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xtruss · 3 years ago

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The Great American Tax Haven: Why the Super-rich Love South Dakota

It’s known for being the home of Mount Rushmore – and not much else. But thanks to its relish for deregulation, the state is fast becoming the most profitable place for the mega-wealthy to park their billions.

— By Oliver Bullough | Thursday, 14 November 2019 | Guardian USA

Illustration: Guardian Design

Late last year, as the Chinese government prepared to enact tough new tax rules, the billionaire Sun Hongbin quietly transferred $4.5bn worth of shares in his Chinese real estate firm to a company on a street corner in Sioux Falls, South Dakota, one of the least populated and least known states in the US. Sioux Falls is a pleasant city of 180,000 people, situated where the Big Sioux River tumbles off a red granite cliff. It has some decent bars downtown, and a charming array of sculptures dotting the streets, but there doesn’t seem to be much to attract a Chinese multi-billionaire. It’s a town that even few Americans have been to.

The money of the world’s mega-wealthy, though, is heading there in ever-larger volumes. In the past decade, hundreds of billions of dollars have poured out of traditional offshore jurisdictions such as Switzerland and Jersey, and into a small number of American states: Delaware, Nevada, Wyoming – and, above all, South Dakota. “To some, South Dakota is a ‘fly-over’ state,” the chief justice of the state’s supreme court said in a speech to the legislature in January. “While many people may find a way to ‘fly over’ South Dakota, somehow their dollars find a way to land here.”

Super-rich people choose between jurisdictions in the same way that middle-class people choose between ISAs: they want the best security, the best income and the lowest costs. That is why so many super-rich people are choosing South Dakota, which has created the most potent force-field money can buy – a South Dakotan trust. If an ordinary person puts money in the bank, the government taxes what little interest it earns. Even if that money is protected from taxes by an ISA, you can still lose it through divorce or legal proceedings. A South Dakotan trust changes all that: it protects assets from claims from ex-spouses, disgruntled business partners, creditors, litigious clients and pretty much anyone else. It won’t protect you from criminal prosecution, but it does prevent information on your assets from leaking out in a way that might spark interest from the police. And it shields your wealth from the government, since South Dakota has no income tax, no inheritance tax and no capital gains tax.

A decade ago, South Dakotan trust companies held $57.3bn in assets. By the end of 2020, that total will have risen to $355.2bn. Those hundreds of billions of dollars are being regulated by a state with a population smaller than Norfolk, a part-time legislature heavily lobbied by trust lawyers, and an administration committed to welcoming as much of the world’s money as it can. US politicians like to boast that their country is the best place in the world to get rich, but South Dakota has become something else: the best place in the world to stay rich.

At the heart of South Dakota’s business success is a crucial but overlooked fact: globalisation is incomplete. In our modern financial system, money travels where its owners like, but laws are still made at a local level. So money inevitably flows to the places where governments offer the lowest taxes and the highest security. Anyone who can afford the legal fees to profit from this mismatch is able to keep wealth that the rest of us would lose, which helps to explain why – all over the world – the rich have become so much richer and the rest of us have not.

In recent years, countries outside the US have been cracking down on offshore wealth. But according to an official in a traditional tax haven, who has watched as wealth has fled that country’s coffers for the US, the protections offered by states such as South Dakota are undermining global attempts to control tax dodging, kleptocracy and money-laundering. “One of the core issues in fighting a guerrilla war is that if the guerrillas have a safe harbour, you can’t win,” the official told me. “Well, the US is giving financial criminals a safe harbour, and a really effective safe harbour – far more effective than anything they ever had in Jersey or the Bahamas or wherever.”

Those of us who cannot vote in South Dakota elections have little hope of changing its laws. But if we don’t do something to correct the imbalance between global wealth and local legislation, we risk entrenching today’s inequality and creating a new breed of global aristocrat, unaccountable to anyone and getting richer all the time – with grave consequences for the long-term health of liberal democracy.

