Sunday, April 19, 2015

The Lehman Brothers Bankruptcy: Overview

5"The Lehman Brothers Bankruptcy A: Overview" Free Download 

On September 15, 2008, Lehman Brothers Holdings, Inc., the fourth-largest U.S. investment bank, sought Chapter 11 protection, initiating the largest bankruptcy proceeding in U.S. history. The demise of the 164-year old firm was a seminal event in the global financial crisis. Under the direction of its long-time Chief Executive Officer Richard Fuld, Lehman had been very successful pursuing a high-leverage, high-risk business model that required it to daily raise billions of dollars to fund its operations.

Beginning in 2006, Lehman began to invest aggressively in real-estate-related assets and soon had significant exposures to housing and subprime mortgages, just as these markets began to sour. Lehman employed a cadre of accountants and risk professionals to continually monitor its balance sheet, key ratios, and risks. It undertook desperate and some questionable actions to stay alive. Nevertheless, Lehman ultimately failed because of an inability to finance itself.

This overview case provides background information about Lehman’s business and key personnel and also the economic environment during 2006-2008. It may be utilized individually or in connection with any of the other seven YPFS Lehman case studies. 

April 19, 2015 in Current Affairs | Permalink | Comments (0)

Saturday, April 18, 2015

How could Jamie Dimon/JP Morgan have bought Bear Sterns with nearly no diligence? The government made him do it.

DealBreaker reports the scenario of the Jamie Dimon's rushed decision for JP Morgan to buy Bear Sterns:  

"Dimon got the JP Morgan board on the phone and communicated the request, and then had his team do a weekend’s worth of due diligence before agreeing to toss Bear a lifeline. In the years since, as JPM has paid billions in mortgage related fines it inherited from Bear ...."

New York Post reports:

Seven years after the financial crisis, the JPMorgan Chase boss now says he totally regrets buying the teetering Wall Street firm — at the urging of the government — for a steep discount.

Roughly 70 percent of JPMorgan’s $19 billion of mortgage-related legal bills stems from the acquisition of Bear Stearns and another faltering firm, Washington Mutual, during the financial crisis ...

Was this a case of corporate greed or one of heavy handedness of the government forcing a purchase?  And why was it structured by JP Morgan for its shareholders to take on such exposure?   

April 18, 2015 in Current Affairs | Permalink | Comments (0)

Friday, April 17, 2015

Will Senator Menedez donor Dr. Salmon Mengen Turn State Witness? 76 Reasons Why He Will.

Robert Menendez, a U.S. Senator, and Salomon Melgen, a Florida ophthalmologist, were indicted today in connection with a bribery scheme in which Menendez allegedly accepted gifts from Melgen in exchange for using the power of his Senate office to benefit Melgen’s financial and personal interests.  Menendez and Melgen Indictment

Salomon Melgen has now been charged with 76 counts of medicare fraud.

Washington Times reported:  ... Dr. Melgen billed the federal Medicare program for more than $20 Dojmillion in 2012, records show, while just 2 percent of participating doctors accounted for nearly a quarter of all billings.   ....  One lucrative source of income for Dr. Melgen: 37,075 injections of a macular degeneration drug he billed Medicare to treat 645 different patients, according to the data. The government paid him back at an average reimbursement of nearly $320 for each procedure, according to the records.

The Hill reported:  A U.S. Southern District of Florida Court indictment said Melgen’s practice sometimes treated 100 patients a day. It alleges he pocketed $105 million after billing Medicare $190 million between January 2008 and December 2013.

April 17, 2015 in Current Affairs | Permalink | Comments (0)

OECD releases discussion draft on BEPS Action 11 (Improving the Analysis of BEPS)

OecdPublic Comments are invited on a discussion draft which deals with Action 11 (Improving the analysis of BEPS) of the BEPS Action Plan.

In July 2013, the Action Plan on Base Erosion and Profit Shifting directed the OECD to commence work on 15 actions designed to ensure the coherence of corporate income taxation at the international level. The first seven of these actions were presented to G20 Leaders at the Brisbane Summit in November 2014.

Action 11 of the BEPS Action Plan focuses on improving the availability and analysis of data on BEPS, including to monitor the implementation of the Action Plan and to evaluate the effectiveness and economic impact of actions to address BEPS on an ongoing basis.

This discussion draft sets out the context and background to the work on Action 11, and includes chapters that focus on three key areas as follows:

  • Chapter 1 is an assessment of existing data sources relevant for BEPS analysis, describing the available data and their limitations for undertaking an economic analysis of the scale and impact of BEPS and BEPS countermeasures.

  • Chapter 2 provides potential indicators of the scale and economic impact of BEPS and their various strengths and limitations.

  • Chapter 3 sets existing empirical analyses of BEPS and proposes two complementary approaches to estimating the scale of BEPS.

The consultation paper identifies specific questions where input is required in order to advance the work on Action 11.

The Action Plan calls for this work to be completed by September 2015. As part of the transparent and inclusive consultation process mandated by the Action Plan, the CFA invites interested parties to send comments on this consultation paper.

