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@fuerstlaw.com.

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, MSB’s 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@fuerstlaw.com.

Preservation of First Sale Doctrine Seen as Victory for Importers

U.S. Customs and Border Protection (CBP) published a notice in the Federal Register today formally withdrawing its proposed rule to determine the value of imported merchandise for customs valuation purposes based on the last sale prior to importation of the merchandise. In a victory for importers who spent years fighting the rule, CBP will preserve the “first sale” doctrine for import valuation.

Merchandise is often bought and sold in a series of transactions between the foreign manufacturer and various foreign middlemen prior to the merchandise’s entry into the United States. Embraced by Customs over twenty years ago, the first sale rule allows U.S. importers to set the customs value of the merchandise upon the first sale between the manufacturer and a middleman. This allows U.S. importers to capture the manufacturer’s price for the goods, and avoid paying customs duties upon the additional mark-ups charged by foreign middlemen. The result for importers was big savings in duties and fees paid to the United States.

In January 2008, however, CBP proposed new rules which would base the customs value of imported merchandise on the price paid in the last sale prior to the merchandise’s entry into the United States. While CBP believed that this “last sale” rule would more correctly estimate the entered value of the goods, industry groups and leading American importers argued that the real result of the proposed rule would be higher prices for American consumers and the complete jettisoning of court and Customs rulings on valuation upon which importers had been able to rely.

Members of the Senate and House soon climbed aboard the bandwagon calling for the withdrawal of the proposed last sale rule. A “Sense of the Congress” provision was passed in May 2008 instructing CBP not to implement the proposed rule before January 1, 2011, and not without first consulting with Congress and trade advisory groups, and only then with the approval of the Secretary of the Treasury.

The outcry over the proposed rule was even greater when then-CBP Commissioner Ralph Basham acknowledged that the rule had been proposed without substantive consultations with Congress and the trade community.

While the proposed last sale rule has languished, and CBP has been publicly stating since August 2008 that it would not implement the proposed rule, current CBP Commissioner Alan Bersin only recently committed to formally withdrawing the rule. In a letter to the National Association of Manufacturers (NAM), Bersin also committed to clearing up the backlog of ruling requests, and to developing an internal process to highlight to management any substantive regulatory initiatives, major proposed rulings and modifications of existing rulings prior to their publication.

Today’s withdrawal of the proposed last sale rule and the Bersin letter to the NAM are seen as signs that CBP is starting to address some trade regulatory issues that have been nagging importers for years. As Bersin describes, the Agency is widely expected to soon announce final rules on country of origin markings, and proposed rules increasing the values for de minimis and informal entry shipments; these values have not been updated in over 15 years.

POM Wonderful LLC (“POM”) filed a Complaint against the Federal Trade Commission (“FTC”) on September 13, 2010. POM alleges that the FTC has adopted a “new standard” for substantiation that it is applying against food and dietary supplement companies. The “new standard” is reflected in two recently published consent orders against Nestle USA and Iovate Health Sciences, Inc., in which the FTC prohibits future claims by the companies unless the claims are supported by two well-controlled human clinical studies. The “new standard,” if POM is correct, marks a drastic change in FTC policy regarding substantial of claims.

According to the Complaint, FTC specifically referred POM to the Nestle and Iovate Consent Orders and asserted that the requirements contained in those consent orders constituted the “new standard” that FTC was applying with legal force and effect. POM alleges that the FTC is no longer interpreting present standards or rules by adopting the “new standard” for substantiation, but instead, the FTC has engaged in formal rulemaking without adhering to the process of notice and comment as required by the Administrative Procedures Act.

Furthermore, POM also alleges that the FTC is requiring advertisers to obtain prior Food and Drug Administration (FDA) approval before making certain disease claims about food, beverages, and dietary supplements. Disease claims are health related claims in which a product represents that it treats, mitigates, or prevents disease. According to POM, the FTC is requiring prior FDA approval for disease claims regardless of whether or not the claims are true or supported by competent, reliable scientific evidence. In addition, the FTC is requiring advertisers to conduct two well-controlled clinical studies for non-disease claims. If POM’s allegations accurately reflect current FTC policy, these requirements may constitute a violation of the advertiser’s First Amendment rights and go beyond the authority of the FTC.

For more information on FTC regulations and substantiation requirements, please contact us at contact@fuerstlaw.com.

The U.S. Food and Drug Administration (FDA) and Centers for Medicare and Medicaid Services (CMS) recently announced in a Federal Register Notice that they are considering establishing a parallel review process for medical products, including pharmaceuticals, biologics, and medical devices. The goal of the parallel review process is to reduce the time between FDA marketing approval or clearance decisions and CMS national coverage decisions (“NCDs”). Currently, FDA will first conduct a premarket review that assesses the safety and effectiveness of the medical products. CMS conducts a second review to determine whether the medical product will be covered by Medicare.

