International Financial Law Prof Blog

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

Saturday, August 13, 2016

Newly Released Country Peer Reviews Reports by OECD for Transparency and Exchange of Information for Tax Purposes

The following OECD publications are hot off the press!:

 
More information
Global Forum on Transparency and Exchange of Information for Tax Purposes
Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Ukraine 2016
Phase 1: Legal and Regulatory Framework
This publication reviews the quality of Ukraine's legal and regulatory framework for the exchange of information for tax purposes.
 
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Global Forum on Transparency and Exchange of Information for Tax Purposes
Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Albania 2016
Phase 2: Implementation of the Standard in Practice
This report contains the 2014 “Phase 2: Implementation of the Standards in Practice” Global Forum review of Albania.
 
More information
Global Forum on Transparency and Exchange of Information for Tax Purposes
Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Cameroon 2016
Phase 2: Implementation of the Standard in Practice
This report contains the 2014 “Phase 2: Implementation of the Standards in Practice” Global Forum review of Cameroon.
 
More information
Global Forum on Transparency and Exchange of Information for Tax Purposes
Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Gabon 2016
Phase 2: Implementation of the Standard in Practice
This report contains the 2014 “Phase 2: Implementation of the Standards in Practice” Global Forum review of Gabon.
 
More information
Global Forum on Transparency and Exchange of Information for Tax Purposes
Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Pakistan 2016
Phase 2: Implementation of the Standard in Practice
This report contains the 2014 “Phase 2: Implementation of the Standards in Practice” Global Forum review of Pakistan.
 
More information
Global Forum on Transparency and Exchange of Information for Tax Purposes
Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Senegal 2016
Phase 2: Implementation of the Standard in Practice
This report contains the 2014 “Phase 2: Implementation of the Standards in Practice” Global Forum review of Senegal.
 
More information
Global Forum on Transparency and Exchange of Information for Tax Purposes
Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Switzerland 2016
Phase 2: Implementation of the Standard in Practice
This report contains the 2014 “Phase 2: Implementation of the Standards in Practice” Global Forum review of Switzerland.
 
More information
Global Forum on Transparency and Exchange of Information for Tax Purposes
Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: United Arab Emirates 2016
Phase 2: Implementation of the Standard in Practice
This report contains the 2014 “Phase 2: Implementation of the Standards in Practice” Global Forum review of the United Arab Emirates.

August 13, 2016 in GATCA | Permalink | Comments (0)

Friday, August 12, 2016

Panama Committee to Investigate Transparency Lacks Transparency, Nobel Prize Economist Quits

Reuters reports that "The committee set up to investigate lack of transparency in Panama's financial system itself lacks transparency, Nobel Prize-winning economist Joseph Stiglitz told Flag_of_Panama.svgReuters on Friday after resigning from the "Panama Papers" commission.  Stiglitz and Swiss anti-corruption expert Mark Pieth joined a seven-member commission tasked with probing Panama's notoriously opaque financial system, but they say they found the government unwilling to back an open investigation."

Read the full Reuters story here.

free download of Lexis Guide to FATCA Compliance (115 pages) here

August 12, 2016 in GATCA | Permalink | Comments (0)

Effects of Australia’s MAAL and DPT On Internet-Based Businesses

“Effects of Australia’s MAAL and DPT On Internet-Based Businesses”  Antony Ting, Tommaso Faccio and Jeffery M. Kadet

83 Tax Notes Int'l 145 (July 11, 2016), Available at SSRN: http://ssrn.com/abstract=2815782 

Australia has received considerable attention as a result of its unilateral actions to discourage multinational profit shifting. Those actions include the 2015 enactment of the Multinational Jeffrey-M-Kadet-244x300 Anti-Avoidance Law and the Australian Treasury’s May 2016 proposal for a diverted profits tax. This article considers how those actions might affect non-Australian multinational entities that conduct internet platform services for, and earn revenues from, Australian customers if those MNEs take no action. It also reviews structural alternatives.

As will be seen from the example set out in the article, the Australian royalty withholding tax is a major portion of the possible tax increases resulting from these developments. This will have a major impact on the economics of profit-shifting structures involving revenues that require on-the-ground sales, marketing, and other support activities in Australia. Australia’s actions, along with similar actions by the U.K., should be closely examined and may well be followed by numerous other countries feeling the effects of aggressive profit-shifting structures.

August 12, 2016 in BEPS | Permalink | Comments (0)

Thursday, August 11, 2016

Is UNT Collateral Damage of the DOE's Rebuke of the ABA? ABA Accreditation Committee Rejects UNT Law School Accreditation, Graduates Bar Exam Eligibility in Jeopardy.

The Wall Street Journal reported that the ABA Legal Education Committee reported  in June 2016 that it lacked confidence in the University of North Texas' (UNT) law school because "the school is not enrolling enough students capable of completing J.D. degree requirements and passing the bar exam."  The Accreditation found that UNT is not in substantial compliance with the "obligation to maintain sound admissions policies and practices" nor that "its present and anticipated financial resources are adequate to sustain a sound program". ABA Report is available here

Even with the lowest in-state tuition in the state of Texas ($16,000), according to the ABA report, application to the school dropped and its median LSAT fell from 147 to 146. According to the 2015 State of Legal Education Report that studied LSAT scores and student success in law school and on the Bar passage, students with a LSAT of 146 and are in the "very high risk" category.

The law school responded that it would seek to overturn the ABA Accreditation Committee decision at the ABA Full Council in October 2016.  Without ABA accreditation, UNT law graduates will not be eligible to sit for a bar exam.  UNT replied "If we do not get accredited, we will immediately petition the Supreme Court of Texas in order to request approval for our graduating students to take the Texas State Bar", but cautioned "There is no guarantee that the Court will grant such a request...". 

My comment...

The ABA's approach to UNT appears to follow its approach to three other newly established law schools within the past five years - Lincoln Memorial, Concordia and India Tech.  The ABA rejected initial accreditation of each of these schools, requiring each to address concerns about student quality and financial resources.  Then the ABA relinquished and accredited each.  Is UNT collateral damage of the ABA's own problems?  

The Department of Education (DOE)'s National Advisory Committee on Institutional Quality and Integrity (NACIQI) rebuked the ABA this past summer for laxity in its accreditation process.   Inside Higher Ed reported that the DOE's National Advisory Committee on Institutional Quality and Integrity (NACIQI) panel "rebuked the American Bar Association, in part for its 2000px-US-DeptOfEducation-Seal.svglack of attention to student achievement." Inside Higher Ed reported that "the NACIQI, after three contentious votes, recommended that the department suspend the association's ability to accredit new members for a year.  The panel said the ABA had failed to implement its student achievement standards and probationary sanctions, while also falling short on its audit process and analysis of graduates' debt levels."

Also as an element of the DOE rebuke, the ABA withdrew from its scope of recognition "distance education".  The DOE NACIQI stated: ".... The Department also expects that all of the personnel involved in accreditation activities will have received training regarding the accreditation and evaluation of distance education programs.  As noted previously the agency provided no evidence of those involved in accreditation activities regarding distance education."

Most 4th tier law schools admit a majority of "very high risk" applicants based on LSAT scores.  It may be a matter of school survival, may be a mission to serve applicants who do not test well on standardized, multiple choice (timed) tests, and may be a combination.  Many 4th tier law schools charge tuition twice, even thrice the price, of UNT.  Yet UNT, with its very low tuition is denied ABA accreditation while the other law schools are periodically re-accredited every fifth year.  For the "very high risk" applicant seeking to prove the ability to succeed beyond the expectations of standardized testing, a risk of a tuition of $16,000 is far better than a risk of a tuition of $45,000.  

