Tuesday, June 30, 2015
Note that since the release of the initial 1 June 2014 U.S. Treasury list of registered foreign financial institutions that have been allocated a GIIN list, Haydon Perryman and I (authors of the industry leading Lexis Guide to FATCA Compliance) have been analyzing on a monthly basis the GIIN list that the IRS provides of “approved FFIs” (foreign financial institutions) and then we publicly share our research with industry.
We have a public request for assistance with our continued research that will help us provide better information in our future posts and the 2016 Guide to FATCA Compliance. I ask that you email me (firstname.lastname@example.org):
(1) the annual reporting date for [Country]’s Financial Institutions to provide its [Competent Authority] information on accounts beneficially owned by US persons for FATCA, and non-residents for CRS
(2) web link to local regulatory guidance for such reporting
(3) name and web-link for the local reporting form(s)
(4) annual date, if it differs from that in the IGA, that [Country] will upload its amalgamated information to the US’ IDES.
"JPMorgan Chase Bank & Co. sued six of its former brokers who defected together to Morgan Stanley this spring for allegedly telling clients if they stayed with JPMorgan their accounts might be serviced by a call center, among other claims. ... The brokers worked with about 400 families while at JPMorgan and generated about $15 million in annual revenue, the complaint said."
read the article here.
Monday, June 29, 2015
Greece must repay to the IMF by tomorrow evening Euro 1.6 billion. It's government has decided to 'take the money and run', or at least, cause a bank run.
All Greek banks have been shut until at least July 6, as well as the stock market. ATM withdrawal are limited to 60 Euro a day. Depositors do not know if the 'theoretically' protected amount of their funds remain protected or will all be lost? A bankrupt government that cannot pay back the lenders of last resort like the IMF cannot also meet its depositor insurance demands. The Greek economy teeters on collapse.
Greece is asking to take on another $8.1 billion in debt from primarily the EU institutions, to keep itself a float another couple months. However, it rejects the structural reforms required by the international bailout fund. C'est la vie.
According to the terms of the non-prosecution agreement (Download EKS executed NPA and SOF), EKS agrees to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay penalties in return for the department’s agreement not to prosecute EKS for tax-related criminal offenses.
EKS was founded in 1817 and is wholly owned by a Swiss charitable foundation. It is headquartered in the city and canton of Schaffhausen, Switzerland. EKS opened, maintained and serviced accounts for U.S. persons that it knew or had reason to know were likely not declared to the Internal Revenue Service (IRS) or the U.S. Department of the Treasury as required by U.S. law.
From 2004 through 2011, EKS accepted referrals of U.S. persons as new clients from an external asset manager who, until 2009, resided in the United States and conducted some of his business through a corporation organized under the laws of the United States. The majority of the accounts that came to EKS as a result of these referrals were held in the names of non-U.S. entities that were beneficially owned by U.S. persons.
In May 2008, with the knowledge and approval of EKS management, the external asset manager and an EKS relationship manager visited five U.S. cities to meet with U.S. clients and attorneys who had the potential to refer new clients. Topics discussed during their meetings included the “crisis” involving Swiss bank UBS AG, client satisfaction with EKS, the performance of client accounts at EKS and the “asset protection” benefits of EKS.
Until 2009, EKS opened numbered accounts for U.S. persons, including code-name or pseudonym accounts, upon request. Upon opening this type of account, an EKS employee would enter the accountholder’s name in a physical register rather than in the bank’s electronic records system. This action limited the number of EKS personnel who knew the client’s identity. Holders of these accounts could also provide documents to EKS using only their code names or numbers as their authorized signatures.
EKS provided all of its clients, including U.S. persons, with the option to request that EKS retain all mail related to a client’s financial accounts in exchange for a standard service fee. EKS understood that providing such hold-mail agreements upon request could allow U.S. persons to keep evidence of their EKS accounts outside of the United States and thus assist them in concealing assets and income from the IRS.
EKS also accepted IRS Forms W-8BEN for U.S.-related accounts held in the names of non-U.S. entities, such as foreign corporations, trusts or foundations. Because Swiss law required EKS to identify the true beneficial owners of the entities on a document called a Form A, EKS knew that these accounts were beneficially owned by U.S. persons. Nonetheless, EKS accepted Forms W-8BEN that it knew falsely stated that the entities were the beneficial owners of the accounts.
EKS was aware of the 2009 IRS Offshore Voluntary Disclosure Program for U.S. persons. Despite knowing of that program and knowing or having reason to know that some of its U.S. clients had likely not declared their EKS accounts to the IRS, EKS made no effort to encourage its U.S. clients to disclose their accounts through that program.