Comments should be submitted by 8 May 2015 at the latest (no extension will be granted) by email to They should be addressed to David Bradbury, Head, Tax Policy and Statistics Division, OECD/CTPA.

 Public Consultation

A public consultation meeting on Action 11 will be held in Paris at the OECD Conference Centre on 18 May 2015. Details of how to submit comments on the discussion draft and attend the public consultation meeting are available on line:

April 17, 2015 in Current Affairs | Permalink | Comments (0)

Thursday, April 16, 2015

INTERPOL Opens Global Complex for Innovation to Fight 21st Century Crimes

InterpolMinisters and senior police officials from around the world gathered at the official opening of the INTERPOL Global Complex for Innovation (IGCI) which is set to empower law enforcement officers worldwide with cutting-edge tools and knowledge against 21st century crime.

With the IGCI marking the transition of global policing into the digital age, Singapore’s Deputy Prime Minister, Coordinating Minister for National Security and Minister for Home Affairs, Teo Chee Hean, addressed its opening ceremony after chairing a ministerial cybercrime meeting involving INTERPOL’s President Mireille Ballestrazzi and Secretary General Jürgen Stock.

Underlining the growing complexity of today’s safety and security threats, Deputy Prime Minister Teo said: “Police and law enforcement agencies in the region can access INTERPOL’s tools and programs through the IGCI, to train and equip their officers to combat new and emerging threats, thereby enhancing collective regional safety and security.”

“The IGCI can use Singapore’s location in the heart of Asia to reach out to the rest of the region and beyond. Through the IGCI, INTERPOL can also gain a better understanding of Asian perspectives and expertise, to shape its research and development and operational responses against transnational threats,” added Singapore’s Deputy Prime Minister.

The opening ceremony also included representatives from international organizations and strategic partner organizations from the private sector. These include Entrust Datacard, Kaspersky Lab, NEC, Safran Morpho and Trend Micro Ltd.

INTERPOL President Ballestrazzi said that collaboration with the public and private sectors would allow the IGCI to benefit from the culture, innovation and dynamic spirit of all those involved.

“Today’s inauguration of the IGCI marks the end of a process that has mobilized our member countries and partners in a joint effort to strengthen the abilities of INTERPOL and law-enforcement agencies as they face the realities of modern crime. It also marks our joint resolve to build a safer world,” said President Ballestrazzi.

Highlighting Singapore’s thriving spirit as it celebrates its 50th anniversary, INTERPOL Secretary General Jrgen Stock said that the IGCI was born out of the Organization’s commitment to adapt to changes in the threat landscape.

“By establishing the IGCI, INTERPOL will ensure that it is best placed to help police around the world address emerging threats through innovation and training. The work of the IGCI will provide operational and forensic support, build capacity and identify cyber threats,” said Mr. Stock.

In this respect, the audience heard that intelligence from a prominent IT actor had led to an IGCI-coordinated operation which dismantled the Simda botnet through a joint international effort by law enforcement and the private sector.

“These achievements highlight the value of the IGCI and how it will help police adopt new technology and practices to outsmart cybercriminals,” added Mr. Stock.

In addition to cybercrime and capacity building and training, the IGCI’s Command and Coordination Centre operations room represents its third central pillar. It recently coordinated its first border security initiative, Operation Sunbird, leading to the arrest of international fugitives attempting to travel across ASEAN countries.

April 16, 2015 in Current Affairs | Permalink | Comments (0)

OECD tax burdens on wages rising without tax rate increases

OecdTaxes on wages have risen by about 1 percentage point for the average worker in OECD countries between 2010 and 2014 even though the majority of governments did not increase statutory income tax rates, according to a new OECD report.

Taxing Wages 2015 says the tax burden has increased in 23 OECD countries and fallen in 10 during this period.

Most of the increased tax resulted from wages has resulted from wages rising faster than tax allowances and credits. In 2014, only seven countries had higher statutory income tax rates for workers on average earnings than in 2010, and in six countries they were lower.

In 2014, the tax burden on the average worker across the OECD increased by 0.1 of a percentage point to 36.0%, even though no OECD country increased its statutory income tax rates on the average worker. The tax burden increased in 23 of the 34 OECD countries, fell in nine and remained unchanged in two.

Taxing Wages 2015, provides cross-country comparative data on income tax paid by employees as well as the associated social security contributions made by employees and employers; both are key factors when individuals consider their employment options and businesses make hiring decisions.

The tax and social security contribution burden is measured by the ‘tax wedge’ - or the total taxes paid by employees and employers, minus family benefits received as a percentage of the total labour costs of the employer.

This year’s report contains a special chapter on labour income in five major non-OECD economies: Brazil, China, India, Indonesia and South Africa. The analysis shows that there is significant variation between these countries. In 2013, tax wedges in Brazil and China for the average single worker were similar to those observed in many OECD countries. In contrast, employees in India, Indonesia and South Africa faced tax wedges that were much lower than in the vast majority of OECD economies.