A critic will retort that the Multi-State Bar Exam (MBE) is a standardized test, and that if one cannot overcome the hurdle of the LSAT, then how can one overcome the higher hurdle of the MBE?  I am not an expert in understanding the science of standardized examination.  But I do know that at least some low LSAT scoring students pass the MBE and become attorneys (curious what the actual percentage is).

Leaving the employment after school discussion aside, these students who do not perform well on the LSAT want a low-cost option to seek a first-year attempt at the law school curriculum.  Given the new 2-year, 75% bar passage standard likely coming down the pipeline - schools will be forced to attrition out low-performing students after first semester or first year.  

Thinking out loud, perhaps the ABA needs to consider an accreditation category ("accreditation light") that focuses on these students and allows a low-cost version of legal education?  Thus, relaxed input approach for an actual accreditation category such as "Access Approval" versus "Full Approval".  All the output assessment will remain, including bar passage requirement, employment reporting, debt reporting.  

Pandora's Box?  I'll await your emails.

August 11, 2016 in Education | Permalink | Comments (0)

Student Loan Forgiveness for School's Misleading, Deceitful, or Predatory Practices - DOEs Proposed Regulations

The purpose of the borrower defense regulation is to protect student loan borrowers from misleading, deceitful, and predatory practices of, and failures to fulfill contractual promises 2000px-US-DeptOfEducation-Seal.svgby, institutions participating in the Department's student aid programs. Most postsecondary institutions provide a high-quality education that equips students with new knowledge and skills and prepares them for their careers. However, when postsecondary institutions make false and misleading statements to students or prospective students about school or career outcomes or financing needed to pay for those programs, or fail to fulfill specific contractual promises regarding program offerings or educational services, student loan borrowers may be eligible for discharge of their Federal loans.   Download DOE Proposed Regs for Student Loan Forgiveness

The proposed regulations would give students access to consistent, clear, fair, and transparent processes to seek debt relief; protect taxpayers by requiring that financially risky institutions are prepared to take responsibility for losses to the government for discharges of and repayments for Federal student loans; provide due process for students and institutions; and warn students, using plain language issued by the Department, about proprietary schools at which the typical student experiences poor loan repayment outcomes—defined in these proposed regulations as a proprietary school with a loan repayment rate that is less than or equal to zero percent, which means that the typical borrower has not paid down at least a dollar on his or her loans—so that students can make more informed enrollment and financing decisions.

The Department also proposes a regulation that would prohibit a school participating in the Direct Loan Program from requiring, through the use of contractual provisions or other agreements, arbitration to resolve claims brought by a borrower against the school that could also form the basis of a borrower defense under the Department's regulations. The proposed regulations also would prohibit a school participating in the Direct Loan Program from obtaining agreement, either in an arbitration agreement or in another form, that a borrower waive his or her right to initiate or participate in a class action lawsuit regarding such claims and from requiring students to engage in internal institutional complaint or grievance procedures before contacting accrediting or government agencies with authority over the school regarding such claims. The proposed regulations also would prohibit a school participating in the Direct Loan Program from requiring, through the use of contractual provisions or other agreements, arbitration to resolve claims brought by a borrower against the school that could also form the basis of a borrower defense under the Department's regulations. The proposed regulations would also impose certain notification and disclosure requirements on a school regarding claims that are voluntarily submitted to arbitration after a dispute has arisen.

Summary of the Major Provisions of This Regulatory Action: For the Direct Loan Program, we propose new regulations governing borrower defenses that would—

  • Clarify that borrowers with loans first disbursed prior to July 1, 2017, may assert a defense to repayment under the current borrower defense State law standard;
  • Establish a new Federal standard for borrower defenses, and limitation periods applicable to the claims asserted under that standard, for borrowers with loans first disbursed on or after July 1, 2017;
  • Establish a process for the assertion and resolution of borrower defense claims made by individuals;
  • Establish a process for group borrower defense claims with respect to both open and closed schools, including the conditions under which the Secretary may allow a claim to proceed without receiving an application;
  • Provide for remedial actions the Secretary may take to collect losses arising out of successful borrower defense claims for which an institution is liable; and
  • Add provisions to schools' Direct Loan program participation agreements that, for claims that may form the basis for borrower defenses—
  • Prevent schools from requiring that students first engage in a school's internal complaint process before contacting accrediting and government agencies about the complaint;
  • Prohibit the use of mandatory pre-dispute arbitration agreements by schools;
  • Prohibit the use of class action lawsuit waivers; and
  • To the extent schools and borrowers engage in arbitration in a manner consistent with applicable law and regulation, require schools to disclose to and notify the Secretary of arbitration filings and awards.

The proposed regulations would also revise the Student Assistance General Provisions regulations to—

  • Amend the definition of a misrepresentation to include omissions of information and statements with a likelihood or tendency to mislead under the circumstances. The definition would be amended for misrepresentations for which the Secretary may impose a fine, or limit, suspend, or terminate an institution's participation in title IV, HEA programs. This definition is also adopted as a basis for alleging borrower defense claims for Direct Loans first disbursed after July 1, 2017;
  • Clarify that a limitation may include a change in an institution's participation status in title IV, HEA programs from fully certified to provisionally certified;
  • Amend the financial responsibility standards to include actions and events that would trigger a requirement that a school provide financial protection, such as a letter of credit, to insure against future borrower defense claims and other liabilities to the Department;
  • Require proprietary schools with a student loan repayment rate that is less than or equal to zero percent to provide a Department-issued plain language warning to prospective and enrolled students and place the warning on its Web site and in all promotional materials and advertisements; and
  • Require a school to disclose on its Web site and to prospective and enrolled students if it is required to provide financial protection, such as a letter of credit, to the Department.

The proposed regulations would also—

  • Expand the types of documentation that may be used for the granting of a discharge based on the death of the borrower (“death discharge”) in the Perkins, FFEL, Direct Loan, and TEACH Grant programs;
  • Revise the Perkins, FFEL, and Direct Loan closed school discharge regulations to ensure borrowers are aware of and able to benefit from their ability to receive the discharge;
  • Expand the conditions under which a FFEL or Direct Loan borrower may qualify for a false certification discharge;
  • Codify the Department's current policy regarding the impact that a discharge of a Direct Subsidized Loan has on the 150 Percent Direct Subsidized Loan Limit; and
  • Make technical corrections to other provisions in the FFEL and Direct Loan Program regulations and to the regulations governing the Secretary's debt compromise authority.

Costs and Benefits: As further detailed in the Regulatory Impact Analysis,the benefits of the proposed regulations include:

(1) An updated and clarified process and the creation of a Federal standard to streamline the administration of the borrower defense rule and to increase protections for students as well as taxpayers and the Federal government;

(2) increased financial protections for the Federal government and thus for taxpayers;

(3) additional information to help students, prospective students, and their families make educated decisions based on information about an institution's financial soundness and its borrowers' loan repayment outcomes;

(4) improved conduct of schools by holding individual institutions accountable and thereby deterring misconduct by other schools;

(5) improved awareness and usage, where appropriate, of closed school and false certification discharges; and

(6) technical changes to improve the administration of the title IV, HEA programs.