During 2009, consultants reported to EKS, among other things, that EKS had increased risks because of its relationship with the external asset manager; that it was only a matter of time until small banks came into contact with U.S. authorities; and that there was a latent risk that previous revenues from EKS’s “U.S. strategy” could be seized or corresponding fines imposed. According to minutes of a 2009 meeting of the EKS board of directors, an EKS executive stated, among other things, that “there is practically no risk if U.S. customers travel to Switzerland and a customer account is handled locally,” and that he had been informed that Swiss bank Wegelin & Co. was going to keep its previous U.S. customers.
In October 2009, the EKS board of directors voted to continue the account relationships with clients of the external asset manager, including his U.S. clients, under certain conditions, including that his business be relocated to Switzerland. The board also voted to “have the option of entering into new cross-border business relationships.”
Since Aug. 1, 2008, EKS provided private banking services for 90 U.S.-related accounts with approximately $65 million in assets. Thirty-seven of these accounts were opened after Aug. 1, 2008. EKS will pay a penalty of $2.066 million.
In accordance with the terms of the Swiss Bank Program, EKS mitigated its penalty by encouraging U.S. accountholders to come into compliance with their U.S. tax and disclosure obligations. While U.S. accountholders at EKS who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS Offshore Voluntary Disclosure Program, the price of such disclosure has increased.
FATF Plenary meeting of Plenary year FATF-XXVI was held on 24-26 June 2015.
The main issues dealt with by this Plenary were:
- Issuing a statement and set out a future work plan on "de-risking".
- Producing two public documents identifying jurisdictions that may pose a risk to the international financial system:
- Continuing its work on terrorist financing, which remains a priority.
- Receiving an update on AML/CFT improvements in Indonesia.
- Discussing the mutual evaluation report on compliance with the FATF Recommendations of Malaysia.
- Welcoming the Kingdom of Saudi Arabia as an observer to the FATF.
- Adopting and publishing:
- Indicating its support for a proposal from the Republic of Korea to establish an AML/CFT training and research institute in Korea.
Continuing its work on terrorist financing
Terrorist financing continues to be a priority issue on the FATF agenda given concerns about the terrorist threats posed notably by ISIL and foreign terrorist fighters. The FATF agreed to:
- report to the G20 in October on the level of implementation in FATF countries of the FATF standards on criminalising terrorist financing and applying targeted financial sanctions
- undertake work aimed at enhancing countries’ implementation of the FATF standards on terrorist financing, and
- conduct further typologies work in this area.
Update on AML/CFT improvements in Indonesia
The FATF congratulated Indonesia for the significant progress made in addressing the strategic AML/CFT deficiencies earlier identified by the FATF and included in its action plan. Indonesia will no longer be subject to the FATF’s monitoring process under its on-going global AML/CFT compliance process. It will work with the Asia/Pacific Group on Money Laundering (APG) as it continues to further strengthen its AML/CFT regime.
Mutual evaluation report on compliance with the FATF Recommendations of Malaysia
The Plenary discussed the mutual evaluation report of Malaysia, which is currently an observer to the FATF. The report sets out the level of effectiveness of Malaysia’s AML/CFT system and its level of compliance with the FATF Recommendations. The report was prepared by the Asia-Pacific Group on Money Laundering (APG) on the basis of the FATF Methodology for assessments, adopted in 2013, which requires countries to take into account the effectiveness with which AML/CFT measures are implemented, as well as technical compliance for each of the FATF Recommendations.
The mutual evaluation of Malaysia was undertaken by the APG, and the assessment team comprised legal, financial and law enforcement experts principally drawn from FATF members. The Plenary discussed the team’s key findings, priority actions, and recommendations regarding Malaysia’s AML/CFT regime.
The FATF will finalise the mutual evaluation report for publication in due course.
Best practices on combating the abuse of non-profit organisations
The Plenary approved the revised best practices paper on combating the abuse of non-profit organisations (NPOs) for publication. The NPO community provides vitally important services around the world assisting those in need, often in remote regions. However, terrorists and terrorist organisations may also abuse some NPOs by creating fake charities to funnel money to terrorists, or abusing legitimate NPOs without the knowledge of their donors, management, or staff.
This guidance paper highlights the need for countries to protect NPOs from such abuse by implementing appropriate mitigation measures that are commensurate with the terrorist financing risks identified and in line with the risk-based approach. With input from governments and the private sector, including NPOs, the FATF has revised its best practices, aimed at preventing misuse of NPOs for the financing of terrorism while, at the same time, respecting legitimate activities of NPOs.The FATF is committed to continuing a constructive engagement with NPOs on these important issues, and will continue doing so on an ad hoc basis, as needed, to facilitate its technical work. The FATF also agreed to enhance its engagement by holding an annual discussion with NPOs on specific issues of common interest.