South Dakota is west of Minnesota, east of Wyoming, and has a population of 880,000 people. Politically, its voters enthusiastically embrace the Republicans’ message of self-reliance, low taxes and family values. Donald Trump won more than 60% of the vote there in 2016, and the GOP has held a super-majority in the state’s House of Representatives since the 70s, allowing the party to mould South Dakota in its image for two generations.

Outsiders tend to know South Dakota for two things: Mount Rushmore, which is carved with the faces of four US presidents; and Laura Ingalls Wilder, who moved to the state as a girl and wrote the Little House on the Prairie series of children’s books. But its biggest impact on the world comes from a lesser-known fact: it was ground zero for the earthquake of financial deregulation that has rocked the world’s economy.

The story does not begin with trusts, but with credit cards, and with Governor William “Wild Bill” Janklow, a US marine and son of a Nuremberg prosecutor, who became governor in 1979 and led South Dakota for a total of 16 years. He died almost eight years ago, leaving behind an apparently bottomless store of anecdotes: about how he once brought a rifle to the scene of a hostage crisis; how his car got blown off the road when he was rushing to the scene of a tornado.

In the late 70s, South Dakota’s economy was mired in deep depression, and Janklow was prepared to do almost anything to bring in a bit of business. He sensed an opportunity in undercutting the regulations imposed by other states. At the time, national interest rates were set unusually high by the Federal Reserve, meaning that credit card companies were having to pay more to borrow funds than they could earn by lending them out, and were therefore losing money every time someone bought something. Citibank had invested heavily in credit cards, and was therefore at significant risk of going bankrupt.

William ‘Wild Bill’ Janklow, the former governor of South Dakota in 1988. Photograph: Per Breiehagen/Life Images Collection via Getty Images

The bank was searching for a way to escape this bind, and found it in Janklow. “We were in the poorhouse when Citibank called us,” the governor recalled in a later interview. “They were in bigger problems than we were. We could make it last. They couldn’t make it last. I was slowly bleeding to death; they were gushing to death.”

At the bank’s suggestion, in 1981, the governor abolished laws that at the time – in South Dakota, as in every other state in the union – set an upper limit to the interest rates lenders could charge. These “anti-usury” rules were a legacy of the New Deal era. They protected consumers from loan sharks, but they also prevented Citibank making a profit from credit cards. So, when Citibank promised Janklow 400 jobs if he abolished them, he had the necessary law passed in a single day. “The economy was, at that time, dead,” Janklow remembered. “I was desperately looking for an opportunity for jobs for South Dakotans.”

When Citibank based its credit card business in Sioux Falls, it could charge borrowers any interest rate it liked, and credit cards could become profitable. Thanks to Janklow, Citibank and other major companies came to South Dakota to dodge the restrictions imposed by the other 49 states. And so followed the explosion in consumer finance that has transformed the US and the world. Thanks to Janklow, South Dakota has a financial services industry, and the US has a trillion-dollar credit card debt.

Fresh from having freed wealthy corporations from onerous regulations, Janklow looked around for a way to free wealthy individuals too, and thus came to the decision that would eventually turn South Dakota into a Switzerland for the 21st century. He decided to deregulate trusts.

Trusts are ancient and complex financial instruments that are used to own assets, such as real estate or company stock. Unlike a person, a trust is immortal, which was an attractive prospect for English aristocrats of the Middle Ages who wished to make sure their property remained in their families for ever, and would be secure from any confiscation by the crown. This caused a problem, however. More and more property risked being locked up in trusts, subject to the wishes of long-dead people, which no one could alter. So, in the 17th century, judges fought back by creating the “rule against perpetuities”, which limited the duration of trusts to around a century, and prevented aristocratic families turning their local areas into mini-kingdoms.