Costs include paperwork burden associated with the required reporting and disclosures to ensure compliance with the proposed regulations, the cost to affected institutions of providing financial protection, and the cost to taxpayers of borrower defense claims that are not reimbursed by institutions.

August 11, 2016 in Education | Permalink | Comments (0)

FBI Employee Pleads Guilty to Acting in the United States as an Agent of the Chinese Government

Defendant Collected and Caused Sensitive FBI Information to be Provided to the Chinese Government

Kun Shan Chun, a native of the People’s Republic of China and a naturalized U.S. citizen, pleaded guilty today to a criminal information charging him with acting in the United States as FBI DOJ logo an agent of China without providing prior notice to the Attorney General. 

Chun, aka Joey Chun, 46, pleaded guilty before U.S. Magistrate Judge James C. Francis IV of the Southern District of New York.  He was an employee of the FBI until his arrest on March 16, 2016.

“Kun Shan Chun violated our nation’s trust by exploiting his official U.S. Government position to provide restricted and sensitive FBI information to the Chinese Government,” said Assistant Attorney General Carlin.  “Holding accountable those who work as illegal foreign agents to the detriment of the United States is among the highest priorities of the National Security Division.”

“Americans who act as unauthorized foreign agents commit a federal offense that betrays our nation and threatens our security,” said U.S. Attorney Bharara.  “And when the perpetrator is an FBI employee, like Kun Shan Chun, the threat is all the more serious and the betrayal all the more duplicitous.  Thanks to the excellent investigative work of the FBI’s Counterintelligence Division, the FBI succeeded in identifying and rooting out this criminal misconduct from within its own ranks.”

“No one is above the law, to include employees of the FBI,” said Assistant Director in Charge Rodriguez.  “We understand as an agency we are trusted by the public to protect our nation’s most sensitive information, and we have to do everything in our power to uphold that trust.”  

According to the complaint, the information and statements made during today’s court proceeding:

In approximately 1997, Chun began working at the FBI’s New York Field Office as an electronics technician assigned to the Computerized Central Monitoring Facility of the FBI’s Technical Branch.  In approximately 1998, and in connection with his employment, the FBI granted Chun a Top Secret security clearance and his duties included accessing sensitive, and in some instances classified, information.  In connection with a progressive recruitment process, Chun received and responded to taskings from Chinese nationals and at least one Chinese government official (Chinese Official-1), some, if not all, of whom were aware that Chun worked at the FBI.  On multiple occasions prior to his arrest in March 2016, at the direction of Chinese government officials, Chun collected sensitive FBI information and caused it to be transmitted to Chinese Official-1 and others, while at the same time engaging in a prolonged and concerted effort to conceal from the FBI his illicit relationships with these individuals.

Beginning in 2006, Chun and some of his relatives maintained relationships with Chinese nationals purporting to be affiliated with a company in China named Zhuhai Kolion Technology Company Ltd. (Kolion).  Chun maintained an indirect financial interest in Kolion, including through a previous investment by one of his parents.  In connection with these relationships, Chinese nationals asked Chun to perform research and consulting tasks in the United States, purportedly for the benefit of Kolion, in exchange for financial benefits, including partial compensation for international trips.     

Between 2006 and 2010, Chun’s communications and other evidence reflect inquiries from purported employees of Kolion to Chun while he was in the United States, as well as efforts by the defendant to collect, among other things, information regarding solid-state hard drives.

In approximately 2011, during a trip to Italy and France partially paid for by the Chinese nationals, Chun was introduced to Chinese Official-1, who indicated that he worked for the Chinese government and that he knew Chun worked for the FBI.  During subsequent private meetings conducted abroad between the two, Chinese Official-1 asked questions regarding sensitive, non-public FBI information.  During those meetings, Chun disclosed, among other things, the identity and potential travel patterns of an FBI Special Agent.

In approximately 2012, the FBI conducted a routine investigation relating to Chun’s Top Secret security clearance.  In an effort to conceal his relationships with Chinese Official-1 and the other Chinese nationals purporting to be affiliated with Kolion, Chun made a series of false statements on a standardized FBI form related to the investigation.  Between 2000 and March 16, 2016, Chun was required by FBI policy to disclose anticipated and actual contact with foreign nationals during his international travel, but he lied on numerous pre- and post-trip FBI debriefing forms by omitting his contacts with Chinese Official-1, other Chinese nationals and Kolion.

On multiple occasions, Chinese Official-1 asked Chun for information regarding the FBI’s internal structure.  In approximately March 2013, Chun downloaded an FBI organizational chart from his FBI computer in Manhattan.  Chun later admitted to the FBI that, after editing the chart to remove the names of FBI personnel, he saved the document on a piece of digital media and caused it to be transported to Chinese Official-1 in China. 

Chinese Official-1 also asked Chun for information regarding technology used by the FBI.  In approximately January 2015, Chun took photos of documents displayed in a restricted area of the FBI’s New York Field Office, which summarized sensitive details regarding multiple surveillance technologies used by the FBI.  Chun sent the photographs to his personal cell phone and later admitted to the FBI that he caused the photographs to be transported to Chinese Official-1 in China.

In approximately February 2015, the FBI caused an undercover employee (UCE) to be introduced to Chun.  The UCE purported to be a U.S. citizen who was born in China and working as a consultant to several firms, including an independent contractor for the Department of Defense, among other entities.

During a recorded meeting in March 2015, Chun told the UCE about his relationship with Kolion and Chinese nationals and later explained to the UCE that Kolion had “government backing,” and that approximately five years prior a relative met a “section chief” whom Chun believed was associated with the Chinese government. 

In another recorded meeting in June 2015, Chun told the UCE that he had informed his Chinese associates that the UCE was a consultant who might be in a position to assist them.  Chun said that he wished to act as a “sub-consultant” to the UCE and wanted the UCE to “pay” him “a little bit.”   In July 2015, after coordinating travel to meet Chun’s Chinese associates, Chun met with the UCE in Hungary twice.  During one of the meetings, Chun stated that he knew “firsthand” that the Chinese government was actively recruiting individuals who could provide assistance and that the Chinese government was willing to provide immigration benefits and other compensation in exchange for such assistance.  The UCE told Chun that he had access to sensitive information from the U.S. government.  Chun responded that his Chinese associates would be interested in that type of information and that Chun expected a “cut” of any payment that the UCE received for providing information to the Chinese government.

The count of acting in the United States as an agent of China without providing notice to the Attorney General carries a maximum sentence of 10 years in prison.  The maximum potential sentence is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

August 11, 2016 | Permalink | Comments (0)

Wednesday, August 10, 2016

Panama Papers Lead to Switzerland AML Investigation into Former Russian Banker Who Allegedly Walked Away With $2 Billion of Russian Government Bank Bail Out Funds

SwissInfo reports the incredulous story of Sergei Pugachev, called at one time "Putin's Banker", but The Russian President wants back $2 billion Russian government dollars that Pugachev allegedly pocketed that was meant to save a failing Russian bank.  France will not extradite him.  Pugachev allegedly laundered the proceeds through the Geneva-based Banque Societé Génerale, with the assistance of the Mossack Fonseca law firm of now Panama Papers fame.  

The newspaper reports revealed that Pugachev, a former Russian senator who later became known as “Putin’s banker”, is accused of having laundered some $700 million via Geneva’s Banque Societé Génerale. Those money laundering activities were brought to light via the Panama Papers, which revealed offshore banking data stemming from the Panamanian firm Mossack Fonseca.

