Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

Archive for the ‘Fraud’ Category

Societe Generale and their trading fiasco is back in the news. Oh, firing someone who lost $5 billion in unauthorized trades is a wrongful termination.

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Image courtesy of Adobe Stock.

Image courtesy of Adobe Stock.

I can now add the French judicial system to the reeeeeally long list of things I just do not understand:

6/7 – Wall Street Journal – Court Finds Kerviel, Whose Bets Lost Bank Billions, Was Fired Unfairly – A French court awarded a fired banker US$511,000 for what we would call wrongful termination in the US.

Why was he fired? He merely cost the bank €4.9B back in 2008 after they unwound his unauthorized trades. That is only $5,530,000,000 at today’s exchange rate.

First, some background. You can check out the WSJ article on 10/6/10 for more details: Rogue French Trader Sentenced to 3 Years.

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Written by Jim Ulvog

June 10, 2016, 8:29 am at 8:29 am

Posted in Accounting, Fraud, Pondering

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More reactions to Panama Papers leak

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Image courtesy of DollarPhotoClub.com

Image courtesy of DollarPhotoClub.com

Here are a few more recent articles on the offshore banking industry that were of interest to me:

  • Proposed U.S. rules that won’t do much
  • Law firm at center of the leaks is closing some remote offices

5/10 – Salon – The Obama administration’s Panama Papers misfire: Why new rules to curtail global tax avoidance could actually make things worse – This article follows up on my previous comments that the proposals from the feds to counter offshore banking will do very little to stop the practices.

Article says the details of the proposals accomplish very little and could actually make things worse.

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Written by Jim Ulvog

June 3, 2016, 6:27 am at 6:27 am

Posted in Fraud, Other stuff

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Update on Panama Papers – 6/1

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Image courtesy of DollarPhotoClub.com

Image courtesy of DollarPhotoClub.com

Seems there was a lull in the interesting articles on Panama Papers. Here are few articles catching my eye to get caught up.

  • How to prepare for a media firestorm
  • Searchable database released
  • A mere 35 Americans are visible in the Panama Papers database

5/9 – Nelson Granados at Forbes – Are You Law-Abiding and in the Panama Papers Database? How to Handle a Public Relations Crisis – Article is written on how a company who is legally and ethically using offshore accounts can prepare for the negative media attention when their name is revealed.

As a general concept these ideas apply to every business and charity. Getting ready in advance of a media firestorm will improve your chances of surviving the onslaught.

Short version: Read the rest of this entry »

Written by Jim Ulvog

June 1, 2016, 6:30 am at 6:30 am

Posted in Fraud, Other stuff

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Update on Panama Papers – 5/9

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Image courtesy of DollarPhotoClub.com

Image courtesy of DollarPhotoClub.com

The story is getting more confusing:

  • new revelation of an old technique to launder money,
  • US government actions to reduce laundering that look to me like they are just eyewash, and
  • small investors in a local real estate project appear to be investors working through the Panamanian system.

5/5 – Star-Telegram – Panama law firm used charities’ names as cloaks for clients – One of the schemes used in hiding money through offshore companies is setting up a foundation under Panamanian law. A private foundation can be set up which requires three directors, two of which must be publicly disclosed. Intended beneficiaries must be identified but could be changed before any funds disbursed.

The way this works is the two named individuals work for the law firm while the third undisclosed person is the person hiding money. The undisclosed person calls the shots with the two staff people from the law firm following instructions. The beneficiaries can be changed at any time.

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Written by Jim Ulvog

May 9, 2016, 6:19 am at 6:19 am

Posted in Fraud, Other stuff

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Update on Panama Papers: searchable data base, no more bearer stocks, reasons to park money offshore

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Image courtesy of DollarPhotoClub.com

Image courtesy of DollarPhotoClub.com

Panama will be shutting down the bearer share concept for documenting ownership of a company. ICIJ plans to release a huge database on shell companies. Also some reasons I would have an offshore company or maybe five if I was a billionaire or high official in a corrupt country.

