Posted by William Byrnes on August 22, 2010
As STOLI (stranger originated life insurance) transactions have receded due to nearly unanimous condemnation of the practice, a wave of Stranger Originated Annuities (STOAs) is growing.
Today’s analysis by our Experts Robert Bloink and William Byrnes is located at AdvisorFX Journal STOLI to STOA: First Drops in a Gathering Storm
Posted in Uncategorized | Tagged: annuities, life insurance, STOA, STOLI | Leave a Comment »
Posted by William Byrnes on August 21, 2010
Why Is This Topic Important to Financial Professionals? This article discusses the benefits and detriments of corporation business structures for use in financial planning.
Please read my blogticle at Advisor FYI The Advantages and Disadvantages of Incorporation
For a detailed analysis of the tax and non-tax Advantages of a Close Corporation see AdvisorFX Main Library Section 14. Close Corporations G—Professional And Executive Corporations
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Posted by William Byrnes on August 20, 2010
The Wall Street Reform Act—signed into law by President Obama on July 21, 2010—significantly alters the relationship between broker-dealers and their retail customers, potentially expanding brokers’ exposure to lawsuits, decreasing their revenue, and constraining the range of products they are permitted to offer to their clients.
Today’s analysis by our Experts Robert Bloink and William Byrnes is located at AdvisorFX Journal What You Don’t Know Yet Might Hurt You: A Broker’s Duties under the Financial Reform Act
For previous commentary, see AdvisorFX Journal Dodd-Frank Wall Street Reform and Consumer Protection Act
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Posted by William Byrnes on August 19, 2010
Why is this Topic Important to Financial Professionals? Common estate plans may include a business structure. Helping clients form and manage structures allows a financial professional to more fully participate in clients’ planning.
Please read my blogticle at Advisor FYI Incorporation Basics for Closely Held Corporations
Posted in Uncategorized | Tagged: business planning, incorporation | Leave a Comment »
Posted by William Byrnes on July 14, 2010
National Underwriters Establishes Go-To Service for Producers
Effective this summer, in order to embrace the changing landscape of the greatest wealth transfer in global history, National Underwriter/Summit Business Media is honored to announce that the renown professor, author, and financial services industry analyst William Byrnes will lead our financial advisory publications. In an interview William Byrnes stated that “I will leverage community-comment blogging with innovative multimedia to deliver daily strategies for insurance producers and financial service regulatory updates for risk managers. National Underwriters’ Advanced Underwriter Service®(AUS®) will emerge as the dominant go-to strategy service for the insurance/financial planning industry.”
When asked how he intends to effectively connect AUS® strategic information with the needs of producers, Byrnes replied, “Through direct engagement with producers’ burning questions via the new AUS® Advisor blog, through my editorial panel of connected industry experts and enterprise-wide subscribers, and through feedback from the elected production leaders from the over 50,000 chartered wealth managers of the American Academy of Financial Management®. National Underwriters will proactively educate the AUS subscribers about developing insurance and wealth management advisory strategies and sales techniques before the subscribers’ competitors hear about them via industry word of mouth.”
William Byrnes’ Background
Byrnes continued, “I have a lot of experience delivering cutting edge information to professionals seeking to better serve their clients and win business from the competition. About twenty years ago, Dr. George Mentz and I pioneered residential executive training, and soon thereafter online degrees, for wealth managers seeking to become top producers. Over time we trained these industry leading wealth managers with our executive programs for the likes of EuroMoney-Institutional Investor, IIR, and the Society of Trust and Estate Practitioners. We even managed for the first time ever that the American Bar Association acquiesced to an online wealth management oriented graduate law degree being granted to both lawyers and non-lawyers alike by an accredited law school in the USA.”
“And in terms of executing multi-media publishing, I’ve written and edited 10 books and treatises and 17 chapters for best-of-class publishers like Lexis-Nexis, Wolters Kluwer, Thomson-Reuters, and Oxford University Press, whereas Dr. Mentz focused on wealth management techniques and soft skills books distributed international via the 120-country membership of the American Academy of Financial Management. I have published my multi-media textbooks online since 1998!”
New Community-Collaborative Technology
When asked how he transitioned from practitioner to education-pioneer, Byrnes reminisced “I never imagined when I was an associate director of international tax of the big 6 audit firm Coopers & Lybrand, now known as PwC, that I would move from serving high net wealth families to helping wealth managers better serve their clients via my role as the Associate Dean of an ABA accredited law school, Thomas Jefferson. This year Thomas Jefferson School of Law will open its new $130 million dollar state-of-the-technology new campus in San Diego that will be able deliver via innovative ways interactive training and education to wealth managers across the nation, and the globe. Over the coming year I will combine the cutting-edge technology of Thomas Jefferson law school, my online training expertise, and the National Underwriters best-of-class information services to deliver real-time fresh strategy and sales approaches to AUS subscribers, with followup webinars and training where subscriber interests warrants.”
Delivering the Competitive Advantage to Producers
Byrnes added, “National Underwriters/Summit Business Media wants to deliver an information service that will place its subscribers in a better competitive advantage.” To this end National Underwriters has allowed me to assemble the industry’s finest editorial team in Investment Advisory, Wealth Management, and Risk Management. I already have commitments from the two well known industry experts, investment-advisory attorney Robert Bloink, and the chair of the American Academy of Financial Management®, Dr. George Mentz, who will underpin this team”.
Robert Bloink’s Background
“I think it is critical for National Underwriters subscribers to know that Robert Bloink, one of two underpinning editorial team members, put in force in excess of $2B of longevity pegged portfolios for the insurance industry’s producers in the past five years. Robert Bloink’s insurance practice incorporates sophisticated wealth transfer techniques, as well as counseling institutions in the context of their insurance portfolios and other mortality based exposures. His success proves that he really has an unparalleled knowledge of the advanced insurance markets.”
“And in terms of risk management editorial expertise, I previously met Robert Bloink when he had just finished serving as Senior Attorney in the IRS Office of Chief Counsel, Large and Mid-Sized Business Division, where he litigated many cases in the U.S. Tax Court, served as Liaison Counsel for the Offshore Compliance Technical Assistance Program, coordinated examination programs audit teams on the development of issues for large corporate taxpayers and taught continuing education seminars to Senior Revenue Agents involved in Large Case Exams. In his governmental capacity, Mr. Bloink became recognized as an expert in the taxation of financial structured products, and was responsible for the IRS’ first FSA addressing variable forward contracts. Mr. Bloink’s core competencies led to his involvement in prosecuting some of the biggest corporate tax shelters in the history or our country.”
Chartered Wealth Managers Endorse
“It is also critical for National Underwriters subscribers who serve middle America to know that the editorial team has Dr. George Mentz, chair of the 50,000 affiliated members of the American Academy of Financial Management® (AAFM®), Byrnes said.” In an interview with Dr. Mentz, he stated that “I am excited to introduce our membership of Chartered Wealth Managers to the competitive client advisory strategies of Advanced Underwriter Service® and Tax Facts®.” The AAFM® has endorsed National Underwriters’ Advanced Underwriter Service® as the information service of choice for its board designation CWM®s (Chartered Wealth Manager) in all of its 150 countries of membership.
Panel of Experts
In describing the newly formed editorial team, Byrnes said “To provide AUS® subscriber examples of other experts who will round out various aspects of the new editorial team, let me introduce you to three others, Mike Rodman, Don Goode and Robert Stuchiner. Mike Rodman is a three time qualifier for Top of The Table, MDRT’s highest honor, as well as a four-year member of the International Forum, and the Association of Advanced Underwriters (AALU). Rodman served as past president of NAIFA-San Diego as well as an active member of The Financial Planning Association (FPA), The Society of Financial Service Professionals (SFSP) and The National Association of Independent Life Brokerage Agencies (NAILBA). He founded Advanced Planning Services, Inc. (APS) as “the Premier Advanced Sales and Advanced Underwriting organization” serving the entire industry, including producers, producer groups, and other agencies and carriers, for which it has been a two-time INC 500 winner.”
“Don Goode joined Potomac West, where he was instrumental in building their large case department. Along with his partner, Don successfully designed and negotiated the Power Play program for American General, and most importantly to National Underwriter subscribers, his team lent support to the first agent in the history of the industry to ever receive more than $100mm in a single calendar year. When he stepped down from partner status at Potomac West, Don accepted a one year contract to lead the sales and marketing department for the esteemed Producer’s Group. Thereafter Don Goodman joined the Advanced Planning Division of the public company-Bisys-Potomac where he consistently produced individual policy transactions that were more than 20 times the company average.”
“Robert Stuchiner worked for some of the largest insurance companies, most recently AIG where he was Senior Vice President in charge of market development and strategy for the AIG Affluent Markets Group. He has also worked for consumers of insurance products ranging from large corporations (North American Phillips) to a major law firm (Davis, Polk & Wardwell). Robert Stuchiner has published articles on life insurance products in “Trusts & Estates” magazine as well as “CCH” professional publications. He is a frequent speaker to the insurance industry associations. Robert is the winner of the “National Career Achievement Award” granted by the Lighthouse for the Blind.
Community Calibration
Byrnes concluded the interview stating, “To bring AUS to the next level of becoming the industry’s leader for strategic information, this next six months is going to be about collaboration with AUS subscribers and calibration of the new information service to align to the feedback received from them. John Frey, Head of National Underwriters Institutional Relationships, and I will reach out to establish a focus group of the enterprise-wide subscribers, as well as a focus group of the producers.”
“Via my community-based feedback approach, the subscribers will drive AUS’ topic approach to strategic information, even receiving direct answers to ‘questions for the authors’ so that the producer may better address client questions either in the living room or in the board room. AUS will be a subscriber-focused service, tailored to the needs of the producer to place more product with customers”. Byrnes said that he welcomed feedback from current AUS subscribers and would provide his direct National Underwriters telephone number and email address on the AUS subscriber site.
Posted in Compliance, Courses, Insurance, Taxation, Wealth Management | Tagged: certification, certifications, Compliance, education, estate planning, financial planning, high net wealth, income tax, Online Tax Degree, professional designations, Wealth Management | 3 Comments »
Posted by William Byrnes on June 6, 2010
The course instructors will “bridge the gap” between the often complex and quite intricate realm of international tax, estate planning, and immigration law. There is an obvious “nexus” between working professional immigrants, “high net worth immigrants,” and their financial dealings as to taxation and estate planning. The course will first provide a survey of the foundational principles of U.S. international tax and estate planning. The course will then provide a survey of relevant immigration visa categories, their status requirements, and “triggers” that have international tax and/or estate planning consequences. Then the course will apply the legal principles with US case scenarios in order to establish a greater understanding between the “nexus” of international tax and immigration laws.
Next the instructors will lecture on the international movement of high net wealth executives and families: tax and immigration issues and strategies. Finally the instructors will analyze the often overlooked overlap amongst financial reporting requirements, with a particular emphasis on the Patriot Act and related requirements.
Instructors: Prof. Fred Ongcapin is an Adjudications Officer (Policy) for the Policy and Regulation Management Division, Citizenship and Immigration Services, U.S. Department of Homeland Security, Headquarters Office, Washington D.C. In his current position he has authored and led to the publishing of numerous national policy guidance memos and formal regulations as to immigration law for the U.S. Department of Homeland Security. He also provides regular statutory and policy guidance concerning immigration policy for Citizenship and Immigration Services field offices throughout the country due to his subject matter expertise in immigration law. On several occasions, Fred has represented Citizenship and Immigration Services before senior policy level liaison meetings with the U.S. Department of State, U.S. Department of Justice, and certain Congressional Committees on Immigration.
Prof. Marshall Langer, the globally renown international tax author, lecturer and practitioner. Famed for Langer’s Practical International Tax Planning and for Rhoades & Langer U.S. International Tax and Treaties. Prof. Langer retired Of Counsel at the firm of Shutts & Bowen, London, England, and Miami, Florida.
Prof. William Byrnes has been an author and editor of 10 books and treatises and 17 chapters for Lexis-Nexis, Wolters Kluwer, Thomson-Reuters, Oxford University Press, Edward Elgar, and Wilmington. He is currently working on several Concept Maps for Lexis-Nexis Tax Law Center. This year he takes over as the author of National Underwriters’ Advanced Underwriting Service – the dominant information service in the insurance/financial planning industry with tens of thousands of subscribers.
In professional practice William Byrnes was a senior manager, then associate director of international tax for Coopers and Lybrand which subsequently amalgamated into PricewaterhouseCoopers, practicing in Africa, Europe, Asia, and the Caribbean. He has been commissioned and consulted by a number of governments on their tax and fiscal policy from policy formation to regime impact.
Delivery: 14 hours of live lecture and case studies via WIMBA web-conferencing – requires no download and works on PC/Mac.
Dates: June 8, 15, 22 (Tues) 9pm-10pm (Eastern); June 29 (Tues) 9pm – midnight (Eastern); July 22 & 29 (Thurs) 10am-11am (Eastern); Aug. 5, 12, 19, 26 (Thurs) 9pm – 10pm (Eastern); Sept. 2 (Thurs) 9pm – 11pm (Eastern)
Recordings: all lectures are made available within 1 hour after class – on-demand video streaming and MP4 download until September 5th.
Contact: Prof. William Byrnes, Associate Dean – wbyrnes@tjsl.edu +1 (619) 297-9700 x 6955 for a registration form. Payments are only made by credit card to Thomas Jefferson School of Law. The fee is $49 per lecture hour ($686 for 14 hours) and includes electronic course materials.
Posted in Courses, Teaching Opportunities, Uncategorized | Tagged: AML, certification, certifications, education, estate planning, estate tax, executives, high net wealth, immigration, income tax, Money Laundering, Online Tax Degree, professional designations, tax information exchange, Taxation, wealth management financial planning compliance money laundering | Leave a Comment »
Posted by William Byrnes on May 14, 2010
Professional Designation: American Academy of Financial Management
Exam preparation: International Tax Planning & Risk Management course
Topics: Treaty Structures, Transfer Pricing, Risk Score Cards, Offshore Strategies and Compliance amongst others – taught via case studies
Delivery: 40 hours of live lecture and case studies – audio headsets for web conferencing
Start: May 24 (Monday) – end August 13 (Friday)
When: New York 11am – 12:30 pm (Eastern Time)
Recordings: all lectures are made available within 1 hour on-demand
Contact: Prof. William Byrnes, Associate Dean – wbyrnes@tjsl.edu +1 (619) 297-9700 x 6955
Materials: tuition includes full Westlaw, Lexis, CCH, IBFD, Checkpoint, Orbitax and 20 other professional databases
Accreditation: applies toward the Legum Magister (LL.M.), Juris Scientiae Magister (J.S.M), Scientiae Juridicae Doctor (JSD) of Thomas Jefferson School of Law (San Diego)
Posted in Courses, Teaching Opportunities, Uncategorized | Tagged: certification, certifications, Compliance, education, information exchange, international tax, offshore, Online Tax Degree, professional designations, risk management, tax, tax education, Taxation, Wealth Management | Leave a Comment »
Posted by William Byrnes on May 2, 2010
Topics: Executive Compensation, High Net Wealth Families, Immigration, Estate Planning strategies and compliance
Delivery: 36 hours of live lecture and discussions – audio headsets required (online)
Start: May 28 (Friday) – end August 6 (Friday) – 11 weeks
When: most lectures’ times are weekdays at New York 11am / London 4pm / Paris 5pm / Dubai 7pm / Mumbai 8:30pm / Hong Kong 11pm
Recordings: all lectures are made available within 24 hours on-demand until August 27
Instructors include: Richard Duke, Marshall Langer, Alfred Ongcapin, and others
Contact: Prof. William Byrnes, Associate Dean – wbyrnes@tjsl.edu to enroll
Enrollment: either as continuing education or as graduate program credit (graduate program credit includes full Westlaw, Lexis, CCH, IBFD, Checkpoint, Orbitax and 20 other professional databases)
Certification: applies toward the CTEP professional designation of the American Academy of Financial Management as disclosed for FINRA.
Accreditation: applies toward the Legum Magister, Juris Scientiae Magister, Scientiae Juridicae Doctor of Thomas Jefferson School of Law (San Diego) as disclosed for the American Bar Association.
Posted in Courses, Teaching Opportunities | Tagged: certification, education, estate planning, Online Tax Degree, professional designations, Wealth Management | 2 Comments »
Posted by William Byrnes on April 22, 2010
In my 900-page economic report on the international financial services industry, I examined and calculated the economic size and impact of the sector on local jurisdictions, and in doing so reviewed the global industry as a whole.[1] But for the periods of global financial crisis, the sector had experienced double-digit annual global growth from the eighties and contributed robustly to local economies and society. Since 1998, the international financial services sector client base has expanded nearly 10% on average during growth years. Even with the dampening caused by the current global crisis, this industry is still projected for healthy growth in the high single digits over the next five years.
During the decade period until 2008, the international pool of high-net-worth individuals (HNWIs) potentially served by AAFM® Chartered Wealth Managers® had more than doubled, to just over 10 million, as had their assets, from $17.4 trillion to between $40 and $50 trillion.[2] By 2007, the average HNWI, excluding primary residences and collectibles, achieved an average of $4 million of worth![3]
The financial recession of 2008 through the first half of 2009 and the corresponding collapse of USA investment banking system temporarily decimated the available high net wealth pool, reducing it to just under nine million holding $33 trillion in assets. Because of their substantial exposure to the USA economy and financial markets, the USA suffered the greatest impact, a loss of 18.5% of its HNWI pool and its overall investable wealth.[4]
Yet by the first quarter 2010 the high net wealth pool has rebounded to near 2007 levels as markets have regained nearly 85% of the lost ground of the past 24 months. In 2009 some residential property markets experienced substantial price rebounds and increases, such as in China, India and Brazil with the top three in China.[5]
Over the next five years financial forecasters expect positive growth exceeding 8% annualized for the assets of high net wealth individuals. In just three years, by 2013, the pool of HNWI clients’ assets will expand by 50% and exceed $50 trillion – accomplishing a decade’s record in one-third the time.[6]
70% of this new wealth is self-generated, either through entrepreneurship or via executive compensation, representing a “new” breed of HNWI versus the inherited wealth clients of the past.[7] These self-generated HNWIs bring new attitudes and requirements to their wealth managers.
This is the first of several update blogticles for the career services course of the International Tax & Financial Services Graduate Program. Prof. William Byrnes
[2] Cap Gemini Merrill Lynch World Wealth Report 2008 calculates $40.7 trillion. However, see Oliver Wyman’s The Future of Private Banking: A Wealth of Opportunity? (2008) at 9 wherein using its own wealth model and reliance upon data from the OECD, IMF, WFE, UNECE, national banks and stock exchanges calculates $50 trillion.
[3] A High Net Wealth Individual has at least one million dollars investable assets, excluding the primary residence and collectables.
[4] Cap Gemini Merrill Lynch World Wealth Report 2009, p.2. Note the U.S. is still responsible for nearly 29% of global HNWIs at $2.5 million.
[5] The KnightFrank (Citi Private Bank) Wealth Report 2010 at 7.
[6] Though the global re-calibrating of asset values may impact the nominal wealth value for HNWIs in the short term, historically, based upon both the recessions coined after the Asian Financial Crisis and the Tech-Bust, the wealth value will likely return to projected levels with a two-year lag. While equity and real estate markets may have declined by January 2009 by as much as 50% of their highest value in OECD countries, HNWI portfolios are spread among other investments without such a sharp plunge. A reliable decline in value estimate for HNW is 25% based upon the decline experienced in Switzerland, which accounts for 28% of the global asset management market. See the report Wealth Management in Switzerland, Swiss Bankers Association (2009) at 8.
[7] The Future of Private Banking: A Wealth of Opportunity?, Oliver Wyman (2008) at 21
Posted in Uncategorized, Wealth Management | Tagged: certifications, professional designations, wealth management financial planning, wealth management financial planning compliance money laundering | 1 Comment »
Posted by William Byrnes on December 15, 2009
Bankruptcy Taxation, Accounting and Financial Reporting course is related to the tax and accounting principles and financial documents required in a bankruptcy case including monthly operating statements, and disclosure statements, as well as pro-forma financial statements prepared as part of a proposed bankruptcy plan. The taxation half of the course will consider such areas as the post-confirmation carry forward of losses, and tax planning for entities in financial difficulty. In addition, this course will provide a working knowledge of accounting practice and procedures related to bankruptcy.
Faculty Professors Ole Oleson and Grant Newton
Ole Oleson Esq, served as a research and writing attorney for each of the bankruptcy judges of the Southern District of California and is currently serving as law clerk to the Chief Judge. He practiced in the Financial Services department at Brobeck, Phleger and Harrison representing institutional creditors and corporate debtors.
Grant Newton, CPA, author of Bankruptcy and Insolvency Accounting: Practice and Procedure, 6th edition and co-author of Bankruptcy and Insolvency Taxation, 2nd edition; Executive Director of the Association of Insolvency and Restructuring Advisors; Member, AICPA Task Force on Financial Reporting by Entities in Reorganization Under the Bankruptcy Code.
Course period: January 18th – April 9th
Lectures: 36 lecture hours using webcams / headsets with sharing of applications – also recorded for later on-demand viewing.
Enroll with Assoc. Dean William Byrnes wbyrnes@tjsl.edu (619) 374-6955
Posted in Courses | Tagged: accounting, bankruptcy, Taxation | Leave a Comment »
Posted by William Byrnes on December 13, 2009
Course period: January 19th – April 9th (2 lectures weekly)
Lectures: 42 lecture hours using webcams / headsets with sharing of applications – also recorded for later on-demand viewing.