That weakened aristocratic families, opened up the British economy, allowed new businessmen to elbow aside the entrenched powers in a way that did not happen elsewhere in Europe, and helped give the world the industrial revolution. “It’s a paradoxical point, but it wasn’t a bad thing when the scion of some family from out in the counties came down to London and pissed away his fortune. It was redistribution of wealth,” said Eric Kades, a law professor at William & Mary Law School in Virginia, who has studied trusts.

English emigrants took the rule to North America with them, and the dynamic recycling of wealth became even more frenetic in the land of the free. Then Governor Janklow came along. In 1983, he abolished the rule against perpetuities and, from that moment on, property placed in trust in South Dakota would stay there for ever. A rule created by English judges after centuries of consideration was erased by a law of just 19 words. Aristocracy was back in the game.

In allowing trusts to last for ever, South Dakota did something genuinely revolutionary, but sadly almost everyone I contacted – from current governor Kristi Noem to state representatives to members of the South Dakotan Trust Association – refused to talk about it. For an answer to the question of what exactly prompted the state to ditch the rule against perpetuities, I was eventually directed to Bret Afdahl, the director of the state administration’s Division of Banking, who wanted the question in writing. A week later, back came a one-word response: “unknown”.

Initially, South Dakota’s so-called “dynasty trusts” were advertised for their ability to dodge inheritance tax, thus allowing wealthy people to cement their family’s long-term control over property in the way English aristocrats had always wanted to. It also gave plenty of employment to lawyers and accountants.

“It’s a clean industry, there are no smokestacks, we don’t have to mine anything out of the earth or anything, and they’re generally good paying jobs,” said Tom Simmons, an expert on trust law at the University of South Dakota, when we chatted over coffee in central Sioux Falls. Alongside his academic work, Simmons is a member of South Dakota’s trust taskforce, which exists to maintain the competitiveness of the state’s trust industry. “Janklow was truly a genius in seeing this would be economic development with a very low cost to the government,” he said. (By “the government”, he of course means that of South Dakota, not that of the nation, other states or indeed other countries, which all lose out on the taxes that South Dakota helps people avoid.)

As the 1990s progressed, and more money came to Sioux Falls, South Dakota became a victim of its success, however, since other states – such as Alaska and Delaware – abolished the rule against perpetuities, too, thus negating South Dakota’s competitive advantage. But, having started the race to the bottom, Janklow was damned if any other state was going to beat him there. So, in 1997, he created the trust taskforce to make sure South Dakota was going as fast as it could. The taskforce’s job was to seek out legal innovations created in other jurisdictions, whether offshore or in the US, and make them work in South Dakota.

Thanks to the taskforce, South Dakota now gives its clients tricks to protect their wealth that would have been impossible 30 years ago. In most jurisdictions, trusts have to benefit someone other than the benefactor – your children, say, or your favourite charity – but in South Dakota, clients can create a trust for the benefit of themselves (indeed, Sun Hongbin is a beneficiary of his own trust). Once two years have passed, the trust is immune from any creditor claiming a share of the assets it contains, no matter the nature of their claim. A South Dakotan trust is secret, too. Court documents relating to it are kept private for ever, to prevent knowledge of its existence from leaking out. (It also has the useful side effect of making it all but impossible for journalists to find out who is using South Dakotan trusts, or what legal challenges to them have been filed.)

Leona Helmsley with her dog, Trouble.Leona Helmsley with her dog, Trouble. Photograph: Jennifer Graylock/AP

This barrage of innovations has allowed lawyers to create structures with complex names – the South Dakota Foreign Grantor Trust, the Self-Settled Asset Protection Trust, etc – which have done two simple things: they have kept the state ahead of the competition; and they have made South Dakota’s property protections extraordinarily strong. “The smart people want privacy,” explained Harvey Bezozi, a Florida financial adviser and tax expert who blogs under the name Your Financial Wizard. “South Dakota offers the best privacy and asset protection laws in the country, and possibly in the world, for the wealthy to protect their assets. They’ve done a pretty good job in making themselves unique; a real boutique place where the people in the know will eventually gravitate to.”