If I was super rich, I’d park some money offshore

4/19 – Daily Beast – Obama in Saudi Arabia: What Do These Oil Sheiks Have to Hide? – Short answer: their contingency escape plans.

Article wonders why the rulers in an absolute monarchy would want to park money in anonymous offshore accounts. Article suggests there isn’t any need to do so since absolute rulers not only own the country but decide by themselves what is legal and illegal.

The reason can be found by looking around after the Arab Spring. It seems like in just a flash the governments of Tunisia, Libya, and Egypt collapsed. Even the current prime minister of Pakistan was ousted (he has since regained power) and had to flee for his life.

The longer answer for hiding money in offshore accounts is it that when things can change overnight, you need to have someplace to run and some money to work with. An escape plan.

And then there are the super rich people who made their money legitimately.

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Written by Jim Ulvog

April 27, 2016, 7:57 am at 7:57 am

Posted in Audits, Fraud, Other stuff, Pondering

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Reporters will not be sharing Panama Paper files with criminal investigators. Reporters are thinking they are journalists, not law enforcement staff.

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Image courtesy DollarPhotoClub.com

Image courtesy DollarPhotoClub.com

A variety of governments want to get a complete set of the original files from the Panama Papers leak. The reporters are saying “no.”

4/19 – The Guardian – Panama Papers: US launches criminal inquiry into tax avoidance claims – First, a tip to the scare-mongering headline writer, editor, and reporter:

  • tax avoidance is not illegal.

Where there is tax evasion, I say throw ‘em in the clink.

On the other hand, as much as the reporter and editor may believe every penny of profit belongs to the government, it is not illegal to comply with the provisions of the tax law.

Other than announcing an investigation has begun, the article gives no more detail.

In particular, there is no indication of how DoJ plans to avoid tainting the investigation by viewing documents it knows are covered by attorney-client privilege. Based on my businessman’s limited knowledge of the law, I think the implications of knowingly viewing documents protected by attorney-client privilege would permanently taint any prosecution brought after reading those documents. That means any case that can be linked to tainted documents would get dismissed.

4/20 – Bloomberg – Panama Leak Spur New York Regulator to Seek Records From Banks – The Department of Financial Services jumps into the fray.

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Written by Jim Ulvog

April 25, 2016, 6:24 am at 6:24 am

Posted in Audits, Fraud, Other stuff, Pondering

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The most interesting information from the Panama Papers is what *isn’t* in the files.

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Image courtesy of DollarPhotoClub.com

Image courtesy of DollarPhotoClub.com

The best stories to be told as a result of the massive data leak cannot yet be written.

Why?

The really smart people use multiple layers of shell companies to hide assets.  When laundering money, one should move assets through a series of companies, with each subsequent jump being anonymous.

A long time ago I attended a continuing education class helping CPAs understand fraud. Why are such classes required? So that, hopefully, maybe, CPAs will be able to recognize fraud when it stares them in the face during the course of an audit.

During the class, the instructor went off script and explained to us how to launder money.

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Written by Jim Ulvog

April 22, 2016, 8:13 am at 8:13 am

Posted in Audits, Fraud, Other stuff, Pondering

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Update on Panama Papers – 4/19

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Image courtesy of DollarPhotoClub.com

Image courtesy of DollarPhotoClub.com

Hasn’t been a lot of breaking news on the Panama Papers lately. Fair amount of follow-up though.

Here are a few articles of interest to me.

  • General update. How massive stories might be staffed in future.
  • More comments on the legitimate of offshore banking.
  • Senior government officials under the spotlight.

General update

4/9 – Fabius Maximus –Those Who Are (and Are Not) Sheltered From the Panama Papers – News we’ve heard thus far is likely just the tip of the iceberg of what will ultimately come out of the massive leak. Article pointed me to the following:

4/8 – Stratfor – Those Who Are (and Are Not) Sheltered From the Panama Papers Most of the damaging information released to date hits the developing world the most. Yet the bigger impact in on the western countries where there is relatively little information.