The agencies envision that the manufacturer of a specific medical product will request that the agencies undertake the parallel review process and the agencies will then both provide their agreement to participate in the parallel review process. The FDA would make its approval or clearance determination first because CMS would not normally provide coverage to a medical product that was not approved or cleared by the FDA. Each agency will continue to use its own regulatory and evidentiary standards for decision-making. The medical product sponsor would be expected to meet the legal requirements for both the FDA and CMS.

The agencies are seeking comments from the public on what products would be appropriate for parallel review, what procedures should be developed, how a parallel review process should be implemented, and any other issues related to operation of the process. In addition, the agencies are announcing the intent to begin a pilot program for parallel review of medical devices. All electronic or written comments must be submitted by December 16, 2010.

For more information on how FDA and CMS review medical products and how the parallel review process may be beneficial to your product, please contact us at contact@fuerstlaw.com.

The Federal Trade Commission (FTC) has obtained a court order against the Arizona­based marketers of Acai dietary supplements, Central Coast Nutraceuticals, Inc, also known as CCN. The order prohibits sales of CCN’s products including the weight-loss product AcaiPure and a “colon cleanser” touted to prevent cancer, but which the FTC has said is essentially a “run-of-the-mill” laxative. Also named in the FTC’s complaint were CCN’s affiliated companies and personnel: iLife Health and Wellness, Simply Naturals, Fit for Life, , Health and Beauty Solutions, Graham D. Gibson, and Michael A. McKenzy.

The FTC alleged that a big part of the deception centered on bogus “free trial” offers and corrupt billing practices in which “numerous unauthorized charges” were made to customers’ credit-cards and debit cards. Consumers were offered free products to “try” but did not receive adequate disclosure form CCN that they would be automatically enrolled in a membership program, charged for additional products. and that CCN would continue to charge them under their memberships until such time as the consumer opted out. Such practices are in violation of the FTC Act and the Electronic Fund Transfer Act.

Other deceptive practices noted in the complaint included a plethora of unsupported health claims by CCN. AcaiPure’s weight-loss claims supposedly were backed by “double-blind, placebo-controlled weight loss studies” which turned out to be non­existent. Consumers were also told that “most consumers taking AcaiPure report weight loss anywhere from 10-25 pounds in the first month,” a claim that similarly had no support. Another CCN unsubstantiated claim was that Colopure could help prevent colon cancer.

Lastly, the Commission alleged that the companies engaged in false celebrity endorsements by using the names and likeness of Oprah Winfrey and Rachael Ray to promote the products. Both Winfrey and Ray provided statements to the FTC that they have no involvement with the products, did not use the products and do not endorse the product.

The FTC reported that it had received over 2,800 complaints about this business and believes that consumers were duped out of at least $100 million dollars since 2009. 

The temporary restraining order is just the first step in the FTC’s law suit against CCN. It is still unknown if criminal charges will be levied as in addition to the civil penalties being sought. In addition, the FTC continues to seek a permanent injunction against CCN and its affiliated companies. 

For more information on FDA and FTC regulations and marketing guidelines, please contact us at contact@fuerstlaw.com.

Italian monetary authorities have seized $30 million from a Vatican bank account and placed the Vatican Bank’s director general, Paolo Cipriani, and its chairman, Ettore Gotti Tedeschi, under investigation for possible violations of Italy’s 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 1980’s in a money laundering scandal that lead to the collapse of Italy’s then largest private bank, Banco Ambrosiano. In the 1980’s 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@fuerstlaw.com.

On September 9, 2010, the United States Court of Appeals for the 3rd Circuit held that the use of a “willful blindness” jury instruction satisfies the willfulness element of a criminal tax offense. In finding the jury instruction appropriate, the court concluded that, where warranted by the trial evidence, a willful blindness instruction “properly appl[ies] to a defendant’s knowledge of his legal duties.”

The 3rd Circuit upheld the conviction of Richard Stadtmauer, an account and executive vice president of Kushner Companies, for conspiracy to defraud the United States and for willfully aiding in the filing of materially false or fraudulent tax returns. The charges against Stadtmauer grew out of an investigation of Charles Kushner, chairman of Kushner Companies. Prior to Stadtmauer’s charging and conviction, Charles Kushner pled guilty to assisting in the filing of false returns. While Kushner was under investigation Stadtmauer was charged with conspiracy to take $6 million in improper deductions for limited partnerships owned by Kushner.

Mr. Stadtmauer’s appeal centered on the District Court’s instructions to the jury regarding Stadtmauer’s knowledge of the falsity of his company’s tax returns. For the government to establish that Stadtmauer willfully aided in preparing false returns, it was required to prove that Stadtmauer intentionally violated a known legal duty. In his instructions to the jury, U.S. District Court Judge Jose Linares told the jury it could convict if it found that Stadtmauer knew about applicable IRS requirements or if Stadtmauer “deliberately closed his…eyes to what he…had every reason to believe.”

