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William Byrnes (Texas A&M) tax & compliance articles

Posts Tagged ‘wealth management financial planning compliance money laundering’

Immigration, Tax Planning, & AML Compliance for High Net Wealth Families & Executives

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.

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Wealth Management & Financial Planning

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


[1] Report on the Economic, Socio-Economic, and Regulatory Impact of the Tax Savings Directive and EU Code of Conduct for Business Taxation upon Selected Offshore Financial Centers as well as a Competitiveness Report for Selected Offshore Financial Centers (Foreign Commonwealth Office 2004).

[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: , , , | 1 Comment »

Are Financial Service Firms Serving High Net Wealth Suffering As a Result of Compliance Costs?

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.

Some Financial Centers Spend More on Compliance than Others

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?


[1] Report on the Economic, Socio-Economic, and Regulatory Impact of the Tax Savings Directive and EU Code of Conduct for Business Taxation upon Selected Offshore Financial Centers as well as a Competitiveness Report for Selected Offshore Financial Centers (Foreign Commonwealth Office 2004).

[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: , , | Leave a Comment »

Compliance at Wealth Management Firms: Threats to Profitability or an Opportunity to Restore Confidence?

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)


[1] Standard and Poor’s Industry Surveys: Banking (Dec. 6, 2007).

[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: | 1 Comment »

 
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