Article starts with point that the news we’ve read so far is just the start. Also points out the big leaks are growing in frequency and volume over the last several years.

Very long article walks through on a country-by-country basis what has been revealed and how big an issue is present. A few things of interest to me:

Senior politicians are implicated in five of the former Soviet republics.

A number of current or former Politburo members in China have family members involved.

Article dives deep into the possible implications or lack thereof in each of many countries.

4/14 – New Yorker – The Panama Papers and the Monster Stories of the Future – The person leaking the story gave the material to a German newspaper, who did not have the staffing to handle the story.

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Written by Jim Ulvog

April 19, 2016, 7:56 am at 7:56 am

Posted in Audits, Fraud, Other stuff, Pondering

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There are more issues revealed by the Panama Papers leaks than just tax evasion. Some contrarian opinions on how to look at offshore banking.

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Image courtesy of DollarPhotoClub.com

Image courtesy of DollarPhotoClub.com

The primary focus in media coverage is on tax evasion. There are other ways to look at the offshore industry. There are more and deeper legal issues involved. The tax evasion concerns under discussion are just the starting point on the list of issues that ought to generate irritation.

Following articles provide a variety of alternative views of what is going on in the Panama Papers leaks. That the articles I mention contradict each other illustrates my point that there are more issues involved than just tax evasion.

4/7 – Jason Zweig at Wall Street Journal – Panama Papers: A History of Tax Evasion from Ancient Rome to the French Revolution to 19th-Century New Jersey

Question for you to ponder: Why have people been hiding their money for over 2,000 years?

In 1934 when Switzerland made it a crime for a banker to reveal a customer’s name, they were a bit behind the curve. Liechtenstein, Luxembourg, and Bermuda were tax havens a couple of decades earlier. As a depressing note, the Swiss offered confidentiality for a fee all the way back in 1789.

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Written by Jim Ulvog

April 11, 2016, 8:02 am at 8:02 am

Posted in Economics, Fraud, Pondering

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Oh, the things you can learn from the Panama Papers. Did you know that documenting ownership of a shell company through bearer stocks is even a real thing?

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Image courtesy of DollarPhotoClub.com

Image courtesy of DollarPhotoClub.com

Yes, it is actually possible to organize your offshore company with the ownership documented with bearer stocks. Join me as I dive into the fine details of a WSJ article.

4/6 – Wall Street Journal – Panama Papers: Hiding Cash Has Become Crummy Business – Even Switzerland has joined the crackdown on hiding money. Prosecutors there leaked information on the Malaysian scandal. That’s a whole other story that I won’t go into. The point is Swiss prosecutors are going after money launderers and embezzlers. Swiss prosecutors.  You know, from Switzerland. Land-of-the-numbered-account Switzerland.

More detail from the article:

The offshore “business” has been shrinking for a long time. Article says the firm of Mossack Fonseca & Co saw a two-thirds decline in the number of companies they incorporated between 2005 and 2015, dropping from 13,287 to 4,341 in a decade.

Article says the Panama Papers say the law firm’s clients have incorporated 16,323 companies over the last three years but have closed up 28,777 in the same time. That’s a net shrinkage of over 12,000.

The company represented around 6,000 businesses in 2005 whose ownership was evidenced using bearer shares. Currently they represent 170. That’s a drop of 97% in a decade in the number of clients using bearer shares.

Bearer shares. Did you know that was even a thing? Before I get to that, let me describe bearer bonds.

Bearer bonds

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Written by Jim Ulvog

April 7, 2016, 6:19 am at 6:19 am

Posted in Fraud, Other stuff

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Initial follow-up to Panama Papers leak

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Image courtesy of DollarPhotoClub.com

Image courtesy of DollarPhotoClub.com

Previously mentioned the massive leak of data about offshore banking that hit headlines this past Sunday. This is now called either the Panama Papers or Panama leak, take your pick. Here are a few of the initial articles on the follow-up that I found interesting.

