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‘Urgent And Frightening’: Trump Promise To Foreign Leader Triggers Whistleblower

House Intelligence Committee Chair Adam Schiff (D-NY) revealed last weekend that an intelligence community whistleblower has been stymied by the director of national intelligence while trying to push through a formal complaint about an undisclosed “urgent” matter. And on Wednesday night, the Washington Post broke a story citing anonymous officials claiming to reveal the explosive outlines of that claim — which reportedly centers on President Donald Trump and an unnamed foreign leader.

“Trump’s interaction with the foreign leader included a ‘promise’ that was regarded as so troubling that it prompted an official in the U.S. intelligence community to file a formal whistleblower complaint with the inspector general for the intelligence community, said the officials, speaking on the condition of anonymity because they were not authorized to discuss the matter publicly,” the Post reported.

The Post did not share further details about the promise or the foreign leader, though it said one former official claimed the communications occurred over the phone.

Dan Maguire, the acting director of national intelligence, has refused to turn over the official complaint to Congress, citing a higher authority directing him not to and claiming a protected privilege.

However, Schiff has argued that Maguire’s refusal violates the law. The intelligence inspector general determined the whistleblower’s complaint was credible and of “urgent concern,” which triggers reporting to the proper congressional oversight bodies. Inspector General Michael Atkinson went to the House and Senate intelligence committees to notify them about the existence of the whistleblower, even while he was unable to give any details about the actual complaint.

When Schiff went public with the dispute, many immediately assumed the issue regarded the president or his inner circle. The president is the only official directly superior to the director of national intelligence, and thus the only plausible higher authority that could order the DNI around. The claim of “privilege” and the assertion that the complaint concerned “conduct by someone outside of the Intelligence Community” also suggested the president could be involved.

The Post reported that the complaint was filed on Aug. 12 and that “the president has spoken with at least five foreign leaders in the preceding five weeks”:

Among them was a call with Russian President Vladimir Putin that the White House initiated on July 31. Trump also received at least two letters from North Korean leader Kim Jong Un during the summer, describing them as “beautiful” messages. In June, Trump said publicly that he was opposed to certain CIA spying operations against North Korea. Referring to a Wall Street Journal report that the agency had recruited Kim’s half-brother, Trump said, “I would tell him that would not happen under my auspices.”

“This is now an overwhelmingly urgent and frightening matter,” said Susan Hennessey, executive editor of Lawfare, in response to the report. “Congress must be provided absolutely all of the relevant information, immediately.”

“Yet another set of troubling arguments – confidentiality & privilege – that raise serious challenges to Congressional oversight,” said MSNBC legal analyst Maya Wiley of the refusal to hand over the complaint.

Tax Whistleblower Suspects Trump Stopped IRS Probe Of Koch Tax Scheme

Reprinted with permission from DCReport.

Only one of the billionaire Koch brothers supported Donald Trump’s 2016 campaign: William Ingraham Koch. Bill Koch even raised money for Trump, his nearby neighbor in Palm Beach, Fla.

That same year, IRS criminal agents began an investigation after receiving nearly 1,000 pages of documents detailing what were described as multiple tax frauds at Bill Koch’s companies. The documents, which we call the Koch Papers, came from a deeply knowledgeable source: Charles Middleton, who had been one of the companies’ top tax executives.

The IRS investigation went cold after Trump assumed office, documents obtained by DCReport show.

Michael Galdys, an IRS criminal investigation agent in West Palm Beach, gave no explanation as to why he was no longer pursuing the case when he sent a June 13, 2017 email to one of Middleton’s lawyers, William Cohan, in Rancho Santa Fe, Calif.

Cohan, and Middleton’s Seattle lawyer, John Colvin, both say the IRS and Justice Department stopped acknowledging their calls, emails and letters after Trump became president.

Koch’s company, in a written statement, said Bill Koch “has not approached President Trump to discuss any significant Company business issues, tax-related or otherwise.” The company also said it discharged Middleton “for cause” and noted that the IRS closed an audit of the company’s 2011 and 2012 tax returns without making any changes.

