International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Friday, February 20, 2015

Asset Bubbles: Re-thinking Policy for the Age of Asset Management

IMF_Text_LogoSummary: In distilling a vast literature spanning the rational— irrational divide, this paper offers reflections on why asset bubbles continue to threaten economic stability despite financial markets becoming more informationally-efficient, more complete, and more heavily influenced by sophisticated (i.e. presumably rational) institutional investors.

Candidate explanations for bubble persistence—such as limits to learning, frictional limits to arbitrage, and behavioral errors—seem unsatisfactory as they are inconsistent with the aforementioned trends impacting global capital markets.

In lieu of the short-term nature of the asset owner—manager relationship, and the momentum bias inherent in financial benchmarks, I [Bradley Jones, IMF] argue that the business risk of asset managers acts as strong motivation for institutional herding and ‘rational bubble-riding.’

Two key policy implications follow. First, procyclicality could intensify as institutional assets under management continue to grow. Second, remedial policies should extend beyond the standard suite of macroprudential and monetary measures to include time-invariant policies targeted at the cause (not just symptom) of the problem. Prominent among these should be reforms addressing principal-agent contract design and the implementation of financial benchmarks.

IMF Working Paper by Bradley Jones

February 20, 2015 | Permalink | Comments (0)

Thursday, February 19, 2015

President Obama proposes a new P3 bond

ImagesIn an attempt to spur investment for infrastructure development, the Obama Administration proposed the creation of a new municipal bond, or Qualified Public Infrastructure Bond (QPIB).  

The QPIB is intended to broaden the scope of Public Activity Bonds (PAB) by providing financing for airports, ports, mass transit, solid waste disposal, sewer and water.  The QPIB is designed to attract new capital by permitting private-public partnerships, or P3's, to take advantage of the benefits of municipal bonds.  
Unlike PABs, "the QPIB bond program will have no expiration date, no issuance caps, and interest on these bonds will not be subject to the alternative minimum tax," the Administration stated in its recent statement.  The QPIB is expected to provide a "permanent lower cost financing tool to increase private participation in building our nation’s public infrastructure."  

For more on QPIBs read this statement and article here.  

February 19, 2015 | Permalink | Comments (0)

Deferred Income Annuities’ Flex Pay Appeals to Younger Investors

ThinkAdvisorA flurry of regulatory activity has put deferred income annuities (DIAs) in the spotlight frequently in the past year, with many billing DIAs as the up-and-coming option for clients to ensure sufficient income even at an advanced age. Often overlooked, however, are the DIA product features that insurance carriers have recently developed in order to appeal to a younger generation of annuity purchasers. 

Because of these newly developed options, DIAs today can provide protection against longevity risk through guaranteed income products that have previously been unattractive to the younger client—opening up this retirement savings avenue for an entirely new group of clients.

read Byrnes & Bloink at Think Advisor

February 19, 2015 | Permalink | Comments (0)

Financial Misconduct, Penalties and Corporate Accountability: Case of Fraud Under the U.S. Bank Secrecy Act

MATTHEW PONSFORDMcGill University - Faculty of Law

SSRNThis project examines recent and ongoing misconduct in the financial sector and implications for corporate governance and accountability. The misconduct ranges from abusive mortgage trades and misreporting on derivatives losses to manipulation of commodity markets. Major corporations, such as JPMorgan Chase and Morgan Stanley, have paid billions of dollars to regulators in penalties. The research project reviews the events from the perspectives of corporate governance, specifically whether shareholders are penalized for wrongdoing of corporate managers, and how far the regulatory practice of making settlements with the companies promotes accountability and corporate governance. The penalties diminish shareholder wealth and the question is whether shareholders end up as “helpless victims.” The research herein has combined theoretical and empirical methods. The theory part of research includes discussion of various regulatory methods and their efficacy, the justification for the settlements concluded by the corporations with governments, grounds for proposed personal liability against executives, and possible class action lawsuits in the future. The empirical element consists of review of investigative reports, disclosures by the companies, and settlement orders made by regulatory agencies. This helps form an opinion on the culpability of executives and the related issue about whether the costs of misconduct in the form of penalties are passed on to shareholders.