There are more and deeper issues than just tax evasion. By the way, the term we should be discussing is tax evasion, not tax avoidance. Avoidance means complying with the tax law in order to lawfully reduce your tax bill. Evasion means breaking the law.

Simple introduction to offshore banking

4/4 – Vox – The Panama Papers leak, explained with an adorable comic about piggy banks – Simple cartoon gives a great illustration of a little boy hiding some quarters from his mommy in a piggy bank stored in his little friend’s closet. Lots of other little boys to the same. Eventually the friend’s mommy finds all the piggy banks and calls all the moms.

Some of the little boys may just have wanted to hide a few extra quarters from mommy because they wanted some privacy. Others may have been stealing lunch money from their schoolmates and don’t want mommy to know. Some may have been stealing from mommy’s purse. Yet others may have been wanting to save up a couple of dollars to buy an actual surprise birthday present for mommy and daddy. Some have gotten tired of their siblings sneaking into their piggy bank.

First casualty

4/5 – The Guardian – Iceland prime minister resigns over Panama Papers revelations – Watch how fast things have developed.

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Written by Jim Ulvog

April 6, 2016, 8:23 am at 8:23 am

Posted in Fraud, Other stuff

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Massive document leak on offshore banking. Intro to the Panama Papers.

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Old style money laundering. Image courtesy of DollarPhotoClub.com

Old style money laundering. Image courtesy of DollarPhotoClub.com

A massive amount of whistle blower information was announced over the weekend. The files are from a large law firm in Panama that helped companies and individuals set up offshore companies. This is called the Panama Papers.

There are many legitimate reasons to use offshore companies. There are many illegitimate reasons too.

I’ve just started looking at the story. Here are a few introductory tidbits.

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Written by Jim Ulvog

April 4, 2016, 8:22 am at 8:22 am

Posted in Fraud, Other stuff

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More good stuff for auditors – 3/9

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 Image courtesy of DollarPhotoClub.com

Image courtesy of DollarPhotoClub.com

A few articles for CPAs:

  • Do group audit standards apply when there is only 1 auditor?
  • Pondering on how senior execs “go bad”
  • Link between gambling addiction and fraud
  • Steps by Big 4 to analyze ‘big data’ in audits

2/24 – Charles Hall at CPA-Scribo – Do the Group Audit Standards Apply When Only One Firm Audits Consolidated Financial Statements? – Short answer to the question: yes, they apply. Sorry if that is a shock to you.

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Written by Jim Ulvog

March 9, 2016, 8:43 am at 8:43 am

Posted in Audits, Fraud

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Another Olympus fiasco, with $640M penalty. No individual prosecutions.

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Image courtesy of DollarPhotoClub.com

Image courtesy of DollarPhotoClub.com

The U.S. unit of Olympus admitted it made payments to doctors and hospitals as an inducement to buy Olympus equipment. The company agreed yesterday to pay $646M and enter into two deferred prosecution agreements in return for settling two criminal charges.

I don’t usually follow Foreign Corrupt Practices Act settlements, but this one caught my eye. I’ve not previously been aware of the Anti-Kickback Statute, which prohibits kickbacks from vendors to health care providers in the federal medical reimbursement marketplace. Olympus admits to violating both sets of laws.

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Written by Jim Ulvog

March 2, 2016, 8:32 am at 8:32 am

Posted in Fraud, Other stuff

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Current estimate of Toshiba book-cooking is at $1.9B, surpassing Olympus

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Cleaning up the numbers. Image courtesy of DollarPhotoClub.com

Cleaning up the numbers. Image courtesy of DollarPhotoClub.com

After delaying their earnings announcement a while, Toshiba announced a ¥224.8B pretax write-down for accounting irregularities which hits net income for ¥155.2B.

That would be US$1.87B pretax and US$1.29B after-tax. Even if those amounts don’t increase that means Toshiba has out Olympused Olympus at $1.7B.

The now-admitted fraud ran for seven years, not the six previously mentioned.

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Written by Jim Ulvog

September 10, 2015, 8:17 am at 8:17 am

Posted in Fraud

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