Online Databases & Library: full access included to all international tax databases (IBFD, CCH, BNA, Checkpoint) and Westlaw/LexisNexis
International Tax Planning Software access and training included free to all delegates
Professional Designation: Certified International Tax Analyst™ (CITA) by the American Academy of Financial Management®
Contact: Assoc. Dean William Byrnes wbyrnes@tjsl.edu (619) 374-6955
Posted in Courses, Uncategorized | Tagged: education, international tax, Online Tax Degree, tax | Leave a Comment »
Posted by William Byrnes on December 8, 2009
Lecture Period: January 19th – April 9th 2010
Lectures: 42 lecture hours over 12 weeks using webcams / headsets (www.wimba.com) with sharing of applications – also recorded for later on-demand viewing.
Online Databases & Library: full access included
Course book: online
Professional Designation: by the American Academy® (www.aafm.us)
Contact: Assoc. Dean William Byrnes wbyrnes@tjsl.edu (619) 374-6955
Posted in Courses, Uncategorized | Tagged: AML, certification, education, Money Laundering, Online Tax Degree, professional designations | 1 Comment »
Posted by William Byrnes on December 7, 2009
Course length: January 18th – April 9th 2010
Lectures: 42 lecture hours over 12 weeks using webcams / headsets (www.wimba.com) with sharing of applications – also recorded for later on-demand viewing.
Online Databases & Library: full access included Course book: online Professional Designation: by the American Academy® (www.aafm.us)
Contact: Assoc. Dean William Byrnes wbyrnes@tjsl.edu (619) 374-6955
Posted in Courses, Uncategorized | Tagged: certification, education, financial planning, Online Tax Degree, professional designations, Wealth Management | Leave a Comment »
Posted by William Byrnes on December 7, 2009
Course date: January 18th – April 9th 2010
Lectures: 42 lecture hours using webcams / headsets (see www.wimba.com) with sharing of applications – also recorded for later on-demand viewing.
Online Databases & Library: full access included
Course book: online
Professional Designation: by the American Academy® (www.aafm.us)
Contact: Assoc. Dean William Byrnes wbyrnes@tjsl.edu (619) 374-6955
Posted in Courses, Uncategorized | Tagged: AML, certification, education, Money Laundering, Online Tax Degree, professional designations, risk management | Leave a Comment »
Posted by William Byrnes on December 7, 2009
Course period: January 18th – April 9th 2010
Lectures: 42 lecture hours using webcams / headsets (see www.wimba.com) with sharing of applications – also recorded for later on-demand viewing.
Online Databases & Library: full access included
Course book: online
Professional Designation: Certified International Tax Analyst™ (CITA) by the American Academy (www.aafm.us)
Contact: Assoc. Dean William Byrnes wbyrnes@tjsl.edu (619) 374-6955
Posted in Courses, Uncategorized | Tagged: certification, education, international tax, Online Tax Degree, professional designations, tax | 4 Comments »
Posted by William Byrnes on November 30, 2009
Collaboration each course is 42 lecture hours webcam-online for with showing and sharing of applications – recorded for on-demand viewing. Global network built amongst students, faculty, and returning alumni.
Knowledge & Efficiency Stand out from peers with full access and training on the industry tax and financial services databases, Westlaw and Lexis, CCH, Checkpoint, IBFD, Tax Analysts, BNA, Westlaw Business, Westlaw China, Complinet, and Butterworths, amongst the others.
Technology Confidence with planning and compliance software such as Orbitax, CCH compliance, Compliance Resource Network, and tax risk management enterprise systems e.g. Vertex.
Posted in Courses, Teaching Opportunities | Tagged: certifications, international tax, law, Online Tax Degree, tax, tax education, Wealth Management | Leave a Comment »
Posted by William Byrnes on November 1, 2009
Historical Anecdotes Regarding the European Union Savings Directive
This week I continue in my historical anecdotes on the subject of cross-border tax (financial) information exchange and cross-border tax collection in the context of the European Union Tax Savings Directive. In our live course webinars, we will continue our indepth address of the related compliance issues.
2003 Savings Directive Agreement
On 21 January 2003, the EU Finance Ministers meeting within the Council of Ministers (“the ECOFIN Council”) reached a political agreement on a “tax package”, which comprises a Code of Conduct for business taxation, a proposal for a Community Directive on the taxation of interest and royalty payments and a proposal for a Community Directive on the taxation of income from savings (“the Savings Directive”). Furthermore on 7 March the ECOFIN Council agreed the text of the Savings Directive, although the Directive has not yet been formally adopted.
In its current form, the Savings Directive only applies to interest paid to individuals, and in particular it does not apply to companies.
Article 2
Definition of beneficial owner
1. For the purposes of this Directive, ‘beneficial owner’ means any individual who receives an interest payment or any individual for whom an interest payment is secured…”[1]
The Savings Directive requires an automatic, cross-border, exchange of information between the EU members states and their territories.[2]
EXCHANGE OF INFORMATION
Article 8
Information reporting by the paying agent
1. Where the beneficial owner is resident in a Member State other than that in which the paying agent is established, the minimum amount of information to be reported by the paying agent to the competent authority of its Member State of establishment shall consist of:
(a) the identity and residence of the beneficial owner established in accordance with Article 3;
(b) the name and address of the paying agent;
(c) the account number of the beneficial owner or, where there is none, identification of the debt claim giving rise to the interest;
(d) information concerning the interest payment in accordance with paragraph 2.
Article 9
Automatic exchange of information
1. The competent authority of the Member State of the paying agent shall communicate the information referred to in Article 8 to the competent authority of the Member State of residence of the beneficial owner.
2. The communication of information shall be automatic and shall take place at least once a year, within six months following the end of the tax year of the Member State of the paying agent, for all interest payments made during that year.
Three EU members, the territories and dependencies of the UK, and to date the accession state of Switzerland have been granted a transitional period of time to implement automatic exchange of information. The transitional period of time is to last until all listed non-EU members, i.e. Switzerland, Monaco, Andorra, Liechtenstein, and the USA, have entered into automatic exchange of information with the EU member states. During the transition, these States and jurisdictions must collect a withholding tax of which 75% of that tax must then be forward to the Member State of residence of the beneficial owner of the interest.
Article 11
Withholding tax
1. During the transitional period referred to in Article 10, where the beneficial owner is resident in a Member State other than that in which the paying agent is established, Belgium, Luxembourg and Austria shall levy a withholding tax at a rate of 15 % during the first three years of the transitional period, 20 % for the subsequent three years and 35 % thereafter.
Each of the twenty-five members (including the accession of the new group of ten members), their relevant territories, and the non-EU members acceding to the Directive is allowed to interpret the Directive for legislative implementation under its national law.
Tax Based Elasticity and Capital Flight
The Savings Directive recognises the issue of capital flight due to the sensitivity of taxpayers to exchange of information. At paragraph 24 it states, “So long as the United States of America, Switzerland, Andorra, Liechtenstein, Monaco, San Marino and the relevant dependent or associated territories of the Member States do not all apply measures equivalent to, or the same as, those provided for by this Directive, capital flight towards these countries and territories could imperil the attainment of its objectives. Therefore, it is necessary for the Directive to apply from the same date as that on which all these countries and territories apply such measures.calls for.” This capital flight issue is based upon three historical benchmarks regarding the imposition of withholding tax on interest and the immediate and substantial impact that withholding tax on interest has on capital flight. The benchmarks are (1) the 1964 US imposition of withholding tax on interest that immediately led to the capital flight of hundreds of million of dollars and the corresponding creation of the London euro-dollar bond market; (2) the 1984 US exemption of withholding tax on portfolio interest that immediately led to the capital flight from Latin America of US$300 billion to US banks; and (3) the 1989 German imposition of withholding tax that led to immediate capital flight to Luxembourg and other jurisdictions with banking secrecy of over a billion DM, so substantial that the tax was repealed but four months after imposition. Please refer to my earlier blogticles for further information about this topic.
Please contact me with any comments or follow up research materials.
Prof. William Byrnes wbyrnes@tjsl.edu
[2] The directive does not apply to Bermuda, but Bermuda has entered into agreements that have equivalent measures.
Posted in Compliance, information exchange, Legal History, Taxation | Tagged: information exchange, international tax, OECD, tax information exchange, TIEA | 1 Comment »
Posted by William Byrnes on October 26, 2009
Historical anecdotes relating to tax information exchange and cross-border assistance with tax collection (continued)
This week I continue in my historical anecdotes leading back up to the subject of cross-border tax (financial) information exchange and cross-border tax collection. In this blogticle I turn to the OECD Model Convention for Mutual Administrative Assistance in the Recovery of Tax Claims and the EU Directive on the Mutual Assistance for the Recovery of Claims In our live webinars in the tax treaty course, Marshall Langer will continue to address these issues indepthly.
1981 OECD Model Convention for Mutual Administrative Assistance in the Recovery of Tax Claims
This 1981 OECD Model provides for both the exchange of information (article 5) and the assistance in recovery (article 6), which state respectively:
EXCHANGE OF INFORMATION
At the request of the applicant State the requested State shall provide any information useful to the applicant State in the recovery of its tax claim and which the requested State has power to obtain for the purpose of recovering its own tax claims.
ASSISTANCE IN RECOVERY
1. At the request of the applicant State the requested State shall recover tax claims of the first-mentioned State in accordance with the laws and administrative practice applying to the recovery of its own tax claims, unless otherwise provided by this Convention.
Procedurally, the documentation must state (1) the authority requesting, (2) name, address and other particulars for identification of the taxpayer, (3) nature and components of the tax claim, and (4) assets of which the Requesting State is aware of from which the claim may be recovered. The nature of the tax claim must include documentary evidence in the form of the instrumentality establishing that the tax is determined, that it is due, and that it is without further recourse to contest under the Requesting State’s laws. The applicable Statute of Limitation is of the Requesting State.
The Requested State’s obligation is limited, as under the OECD DTA Model Article 26 and 27, if the request requires the Requested State to go beyond its own or the Requesting State’s capacity to either provide information or take administrative actions pursuant to their respective internal laws. The Requesting State has a duty to exhaust its own reasonable collection remedies before making the request which procedural requirement may be relied upon by the Requested State. All requests are also limited by ordre public.
1988 Convention On Mutual Administrative Assistance In Tax Matters
Coming into force April 1, 1995 amongst the signatories Belgium, Denmark, Finland, Iceland, Netherlands, Norway, Poland, Sweden, and the US, this multilateral convention was originally agreed in 1988. The Convention provides for exchange of information, foreign examination, simultaneous examination, service of documents and assistance in recovery of tax claims.
Tax covered includes income, capital gains, wealth, social security, VAT and sales tax, excise tax, immovable property tax, movable property tax such as automobiles, and any other tax save customs duties. The tax also includes any penalties and recovery costs. The tax may have been levied by the State and any of its subdivisions.
The convention allows the request of information regarding the assessment, collection, recovery and enforcement of tax. The information may be used for criminal proceedings on a case-by-case basis pursuant to the Requested State agreeing, unless the States have waived the requirement of agreement.
Spontaneous provision of information shall be provided without request when a State with information:
(1) has “grounds for supposing” a loss of tax to another State,
(2) knows that a taxpayer receives a tax reduction in its State that would increase the tax in the other State,
(3) is aware of business dealings between parties located in both States that saves tax,
(4) has grounds for supposing an artificial intro-group transfer of profits, and
(5) that was obtained from the other State has led to further information about taxes in the other State.
Similar to the OECD Model Conventions above, procedurally the requesting documentation must state (1) the authority requesting and (2) name, address and other particulars for identification of the taxpayer. For an information request, the document should include in what form the information should be delivered. For a tax collection assistance request, (1) the tax must be evidenced by documentation in the form of the instrumentality establishing that the tax is determined, that it is due and that it is without further recourse to contest, (2) the nature and components of the tax claim, and (3) assets of which the Requesting State is aware of from which the claim may be recovered.
This Multilateral Convention’s limitations follow the 1981 and 2003 OECD Model, but further provide for a non-discrimination clause. The non-discrimination clause limits providing assistance if such assistance would lead to discrimination between a requested State’s national and requesting State’s nationals in the same circumstances.
2001 EU Directive on the Mutual Assistance for the Recovery of Claims relating to Certain Levies, Duties, Taxes and Other Measures
The OECD is not alone in its quest to improve tax information exchanges. On June 15, 2001 the EU Commission issued a Directive that amended a previous 1976 Directive which substantially changed the impact of that 1976 Directive (on mutual assistance for the recovery of claims resulting from operations forming part of the system of financing the European Agricultural Guidance and Guarantee Fund, and of agricultural levies and customs duties and in respect of value added tax and certain excise duties).
The 2001 Directive provided that Member States enact regulations that provide for the implementation of a number of EU Directives on mutual assistance between Member States of the Community on the provision of information in respect of, and the recovery in the State of, claims made by Other Member States in respect of debts due to the Member State in question from:
In summary, the Directive provides for one Member State’s competent authority at the request of another Member State’s competent authority to disclose to the requester’s competent authority any information in relation to a claim which is required to be disclosed by virtue of the Directive.
On receipt of a request, the Revenue Commissioners can decline a request to provide information in the following circumstances:
– if the information would, in the opinion of the Competent Authority, be liable to prejudice the security of the State or be contrary to public policy;
– if the Competent Authority would not be able to obtain the information requested for the purpose of recovering a similar claim, or
– if the information, in the opinion of the Competent Authority, would be materially detrimental to any commercial, industrial or professional secrets.
Any information provided to a competent authority under the enacting regulations pursuant to the Directive can only be used for the purposes of the recovery of a claim or to facilitate legal proceedings to the recovery of such a claim.
Under the Directive, the collecting Member State is obliged to collect the amount of a claim specified in any request received from a competent authority in another Member State and remit the amount collected to that competent authority.
In the Tax Treaties course, Prof. Marshall Langer will be undertaking an in-depth analysis of these instruments and issues raised above regarding the IRS efforts to collect tax via assistance from foreign states. For further tax treaty course information, please contact me at William Byrnes (wbyrnes@tjsl.edu).
Posted in Compliance, Financial Crimes, information exchange, Legal History, OECD, Taxation | Tagged: Compliance, Financial Crimes, information exchange, international tax, OECD, tax information exchange, TIEA | 1 Comment »
Posted by William Byrnes on October 22, 2009
This week I continue in my historical anecdotes leading back up to the subject of cross-border tax (financial) information exchange and cross-border tax collection. In this blogticle I turn to the FATF, Edwards and KPMG reports, OECD and Offshore Group of Bank Supervisors. In our live webinars, Marshall Langer will continue to address these issues indepthly.
1990 – 2001 Financial Action Task Force (FATF)
In 1990, the FATF established forty recommendations as an initiative to combat the misuse of financial systems by persons laundering drug money. In 1996, the FATF revised its forty recommendations to address “evolving money laundering typologies”. The 1996 forty recommendations developed into the international anti-money laundering standard, having been endorsed by more than 130 countries. In 2001, because of 9/11, the FATF issued eight terrorist financing special recommendations to combat the funding of terrorist acts and terrorist organizations. Regarding the micro-economies, the activities of the Offshore Group of Banking Supervisors (OGBS) have lead to agreement with the FATF on ways to evaluate the effectiveness of the money-laundering laws and policies of its members. The difficulty is that only about a half of offshore banking centers are members of OGBS.
See the FATF Methods and Trends page for detailed typologies.
1999 Review Of Financial Regulation In The Crown Dependencies (Edwards Report)
In 1999 and 2000, the UK government in association with the governments of its Crown Dependencies and Overseas Territories assessed the territories financial regulations against international standards and good practice, as well as make recommendations for improvement where any territory fell beneath the standards. In general the reports concluded that the regulatory regimes were good, given limited resources, but that significant further resources had to be employed. The primary conclusions of the reports included:
(1) employment of more regulatory resources,
(2) establish an independent regulatory body in each jurisdiction,
(3) maintain records of bearer share ownership,
(4) allow disclosure of beneficial owners’ names to regulators for possible onward transmittal to other jurisdiction’s regulators, and
(5) expand company disclosure with regard to the directors.
In 2000, the UK government in association with the governments of the Caribbean Overseas Territories and Bermuda commissioned the London office of KPMG to assess the territories financial regulations against international standards and good practice, as well as make recommendations for improvement where any territory fell beneath the standards. A brief example summary for Anguilla and British Virgin Islands (BVI) is below.
Anguilla
KPMG commented that while Anguilla’s offshore regulatory operations are “well-run by skilled officers”, KPMG critiqued that the regulatory operations were not fully in accordance with international standards. KPMG’s principal recommendations for regulatory refinement were:
The KPMG Report concluded that Anguilla’s ACORN electronic company registration system “enhanced” the regulatory environment.
British Virgin Islands
KPMG commented that while BVI’s offshore regulatory operations are well run, KPMG pointed out that the regulatory operations were not fully in accordance with international standards. KPMG’s principal recommendations for regulatory refinement were:
Influenced by international reports concerning combating money laundering, the BVI passed legislation restricting the anonymity and mobility of bearer shares through requiring them to be held by a licensed financial institution. The anonymity of directors was reduced by requiring information about them to be filed preferably in the Company Registry in the jurisdiction.
2000 Improving Access To Bank Information For Tax Purposes (OECD)
In 2000, the OECD issued Improving Access to Bank Information for Tax Purposes. The 2000 OECD Report acknowledged that banking secrecy is “widely recognised as playing a legitimate role in protecting the confidentiality of the financial affairs of individuals and legal entities”. This Report focused on improving exchange of information pursuant to a specific request for information related to a particular taxpayer. In this regard, it noted that pursuant to its 1998 Report, 32 jurisdictions had already made political commitments to engage in effective exchange of information for criminal tax matters for tax periods starting from 1 January 2004 and for civil tax matters for tax periods starting from 2006. We have already covered the corresponding TIEAs established in light of this report in a previous blogticle hereunder. Black/White and Grey lists will be covered in a future blogticle.
2002 Offshore Group Of Banking Supervisors Statement Of Best Practices
In 2002, the OGBS formed a working group to establish a statement of best practices for company and trust service providers. The working group included representatives from the micro-economies of Bahamas, Bermuda, B.V.I., Cayman Islands, Cyprus, Guernsey, Gibraltar, Isle of Man an Jersey and from the OECD members France, Italy, the Netherlands, the U.K., as well as the relevant NGOs of the FATF, IMF, and OECD. The terms of reference of the working groups was to “To produce a recommended statement of minimum standards/guidance for Trust and Company Service Providers; and to consider and make recommendations to the Offshore Group of Banking Supervisors for transmission to all relevant international organisations/authorities on how best to ensure that the recommended minimum standards/guidance are adopted as an international standard and implemented on a global basis”.
The Working Group concluded: “There should be proper provision for holding, having access to and sharing of information, including ensuring that –
(i) information on the ultimate beneficial owner and/or controllers of companies, partnerships and other legal entities, and the trustees, settlor, protector/beneficiaries of trusts is known to the service provider and is properly recorded;
(ii) any change of client control/ownership is promptly monitored (e.g. in particular where a service provider is administering a corporate vehicle in the form of a “shelf” company or where bearer shares or nominee share holdings are involved);
(iii) there is an adequate, effective and appropriate mechanism in place for information to be made available to all the relevant authorities (i.e. law enforcement authorities, regulatory bodies, FIU’s);
(iv) there should be no barrier to the appropriate flow of information to the authorities referred to in 3 (iii) above;
(v) KYC and transactions information regarding the clients of the Service Provider is maintained in the jurisdiction in which the Service Provider is located;
(vi) there should be no legal or administrative barrier to the flow of information/documentation necessary for the recipient of business from a Service Provider who is an acceptable introducer to satisfy itself that adequate customer due diligence has been undertaken in accordance with the arrangements set out in the Basel Customer Due Diligence paper.
Please contact me with any comments or follow up research materials. Prof. William Byrnes wbyrnes@tjsl.edu
Posted in information exchange, Legal History, OECD | Tagged: Compliance, Financial Crimes, information exchange, international tax, OECD, tax information exchange, TIEA | 2 Comments »
Posted by William Byrnes on September 26, 2009
I continue in my historical anecdotes leading back up to the subject of cross-border tax (financial) information exchange and cross-border tax collection. This week, we start with the United Nations Declaration Regarding Non-Self Governing Territories, which is in the UN Charter, then turn the a few UK Reports about her territories, and the UN and OECS Human Development Indices.
Marshall Langer will be addressing these much more in-depthly during his lectures in October and November.
Members of the United Nations which have or assume responsibilities for the administration of territories whose peoples have not yet attained a full measure of self-government recognize the principle that the interests of the inhabitants of these territories are paramount, and accept as a sacred trust the obligation to promote to the utmost, within the system of international peace and security established by the present Charter, the well-being of the inhabitants of these territories, and, to this end:
a. to ensure, with due respect for the culture of the peoples concerned, their political, economic, social, and educational advancement, their just treatment, and their protection against abuses;
b. to develop self-government, to take due account of the political aspirations of the peoples, and to assist them in the progressive development of their free political institutions, according to the particular circumstances of each territory and its peoples and their varying stages of advancement;
c. to further international peace and security;
d. to promote constructive measures of development, to encourage research, and to co-operate with one another and, when and where appropriate, with specialized international bodies with a view to the practical achievement of the social, economic, and scientific purposes set forth in this Article; and
e. to transmit regularly to the Secretary- General for information purposes, subject to such limitation as security and constitutional considerations may require, statistical and other information of a technical nature relating to economic, social, and educational conditions in the territories for which they are respectively responsible other than those territories to which Chapters XII and XIII apply.
Members of the United Nations also agree that their policy in respect of the territories to which this Chapter applies, no less than in respect of their metropolitan areas, must be based on the general principle of good-neighbourliness, due account being taken of the interests and well-being of the rest of the world, in social, economic, and commercial matters.