August 10, 2016 | Permalink | Comments (0)

Tuesday, August 9, 2016

Dept of Education Proposes Rule On State Authorization Of Postsecondary Distance Education And Foreign Locations

CHEA reprts that on July 25, 2016, the USDE published a Notice of Proposed Rulemaking in the Federal Register clarifying the state authorization requirements for postsecondary distance education. Currently, the law requires institutions to have state authorization where they are physically located but does not require authorization in states where the institution has no physical presence. These rules would supplement the state authorization rules negotiated in 2010 and implemented last year.   Download DOE proposal

The HEA (Higher Education Act 1965) established what is commonly known as the program integrity ‘‘triad’’ under which States, accrediting agencies, and the Department act jointly as gatekeepers for the Federal CHEA logostudent aid programs.  Many States and stakeholders have expressed concerns with these unique challenges, especially those related to ensuring adequate consumer protections for students as well as compliance by institutions participating in this sector. For example, some States have  expressed concerns over their ability to identify what out of State providers are operating in their States, whether those programs prepare their students for employment, including meeting licensure requirements in those States, the academic quality of programs offered by those providers, as well as the ability to receive, investigate and address student complaints about out-of- State institutions.

While the regulations established in 2010 made clear that all eligible institutions must have State authorization in the States in which they are physically located, the U.S. Court of Appeals for the District of Columbia set aside the Department’s regulations regarding authorization of distance education programs or correspondence courses, and the regulations did not address additional locations or branch campuses located in foreign locations. As such, these proposed regulations would clarify the State authorization requirements an institution must comply with in order to be eligible to participate in title IV programs, ending uncertainty with respect to State authorization and closing any gaps in State oversight to ensure students, families and taxpayers are protected.

 

Summary of the Major Provisions of This Regulatory Action

  • Require an institution offering distance education or correspondence courses to be authorized by each State in which the institution enrolls students, if such authorization is required by the State, in order to link State authorization of institutions offering distance education to institutional eligibility to participate in title IV programs, including through a State authorization reciprocity agreement.
  • Define the term “State authorization reciprocity agreement” to be an agreement between two or more States that authorizes an institution located and legally authorized in a State covered by the agreement to provide postsecondary education through distance education or correspondence courses to students in other States covered by the agreement.
  • Require an institution to document the State process for resolving complaints from students enrolled in programs offered through distance education or correspondence courses.
  • Require that an additional location or branch campus located in a foreign location be authorized by an appropriate government agency of the country where the additional location or branch campus is located and, if at least half of an educational program can be completed at the location or branch campus, be approved by the institution's accrediting agency and be reported to the State where the institution's main campus is located.
  • Require that an institution provide public and individualized disclosures to enrolled and prospective students regarding its programs offered solely through distance education or correspondence courses.

Costs and Benefits

The proposed regulations support States in their efforts to develop standards and increase State accountability for a significant sector of higher education—the distance education sector. In 2014, over 2,800,000 students were enrolled in over 23,000 separate distance education programs. The potential primary benefits of the proposed regulations are:

(1) Increased transparency and access to institutional/program information through additional disclosures,

(2) updated and clarified requirements for State authorization of distance education and foreign additional locations, and

(3) a process for students to access complaint resolution in either the State in which the institution is authorized or the State in which they reside.

The clarified requirements related to State authorization also support the integrity of the title IV, HEA programs by permitting the Department to withhold title IV funds from institutions that are not authorized to operate in a given State. Institutions that choose to offer distance education will incur costs in complying with State authorization requirements as well as costs associated with the disclosures that would be required by the proposed regulations.

Public comments may be submitted by email until August 24, 2016. After reviewing comments received, USDE will work to publish a final regulation by November 1, 2016, to take effect on July 1, 2017.

August 9, 2016 in Education | Permalink | Comments (0)

California Businessman Charged with Conspiring with Israeli Banks to Hide Income

Concealed Foreign Accounts and Failed to Report More Than $20 Million

A Los Angeles, California, businessman was charged today in an information, which charges one count of conspiracy to defraud the United States and one count of corruptly endeavoring to impair and impede the due administration of the internal revenue laws, announced Principal Deputy Assistant Attorney General Caroline D. Ciraolo, head of the Justice Department’s Tax Division. 

Masud Sarshar, who owned and operated Apparel Limited Inc., a business that designed, manufactured and sold clothing and other apparel, signed a plea agreement admitting that he Irs_logo maintained several undeclared bank accounts at Bank Leumi and two other Israeli banks, both in his name and in the names of entities that he created.  For decades, with the assistance of at least two relationship managers from Bank Leumi and a second Israeli bank (Israeli Bank A), Sarshar hid tens of millions of dollars in assets in these accounts in an effort to conceal income and obstruct the Internal Revenue Service (IRS).  As alleged in the information, between 2006 and 2009, Sarshar diverted more than $21 million in untaxed gross business income to these undeclared bank accounts.  Between 2007 and 2012, Sarshar also earned more than $2.5 million in interest income from these accounts.  Sarshar omitted all of this income from his 2006 through 2011 individual and corporate tax returns and he failed to report his authority over and ownership of these bank accounts in false Reports of Foreign Bank and Financial Accounts (FBARs) that he submitted to the U.S. Department of Treasury.

Sarshar signed a plea agreement to the charges in the information, agreeing to plead guilty and pay more than $8.3 million in restitution to the IRS.  If the court accepts the parties’ agreement, Sarshar will be sentenced to 24 months in prison.  In addition, Sarshar stipulated to a civil penalty in the amount of 50 percent of the high balance of his undeclared accounts to resolve his civil liability for not disclosing the existence of his Israeli bank accounts.

“Mr. Sarshar stashed millions in secret foreign financial accounts in Israel and then sought to use these accounts to evade his U.S. tax obligations, seeking to cover his tracks along the way,” said Principal Deputy Assistant Attorney General Ciraolo.  “The message of this case is clear: There are no safe havens.  If you are concealing assets and income in undeclared offshore accounts – or are a banker, an asset manager or otherwise are assisting accountholders in such criminal conduct, your only viable option is to come forward and accept responsibility for your actions.  Those who continue to violate U.S. tax laws will be held accountable and pay a heavy price.”

According to the information and statement of facts, Sarshar’s relationship managers at Israeli Bank A (RM1) and at Bank Leumi (RM2) visited him frequently in Los Angeles.  At his request, neither bank sent him account statements by mail, but rather, RM1 and RM2 provided Sarshar with his account information in person.  For example, RM2 loaded electronic copies of Sarshar’s Bank Leumi account statements on a USB drive, which she concealed in a necklace worn during her trips to the United States.  To further maintain the secrecy of his accounts, Sarshar’s meetings with RM1 sometimes occurred in Sarshar’s car.  RM1 and RM2 also used these visits to Los Angeles to offer Sarshar other bank products, including “back-to-back” loans.  Through back-to-back loans, which Bank Leumi made to Sarshar through its branch in the United States and which Sarshar collateralized with funds from his account at Israeli Bank A, Sarshar was able to bring back to the United States approximately $19 million of his offshore assets without creating a paper trail or otherwise disclosing the existence of the offshore accounts to U.S. authorities.  At the direction of RM1 and RM2, Sarshar also obtained Israeli and Iranian passports in an effort to avoid being flagged as a U.S. citizen by the compliance departments at both banks.  After receiving both new passports and still being flagged as a U.S. citizen by their compliance departments, RM1 and RM2 advised Sarshar to transfer his remaining funds to yet another Israeli bank, which he did in late 2011.

