instigative firm that helps law enforcement crush firms and recover stolen victim proceeds.

Manila is a “boiler room” paradise, he said, adding that some drug dealers have stop engaging in those crimes to take up financial crime and creating scam call centers. “It’s the most profitable business the world.”

He noted that in many instances, these boiler rooms are actively employing individuals with British accents because victims find them more believable than someone with an obviously Asian or Middle Eastern accent.

With only a few people, in some cases less than 10, these boiler rooms can make hundreds of thousands of dollars a day and millions of dollars per year, easily wiping out a pensioner’s life savings without batting an eye.

As well, at least in the Philippines, laws supposedly aimed at strengthening AML rules are actually hampering law enforcement money laundering investigations because investigators are prohibited from getting information on bank accounts flush with foreign currency, a duty left to government AML groups that may took too long to react.

Compounding the complexity is that the boiler rooms are not working alone to muddy the money trail, Gamble said.

In many cases they are working with professional third-party money launderers located in Israel, and other regions that already have at their disposal shell and shelf companies and bank accounts in seemingly familiar banking centers, including the United States, United Kingdom and Europe.

In that scheme, victims don’t even realize they are dealing with a fictitious company in the Philippines, Vietnam or Cyprus, as they are told to wire money to a U.S-based bank account under the control of the professional laundering organization.

Some of the red flags on the banking side that the transaction could be tied to these schemers or their laundering cohorts is a bank account that is opened and is empty for six months, then all of a sudden wires and checks from different parts of the country or world go through them.

As well, any related information tied to the transaction states the money is for things like the “purchase of stock and investments” when the company involved was supposed to be for consulting or IT equipment.

Gamble is working with a bevy of authorities and has seen the arrests of these boiler room proprietors turned perpetrators in Bulgaria, Spain, Serbia, Thailand and the Philippines, with other similar hubs growing in places like Vietnam, Singapore and the surrounding environs.

In one case alone, a scammer and their money laundering partner had 250 bank accounts that laundered $75 million, including through the U.S. with many major Asian banks “playing a key role in the laundering of money across southeast Asia,” Gamble said.

Going after and retrieving assets in these cases is notoriously difficult, but can be done through a combination of tenacity, creativity and good old-fashioned playing hardball with the crooks.

Gamble has been working with many local law enforcement agencies to teach them how to “follow the money” and seize and freeze funds before they leave the country.

As well, because some fraudsters are so terrified of getting found out, they will part with a portion or even all of their stolen funds to keep their names out of certain reports and publications, allowing victims to be made whole again.


The Emperor Has No Clothes: The great cryptocurrency scam

Fraudsters are constantly coming up with the “next big thing” to part the gullible from their money, according to the description of this late-day session.

Prime Bank Programs, Bank Guarantees, Forex, Day Trading, Binary Options, the list of “get-rich-quick” products is seemingly endless – and a potential new term to add to this list: crypto.

Cryptocurrency and Blockchain in general, are new unknown avenues in which investors are collectively squandering billions of dollars.

Armed with mumbo jumbo business plans, worthless memoranda of understanding instead of actual business deals, and sales pitches replete with trigger words like “disruptive” and “revolutionary,” hustlers are, literally, coining phrases and coining cash – at the expense of less sophisticated investors lured by greed and the exuberance of a volatile sector.

As offshore jurisdictions fight for a piece of this vacuous “ecosystem,” this session explored why cryptocurrency could be the biggest scam in the history of finance and will keep asset recovery specialists in work for years to come.

At the heart of the session is a scholarly report and analysis, asking the question “Is Bitcoin Really Un-Tethered?” a play on words of the interplay between the most well-known virtual coin and Tether, a crypto currency supposedly pegged to the U.S. dollar.

To download the report, click here.

The paper, and session, analyzed whether Tether “influences Bitcoin and other cryptocurrency prices during the recent boom,” according to the abstract.

Using algorithms to analyze the blockchain data, the researchers found that purchases with Tether are “timed following market downturns and result in sizable increases in Bitcoin prices,” noting that less than one percent of hours with such heavy Tether transactions are associated with 50 percent of the meteoric rise in Bitcoin and 64 percent of other top cryptocurrencies.

“The flow clusters below round prices, induces asymmetric auto-correlations in Bitcoin, and suggests incomplete Tether backing before month-ends,” according to the researchers, noting that such a market can be timed.

These patterns “cannot be explained by investor demand proxies but are most consistent with the supply-based hypothesis where Tether is used to provide price support and manipulate cryptocurrency prices,” concluded Amin Shams and John Griffin, of the University of Texas at Austin Finance Department.

“Historically periods of exceptional price increases are accompanied by questionable activities,” Shams said at the panel, adding that the value of Tether has surged from $10 million to $2 billion in less than a year.

Crypto “if not the largest is one of the largest bubbles of all time,” he said, adding that at least for Tether it can print money any time it wants is not completely decentralized, is not entirely trustless and has a daily volume that is larger than its market cap.

He also noticed a push and pull tied to Tether that when Bitcoin goes down, the flow of Tether increases, indicating that “someone has motivation for prices to go up. Anytime tether is released into the market, all other coins go up.”

As for the reputation of some of the various coins entering the market, and related ICOs, investors should view them with a jaundiced eye, according to Coulter Jones, a reporter for the Wall Street Journal.

In his analysis of hundreds, then more than 3,000, of operations in the space, he found that most ICOs were just sham companies trying to scam investors out of money.

He found groups that for $500 will “make you a virtual currency crypto ICO overnight,” while re-using stock images of the same people, with slightly different names and bios and even the same whitepaper where creators used “control F” to change the name of the coin throughout the hastily produced document. 

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