1999 Partnership For Progress And Prosperity: Britain And Her Overseas Territories
In 1999, Robin Cook presented to Parliament a White Paper Partnership for Progress and Prosperity: Britain and the Overseas Territories (the “White Paper”). The White Paper’s primary conclusion was that the Overseas Territories had successfully diversified their economies through developing global market positions in the offshore financial services industry but that the Overseas Territories required reputation maintenance through regulatory enhancement in order to maintain their global market position within this industry. The White Paper noted that the Caribbean Overseas Territories were potentially susceptible to money laundering and fraud because of their proximity to drug producing and consuming countries, inadequate regulation and strict confidentiality rules.
Also, the White Paper proposed that Britain grant full citizenship, i.e. with right of abode, to the Overseas Territories citizens. But this right of citizenship was not in exchange for implementing the more extensive regulatory regimes in alignment with the OECD Report. In 2002, the UK enacted the British Overseas Territories Bill[1] in order to fulfil the Government’s commitment, announced in the White Paper, to extend full British citizenship to those who were British Dependent Territories citizens.
Free Movement of Persons
Note that the nationals of the US, Netherlands, French, Portugal and Spanish territories have full parent State nationality with rights of abode. The non-colony status jurisdictions charged further discriminatory treatment, that they did not have the same rights of free movement and abode as the colonial nationals.
In its Report, the OECD members targeted trade in capital and services with the stick of sanctions, but did not offer a carrot, much less a lifeline, to the independent micro-economies. Some Island states’ pundits allege that the OECD drive against tax competition is a geo-political move for re-(economic) colonization. These commentators propose that the inevitable declining human development impact of the OECD’s drive against tax competition will be a brain drain to the OECD countries via legal and illegal immigration.
The United Nations Human Development Report for 2009, to be released within a few weeks in October, will address the international issue of the movement of persons.
Because the UN Human Development Annual Report does not include all the Caribbean Islands, such as the non self-governing former colonies, the OECS Human Development Report is critical for the quantitative measuring and qualitative analysis of social and economic indicators for Eastern Caribbean territories, and to then be able to contrast these to other UN members captured by the UN Report.
It should be noted that the OECS Report noted that the Caribbean financial centers held approximately US$2 trillion in assets from international financial center activities. The OECS stated that these international financial services contributed foreign exchange to its members’ economies, revenue to its governments, and that the sector created employment while developing human resources and contributing to the growth of technology. The OECS concluded that the most important impact to the economies from international financial services was economic diversification.[2]
In 1989, HMG commissioned the Gallagher Report (Survey of Offshore Finance Sectors of the Caribbean Dependent Territories) with the intent to review whether its territories’ offshore financial services sectors regulations met international standards. Overall, the Gallagher Report presented proposals to extend the range and scope of offshore financial services in the COTs through the introduction of new measures designed to improve the regulatory framework especially with relation to banks, trusts, insurance and company management. The Gallagher Report made specific recommendations to several jurisdictions.
By example, with regard to the British Virgin Islands, the Gallagher Report presented proposals to extend the range and scope of offshore financial services through the introduction of new measures designed to improve the regulatory framework as it relates especially to banks, trusts, insurance and company management. Following the Gallagher Report’s proposals, the BVI government revised in 1990 the 1984 IBC Act, enacted a modern Banks & Trust Companies Act to replace the 1972 legislation; and passed the Company Management Act requiring companies providing registration and managerial services to be licensed. In 1993, BVI enacted a Trustee (Amendment) Act in order to modernise the 1961 Trust Ordinance and the following year passed the 1994 Insurance Act.
With regard to Anguilla, Gallagher’s Report criticised the lack of up-to-date legislation, inadequate supervision of its financial sectors, and a confidentiality statute that encouraged “the type of business best avoided”. Gallagher’s Report recommended the enactment of three draft laws, as well as the repeal of the Confidential Relationships Ordinance 1981.[3] Following Gallagher’s Report, in 1992 the British Government aid agency engaged the consultancy firm of Mokoro to advise the Government of Anguilla on its economic strategy for the 21st century. The Mokoro Report concluded that the development of additional economic activity in Anguilla principally required the development of the financial sector. The 1993 Report stated that the financial sector’s socio-economic impact would be:
As a result of the Report, Anguilla received a three-year 10.5 million English pound grant from the Minister for Overseas Development to research and to develop a Country Policy Plan. In 1994, Anguilla updated its international financial center through enacting a package of twelve statutes.
Please contact me for further information or research that you would like to share on these topics at http://www.llmprogram.org.
[2] 2002 OECS Report p.23.
[3] The Confidential Relationships Ordinance, 1981, made it illegal to give other Governments information, including information regarding tax offences.
Posted in information exchange, Legal History, OECD, Taxation | Tagged: information exchange, international tax, law, OECD, offshore, tax, tax information exchange, TIEA | Leave a Comment »
Posted by William Byrnes on September 12, 2009
THE OECD FORUM REGARDING HARMFUL TAX COMPETITION[1]
Over the past several weeks, I have written a series of blogticles addressing issues of tax information exchange. I will now pull back to circle around this subject, touching upon several forums, reports, and initiatives that either led up to or occurred during the OECD Forum. Recognizing that the Forum has obtained steam due to the global financial slump – I will address current initiatives and impacts after the historical annotation. Importantly, I will need to research and address the most recent OECD Forum in Mexico wherein Dr. Dan Mitchell, a press commentator for the Cato Institute, reported that the OECD is attempting to resuscitate the debunked arguments for capital export neutrality.[2]
1998 HARMFUL TAX COMPETITION: AN EMERGING GLOBAL ISSUE (OECD)
Let us begin this look back with a review of the seminal 1998 OECD Report . In 1998, the Organization of Economic Cooperation and Development (“OECD”) presented its seminal report Harmful Tax Competition: An Emerging Global Issue [“1998 OECD Report].[3] The 1998 OECD Report addressed harmful tax practices in the form of tax havens and harmful preferential tax regimes in OECD Member countries, but primarily in non-Member countries and their dependencies. The 1998 OECD Report focused on geographically mobile activities, such as financial and other service activities. The Report defined the factors to be used in identifying harmful tax practices and regimes, proposing 19 recommendations to counteract such practices and regimes. Because Switzerland and Luxembourg abstained from the Report, these two OECD members are not bound by its recommendations. The OECD has followed the 1998 Report with progress reports regarding implementation of the recommendations.
The OECD listed as four key factors to determine whether a tax regime was harmful:
The 2000 follow up report downgraded the 1998 factor of whether the jurisdiction imposed a minimal level of tax from a determinative factor to only as an indicative factor of tax haven status that would lead to further investigation into the four determinative factors.
Was the 1998 Forum Influenced by Geo-Politics at the Expense of Neutrally Developed Outcomes?
The list of tax havens determined to have harmful regimes included many of the traditionally targeted, primarily uni- and micro-economy[4], international financial centres on OECD member blacklists i.e. The Bahamas, British Virgin Islands, and Cayman Islands.[5] Notably though, the list did not target jurisdictions such as Hong Kong and Singapore. Their absence from the list constituted disparate treatment, alleged the micro-economies, resulting merely from the micro-economies lack of diplomatic importance.
Also, the 1998 OECD Report, in line with general OECD member trade negotiation policy, did not address its members’ ring-fenced tax policies that created harmful effects to the developing world, but rather only addressed the tax competition issues that affected the developed States. By example, the 1998 Report did not address the US tax ring-fenced policy established in 1984 of exempting from withholding tax non-resident’s portfolio interest that led to the capital flight from Latin America of US$300 billion to US banks.[6] The 2000 Report listed the British overseas territory Virgin Islands as a targeted jurisdiction but did not list the US ring-fenced policy favourable toward the US overseas territory Virgin Islands, and most of the US’ other dependencies, that allows an exemption from US taxation on non-US source income for US taxpayers resident in the dependencies.[7] This factor, alleged the micro-economies, illustrated the disingenuousness of the Report. The pro-micro economy commentators alleged an OECD discriminatory cartel against non-members, and in line that the Report was merely self-serving of the cartel’s interests.
Enforcement Measures
The OECD proposed counter-measures to be applied against listed uncooperative, such as:
In order to be removed from the targeted list, the micro-economies had to issue Letters of Commitment to engage in effective provision of information for criminal tax matters for tax periods starting from 1 January 2004 and for civil tax matters for tax periods starting from 2006. All Caribbean States and territories were targeted by the OECD and succumbed to commitment letters.[8] The States and Territories that have issued these Letters of Commitment have based their commitment on at least two quid pro quos: (1) a diplomatic seat at the table for future discussions regarding the issue of tax competition, and (2) a level playing field wherein the OECD obtains commitment from its members to implement its recommendations.
My Commentary: Pro and Con
My commentary on the criticism of the OECD Report has been very detailed, and addresses the policy issues raised by the Report from a complex perspective.
First, the OECD States have democratically chosen government that democratically set the tax rates and rules that apply to their residents.[9] If the residents do not like the rates or the rules, then the residents must either use the democratic process to change the rates and rules or move to a different jurisdiction.[10] Thus, the often heard justification that OECD residents are justified in ‘hiding income’ because the OECD welfare States require high tax rates is not legitimate. Evasion, in the OECD, is a democratically established crime with legitimate sanctions.
Secondly, in the OECD, taxpayers have a jurisprudentially long-established right to arrange their affairs so as to incur the lowest incidence of tax. This is known as tax avoidance planning. Planning involves characterisation of income and transactions, timing of income, arranging activities that create value in the income value chain with a system and among systems, leveraging definitional and interpretative anomalies within a system and among systems, to name the basics.
Democratically elected governments may, even perhaps a duty to their welfare state societies, to protect their tax bases. Thus, these governments may change the tax rules to impose tax on transactions that previously avoided tax. On the other hand, retroactive regulatory changes are an affront to the jurisprudential principle of certainty and the Rule of Law. Retroactive changes have been enacted, albeit very rarely, and Courts need to be vigilant in maintaining the Rule of Law and the principle of certainty by striking down retroactive application in these situations.
The groundwork is thus set for a conflicting claim: the government for revenue and the taxpayer (assisted by tax lawyers, accountants, and consultants) to minimize taxation.
Another principle policy established by and binding upon the OECD members is free trade, albeit in mitigated application. The OECD preaches the freedom of movement of goods, services, and investment capital. The free movement of persons which was once an international norm, lost favour amongst the members, but at least amongst the EU trade bloc, has regained its principle status. The principles of free trade and the principle of taxation may create conflicting claims, both legitimate, upon taxpayers (tax subjects) and upon the chain of events that create income (tax objects). I will not go into further detail on this argument, but leave it for the lecture and our discussions in our program.
Parting question for this week
Finally, this Report and the subsequent OECD Report on Banking that will be briefed in later blogticles both address the Exchange (“provision” because it is one way) of Information. I leave you with this issue to consider: Does Public International Law or international jurisprudence or the jurisprudence of our respective jurisdictions establish a right against retroactive application of a change in revenue department policy or attitude toward previously accepted norms in tax planning?
[2] http://www.freedomandprosperity.org/memos/m09-09-09/m09-09-09.shtml. In potential support of Dr. Mitchell’s investigative press report is that the OECD Forum now uses the language in its communiqués “encourage an environment in which fair competition can take place”, sounding very similar to the industrial arguments promoting trade protectionism and barriers through countervailing dumping duties against States with low labour and materials costs.
[3] You may obtain this Report without charge in PDF on the OECD website at http://www.oecd.org/.
[4] The traditional micro-economies had previously been uni- agriculture economies, many exporting to their colonial parent under favourable import regimes to either counter OECD agricultural subsidy policies or as a subsidy in itself to the former/current colony to assist it with foreign exchange earnings that in turn could be used to meet the colonies trade deficit in goods. Many of the uni-economies diversified into tourism services to mitigate the trend of their lack of agricultural competitiveness. Eventually, the colonies entered the international financial services sector to mitigate against their dependency on tourism and to increase their local inhabitants standard of living.
[5] See Toward Global Cooperation, Progress in Identifying and Eliminating Harmful Tax Practices, OECD (2000) at 10. Forty-seven jurisdictions were initially targeted by the OECD, approximately a quarter of the world’s States and jurisdictions.
[6] The US imposes tax upon its taxpayers’ interest income. See Globalization, Tax Competition, and the Fiscal Crisis of the Welfare State, Reuven Avi-Yonah, 113 HVLR 1573, 1631 (May 2000) wherein he addresses this policy in the context of President Reagan’s administration’s efforts to attract foreign capital to fund the ballooning US deficit.
[7] The US imposes tax upon her citizens on the basis on their nationality. Thus, regardless of residency, a US taxpayer is subject to the full impact of US domestic taxation. This tax policy’s application to her own citizens is maintained in her tax treaties through the savings clause. The US grants two exceptions to this policy. The first is a exception limited to a ceiling of US$80,000 of employment income for US taxpayers resident in a foreign jurisdiction that remain outside the US at least 330 days. The second is the more egregious ring fence policy that allows an unlimited exemption from US tax on non-US source income for US taxpayers resident in the US Virgin Islands. The Virgin Islands, in turn, grants a generous tax subsidy benefit if the taxpayer’s activity is conducted through an approved investment incentive vehicle.
[8] By example, in June 2000, all members of the Organization of Eastern Caribbean States were listed by the OECD as tax havens. Under the threat of the OECD sanctions being implemented by its members against the Caribbean States, all issued Letters of Commitment to the OECD.
[9] I start with the democratic argument in order to ground my arguments in public international law. All OECD members are members of the UN (Switzerland having only recently joined). The OECD and UN principles hold high regard for democratic processes. Democratic participation is held up to the level of being a fundamental human right.
[10] Several OECD States have enacted anti-emigration tax statutes that continue to subject former residents (nationals in the case of the USA) to tax. I strongly disagree with this anti- free trade policy, in this case, that impacts the free movement of persons. This policy creates export barriers to low tax jurisdictions that seek to compete for the immigration of person with capital, such as retirees and entrepreneurs.
Posted in information exchange, OECD, Taxation | Tagged: information exchange, international tax, OECD, tax, TIEA | 3 Comments »
Posted by William Byrnes on September 3, 2009
Tax Information Exchange (TIEA): an Opportunity for Latin American to Clawback Its Capital Flight Back from America? Perhaps even Switzerland?
This blogticle is a short note regarding the potential risk management exposure of US financial institutions’ exposure to a UBS style strategy being employed by foreign revenue departments, such as that of Brazil, and Switzerland. Of course, such foreign government strategies can only be productive if US financial institutions are the recipient of substantial funds that are unreported by foreign nationals to their respective national revenue departments and national reserve banks, constituting tax and currency/exchange control violations in many foreign countries.
The important issue of Cross Border Assistance with Tax Collection takes on more relevance when foreign governments begin seeking such assistance from the USA Treasury in collecting and levying against the hundred thousand plus properties purchased with unreported funds, and whose asset value may not have been declared to foreign tax authorities where such reporting is required in either the past, or the current, tax years.
In the 15 week online International Tax courses starting September 14, we will be undertaking an in-depth analysis of the topics covered in this blog during the 10 online interactive webinars each week.
In the 2002 article International Tax Co-operation and Capital Mobility, prepared for an ECLAC report, from analysing data from the Bank for International Settlements (“BIS”) on international bank deposits, Valpy Fitzgerald found “that non-bank depositors are very sensitive to domestic wealth taxes and interest reporting, as well as to interest rates, which implies that tax evasion is a determinant of such deposits….”[1] Non-bank depositors are persons that instead invest in alternative international portfolios and financial instruments.
Estimating How Much Latin American Tax Evasion are US Banks Involved With?
Within two weeks I will post a short blogticle that I am preparing regarding an estimated low figure of $300B capital outflow that has begun / will occur from the USA pursuant to its signing of a TIEA with Brazil. Some South Florida real estate moguls have speculated that this TIEA has played a substantial role in the withdrawal of Brazilian interest in its real estate market, which has partly led to the sudden crash in purchases of newly contrasted condominium projects.
Three historical benchmarks regarding the imposition of withholding tax on interest illustrate the immediate and substantial correlation that an increase in tax on interest has on capital flight. The benchmarks are (1) the 1964 US imposition of withholding tax on interest that immediately led to the creation of the London Euro-dollar market;[2] (2) the 1984 US exemption of withholding tax on portfolio interest that immediately led to the capital flight from Latin America of US$300 billion to US banks;[3] and (3) the 1989 German imposition of withholding tax that led to immediate capital flight to Luxembourg and other jurisdictions with banking secrecy[4]. The effect was so substantial that the tax was repealed only four months after imposition.
The Establishment of London as an International Financial Center
The 1999 IMF Report on Offshore Banking concluded that the US experienced immediate and significant capital outflows in 1964 and 1965 resulting from the imposition of a withholding tax on interest. Literature identifies the establishment of London as a global financial centre as a result of the capital flight from the US because of its imposition of Interest Equalisation Tax (IET) of 1964.[5] The take off of the embryonic London eurodollar market resulted from the imposition of the IET.[6] IET made it unattractive for foreign firms to issue bonds in the US. Syndicated bonds issued outside the US rose from US$135 million in 1963 to US$696 million in 1964.[7] In 1964-65, the imposition of withholding tax in Germany, France, and The Netherlands, created the euromark, eurofranc and euroguilder markets respectively.[8]
The Establishment of Miami as an International Financial Center
Conversely, when in 1984 the US enacted an exemption for portfolio interest from withholding tax, Latin America experienced a capital flight of $300 billion to the US.[9] A substantial portion of these funds were derived from Brazil. In fact, some pundits have suggested that Miami as a financial center resulted not from the billions generated from the laundering of drug proceeds which had a tendency to flow outward, but from the hundreds of billions generated from Latin inward capital, nearly all unreported to the governments of origination.
The Establishment of Luxembourg as an International Financial Center
In January of 1989, West Germany imposed a 10% withholding tax on savings and investments. In April it was repealed, effective July 1st, because the immediate cost to German Banks had already reached DM1.1 billion.[10] The capital flight was so substantial that it caused a decrease in the value of the Deutsche mark, thereby increasing inflation and forcing up interest rates. According to the Financial Times, uncertainty about application of the tax, coupled with the stock crash in 1987, had caused a number of foreign investment houses to slow down or postpone their investment plans in Germany. A substantial amount of capital went to Luxembourg, as well as Switzerland and Lichtenstein.
Switzerland’s Fisc May Come Out Ahead
Perhaps ironically given the nature of the UBS situation currently unfolding, a Trade Based Money Laundering study by three prominent economists and AML experts focused also on measuring tax evasion uncovered that overvalued Swiss imports and undervalued Swiss exports resulted in capital outflows from Switzerland to the United States in the amount of $31 billion within a five year time span of 1995-2000.[11] That is, pursuant to this transfer pricing study, the Swiss federal and cantonal revenue authorities are a substantial loser to capital flight to the USA. The comparable impact of the lost tax revenue to the much smaller nation of Switzerland upon this transfer pricing tax avoidance (and perhaps trade-based money laundering) may be significantly greater than that of the USA from its lost revenue on UBS account holders. Certainly, both competent authorities will have plenty of work on their hands addressing the vast amount of information that needs to be exchanged to stop the bleeding from both countries’ fiscs.
Let me know if you are interested in further developments or analysis in this area. Prof. William Byrnes (www.llmprogram.org)
[2] See Charles Batchelor, European Issues Go from Strength to Strength: It began with Autostrade’s International Bond in 1963, The Financial Times (September 25, 2003) p.33; An E.U. Withholding Tax?
[3] Globalisation, Tax Competition, and the Fiscal Crisis of the Welfare State, Reuven Avi-Yonah, 113 HVLR 1573, 1631 (May 2000).
[4] Abolition of Withholding Tax Agreed in Bonn Five-Month-Old Interest Withholding To Be Repealed, 89 TNI 19-17.
[5] See Charles Batchelor, European Issues Go from Strength to Strength: It began with Autostrade’s International Bond in 1963, The Financial Times (September 25, 2003) p.33; An E.U. Withholding Tax?
[6] 1999 IMF Offshore Banking Report p.16.
[7] 1999 IMF Offshore Banking Report p.16-17.
[8] 1999 IMF Offshore Banking Report p.17.
[9] Globalisation, Tax Competition, and the Fiscal Crisis of the Welfare State, Reuven Avi-Yonah, 113 HVLR 1573, 1631 (May 2000).
[10] Abolition of Withholding Tax Agreed in Bonn Five-Month-Old Interest Withholding To Be Repealed, 89 TNI 19-17.
[11] Maria E. de Boyrie, Simon J. Pak and John S. Zdanowicz The Impact Of Switzerland’s Money Laundering Law On Capital Flows Through Abnormal Pricing In International Trade Applied 15 Financial Economics 217–230 (Rutledge 2005).
Posted in Compliance, Financial Crimes, information exchange, Legal History, OECD, Taxation, Uncategorized | Tagged: history, information exchange, international tax, OECD, offshore, TIEA, UBS | 1 Comment »
Posted by William Byrnes on September 1, 2009
This week we continue with our examination of Cross-Border Information Exchange deciphering the Legal Privilege Limitation requirements of exchange contemplated by the OECD Model Agreement for Tax Information Exchange. In the 15 week online International Tax courses starting September 14, we will be undertaking an in-depth analysis of the topics covered in this blog during the 10 online interactive webinars each week.
Tax Evasion Request (1 January 2004)
In the BVI TIEA, criminal tax evasion, for which the exchange of information begins 1 January 2004, is defined:
“”criminal tax evasion” means willfully, with dishonest intent to defraud the public revenue, evading or attempting to evade any tax liability where an affirmative act constituting an evasion or attempted evasion has occurred. The tax liability must be of a significant or substantial amount, either as an absolute amount or in relation to an annual tax liability, and the conduct involved must constitute a systematic effort or pattern of activity designed or tending to conceal pertinent facts from or provide inaccurate facts to the tax authorities of either party. The competent authorities shall agree on the scope and extent of matters falling within this definition;” (emphasis added)[1]
The Cayman TIEA does not contain the last emphasized sentence. The Bahamas TIEA states more broadly that “”criminal matter” means an examination, investigation or proceeding concerning conduct that constitutes a criminal tax offense under the laws of the United States. The IOM and Jersey TIEAs define criminal tax matters as those “involving intentional conduct which is liable to prosecution under the criminal laws of the applicant Party.” Barbados and Bermuda TIEAs do not contain a specific definition of criminal tax evasion, that is the USA may request information regarding civil tax matters.