The Koch Papers detail what Middleton and his lawyers say were multiple tax dodges over many years. The biggest involves profits from selling petroleum coke, a residue from oil refining that is among the dirtiest of all carbon fuels.

Two of Bill Koch’s better known and much richer brothers, Charles and David, are also heavily invested in carbon industries and in promoting their libertarian political philosophy. In 1983, Bill, who is David’s twin, sold his shares in the family business and set up his own operations under the Oxbow moniker. Charles and David have no involvement with Bill Koch’s company.

While his brothers are worth more than $50 billion each, according to Bloomberg News, Bill Koch, 79, is worth about $4.1 billion. He holds a Doctor of Science and two other chemical engineering degrees from the Massachusetts Institute of Technology.

The Koch Papers are remarkably clear and complete, raising questions about why the IRS would choose not to pursue an inquiry.  The head of the Justice Department’s tax division, which decides which IRS cases to pursue criminally, was notified of the case during the last days of the Obama Administration, the Koch Papers show.

The sham corporate tax shelters I’ve exposed over the decades were subtle, complex contracts, the legal equivalent of Rube Goldberg contraptions built on highly technical, and twisted, interpretations of tax law.

The Koch Papers, by contrast, reveal simple techniques. But recognizing those techniques would require seeing documents that were withheld from IRS auditors, Middleton wrote.

William Koch now owes our government hundreds of millions in taxes, penalties and interest, my analysis of the Koch Papers and other documents indicates, but he and his company would pay nothing if the investigation remains closed.

Federal law allows whistleblowers to collect up to 30 percent of any taxes, penalties and interest the IRS recovers as a result of the whistleblower complaint.  However, Middleton cannot collect any reward under terms of his separation agreement with Koch’s company, according to Cohan, Middleton’s main lawyer.

Cohan said that while his client may be contractually blocked from keeping any IRS reward, he and Colvin, Middleton’s other lawyer, may be able to collect. However, both Colvin and Cohan said they have no expectation that the Trump administration will pursue their client’s whistleblower complaints. They said their interest was in pushing for fair enforcement of tax laws.

Investigation Halted

Cohan said he believes “Trump made a call and that was all it took to stop the investigation.” A White House spokesman, in an email, issued a non-responsive comment that he declared was “off the record.” (Journalists, not sources, decide what is off the record.) A second request drew no reply from the White House.

Any Trump involvement would also be appropriate for Congress to investigate, both as a matter of potential criminal conduct and as a potential article of impeachment. Trump vowed to voters that he would “drain the swamp” and to “put America first” under policies that in every instance “will be made to benefit American workers and American families.”

But even if Trump played no role, Congress can obtain the tax documents, question Koch and his senior staff, as well as IRS auditors and those involved in the seemingly aborted criminal inquiry.

Bill Koch has a well-established reputation as a serious businessman who intensely analyzes deals and watches his money closely. The Koch Papers show he was actively engaged in the tax-avoidance efforts. Middleton’s whistleblower complaints and letters by his lawyers assert that he crossed line from lawful tax minimization into tax fraud.

The biggest plan described in the Koch Papers was conceptually simple. It involved various Koch carbon companies under the umbrella of parent company Oxbow Carbon LLC that all shared the name Oxbow. For simplicity, we will refer to them as Oxbow America and Oxbow Bahamas.

Oxbow America bought petroleum coke, also known as petcoke. Various grades are mixed and then sold to different buyers. Low-quality petcoke is burned as fuel in Japan and South Korea, while the best quality helps anodize aluminum and other metals.

The petcoke profits were exceptional, in part because Oxbow America, through a real estate deal, blocked competitors at the Port of Long Beach in California.

That deal gave Oxbow America exclusive access to sell Southern California petcoke to Asian markets. Because of the costs of transporting petcoke by rail or truck, the Long Beach deal made profits per ton of petcoke there exceptionally profitable, company financial calculations show.