Stadtmauer argued on appeal that the jury instruction did not satisfy the requirement that the government establish that the law imposed a duty on the defendant and that the defendant knew of this duty. Stadtmauer relied heavily on Cheek v. United States, 498 U.S. 192 (1991), a 1991 U.S. Supreme Court case, which Stadtmauer argued prevented the use of willful blindness to satisfy the willfulness element in tax fraud cases. The 3rd Circuit rejected this argument finding that Stadtmauer’s case was clearly distinguishable stating “Stadtmauer’s attempt to equate a person who deliberately avoids learning of a legal duty with a person…who is ignorant of that duty by virtue of a good-faith belief or misunderstanding is not persuasive.” The decision of the 3rd Circuit falls in line with decisions of the 1st, 5th, 7th, and 11th Circuits which have also held that Cheek does not prevent a willful blindness instruction in tax fraud cases.

The appeals court also rejected arguments by Stadtmauer that willful blindness improperly applied to intent and that the government was required to provide direct evidence of conscious avoidance to satisfy a willful blindness instruction. A copy of the 3rd Circuit’s opinion can be read here: U.S. v. Stadtmauer.

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Allergan, Inc., the manufacturer of Botox ® Cosmetic, has agreed to plead guilty to one count of misbranding, a violation under the Food, Drug, and Cosmetic Act (“FDCA”). The company pled guilty to misbranding for its off-label promotion of Botox for unapproved uses.

Botox is an injectable neurotoxin commonly used in cosmetic procedures to smooth wrinkles. The FDA has also approved the use of Botox to treat certain muscle spasms and excessive underarm sweating. However, authorities allege that from 2000 to 2005 Allergan marketed Botox for use in treating headaches, pain, muscle stiffness, and cerebral palsy in juveniles, none of which were ever approved by the Food and Drug Administration (“FDA”). Under Federal law, although doctors can prescribe drugs for unapproved uses, pharmaceutical companies are prohibited from advertising or promoting unapproved uses for drugs currently on the market. Authorities also allege Allergan paid kickbacks to doctors who used Botox for off-label purposes and taught doctors how to miscode Botox claims when submitting these claims for Medicare and Medicaid billing.

Under the terms of the plea agreement, Allergan agreed to plead guilty to one count of misbranding and will pay $375 million in criminal penalties. The company also agreed to a five year compliance plan that will require it to disclose payments to doctors on its website and have senior executives and board members annually certify that the company is complying with federal regulation. The plea agreement also required the company to drop its lawsuit against the FDA which it filed in October 2009 that challenged an FDA rule that prohibits pharmaceutical companies from marketing drugs for off-label uses. Allergan also agreed to pay $225 million to resolve the civil claims against the company filed by five whistle-blowers in Georgia under the False Claims Act. The $600 million settlement is the fifth largest amount paid by a single defendant in a misbranding case.

In the wake of the company’s guilty plea and $600 million penalty, a shareholder of Allergan has filed suit against the members of Allergan’s board of directors. The suit, filed in Delaware state court, alleges breaches of fiduciary duties and is seeking to shift settlement costs to the members of the Allergan board of directors in an effort to hold board members responsible for the $600 million in penalties the company now faces.

For more information on FDA regulations, labeling guidelines, and acceptable pharmaceutical marketing practices please contact us at contact@fuerstlaw.com.

On September 15, 2010, the Food and Drug Administration (“FDA”) announced that Forest Pharmaceuticals (“Forest”) has agreed to plead guilty to two violations of the Food, Drug, and Cosmetic Act (“FDCA”). Forest has agreed to plead guilty to one count of distributing an unapproved drug in interstate commerce and one count of distributing a misbranded drug in interstate commerce. Additionally, Forest has agreed to plead guilty to one count of obstruction of justice. Charges stem from Forest’s marketing of two drugs, Levothroid and Celexa.

In 1997, the FDA announced that Levothroid, though already on the market, would be considered a new drug within the meaning of the FDCA. At that time, the FDA advised drug manufacturers that in order to continue to market Levothroid they would have seek new drug approval by the FDA. However, Forest failed to obtain drug approval, continued to market unapproved Levothroid, and disregarded an FDA warning letter ordering Forest to stop production and distribution. As a result of these actions, Forest was charged with distribution of an unapproved drug in violation of the FDCA.

U.S. authorities also charged Forest with distributing a misbranded drug based on its off-label marketing of Celexa to treat depression in children though the drug was only approved for use in adults. Prosecutors allege that Forest paid doctors to prescribe Celexa and failed to inform prescribing doctors of negative studies regarding the effects of Celexa on adolescents. Forest was also charged with obstruction of justice because of false statements made by employees during the FDA investigation.

As part of the plea agreement, Forest has agreed to plead guilty to all three counts and pay $164 million in criminal penalties. Additionally, Forest has agreed to resolve a civil complaint against it by paying $149 million in civil fines and entering into a Corporate Integrity Agreement with the Office of Inspector General of the Department of Health and Human Services.

For more information on FDA regulation and labeling guidelines, please contact us at contact@fuerstlaw.com.