February 19, 2015 | Permalink | Comments (0)

Wednesday, February 18, 2015

U.S. Lawmakers Put Currency Cheating on Trade Agenda

U.S. one dollar bills at the Bureau of Engraving and Printing in Washington


(Reuters) - U.S. lawmakers on Tuesday unveiled bipartisan legislation to stop trading partners from manipulating exchange rates, and a senior Democrat vowed to keep pushing for rules against currency cheating in trade deals.

The bill would make deliberate weakening of currencies, which makes a country's exports cheaper, equivalent to an export subsidy under U.S. trade law, meaning it could be offset by import duties.

For more information read the Reuters article, here.

February 18, 2015 | Permalink | Comments (0)

Money Laundering: Council Endorses Agreement With EP

EU CommissionThe Council on 10 February 2015 approved an agreement with the European Parliament on strengthened rules to prevent money laundering and terrorist financing.

The directive and regulation will strengthen EU rules against money laundering and ensure consistency with the approach followed at international level. The draft regulation deals more specifically with information accompanying transfers of funds.

The Council on 10 February 2015 approved an agreement with the European Parliament on strengthened rules to prevent money laundering and terrorist financing.

The directive and regulation will strengthen EU rules against money laundering and ensure consistency with the approach followed at international level. The draft regulation deals more specifically with information accompanying transfers of funds.

Beneficial ownership 

The package includes specific provisions on the beneficial ownership of companies. Information on beneficial ownership will be stored in a central register, accessible to competent authorities, financial intelligence units and obliged entities such as banks. The agreed text also enables persons who can demonstrate a legitimate interest to access the following stored information: 

  • name,
  • month and year of birth,
  • nationality,
  • country of residence,
  • nature and approximate extent of the beneficial interest held.

Member states that so wish may use a public register. As for trusts, the central registration of beneficial ownership information will be used where the trust generates consequences as regards taxation. 


For gambling services posing higher risks, the agreed text requires service providers to conduct due diligence for transactions of €2000 or more. In proven low-risk circumstances, member states will be allowed to exempt certain gambling services from some or all requirements, in strictly limited and justified circumstances. Such exemptions will be subject to a specific risk assessment. Casinos will not benefit from exemptions. 


As concerns sanctions, the text provides for a maximum pecuniary fine of at least twice the amount of the benefit derived from the breach or at least €1 million. For breaches involving credit or financial institutions, it provides for: 

  • a maximum pecuniary sanction of at least €5 million or 10% of the total annual turnover in the case of a legal person;
  • a maximum pecuniary sanction of at least €5 million in the case of a natural person.

Next steps

Agreement with the European Parliament was reached on 16 December 2014. The Council's approval of that outcome paves the way for adoption of the package at second reading.

Member states will have two years to transpose the directive into national law. The regulation will be directly applicable.

February 18, 2015 | Permalink | Comments (0)

Former Tifton Bank President and CEO Indicted for Bank Fraud

640px-FdicLogoGary Patton Hall Jr, a former bank president of Tifton Bank, was charged with six counts of bank fraud and one count of major fraud against the United States on February 12 for his role in a bank fraud scheme in which he is alleged to have hidden underperforming and at-risk loans from the bank and the Federal Deposit Insurance Corporation (FDIC), among others. 

According to allegations in the indictment, Hall was the president and Chief Executive Officer of Tifton Banking Company (TBC) from August 2005 until June 2010.  During that time, Hall was allegedly engaged in a long running scheme to mislead the bank and its loan committee about loans TBC made to local individuals and businesses.  As part of the scheme, Hall allegedly hid past due loans from the FDIC and the TBC loan committee, which resulted in the bank continuing to approve and renew delinquent loans and loans for which the collateral was lacking.  Several of the borrowers eventually defaulted on the loans, resulting in millions of dollars in losses to TBC and others.    