From January 1, 2006, information regarding any civil tax matters may be requested by the USA from all of the jurisdictions. This date coincides with the date established by the OECD it demanding its commitment letters from targeted tax havens regarding the 1998 and 2000 Reports.
Legal Privilege Limitation
The BVI, Cayman and Bahamas TIEAs contain a protection for information subject to legal privilege. The BVI TIEA broadly define legal privilege:
“items subject to legal privilege” means:
(a) communications between a professional legal adviser and his client or any person representing his client made in connection with the giving of legal advice to the client;
(b) communications between a professional legal adviser and his client or any person representing his client or between such an adviser or his client or any such representative and any other person made in connection with or in contemplation of legal proceedings and for the purposes of such proceedings; and
(c) items enclosed with or referred to in such communications and made –
(i) in connection with the giving of legal advice; or
(ii) in connection with or in contemplation of legal proceedings and for the purposes of such proceedings, when the items are in the possession of a person who is entitled to possession of them.
Items held with the intention of furthering a criminal purpose are not subject to legal privilege, and nothing in this Article shall prevent a professional legal adviser from providing the name and address of a client where doing so would not constitute a breach of legal privilege; (emphasis added)
The Cayman TIEA does not contain the provision that a professional legal advisor is not prevented from providing a client’s name and address. The Bahamas definition is more restrictive in that it does not contain the clause (c) regarding items enclosed in legally privileged communications. The NLA and Barbados TIEAs incorporate legal privilege pursuant to its definition under domestic law in that the TIEA limits the Requested Party to the information collection means available under domestic law. Whereas the IOM TIEA contains a definition of legal privilege, Jersey does not, though like NLA and Barbados, such definition and limitation is incorporated. Like Cayman, the IOM TIEA defines legal privilege as:
(i) communications between a professional legal adviser and his client or any person representing his client made in connection with the giving of legal advice to the client;
(ii) communications between a professional legal adviser and his client or any person representing his client or between such an adviser or his client or any such representative and any other person made in connection with or in contemplation of legal proceedings and for the purposes of such proceedings; and
(iii) items enclosed with or referred to in such communications and made-
(a) in connection with the giving of legal advice; or
(b) in connection with or in contemplation of legal proceedings and for the purposes of such proceedings, when they are in the possession of a person who is entitled to possession of them.
Items held with the intention of furthering a criminal purpose are not subject to legal privilege.
Procedural Application – Fishing Expeditions
The BVI TIEA provides in order to demonstrate the relevance of the information sought to the request that the US shall provide the following information:
(a) the name of the authority seeking the information or conducting the investigation or proceeding to which the request relates;
(b) the identity of the taxpayer under examination or investigation;
(c) the nature and type of the information requested, including a description of the specific evidence, information or other assistance sought;
(d) the tax purposes for which the information is sought;
(e) the period of time with respect to which the information is requested;
(f) reasonable grounds for believing that the information requested is present in the territory of the requested party or is in the possession or control of a person subject to the jurisdiction of the requested party and may be relevant to the tax purposes of the request;
(g) to the extent known, the name and address of any person believed to be in possession or control of the information requested;
(h) a declaration that the request conforms to the law and administrative practice of the requesting party and would be obtainable by the requesting party under its laws in similar circumstances, both for its own tax purposes and in response to a valid request from the requested party under this Agreement.
The Cayman TIEA does not include clauses (a) or (e) above, but practically such information should be included in any valid request under any TIEA. Jersey and IOM’s TIEA is similar to the BVI TIEA in respect of this section, absent clause (a). NLA does not contain this section in its TIEA, but such information by the USA should be provided.
Time to Comply
The BVI and Cayman TIEAs allow them 60 days to identify of any deficiencies in a request and provide the US notice. If BVI or Cayman will not provide requested information, or cannot, it must immediately notify the US.
Check back for Part 2 on Thursday, September 3. Prof. William Byrnes
Posted in Compliance, information exchange, Taxation | Tagged: information exchange, international tax, Tax Evasion | Leave a Comment »
Posted by William Byrnes on August 29, 2009
This week we continue with our examination of Cross-Border Information Exchange deciphering the procedural and substantive requirements of exchange contemplated by the OECD Model Agreement for Tax Information Exchange. The other important issue of Cross Border Assistance with Tax Collection will be addressed in a few weeks.
In the 15 week online International Tax courses starting September 14, we will be undertaking an in-depth analysis of the topics covered in this blog during the 10 online interactive webinars each week.
2003 OECD Model Agreement for Tax Information Exchange (TIEA)
The OECD Model TIEA was developed by an OECD Working Group consisting of the OECD Members and delegates from Aruba, Bermuda, Bahrain, Cayman Islands, Cyprus, Isle of Man, Malta, Mauritius, the Netherlands Antilles, the Seychelles and San Marino. The OECD Model TIEA obviates from several principles established in the 2003 OECD Model DTA, 2001 UN Model, 1981 OECD Convention on Tax Claims and 1988 OECD Convention on Administrative Assistance.
The Model TIEA provides that the Parties shall give “information that is foreseeably relevant to the determination, assessment and collection of such taxes, the recovery and enforcement of tax claims, or the investigation or prosecution of tax matters.” The Model TIEA allows for a two year phase between information sought in criminal tax matters, i.e. criminal tax evasion, versus the later extension to information sought in civil tax matters i.e. civil tax evasion but importantly also tax avoidance.
The TIEA obviates from the traditional requirement of dual criminality, that is the underlying crime for which information is sought should be a crime in both Parties’ domestic laws: “Such information shall be exchanged without regard to whether the conduct being investigated would constitute a crime under the laws of the requested Party if such conduct occurred in the requested Party.”
Because the OECD Model TIEA is meant to be applied to negotiations with jurisdictions that do not have a direct tax system, the TIEA provides that the Requested Party must seek requested information even when it does not need the information for its own tax purposes. But a Requested State is not obliged to exceed the power to gather information that is allowable under its laws. However, the TIEA is specific that each Party is obliged to provide:
“a) information held by banks, other financial institutions, and any person acting in an agency or fiduciary capacity including nominees and trustees;
b) information regarding the ownership of companies, partnerships, trusts, foundations, “Anstalten” and other persons,…ownership information on all such persons in an ownership chain; in the case of trusts, information on settlors, trustees and beneficiaries; and in the case of foundations, information on founders, members of the foundation council and beneficiaries….”
Procedurally, the Requesting State’s competent authority must provide, in order to “demonstrate the foreseeable relevance of the information to the request” the following information:
“(a) the identity of the person under examination or investigation;
(b) a statement of the information sought including its nature and the form in which the applicant Party wishes to receive the information from the requested Party;
(c) the tax purpose for which the information is sought;
(d) grounds for believing that the information requested is held in the requested Party or is in the possession or control of a person within the jurisdiction of the requested Party;
(e) to the extent known, the name and address of any person believed to be in possession of the requested information;
(f) a statement that the request is in conformity with the law and administrative practices of the applicant Party, that if the requested information was within the jurisdiction of the applicant Party then the competent authority of the applicant Party would be able to obtain the information under the laws of the applicant Party or in the normal course of administrative practice and that it is in conformity with this Agreement;
(g) a statement that the applicant Party has pursued all means available in its own territory to obtain the information, except those that would give rise to disproportionate difficulties.”
US TIEAs Coming into Effect since 2001
The BVI and Cayman TIEAs are nearly duplicate.
Tax Covered
The BVI and Cayman Islands TIEAs scope is limited to collecting information for issues of US federal “income” tax.[1] For more broad in scope are the Isle of Man (“IOM”)[2], Jersey[3], The Bahamas[4] and Netherlands Antilles[5] (“NLA”) TIEAs that apply to “all federal taxes”, thus by example encompassing federal estate tax, federal gift tax, federal social security tax, federal self employment tax and federal excise tax. The Barbados[6] and Bermuda[7] TIEAs apply to the specific federal taxes previously listed, which has the same broad affect as The Bahamas and NLA TIEAs.
Scope of Information
The BVI and Cayman TIEAs scope of information includes that “relevant to the determination, assessment, verification, enforcement or collection of tax claims with respect to persons subject to such taxes, or to the investigation or prosecution of criminal tax evasion in relation to such persons.” The IOM, Jersey, Bahamas, NLA and Bermuda TIEAs provide that information means any fact or statement, in any form, by example an individual’s testimony or documents, that is foreseeably relevant or material to United States federal tax administration and enforcement. The Barbados TIEA provides more generally for the exchange of information to administer and enforce the TIEA listed taxes covered within the scope.
Jurisdiction : Parties and Information Subject to Requests
The BVI, Cayman, IOM, Jersey, and NLA TIEAs do not limit the scope of the request to parties that are nationals or resident in BVI and Caymans, but rather allow a request for information as long as either the information is within the jurisdiction or is in the possession of, or controlled by, a party within the jurisdiction. The Bahamas treaty does not address this jurisdictional issue directly but probably will result in the same application. The Barbados TIEA also does not limit the scope of the request to resident parties. The Bermuda TIEA, when the information is sought about a non-resident of both jurisdictions, requires that the requesting party establish the necessity of the information for the proper administration and enforcement of its tax law.
Notice to Taxpayer of Request
The TIEAs do not address the issue, however the TIEAs require that enabling legislation be enacted to ensure the carrying out of the TIEAs obligations. BVI may include in its enabling legislation that the taxpayer must receive notice that a TIEA request has been made targeting the taxpayer. The Government of Switzerland, in its public statements regarding the turning over information including bank records for approximately 5,000 accounts UBS settlement with the US IRS, stated that it will post notices to the UBS account holding US taxpayers whose information has been disclosed via the tax treaty between the US and Switzerland. The IRS has in turn said that these Swiss notices will not service a notice for IRS purposes that these (alleged) tax evaders may still, if not under current audit for this non-disclosure, may still quickly take advantage of the reduced civil penalty and elimination of criminal penalty amnesty.
Check back for Part 2 on Wednesday, September 2. Prof. William Byrnes
[2] Agreement Between The Government Of The United States Of America And The Government Of The Isle of Man For The Exchange Of Information Relating To Taxes, Art. 3.
[3] Agreement Between The Government Of The United States Of America And The Government Of The States Of Jersey For The Exchange Of Information Relating To Taxes, Art. 3.
[4] Agreement Between The Government Of The United States Of America And The Government Of The Commonwealth Of The Bahamas For The Provision Of Information With Respect To Taxes And For Other Matters, Article 1 d).
[5] Agreement Between The Government Of The United States Of America And The Government Of The Kingdom Of The Netherlands In Respect Of The Netherlands Antilles For The Exchange Of Information With Respect To Taxes, Article 3 f).
[6] Agreement Between The Government Of The United States Of America And The Government Of Barbados For The Exchange Of Information With Respect To Taxes, Article 3.
[7] Agreement Between The Government Of The United States Of America And The Government Of The United Kingdom Of Great Britain And Northern Ireland (On Behalf Of The Government Of Bermuda) For The Exchange Of Information With Respect To Taxes, Article 2 i).
Posted in Compliance, information exchange, Taxation | Tagged: international tax, Tax Evasion, tax information exchange, TIEA | Leave a Comment »
Posted by William Byrnes on August 26, 2009
This week we continue with our examination of Cross-Border Information Exchange, primarily due to the press about the UBS settlement and the soon turning over of approximately 5,000 tax-evading US account holders. Information Exchange is of course one aspect of cross-border cooperation. Another important aspect is Cross Border Assistance with Tax Collection which we will address within the next two weeks.
2001 UN Model DTA – Tax Information Exchange (Art. 26)
The United Nations Model is similar in scope to the OECD model displayed in my previous blogticle. However, the UN Model defines the type of information and methodology of investigative exchange as regards the requesting state having access to cross border corporate records, though under the OECD Model such information may also be sought and methodology used.
Agreement Among The Governments Of The Member States Of The Caribbean Community For The Avoidance Of Double Taxation And The Prevention Of Fiscal Evasion With Respect To Taxes On Income, Profits, Or Gains And Capital Gains And For The Encouragement Of Regional Trade And Investment
Article 24: Exchange of Information
1. The competent authorities of the Member States shall exchange such information as is necessary for the carrying out of this Agreement and of the domestic laws of the Member States concerning taxes covered by this Agreement in so far as the taxation thereunder is in accordance with this Agreement. Any information so exchanged shall be treated as secret and shall only be disclosed to persons or authorities including Courts and other administrative bodies concerned with the assessment or collection of the taxes which are the subject of this Agreement. Such persons or authorities shall use the information only for such purposes and may disclose the information in public court proceedings or judicial decisions.
2. In no case shall the provisions of paragraph 1 be construed so as to impose on one of the Member States the obligation:
(a) to carry out administrative measures at variance with the laws or the administrative practice of that or/of the other Member States;
(b) to supply particulars which are not obtainable under the laws or in the normal course of the administration of that or of the other Member States;
(c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process the disclosure of which would be contrary to public policy.
2000 Improving Access to Bank Information for Tax Purposes (OECD)
In 2000, the OECD issued Improving Access to Bank Information for Tax Purposes. The 2000 OECD Report acknowledged that banking secrecy is “widely recognised as playing a legitimate role in protecting the confidentiality of the financial affairs of individuals and legal entities”. This Report focused on improving exchange of information pursuant to a specific request for information related to a particular taxpayer. In this regard, it noted that pursuant to its 1998 (OECD) Report, 32 jurisdictions had already made political commitments to engage in effective exchange of information for criminal tax matters for tax periods starting from 1 January 2004 and for civil tax matters for tax periods starting from 2006.
A Progress Report on the Jurisdictions Surveyed by the OECD Global Forum in Implementing the Internationally Agreed Tax Standard
When we examine TIEAs, we will also look at the most recent OECD update A Progress Report on the Jurisdictions Surveyed by the OECD Global Forum in Implementing the Internationally Agreed Tax Standard issued August 25, 2009 (see http://www.oecd.org/dataoecd/50/0/42704399.pdf). The exchange of information on request in all tax matters for the administration and enforcement of domestic tax law without regard to a domestic tax interest requirement or bank secrecy for tax purposes is the standard the OECD developed in co-operation with non-OECD countries and which was endorsed by G20 Finance Ministers at their Berlin Meeting in 2004 and by the UN Committee of Experts on International Cooperation in Tax Matters at its October 2008 Meeting.
The OECD claims that the confidentiality of the information exchanged will be protected by the recipient jurisdiction though at this time no measures have been announced to assess any safeguards should such be established.
2003 EU-US Agreements for Mutual Legal Assistance
On 25 June 2003 the US and EU signed an agreement, applying to all EU member States, for Mutual Legal Assistance.[1] The EU-US MLA and Extradition Agreements (see my blogticle wherein I will address Extradition Agreements) do not currently extend to the United Kingdom’s Overseas Territories. Article 16 (1)(b) of the MLA agreement enables the agreement to apply to Overseas Territories of EU member States but only where this is agreed by exchange of diplomatic note, so it is not automatic.
The agreement’s purpose is to assist a requesting state to prosecute offences through cooperation of another State or jurisdiction in obtaining cross-border information and evidence. This Agreement applies to tax matters involving criminal tax evasion. This Agreement could widen the scope of financial institution and professional service provider information allowed to be requested specifically with regard to the financial information covered below.
Any party to the Agreement is required pursuant to the request to provide information regarding whether its banks, other financial institutions and non-bank institutions[2] within its jurisdiction possess information on accounts and financial transactions unrelated to accounts regarding targeted natural or legal persons. The Agreement specifically excludes banking secrecy as a defense for non-compliance. In order to receive banking or financial information from a financial institution or non-financial institution, the requesting State must provide the competent authority of the other State with:
This multi-lateral MLAT Agreement, unlike TIEAs that have developed since 2001, contains a dual criminality requirement, but it applies retroactively to offences committed before the Agreement’s entry into force date, Article 12-(1) provides for this. Criminal tax fraud is an underlying crime for purposes of the offence of money laundering. Thus, this Agreement probably will allow any party to the Agreement to seek financial information from another State regarding a specific taxpayer’s criminal tax fraud for offences committed before the tax year beginning January 1, 2004. The retroactive provision in Article 12(1) may run counter to a fundamental principle of criminal law in that a person cannot criminally suffer for an act or conduct which was not an offence at the time the act was committed or conduct took place. Whether these MLAT agreements establish a situation of retroactive criminal application may eventually be addressed as a human rights issue.
Tax Treaties course
In the Tax Treaties course starting in September, Prof. Marshall Langer will be undertaking an in-depth analysis of these instruments and issues raised above.
[2] Including trust companies and company service providers
Posted in Compliance, information exchange, Taxation | Tagged: information exchange, international tax, OECD, offshore, tax, TIEA | 1 Comment »
Posted by William Byrnes on August 22, 2009
Over the past weeks, we have opened the exploration of issues addressing business and legal service outsourcing, new trends in wealth management, the history and taxation of charities, anti money laundering regulations, compliance training, and even The Obama administrations’ proposed international tax rule changes. Many topics have been left hanging for which further researched exploration is warranted.
However this week, because of the continuing interest in Cross-Border Information Exchange, primarily due to the press about the UBS settlement and the soon turning over of approximately 5,000 tax-evading US account holders, over the coming weeks we will explore Information Exchange and Cross Border Assistance with Tax Collection.
Keep your emails coming about suggestion for this blog, and your comments. I have been keeping up with answering each of you within a day or two. Prof. William Byrnes (wbyrnes@tjsl.edu)
Cross-Border Information Exchange and Mutual Assistance (with regard to Tax)
To uncover and analyze the issues of cross-border tax information exchange and also the mutual assistance with regard to tax collection by one jurisdiction on behalf of another one, we must at a minimum over the next few weeks examine the following:
(1) the behaviour of the OECD and its members toward the micro economy jurisdictions versus the OECD’s treatment amongst it own members and other economically significantly trade partners;
(2) the EU Savings Directive and other related EU Directives;
(3) the US proposal to automatically report to EU State’s bank interest of their residents;
(4) the tax application of the mutual assistance and extradition treaty between the US and EU;
(5) the geo-politics of tax information exchange agreements (TIEAs) such as positive inducements made and broken by the US to the Caribbean, and the inverse being recent threats made by the OECD to the international financial centers;
(6) other international initiatives for the provision of tax information, such as the FATF and Offshore Group of Banking Supervisors (OGBS) partnership and finally,
(7) the procedural process and practicalities of seeking tax information pursuant to an international agreement, be it a full tax treaty, a limited agreement only applying to exchange of information, another type of bi-lateral or multi-lateral instrument, or just simply domestic legislation.
Tax Information Exchange Background
We will need to consult the following exemplary documents (amongst many others) over my coming blogticles, being:
Exchange Pursuant to the OECD Conventions
OECD MODEL DTA – Tax Information Exchange (Art. 26 & 27)
Article 26, Exchange of Information, of the 2003 OECD Model Convention reads:
The competent authorities of the Contracting States shall exchange such information as is necessary for carrying out the provisions of this Convention or of the domestic laws concerning taxes of every kind and description imposed on behalf of the Contracting States, or of their political subdivisions or local authorities, insofar as the taxation thereunder is not contrary to the Convention. … Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to the taxes referred to in the first sentence. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.
The 2003 OECD Model, pursuant to its Commentary to the article, allows the following methods of information disclosure[1]
The 2003 Model established limitations on the request of information:[2]
Article 27 of the 2003 Model addresses assistance in the collection of taxes, stating:
1. The Contracting States shall lend assistance to each other in the collection of revenue claims. …
2. The term “revenue claim” as used in this Article means an amount owed in respect of taxes of every kind and description imposed on behalf of the Contracting States, or of their political subdivisions or local authorities, insofar as the taxation thereunder is not contrary to this Convention or any other instrument to which the Contracting States are parties, as well as interest, administrative penalties and costs of collection or conservancy related to such amount.
3. … That revenue claim shall be collected by that other State in accordance with the provisions of its laws applicable to the enforcement and collection of its own taxes as if the revenue claim were a revenue claim of that other State.
The limitations remain the same as under Article 26 but also include that the Requesting State must have exhausted reasonable efforts of collection and conservancy pursuant to its domestic law. Also, the Requested State’s obligation is limited if its administrative burden would exceed the tax collected for the Requesting State.
2003 OECD Model Agreement for Tax Information Exchange (TIEA)
The OECD Model TIEA was developed by an OECD Working Group consisting of the OECD Members and delegates from Aruba, Bermuda, Bahrain, Cayman Islands, Cyprus, Isle of Man, Malta, Mauritius, the Netherlands Antilles, the Seychelles and San Marino. The OECD Model TIEA obviates from several principles established in the 2003 OECD Model DTA, 2001 UN Model, 1981 OECD Convention on Tax Claims and 1988 OECD Convention on Administrative Assistance.
The Model TIEA provides that the Parties shall give “information that is foreseeably relevant to the determination, assessment and collection of such taxes, the recovery and enforcement of tax claims, or the investigation or prosecution of tax matters.” The Model TIEA allows for a two year phase between information sought in criminal tax matters, i.e. criminal tax evasion, versus the later extension to information sought in civil tax matters i.e. civil tax evasion but importantly also tax avoidance.
The TIEA obviates from the traditional requirement of dual criminality, that is the underlying crime for which information is sought should be a crime in both Parties’ domestic laws: “Such information shall be exchanged without regard to whether the conduct being investigated would constitute a crime under the laws of the requested Party if such conduct occurred in the requested Party.”