The mix of labour taxes also varies across these non-OECD countries with social security contributions comprising the bulk of the tax burden measures for the model households that are covered in four of the five countries, with South Africa being the exception.

One of the most striking findings of this analysis is that unlike the vast majority of OECD countries, family payments play very little or no role in reducing the tax burden on workers with children in these non-OECD economies.

» Read more 

April 16, 2015 in Current Affairs | Permalink | Comments (0)

Wednesday, April 15, 2015

Former New York Assemly Speaker Sheldon Silver's Headaches Mount as Son-in-Law Indicted in Ponzi Scheme

Justice logoMarcello Trebitsch, son-in-law of former New York Assembly speaker Sheldon Silver,  was arrested on wire fraud and securities charges stemming from his alleged scheme to defraud multiple investors of approximately $7 million through a fraudulent investment scheme that he allegedly perpetrated for at least five years.  Sealed Criminal Indictment

Sheldon Silver was arrested in January for using his position to obtain $4 Million in bribes and kickbacks concealed as income from outside law practice.

Among other false and misleading statements, Trebitsch allegedly lied to investors by telling them that he would use their money to trade in securities through an investment fund that he controlled, generating double-digit returns with very low risk. Instead, Trebitsch allegedly invested only a portion of the investors’ money and suffered enormous trading losses, which he failed to disclose to the investors. Trebitsch allegedly used the remainder of the investors’ money for his own personal benefit and to pay back other investors.

According to the allegations in the two-count Complaint unsealed today in Manhattan federal court:

From 2009 through December 2014, Trebitsch engaged in a multimillion-dollar fraudulent investment scheme, during which he solicited money from investors based on materially false and misleading representations. Specifically, Trebitsch told the investors that he would use their money to purchase large-cap stocks through an investment fund called Allese Capital LLC, which Trebitsch co-owned with his wife, who was a certified public accountant.

Trebitsch told the investors that he would purchase and sell stocks on a daily basis, with little or no funds invested in the market at the end of each trading day, which would minimize the risk of loss, and result in double-digit annual returns in the range of 14 to 16 percent. In fact, Trebitsch invested only a portion of the investors’ money, and instead principally used the investors’ money for his own personal benefit, including to repay other investors.  With respect to the portion of investor funds that he did use to purchase securities, Trebitsch suffered net trading losses, which he did not disclose to the investors. Rather, Trebitsch sent the investors false and misleading monthly account statements and tax forms, which purported to show positive annual returns in range of 15 to 19 percent on the investors’ investment in Allese.

During the course of the fraudulent scheme, Trebitsch solicited more than $7 million from multiple investors.


Trebitsch, Marcello Complaint(PDF)

April 15, 2015 in Current Affairs | Permalink | Comments (0)

The Lehman Brothers Bankruptcy B: Risk Limits and Stress Tests

DownloadThe Lehman Brothers Bankruptcy B: Risk Limits and Stress Tests 
Yale Program on Financial Stability Case Study 2014-3B-V1

ROSALIND Z. WIGGINSYale University - Yale Program on Financial Stability
ANDREW METRICKYale School of Management, National Bureau of Economic Research (NBER)

Investment banks are in the business of taking calculated risks. Risk management infrastructure facilitates the safe pursuit of profits and the balancing of associated risks. By 2006, Lehman Brothers was thought to have a very respectable risk management system, and even its regulator, the Securities and Exchange Commission, viewed its risk framework as being fully compliant with regulatory requirements. In its public disclosures, Lehman characterized its risk controls as “meaningful constraints on its risk taking” and evidence of its continued financial stability. Beginning in late 2006, however, Lehman began dismantling its carefully crafted risk management framework as it pursued a new high-leverage growth strategy. During the next two years, it exceeded many risk limits, aggressively increased a number of risk metrics, disregarded its risk procedures, and excluded risk management personnel from key decisions. In October 2007, it replaced its well-regarded chief risk officer with a seasoned deal maker who lacked professional risk management experience. This case considers the value of a risk management system and how it functioned (and then did not) to constrain risk taking at Lehman. It also considers the role of its regulator.

April 15, 2015 in Current Affairs | Permalink | Comments (0)

Tuesday, April 14, 2015

Which Brazilian Fraud is Bigger? Brazilian Ministry of Finance's Tax Fraud for Bribes Or Petrobras' Contract Skims?

The answer is - it's a close call.  Both will probably, at the current very weak exchange rate, come in Brazil reaisaround US$6 billion (20 billion reais).

Reuters reports that the tax fraud at the Ministry of Finance may be worth US$6 billion: "Brazilian authorities on Thursday said they uncovered a tax fraud scheme at the Finance Ministry's tax appeals board that may have cost taxpayers up to 19 billion reais ($5.96 billion)."  But Reuters further reports "Early on Thursday, police raided the offices of the tax appeals board in Brasilia, and the homes and offices of tax consultants and lawyers suspected of acting as intermediaries. They also raided the headquarters of Banco Safra SA , Brazil's eighth largest bank ..."  

The FT reports that so much was looted from Petrobras though, Petrobras cannot even account for the total looted, which is in the billions.  Forbes reports that the total cost exceeds at least $4.5 billion just for five of the involved construction companies that are seeking bankruptcy protection as a result.