The Oxbow companies were organized so that tax bills flowed through to Bill Koch.

With profits of more than $100 million annually, federal taxes of $40 million to $50 million were owed each year, the internal documents show, through 2017. (The Trump/GOP tax law discounts subsequent tax bills by about 5%.)

To escape these taxes, Oxbow America created a shell company in Switzerland, which in turn operated in the tax-free Bahamas. Profits were then attributed to Oxbow Bahamas, wiping out all income taxes.

This brings up two important areas of tax law. When it comes to taxes, substance trumps form. Tax benefits are allowed only when there is a legitimate business purpose to transactions. Business actions designed solely to evade taxes are shams. When discovered during audits these shams are disregarded and taxes are assessed.

In the Koch Papers, reports by consultants, executives and tax advisers suggest that escaping taxes was the sole motivation for creating Oxbow Bahamas. Colvin, the lawyer for Koch’s then top tax executive, wrote to the government that the documents show “the only reason for Oxbow’s creation of the Bahamas office was to avoid U.S. tax.”

No other benefit, such as increased efficiency, was even considered, lawyer Colvin wrote. The Koch Papers show no indication of a business purpose, only escaping taxes.

Significantly, however, the Bahamas deal was evaluated on the basis of whether it would be detected in an IRS audit and what that might cost. Bill Koch’s company’s home office in West Palm Beach, Fla., performed calculations to determine that potential expense.

Playing ‘Audit Roulette’

The report estimated “the net present value” of shifting profits to Oxbow Bahamas using “several alternative assumptions on the likelihood of being audited,” Colvin wrote.

“This document is literally a ‘tax audit roulette’ calculation,” Colvin wrote, referring to the practice of tax cheating based on the risk of getting caught, which is small overall and especially small when complex international transactions are involved. The IRS told Congress several years ago that it lacked the expertise and time to unravel many tax dodges, a disclosure that surely emboldened any individuals, business owners and executives already inclined to cheat.

A report for Oxbow America by outside consultant Robert VanKleek cited estimated tax savings of $21 million annually unless challenged by the IRS.  But, Colvin wrote, “it was actually between $40M and $50M per year.”

The second key area of law is Section 864 of the tax code. It says that “the term ‘produced’ includes created, fabricated, manufactured, extracted, processed, cured, or aged”—all terms that describe the petcoke produced by Oxbow America’s operations. That section also provides that income from “producing” in the United States is “effectively connected” to America and will be taxed by our Congress.

The number of employees and locations of operations tell the story of where petcoke was produced and profits earned.

Oxbow America employs about 300 people, including a half dozen sales agents making more than $1 million annually selling millions of tons of petcoke, the Koch Papers show.

Oxbow Bahamas had just three employees, later increased to five. Not a single pound of petcoke was produced there. The Bahamas boss was a $115,000-a-year executive so junior that internal company reports state that he was not qualified even to run that small operation, much less the global petcoke enterprise controlled by Bill Koch.

Oxbow America sales agents were told that revenue from the deals they made was to be attributed to Oxbow Bahamas once it was set up even though it did not have enough staff just to track and process invoices.

The transferred contracts were “deep in the money,” meaning they had large built-in profits that would be harvested as soon as each contract was completed, the Koch Papers reveal. Middleton, Koch’s former tax expert, wrote in October 2016 to Teresa Homola of the IRS Whistleblower office that “Oxbow misrepresented the nature of its business to the IRS. The analysis delivered to the IRS concluded that Oxbow’s U.S. supply contracts had no value.”

An email by Bill Koch, written as delays in setting up the Bahamas operation mounted, complains that “I am being flooded with emails and complaints that the LOB (line of business) managers are getting conflicting instructions and information on how to do deals properly…”

Middleton wrote that “It is obvious from these emails that the Bahamas structure was motivated by tax. The business guys were not driving it. Since it wasn’t driven by business considerations, the business guys wanted clear instructions on how to achieve the tax goals.”