Hall also allegedly hid his personal and business interests in at least two of the transactions over which he exercised approval authority.  For example, in one instance, Hall allegedly approved several loans to the buyer of his condominium in Panama City Beach, Florida.  In doing so, Hall allegedly made several false representations about the loans to TBC’s loan committee, and failed to disclose his personal interest in the transaction.  When the buyer’s loan payments became delinquent, Hall allegedly hid the loans from both the FDIC and state regulators.  Hall allegedly received $50,000 from the sale of his condominium in this transaction, which was allegedly funded in full by an unsecured loan to the buyer approved by Hall.  The buyer eventually declared bankruptcy resulting in a loss of more than $400,000 to TBC.

TBC was closed by the Georgia Department of Banking and Finance in November 2010 due to its poor financial condition.  At that time, TBC had not repaid the $3.8 million it received from the Department of Treasury’s Troubled Asset Relief Program.

February 18, 2015 | Permalink | Comments (0)

Tuesday, February 17, 2015

Working Group for Distance Learning in Legal Education Spring 2015 Meeting

Download BestPracticeRecommendationsforDistanceLearningforLegalEducation 2015 (or contact and I will send it directly)

Dates: Thursday, March 12, 2015 at 12:00PM – Saturday, March 14, 2015 at 12:00PM (PST)

Location: UC Hastings College of the Law (Sky Room – 100 McAllister Street, San Francisco, CA, 94102) < Register Here >

The Working Group for Distance Learning in Legal Education is a loosely structured alliance of law educators collaborating to provide increased opportunities for faculty, students, and other participants to access high quality, innovative, and interactive online legal education.

Officially organized in November 2011, the Working Group is an outgrowth of the Program for the Legal Profession’s Future Ed Series. To date, the Working Group has focused on three major priorities:

  1. Providing model policies and information for law schools engaged in distance learning programs.
  2. Developing recommended practices and standards for emerging distance learning programs in legal education.
  3. Providing comments and policy recommendations for accreditation bodies that regulate distance learning in legal education, including the American Bar Association.

Members of the Working Group meet three times a year, with substantive meetings in the fall and spring, and an update gathering at the American Association of Law Schools annual meeting in January. Membership is open to academics and professionals associated with accredited law schools in the U.S., and others working in the distance learning field concerned with legal education are welcome to attend meetings and participate, as appropriate, in Working Group matters.

Please contact Ashley Dymond for further information at

February 17, 2015 | Permalink | Comments (0)

JPMorgan's new approach to probing suspect transactions sparks internal friction

FINCENReuters reports that ... former U.S. Department of Homeland Security investigations official Jerry Robinette, quit last July, saying in a resignation letter to JPMorgan that he had done so to "protect my professional reputation." He warned that the bank may be failing to satisfy regulators and sent a copy of the letter to the Office of the Comptroller of the Currency (OCC), the lead regulator for JPMorgan's consumer and commercial bank. ... 

... At least 30 of around 50 managers of the bank's anti-money laundering investigations group have left in the past year or are due to leave, according to the three who have left and a Reuters analysis of various documents, including LinkedIn profiles. 

... JPMorgan officials say the bank has greatly improved the quality of its AML program, increasing staff by 300 percent, consolidating 15 offices into three in Delaware, New York and Texas, and overhauling its processes and technology. It also hired Pamela Dearden from Citigroup to serve as managing director of financial crimes compliance. ...

read the full investigative report at Reuters

February 17, 2015 | Permalink | Comments (0)

First Criminal Prosecution in the United States For Campaign Finance Coordination between Political Committees

FBISeal (1)Campaign Manager, Tyler Harber, of Republican VA Congressional Candidate, Chris Perkins, Pleads Guilty to ,  with the National Republican Victory Fund super-PAC for the unsuccessful challenge to unseat incumbent Democratic Representative Gerald Connolly.