April 14, 2015 in Current Affairs | Permalink | Comments (0)

Monday, April 13, 2015

Organized Cybercrime Ring Member Sentenced to 150 Months in Prison for Selling Stolen and Counterfeit Credit Cards

SecretService-StarLogo.svg Jermaine Smith, aka “SirCharlie57,” aka “Fairbusinessman,”, of the identity theft and credit card fraud ring known as “” was sentenced today to 150 months in federal prison for selling stolen and counterfeit credit cards over the Internet.  He was further ordered to pay $50.8 million in restitution.

“Criminal cyber organizations like threaten not just U.S. citizens but people in every corner of the globe,” said Assistant Attorney General Caldwell.  “Managers in Russia seamlessly ran their criminal enterprise online using, among others, a counterfeit card vendor from New Jersey, with whom they communicated through screen name aliases.  The success in this case was achieved through equally seamless cooperation with our foreign law enforcement partners and effective use of the RICO statute.  As more countries work with us to fight these organizations, we will continue to evolve to meet this growing threat.”

“Mr. Smith’s crimes were very serious and justify a lengthy prison sentence,” said U.S. Attorney Bogden.  “He admitted that he caused a loss of seven to $20 million involving over 250 victims, and that he obstructed justice when he fled to Jamaica while released on bond awaiting trial.  We are working closely with our international, federal, state and local law enforcement partners to make sure that the perpetrators of these sorts of crimes are prosecuted no matter where in the world they commit their crimes or attempt to flee.”

“As this sentence demonstrates, cyber-criminals who purposely harm innocent Americans and compromise our financial system and global commerce will be aggressively pursued, investigated and prosecuted,” said Assistant Special Agent in Charge Harris.  “These criminals may believe they can escape detection by fleeing the country and hiding behind their computer screens, but as this case shows, cyberspace is not a refuge from justice.”

Jermaine Smith, aka “SirCharlie57,” aka “Fairbusinessman,” 34, of East Orange, New Jersey, pleaded guilty in October 2014 to one count of participating in a racketeer influenced corrupt organization.   

During his guilty plea, Smith admitted that in May 2009 he became associated with the organization, a criminal enterprise whose members trafficked in compromised credit card account data and counterfeit identifications, and committed money laundering, narcotics trafficking, and various types of computer crime.  Specifically, Smith admitted that he operated as a vendor on the organization’s websites, using the “SirCharlie57” and “Fairbusinessman” nicknames.  While acting as a vendor under those online monikers, Smith sold counterfeit credit cards to an undercover special agent.  Those counterfeit credit cards were successfully processed for fingerprints, identifying Smith as the true user of the online screennames.  In addition to the sale of the counterfeit credit cards, Smith admitted that he possessed over 2,150 stolen credit and debit card account numbers. 

While on pretrial release in this case, Smith removed an electronic monitoring device from his person and fled to Jamaica.  He was arrested four months later and returned to Nevada.

Fifty-six individuals were charged in four separate indictments in Operation Open Market, which targeted the organization.  To date, 26 individuals have been convicted and the rest are either fugitives or are pending trial.  

April 13, 2015 in Current Affairs | Permalink | Comments (0)

Texas A&M Hires Nine Highly Published Law Faculty

Texas A&M announced the addition of nine new faculty beginning in the fall of 2015.  "Hiring these new faculty is part of our effort to reduce our student-faculty ratio, which will improve the quality of your classroom experience. " states Texas A&M's news release.  "Our new faculty will also allow us to offer you a greater number of specialized courses taught by top experts in their respective fields."

With the addition of these nine faculty, Texas A&M Law will boast a full time faculty of 48.  Texas A&M established its law school in 2013 through an acquisition of an ABA fully approved JD program.


William Byrnes, International Financial Law Professor editor, is a leading international tax and financial crimes expert who has authored over 20 books and treatises for Lexis, Kluwer, National Underwriter, 16 chapters of Mertens Law of Federal Income Taxation, and hundreds of trade journal articles.  Professor Byrnes pioneered online legal education in 1994 and created the first online LL.M. offered by an ABA accredited law school. 

Irene Calboli specializes in intellectual property, European Union law, and international trade law. She has published numerous articles in journals such as the Illinois Law Review and Florida Law Review.

Susan Fortney is one of the country’s foremost legal ethics and attorney malpractice scholars. She has authored many books and law review articles on these and other topics. She also serves on the editorial board for two American Bar Association journals.

Nuno Garoupa is a top scholar in comparative law and law & economics. He has published dozens of articles in journals such as the Illinois Law Review and the American Law and Economics Review. He currently serves as President of the Fundação Francisco Manuel dos Santos in Portugal. 

Bill Henning is a preeminent scholar in commercial law. Professor Henning has served as Executive Director of the Uniform Law Commission. He is a member of the Permanent Editorial Board for the Uniform Commercial Code, the American Law Institute, and the State Department’s Advisory Council on Private International Law.