Guidance for a risk-based approach to virtual currencies
The Plenary adopted Guidance for a risk-based approach to virtual currencies for publication. This is an important step in the staged approach taken by the FATF and the focus of the Guidance is on the points of intersection that provide gateways to the regulated financial system, in particular convertible virtual currency exchangers.
This Guidance aims to help national authorities understand the ML/TF risks associated with virtual currencies payments products and services (VCPPS), and potentially develop regulatory responses to address them. It also aims to help the private sector better understand and comply with relevant AML/CFT obligations. This Guidance builds on the typologies report published in June 2014, and on the risk matrix and the best practices of the Guidance for the risk-based approach to prepaid cards, mobile payments and internet based payment services published in June 2013. Going forward, the FATF will continue to monitor developments in this area.
Money laundering / terrorist financing risks and vulnerabilities associated with gold
The plenary approved the report on money laundering / terrorist financing risks and vulnerabilities associated with gold for publication. This report identifies the features of gold and the gold trade that have made it an alternative means for criminals to transfer value and generate proceeds. Gold is anonymous, has a stable value and is easily transformable and transportable, which have made it an attractive alternative for criminals to store or move and generate value as regulators implement stronger AML/CFT measures to protect the formal financial sector from abuse. This report provides a series of case studies and red flag indicators to raise awareness, particularly with AML/CFT practitioners and companies involved in the gold industry, of the key vulnerabilities of gold and the gold market. [report to be published in due course]
Sunday, June 28, 2015
Settlement Resolves Allegations and Administrative Claims Involving Schools in Five States
Education Affiliates (EA), a for-profit education company based in White Marsh, Maryland, has agreed to pay $13 million to the United States that it violated the False Claims Act by submitting false claims to the Department of Education for federal student aid for students enrolled in its programs. EA operates 50 campuses in the United States under various trade names, including All State Career, Fortis Institute, Fortis College, Tri-State Business Institute Inc., Technical Career Institute Inc., Capps College Inc., Driveco CDL Learning Center, Denver School of Nursing and Saint Paul’s School of Nursing, which provide post-secondary education training programs in several professions in the states of Alabama, Florida, Maryland, Ohio and Texas.
“Today’s settlement is an excellent example of cooperation among multiple offices of the federal government to achieve a result that protects federal student aid funding and the interests of individual students,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. “Schools have an obligation to live up to their commitment to the government and their students when they accept federal student aid funds.”
The government alleged that employees at EA’s All State Career campus in Baltimore altered admissions test results so as to admit unqualified students, created false or fraudulent high school diplomas and falsified students’ federal aid applications, and that multiple EA schools referred prospective students to “diploma mills” to obtain invalid online high school diplomas. These allegations also led to criminal convictions of two All State Careers admission representatives, Barry Sugarman and Jesse Moore, and a test proctor, Jacqueline Caldwell.
“Students who apply for federal financial aid to attend trade and professional schools are required to show that they have the necessary skills to complete the educational program and work in the field,” said U.S. Attorney Rod J. Rosenstein of the District of Maryland. “This settlement resolves the government's allegations that Education Affiliates defrauded the government by changing students' test scores and enrolling students with invalid diploma mill high school ‘diplomas’ ordered online.”
“The various cases that were settled here include numerous allegations of predatory conduct that victimized students and bilked taxpayers,” said Under Secretary Ted Mitchell of the U.S. Department of Education. “In particular, the settlement provides for repayment of $1.9 million in liabilities ordered by Secretary of Education Arne Duncan that resulted from EA awarding federal financial aid to students at its Fortis-Miami campus based on invalid high school credentials issued by a diploma mill. Secretary Duncan made clear that such abusive behavior would not be tolerated, and we will continue to work with the Justice Department and other federal agencies to ensure that postsecondary institutions face consequences when they violate the law.”
The settlement agreement also resolves allegations related to EA schools in Birmingham, Alabama, Houston and Cincinnati, including violations of the ban on incentive compensation for enrollment personnel, misrepresentations of graduation and job placement rates, alteration of attendance records and enrollment of unqualified students.
“Using fake high school diplomas is a particularly insidious abuse of the federal student aid system,” said Inspector General Kathleen Tighe of the U.S. Department of Education’s Office of Inspector General (OIG). “Students received only a worthless piece of paper.” Tighe commended the efforts of OIG staff and Department of Justice attorneys, whose outstanding investigative work led to this significant settlement.
The settlement resolves five lawsuits filed under the whistleblower provisions of the False Claims Act, which permit private citizens to sue on behalf of the United States and share in the recovery. As part of this resolution, the five whistleblowers will receive payments totaling approximately $1.8 million.
Friday, June 26, 2015
Bloomberg Business reports that Germany's Finance Minister (as well as the UK, Ireland, and others) are concerned about the EU Commission's proposal to require the sharing of competitive corporate information among EU countries.