“As the filing of today’s criminal charges demonstrate, the days of bank secrecy is rapidly changing,” said Chief Richard Weber for IRS-Criminal Investigation.  “There's no safe place for taxpayers to divert and hide income anywhere in the world.  IRS-CI works vigorously to stop offshore tax schemes such as this one and is proud that our forensic accounting skills helped uncover over $21 million in untaxed gross business income in this investigation.”

August 9, 2016 | Permalink | Comments (0)

Monday, August 8, 2016

SEC Adjusts the Qualified Client Dollar Amount Tests in Rule 205-3

Adjustment of Dollar Amount Thresholds

On May 18, 2016, the Commission published a notice of intent to issue an order that would adjust for inflation, as appropriate, the dollar amount thresholds of the asset-under- SECmanagement test and the net worth test. The Commission stated that, based on calculations that take into account the effects of inflation by reference to historic and current levels of the PCE Index, the dollar amount of the assets-under-management test would remain $1,000,000, and the dollar amount of the net worth test would increase from $2,000,000 to $2,100,000.  These dollar amounts—which are rounded to the nearest $100,000 as required by section 205(e) of the Advisers Act—would reflect inflation from 2011 to the end of 2015. This Order is effective as of August 15, 2016. 

Background

Section 205(a)(1) of the Investment Advisers Act of 1940 (“Advisers Act”) generally prohibits an investment adviser from entering into, extending, renewing, or performing any investment advisory contract that provides for compensation to the adviser based on a share of capital gains on, or capital appreciation of, the funds of a client (also known as performance compensation or performance fees).

Section 205(e) authorizes the Securities and Exchange Commission (“Commission”) to exempt any advisory contract from the performance fee prohibition if the contract is with persons who the Commission determines do not need the protections of the prohibition, on the basis of certain factors described in that section.  Rule 205-3 under the Advisers Act exempts an investment adviser from the prohibition against charging a client performance fees in certain circumstances when the client is a “qualified client.”  The rule allows an adviser to charge performance fees if the client has at least a certain dollar amount in assets under management (currently, $1,000,000) with the adviser immediately after entering into the advisory contract (“assets-under-management test”) or if the adviser reasonably believes, immediately prior to entering into the contract, that the client had a net worth of more than a certain dollar amount (currently, $2,000,000) (“net worth test”).

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) amended section 205(e) of the Advisers Act to provide that, by July 21, 2011 and every five years thereafter, the Commission shall adjust for inflation the dollar amount thresholds included in rules issued under section 205(e), rounded to the nearest $100,000.  The Commission last issued an order to revise the dollar amount thresholds of the assets-under-management and net worth tests (to $1,000,000 and $2,000,000, respectively, as discussed above) on July 12, 2011.  

August 8, 2016 in Financial Regulation | Permalink | Comments (0)

Sunday, August 7, 2016

Rethinking Financial Reporting: Standards, Norms and Institutions

SSRN

Shyam Sunder, Yale University - School of Management

Since the passage of the US federal securities laws more than eight decades ago, much regulatory effort has been devoted to Improving financial reports of business, government and not-for-profit organizations. Yet, evidence on improvements, or abatement of misreporting by error or intent remains scarce. It is useful to explore what we might mean by better financial reporting, and how we might define and implement processes to move in that direction. A broad agreement on which way is ahead seems necessary to make progress.

Creating and sustaining institutions that follow a stable and conservative process for gradually adjusting the prevailing practices toward any long-term shifts may help evolve a better financial reporting environment. This approach departs from the tendency to issue new rules, often disregarding the lessons of practice that has created much confusion and failures in financial reporting over the past half-a-century. The eagerness to deal with transaction innovations through new pronouncements ends up fueling the cycle of more innovations, misrepresentations and abuse and calls for yet newer rules. The enormous resources and attention devoted to written rules have been accompanied by waning professional responsibility for good judgment and regard for practice and practicality. We argue for targeting a better balance between top-down written rules and emergent social norms as reflected in business and accounting practice through restraining activist institutions of accounting. Suggestions on whether and how better social norms can be engineered are only preliminary at this time.
 
 

Number of Pages in PDF File: 134

August 7, 2016 in Financial Regulation | Permalink | Comments (0)

Saturday, August 6, 2016

On a typical day during 2015, CBP seized $356,396 in undeclared or illicit currency at U.S. ports of entry

U.S. Customs and Border Protection (CBP) officers seized more than $26,000 from a Greece-bound couple who violated federal currency reporting regulations at Philadelphia International Airport Wednesday.

There is no limit to how much currency travelers can import or export; however, federal law requires travelers to report to CBP amounts exceeding $10,000 in U.S. dollars or equivalent foreign currency.

During an outbound inspection, the couple reported verbally and in writing that they possessed $17,000. During an inspection, CBP officers discovered multiple envelopes that contained a combined $27,052. CBP officers provided the couple a humanitarian release of $501 and seized the remaining $26,551.

Officers released the couple to continue their travel to Greece.

File photo of CBP officers observing travelers.
U.S. Customs and Border Protection officers enforce
U.S. laws on arriving and departing international
travelers. (File photo)

“Customs and Border Protection officers afforded these travelers multiple opportunities to truthfully report their currency, and they chose to not do so. Travelers who refuse to comply with federal currency reporting requirements risk severe consequences, including currency seizure and potential criminal charges,” said Margaret Braunstein, Acting CBP Area Port Director for the Port of Philadelphia. “The easiest way for travelers to hold on to their currency is to truthfully report it all to a CBP officer during inspection.”

The Privacy Act prohibits releasing the traveler’s name since he was not criminally charged.

CBP routinely conducts inspection operations on arriving and departing international flights and intercepts narcotics, weapons, currency, prohibited agriculture products, and other illicit items. On a typical day during 2015, CBP seized $356,396 in undeclared or illicit currency at our nation’s 328 ports of entry. View CBP Snapshot to learn what else CBP achieved ‘On a Typical Day’ last year.

Learn more about how CBP's Office of Field Operations secures our nation's borders at our nation’s Ports of Entry.

CBP’s Travel website offers rules and tips for clearing CBP inspection during travel to and from the U.S.

August 6, 2016 | Permalink | Comments (0)

Friday, August 5, 2016

The American's Tax Experience in Canada

Only two governments in the world - the United States and Eritrea - subject their citizens to comprehensive worldwide taxation regardless of where they live. There are more Americans Irs_logoliving in Canada than in any other foreign country. While the two countries have generally similar income tax systems, there are a number of areas of incompatibility. As a result, US citizens living in Canada encounter significant limitations on their ability to carry on their activities or plan their affairs, compared with non-US citizens. In addition, the reporting burden imposed by the US Internal Revenue Service is heavy, and growing. A more aggressive enforcement policy in recent years has induced increasing numbers of Americans abroad to relinquish their US citizenship or green-card status. This article discusses the history of this phenomenon, and the tax consequences for Americans in Canada who give up their US status.