Glynn Lunney is an expert in intellectual property law and also has a Ph.D. in economics. He has published in prestigious journals such as the Virginia Law Review and the Michigan Law Review. 

Angela Morrison is an expert in employment and immigration law. She was previously the Legal Director of the Nevada Immigrant Resource Project, where she conducted outreach on immigration-related issues to community partners, governmental organizations, and immigrant communities. 

Saurabh Vishnubhakat is an expert in intellectual property and patent law. He has published articles in journals such as the Florida Law Review and the Yale Journal of Law and Technology. He previously served in the United States Patent and Trademark Office, advising the agency’s chief economist and other leadership on patent policy. 

Peter Yu is a prolific scholar and an award-winning teacher. He is the author or editor of six books and more than 100 law review articles and book chapters.


April 13, 2015 in Current Affairs | Permalink | Comments (0)

Saturday, April 11, 2015

Will You Buy Fannie Mae's Non-Performing Mortgages?


Fannie_mae_logoFannie Mae Wednesday began marketing its first bulk-sale of non-performing loans (NPLs). The pool of approximately 3,200 loans totaling $786 million in unpaid principal balance is available for purchase by qualified bidders. This sale of NPLs is being marketed in collaboration with Bank of America Merrill Lynch, Credit Suisse and The Williams Capital Group.

“We are pleased to offer this first transaction, which will help us reduce the number of seriously delinquent loans we own while providing additional foreclosure prevention opportunities,” said Joy Cianci, Fannie Mae’s Senior Vice President for Credit Portfolio Management. “We plan to build these sales into a programmatic offering, and look forward to working with a diverse range of potential buyers over time, including smaller investors, nonprofit organizations and minority- and women-owned businesses.”

Interested bidders can register for ongoing announcements, training and other information at Fannie Mae will also post information about specific pools available for purchase at that page. These sales were previously announced by Fannie Mae.

Recently, the Federal Housing Finance Agency (FHFA) announced NPL Requirements that must be followed when Fannie Mae or Freddie Mac sells non-performing loans. These guidelines require, among other elements, that the new owner of the loans offer mortgage modifications to borrowers. When a foreclosure cannot be prevented, the FHFA guidelines require the loan owner to market the property to owner-occupants and non-profits exclusively before offering it to investors, similar to Fannie Mae’s FirstLook® program.

April 11, 2015 in Current Affairs | Permalink | Comments (0)

The Prudent Investor Rule and Market Risk: An Empirical Analysis

SSRNThe prudent investor rule, enacted in every state over the last 30 years, is the centerpiece of fiduciary investment law. Repudiating the prior law's emphasis on avoiding risk, the rule reorients fiduciary investment toward risk management in accordance with modern portfolio theory.

The rule directs trustees to implement an overall investment strategy having risk and return objectives reasonably suited to the trust. Using data from reports of bank trust holdings and fiduciary income tax returns, we examine trustee management of market risk before and after the reform. First, we find that the reform increased stock holdings only among banks with average trust account sizes above the 25th percentile.
This result is consistent with sensitivity in asset allocation to beneficiary risk tolerance as proxied by account size. Second, we find that, although stockholdings increased after the reform, trust corpus did not become more correlated with the market. We explain this result in part with evidence of increased portfolio rebalancing after the reform. We conclude that the rule’s command to align market risk with beneficiary risk tolerance, and to manage market risk exposure on an ongoing basis, has largely been followed.
Schanzenbach, Max M. and Sitkoff, Robert H., The Prudent Investor Rule and Market Risk: An Empirical Analysis (March 20, 2015). Northwestern Public Law Research Paper No. 15-16. Available at SSRN: or

April 11, 2015 in Current Affairs | Permalink | Comments (0)

HSBC faces French criminal tax probe

The BBC reports that "HSBC says it has been placed under formal criminal investigation by French magistrates over alleged past tax-related offences at its Swiss private bank.  It added that bail of €1bn ($1.075bn; £726m) has been imposed."

The WSJ reports that UBS is also under formal French investigation for tax fraud and money laundering. Prosecutors requested that UBS pay a EUR1 billion bond in relation to the case.

April 11, 2015 in Current Affairs | Permalink | Comments (0)

Friday, April 10, 2015

Greece repays IMF April's $485 million, but where will May's $823 million come from?

Reuters reports that Greece has made its IMF scheduled payment yesterday, $485 million.  As a result, its internal liquidity is at perilous levels.  Greece needs more bailout loan funds - at least $7.2 billion more this year, to fund its public spending.

Reuters: "We are restarting the privatization process as a program making rational use of existing public assets," Varoufakis told a conference in Paris. "What we are saying is the Greek state does not have the capacity to develop public assets."

The WSJ reported that "Among its near-term debt burdens, Greece must repay IMF loans of about €770 million on May 12, while maturing treasury bills in the next two months also create a challenge, as foreign investors are increasingly unwilling to buy new issuance and Greek banks have been ordered by the eurozone banking supervisory authority not to increase their exposure."