Presumably, Germany, whose corporations are known for highly developed financial and business practices that provide them a competitive edge, has the same concerns regarding the OECD BEPS requirement to have its corporations share that financial and business competitive edge with other countries' governments.
German Finance Minister Wolfgang Schaeuble said the proposal needs changes to ensure it doesn’t violate national rules on privacy, trade secrets and tax confidentiality. He also expressed concern about how much access the European Commission would have to the shared information, an issue cited by Ireland, the U.K. and others who took part in public debate on the plan.
The BE-10 survey is conducted by the U.S. Department of Commerce’s Bureau of Economic
Analysis (BEA). The BE-10 survey is currently required to be filed with the BEA by any U.S. person that had direct or indirect ownership or control of at least 10 percent of the voting stock of an incorporated foreign business enterprise, or an equivalent interest in an unincorporated foreign business enterprise, at any time during the U.S. person’s 2014 fiscal year. The BE-10 is only filed every fifth year and thus, is not an annual form.
The general deadline for the fiscal year 2014 survey passed on 29 May 2015. But U.S. persons who will be first time BE-10 form filers have an automatic BE-10 filing extension until 30 June 2015.
Non-filers are potentially subject to civil and criminal penalties. The civil penalty for non-filing is at least $2,500 but not greater than $25,000. Willful non-compliance may attract a prison sentence up to one year. Any officer, director, employee, or agent of any corporation who knowingly participates in such non-compliance may also be punished by a like fine and/or imprisonment.
Total approved FFIs reached 165,461, and increase of only 2,851 during the month of May. This FATCA registration trend since January has been described as lethargic, with April’s increase just 2,600 additional firms joining, 3,734 additional during March, and 2,479 in February. But when compared to what was forecast by the IRS, by industry, and by the UK, it’s a troubling low figure.
In its FATCA FAQs, the IRS suggested a 500,000 potential FFI registration figure. Many industry stakeholders suggested that 800,000 – 900,000 firms fall under the expansive definition of financial institution.
Given the broad definition of a financial institution that must register for a GIIN, the UK HMRC estimated that, even with its IGA and its accompanying local regulations, 75,000 UK entities probably are impacted. Yet, only the UK GIIN population is only 23,256.
If the UK HMRC is correct that 75,000 entities are impacted in the UK, then extrapolated among other large and sophisticated financial service economies like Japan, China, India, and Germany, the IRS estimate of 500,000 may be low.
90 countries and dependencies have entered into a FATCA IGA with the U.S. based on Model 1A (reciprocal), or are awaiting local ratification, accounting for 100,190 of the registrations. A further eight countries signed a Model 1B (non-reciprocal), accounting for a further 39,564 GIINs. A final 14 countries signed a Model 2 version IGA, adding 18,458 FFI registrations covered by an IGA. Thus in total, 158,212, representing 96% of FFI registrations, are from the 112 IGA states and their dependencies.
The 131 countries and dependencies without an IGA have only registered 6,295 FFIs to date, a surprising low number given that the initial implementation of the 30% withholding for non-compliance with FATCA began 1 July 2014.
The UK and its ten dependencies and overseas territories comprised 74,694 of the GIINs, representing 45% of the total, or without the UK included, 49,898 for 30.6%. The 34 OECD members have produced 79,057 GIIN registrations.
Cayman remains the FFI registration global leader, with 30,868, throughout the entire FATCA registration process. Ironic that the EU Commission just black listed it last week.
The major financial industries of the four BRIC countries have only led to 8,254 FFI registrations, which is seen as a worrying point for FATCA acceptance among non-OECD states. BRIC registrations are now just dripping in, up from 8,186 in May, 8,060 in April and 7,962 in March.
OECD Common Reporting Standard signatories for the a multilateral competent authority agreement to automatically exchange information has reached 61. But a notable holdout of a signatory that has not yet actually ratified the agreement is the U.S. 88 countries and dependencies are signatories to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, the latest being Mauritius which signed June 23.
|FATCA IGA Scenarios||GIINs||Jurisdictions|
|Model 1A IGA||100,190||90|
|Model 1B IGA||39,564||8|
|Model 2 IGA||18,458||14|
GIIN List (2014/2015) Registrations
5,809 of the total FFI registrations are members of an expanded affiliated group (EAG).
New Contact Details
I am beginning my new faculty position with Texas A&M University School of Law in a week. With the resources of Texas A&M Law, my research colleague Haydon Perryman (who is now with UBS Investment Bank where he is responsible for global regulatory reporting of FATCA and the CRS) and I will be able to expand our FATCA and CRS research capacity. Any readers that want to assist in such research, please contact us at Haydon Perryman or William Byrnes. Please download my FATCA SSRN article here.
Thursday, June 25, 2015
Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration and Monica Bhatia, Head, Global Forum Secretariat issued the following letter in response to the EU black-listing many OECD-compliant jurisdictions.