Among those in the know were the lawyers of Leona Helmsley, the legendarily mean hotel heiress, who coined the phrase “only the little people pay taxes”. When Helmsley died in 2007, she left $12m in trust for the care of her dog, a maltese called Trouble. Trouble dined on crab cakes and kobe beef, and the trust provided her with $8,000 a year for grooming and $100,000 for security guards, who protected her against kidnappings, as well as against reprisals from the people that she bit. When a New York court – not entirely unreasonably – decided to restrain this expenditure, trustees moved the trust to South Dakota, which had crafted “purpose trusts” with just such a client in mind. Other states impose limits on how a purpose trust can care for a pet, on the principle that perhaps there are better things to do with millions of dollars than groom a dog, but South Dakota takes no chances. The client is always right.

Despite all its legal innovating, South Dakota struggled for decades to compete with offshore financial centres for big international clients – Middle Eastern petro-sheikhs perhaps, or billionaires from emerging markets. The reason was simple: sometimes the owners’ claim to their assets was a little questionable, and sometimes their business practices were a little sharp. Why would any of them put their assets in the US, where they might become vulnerable to American law enforcement, when they could instead put them in a tax haven where enforcement was more … negotiable?

That calculation changed in 2010, in the aftermath of the great financial crisis. Many American voters blamed bankers for costing so many people their jobs and homes. When a whistleblower exposed how his Swiss employer, the banking giant UBS, had hidden billions of dollars for its wealthy clients, the conclusion was explosive: banks were not just exploiting poor people, they were helping rich people dodge taxes, too.

Congress responded with the Foreign Account Tax Compliance Act (Fatca), forcing foreign financial institutions to tell the US government about any American-owned assets on their books. Department of Justice investigations were savage: UBS paid a $780m fine, and its rival Credit Suisse paid $2.6bn, while Wegelin, Switzerland’s oldest bank, collapsed altogether under the strain. The amount of US-owned money in the country plunged, with Credit Suisse losing 85% of its American customers.

The rest of the world, inspired by this example, created a global agreement called the Common Reporting Standard (CRS). Under CRS, countries agreed to exchange information on the assets of each other’s citizens kept in each other’s banks. The tax-evading appeal of places like Jersey, the Bahamas and Liechtenstein evaporated almost immediately, since you could no longer hide your wealth there.

How was a rich person to protect his wealth from the government in this scary new transparent world? Fortunately, there was a loophole. CRS had been created by lots of countries together, and they all committed to telling each other their financial secrets. But the US was not part of CRS, and its own system – Fatca – only gathers information from foreign countries; it does not send information back to them. This loophole was unintentional, but vast: keep your money in Switzerland, and the world knows about it; put it in the US and, if you were clever about it, no one need ever find out. The US was on its way to becoming a truly world-class tax haven.

The Black Mountain Hills of South Dakota. Photograph: Posnov/Getty Images

The Tax Justice Network (TJN) still ranks Switzerland as the most pernicious tax haven in the world in its Financial Secrecy Index, but the US is now in second place and climbing fast, having overtaken the Cayman Islands, Hong Kong and Luxembourg since Fatca was introduced. “While the United States has pioneered powerful ways to defend itself against foreign tax havens, it has not seriously addressed its own role in attracting illicit financial flows and supporting tax evasion,” said the TJN in the report accompanying the 2018 index. In just three years, the amount of money held via secretive structures in the US had increased by 14%, the TJN said. That is the money pouring into Sioux Falls, and into the South Dakota Trust Company.

“The easy takeaway is that people are trying to hide. But wanting to be private, to be confidential, there’s nothing illegal about that,” said Matthew Tobin, the managing director of the South Dakota Trust Company (SDTC), where Sun Hongbin parked his $4.5bn fortune. We were sitting in SDTC’s conference room, which was decorated with a large map of Switzerland, as if it were a hunting trophy.