Because the OECD Model TIEA is meant to be applied to negotiations with jurisdictions that do not have a direct tax system, the TIEA provides that the Requested Party must seek requested information even when it does not need the information for its own tax purposes. But a Requested State is not obliged to exceed the power to gather information that is allowable under its laws. However, the TIEA is specific that each Party is obliged to provide:
“a) information held by banks, other financial institutions, and any person acting in an agency or fiduciary capacity including nominees and trustees;
b) information regarding the ownership of companies, partnerships, trusts, foundations, “Anstalten” and other persons,…ownership information on all such persons in an ownership chain; in the case of trusts, information on settlors, trustees and beneficiaries; and in the case of foundations, information on founders, members of the foundation council and beneficiaries….”
Procedurally, the Requesting State’s competent authority must provide, in order to “demonstrate the foreseeable relevance of the information to the request” the following information:
“(a) the identity of the person under examination or investigation;
(b) a statement of the information sought including its nature and the form in which the applicant Party wishes to receive the information from the requested Party;
(c) the tax purpose for which the information is sought;
(d) grounds for believing that the information requested is held in the requested Party or is in the possession or control of a person within the jurisdiction of the requested Party;
(e) to the extent known, the name and address of any person believed to be in possession of the requested information;
(f) a statement that the request is in conformity with the law and administrative practices of the applicant Party, that if the requested information was within the jurisdiction of the applicant Party then the competent authority of the applicant Party would be able to obtain the information under the laws of the applicant Party or in the normal course of administrative practice and that it is in conformity with this Agreement;
(g) a statement that the applicant Party has pursued all means available in its own territory to obtain the information, except those that would give rise to disproportionate difficulties.”
Next Blogticle
In our next blogticle we will next turn to the 1988 Convention On Mutual Administrative Assistance In Tax Matters and continue form there. In case you are wondering what this Convention is and why it is relevant, it came into force April 1, 1995 amongst the signatories Belgium, Denmark, Finland, Iceland, Netherlands, Norway, Poland, Sweden, and the US, providing for exchange of information, foreign examination, simultaneous examination, service of documents and assistance in recovery of tax claims.
In the Tax Treaties course starting September 14, Prof. Marshall Langer will be undertaking an in-depth analysis f these instruments and issues raised above.
[2] Commentary to Article 26, paragraph 2 sections 14, 15 and 16, OECD Model Tax Convention, 2003.
Posted in Compliance, Financial Crimes, Taxation | Tagged: Compliance, information exchange, tax | 3 Comments »
Posted by William Byrnes on August 19, 2009
Over the past blogticles, we have been examining a number of financial crimes issues including several for anti money laundering. Now we turn to compliance costs and the dis-connect? Feel free to comment or email me with any burning questions, Professor William Byrnes (www.llmprogram.org), as well as join one of our weekly webcasts.
Are Financial Service Firms Serving High Net Wealth Suffering As a Result of Compliance Costs?
In my 900-page economic report on the international financial services industry, I examined and calculated the economic size and impact of the sector on local jurisdictions.[1] But for periods of global financial crisis, the sector had experienced double-digit annual growth and contributed robustly to the local economy and society. Since 1998, the international financial services sector client base has expanded nearly 10% on average.
In the past decade, the number of global high-net-worth individuals (HNWIs) served by practitioners, such as my able graduates, has doubled to more than 10 million by 2008 (though the global financial crisis has caused a decline to less than 9 million) —and their assets have more than doubled from $17 trillion to $40 trillion though currently just under $33 trillion due to the last twelve month’s financial crisis.[2]
Is The Future For Clients Dim?
Dim? On the contrary! In just four years, the pool of HNWI clients’ assets is projected to grow to nearly $50 trillion. Though the global re-calibrating of asset values may impact the nominal wealth value for HNWIs in the short term, historically, based upon both the recessions coined after the Asian Financial Crisis and the Tech-Bust, the wealth value will likely return to projected levels with a two-year lag.
The average HNWI, excluding the value of primary residences and collectables, is worth approximately $4 million! HNWI’s continue to leverage offshore skill sets, growing their assets from $5.8 trillion from 1998 to $11 trillion today.[3] That $11 trillion under management represents, at combined fees of just 1%, at least $100 billion to private bank firms offshore, and six times that taking all HNWI assets into account.
39% of Florida banks surveyed reported that private banking accounted for more than 50% of their operating revenues. Florida’s international private banking and wealth management customers predominantly reside, as one would expect, in Latin America and the Caribbean, with 1/3 residing in Europe. South American residents account for 44% of private banking and wealth management customers of Florida’s international banks. Approximately 19% of international private wealth management clients reside in Mexico or Central America, while 4% reside in the Caribbean.
Even though the market has been growing in terms of the available pool of HNW clients, the international banking industry in Florida has been characterized by consolidation and contraction since 2000. The number of foreign bank agencies operating in Florida fell from 38 in 2000 to 31 in 2005.[4] There were 10 Edge Act banks operating in Florida in 2000, but only 7 in 2005. The number of international banking employees (in foreign agencies, Edge Acts and the international divisions of domestic banks chartered in Florida) declined from 4,660 in 2000 to 3,027 in 2005.
Based on a survey of banks significantly engaged in international banking in South Florida, the economics firm based on direct surveys estimated Miami’s international bankers staffing cost for 271 full-time employees of anti-terrorism/anti-money laundering compliance at nearly $25 million in 2005. [5] The average survey respondents indicated that it devoted 2.9 FTE employment positions to BSA/AML compliance in 2002 versus 6.8 FTE positions in 2005. The number of full-time employees devoted to compliance represented 9% of the workforce in 2005. Staff resources devoted to compliance increased by 160% between 2002 and 2005.
So Where is the Dis-Connect?
So if enough money is being spent by some banks, by example in Miami, and this expenditure is even potentially impacting earnings in some regions such as Miami, (as an industry – small institutions are being clobbered compared to their larger brethren), then why are some banks and other financial service providers employees failing in their implementation of AML programs in light of the expenditure? Where is the dis-connect between expenditure and results? Might the expenditure be more about white-washing than about achieving an educated work force? Might throwing money at the problem not be the answer? Or is not enough money flowing to training?
As the Miami marketplace apparently illustrates, in general the compliance and training budgets have reached the deal-breaker point at some banks and in some regions. Thus, rather than it being a quantitative issue of bigger budgets, it is more likely a qualitatively issue, that is, spending either on poorly designed products or on good products but with poor instruction, follow-up, and support. It may be that purchasing decisions are based not on price, but rather are based on how to spend as little labor time as possible to meet a minimum level of information and training sufficient for an employee to appear to be able to implement AML policy. That is, institutions may be spending more to obtain less quality products because the product requires less labor activity time.
By example, some institutions send the high level AML staff for a one or two day workshop at between one and three thousand dollars and now call that staff member an expert. A time-saving approach certainly. But is this a reasonable approach in light of the likely outcomes of such minimal education consisting of little to no follow up, guidance, and academic support? Can a board member, much less a regulator, feel confident that such a staff member is able to exercise the necessary skills gained from the one or two day session to protect the financial institution and public from an money laundering/financial crime incident?
By another example, some financial service provider compliance officers and their advisors will establish a library budget, purchasing a variety of publications. Yet the staff is not trained in knowledge management for the library, that is how to interact with and study such information. Thus, the library collects dust.
White-Washing
Is a two day course sufficient to qualify someone as a certified expert? A one week course even? How long will the regulators allow such white washing to continue, or is it merely an issue of fines when holes are found in the dikes?
[2] Cap Gemini Merrill Lynch World Wealth Report 2003 through 2008.
[3] Tax Haven Abuses: The Enablers, The Tools and Secrecy” (Sen. Rep., Perm. Sub-Comm. On Investigations, August 1, 2006) and World Wealth Report 2008.
[4] In 2005, however, 7 of the 31 international banks had no deposits booked in Florida, while in 2000 only 2 of the 38 had zero deposits.
[5] It is important to note that these cost estimates only include manpower or staffing costs, and do not include costs such as transaction monitoring software, possible IT investments and services, legal counsel and similar support. The Washington Economics Group, The Economic Impacts of International Banking in Florida and Industry Survey: 2005.
Posted in Compliance, Money Laundering, Wealth Management | Tagged: Compliance, Money Laundering, wealth management financial planning compliance money laundering | Leave a Comment »
Posted by William Byrnes on August 15, 2009
In my previous blogticle I presented a few of the very many examples of regulatory fines for financial institutions failing to meet minimum money laundering training for staff, in many cases leading to failures of their money laundering risk management system. Hereunder I turn to expenditures on money laundering training.
Consider that the above regulatory enforcement actions, and those referred to by the GAO report, were issued at least three years after the US financial institutions were put on initial notice of the hawkish nature of enforcement of AML programs. Certainly, neither management nor staff wanted to, by example, be responsible for over 2,000 filing errors for only 1,639 SARs. Riggs divestiture of its international banking operations certainly provided a resounding warning for boards to take their AML compliance responsibilities seriously. Enforcement actions generally lead to management and staff level firing holding persons accountable for their errors.
In a global review of money laundering legislation throughout financial centers, none of the legislation provides specific benchmarks or at least an assessable minimum standard for a level of training of the staff or the MLRO. Further, the regulator guidance, where available, is scant to the issue of quality assurance of training. The US Federal Financial Institutions Examination Council’s (“FFIEC”) Bank Secrecy Act/Anti Money Laundering Manual (“Manual”) states that a bank must –
“[T]rain employees to be aware of their responsibilities under the BSA regulations and internal policy guidelines”
whereas the UK FSA Handbook states that a firm’s should ensure that its –
“systems and controls include (1) appropriate training for its employees in relation to money laundering …”.[1]
The FFIEC Manual’s most specific example of what should be contained within a training program is “…training for tellers should focus on examples involving large currency transactions or other suspicious activities; training for the loan department should provide examples involving money laundering through lending arrangements.”
Aren’t Expenditures on Training Going up, uP, UP?
Thus, to avoid enforcement actions and thus being fired, in some markets the training budgets and the compliance cost per-dollar-of-deposit have more than doubled. By example, from 2002 – 2005, banks offering international financial services in Miami reported a 160% increase both in the total costs of staff resources devoted to AML compliance and in the compliance costs of staff resources per dollar of deposit.[2]
Senior banking management perceives rising and unpredictable compliance costs that undermine global competitiveness as the most significant threats to the future growth of banking.[3] The cost of AML compliance increased around 58% globally and 71% in North America between 2004 and 2007.[4]
A 2005 survey of Florida banks engaged in international banking estimated the staffing cost of AML compliance at nearly $25 million. The study concluded that compliance costs are not uniform across institutions, even after making adjustment for size.[5] Banks estimate that training costs and transaction monitoring will require the largest investment of all AML activities. All North American banks provide AML training for nearly all of their employees. See KPMG’s Figure in its AML Survey.
Larger institutions (measured in terms of deposits) typically devote more resources and spend more on compliance than smaller ones, of course, but the compliance burden does not rise proportionately with size. That is, survey data indicates that economies of scale in compliance are present, and that compliance costs per dollar of deposits is greater for smaller institutions than for larger ones.[6] Even after the dramatic increases in compliance costs and regulatory complexity since 2001, the regulatory environment is likely to become increasingly challenging in coming years.
In a 2006 Economist Intelligence Unit survey, international senior bank executives were asked about the costs of compliance with government regulation. When asked what changes they expected in the regulatory environment over the coming three to five year, over 91% stated that they expected regulations affecting their institution to grow in complexity and breadth, 88% stated that compliance with industry regulations will become more onerous, and 81% reported that they expect penalties for non-compliance to increase in severity.[7]
[2] The Washington Economics Group, The Economic Impacts of International Banking in Florida and Industry Survey: 2005.
[3] The Washington Economics Group, The Economic Impacts of International Banking in Florida and Industry Survey: 2005.
[4] KPMG’s Global Anti-Money Laundering Survey 2007.
[5] The Washington Economics Group, The Economic Impacts of International Banking in Florida and Industry Survey: 2005.
[6] The Washington Economics Group, The Economic Impacts of International Banking in Florida and Industry Survey: 2005.
[7] Economist Intelligence Unit, Bank Compliance: Controlling Risk and Improving Effectiveness (2006).
Posted in Compliance, Financial Crimes, Money Laundering | Tagged: AML, Financial Crimes, Money Laundering | 2 Comments »
Posted by William Byrnes on August 10, 2009
Over the coming weeks we will examine a number of financial crimes issues including several for anti money laundering. Feel free to comment or email me with any burning questions. Professor William Byrnes (www.llmprogram.org) as well as join one of daily webcasts. This is part one in a series that I will compose on whether instiutions are implementing effective training programs or merely whitewashing to avoid criticism (at the cost of risk of non-detection of internal or external AML infraction).
The Regulatory Environment [1]
For the past several years, the US banking industry has focused on regulatory issues, such as the corporate governance provisions of the Sarbanes-Oxley Act (enacted in 2002) and the banking-related parts of the USA Patriot Act (enacted in 2001). Much literature and studies have been provided regarding the cost impact of the various implemented measures.
Smaller community banks have contended that it is difficult for them to comply with certain Sarbanes-Oxley provisions, such as the requirement that audit committees be composed entirely of independent directors and that companies have a “financial expert” on the board of directors. The provisions of the USA Patriot Act require increased investments in technology (though many in the industry have questioned the effectiveness of these investments in preventing the funding of terrorist groups or activities).
The Reporting Impact
Resulting from the impetus of the Al Qaeda’s terrorist attacks of 9/11, the US financial institution regulators became an enforcement hawk of the money laundering provisions of the Bank Secrecy Act (“BSA”). In turn, hawkish enforcement has led to a drastic increase in the number of BSA filings. In 2007, the approximate two hundred thousand US depository institutions filed over 649,176 Suspicious Activity Reports (“SAR”s), as reported by the US Government Accountability Office (“GAO”) (over 1.2 million SARs filed by all financial service providers). In 2008, these deposit institutions increased their SAR filings by nearly a hundred thousand. In contrast, just two hundred, twenty thousand STRs were filed in the UK by all covered persons in 2006-07 (of which 140,000 were filed by banks) with a 10,000 total filing decrease last year.[2]
This begs the question: are too many being filed in the USA, clogging the investigatory system, or are too few filed in the UK, allowing criminals to operate freely? And leads to many other questions such as: Do criminals launder more money in the US and less in the UK? Are US personnel improperly trained and thus filing SARs improperly or with little use? Are UK institutions whitewashing their responsibilities and thus staff are not equipped to identify suspicious transactions and patterns? We will discuss these and many others if not here, in the webinars.
Notwithstanding this level of apparent US hawkish compliance, the GAO noted that the federal regulatory authorities cited well over 7,000 BSA violations, leading to over 2,000 various actions against banking institutions. Interestingly, a majority of 2005 actions were issued against the traditionally smaller credit unions that at first glance may be considered to carry less risk for money laundering.[3] Moreover, these enforcement figures did not include the actions taken against casinos, jewelry stores, and money service businesses, such as check-cashing, whose anti money-laundering (“AML”) program compliance is audited by the IRS.
Managing Risk through Training
International financial centers all have a requirement that firms subject to money laundering legislation have a designated compliance officer, known by different acronyms such as MLRO. Further, the legislation requires staff training on a continuing basis. By two examples, the USA and the UK respectively:
Bank Secrecy Act § 5318:
(h) Anti-Money Laundering Programs.—
(1) In general.— In order to guard against money laundering through financial institutions, each financial institution shall establish anti-money laundering programs, including, at a minimum— …
(B) the designation of a compliance officer;
(C) an ongoing employee training program; ….
The Money Laundering Regulations 2007 Training:
21. A relevant person must take appropriate measures so that all relevant employees of his are—
(a) made aware of the law relating to money laundering and terrorist financing; and
(b) regularly given training in how to recognise and deal with transactions and other activities which may be related to money laundering or terrorist financing.
KPMG reports that the training of employees to recognize money laundering, which is labor intensive, has required a big cost increase for banks. Yet, reviewing a few of the high dollar value civil penalty actions issued by the US regulators in the last two years illustrates that a lack of money laundering expertise at the management level and a lack of firm wide education and training at the staff level cuts across both large and small banking firms.
Penalties for Lack of Training and Expertise
The highest publicity action in the past few years occurred against American Express Bank International (“AMEX”) – shortly thereafter purchased by Standard Chartered. AMEX’s original sixty-five million dollar penalty resulted partly from the gross amount of errors in just one year in its SAR filings regarding its private banking services to its high net-worth individuals (HNWI) and the individuals’ respective businesses throughout Latin America. In the 12 month period from May 2006, over 2,000 filing error were found for only 1,639 SARs, not including over 1,000 late SAR filings. Other recent large penalties citing the lack of staff training include ABN-AMRO’s (forty million dollars) and fines of ten million dollars each for Bank Atlantic and AmSouth.
A medium size Chicago head office bank suffered a two million dollar penalty because “management failed to implement adequate training for appropriate personnel to ensure compliance with the suspicious activity reporting requirements”. The regulator found that the Bank staff was inadequately trained in suspicious activity identification and monitoring, detection of structured transactions, and identification of possible money laundering. Israel Discount Bank, with branches in a few states, paid a twelve million dollar file for inadequately training its staff regarding the heightened risks associated with its transaction involving Delaware LLC shell companies. On the opposite size spectrum from AMEX, a one branch bank, Beach Bank of Miami, with less than $150 million in assets, suffered an eight hundred thousand dollar fine for its lack of monitoring of high risk accounts, including six foreign correspondent accounts.
[2] The SAR Activity Review – By the Numbers Issue 10 (FINCEN May 2008); Money Laundering Regulations 2007: Regulatory Impact Assessment (HM Treasury July 2007), and The Suspicious Activity Reports Regime, Serious Organised Crime Agency (SOCA) United Kingdom http://www.soca.gov.uk/assessPublications/downloads/SAR-Annual-Report-08-pn.pdf.
Posted in Compliance, Financial Crimes, Money Laundering | 5 Comments »
Posted by William Byrnes on August 9, 2009
This week I again turn my blogticle to expiscate the eristic historical context of the tax advantaged treatment enjoyed by charitable institutions. In the previous blogticle on the Common Law history of charity law, we examined English history from the period 1536-1739. Now I turn my attention to the period of the United States’ colonial period until 1860.
Colonial Period
The Colonies inherited the English common law and its history discussed in my previous blogticle on this subject, but without the 1736 Mortmain Act. In addition to the common law, the colonialists also inherited the English distrust of perpetual land restriction, the power exercised by the Catholic Church because of its substantial land holdings, and the distrust of the Anglican Church because it was an organ of the English government.[1]
During the early period after the War of Independence, some states legislatures and courts exercised this inherited distrust by voiding the establishment of charitable trusts, denying the grant of charters for charitable corporations, and constricting transfers to both.[2] Seven states, being Maryland, Michigan, Minnesota, New York, Virginia, West Virginia, and Wisconsin, voided charitable trusts.[3] In contrast, many states, in their constitutions and well as by statute, borrowed from Elizabeth I’s 1597 statute to protect incorporation for charitable purposes.[4] Charitable incorporations included churches, charities, educational institutions, library companies, and fire companies.[5] The policy behind the charitable statutes included promotion of freedom of religion, easing legislative workloads, and easing of incorporation procedures.[6]
But not all states had charitable incorporation statutes. Some states, such as Virginia, denied granting charters to charitable corporations for several years.[7] Of the states with charitable incorporation statutes, all contained restrictions regarding maximum income, expenditure for charitable purpose, as well as reporting rules to guard against the accumulation of property.[8]
Post Colonial: Universal Property Taxes Crystallize the Tax Exemption Debate
By the middle of the century, the Supreme Court of the United States, by examination of the Statute of Charitable Uses and common law applicable in the U.S., derived a broad definition for charity.[9] The Court upheld contributions to “charitable” institutions based upon the factors of the institutions’ public purpose and freedom from private gain. In 1860, upholding a devise and bequest for establishing two education institutions, the Court stated
“a charity is a gift to a general public use, which extends to the rich, as well as to the poor” and that “[a]ll property held for public purposes is held as a charitable use, in the legal sense of the term charity.”[10]
In 1877, upholding a devise to an orphan’s hospital, the Court presented that:
“A charitable use, where neither law nor public policy forbids, may be applied to almost any thing that tends to promote the well-doing and well-being of social man . . . . ‘Whatever is given for the love of God, or the love of your neighbor, in the catholic and universal sense, — given from these motives and to these ends, free from the stain or taint of every consideration that is personal, private, or selfish.’ ”[11]
Until the mid 1850s, many state statutes allowed incorporation for charitable purposes but did not necessarily exempt these corporations from state tax.[12] Before the 1830s, the states did not have a universal tax system and thus, while tax exemption expressed government favoritism, it was not practically significant.[13] However, the 1830s enactment of universal property tax regimes brought the issue of exemption to the fore.[14] During the remainder of the century, several states enacted limited tax exemption for churches and educational institutions.[15] By example, many states exempted from property tax the land upon which a church stood, but taxed the church’s income, including ministerial, rental, and endowment.[16] The Massachusetts statutory tax exemption for religious, educational, and charitable organizations, applying to Harvard University, did not include an exemption for real estate or businesses held for purposes of revenue.[17]
Tax Policy Debate
Supporters and critics of exemption debated three primary policies concerning the granting of limited tax exemption for churches. From a public policy perspective, the general community felt that the church served as the communal epicenter.[18] Church supporters also put forward that churches provide the benefits of encouragement of personal morality, public spiritedness, and democratic values.[19] Critics countered that from an equity standpoint, exemption inequitably expressed state favoritism for religious groups over non-religious property owners.[20] Also, exemption critic James Madison warned that the accumulation of exempt Church property would eventually result in religion influencing the political process.[21]
Supporters provided a tax policy justification that the limited exemptions applied only to the charitable institution’s property that produced insignificant income, such as cemeteries, the church, the school, thus the exemption’s revenue effect would be slight.[22] Critics responded that whereas both exempt and non-exempt persons used the state’s services, only non-exempt persons paid for them with resultant increased burdens upon them.[23] Supporters retorted to this argument of an inequitable burden with a government benefit argument that the churches provided public services, such as orphanages and soup kitchens, not performed by non-exempt payers.[24]
From an economic policy justification, supporters forwarded that because many of these exempt institutions did not produce much revenue, the tax could not be collected, leading to unpopular land seizure.[25] Critics responded that the exemption primarily benefited wealthy churches with valuable property and significant income rather than the humble ones with low land value and de minimis income.[26] Again employing the subsidy argument, supporters argued that all church income, regardless of church size, went to provide charitable services, such as religious activity and caring for the poor.[27]
Prof William Byrenes (www.llmprogram.org)
[2] See Evelyn Brody, Charitable Endowments and the Democratization of Dynasty, 39 Ariz. L. Rev. 873, 906-10 (1997); Fishman, supra at 623-25; John Witte, Jr., Tax Exemption of Church Property: Historical Anomaly or Valid Constitutional Practice?, 64 S. Cal. L. Rev. 363, 384-85 (1991).