Has the EU has in effect, at least undermined, and potentially made irrelevant, the OECD's agreements with international financial centers. According to the OECD letter below: "Our EU colleagues have confirmed that this is not their intent."
The OECD then continues: "As the OECD and the Global Forum we would like to confirm that the only agreeable assessment of countries as regards their cooperation is made by the Global Forum and that a number of countries identified in the EU exercise are either fully or largely compliant and have committed to AEOI, sometimes even as early adopters."
But the EU, in its communique, states that its new blacklist "can be used to screen non-cooperative tax jurisdictions and develop a common EU strategy to deal with them."
Just last week in response to the EU Commission proposal to require disclosure of corporate financial, tax, and business operation information among all EU countries, Germany, the UK, Ireland, among other EU states expressed their mutual concern, best stated by the Germany's Finance Minister: “I doubt whether we should really try to move in the way that the commission will become a tax authority...”
Is the Commission acting beyond the expressions of the member states? Or are the member states establishing a form of double standard, one that applies to the internal market and another that applies to non-members? Questions, questions....
As many of you may be aware, on 17 June, the EU Commission released its Comprehensive “Action Plan for Fair and Efficient Corporate Taxation in the EU”. The plan includes five key areas for action, including item 4, “Further Progress on Tax Transparency”.
As an immediate first step as part of this item, the Commission has released what is essentially a compilation of a pan-EU-wide list of third country non-cooperative tax jurisdictions, which is based on Member States' independent national lists. In their background document, the EU has indicated that they have not decided which countries should be listed, rather it is relaying decisions taken at national level by their members. It is very unfortunate that this exercise has looked like the establishment of a list. Our EU colleagues have confirmed that this is not their intent.
The list is made up of jurisdictions that appear on at least 10 EU member states’ national blacklists. Some information is provided as to what factors go into making the national blacklists - they include “compliance with transparency and exchange of information standards; absence of harmful tax measures, other criterion”.
It should be noted that the EU Commission has incorporated the Global Forum’s terms of reference into its principles of good governance in tax matters and so supports a clear link between compliance with the Global Forum standard and inclusion on a national blacklist. However, it is not clear how this aspect is factored into either the national blacklists or the EC’s list. In addition, the inclusion of harmful tax practices or “other criterion” in determining inclusion in a national blacklist makes it impossible to determine how this independently reflects on a jurisdiction compliance with the Global Forum standards.
As the OECD and the Global Forum we would like to confirm that the only agreeable assessment of countries as regards their cooperation is made by the Global Forum and that a number of countries identified in the EU exercise are either fully or largely compliant and have committed to AEOI, sometimes even as early adopters. Without prejudice to countries' sovereign positions, we are happy to confirm that these jurisdictions are cooperative and we would like to commend the tremendous progress made over the past years as well as the cooperation and integrity of the Global Forum process.
We have already expressed our concerns and stand ready to further clarify to the media the position of the affected jurisdictions with regard to their compliance with the Global Forum standards.
We look forward to further engagement with you all and remain fully available should you need any assistance.
Five Days Left! File FBAR Report (Foreign Bank and Financial Accounts) to FinCEN by June 30 or Pay Large Fines
The Internal Revenue Service reminds all US persons who has one or more bank or financial accounts located outside the United States, or signature authority over such accounts, that they may need to file an FBAR by next Tuesday, June 30.
FBAR refers to Form 114, Report of Foreign Bank and Financial Accounts, which must be filed with the Financial Crimes Enforcement Network (FinCEN), a bureau of the Treasury Department. It is not a tax form and cannot be filed with the IRS. The form must be filed electronically and is only available online through the BSA E-Filing System website.
In general, the filing requirement applies to anyone who had an interest in, or signature or other authority over foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2014. Because of this threshold, the IRS encourages taxpayers with foreign assets, even relatively small ones, to check if this filing requirement applies to them.
FBAR filings have surged in recent years, topping the one-million mark for the first time during calendar-year 2014. The FBAR requirement is separate from the requirement to report specified foreign financial assets on a U.S. income tax return using Form 8938.
FBAR Civil Penalties
A civil penalty up to $10,000 may be imposed by the IRS upon a U.S. person per incidence of non-compliance with the FBAR filing requirements although the IRS may waive the penalty when there is reasonable cause for the non-compliance and the FBAR properly reports the balance held in a foreign account. However, where the IRS determines willfulness for the FBAR non-compliance, it may increase the civil monetary penalty to the greater of $100,000 or 50 percent of the balance in the account at the time of the violation.