Tobin added that many foreign clients had wealth in another jurisdiction, and worried that information about it could be reported to their home country, thanks to CRS. “That could put them at risk. They could be at risk of losing their wealth, it could be taken from them. There’s kidnapping, ransom, hostages. There is risk in a lot of parts of the world,” he explained. “People are saying: ‘OK, if the laws are the same, but I can have the stability of the US economy, the US government, and maintain my privacy, I might as well go to the US.’” According to the figures on its website, SDTC now manages trusts holding $65bn and acts as an agent for trusts containing a further $82bn, all of them tax-free, all of them therefore growing more quickly than assets held elsewhere.

When I spoke to the official from one of the traditional tax havens, who asked not to be identified, for fear of wrecking what was left of the jurisdiction’s financial services industry, he was furious about what the US was doing. “One of the bitter aspects of this, and it’s something we haven’t said in public, is the sheer racism of the global anti-money laundering management effort,” he said. “You will notice that the states that are benefiting from this in America are the whitest states in the country. They’ve ended up beating the shit out of a load of black and Hispanic places, and stuffing all the money in South Dakota. How does that help?”

I put those comments to a South Dakotan trust lawyer who agreed to speak to me as long as I didn’t identify them. The lawyer was sympathetic to the offshore official’s argument, but said this is how the world is now, and everyone is just going to have to get used to it. It is, after all, not just South Dakota and its trust companies that are sucking in the world’s money. Banks in Florida and Texas are welcoming cash from Venezuela and Mexico, realtors in Los Angeles are selling property to Chinese potentates, and New York lawyers are arranging these transactions for anyone that wants them to. Perhaps under previous administrations, there might have been some appetite for aligning the US with global norms, but under Trump, it’s never going to happen.

“You can look at South Dakota and its trust industry, but if you really want to look at CRS, look at the amount of foreign money that is flowing into US banks, not just into trusts,” the lawyer said. “The US has decided at very high levels that it is benefiting significantly from not being a member of CRS. That issue is much larger than trusts, and I don’t see that changing, I really don’t.”

We have no idea yet what this means in the long term, because the revolution in trust law that began in South Dakota and spread throughout the US is only a generation old. But the implications are ominous.

Here is an example from one academic paper on South Dakotan trusts: after 200 years, $1m placed in trust and growing tax-free at an annual rate of 6% will have become $136bn. After 300 years, it will have grown to $50.4tn. That is more than twice the current size of the US economy, and this trust will last for ever, assuming that society doesn’t collapse altogether under the weight of this ever-swelling leach.

If the richest members of society are able to pass on their wealth tax-free to their heirs, in perpetuity, then they will keep getting richer than those of us who can’t. In fact, the tax rate for everyone else will probably have to rise, to make up for the shortfall caused by the wealthiest members of societies opting out, which will just make the problem worse. Eric Kades, the law professor at William & Mary Law School, thinks that South Dakota’s decision to abolish the rule against perpetuities for the short term benefit of its economy will prove to have been a long-term catastrophe. “In 50 or 100 years, it will turn out to have been an absolute disaster,” said Kades. “Now we’re going to have a bunch of wealthy families, and no one will be able to piss away that wealth, it will stay in the family for ever. This just locks in advantage.”

So far, most of the discussion of this development in wealth management has been confined to specialist publications, where academic authors have found themselves making arguments you do not usually find in discussions of legal constructs as abstruse as trusts. South Dakota, they argue, has struck at the very foundation of liberal democracy. “It does seem unfair for some people to have access to ‘property plus’, usable wealth with extra protection built in beyond that which regular property owners have,” noted the Harvard Law Review back in 2003, in an understated summation of the academic consensus that South Dakota has unleashed something disastrous.

And if some people have access to privileged property, where does that leave the equality before the law that is central to how society is supposed to function? Another academic, writing in the trade publication Tax Notes two decades ago, put that unfairness in context: “Perpetual trusts can (and will) facilitate enormous wealth and power for dynastic families. In the process, we leave to future generations some serious issues about the nature of our country’s democracy.”