[3] 4 Austin Wakeman Scott, The Law of Trusts § 348.3 (3d ed. 1967). Some states, such as Virginia in 1792, repealed the pre-independence English statutes, including the Statute of Charitable Uses. The lack of the Statute of Charitable Uses consequence, as argued by the States and agreed by the Supreme Court in Trustees of Philadelphia Baptist Ass’n v. Hart’s Executors, 17 U.S. 1, 30-31 (1819), was that charitable trusts without stated beneficiaries were void because of the lack of common law precedent for establishing a trust without a beneficiary. Nina J. Crimm, An Explanation of the Federal Income Tax Exemption for Charitable Organizations: A Theory of Risk Compensation, 50 Fla. L. Rev. 419, 427 (1998) (noting that this decision and ones following it led to the establishment of charitable corporations instead of trusts to receive donations).
[4] Fishman, supra at 623 (noting that Massachusetts, Pennsylvania, Vermont, and New Hampshire constitutionally protected charities).
[5] Fishman, supra at 631-32; see also Christine Roemhildt Moore, Comment, Religious Tax Exemption and The “Charitable Scrutiny” Test, 15 Reg. U. L. Rev. 295, 299 (2002-2003) (noting that most new states had an established state church, which took over the former role of the Church of England as an organ of the state, and that, after disestablishment from the state, tax exemption continued as a matter of course).
[6] See Fishman, supra at 632-33.
[7] See Witte, supra at 385; Brody, supra at 906-07; Nina J. Crimm, A Case Study of a Private Foundation’s Governance and Self-Interested Fiduciaries Calls for Further Regulation, 50 Emory L.J. 1093, 1099 (2001); Fishman, at 631 n.70 (noting that corporate charters were granted to only 355 businesses during the eighteenth century).
[8] See Fishman, supra at 634; see also Brody, at 909 (noting that a few state statutes still constrict the ability to devise to, or the holdings of, charitable corporations).
[9] See Lars G. Gustafsson, The Definition of “Charitable” for Federal Income Tax Purposes: Defrocking the Old and Suggesting Some New Fundamental Assumptions, 33 Hous. L. Rev. 587, 609-610 (1996).
[10] Perin v. Carey, 65 U.S. 465, 494, 506 (1860).
[11] See Gustaffson, supra, at 610.
[12] For a historical summary of nineteenth century American policy regarding the ad hoc to infrequent granting of tax exemption for charitable institutions, see Diamond, supra at 12. For a description of colonial church exemptions and taxation of certain income producing properties, see Witte, supra at 372-74.
[13] See Diamond, supra at 8-9.
[14] See Id. at page 10; Witte., supra at 385-86.
[15] See Diamond, supra at 12.
[16] Id.
[17] Chas. W. Eliot, The Exemption from Taxation of Church Property, and the Property of Educational, Literary and Charitable Institutions, Appendix to the Report of The Commissioners Appointed to Inquire into the Expediency of Revising or Amending the Laws Related to Taxation and Exemption Therefrom 367, 386 (1875) (stating that Harvard paid tax on its various business holdings in Boston, save one specifically exempted from tax in its Charter).
[18] See Witte, supra at 374-75. The underpinnings of this public policy to exempt the church drew from the historical exemption justified by two causes. Most states had an official church established by government as an organ of the state government, continuing the English tradition. Id. Second, the Churches acted as the community services center of most townships, thus providing the local government services that otherwise it should undertake. See id. at 375. This second justification foreshadowed the government benefit analysis employed by Dr. Eliot. See infra Part VI(C).
[19] John W. Whitehead, Church/State Symposium Tax Exemption and Churches: A Historical And Constitutional Analysis, 22 Cumb. L. Rev. 521, 539-40 (1991-1992).
[20] Witte, supra at 381.
[21] Id. at 382. This criticism of exemption, reiterated by President Ulysses Grant, most influenced the Walsh Commission’s perspective on industrialists’ foundations as well as that of the Reece Commission. See infra Parts VIII, IX(D).
[22] See Diamond, supra at 14. In 1873, James Parton countered this justification, alleging examples of such charitable institutions producing extraordinary income. See infra Part VI.
[23] See Witte, supra at 381.
[24] Whitehead, supra at 540. Dr. Eliot further enunciated the government benefit, also known as the tax subsidy, argument that the state ought to grant exemption for the charitable provision of public service.
[25] See Diamond, supra at 14. In 1873, James Parton proffered a liberal argument of land distribution efficiency that could only be achieved through such unproductive property being seized and auctioned back into commerce.
[26] See Witte, supra at 382.
[27] See Whitehead, supra at 539-40.
Posted in Legal History, Tax Exempt Orgs, Taxation | Tagged: charity, history, tax exempt | Leave a Comment »
Posted by William Byrnes on August 7, 2009
When asked to comment upon the various versions of health care reform bills that will soon be voted upon by Congress, I recalled quote by Russell Long, then Chair of the Finance Committee[1]:
“When the Finance Committee began public hearings on the Tax Reform Act of 1969 I referred to the bill as ‘368 pages of bewildering complexity.’ It is now 585 pages . . . .”
This week I turn my blogticle to expiscate the eristic historical context of the tax advantaged treatment enjoyed by charitable institutions. Why charitable institutions? In the United States, charitable institutions are known as tax exempt ‘non-profits’ though some are profitable in the accounting sense. By example, many hospitals, though profitable and even lucripetous, are granted by the federal and state revenue authorities tax exempt status as charities. However, Congress has pretermitted any issues, and thus leverage, associated with the tax exempt status of health care providers in the various health care reform bills.
England’s Historical Legislative Treatment of Charitable Institutions
In order to finance his reign, Henry VIII seized the Catholic Church’s and universities’ lands and with parliament enacted The Statute of Uses in 1536 and The Chantries Act in 1545.[2] The Statute of Uses, in enacting the rule against perpetuities, terminated the situation that most English land, in order to escape feudal dues, was held from family generation to generation in dynastical, perpetual trusts owned by the Church.[3] The Chantries Act provided for escheat of colleges’ possessions.[4] The government established as an organ of itself with tax-exempt status by its sovereign nature the Church of England, replacing the Catholic Church.[5]
See-sawing in favor of charitable institutions, under Elizabeth I in 1597, parliament enacted a charitable corporation act that exempted specified institutions from government charges and the requirement of government consent when formed for the following purposes:
to erect, found, and establish, one or more hospitals, maison de Dieu, abiding places, or houses of correction, . . . as well as for the finding, sustentation, and relief of the maimed, poor, needy or impotent people, as to set the poor to work, to have continuance forever, and from time to time place therein such head and members, and such number of poor as to him, his heirs and assigns should seem convenient.[6]
Furthering Elizabeth I’s charitable incorporation statute by suppressing the application of Henry’s Statute of Uses and its rule against perpetuities, four years later Parliament enacted the Statute of Charitable Uses, 1601, allowing real property transfers to perpetual charitable trusts.[7] The Statute provided for exemption from the Statute of Uses for a transfer to a charity that provided:
relief of aged, impotent and poor people, . . . maintenance of sick and maimed soldiers, schools of learning, free schools, and scholars in universities, . . . repair of bridges, ports, havens, causeways, churches, sea-banks and highways, . . . education and preferment of orphans, . . . relief, stock or maintenance of houses of correction, . . . marriages of poor maids, . . . aid and help of young tradesman, handicraftsman and persons decayed, relief of prisoners, . . . aid of any poor inhabitants.[8]
However, during the late sixteenth century and seventeenth century, the Crown often piecemeal interfered with religious charitable trusts, either voiding the trust or employing cy pres to divert the trust assets to the Crown’s favored religion.[9] Charitable institutions once again falling out of the Crown’s blanket favor, two hundred years after and in the same vein as the Statute of Uses, Parliament revived a specific anti-charity statute, The Mortmain Act, in 1736.[10] The Mortmain Act of 1736 invalidated real property transfers to any charity mortis causa as well as inter vivos transfers made one year or less before death.[11] Though this statute limiting the funding of charities remained English law until The Charities Act, 1960, Parliament modified it in 1891 to allow for exceptions for devised property not to be used for investment, thus endowment, purposes.[12]
Prof. William Byrnes (http://www.llmprogram.org)
[2] Evelyn Brody, Charitable Endowments and the Democratization of Dynasty, 39 Ariz. L. Rev. 873, 901, 909-10, 911-13 (1997) Henry VIII was by no means the first king to dissolve monasteries.
[3] Brody at 901.
[4] Brody at 912-13.
[5] See Christine Roemhildt Moore, Comment, Religious Tax Exemption and The “Charitable Scrutiny” Test, 15 Reg. U. L. Rev. 295, 298-99 (2002-2003).
[6] See James J. Fishman, The Development of Nonprofit Corporation Law and an Agenda for Reform, 34 Emory L.J. 617, n.65 (1985).
[7] Lars G. Gustafsson, The Definition of “Charitable” for Federal Income Tax Purposes: Defrocking the Old and Suggesting Some New Fundamental Assumptions, 33 Hous. L. Rev. 587, 605 (1996) (citing An Act to redress the Mis-employment of Lands, Goods, and Stocks of Money heretofore given to Charitable Uses, 1601, 43 Eliz., ch. 4 (Eng.)).
[8] Oliver A. Houck, With Charity For All, 93 Yale L.J. 1415, 1422 (1984) (quoting Charitable Uses Act, 1601, 43 Eliz., ch. 4).
[9] See Norman Alvey, From Charity to Oxfam: A Short History of Charity Legislation 10-11 (1995).
[10] See Gustafsson at 606, 649 n.62 (noting that Mortmain statutes had previously been enacted in England but the Statute of Charitable Uses substantively repealed them); see also Brody, at 903 (noting that Parliament’s sentiments for legislating the statute are uncertain, but may have been due to anticlerical feelings).
[11] Alvey at 11.
[12] Brody at 905 n.147 (noting that the statute was modified in 1891 to allow either the court or the Charity Commissioners to grant exception for a mortis causa real property transfer to charity as long as the property was to be used for charitable activity rather than for investment purposes).
Posted in Legal History, Tax Exempt Orgs, Taxation | Tagged: charity, healthcare, history, law, nonprofit, tax exempt | 1 Comment »
Posted by William Byrnes on August 3, 2009
Financial service providers are required by the provisions of the USA Patriot Act to make substantial investments in technology (though many in the industry have questioned the effectiveness of these investments in preventing the funding of terrorist groups or other nefarious activities).[1] Senior banking management perceives rising and unpredictable compliance costs that undermine global competitiveness as the most significant threats to the future growth of banking.[2]
Based on the survey of Miami banks significantly engaged in international banking, staffing costs rose to 271 full-time employees of anti-terrorism/anti-money laundering compliance for approximately $25 million in 2005. The average survey respondents indicated that it devoted 2.9 FTE employment positions to BSA/AML compliance in 2002 versus 6.8 FTE positions in 2005. The number of full-time employees devoted to compliance represented 9% of the workforce in 2005. Staff resources devoted to compliance increased by 160% between 2002 and 2005.
The results have been that Miami’s banking industry has been characterized by contraction. The number of foreign bank agencies operating in Florida fell from 38 in 2000 to 31 in 2005, of which 7 did not book any deposits. There were 10 Edge Act banks operating in Florida in 2000, but only 7 in 2005. The number of international banking employees (in foreign agencies, Edge Acts and the international divisions of domestic banks chartered in Florida) declined from 4,660 in 2000 to 3,027 in 2005.
While the cost of AML compliance increased around 71% in North America between 2004 and 2007, it rose 58% globally.[3] By example, in 2003, the UK’s FSA’s Anti-Money Laundering Current Customer Review Cost Benefit Analysis estimated the implementation costs of the AML regime to firms at 152 million pounds sterling, substantial by European standards though paltry by America’s.
In a 2006 Economist Intelligence Unit survey, international senior bank executives were asked about the costs of compliance of government regulation. When asked what changes they expected in the regulatory environment over the coming three to five year, over 91% stated that they expected regulations affecting their institution to grow in complexity and breadth, 88% stated that compliance with industry regulations will become more onerous, and 81% reported that they expect penalties for non-compliance to increase in severity.
On the other hand, perhaps more (or more effective implementation of current) compliance and its resulting governance would have protected against or softened the blow of the systemic iceberg as well as protected against or softened the blow of the most recent investment fraud scandals. And UBS’ level of compliance expenditure neither deterred its activity regarding 52,000[4] USA non-complaint persons, nor its substantial investments in US mortgages leading to write-downs requiring a Swiss government substantial investment to shore up its capital. Certainly, based on the G7 and G20 meetings, as well as the discussions at the World Economic Forum, levels of compliance expenditure, compliance education, and governance will be required to be increased in order to restore institutional confidence.[5]
Based upon HNWI clients moving away from opaque investment firms toward transparent ones, there may be an opportunity for Chartered Wealth Managers advisors members / firms to market to stung HNWIs not just as well rounded advisors, but as trustable compliance and governance oriented advisors, collaborating transparently regarding developing the HNWIs portfolio of opportunities.
Information Tools
Besides the army of lawyers advising regulated firms and the chartered accountants undertaking compliance, anti-fraud, AML, terrorist activity, and qualified intermediary (QI) audits, near and dear to myself, the publications market employment is continuing to grow. Because compliance regulations, costs, and penalties are growing more onerous, all regulated financial service providers and their advisors must purchase some information resource to address the variety of compliance issues encountered regularly.
Moreover, to undertake the role of the ‘trusted advisor’, a sophisticated wealth manager must have a bundle of reliable resources enabling the holistic, international, business partner approach that modern HNWIs and UHNWIs now demand. By example of such information bundle for Chartered Wealth Managers, see the soon to be released online and print version of International Trust & Company Laws, Analysis, and Tax Planning.
Indication of this trend is that the legal, tax and regulatory publishing market has been and is growing consistently. Legal publishing is the largest segment in professional publishing, accounting for approximately 36% of the total market. In 2007, legal publishing revenue was about $10 billion, up 7.5% from $9.3 billion in 2006 and 14.9% from $8.7 billion in 2005. [6] Legal publishers are sparking growth by developing digital tools and software out of their reference book and journal content designed to make it easier for legal professionals to find information and automate mundane tasks.
New online publishing will use mind-mapping technology to educate users about holistic connections amongst ideas, issues, and strategies. Growth in publishing for an industry tends to indicate growth in that industry. By example of such new multimedia information resources see pilot projects as follows:
AML sample: http://amlsample.googlepages.com/
US tax sample: http://cmsove.googlepages.com/
Prof. William Byrnes (www.llmprogram.org)
[2] The Washington Economics Group, The Economic Impacts of International Banking in Florida and Industry Survey: 2005.
[3] KPMG’s Global Anti-Money Laundering Survey 2007.
[4] Agreement was reached between the US and Swiss governments July 31, 2009 for UBS to turn over of the 52,000 names to the IRS. See Wall Street Journal US State Dept: US Pleased, Relieved About UBS Deal July 31, 2009.
[5] See The Future Of Global Financial System, World Economic Forum World Scenario Series (2009) at 22.
[6] Simba Information, Global Legal & Business Publishing 2007-2008 (2007).
Posted in Compliance, Wealth Management | Tagged: wealth management financial planning compliance money laundering | 1 Comment »
Posted by William Byrnes on July 30, 2009
In my last blogticle, I discussed the Winning Strategies of the Holistic Wealth Management Service Model. This one focuses on the winning firms within the wealth management industry.
Because the wealth management sector continues to out or evenly pace other sectors in terms of firms’ and employees’ earnings, certainly in light of the demise of some bonus schemes in the investment management business units, the sector has grown more competitive with new boutique firms entering monthly. Is there room for such increasing competition?
According to the Oliver Wyman Report 2008, only 50% of HNWI assets are professionally managed or advised.[1] Thus, millions of HNWI and families do not yet leverage a private wealth manager’s services! And recall from my earlier blogticles that the global top ten wealth management firms manage less than 20% of high net wealth assets.[2] Three types of firms in the wealth management industry have shown significant growth in the past seven years in capturing client share.
Firstly, investment team boutiques that create and manage internationally oriented transparent investment funds focusing on alternative investments, such as emerging market strategies. These boutiques appeal to both HNWI’s directly, competing with larger institutions, and to the institutions themselves, in collaborative arrangements. The World Economic Forum proposes that future alternative investment classes offering beta return to HNWI portfolios may include:
(1) infrastructure finance,
(2) intangible assets (such as intellectual property),
(3) research and development exposure,
(4) mega-trends,
(5) frontier markets,
(6) distressed assets, and
(7) insurable risk.[3]
Secondly, family office firms employing holistic family business and tax management and lifestyle solutions, sometimes in combination with investment management services, are making great strides in picking up HNW families. 83 US based multi family office firms managed $334 billion, which as of the third quarter of 2008 represented just 19% of total assets under management of the global hedge fund industry.[4] However, because of the 2009 disengagement from ‘opaque’ hedge funds by HNWIs, ‘transparent’ multi family offices will likely have made substantial strides toward closing the assets under management gap.[5]
Thirdly, local and regional banks are successfully expanding HNWI client base against the national brands. Cap Gemini estimates that 2009 will see a 31% HNWI client growth for local/regional banks over 2008. Polling of HNWIs indicates that the risk of institutional and financial markets stability has led them to perceive local and regional banks as comparably safer.[6]
I should mention that compliance advisory service firms that have been established to serve financial service providers have experienced phenomenal income growth from 2002 onward. I will address more about this topic of compliance in my next blogticle.
Professor William Byrnes (www.llmprogram.org)
[2] The Wealth Management Report 2009 Meeting the Expectation of UK High Net Worth Clients JP Morgan at 11.
[3] The Future of the Global Financial System, World Economic Forum’s World Scenario Series (2009) at 33.
[4] The Future of the Global Financial System, World Economic Forum’s World Scenario Series (2009) at 36.
[5] The KnightFrank (Citi Private Bank) Wealth Report 2009 at 12.
[6] Cap Gemini Merrill Lynch World Wealth Report 2009 at 24.
Posted in Wealth Management | Leave a Comment »
Posted by William Byrnes on July 28, 2009
In my blogticle of July 19th I addressed Wealth Manager Skills Sets Required To Service New-Breed HNWIs. Hereunder I turn to the successful strategies employed by wealth management firms to acquire and retain HNWIs and families.
My forecast for an expanding and robust sector the past years has not been drawn from the conclusion of “what doesn’t kill you makes you stronger”, though I often lecture that “the survivors shall inherit the spoils”. Rather, I have examined the upward trend in expenditures by firms, and the sector as a whole, that allows them to the flexibility to adapt to changing climates and to evolve distinguishing services, such as the “well rounded, trusted advisors” trend required by new-breed HNWIs.
By example, for ten years I have measured that growing firms increase investment in education and information, and an increase in these two areas support that firm’s growth. On the other hand, firms’ declining revenues, by example through loss of clients and key staff, correlate to a reduction in education and information spending. In the 2008 poll by Robert Half’s Accountemps of 1,000 top companies, 94% offered tuition benefits to their key employees. Naturally, this correlation begs the causation question of whether the decline in spending caused decline of revenues, the other way around, or some other factor caused both.
In support of the winners investing in education that supports a holistic service model approach, this past year Cap Gemeni reported that “While most HNWIs and UHNWIs have relationships with multiple wealth management firms, many clients seek long-term “trusted advisors” who can help them navigate complex topics and strategies.” The trusted advisor must understand the HNWI “in the context of a larger relationship that encompasses personal and family finances as well as business partnerships or estate planning.”
Most importantly for the employing firms of wealth managers, the Oliver Wyman study reinforced what is already generally known in the wealth management / private banking industry: the lifetime contribution value of an average private client under the European onshore model (the Advisory model) is three to four times than that earned from the US Broker/ Dealer model, while the European offshore client model – five times![1]
The new breed HNWI will pay an asset under management (AUM) based fee for the trusted advisors holistic service, but prefers that the wealth manager employ this model dually with performance based fees – lowering the AUM fee but allowing a high blue sky for meeting and exceeding performance objectives.
Winner Wealth Managers
My wealth manager blog audience will not find the “trusted advisor” concept unique, and neither the family office that has gained so much attention amongst training companies the last seven years, as the “new” path forward. This is the way that the most successful wealth managers members’ firms have always provided service to their clients. Competency to offer these services has been assessed via the Walter H. & Dorothy B. Diamond Masters and Doctoral programs, or other professional association examination, such as that of the Chartered Wealth Manager of the American Academy of Financial Management (www.aafm.us).