A consultant’s report stated that another of Oxbow’s staff tax lawyers “does NOT believe that Oxbow is acting correctly with regard to the tax implications/exposures concerning [Oxbow Bahamas]. His philosophy seems to be ‘we can beat them in court….’” A 2009 email to Koch and two senior executives warned that the Bahamas project was not properly structured to comply with tax law. “Oxbow’s exposure could be horrific – penalties are huge,” the email warned.

Some deals “have not been structured correctly,” Koch was told in writing.

“I wonder if the Bahamas operation has been carefully thought out tax-wise,” the same writer advised Koch.

The email also said the person Koch sent to the Bahamas was much too junior to be in charge.

In April 2010, Oxbow America’s contracts were transferred to Oxbow Bahamas. The Bahamas firm paid nothing for these contracts even though they were “deep in the money.”

Shifting money this way is known as “assignment of income.” Under a 1930 Supreme Court ruling, neither people nor companies can assign their income to another party to reduce or escape taxes. Numerous court rulings since have strengthened this doctrine.

The transfer of these valuable contracts was also affected by a subtle change in new contracts with petcoke buyers.

Previous contracts transferred title at the edge of the railroad line delivering the petcoke or when it was loaded onto a ship docked at Long Beach. The new language said the transfer occurs “on the high seas in international waters.”

Lawyer Colvin said that the transfer at sea language was adopted because Oxbow executives “believed that transferring title outside the United States was important for the tax treatment being sought. However, the actual shipping practices did not change, and most of the purchasers continued to arrange for their own shipping and insurance.”

In an interview, Colvin confirmed that he regards the transfer at-sea language as a sham that the IRS should disregard.

The report by consultant VanKleek warned of other tax problems in Belgium, India, and the Netherlands, noting that the “Rotterdam tax people are very aware of DUTCH law and fear that when a contract transfer is made Oxbow may be exposed to significant tax exposure in Holland.”

The report cited “a lack of transfer pricing policy” with major potential tax costs saying in all caps “THIS IS VERY IMPORTANT.”

Referring to Oxbow Bahamas, the report spoke of “bad tax advice” and noted that Bill Koch “has the responsibility to make sure” it is done properly.

Emails and other documents show that Bill Koch knew that the Bahamas tax avoidance depended on precise execution if it was to have any chance of being upheld by IRS auditors.

An internal analysis estimated that each business day’s delay in attributing profits to the Bahamas cost about $85,000, which totals $21 million for the year. After the Bahamas plan was put into effect, the Koch Papers show, that estimate proved to be less than half the actual taxes avoided.

“I am very worried that it is not being done properly,” Bill Koch wrote in an email, adding in capital letters, “HIRE SOMEONE WHO UNDERSTANDS THESE TAX ISSUES.”

Koch’s company soon hired Charles Middleton, who came with deep experience and knowledge of international tax issues and an LLM, the highest degree in tax law, from New York University. As senior vice president for tax, Middleton was Koch’s top tax lawyer. He signed company tax returns.

Middleton told the IRS he relied on what others told him in signing the 2010 tax returns and related documents for Koch’s carbon companies. Middleton wrote that he subsequently concluded that the 2010 tax return was fraudulent.

No Time Limit on Tax Fraud

If the Trump administration pursues the Koch tax behavior and finds fraud, it can collect taxes, penalties and interest back to 2010. That is because while there is a basic six-year limit on reaching back to collect unpaid taxes, there is no time limit when tax fraud is involved.

American tax law allows the IRS to reopen any audit where fraud was used to deceive auditors. Tax fraud can be pursued as a civil matter and also prosecuted as a felony, punishable with long prison terms.

Congress has absolute authority to inspect the tax returns under a 1924 anti-corruption law, to compel IRS Special Agent Galdys and others to testify in public hearings and to enact new laws to undo other tax dodges that Middleton uncovered when he was Koch’s top tax executive. Congress can also investigate who issued the orders to stop the IRS’s criminal investigation.