With Washington unconcerned by what is happening, and the rest of the world incapable of doing anything about it, is there any prospect of anyone in South Dakota moving to repair the damage? The short answer is that it is too late. Two-dozen other states now have perpetual trusts too, so the money would just move elsewhere if South Dakota tried to tighten its rules. The longer answer is that South Dakotan politics appears to have been so comprehensively captured by the trust industry that there is no prospect of anything happening anyway.

The state legislature is elected every even-numbered year, and meets for two months each spring. It last updated the law governing trusts in 2018, and brought in Terry Prendergast, a trust lawyer, to explain the significance of the changes. “People should be allowed to do with their property what they desire to do,” Prendergast explained. “Our entire regulatory scheme reflects that positive attitude and attracts people from around the world to look at South Dakota as a shining example of what trust law can become.”

There were a few questions from the representatives, but they were quickly shut down by Mike Stevens, a Republican lawyer, and chairman of the state’s judiciary committee. “No more questions. I didn’t understand perpetuities in law school, and I don’t want to understand it now,” he said, laughing.

Susan Wismer, one of just 10 Democrats among the House’s 70 members, attempted to prolong the discussion by raising concerns about how South Dakota was facilitating tax avoidance, driving inequality and damaging democracy. Her view was dismissed as “completely jaded and biased” by a trust lawyer sitting for the Republicans. It was a brief exchange, but it went to the heart of how tax havens work. There is no political traction in South Dakota for efforts to change its approach, since the state does so well out of it. The victims of its policies, who are all in places like California, New York, China or Russia, where the tax take is evaporating, have no vote.

Wismer is the only person I met in South Dakota who seemed to understand this. “Ever since I’ve been in the legislature, the trust taskforce has come to us with an updating bill, every year or every other year, and we just let it pass because none of us know what it is. They’re monster bills. As Democrats, we’re such a small caucus, we’re the ones who ought to be the natural opponents of this, but we don’t have the technical expertise and don’t really even understand what we’re doing,” she confessed, while we ate pancakes and drank coffee in a truck stop outside Sioux Falls. “We don’t have a clue what the consequences are to just regular people from what we’re doing.”

That means legislators are nodding through bills that they do not understand, at the behest of an industry that is sucking in ever-greater volumes of money from all over the world. If this was happening on a Caribbean island, or a European micro-principality, it would not be surprising, but this is the US. Aren’t ordinary South Dakotans concerned about what their state is enabling?

“The voters don’t have a clue what this means. They’ve never seen a feudal society, they don’t have a clue what they’re enabling,” Wismer said. “I don’t think there are 100 people in this state who understand the ramifications of what we’ve done.”

• This article was amended on 20 November 2019 because an earlier version misnamed the Foreign Account Tax Compliance Act as the Financial Assets Tax Compliance Act.

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debadipb · 4 years ago

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AMERICAN CORPORATION: PROFIT INCOME IN FOREIGN BANK FOR TAX SHELTERS

Profit & Solutions Management Research Publication Series

Researched & Written by Deb (Debadip) Bandyopadhyay

A tax haven is generally an offshore country that offers foreign individuals and businesses little or no tax liability in a politically and economically static environment. KEY TAKEAWAYS Tax havens provide the advantage of little or no tax liability. Offshore countries with little or no tax liabilities for foreign individuals and businesses are generally some of the most popular tax havens. Investors and businesses may be able to lower their taxes by taking advantage of tax-advantaged opportunities offered by tax havens, however, entities should ensure they are compliant with all relevant tax laws.

Understanding Tax Haven

Tax havens also share limited or no financial information with foreign tax authorities. Tax havens do not typically require residency or business presence for individuals and businesses to benefit from their tax policies.

In some cases, intranational locations may also be identified as tax havens if they have special tax laws. For example, in the United States, Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming require no state income tax.