The campaign finance manager and political consultant plead guilty February 12th for coordinating $325,000 in federal election campaign contributions by the political action committee (PAC) to the Congressional campaign committee.  This is the first criminal prosecution in the United States based upon the coordination of campaign contributions between political committees.   

Tyler Eugene Harber, 34, of Alexandria, Virginia, plead guilty to one count of coordinated federal election contributions and one count of making false statements to the FBI.  A sentencing hearing is scheduled for June 5, 2015.  According to the plea documents, Harber was the Campaign Manager and General Political Consultant for a candidate for Congress in the November 2012 general election.  At the same time, Harber participated in the creation and operation of a PAC, which was legally allowed to raise and spend money in unlimited amounts from otherwise prohibited sources to influence federal elections so long as it did not coordinate expenditures with a federal campaign. 

Harber admitted, among other things, that he made and directed coordinated expenditures by the PAC to influence the election with $325,000 of political advertising opposing a rival candidate.  The coordination of expenditures made them illegal campaign contributions to the authorized committee of Harber’s candidate, and Harber admitted that he knew this coordination of expenditures was an unlawful means of contributing money to a campaign committee.  He further admitted that he used an alias and other means to conceal his action from inquiries by an official of the same political party as Harber’s candidate.

Harber further admitted that he told multiple lies when interviewed by the FBI concerning his activities.

February 17, 2015 | Permalink | Comments (0)

Europe Calls Greece's Bluff, No More Euros Without Greece Spending Reforms

Reuters reported - "The unexpectedly rapid collapse raised doubts about Greece's future in the single currency area after a new leftist-led government vowed to scrap the 240 billion euro ($272.4 billion) bailout, reverse austerity policies and end cooperation with EU/IMF inspectors." ...

"Dutch Finance Minister Jeroen Dijsselbloem, who chaired the meeting, said Athens had until Friday to request an extension, otherwise the bailout would expire at the end of the month. The Greek state and its banks would then face a looming cash crunch." ...

"German Finance Minister Wolfgang Schaeuble said before the talks that Greece had lived beyond its means for a long time and there was no appetite in Europe for giving it any more money without guarantees it was getting its finances in order." ...

"It is a very negative development for the economy and the banks. The outflows will continue. We are losing 400-500 million (euros) every day and that means about 2 billion every week. We will have pressure on stocks and bond yields tomorrow," he said. read Reuters here

NY Times reported "The urgency of Greece’s financial situation was underscored on Monday by a report from JPMorgan Chase indicating the Greek banks were losing deposits at the rate of 2 billion euros, or $2.27 billion, a week. If that pace continued for the next 14 weeks, the banks would not have enough reserves on hand to issue new loans, according to the report."

February 17, 2015 | Permalink | Comments (0)

Monday, February 16, 2015

MyCoin fraud of 3,000 customers' £250m or 43 investors of $8 million? Who to believe?

IBT reported that Bitcoin exchange MyCoin disappears with £250m in suspected Ponzi scheme.  

Bitcoin_euroBut BitCoin News Service countered that but now that the Hong Kong Commercial Crime Bureau (CCB) is involved, reports are saying that the amount lost only stands at around $8 million.  Furthermore, the amount of alleged victims has fallen from about 3,000 to 43 ...

Now IBT reports that MyCoin never actually held or traded any BitCoin, and was just a common Ponzi scheme.  


February 16, 2015 | Permalink | Comments (0)

Sunday, February 15, 2015

Good returns – What banks are putting back into communities

London.bankofengland.arpThe BBA released a report about US and UK banks' corporate social responsibility (CSR) initiatives in philanthropic work and volunteer work.