April 10, 2015 in Current Affairs | Permalink | Comments (0)

The Block Is Hot: A Survey of the State of Bitcoin Regulation and Suggestions for the Future

Bitcoin and Blockchain technology pose a number of novel regulatory and legal issues.

SSRNThis note examines how government agencies and courts have attempted to keep society safe for — and sometimes from — Bitcoin and Blockchain users (with consumers and investors on one end and drug dealers, terrorists, and violent criminals on the other).

This note concludes with policy suggestions for changes to disclosure requirements and tax classifications to facilitate the broader adoption of Bitcoin as a currency by the general public.

Berkeley Technology Law Journal, Vol. 30, July 2015, Forthcoming

April 10, 2015 in Current Affairs | Permalink | Comments (0)

Thursday, April 9, 2015

William Byrnes Leads Distance Learning Faculty Enrichment Discussion at University of Arizona College of Law

Brazil Classroom 010Today's University of Arizona James E. Rogers College of Law faculty enrichment presentation will be led by Prof. William Byrnes.  Prof. Byrnes will open the discussion with information amalgamated from various empirical studies of distance learning pedagogy and outcomes.

Secondly, he will present various findings of the Work Group of Distance Learning for Legal Education's Best Practice Recommendations for Distance Learning for Legal Education 2.0 (an evolving effort with input from faculty and administrators from approximately 83 ABA law schools, a spectrum representative of the ranking tiers, collaboratively developed and authored, over a period of four years). 

In conclusion, he will share observations based upon his experiences over two decades of experimenting with distance technologies and legal education.  

In 2014 the American Bar Association (ABA) revised Standard 306 “Distance Education”, expanding opportunities and flexibility for institutions to leverage technological advances within the JD academic curriculum.  The American Bar Association initially acquiesced to an online LL.M. in 1998.  Yet, it is since the initial inception of the Work Group in 2010 that most of the 48 LL.M.s offered online by 30 ABA full approved law schools have been founded.  As of 2015, a majority of ABA law schools offer the opportunity for an academic experience at a distance for J.D. students. One ABA law school has received a variance to offer a hybrid, partially residential / partially online, JD.

previous remarks available at Alternative Methods of Teaching and the Effectiveness of Distance Learning for Legal Education

Download Arizona WGDE 4-9-15 Final

April 9, 2015 in Current Affairs | Permalink | Comments (0)

Is the UK's non-dom tax concession going to be repealed?

S630_HMRC_sign__media_library__960_The Guardian reported that "Non-dom numbers exploded during Tony Blair’s New Labour premiership. They doubled from 67,600 to 137,000 between 1997 and 2007 as his colleague Peter Mandelson pronounced that the government was “intensely relaxed about people becoming filthy rich”, so long as they paid their taxes."

However, The Labour Party may bring down non-dom status.

The Guardian now reports that "The row has injected a spark of life into Britain’s general election campaign after Miliband promised to abolish the non-domicile rule that allows many of Britain’s richest permanent residents to avoid paying tax in the UK on their worldwide income. "

But the Conservatives defended the non-dom rule: "The two coalition parties criticised Labour after it said the non-dom rule, introduced by William Pitt the Younger in the late 18th century, has been open to abuse and offends the moral basis of taxation."

And apparently so did Labour earlier this year, stating that doing away with it would cost the UK tax
revenue, not result in higher revenue.  Who is right?  read on at The Guardian.

April 9, 2015 in Current Affairs | Permalink | Comments (0)

Wednesday, April 8, 2015

Fair Approaches for Taxing Previously Untaxed Foreign Income (Guest Blogger Jeffery M. Kadet) Part 3

Jeffrey-M-Kadet-244x300Guest Financial Law Prof Blogger Jeffery Kadet) concludes his three part series on the fair approaches for taxing previously untaxed foreign income. Part 1 posted Monday and Part 2 yesterday.  The full article is available on SSRN:

Part 3 of 3 

B. Additional Considerations
1. Interest. The green book provides for the 14 percent tax on previously untaxed foreign income to be payable ratably over five years. The comparable provisions in the discussion drafts released over the past four years have all provided for installment payments but have been inconsistent regarding interest. Some, including the green book, have been silent concerning any interest charge.

For any previously untaxed foreign income that will qualify for a favorable less-than-35-percent rate, it makes sense to disregard any interest charge because any such additional interest amount is effectively only an adjustment of the favorable tax rate. (This, of course, ignores any effect if the interest were tax deductible; in this context, if interest is required, it should specifically be nondeductible.) It seems likely that most taxpayers would choose to pay in installments to defer those tax payments. Given that Congress would want to encourage earlier payment, perhaps discounts for early payment could be considered.

The previously untaxed foreign income that would be subjected to the 35 percent tax rate has resulted from tax avoidance behavior; the applicable taxpayer has already had the real economic benefit of deferral for years. There is no reason for extending the deferral period even more by allowing an interest-free installment payment scheme. Accordingly, interest should be charged to the extent of any installment payments.