Offshore tax havens benefit from the capital their countries draw into the economy. Funds can flow in from individuals and businesses with accounts setup at banks, financial institutions, and other investment vehicles. Individuals and corporations can potentially benefit from low or no taxes charged on income in foreign countries where loopholes, credits, or other special tax considerations may be allowed.

A list of some of the most popular tax haven countries includes Andorra, the Bahamas, Belize, Bermuda, the British Virgin Islands, the Cayman Islands, the Channel Islands, the Cook Islands, The Island of Jersey, Hong Kong, The Isle of Man, Mauritius, Lichtenstein, Monaco, Panama, St. Kitts, and Nevis.

Characteristics of tax haven countries generally include no or low-income taxes, minimal reporting of information, lack of transparency obligations, lack of local presence requirements, and marketing of tax haven vehicles.

In general, this and other provisions, particularly for reinvestments, provide allowances for businesses to benefit from low or no tax rates offered in foreign countries but businesses should closely monitor and accurately report foreign income as it pertains to U.S. tax law, generally accepted accounting principles (GAAP), and the guidelines under International Financial Reporting Standards (IFRS).

Some companies that have historically been known for offshore, tax haven holdings include Apple, Microsoft, Alphabet, Cisco, and Oracle. Overall, tax havens may also offer advantages in the area of credit, since it may be less expensive for U.S.-based companies to borrow funds internationally. This type of lending, which can potentially fund acquisitions and other corporate activities, is also subject to reporting within the guidelines of U.S. tax law, GAAP, and guidelines under IFRS.

The U.S. has special rules in place for the reporting of foreign income by U.S. citizens and non-U.S. citizens. These rules are generally governed under the Foreign Account Tax Compliance Act (FATCA).

FATCA requires the filing of a Schedule B and/or Form 8938, which provides disclosure of foreign account holdings when investments exceed $50,000. Separately, foreign account holders may also be required to file Form 114, Report of Foreign Bank and Financial Accounts.

US based companies are keeping their profits in bank accounts in other countries. Around $183 billion of stocks are piled in those countries. There was an increase of 14.4% from the previous year in the accumulation of the funds. Bloomberg studied that total of 83 companies in the USA has kept their profit earning in different low taxed countries across the globe. A total of $1.7 trillion has been outside the USA for the purpose of tax exception. Top companies like GE, Microsoft, Johnson & Johnson, and IBM are the top companies who are keeping the money outside the country so that the USA tax revenue department could not get hold of these incomes. Some of the companies are owned by foreign companies which helped them to park their profit margin companies’ bank account. The rise of the cash flow from the low taxed countries is due to the increased number of the customer from these areas. Google has kept $31 billion in annual filling in taxes but of which 65.3% are in the liquid holding outside the USA. This is hampering the USA taxes and resulting in rise of different problems due to this. US based companies receive tax credits in their income from the outside country, but still they are deferring the taxes by not bring those money back to USA. Regulatory filling asked the USA Corporation to report the foreign profit but they can defer taxes on those income. The income is not kept in the form of cash in other countries. They are using that fund to invest in the physical infrastructure and bond of that low taxed country. Intangible assets are among one of the areas where companies are selling their patents and getting cash out of it. The low tax jurisdiction allows them to pay low taxes. Among these, Microsoft has sold many patents to offshore countries and reported $60.8 billion in offshore holdings, whereas they paid only 3.1% in the foreign tax for this. The USA government tax system is outdated and is not compatible with other countries’ tax system has been claimed by many senior executives of USA based companies. They mentioned that for competing in the foreign land they have to keep the money in those countries for the future need. Citi Group has reported that foreign tax is as low as 8% which is far below that USA tax system rates. The USA tax is 35% which is the high compare to any other country corporate tax rates. This not only creates the obstacle for USA government to get a hold of the income of the companies in foreign lands. Moreover, they are lagging behind among other countries in tax system due to the low tax rate of those countries.