Also, and more dear to many of my students, Cap Gemeni reported in 2008 that employing qualified talent will sharply increase because of the retirement of the baby boomer wealth manager generation. “Bidding wars among firms for top advisors are not uncommon” and that packages will include “bonuses equaling two or three times the payouts from just a few years ago.” As noted earlier in my blogticles, the industry career newsletter, Jobs in the Money, reports that credentialed professionals with certifications earn over 30% more than their colleagues. Also referring to recent reports from recruiters, financial planner salaries are holding a steady range of $150,000 – $400,000.[2] Based on my survey of recruiters and reports up to July 15, 2009, and our own alumni in the marketplace, this trend has held stable.
I look forward to addressing any comments hereunder. Prof. William Byrnes, Walter H. & Dorothy B. Diamond International Tax & Financial Services Programs (www.llmprogram.org)
[2] Headhunter Boils Business Down to Wealth Management San Diego Business Journal March, 23, 2009 at 17.
Acknowledgment of Resources
Though not attached via a citation to a specific fact or thought, the below resources nonetheless were studied in connection with the preparation of this presentation today, and may provide valuable reference for blog readers wanting more information.
IBIS World Industry Report on Central Banking in the US, January 27 2009.
IBIS World Industry Report on Investment Banking & Securities Dealing in the US, December 8, 2008 including recession update of January 5, 2009.
IBIS World Industry Report Commercial Banking in the US, December 4, 2008 including recession update of Jan 9, 2009.
IBIS World Recession Briefing: Economic Crisis: When will it End?, Dr. Richard J. Buczynski and Michael Bright, March 12, 2009.
S&P Industry Survey: Banking, Erik Oja, Dec 11, 2008.
Posted in Wealth Management | Tagged: wealth management financial planning | 1 Comment »
Posted by William Byrnes on July 26, 2009
You must pay taxes. But there’s no law that says you gotta leave a tip. ~Morgan Stanley advertisement (according to quotegarden)
Attraction of Income Tax
An Indian resident’s total income includes their worldwide income “from whatever source derived.” Thus, a resident’s income need not be received in India to be subject to the income tax. An Indian resident’s total income includes income received in India, income “accruing or arising in India,” and income “accruing or arising outside India.”[1] The total income of a person who is not ordinarily resident in India does not include foreign source income unless the income is derived from an Indian company.[2]
The Indian government taxes some types of income based on the source of the income. Of particular importance to users of LPO services is the source-based taxation of income from a business connection in India. A nonresident’s total income includes income received in India and income “accruing or arising” in India.[3] Income is deemed to accrue or arise in India when it comes directly or indirectly from any business connection in India.[4]
Under Indian domestic tax law, some payments to nonresidents are subject to a non-final withholding tax. Income from sources other than royalties are subject to withholding at the current rates in force.[5] Any person in India who has a business connection with a nonresident or from whom the nonresident receives income directly or indirectly is considered to be an agent of the nonresident.[6]
An agent is treated as a “representative assessee” of the nonresident and must deduct the tax at the source and pay that amount to the Government.[7] However, India does not require withholding from remittances from a branch to a foreign parent.
Tax Treaty Protection
Under India’s Double Taxation Avoidance Agreements (DTAA), the business profits of a nonresident may only be taxed in India if the profits are attributable to a permanent establishment in India. India’s DTAAs are more similar to the U.N. Model Double Taxation Convention rather than the OECD’s.
The definition of “permanent establishment” (PE) under India’s DTAAs is generally consistent with the definition found in the UN Model Convention. Included in the definition of PE is a person, other than an independent agent, who has the authority to, and does habitually conclude contracts in the name of the nonresident person. Also included is a person authorized to, and who habitually does, keep a stock of goods for the nonresident and regularly delivers the goods on behalf of the nonresident.[8]
Business income is taxable in India if the income is attributable to a permanent establishment in India. A nonresident person may be taxed in India even if the nonresident does not have a physical presence in India. For instance, the Income Tax Appellate Tribunal has held that nonresident companies operating reservation systems servicing Indian residents are subject to the income tax under Indian treaty law (and domestic law).[9]
India’s domestic tax law applies to nonresidents when the domestic tax law is more beneficial to the taxpayer.[10]
Recent Treaty Based Decision Impacting BPOs / Transfer Pricing Issue
In a landmark Supreme Court decision in summer of 2007 that impacted many captive LPO providers, the Court substantively agreed with the conclusion of the 2006 Authority for Advance Ruling’s determination that Morgan Stanley’s Indian BPO subsidiary constituted a permanent establishment, though the Court’s and Authority’s analysis diverged.[11]
The Court’s analysis of the permanent establishment issue focused on the oversight/quality control employees of Morgan Stanley deployed to its Indian subsidiary. However, the inevitable question of determination of taxable income of the subsidiary whether in its own right or as a permanent establishment is answerable via a transfer pricing functional analysis.
The Court ruled that the Transaction Net Margin Method was an appropriate method for determining the arm’s length price between the associated parties.
Within the Fall Transfer Pricing course we will analyze the facts, reasoning, and criticisms of this case.
Lexis’ Practical Guide to U.S. Transfer Pricing, 28 chapters from 30 expert contributors led by international tax Professor William Byrnes, is designed to help multinationals cope with the U.S. transfer pricing rules and procedures, taking into account the international norms established by the Organisation for Economic Co-operation and Development (OECD). It is also designed for use by tax administrators, both those belonging to the U.S. Internal Revenue Service and those belonging to the tax administrations of other countries, and tax professionals in and out of government, corporate executives, and their non-tax advisors, both American and foreign. Fifty co-authors contribute subject matter expertise on technical issues faced by tax and risk management counsel.
[1] Income Tax Act § 5(1).
[2] Income Tax Act § 5(1) (flush language).
[3] Income Tax Act § 5(2).
[4] Income Tax Act § 9(1)(i).
[5] Income Tax Act § 195(1) and. § 194(J).
[6] Income Tax Act § 163(1)(b), (c).
[7] Income Tax Act §§ 161, 190.
[8] See e.g. Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, India-Austria, Nov. 8, 1999, India Income Tax Department, art. 5.
[9] Galileo International Inc. v. DCIT, ITA No. 1733/Del/2001; 2473 to 2475/Del/2000; 820 to 823/Del of 2005 (Nov. 30, 2007).
[10] Income Tax Act § 90(2).
[11] Civil Appeal No. 2914 of 2007 arising out of S.L.P. (C) No. 12907 of 2006, M/s DIT (International Taxation), Mumbai v. M/s Morgan Stanley & Co. Inc., with Civil Appeal No. 2915 of 2007 arising out of S.L.P. (C) No. 16163 of 2006, M/s Morgan Stanley & Co. Inc. vs. Director of Income Tax, Mumbai. See Jefferson VanderWolk’s interesting commentary at 47 TNI AUGUST 13, 2007, P. 631. Email me for copies of the decision and lecture notes thereto.
Posted in Legal Process Outsourcing, Transfer Pricing | Tagged: business process outsourcing, India, Legal Process Outsourcing, LPO, process outsourcing legal business lpo bpo | Leave a Comment »
Posted by William Byrnes on July 23, 2009
Quote for this blogticle: “First weigh the considerations, then take the risks.” Helmuth von Moltke
In my last blogticle I listed the types of LPO services undertaken with a link to over 100 providers of LPO services. Hereunder I address several important considerations concerning avoiding the sinkholes in the road to outsourcing.
Attorney Ethical Issues
In 2006 the New York City Bar Association published a formal opinion regarding the ethical considerations of overseas legal outsourcing of services. The New York City Bar considered whether a New York lawyer may “ethically outsource legal support services overseas when the person providing those services is (a) a foreign lawyer not admitted to practice in New York or in any other U.S. jurisdiction or (b) a layperson?”[1] That bar association concluded that a lawyer may do so, upon meeting the following conditions (quoted from its opinion)[2]:
(a) rigorously supervises the non-lawyer, so as to avoid aiding the non-lawyer in the unauthorized practice of law and to ensure that the non-lawyer’s work contributes to the lawyer’s competent representation of the client; (b) preserves the client’s confidences and secrets when outsourcing; (c) … avoids conflicts of interest when outsourcing; (d) bills for outsourcing appropriately; and (e) … obtains the client’s informed advance consent to outsourcing.
Early last year, the Florida Bar Association addressed the same issue and it found no distinction between hiring contract paralegals in the US and contract foreign (specifically Indian) attorneys outside the US, concluding that contractual legal services do not aid the unlicensed practice of law if the Florida law firm provides adequate supervision.[3]
Security
The legal and operational issues that perhaps attracts the most attention, and deservedly so, because of a few highly publicized cases, are privacy, confidentiality and the preservation of privilege. These issues require a robust discussion of operational data security, institutional / LPO governance, and employee security as well as quality control for processes and compliance verification.
By example of addressing security concerns, outsourcing contracts mitigate the disclosure of documents by mandating the LPO employees’ computers have Internet access limited.[4] Note that in India anyone with access to customer records is free to sell the data, or use it for direct marketing. However, pending legislation (the Personal Data Protection Bill, 2006) will if passed protect data provided to the Government and private entities from being sold or used for direct marketing.
Professional Indemnity
By example of addressing professional indemnity and security liability concerns for which the US contracting source firm will inevitably be liable to its clients, LPO contracts may mandate professional liability coverage written by US based insurers, with a certificate of coverage provided annually.[5] Naturally, heightened insurance and compliance/verification will increases the LPO firm’s operational costs, pressuring its margin and pricing.
Functional Equivalency & Education / Training
While India may have four times the amount of law graduates, are these graduates the functional equivalent of a US associate? One of my colleagues poses the question that if the Indian graduate attorney was the functional equivalent, then why doesn’t his and other firms, like the technology industry, import Indian trained lawyers? While it is not uncommon for United Kingdom trained solicitors to be employed by US firms, the same cannot be said of Indian graduates.
Is the equivalency up to par with US paralegal training? How can a US firm verify professionalism and level of expertise? More importantly for the LPO industry, if components are missing in India’s legal education that impact functional equivalency, what are these components and can these be effectively transferred?
By example, many India law graduates do attend one-year Master of Laws in the United States. Is the LL.M. necessary to rectify any (perceived) differences? Will staff’s passage of the penultimate multistate bar examination, by example in Washington DC, New York or California, provide Indian LPO firms competitive advantage to obtaining work, or disadvantage because the (now US) attorney may command a higher wage?
Some LPO providers state that as long as a Indian based U.S.-trained lawyer oversees the Indian staff, the work product will be of equivalent quality. Because of the recent recession in USA legal services, the US has an ample supply of attorneys willing to relocate to India to oversee such operations. May a US firm consider this supervision sufficient for certain contracted skill sets, such as document review?
As a counterpoint to this equivalency issue, some LPO marketers state that Indian law graduates are better, rather than equivalent, to their US associate counterparts, by example, because of the competitive motivation of the number of Indian graduates and fewer high paying attorney positions.
In my next blogticle, I will examine some tax issues associated with LPO with India.
Professor William H Byrnes, IV (www.llmprogram.org)
[2] The Association of the Bar of the City of New York Committee on Professional and Judicial Ethics, Formal Opinion 2006-3, August 2006.
[3] Professional Ethics Of The Florida Bar (Opinion 07-2); January 18, 2008
[4] Legal Outsourcing to India Is Growing, but Still Confronts Fundamental Issues, Anthony Lin, New York Law Journal, January 23, 2008.
[5] Legal Outsourcing to India Is Growing, but Still Confronts Fundamental Issues, Anthony Lin, New York Law Journal, January 23, 2008.
Posted in Legal Process Outsourcing | Tagged: BPO, LPO, process outsourcing | 2 Comments »
Posted by William Byrnes on July 22, 2009
Quote for this blogticle: “Most people are other people. Their thoughts are someone else’s opinions, their lives a mimicry, their passions a quotation.” Oscar Wilde
In my last blogticle I looked at Conditioning Drivers for LPO Growth. In this one, I turn to the types of LPO services undertaken and a link to a provider list.
Types of LPO Services
Examples of legal services currently outsourced with substantial fees to India include, non-exclusively:
(1) secretarial including presentations,
(2) legal transcription,
(3) legal publishing services,
(4) document review including e-discovery,
(5) legal research,
(6) business/market research,
(7) litigation support,
(8) contract drafting and review services,
(9) form completion and information population, such as tax forms
(10) intellectual property, such as patent application and compliance, and
(11) administrative such as accounting and billing.[1]
Type of LPO Providers
The four categories of Indian outsource providers typically referred to are:
(1) captive centers of corporate legal departments,
(2) captive centers of large legal and audit firms,
(3) third party niche providers, and
(4) third party multiservice providers.[2]
LPO Expertise Legacy
Especially given the mass layoffs amongst large firms, the US law community is experiencing a high attrition among its US contract attorney staff, as well as its partners and associates. On the contrary, India experiences a high retention, thus legacy experience, amongst its LPO providers.
Moreover, LPO proponents state that Indian LPO multiservice providers may be leveraged by their US counterparts to (1) reduce fixed staffing costs of associates and paralegals, (2) mitigate the capital investment and IT operational costs necessary for purchasing, implementing, and keeping abreast of, legal technology for document review, and (3) cross-fertilization obtained form experience with multitudes of varying projects.[3]
List of LPO Providers
The website Prism Legal provides a vendor list of 111 firms providing outsourced legal service in India and elsewhere for the US and UK markets.[4]
The Prism Legal list also includes corporations and law firms leveraging legal offshore services, such as Dell, American Express, Dupont, Puarolator Courier Inc., General Electric and Microsoft, as well as top law firms such as Clifford Chance, Allen & Overy, Millbank Tweed, Jones Day, Kirkland & Ellis, White & Case; and Chadbourne & Parke.[5]
In my next blogticle, I will turn to the Risk Management of Important Issues of LPO. Look forward to your comments to any of my blogticles. Professor William Byrnes (www.llmprogram.org)
[2] Contract with India: Legal outsourcing, Jim Middlemiss, Financial Post (Canada), April 25, 2008.
[3] Why and What Lawyers Should Consider Outsourcing, Ron Friedmann LLRX.com, Sept 1, 2008 (available at http://www.llrx.com/features/legaloutsourcingoptions.htm).
[4] http://www.prismlegal.com/index.php?option=content&task=view&id=88&Itemid=70#Intro (last visited October 30, 2008).
[5] Also see Contract with India: Legal outsourcing, Jim Middlemiss, Financial Post (Canada), April 25, 2008; U.S. firms outsource legal services to India, Cynthia Cotts and Liane Kufchock, Bloomberg News, August 21, 2007; and India Lures Corporate Outsourcing, Jonathan Hill, Law Technology News, October 14, 2008.
Posted in Legal Process Outsourcing | 4 Comments »
Posted by William Byrnes on July 21, 2009
Conditioning Drivers for LPO Growth
The previous blocticle post addressed the market for LPO and BPO in India relative to the USA. Hereunder we shall address the cost structure that is driving the LPO market and its transfer of transactional based legal services to functional equivalent yet substantially lower cost practitioners.
Litigation Costs
For medium size businesses, legal fees as a percentage of income are growing. In 2007 electronic data discovery expenditures increased 43% to $2.7 billion and are projected to reach $4.6 billion by 2010.[1] A recent Fulbright & Jaworski client study found that approximately 10% of the clients responding reported legal fees represented about 5% of the company’s gross annual revenues.[2]
The recession has greatly impacted legal services, in particular client’s willingness to pay substantial fees for traditional associate and paralegal level work. This, firms have been driven, sometimes specifically by clients, to legal process outsourcing (LPO) in India.
Compliance Costs
The Regulatory Environment [3]
For the past several years, the US banking industry and its legal/audit counsel has focused on regulatory issues, such as the corporate governance provisions of the Sarbanes-Oxley Act (enacted in 2002) and the banking-related parts of the USA Patriot Act (enacted in 2001). These provisions are having a bottom line impact in terms of increasing expenditure resulting primarily from increased staffing and technology. The provisions of the USA Patriot Act require increasing investments in technology (though many in the industry have questioned the effectiveness of these investments in preventing the funding of terrorist groups or activities) and staff hours that smaller community banks have contended impact them disproportionately.
Increasing Compliance Costs
Senior banking management perceives rising and unpredictable compliance costs that undermine US global competitiveness as the most significant threats to the future growth of banking.[4] The cost of AML compliance increased around 58% globally but 71% in North America between 2004 and 2007.[5]
A 2005 survey of Florida, in particular Miami, banks engaged in international banking estimated the staffing cost of AML compliance at nearly $25 million. The study concluded that compliance costs are not uniform across institutions, even after making adjustment for sizeLarger institutions (measured in terms of deposits) typically devote more resources and spend more on compliance than smaller ones, of course, but the compliance burden does not rise proportionately with size. That is, survey data indicates that economies of scale in compliance are present, and that compliance costs per dollar of deposits is greater for smaller institutions than for larger ones.[6] Even after the dramatic increases in compliance costs and regulatory complexity since 2001, the regulatory environment is likely to become increasingly challenging in coming years.
In a 2006 Economist Intelligence Unit survey, international senior bank executives were asked about the costs of compliance with government regulation. When asked what changes they expected in the regulatory environment over the coming three to five year, over 91% stated that they expected regulations affecting their institution to grow in complexity and breadth, 88% stated that compliance with industry regulations will become more onerous, and 81% reported that they expect penalties for non-compliance to increase in severity.[7]
As a result, the international banking industry in Florida has been characterized by consolidation and contraction since 2000. The number of foreign bank agencies operating in Florida fell from 38 in 2000 to 31 in 2005.[8] There were 10 Edge Act banks operating in Florida in 2000, but only 7 in 2005. The number of international banking employees (in foreign agencies, Edge Acts and the international divisions of domestic banks chartered in Florida) declined from 4,660 in 2000 to 3,027 in 2005.
Based on a survey of banks significantly engaged in international banking Florida International Bankers Association (FIBA) was able to estimate the Florida international bankers staffing cost for 271 full-time employees of anti-terrorism/anti-money laundering compliance at nearly $25 million in 2005. [9] The average survey respondents indicated that it devoted 2.9 FTE employment positions to BSA/AML compliance in 2002 versus 6.8 FTE positions in 2005. The number of full-time employees devoted to compliance represented 9% of the workforce in 2005. Staff resources devoted to compliance increased by 160% between 2002 and 2005.
Document Review & Customization Costs
In 2003, a legal forms publisher, Socrates Media, reduced the cost for a fifty state customized residential lease from approximately $400,000 to $45,000 via the Hyderabad company QuisLex.[10]
A company’s legal department can reduce its document review costs from $7 to $10 per page in the US to approximately $1 per page with Indian counsel.[11] Whereas New York associates undertaking document review may earn a $160,000 base annually, similarly reviewing Indian associates earn less than $10,000.[11] Contrast the annual increase of labor supply of 200,000 Indian law graduates (of a 1.2 billion population) versed in the Common law to that of the USA, being 50,000 for 300 million population.
A US legal secretary’s average hourly cost is $63 under the realistic conditions of 80% annual time utilization ($50 if 100% hourly utilization) based upon an $85,000 annual employee cost including salary, benefits, and payroll tax.[13] That of the New York associate will be double. In 2003, University of California (Berkeley) reported that whereas US paralegals and legal assistants may average $18 hourly, the equivalent India positions earn between $6 and $8.[14]
In our next blogticle we will address areas best suited for legal process outsourcing. You may follow new blogticle postings via Twitter (http://twitter.com/williambyrnes). Feel free to comment. Professor William Byrnes (www.llmprogram.org)
[2] India Lures Corporate Outsourcing, Jonathan Hill, Law Technology News, October 14, 2008.
[3] Standard and Poor’s Industry Surveys: Banking (Dec. 6, 2007).
[4] The Washington Economics Group, The Economic Impacts of International Banking in Florida and Industry Survey: 2005.
[5] KPMG’s Global Anti-Money Laundering Survey 2007.
[6] The Washington Economics Group, The Economic Impacts of International Banking in Florida and Industry Survey: 2005.
[7] Economist Intelligence Unit, Bank Compliance: Controlling Risk and Improving Effectiveness (2006)
[8] In 2005, however, 7 of the 31 international banks had no deposits booked in Florida, while in 2000 only 2 of the 38 had zero deposits.
[9] Note that these cost estimates only include manpower or staffing costs, and do not include costs such as transaction monitoring software, possible IT investments and services, legal counsel and similar support.
[10] U.S. firms outsource legal services to India, Cynthia Cotts and Liane Kufchock, Bloomberg News, August 21, 2007.
[11] Offshoring Legal Services to India: an Update (Market Research Report), Valuenotes Database Pvt. Ltd., July 2007
[12] India Lures Corporate Outsourcing, Jonathan Hill, Law Technology News, October 14, 2008.
[13] Why and What Lawyers Should Consider Outsourcing, Ron Friedmann LLRX.com, Sept 1, 2008 (available at http://www.llrx.com/features/legaloutsourcingoptions.htm)
[14] Outsourcing the lawyers, Krysten Crawford, CNN/Money October 15, 2004; Outsourcing Legal Services Abroad, K. William Gibson, Law Practice Magazine Volume 34 Number 5 July/August 2008 Issue Page 47.
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Posted by William Byrnes on July 20, 2009
This week I will break from wealth management and turn to a series of blogticles on legal process / service outsourcing to India. The blogticles will present an overview of issues relating to the discussion held in our Masters course (see www.llmprogram.org). Whereas our course also addresses our groundbreaking technology and pedagogical developments for educating the Indian legal process outsourcing workforce, within this blog we will focus on basic outsourcing issues such as types of outsourcing, compliance, and two tax issues being (1) India source based taxation / permanent establishment considerations, and (2) transfer pricing considerations.
I will provide citations to relevant sources that you may jump start your research for legal process outsourcing for India. Please contact me if you require more detailed suggested resources to continue you research.