2. Ignoring claims of pain from U.S. multinationals. It is fair to say that U.S. multinationals and their management (often with equity-based compensation arrangements) will be less than complimentary about my suggestions. While there will undoubtedly be other strongly expressed concerns, I will briefly comment on two.

a. One-time charge. Many U.S. multinationals have chosen not to accrue foreign taxes within their consolidated financial statements based on the assumption that their low- and zero-taxed earnings are being permanently reinvested overseas. The large buildup of cash overseas with no apparent investments in sight — plus, in some cases, instances of domestic borrowings — reflects the often artificial nature of these ‘‘permanently reinvested’’ assumptions.

Whether from a low favorable rate or from a full 35 percent rate, many U.S. multinationals will have to make additional accruals of taxes on their financial statements to reflect the one-time tax imposed on transition to a new international taxation regime. These additional accruals will reduce their reported earnings and perhaps depress their share prices as well. While U.S. multinationals will complain bitterly, this accrual of additional tax expense is a one-time charge that I believe the capital markets will understand and accept with minor disruption. Because these one-time charges reflect solely past earnings, they will have no effect on the future earning ability of these multinationals. In addition, many of these multinationals hold these past earnings in the form of cash, often sitting underused on the consolidated balance sheet. Considering these factors, any depression of share prices that does occur should be short-lived.

I must add that this is not a new issue about which there was no warning to U.S. multinationals. Over 10 years ago, the 2004 repatriation tax holiday and the more recent 2011 Camp discussion draft put U.S. multinationals squarely on notice that their foreign earnings could be subjected to some level of tax, either attributable to a new tax repatriation holiday (for which many U.S. multinationals continue to strongly lobby) or on a transition to a new international taxation system. Despite this clear notice, many U.S. multinationals chose to continue making the ‘‘permanently reinvested’’ assumption for their foreign earnings. This is a clear case of their having made the bed in which they’re now sleeping. Loud complaints regarding the need to accrue new taxes should be summarily ignored.

b. Competition. Perhaps the most common refrain heard from U.S. multinationals during discussions of tightening taxation of their foreign income is that terrible things will happen to their competitiveness. This is a red herring on several levels.

For previously untaxed foreign income, there would be a one-time tax calculation measured solely by reference to income earned in past years. This one-time imposition cannot affect the relative tax economics of any future foreign transaction vis-à-vis foreign-based competitors.

While on the subject of competitiveness, I want to add that even if the green book’s proposal for a per-country up-to-19-percent minimum tax on foreign income is established, it is simply wrong to say that this will cause a competitive disadvantage for U.S. multinationals. The 19 percent is, on the surface, higher than the taxes imposed on foreign profits by other countries that are home countries of multinationals. This is because these other foreign countries generally impose tax on a territorial basis, thus exempting active foreign income when it is earned and repatriated. This is the argument strongly and loudly made by U.S. multinationals about being in a terrible competitive position.

That argument is fallacious today and will be even more so in the future. In brief, the existing CFC rules of other countries, as well as the expected strengthening of CFC regimes that will come out of the OECD base erosion and profit-shifting process, mean that competitor multinationals will sometimes be subject to their home country’s taxation on some or all of their foreign earnings. Whether a particular U.S. multinational for a particular transaction will be taxed more or less than its foreign competitors will depend on many factors, including for example the details of the transaction, the industry, the particular corporate and tax structure chosen by each multinational, which home country is involved, etc. With the proposed 19 percent rate (which is actually lower because of the proposed ‘‘allowance for corporate equity’’) being lower than the general corporate tax rates of most of the home countries of these multinational competitors, there will be plenty of situations in which the foreign competitors will be worse off taxwise than U.S. multinationals.

C. Concluding Comment

Many U.S. multinationals have succeeded beyond imagination at legally sidestepping our sub-part F CFC rules and severely limiting taxable income within the foreign countries in which they operate or sell their products or services. For these multinationals, we cannot reward behavior that McCain has labeled convoluted and pernicious.

Despite that label from a well-known Republican, all proposals for revamping our international taxation system, including the recently released green book, would blithely reward in a major fashion the convoluted and pernicious strategies that have been aggressively pursued for many years, especially since the 2004 repatriation tax holiday.

This article has suggested two workable approaches to identifying CFC earnings that should be subject to the full 35 percent corporate tax rate on transition to a new taxation system, with the remainder subject to a favorable transition rate. Our legislators need to understand this distinction regarding past behavior and provide for appropriate differences in transition treatment. 

Jeffery M. Kadet has been a Part-Time Lecturer for about a decade within the University of Washington Law School Graduate Program in Taxation teaching several international taxation courses.  In addition to this and other academic activities over the years, Jeff has spent more than 32 years in public accounting, of which more than 22 years were spent practicing and living outside the U.S. in Singapore, Moscow, Tokyo, Istanbul, Hong Kong and Shanghai.  He has worked in numerous industries and has specialized in international taxation and business planning. 