According to the Government Accountability Office (GAO) Report of 2013 regarding the application of FBAR civil penalties, small financial accounts with balances of less than $100,000 and that over a six year period had only an average of $103 tax owing (which equates to $17 a year additional tax revenue), the IRS imposed a FBAR penalty of $13,320 (i.e. $2,220 a year). The twenty-fifth percentile paid on average a $5,945 FBAR civil penalty for an average annual $277 tax understatement. The median FBAR civil penalty imposed was $17,991 a year for a median $2,125 a year tax understatement. The GAO analysis found that taxpayers with the smallest non-reported foreign financial accounts (i.e., those in the tenth percentile with accounts of $78,315 or lower) paid FBAR penalties as high as 575 percent of the actual tax, interest, and tax penalty owed.
Who is considered an individual FBAR filer?
An individual FBAR filer is a natural person who owns a reportable foreign financial account or has signature authority but no financial interest in a reportable foreign financial account that requires the filing of an FBAR for the reportable year.
An individual who jointly owns an account with a spouse may file a single FBAR report as an individual filer for that joint account. However, the FBAR instructions state that a spouse included as a joint owner, who does not file a separate FBAR, must also sign the FBAR. This is not possible with FinCEN’s BSA E-File system capability because it only allows for one digital signature. In this situation, FinCEN allows the spouses to designate, using Form 114a, which spouse will be designated as the FBAR signatory on the behalf of both.
The Swiss Federal Department of Finance released its first report on the national assessment of the money laundering and terrorist financing risks in Switzerland.
Drawn up by an interdepartmental working group, the report also contains specific analyses of the most important areas subordinated to the Anti-Money Laundering Act as well as other selected areas that are not.
It shows that Switzerland is not immune to financial crime and is still an attractive location for laundering the proceeds of crime mostly committed abroad. The report concludes that the current legislation takes appropriate account overall of the risks identified. At the same time, it recommends measures to strengthen the effectiveness of the Swiss system for combating money laundering and terrorist financing.
The analyses in the report are based on both quantitative and qualitative data obtained from public sources or provided by various federal and cantonal offices and by private-sector entities. It is clear from the report that Switzerland is not immune to financial crime and is still an attractive location for the laundering of assets derived from crime that is mostly committed abroad. In terms of predicate offences, the main threats for the Swiss financial sector are fraud, embezzlement, corruption and participation in a criminal organisation.
Although the overall assessment of the risks of money laundering resulted in a medium risk for all of the areas covered by the Anti-Money Laundering Act (AMLA), the level of risk differs for each area. The biggest threat has been identified in the area of universal banks. Nevertheless, the vulnerabilities are significantly reduced by the anti-money laundering measures so that appropriate risk management can be expected in this area despite the higher risk. The same is true for the following areas: private banking, asset management, legal professions, fiduciary business, and money and asset transfer services.
The analyses showed that there is a low threat for the areas of insurers, casinos and credit services in Switzerland. The other areas analysed (retail banking, securities trading, trade in precious metals, currency exchange, and payment services) are exposed to a medium threat. The existing measures to prevent and reduce the risk of money laundering and terrorist financing are though proportionate to the risks identified.
The analyses also revealed a limited risk for terrorist financing, which could have a significant impact, however, if it occurred. Furthermore, the risk could increase if terrorist financing networks were to more systematically exploit alternative money transfer systems in Switzerland. This would increase both the threat to Switzerland and its vulnerability.
At present, the financial intermediaries most exposed to the threat of terrorist financing are banks and money and value transmitting service providers and credit business. The sums of money in question are generally small. The authorities are working together closely in this area both at the national and international levels. The continuation and strengthening of this cooperation, particularly between intelligence services, further awareness-raising among entities potentially affected by terrorist financing and the application of other available legal means to combat terrorist financing are essential conditions for making risk mitigation possible.
In addition, six areas not directly subordinated to the AMLA were examined. The interdepartmental coordinating group on combating money laundering and the financing of terrorism (CGMT) concluded that the current system adequately responds to the risks. Nevertheless, it recommends measures for improvement.
The CGMT is of the opinion that the legislation for the areas covered by the AMLA, which was completed with the Federal Act of 12 December 2014 for Implementing the 2012 revised Financial Action Task Force (FATF) Recommendations, takes appropriate account overall of the current money laundering and terrorist financing risks. It also believes that the use of the instruments provided by the legislation should be improved further at the operational level. Consequently, the CGMT recommended eight measures in its report for consolidating the current system, which include promoting dialogue between the public and private sectors, developing and systemising statistics and specific recommendations for future analyses as well as with regard to the examinations of the areas not covered by the AMLA, namely the real estate sector, the commodities industry, foundations and free ports.
The national risk analysis is a continuous process. The report is to be updated and supplemented with other reports and analyses to ensure that the effectiveness of the Swiss system is evaluated and new threats are addressed.