Read Kevyn Nightingale MNP, LLP and David Turchen MNP, LLP in Canadian Tax Journal/Revue Fiscale Canadienne, Vol. 61, No. 1, 2013  
 

 

August 5, 2016 | Permalink | Comments (0)

GDP at 1.2% for Second Quarter 2016 (Advance Estimate)

Real gross domestic product increased at an annual rate of 1.2 percent in the second quarter of 2016 Bureau Econ Analysis
(table 1), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first
quarter, real GDP increased 0.8 percent (revised).

The Bureau emphasized that the second-quarter advance estimate released today is based on source
data that are incomplete or subject to further revision by the source agency (see “Source Data for the
Advance Estimate” on page 2). The "second" estimate for the second quarter, based on more complete
data, will be released on August 26, 2016.

The increase in real GDP in the second quarter reflected positive contributions from personal
consumption expenditures (PCE) and exports that were partly offset by negative contributions from
private inventory investment, nonresidential fixed investment, residential fixed investment, and state
and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased.
Real GDP: Percent Change from Preceding Quarter
                    Annual Update of the National Income and Product Accounts

The estimates released today reflect the results of the annual update of the national income and
product accounts (NIPAs) in conjunction with the "advance" estimate of GDP for the second quarter of
2016. The update covers the first quarter of 2013 through the first quarter of 2016. For more
information, see "Information on the 2016 Annual Update" on BEA’s Web site. Additionally, the August
Survey of Current Business will contain an article that describes the results in detail.
_______


The acceleration in real GDP growth in the second quarter reflected an acceleration in PCE, an upturn in
exports, and smaller decreases in nonresidential fixed investment and in federal government spending.
These were partly offset by a larger decrease in private inventory investment, and downturns in
residential fixed investment and in state and local government spending.

Current-dollar GDP increased 3.5 percent (table 1), or $155.9 billion, in the second quarter to a level of
$18,437.6 billion (table 3A). In the first quarter, current dollar GDP increased 1.3 percent (revised), or
$58.9 billion.

The price index for gross domestic purchases increased 2.0 percent in the second quarter, compared
with an increase of 0.2 percent in the first (revised) (table 4). The PCE price index increased 1.9 percent,
compared with an increase of 0.3 percent. Excluding food and energy prices, the PCE price index
increased 1.7 percent, compared with an increase of 2.1 percent (Appendix table A).


Disposition of personal income (table 10)

Current-dollar personal income increased $111.4 billion in the second quarter, compared with an
increase of $52.8 billion in the first (revised). The acceleration in personal income primarily reflected
upturns in wages and salaries, personal dividend income, and farm proprietors’ income that were offset
by slowdowns in personal current transfer receipts.

Disposable personal income increased $106.3 billion, or 3.1 percent, in the second quarter, compared
with an increase of $83.4 billion, or 2.5 percent, in the first (revised). Real disposable personal income
increased 1.2 percent, compared with an increase of 2.2 percent.

Personal saving was $763.1 billion in the second quarter, compared with $847.8 billion in the first
(revised). The personal saving rate -- personal saving as a percentage of disposable personal income --
was 5.5 percent in the second quarter, compared with 6.1 percent in the first.


Source Data for the Advance Estimate

Information on the assumptions used for unavailable source data in the advance estimate is provided in
a Technical Note that is posted with the news release on BEA’s Web site. Within a few days after the
release, a detailed "Key Source Data and Assumptions" file is posted on the Web site. For information on
updates to GDP, see the “Additional Information” page at the back of this release.


Revisions for the first quarter of 2016

For the first quarter of 2016, real GDP is now estimated to have increased 0.8 percent; in the previously
published estimates, first-quarter GDP was estimated to have increased 1.1 percent. The 0.3-percentage
point downward revision to the percent change in first-quarter real GDP primarily reflected downward
revisions to residential fixed investment, to private inventory investment, and to exports that were
partly offset by upward revisions to nonresidential fixed investment, to PCE, to state and local
government spending, to imports, and to federal government spending.



                                         First Quarter 2016
                                Previous Estimate       Revised
                            (Percent change from preceding quarter)
Real GDP                               1.1                0.8
Current-dollar GDP                     1.4                1.3
Real GDI                               2.9                0.9
Average of GDP and GDI                 2.0                0.9
Gross domestic purchases price index   0.2                0.2
PCE price index                        0.2                0.3


                     Annual Update of the National Income and Product Accounts


Updated estimates of the national income and product accounts (NIPAs), which are usually made each
July, incorporate newly available and more comprehensive source data, as well as improved estimation
methodologies. This year, the notable revisions primarily reflect the incorporation of newly available
and revised source data. The timespan of the revisions is the first quarter of 2013 through the first
quarter of 2016. The reference year remains 2009.

With the release of the updated statistics, select NIPA tables will be available on BEA’s Web site
(www.bea.gov).  Shortly after the GDP release, BEA will post a table on its Web site showing the major
current-dollar revisions and their sources for each component of GDP, national income, and personal
income.  Additionally, the August 2016 Survey of Current Business will contain an article describing these
revisions.


Real GDP (Tables 1A, 1B, and 2A)

The updated statistics largely reflect the incorporation of newly available and revised source data (see
the box below) and improvements to existing methodologies.

* From 2012 to 2015, real GDP increased at an average annual rate of 2.2 percent; in the
  previously published estimates, real GDP had increased at an average annual rate of 2.1 percent.
  From the fourth quarter of 2012 to the first quarter of 2016, real GDP increased at an average
  annual rate of 2.2 percent, the same as previously published.

* The percent change in real GDP was revised up 0.2 percentage point for 2013, was the same as
  previously published for 2014, and was revised up 0.2 percentage point for 2015.

     o  For 2013, upward revisions to inventory investment, exports, and residential and
        nonresidential fixed investment were partly offset by a downward revision to personal
        consumption expenditures (PCE).

     o  For 2014, a downward revision to inventory investment, an upward revision to imports,
        and a downward revision to state and local government spending were offset by
        upward revisions to exports, PCE, and residential fixed investment.

     o  For 2015, upward revisions to state and local government spending and to residential
        fixed investment, a downward revision to imports, and an upward revision to PCE were
        partly offset by downward revisions to exports and nonresidential fixed investment.

* The revisions to the annual estimates typically reflect partly offsetting revisions to the quarters
  within the year.

     o  For 2013, the annual rate of change in GDP was revised up 0.9 percentage point for the
        first quarter, 0.1 percentage point for the third quarter, and 0.2 percentage point for the
        fourth quarter; these upward revisions were partly offset by a downward revision of 0.3
        percentage point for the second quarter.

     o  For 2014, upward revisions of 0.7 percentage point for the third quarter and 0.2
        percentage point for the fourth quarter were offset by downward revisions of 0.3
        percentage point for the first quarter and 0.6 percentage point for the second quarter.

     o  For 2015, an upward revision of 1.4 percentage point for the first quarter was partly
        offset by downward revisions of 1.3 percentage point for the second quarter and 0.5
        percentage point for the fourth quarter; the growth rate for the third quarter was the
        same as previously published.

* For the first quarter of 2013 through the first quarter of 2016, the average revision (without
  regard to sign) in the percent change in real GDP was 0.5 percentage point.  The revisions did
  not change the direction of the change in real GDP (increase or decrease) for any of the
  quarters.

* For the period of economic expansion from the second quarter of 2009 to the first quarter of
  2016, real GDP increased at an average annual rate of 2.1 percent, the same as previously
  published.