Economic Comparison: BPO and LPO Growth
Since 1994 I have observed, and participated in the rise of technnology, business, service, and finally legal process outsourcing. Originally I leveraged South African accountants for service fullfillment for projects overseas, transferring information via the Internet. Many South African accountants immigrated overseas, and India’s bandwidth grew stable and robust enough that its labor force could be effectively leveraged. Fees in India generated from USA sourced legal services are estimated to increase to $640 million within the next two years, employing 32,000 legal staff (from $146 million employing 7,500 in 2006, and only $80 million in 2005).[1] In the past three years, legal outsourcing revenue has grown approximately 60% annually.[2] From just 2006 to 2007, growth of US companies outsourcing legal services to India increased from 37% to 51%.[3] By 2015 Forrester Research projects $4 billion in legal services outsourced to India.
By contrasting example, last year India’s IT outsourcing revenues reached $64 billion, growing 33%, and breached the two million employment level.[4] As Indian has accomplished phenomenal growth since 1994 with its BPO information technology sector, so it is likely to in the BPO legal services sector though as a much faster pace.
My Background Relevant To Legal Process Outsourcing
In 1994-95, I was a senior consultant for a significant non-resident Indian acquisition of an India manufacturer, requiring leveraging of the Mauritius double tax agreement and working with Mauritius and Indian tax and exchange control authorities. In 1996, I followed up that experience by outsourcing to India a substantial text capture project in agreement with Kluwer Law International for the creation of HTML hyperlinked online materials for our online law program. Since 1995, I have spoken numerous times in India at conferences and trainings held by organizations such as the Bombay Management Association and for Bangalore’s charted accountants. Last year the All India Federation of Tax Practitioner invited me to address its membership on legal education for Indian tax process outsourcing. Recently I co-authored the Indian chapter for Oxford University Press’ treatise Global E-Business Law & Taxation (distributed electronically through www.ibls.com).
Prior to my tenured academic career I was a senior manager then associate director, international tax, Coopers and Lybrand (South Africa), which subsequently amalgamated into Price Waterhouse, whereby I sourced multinational structuring and investment projects, completing the work cost effectively for the clients via competently educated South African advisors.
In the next blogticle, we turn to examine the issues of Litigation Cosst, Compliance Costs and Document Review & Customization Costs.
Prof. William H. Byrnes, IV (www.llmprogram.org)
[2] U.S. Legal Work Booms in India, Rama Lakshmi, Washington Post Foreign Service, May 11, 2008.
[3] India Lures Corporate Outsourcing, Jonathan Hill, Law Technology News; October 14, 2008.
[4] Indian IT-BPO Industry Factsheet, NASSCOM, August 2008 (available at http://www.nasscom.in/Nasscom/templates/NormalPage.aspx?id=53615).
Posted in Legal Process Outsourcing | Tagged: BPO, LPO, process outsourcing | 3 Comments »
Posted by William Byrnes on July 19, 2009
There is a correlation amongst a firm’s and professional’s economic success, the firm’s regulatory survival, a holistic education with international exposure, and collaborative service models. Servicing modern HNWIs who now demand international elements and risk management for their families and their business interests requires a dynamic ability to obtain economic and regulatory information, understand the clients’ and the markets’ issues and inefficiencies, and create solutions.
As noted in my previous blogticles, steady HNWI high growth continues within the OECD members, but rapid growth in HNWI numbers will continue in the BIC countries of Brazil, India and China, and probably again after the valuation adjustment in Russia/Eastern Europe. The BIC countries, in particular Brazil because of its vast natural commodities base and recent discovery of what is probably the world’s largest offshore oil field, will continue to lead the world in both economic and HNWI growth. Cap Gemini estimates that by 2011 Asia Pacific will overtake North America in HNWI growth, just as China overtook the UK last year in total number of HNWIs. Thus, wealth managers seeking to attract these HNWIs, be in their home country, or in the USA, will evolve to provide services reflective of the needs of these BIC clients, as well as speak their local languages.
The HNWI is seeking the one-stop shop model.[1] The relationship manager must be able to source information and services leveraging a team approach, assimilate the pieces, and communicate it in a collaborative, transparent manner with the HNWI .[2] Wealth mangerss must be able to employ a holistic and collaborative team approach for a HNWI including (1) business, (2) tax, (3) estate, (4) legal, (5) accounting, (6) intra-family governance, (7) philanthropy (8) compliance and (9) lifestyle issues, and communicate operations and solutions to the HNWI and family members.[3] New breed HNWIs want communication by email weekly from their wealth manager. Sophisticated advisors will leverage secure, though inexpensive, video conferences to establish more efficient and effective face time.
By example of collaboration and communication skills, the trusted advisor may need to source compliance and due diligence skill sets from risk management, compliance, legal, and audit team members in order to analyze a multinational business that a HNWI is targeting, synthesize the different jurisdictional regulatory requirements, and communicate effectively the team’s findings to the client via a video conference.
Thus, education in these aforementioned skill sets, leading to a potential employee’s retooling, is a key to competing in today’s wealth management industry and job market. Moreover, ‘soft skills’ such as client communication, and even more relevant in this economic downturn, the ability to counsel through economic and personal stress, will decide for HNWIs who is to become trusted advisors, and who are simply hawking services.[4] A polling by American Academy of Financial Management of its membership found that while communication soft-skills are recognized by wealth managers and by private clients themselves as critical to attracting HNWIs and in choosing their trusted advisors, less than 20% of wealth managers receive any formal soft skill communication education during their graduate education, which mainly focused business or finance (lawyers primarily responded that communication skills training had formed a part of their formal education). MindFrame Persuasion www.mindframepersuasion.com/ is an example of advanced soft skill communication training to establish attraction and connection between trusted advisor and their prospective HNWIs.
In my next blogticle, I will address Winning Strategies of the Holistic Service Model. Prof. William Byrnes (http://www.llmprogram.org)
[2] The Future of Private Banking: A Wealth of Opportunity?, Oliver Wyman (2008) at 43.
[3] In an interview with Dr. George Mentz, Chairman of the American Academy of Financial Management (www.aafm.us), who is consulted by the Department of Labor’s Bureau of Statistics for Financial Services employment information (http://www.bls.gov/oco/ocos259.htm), he stated that the US wealth management market has seen a commoditization of financial product offering to private clients, thus requiring advisors to distinguish themselves upon other services. Asset protection, estate planning, business issues, Dr. Mentz said, are areas that advisors are now focusing on to attract clients. The Chronicle of Philanthropy reported that 2008 charitable giving did not substantially suffer, and in some cases increased amongst certain groups (112% amongst the 50 most generous US philanthropists).
[4] See The Wealth Management Report 2009 Meeting the Expectation of UK High Net Worth Clients, JP Morgan at 11 and the section “Perspective” page 25.
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Posted by William Byrnes on July 18, 2009
From 2006, Cap Gemini’s polling has identified several long term trends that continue to appear to drive a general re-allocation and opportunities for wealth managers to acquire clients.[1] By example of asset re-allocation, in 2006 HNWI clients reached 20% alternative investment diversification for their portfolios, up from just 3% in 2000.[2] HNWIs, and in particular the new breed HNWIs, are increasingly globally informed about investment opportunities and risks. Thus, HNWIs are undertaking their own research of information and expecting a collaborative process with their advisors. HNWI’s are demanding firm’s investment teams develop and use global strategies and products to hedge local risks[3], by example allocating to the continuing emerging markets of BRIC (though 2009 has seen this become BIC).
As to be expected based upon the short term drivers of the recession, recalibration of asset values, failure or quick-sale of numerous global financial institutions, and tremendous investment fraud scandals by prominently respected institutional individuals, 2009 has seen tactical, if not forced, re-allocation. Ellen Kelleher in April reported in the Financial Times that HNWI are commonly dissatisfied with private banks pitching structured products “with high charges and confusing terms”.[4] Citi Private Bank’s survey covering its wealth managers for 2,000 HNWI and UHNWI found that this year almost 90% of their clientele have reduced or substantially reduced their exposure to equities and nearly all have shied from hedge funds, citing transparency and stability as the value drivers of their allocation decision.[5] While in 2008 HNWIs sought income fixed returns, the World Economic Forum proposes that future alternative investment classes offering beta return to HNWI portfolios may include (1) infrastructure finance, (2) intangible assets (such as intellectual property), (3) research and development exposure, (4) mega-trends, (5) frontier markets, (6) distressed assets, and (7) insurable risk.[6]
Since 2006, new breed HNWIs in particular have been trending toward a lack of fidelity to their institutions and migrating sizable allocations of their portfolios to boutique (investment) firms and to multi family office operations.[7] 27% of HNWI surveyed in 2008 by Cap Gemini noted changing wealth mangers or withdrawing assets.[8] In the previous year, Cap Gemini already noted that HNWIs were migrating toward a holistic service approach to their advisement. Nearly 70% of advisors that retained their HNWI leveraged team-based models. American Academy of Financial Management (www.aafm.us) reports that wealth managers not employing an intergrated-service, collaborative approach to their clients’ issues during the recession have experienced tumbling fees as clients transferred to advisors able to address such issues. By example, AAFM reported that few financial advisors pro-actively collaborated to draw into their team recessionary skill sets such as debt renegotiation, cash flow and workout strategies. Scorpio Partnership’s Transforming the Worth of Wealth report found from its surveying that the general feeling amongst financial advisors is that investors are increasingly looking to transfer to service-based smaller boutiques as the economy weakens. In fact, HNWIs are returning to smaller regional and local financial institutions (Cap Gemini reports a 31% increase in their client base).
Exemplifying the impact of this trend, Scorpio Partnership reported that the 25 brand name firms surveyed “posted less than 15 per cent growth in clients every three years, on average”. On the other hand, as of the third quarter of 2008, 83 US based multi family office firms managed $334 billion, which at that time represented 19% of total assets under management of the global hedge fund industry.[9] Based on the 2009 disengagement from ‘opaque’ hedge funds by HNWIs, ‘transparent’ multi family offices will likely have made substantial strides toward closing the assets under management gap.[10] When choosing from among wealth managers, HNWI apparently value branding and reputation, but size has lost its importance.[11]
In my next blogticle, I will address the new required skills sets of wealth managers required by new breed HNWIs, at least as we teach them in our wealth managers’ training programs. Prof. William Byrnes (http://www.llmprogram.org)
[2] Cap Gemini World Wealth Report 2006.
[3] The Wealth Management Report 2009 Meeting the Expectation of UK High Net Worth Clients JP Morgan at 38.
[4] The Big Money Prefers Smaller Firms, Ellen Kelleher, Financial Times (April 10, 2009).
[5] The KnightFrank (Citi Private Bank) Wealth Report 2009 at 12.
[6] The Future of the Global Financial System, World Economic Forum’s World Scenario Series (2009) at 33.
[7] Show them the Money, Economist Special Report April 2, 2009.
[8] Cap Gemini World Wealth Report 2009.
[9] The Future of the Global Financial System, World Economic Forum’s World Scenario Series (2009) at 36.
[10] The KnightFrank (Citi Private Bank) Wealth Report 2009 at 12.
[11] The Future of Private Banking: A Wealth of Opportunity?, Oliver Wyman (2008) and The Wealth Management Report 2009 Meeting the Expectation of UK High Net Worth Clients JP Morgan.
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Posted by William Byrnes on July 17, 2009
In my 900-page economic report on the international financial services industry, I examined and calculated the economic size and impact of the sector on local jurisdictions, and in doing so reviewed the global industry as a whole.[1] But for periods of global financial crisis, the sector had experienced double-digit annual global growth from the eighties and contributed robustly to the local economies and society. Since 1998, the international financial services sector client base has expanded nearly 10% on average. Even with the dampening of current global crisis, this industry is projected to grow in the high single digits.
During this period, the number of HNWI clients have more than doubled, to just over 10 million, as have their assets, from $17.4 trillion to between $40 and $50 trillion.[2] By 2013, the pool of HNWI clients’ assets will grow another 50% to nearly $60 trillion.[3] 70% of this new wealth is self-generated, either through entrepreneurship or via executive level employment, representing a “new” breed of HNWI versus the inherited wealth clients of the past.[4]
Since 1998, while the OECD continues to steadily generate HNWIs and their wealth, the substantial jumps in wealth generated and new HNWsI is and will continue to occur in Asia (China and India) and to a lesser extent in Latin America (Brazil) and the Middle East (GCC). Based on the shifting geo-wealth creation pool, our new breed HNWI is more likely to be of Asian, Middle Eastern, and Latin American nationality, with a very different frame and perspectives from our OECD HNWI. In 2008, China jumped the United Kingdom with the 4th largest number of HNWIs (364,000), while Brazil has climbed over Spain to 10th position (with 131 HNWIs). Cap Gemini estimates Asia Pacific to overtake North America in HNWI growth in just two years.
The average HNWI, excluding the value of primary residences and collectables, is worth more than $4 million! HNWI’s continue to leverage offshore skill sets, growing their assets from $5.8 trillion from 1998 to an estimated $8 to $11 trillion today.[5] That $11 trillion under management represents, at combined fees for all wealth management services of just 1%, approximately $100 billion accrual to wealth management firms and their providers, such as asset management and investment banking business units.[6]
The wealth management industry remains very fragmented, with likely even greater fragmentation on the horizon. The global top ten wealth management firms manage less than 20% of high net wealth assets.[7] 50% of HNWIs do not even leverage the expertise of a wealth manager![8] Thus, this expanding, fragmented client base leaves plenty of room for growth in employment. Currently, the international-offshore financial service industry’s wealth management level employment has probably reached and maintaining 100,000.[9] By example, the AIMR (aka CFA Institute) and the American Academy of Financial Management (http://www.aafm.us) both estimate over one-million employment globally for their segmentation of financial analysts (based on their respective global spread of their 100,000 members each).[10]
The current stability with wealth management employment is in contrast to the instability in investment banking. Investment banking within the USA, including securities dealing, employment has fallen from a high of 156,113 in 2006 to a low of 97,500 in 2008, though is estaimated to be stabalizing this year at 100,425.[11] Financial planning and investment management services are now delivering a larger portion of an institution’s income, up to 12% from 5% in the late 1990s, as investment bank services and trading commissions have correspondingly fallen.[12]
Prof. William Byrnes (http://www.llmprogram.org)
[2] Cap Gemini Merrill Lynch World Wealth Report 2008 calculates $40.7 trillion. However, see Oliver Wyman’s The Future of Private Banking: A Wealth of Opportunity? (2008) at 9 wherein using its own wealth model and reliance upon data from the OECD, IMF, WFE, UNECE, national banks and stock exchanges calculates $50 trillion.
[3] Though the global re-calibrating of asset values may impact the nominal wealth value for HNWIs in the short term, historically, based upon both the recessions coined after the Asian Financial Crisis and the Tech-Bust, the wealth value will likely return to projected levels with a two-year lag. While equity and real estate markets may have declined by January 2009 by as much as 50% of their highest value in OECD countries, HNWI portfolios are spread among other investments without such a sharp plunge. A reliable decline in value estimate for HNW is 25% based upon the decline experienced in Switzerland, which accounts for 28% of the global asset management market. See the report Wealth Management in Switzerland, Swiss Bankers Association (2009) at 8.
[4] The Future of Private Banking: A Wealth of Opportunity?, Oliver Wyman (2008) at 21.
[5] Tax Haven Abuses: The Enablers, The Tools and Secrecy” (Sen. Rep., Perm. Sub-Comm. On Investigations, August 1, 2006) and World Wealth Report 2008 estimate $11 trillion. However, the Oliver Wyman Report which surveyed 25 top firms provides a lower estimate of only $8 Trillion offshore at 16% of HNW assets (see page 3) and the Swiss Bankers Association Wealth Management in Switzerland 2009 report (see page 4) supports this lower estimation. A general survey of literature, by example IMF and World Bank reports, contrasted with data available from the Bank of International Settlements, has been inconclusive.
[6] Note that the $100 billion estimate based upon the $11 trillion base may be an exaggeration of fees earned from offshore HNWI, the application of the 1% fee base is supported by the Senate Report 2008 at page 86, wherein it states that UBS earned $200 million on its $20 billion under management from its 19,000 non-compliant clients (i.e. 1%).
[7] The Wealth Management Report 2009 Meeting the Expectation of UK High Net Worth Clients JP Morgan at 11.
[8] The Future of Private Banking: A Wealth of Opportunity?, Oliver Wyman (2008) at 4.
[9] With regard to the offshore employment estimate, see by example my 2004 Report, and the 2009 Swiss Banking Association report at 10. A survey of reports and articles written up until April 10, 2009 finds that the wealth management industry has NOT suffered the significant job losses as a whole as the financial services industry has. By example, see Headhunter Boils Business Down to Wealth Management San Diego Business Journal March, 23, 2009 at 17 wherein a recruiter states “When times are good, services such as money mangers and financial advisers tend to get overlooked, but in tough times, customers are more inclined to professional help.”
[10] See CFA® annual report regarding its estimate, or the US Department of Labor Bureau of Statistics website (http://www.bls.gov/oco/ocos259.htm) that leverages data from the American Academy of Financial Management .
[11] IBISWorld Industry Report: Investment Banking and Securities Dealing in the US (Dec. 8, 2008) at 7. (Updated Jan 5, 2009).
[12] IBISWorld Industry Report: Investment Banking and Securities Dealing in the US (Dec. 8, 2008) at 9. (Updated Jan 5, 2009).
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Posted by William Byrnes on July 16, 2009
This first short ice-breaker presentation of a multiple part series will serve as a resourceful backdrop upon which to embark upon our exploration of the coming “frame shift”, for those of you familiar with neuro linguistics, regarding what attributes are necessary for a wealth manager to successfully compete and attract high net wealth individuals and families (“HNWIs”) in this coming decade – just six months away. The inevitable conclusion of the intensive research including a survey from 1998 to June 2009 of all industry based reports, both independent, examples including IBIS and S&P, and internal, examples being Merrill Lynch Cap Gemini and JP Morgan, is that this decade has seen a global HNWI requirement shift from what is coined the USA (a.k.a. broker-dealer, transaction-based) model to the European (a.k.a. advisory service, fee-based) model. Basically, HNWIs want a holistic wealth management services approach and are willing to pay for it. If you are tooled for collaborative advisory delivery required by example for family office counsel, you will make more money. If not, well, employment is a Darwinian marketplace.
In the past decade, the number of global high-net-worth individuals (HNWIs) served by practitioners, such as my able graduates, has doubled to more than 10 million by 2008 (though the global financial crisis has caused a decline to less than 9 million) —and their assets have more than doubled from $17 trillion to at least $40 trillion (just under $33 trillion currently as the crisis matures). The average HNWI, excluding primary residences and collectibles, is now worth more than $4 million! In the next four years, the pool of HNWI client assets is projected to grow to nearly $50 trillion. (Though the global re-calibrating of asset values may impact the nominal wealth value for HNWIs in the short term, historically, based upon both the recessions coined after the Asian Financial Crisis and the Tech-Bust, the wealth value will likely return to projected levels with a two-year lag.)
The new-breed of HNWI are the majority of the nearly double-digit HNWI increasing fold who are no longer being knighted via wealth transfers but instead are earning this status upon developing their own fortune via business and investment acumen. The systemic iceberg that in the first quarter of 2008 gouged our Titanic and lead to the inevitable sinking of many titans of the economy is commonly projected to have completely melted in the first quarter 2010. However, the impact of our Titanic to wealth management is that new-breed trends that first surfaced in 2006, have been accelerated according to the most recent studies (December 2008 through April 2009). These trends now clearly show a lack of institutional fidelity by HNWIs, as well as the desire for strategic allocation that includes leveraging international investments, and finally the demanding of trusted planner relationships that are holistically and dynamically approached.
Moreover, another development that has shaken institutional fidelity both for the government and for HNWI the past year regards the acknowledgement in Congressional testimony (and the subsequent prosecutorial agreement) that UBS had not complied with its qualified intermediary agreement regarding approximately 19,000 (the most recent figure exceeds 52,000) non-tax compliant US HNWIs of its total of 20,000 US HNW clients.[1] It is widely reported that UBS is not the exception as regards this situation. The consequence of the prosecutorial agreement is that inevitably, whether through declaration by UBS or via the latest IRS amnesty program, no less than 19,000 HNWI worth (as of June 2008) $17.9 billion, and by a extrapolation estimate using a rounded multiple range of five to ten, 100,000-200,000 USA HNWIs worth $100 – $200 billion (before taxes, interest, penalties, and tax claw back for last year’s losses) will be swimming ashore over the next twelve months. Based upon Forbes billionaire Igor Olenicoff suit against UBS, this class of HNWIs’ institutional fidelity has been permanently severed.
The good news is that those of you holding the Master and Doctorate from the Walter H. & Dorothy B. Diamond Graduate Program (http://www.llmprogram.org) are the best positioned to compete for these new-breed HNWI. This blog over the coming weeks will examine the frame shift and identify the corresponding opportunities to successfully compete for these HNWI clients. Over the coming weeks, as I post the follow up parts (another ten sections) I will share with you at least two strategies from my out-of-the-box thinking and perspectives that I am known for on your preparation for the new-breed HNWI.
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Posted by William Byrnes on July 15, 2009
Faced with growing pressure to close the rapidly increasing budget deficit, President Obama outlined a series of proposed changes to the international tax system. The plan is touted as ‘levelling the playing field’ and filling tax loopholes that allow U.S. corporations operating overseas to avoid U.S. income tax. This peer reviewed ten-page article available on LexisNexis’ Tax Law Center explains some of the more important aspects of the proposals, firstly applicable to corporations and secondly to individuals, that will impact deferral and international financial centers (tax havens). After explaining the practical impact, the article examines the affect of the proposals in a policy context (considering the efficiency principle in a deferral reform analysis).
You will find further information on these topics at http://www.llmprogram.org
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Posted by William Byrnes on July 15, 2009
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William Byrnes' Tax, Wealth, and Risk Intelligence 