The interdepartmental coordinating group on combating money laundering and the financing of terrorism (CGMT) was appointed by the Federal Council at the end of 2013. The CGMF is a permanent body headed by the Deputy State Secretary for International Financial Matters (Federal Department of Finance) and comprised of members of management in the following offices: the Federal Tax Administration (Federal Department of Finance); fedpol, the Federal Office of Justice, the Federal Gaming Board (Federal Department of Justice and Police), the Federal Intelligence Service (Federal Department of Defence, Civil Protection and Sport); the Directorate of Public International Law, Sectoral Foreign Policy Division (Federal Department of Foreign Affairs); FINMA, and the Office of the Attorney General of Switzerland.
The CGMT is tasked with coordinating the measures related to combating money laundering and terrorist financing in the Federal Administration. In this context, it must ensure continuous risk assessment in particular, with the objective of identifying new money laundering and terrorist financing threats and recommending possible measures to mitigate them. The CGMT's report also implements a FATF recommendation, which requires its members to perform risk analyses so that the measures for combating money laundering and terrorist financing can be better adjusted to the actual risks.
The U.S. Education Department’s gainful-employment rule is one step closer to taking effect.
A federal judge on Tuesday rejected a serious legal challenge, brought by the Association of Private Sector Colleges and Universities, to the controversial rule. The lobbying group’s lawsuit was the highest hurdle remaining for the proposed rule, which will judge career-oriented programs on their graduates’ ability to repay their student loans. The rule is slated to take effect on July 1.
read the Chronicle of Higher Education's full article explaining the ruling and gainful employment, and its potential impact on 1,500 programs.
Wednesday, June 24, 2015
In line with the international movement towards more transparency and exchange of information, Mauritius has taken a significant step to enhance its exchange of information legal framework and has signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. It is the seventh member of the African Tax Administration Forum to join the Convention and becomes the 87th jurisdiction participating to this truly global instrument to fight international tax avoidance and evasion.
Mr. Vishnu Lutchmeenaraidoo, Minister of Finance and Economic Development signed the Convention in the presence of the OECD Secretary General Angel Gurria. Developed by the OECD and the Council of Europe, the Convention provides a comprehensive multilateral framework for the exchange of information and assistance in tax collection. Its coverage includes administrative assistance between tax authorities for information exchange including automatic exchange, simultaneous tax examinations and assistance in the collection of tax debts.
On 24 October 2014, Mauritius was among the first 51 jurisdictions (the early adopters), which signed a multilateral competent authority agreement to automatically exchange information on financial account information (the new international standard) based on Article 6 of the Multilateral Convention. Subsequent signatures of the agreement bring the total number of jurisdictions to 61.
Mauritius has committed to start exchanging automatically in 2017 and now has joined the legal instrument which once ratified serves as the basis for the implementation of the multilateral competent authority agreement already signed.
Mauritius has been very active in ensuring effective implementation of international standards of transparency and exchange of information which is also evidenced by its long standing commitment to implementing the standards. It is a member of the Global Forum on Transparency and Exchange of information and the 2014 peer review of Mauritius concluded that it is largely Compliant with the standard of exchange of information on request.
The 87 jurisdictions participating in the Convention can be found here.
Thank you for being our reader! Prof. William Byrnes
- articles and comments
- conference announcements
- publication releases
- scuttlebutt and lagniappe
"The rapidly shifting world of international financial and tax regulation – from the OECD’s BEPS to FATCA – is reshaping the world. Many of these policies are being adopted without regard to whether they produce net benefits (e.g. revenue in excess of the costs they impose), which raises the question: why?"
Read his entire BEPS and FATCA commentary on Kluwer International Tax Blog
Ernst & Young reports in its Global Tax Alert as follows:
... Meanwhile, the chairmen of the two congressional tax writing committees this week voiced concern about the Organisation for Economic Co-operation and Development (OECD) base erosion and profit shifting (BEPS) project.
Senate Finance Committee Chair Orrin Hatch and House Ways and Means Committee Chair Paul Ryan sent a letter to Treasury Secretary Jack Lew on 9 June expressing their general concern about BEPS, as well as singling out several specific BEPS proposals. Excerpting from their letter -
"Some recent press reports have indicated that the Treasury Department believes it currently has the authority under the Internal Revenue Code to require CbC reporting by certain U.S. companies and that Internal Revenue Service (IRS) guidance on this reporting will be released later this year.
We believe the authority to request, collect, and share this information with foreign governments is questionable.
In addition, the benefits to the U.S. government from agreeing to these new reporting requirements are unclear, particularly since the IRS already has access to much of this information to administer U.S. tax laws.