"In 2013, the six largest UK retail banks invested £366 million in communities worldwide – an increase of 9% since 2010. But making a positive contribution to society is not just about spending money. More than 181,000 employees spent in excess of 1.1 million hours volunteering on supported projects. In the same year the US banks we interviewed said they had pledged $912 million (£602 million) to their community and philanthropic work. Banks’ total investment rises from £968 million for the UK and US banks referred to above to in excess of £1 billion when other leading European and US banks are factored in. The extent of these sums reflects the importance banks attach to sustainability and corporate social responsibility (CSR) initiatives."

read the full report on the BBA website!

February 15, 2015 | Permalink | Comments (0)

Saturday, February 14, 2015

Greece default teetering with little tax collection and huge deposit outflows from its banks

Greece-euroReuters Exclusive: Rising deposit outflows and precaution behind extra Greek bank ELA access - "The ECB on Thursday raised the cap on what Greek banks can get from the Bank of Greece through the Emergency Liquidity Assistance (ELA) window by about 5 billion euros to 65 billion euros. The extension will run until Feb. 18 when the ECB Governing Council will reappraise the situation."

RT News reports that "Greece needs to negotiate with EU policymakers by February 28 in order to receive the next tranche of bailout funds. If Athens doesn’t get the money it will have difficulty servicing its €317 billion debt. Two bailouts were paid in 2010 and 2014 totaling €240 billion."

The Financial Times reports that "The Greek government also said on Thursday that tax revenues were 20.3 per cent below target — a shortfall of €933m — heightening concerns that the country will be unable to meet €4.1bn of debt repayments due in the next six weeks ...".

The Guardian reports that "The current bailout programme expires on 28 February, but Monday 16 Februaryis the last date Greece can apply for an extension, according to Jeroen Dijsselbloem, chair of the eurogroup of eurozone finance ministers. Dijsselbloem, who is also Dutch finance minister, said on Friday he was “very pessimistic” about getting a new deal at Monday’s meeting of eurozone finance ministers." 

February 14, 2015 | Permalink | Comments (0)

Friday, February 13, 2015

PwC's Report on the Green Book - Obama FY 2016 Budget proposes minimum tax on foreign income and PwC's analysis of other significant international tax proposals

JCOT_bTreasury's 'Green Book,' released February 2, 2015, outlines the Administration's FY16 Budget proposals.  It explains a new proposal for a 19% minimum tax on foreign income and a one-time 14% transition tax on previously untaxed foreign income.  It also significantly changes some international tax proposals made in previous Budgets. The Budget reaffirms President Obama's support for 'business tax reform' that would lower the top US corporate rate to 28% (25% for domestic manufacturing income).  

For US multinationals, the focus in the Administration's FY 2016 Budget has shifted from outbound intangible property transfers and base erosion to the minimum and transition tax concepts that would fundamentally change the US international tax system.  While the President mentioned a 'minimum tax on overseas profits' in his 2012 business tax reform framework, the FY 2016 Budget is the first time the Administration has laid out specific proposals for a minimum tax on foreign earnings.  Additional new international items include further subpart F tightening and immediate application of worldwide interest expense allocation.  

read PwC's analysis 

February 13, 2015 | Permalink | Comments (0)

Islamic Banking: Some Distinguishing Regulatory Considerations

MICHAEL J. T. MCMILLENCurtis, Mallet-Prevost, Colt & Mosle LLP, University of Pennsylvania Law School

SSRNThis focus of this paper is the regulation of one segment of modern Islamic finance: Islamic banking, whether conducted by stand-alone Islamic banks or “Islamic windows” within conventional interest-based banks. Consideration is given to a select group of illustrative issues that arise in connection with the regulation of Islamic banks. These issues pertain to (i) the structure of Islamic banks and the nature of the activities conducted by Islamic banks with funds provided by the customers of those banks (i.e., the funds that are considered to be ‘deposits’ in conventional banking), and (ii) Shariʿah governance, a subset of corporate governance that focuses on ensuring that Islamic banks operate and conduct their activities in accordance with the Shariʿah.