 

 

Report: Kushner Whistleblower Seeks Federal Protection

NBC News is reporting White House security specialist Tricia Newbold is now seeking official whistleblower protection from the federal government after raising concerns about “unwarranted security clearances” for Jared Kushner.

According to NBC, the specialist filed the whistleblower complaint less than two weeks after she was suspended without pay for defying her supervisor, Carl Kline.

In the complaint, Newbold says she “raised concerns” with Kline about a security clearance for an unnamed individual as early as July 2017.

The complaint does not explicitly identify the person, but sources familiar with the situation told NBC News that it was Kushner. Additionally, Newbold alleges Kline “repeatedly mishandled security files and has approved unwarranted security clearances.”

Read the full report from NBC here.

One More Question On Hillary Clinton Emails: Where Was The Watchdog?

By Arit John, Bloomberg News (TNS)

One of the many unanswered questions regarding the Hillary Clinton email story has been: Whose job was it to raise and address concerns about her exclusive use of a private account? According to open government advocates, it would have been the agency’s permanent, independent Inspector General — someone nominated by the president and confirmed by the Senate — if such a person had existed.

For five years, including all of Clinton’s time as secretary, the State Department’s Office of Inspector General never had a confirmed inspector. Instead, it was led by acting inspector Harold W. Geisel, a former ambassador who was accused of being too cozy to agency leadership by transparency groups like the Project on Government Oversight. Throughout the first half of President Barack Obama’s first term, the absence of a State Department Inspector General while internal scandals and Benghazi rocked the department drew bipartisan criticism.

“For no one to raise concerns, it’s almost impossible to believe,” said Danielle Brian, the executive director for POGO.

For years POGO has been highlighting “the frequency and the longevity of vacancies in Inspectors General offices,” as Brian put it. She added that while it was ironic that the Clinton story broke so close to last week’s Sunshine Week — a time for open government advocates to raise awareness of transparency issues — it was also an opportunity to highlight the importance of why open government issues like Inspectors General vacancies.

“It seems like a really boring issue, but this is why it’s not,” Brian said. “These are people who…were in a position to have received tips or created a sense of there being accountability on these matters. But those vacancies scream essentially that there’s nobody who’s really interested in making sure that someone is a junkyard dog in those agencies, looking for these kinds of problems.”

The Inspector General Act of 1978 established independent watchdog offices for every major federal agency, led by an official nominated either by the president or the agency. There are currently 11 inspector general positions open — either because Obama or the agency have yet to nominate anyone or because a presidential nominee has yet to be confirmed by Congress.

Some positions have gone without nominees for years — according to a database maintained by POGO, the Department of Interior hasn’t had a permanent inspector or presidential nominee, since early 2009; the Agency for International Development’s OIG hasn’t had a leader or presidential nominee since 2011. The National Archives and Records Administration hasn’t had an inspector since September 2012, when Inspector General Paul Brachfield was put on administrative leave while being investigated for racial and sexual comments.

The State Department’s permanent inspectors haven’t been above reproach — in 2007 then-IG Howard J. Krongard resigned over allegations that he had impeded investigations into Blackwater and corruption in Iraq — but the work of vetted and confirmed officials carry more weight. In a 2011 report, the Government Accountability Office called on the State Department to address concerns regarding its independence, writing that “the appointment of management and Foreign Service officials to head the State OIG in an acting capacity for extended periods of time is not consistent with professional standards for independence.”

In other words, if you wanted to inspire confidence in whistleblowers and others that the State Department is being held accountable by an independent official, that official shouldn’t be a former State Department official.

By September 2013, several months after Clinton left State, the department finally had a permanent inspector, and the department recently released a report documenting how few emails the State Department has saved for government records. But the long-time gap, as well as the ones at other agencies, raises questions about what other problems aren’t being investigated.

“If there was any confidence that those were robust office(s) then people within the agency or others would have turned to them,” Brian said. “I have to believe that at some point we’ll find out that there were people who were saying ‘Why am I getting this weird email from what should obviously be state.gov?'”

Photo: Niu Xiaolei/Xinhua/Sipa via USA/TNS