Therefore, we request that, before finalizing any decisions, the Treasury Department and IRS provide the tax-writing committees with a legal memorandum detailing its authority for requesting and collecting this CbC information from certain U.S. multinationals and master file information from U.S. subsidiaries of foreign multinationals. We also request that you provide a document: (i) identifying how the CbC reporting and other transfer pricing documentation obtained by the IRS on foreign multinationals operating in the United States will be utilized, and; (ii) providing the justification for agreeing that sensitive master file information on U.S. multinationals can be collected directly by foreign governments. In the event we do not receive such information, Congress will consider whether to take action to prevent the collection of the CbC and master file information.
We also have significant concerns about many of the provisions included in several other proposals of the BEPS project, including, among others, modifying the permanent establishment (PE) rules, using subjective general anti-abuse rules (GAAR) in tax treaties, and collecting even more sensitive data from U.S. companies to analyze and measure base erosion and profit shifting.
E&Y reported that "In response, Treasury International Tax Counsel Danielle Rolfes this week reiterated the Administration’s position that Treasury has regulatory authority to implement CbC reporting. She also told the OECD international tax conference that the US is not among those countries that are developing the multilateral agreement contemplated in BEPS Action 15."
Read the full story in E&Y's Global Tax Alert
Tuesday, June 23, 2015
Is Exit Charge a Tax or a Regulatory Fee? Billionaire Space Tourist Mark Shuttleworth Case Final Decision!
The South African Mail & Guardian reports on the final conclusion exit charge case of billionaire Mark Shuttleworth (also the first African to orbit the earth in space via a paid spaceship ticket on a Russian Soyuz) that has seen twists and turns, with contrary rulings by the Supreme Court and the Constitutional Court. Is the exit charge a revenue raising tax or a public policy regulatory measure?
Shuttleworth challenged the constitutionality of the imposition of a 10% exit charge that must be paid by all citizens who want to move more than R750 000 offshore. This charge cost Shuttleworth R250-million of his fortune. Shuttleworth argued that the charge was a tax, while the state argued that it was not.
Notable quote by Justice Johan Froneman (dissenting):
“Shuttleworth’s case hardly seems fit with the more apparent transformational aspirations of the Constitution. He is a privileged person who has generated considerable wealth whilst living here,” Froneman said.
“Having acquired that wealth he then chose to go and live elsewhere and attempted to take all of his money out of the country. So what, then, is wrong with asking him to leave a relatively small part of that behind in South Africa through the imposition of an exit charge?”
Monday, June 22, 2015
Will Greece need to return to the gold standard?
The UK's Express Press reports:
A run on the banks could mean no money in cash machines, a shortage of food and problems with medical supplies and treatment, possibly leading to riots. Yesterday the Foreign Office admitted officials had been in talks with the Association of British Travel Agents to formulate evacuation plans.
Game over Greece?
Reuters reports - Not quite yet...
The cash-starved country must repay the IMF 1.6 billion euros by June 30 or be declared in default, potentially triggering a bank run and capital controls.
Jeroen Dijsselbloem, chairman of the euro zone finance ministers, known as the Eurogroup, described the new Greek document as comprehensive and "a basis to really restart the talks". He said negotiations in the coming days would show whether the numbers added up.
The Financial Times released a leaked document from Greece's creditors and stated that two of Greece’s bailout monitors think defence cuts would allow Greece to create a surplus to pay back its debt. Greece spends among the EU's highest defense budgets.
A report released today by an American Bar Association presidential task force calls for enhanced law student debt counseling, wider collection and publication of law school financial data and innovation at law schools to lower costs for students while maintaining sound educational programs.
On debt counseling, the report states that it "is obviously important that students who borrow student loans to fund their legal education be informed consumers." It calls on the ABA's independent law school accrediting body to require schools to provide debt counseling services that exceed those now required by the U.S. Department of Education. The report also encourages publication of simplified disclosures about educational loans and repayment options for students.
A second set of recommendations stems from the task force's concern about the scarcity of relevant data. The report calls on the ABA's accrediting agency to collect and release more information from law schools, including expenditure and revenue data, and information on the amount and percentage of financial aid distributed based on need or merit.
Innovation is the report's third approach for improving the financial health of law schools, their students and graduates. The task force offers examples of operational improvements at law schools and urges the ABA's accrediting body to encourage experimentation at law schools to reduce cost and improve value. It also encourages groups to research and share information on law school cost, student debt, job prospects and related issues, with an emphasis on promoting a diverse legal profession.
"This is a critical time for legal education in the evolving legal marketplace, so a thorough, credible examination of legal education financing issues is more important than ever," said ABA president William C. Hubbard. "The ABA Task Force on the Financing of Legal Education has studied the complex issues and produced thoughtful recommendations for consideration."
The 15-member task force, established in May 2014, is chaired by former ABA president Dennis W. Archer. A vote on adoption of the task force recommendations is planned for the next ABA House of Delegates meeting Aug. 3-4 in Chicago. The task force report is available online here.