February 13, 2015 | Permalink | Comments (0)

Is Greece a "Dead Man Walking" or the Phoenix Moments Before Rebirth?

The British Bankers Association reports that negotiations between eurozone finance ministers over the Greek bailout programme broke down Wednesday.  Referring to the FT article (£, p6), the BBA reported that the failure: “appeared to dash the hopes of many in Brussels that a deal could be reached on at least a “technical” extension of the current bailout at the end of the month. Instead, Athens is now likely to head into March without any bailout assistance for the first time in nearly five years — an outcome that many in Brussels worry could spark market turmoil and potentially a run on deposits at Greek banks.”

The Guardian (p25) quotes German Finance Minister Wolfgang Schäuble saying: “We have a programme. The programme is either brought properly to an end or there is no programme.”

But on Thursday afternoon, Reuters reported that "Greece agreed on Thursday to talk to its creditors about the way out of its hated international bailout in a political climbdown that could prevent its new leftist-led government running out of money as early as next month."

NY Times Deal Book reported - In Germany, the view now is that such a situation does not pose a broad financial danger. Following the debt restructuring in 2012, 80 percent of the Greek debt is owned by public sector creditors, with banks and investment funds having a small exposure by comparison.

February 13, 2015 | Permalink | Comments (0)

Thursday, February 12, 2015

The Financial Industry Regulatory Authority: Not Self-Regulation after All

HESTER PEIRCEGeorge Mason University - Mercatus Center 

FINRABroker-dealers in the United States are regulated by the Financial Industry Regulatory Authority (FINRA). Although commonly perceived to be a self-regulator, FINRA is not accountable to the industry in the way a self-regulator would be. Nor is it accountable to the public, Congress, the president, or the courts. FINRA’s structure and monopoly status shield it from close oversight. Consequently, an important part of the securities markets is under the control of a regulator with limited accountability. As FINRA seeks to expand its regulatory footprint into areas such as investment adviser regulation, its unique form of regulation warrants reconsideration.

February 12, 2015 | Permalink | Comments (0)

Switzerland unveils draft laws to dismantle bank secrecy

Report on international financial and tax matters 2015 - The annual report of the Swiss Federal Department of Finance on international financial and tax matters reviews and gives an outlook on activities in the areas of financial market regulation, engagement in international financial bodies and international tax policy.

The FT reported in January that the Swiss government has taken a further step towards dismantling its once untouchable bank secrecy laws, by unveiling draft legislation that would pave the way for automatic information exchange about offshore accounts held in Switzerland.  In Bern on Wednesday, the government launched a three-month consultation period on two bills that would allow Switzerland to fulfill these international agreements.   read the FT's full story ...

Bloomberg further reported that interested parties will have until April 21 to comment on the bill.

February 12, 2015 | Permalink | Comments (0)

Wednesday, February 11, 2015

How Do Corporate Tax Bases Changes When Corporate Tax Rates Change? With Implications for the Tax Rate Elasticity of Corporate Revenues

LAURA KAWANOUS Department of Treasury - Office of Tax Analysis and JOEL B. SLEMRODUniversity of Michigan, Stephen M. Ross School of Business, National Bureau of Economic Research (NBER)

Treasury-Dept.-Seal-of-the-IRSWe construct a new database of changes to multiple aspects of corporate tax bases for OECD countries between 1980 and 2004. We use our data to systematically document the tendency of countries to implement policies that both lower the corporate tax rate and broaden the corporate tax base. This correlation informs our interpretation of previous estimates of the relationship between corporate tax rates and corporate tax revenues, which typically do not include comprehensive measures of the corporate tax base definition.

We then re-examine the relationship between corporate tax rates and corporate tax revenues when controlling for our new tax base measures. We find that accounting for unobserved heterogeneity and changes to the corporate tax base attenuates the relationship between corporate tax rates and corporate tax revenues.

February 11, 2015 | Permalink | Comments (0)