April 8, 2015 in Current Affairs | Permalink | Comments (0)

Tuesday, April 7, 2015

Fair Approaches for Taxing Previously Untaxed Foreign Income (Guest Blogger Jeffery M. Kadet) Part 2

Jeffrey-M-Kadet-244x300Guest Financial Law Prof Blogger Jeffery Kadet) has written a three part series on the fair approaches for taxing previously untaxed foreign income.  Part 1 was posted yesterday, and Part 3 will be posted tomorrow.  The full article is available on SSRN:

Part 2 of 3

A. Suggested Approaches

1. Camp approach. In his 2014 discussion draft, Camp broke CFC earnings into two portions by imposing a higher 8.75 percent rate on earnings being held in cash and cash-equivalent forms. The remaining earnings would be subject to the lower 3.5 percent rate. This approach is administratively easy to apply, objective, and definitely a workable solution. Its shortcoming, however, is that it focuses on the form in which CFC earnings are held on the transition date (to a new tax system) and not on any ‘‘convoluted and pernicious strategies’’ that may have shifted profits into zero- or low-tax havens. But having said this, the existence of earnings that have been subjected to relatively little or no foreign tax and that are held in cash or cash-equivalent form is pretty good evidence of tax avoidance planning.

With this in mind, the first suggested approach is to use Camp’s solution with all CFC previously untaxed foreign income — on transition to a new tax system — being subject to the maximum rate under section 11 (35 percent but with an FTC offset) to the extent of cash and cash equivalents. All remaining previously untaxed foreign income would be taxed on transition at whatever favorable less-than-35-percent rate Congress chooses.

Should Congress desire, this Camp solution approach could be modified by providing for the favorable less-than-35-percent rate to apply when it is clear that there has been no tax avoidance structuring:

  • The favorable rate could apply to any previously untaxed foreign income that had, in fact, been subjected to an effective rate of tax of, say, 90 percent of the U.S. corporate rate, which would sensibly match this treatment to the section 954(b)(4) subpart F income exception for income subject to high foreign taxes.
  • Congress could direct Treasury to identify countries of incorporation that U.S. multinationals would never use for tax avoidance planning. As a simple example, because of its worldwide taxation regime on resident companies and its significant 25 percent tax rate, it is unlikely that China would ever be used as a place of incorporation for a company that would earn income that had been shifted from some other country where operations were conducted. After appropriate review, Treasury could publish a list of those countries, with all previously untaxed foreign earnings of such companies being granted the favorable rate.

2. Tax-structured vehicle approach. The shortcoming of the Camp approach is that it focuses on the form in which CFC earnings are held at the transition date and not on any ‘‘convoluted and pernicious strategies’’ that may have shifted profits to tax havens. The second simple approach defines ‘‘tax-structured vehicle.’’ For any such vehicle, its previously untaxed foreign income, upon transition to a new tax system, would be subject to the maximum rate under section 11 (35 percent with an FTC offset). The previously untaxed foreign income within all CFCs not so classified would be taxed on transition at whatever favorable less-than-35- percent rate Congress chooses.

As a first step to identifying tax-structured vehicles, Treasury would publish a listing of countries that can be used as the place of incorporation of CFCs that earn low- or zero-taxed foreign income through profit-shifting arrangements. Treasury would also provide examples of tax-motivated structures meant to achieve the goals of avoiding both (i) current U.S. taxation by planning around subpart F, and (ii) taxation in the foreign countries in which operations are conducted or sales are made.

A presumption of tax-structured vehicle status would be applied to all CFCs established in the listed countries. A U.S. multinational involved with the vehicle could attempt to rebut this presumption for its CFCs by establishing to the satisfaction of the Treasury secretary or his delegate, based on a facts and circumstances review, that there was no such tax-motivated structuring. If this presumption is not successfully rebutted, any previously untaxed foreign income within the CFC would be subject to the 35 percent tax, with an FTC offset.

If Congress chooses this tax-structured vehicle approach, it is strongly suggested that applicable committee reports include a clear statement of the principles behind the definition of tax-structured vehicle and numerous examples of common corporate structures that are seen to have tax avoidance motivations. Clear legislative instructions would not only provide necessary guidance to Treasury and the IRS, but also should importantly limit taxpayer presumption-rebuttal efforts to situations that truly deserve consideration. Further, the rules should be clear that the burden of proof is on the taxpayer to support any effort at rebuttal of the presumption.

Needless to say, this second approach does not have the true simplicity of avoiding all ‘‘facts and circumstances’’ analyses. However, if there is clear congressional guidance, it should be a simple and administrable approach — considering the billions of dollars at issue and the serious message that Congress should send that it will not reward the aggressive tax avoidance behavior exhibited by many U.S. multinationals.

[To be continued in Part 3 tomorrow]

Jeffery M. Kadet has been a Part-Time Lecturer for about a decade within the University of Washington Law School Graduate Program in Taxation teaching several international taxation courses.  In addition to this and other academic activities over the years, Jeff has spent more than 32 years in public accounting, of which more than 22 years were spent practicing and living outside the U.S. in Singapore, Moscow, Tokyo, Istanbul, Hong Kong and Shanghai.  He has worked in numerous industries and has specialized in international taxation and business planning. 

April 7, 2015 in Current Affairs | Permalink | Comments (0)