* Current-dollar GDP was revised up for all 3 years:  $28.4 billion, or 0.2 percent, for 2013; $45.0
  billion, or 0.3 percent, for 2014; and $89.7 billion, or 0.5 percent, for 2015.


Gross domestic income (GDI) and the statistical discrepancy (Tables 1A and 1B)

* From 2012 to 2015, real GDI increased at an average annual rate of 2.3 percent; in the
  previously published estimates, real GDI had increased at an average annual rate of 2.1 percent.
  From the fourth quarter of 2012 to the first quarter of 2016, real GDI increased at an average
  annual rate of 2.1 percent; in the previously published estimates, real GDI had increased at an
  average annual rate of 2.2 percent.

* The statistical discrepancy is current-dollar GDP less current-dollar GDI.  GDP measures final
  expenditures -- the sum of consumer spending, private investment, net exports, and
  government spending.  GDI measures the incomes earned in the production of GDP.  In concept,
  GDP is equal to GDI.  In practice, they differ because they are estimated using different source
  data and different methods.

* The statistical discrepancy as a percentage of GDP was revised up from -1.1 percent to -0.8
  percent for 2013, was revised down from -1.2 percent to -1.5 percent for 2014, and was revised
  down from -1.2 percent to -1.4 percent for 2015.

* The average of GDP and GDI is a supplemental measure of U.S. economic activity. In real, or
  inflation-adjusted, terms this measure increased at an average annual rate of 2.2 percent from
  2012 to 2015, an upward revision of 0.1 percentage point.


Price measures

* Gross domestic purchases - From the fourth quarter of 2012 to the first quarter of 2016, the
  average annual rate of increase in the price index for gross domestic purchases was 1.0 percent,
  the same as previously published.

* Personal consumption expenditures - From the fourth quarter of 2012 to the first quarter of
  2016, the average annual rate of increase in the price index for PCE was 0.9 percent, the same
  as previously published; the increase in the “core” PCE price index (which excludes food and
  energy) was 1.5 percent, the same as previously published.


Income and saving measures (Table 1B)

* National income was revised down $13.5 billion, or 0.1 percent, for 2013, was revised up $77.4
  billion, or 0.5 percent, for 2014, and was revised up $119.0 billion, or 0.8 percent, for 2015.

     o For 2013, downward revisions to net interest and corporate profits were partly offset by
       an upward revision to rental income of persons.

     o For 2014, upward revisions to corporate profits, business current transfer payments,
       and supplements to wages and salaries were partly offset by downward revisions to
       farm proprietors’ income and to rental income of persons.

     o For 2015, upward revisions to corporate profits, business current transfer payments,
       wages and salaries, nonfarm proprietors’ income, and supplements to wages and
       salaries, were partly offset by a downward revision to farm proprietors’ income.

* Corporate profits was revised down $4.5 billion, or -0.2 percent, for 2013, was revised up $79.1
  billion, or 3.8 percent, for 2014, and was revised up $79.1 billion, or 3.9 percent, for 2015.

* Personal income was revised up $5.3 billion, or less than 0.1 percent, for 2013, was revised up
  $115.5 billion, or 0.8 percent, for 2014, and was revised up $107.8 billion, or 0.7 percent, for
  2015.

* From 2012 to 2015, the average annual rate of growth of real disposable personal income was
  revised up 0.2 percentage point from 1.6 percent to 1.8 percent.

* The personal saving rate (personal saving as a percentage of disposable personal income) was
  revised up from 4.8 percent to 5.0 percent for 2013, was revised up from 4.8 percent to 5.6
  percent for 2014, and was revised up from 5.1 percent to 5.8 percent for 2015.

 

August 5, 2016 in Economics | Permalink | Comments (0)

Thursday, August 4, 2016

IRS will begin removing countries from FATCA IGA List Jan 1, 2017

IRS published [Download IGA Announcement 2016-27providing guidance to jurisdictions that are treated as if they have an IGA in effect and FFIs located in those jurisdictions.

Each jurisdiction that is treated as if it has an IGA in effect and that wishes to continue to be treated as if it has an IGA in effect must provide the Treasury Department, by December 31, FATCA_roll2016, with a detailed explanation of why the jurisdiction has not yet brought the IGA into force. The jurisdiction must also provide a step-by-step plan that they intend to follow in order to sign the IGA (if it has not been signed) and bring the IGA into force.

free download of Lexisnexis® Guide to FATCA Compliance - 119 page PDF

August 4, 2016 | Permalink | Comments (0)

IRS Soon Receiving US Customer Data from HSBC's Swiss Bank

SwissInfo Media service reports that: 

The Swiss Federal Tax Administration on Tuesday confirmed a report by Reuters that HSBC Switzerland had handed over the files, which could be sent on to the US Internal
Treasury-Dept.-Seal-of-the-IRSRevenue Service (IRS). No details were given about the number of clients affected or the amount of assets concerned.
 

Previous news releases: 

August 4, 2016 | Permalink | Comments (0)

Wednesday, August 3, 2016

Prudent Risk Management of Oil and Gas Exposures

FDIC-supervised institutions with direct or indirect oil and gas (O&G) exposures are reminded to maintain sound underwriting standards, strong credit administration practices, and 800px-FdicLogoeffective risk management strategies. When O&G related borrowers experience financial difficulties, the FDIC encourages financial institutions to work constructively with borrowers to strengthen the credits and to mitigate losses where possible.

  • O&G lending is complex and highly specialized due to factors such as global supply and demand, geopolitical uncertainty, weather-related disruptions, fluctuations and volatility in currency markets, and changes in environmental and other governmental policies. As such, companies and borrowers that are directly or indirectly tied to or reliant on the O&G industry frequently experience volatility within key operational areas of their businesses that will directly impact their financial condition and repayment capacity.
  • Lending for O&G exploration and production activities in particular requires conservative underwriting, appropriate structuring, experienced and knowledgeable lending staff, and sound loan administration practices.
  • For institutions doing business in O&G dependent areas that would be affected by volatility in commodity prices, prudent management of geographic, industry, and borrower concentrations is needed for sound risk management of such exposures. When reasonable diversification realistically cannot be achieved due to geographic or other factors, resultant concentrations may indicate the need for capital levels higher than the regulatory minimums.
  • FDIC-supervised banks are encouraged to work with borrowers who are adversely affected by a severe or protracted downturn in commodity prices in accordance with a well-conceived workout plan and effective internal controls to manage these loans.

Related Topics:

  • Risk Management Manual of Examination Policies Section 3.2 (Loans)
  • Supervisory Insights Journal, "Stress Testing Credit Risk at Community Banks" Summer 2012 - PDF (PDF Help)
  • Interagency Statement on Meeting the Credit Needs of Creditworthy Small Business Borrowers, February 12, 2010 (FIL-5-2010)
  • Interagency Policy Statement on Prudent Commercial Real Estate Loan Workouts, October 30, 2009 (FIL-61-2009)
  • Interagency Statement on Meeting the Needs of Creditworthy Borrowers, November 12, 2008 (FIL-128-2008)
  • Environmental Liability: Updated Guidelines for An Environmental Risk Program November 13, 2006 (FIL-98-2006)

Attachment:

August 3, 2016 in Financial Regulation | Permalink | Comments (0)

FinCEN Expands Reach of Real Estate “Geographic Targeting Orders” to New York City, South Florida, San Antonio, Los Angeles, San Fran area, and San Diego

U.S. Title Insurers Required to Identify High-End Cash Buyers in Six Major Metropolitan Areas

WASHINGTON—The Financial Crimes Enforcement Network (FinCEN) today announced Geographic Targeting Orders (GTO) that will temporarily require U.S. title insurance FINCEN 2companies to identify the natural persons behind shell companies used to pay “all cash” for high-end residential real estate in six major metropolitan areas. FinCEN remains concerned that all-cash purchases (i.e., those without bank financing) may be conducted by individuals attempting to hide their assets and identity by purchasing residential properties through limited liability companies or other opaque structures. To better understand this vulnerability, FinCEN issued similar GTOs earlier this year covering transactions in Manhattan and Miami-Dade County, Florida. The GTOs announced today will expand upon the valuable information received from the initial GTOs.

The initial GTOs are helping law enforcement identify possible illicit activity and informing future regulatory approaches. In particular, a significant portion of covered transactions have indicated possible criminal activity associated with the individuals reported to be the beneficial owners behind shell company purchasers. This corroborates FinCEN’s concerns that the transactions covered by the GTOs (i.e., all-cash luxury purchases of residential property by a legal entity) are highly vulnerable to abuse for money laundering. Federal and state law enforcement agencies have also informed FinCEN that information generated by the GTOs has provided greater insight on potential assets held by persons of investigative interest and, in some cases, has helped generate leads and identify previously unknown subjects.

“The information we have obtained from our initial GTOs suggests that we are on the right track,” said FinCEN Acting Director Jamal El-Hindi. “By expanding the GTOs to other major cities, we will learn even more about the money laundering risks in the national real estate markets, helping us determine our future regulatory course.”

To build on the useful data generated thus far, the GTOs announced today include the following major U.S. geographic areas: (1) all boroughs of New York City; (2) Miami-Dade County and the two counties immediately north (Broward and Palm Beach); (3) Los Angeles County, California; (4) three counties comprising part of the San Francisco area (San Francisco, San Mateo, and Santa Clara counties); (5) San Diego County, California; and (6) the county that includes San Antonio, Texas (Bexar County). The monetary thresholds for each geographic area can be found in this table. A sample GTO, which becomes effective for 180 days beginning on August 28, 2016, is available here.

FinCEN is covering title insurance companies because title insurance is a common feature in the vast majority of real estate transactions. Title insurance companies thus play a central role that can provide FinCEN with valuable information about real estate transactions of concern. The GTOs do not imply any derogatory finding by FinCEN with respect to the covered companies. To the contrary, FinCEN appreciates the continued assistance and cooperation of the title insurance companies and the American Land Title Association in protecting the real estate markets from abuse by illicit actors.

August 3, 2016 | Permalink | Comments (0)

OFAC Finds AXA and Humana Violated Foreign Narcotics Kingpin Sanctions By Providing Drug Lords Health Insurance

OFAC has issued a Finding of Violation to AXA Equitable Life Insurance Company (AXA) for violations of the Foreign Narcotics Kingpin Sanctions Regulations, 31 C.F.R. part 598 OFAC(FNKSR).  From December 3, 2009 to approximately May 11, 2011, AXA facilitated and/or processed payments and maintained two health insurance policies in which one or more Specially Designated Nationals (SDNs) had an interest.  For more information on this action, please visit the following web notice.

Separately, OFAC has issued a Finding of Violation to Humana, Inc., the parent company of Kanawha Insurance Company (“Kanawha”), for violations of the Foreign Narcotics Kingpin Sanctions Regulations, 31 C.F.R. part 598 (FNKSR).  From December 3, 2009 to approximately May 11, 2011, Kanawha facilitated and/or processed payments and serviced two health insurance policies in which one or more SDNs had an interest.  For more information on this action, please visit the following web notice.

AXA AML Violation

In October and November 1992, AXA issued one health insurance policy that provided coverage for Leopoldo Lopez Grayeb and Noemi Lopez Fernandez, and a separate health insurance policy that provided coverage for Juan Manual Lopez Fernandez.  From their inception, these policies were serviced by a U.S. insurance company serving as a Third Party Administrator (TPA), which performed a variety of functions including: servicing the policies, collecting premiums, maintaining policy records, and answering general inquiries from insured parties.  

On December 3, 2009, OFAC designated Leopoldo Lopez Grayeb, Noemi Lopez Fernandez, and Juan Manual Lopez Fernandez pursuant to the Foreign Narcotics Kingpin Designation Act, 21 U.S.C §§ 1901-08, and added these parties to the List of Specially Designated Nationals and Blocked Persons (the “SDN List”).  Subsequent to OFAC’s designations, neither AXA nor the TPA screened the names of the policyholders serviced by the TPA and, as a result, both companies failed to identify and block the policies and premium payments in which one or more of the above-referenced SDNs had an interest.

Between January 11, 2010 and May 11, 2011, the TPA processed (and AXA received) 17 premium payments in the amount of $10,461.98 for the policy held by Leopoldo Lopez Grayeb and Noemi Lopez Fernandez, and an additional 17 premium payments from January 2, 2010 to May 2, 2011 in the amount of $3,944.21 for the policy held in the name of Juan Manual Lopez Fernandez. On June 19, 2011, a separate company assumed responsibility for providing TPA services to the same series of AXA-issued insurance policies. The new TPA identified the policyholders as potential matches against the SDN List, and coordinated with AXA to block and cease providing any services for the policies. 

Humana AML Violation

Humana, Inc. Receives a Finding of Violation Regarding Violations of the Foreign Narcotics Kingpin Sanctions Regulations: The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has issued a Finding of Violation to Humana, Inc., the parent company of Kanawha Insurance Company (“Kanawha”), for violations of the Foreign Narcotics Kingpin Sanctions Regulations, 31 C.F.R. part 598 (FNKSR). On December 3, 2009, OFAC designated Leopoldo Lopez Grayeb, Noemi Lopez Fernandez, and Juan Manual Lopez Fernandez pursuant to the Foreign Narcotics Kingpin Designation Act, 21 U.S.C. §§ 1901-08, and added these parties to the List of Specially Designated Nationals and Blocked Persons (the “SDN List”).

At the time of the designations, Kanawha was serving as the Third Party Administrator (TPA) for a series of insurance policies issued by a separate, unaffiliated company (the “Insurance Company”). As the TPA, Kanawha provided various functions in connection with these policies, which included servicing the policies, collecting premiums, maintaining policy records, and answering general inquiries from insured parties.  While Kanawha screened the names of insurance providers in connection with servicing these policies, it did not screen policyholders against the SDN List.  Subsequent to OFAC’s designations, neither Kanawha nor the Insurance Company screened the names of the policyholders for these insurance policies against the SDN List, and as a result, both parties failed to identify and block the policies and premium payments in which one or more of the above-referenced SDNs had an interest.

 

August 3, 2016 | Permalink | Comments (0)

Tuesday, August 2, 2016

Panama Papers Reveals hundreds of millions of Italian - Algeria Corruption of Energy Contracts

"Bedjaoui met with Algerian government officials and executives from Saipem, the Italian energy giant. Their agenda, according to witnesses later interviewed by Italian prosecutors: Journalists logoarranging some $275 million in bribes to help the energy company win more than $10 billion in contracts to build oil and gas pipelines from the North African desert to the shores of the Mediterranean."  .. read the new full story on the ICIJ's Panama Papers investigation here

August 2, 2016 | Permalink | Comments (0)