Many U.S. corporations use offshore tax havens and other accounting gimmicks to avoid paying as much as $90 billion a year in federal income taxes. A large loophole at the heart of U.S. tax law enables corporations to avoid paying taxes on foreign profits until they are brought home. Known as “deferral,” it provides a huge incentive to keep profits offshore as long as possible. Many corporations choose never to bring the profits home and never pay U.S. taxes on them. Deferral gives corporations enormous incentives to use accounting tricks to make it appear that profits earned here were generated in a tax haven. Profits are funneled through subsidiaries, often shell companies with few employees and little real business activity. Effectively, firms launder U.S. profits to avoid paying U.S. taxes.

Loopholes used to shift U.S. profits to tax havens U.S. firms can set up a subsidiary offshore, channel billions of dollars of profit through it and make the subsidiary “disappear” for U.S. tax purposes simply by “checking a box” on an IRS form. Corporations can sell the right to patents and licenses at a low price to an offshore subsidiary, which then “licenses” back to the U.S. parent at a steep price the right to sell its products in America. The goal of this “transfer pricing” is to make it appear that the company earns profits in tax havens but not in the U.S. Wall Street banks, credit card companies and other corporations with large financial units can easily move U.S. profits offshore using a loophole known as the “active financing exception.” A U.S. corporation can do an “inversion” by buying a foreign firm and then claiming that the new, merged company is foreign. This lets it reincorporate in a country, often a tax haven, with a much lower tax rate. The process takes place on paper — the company doesn’t move its headquarters offshore and its ownership is mostly unchanged — but it continues to enjoy the privileges of operating here while paying low tax rates in the foreign country.

The simplest solution is to end “deferral,” as proposed by Sen. Bernie Sanders and Rep. Jan Schakowsky. Corporations would pay taxes on offshore income the year it is earned, rather than indefinitely avoid paying U.S. income taxes. This would also remove incentives to shift U.S. profits to tax havens, and it would raise $600 billion over 10 years. Short of ending deferral, Congress should close the most egregious loopholes, such as “check the box,” “transfer pricing,” the “active financing exception” and corporate “inversions.” It should also end the loophole that lets firms deduct the cost of expenses from moving jobs and operations offshore if the profits earned from those activities remain offshore and untaxed by the U.S. — saving $60 billion over 10 years. Sen. Carl Levin (D-MI) has introduced legislation, the Stop Tax Haven Abuse Act (S. 1533), that will close some of these loopholes. It will raise $220 billion over 10 years.

References

Brunori, D. (2013, September 9). Want a tax shelter? just do it. The Forbes. Retrieved from http://www.forbes.com/sites/taxanalysts/2013/09/16/want-a-tax-shelter-just-do-it/

Kocieniewski, D. (2011, March 24). G.E.’s strategies let It avoid taxes altogether.The New York Times. Retrieved from http://www.nytimes.com/2011/03/25/business/economy/25tax.html

Pozen, R. C. (2011, September 19). How to bring our companies’ foreign profits back home. The New York Times. Retrieved from http://www.nytimes.com/2011/09/19/opinion/bring-american-companies-foreign-profits-back-home.htm

Rubin, R. (2013, March 8). Offshore cash hoard expands by $183 billion at companies. The Bloomberg. Retrieved from http://www.bloomberg.com/news/2013-03-08/offshore-cash

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capital10x · 6 years ago

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FSD Pharma Plots German Expansion After Aura Investment

FSD Pharma is targeting expansion in Germany and other European markets after agreeing to a share exchange transaction with Aura Health. Toronto-based Aura has set about building an international portfolio of vertically integrated cannabis assets over the past couple of years. It has a particular focus on Israel and Germany, and it is in the process of acquiring 80% of German distributor Pharmadrug for €5 million ($5.7 million). It will now help FSD Pharma secure EU GMP certification for its facility, a former Kraft food production plant in Cobourg, Ontario. That will allow FSD Pharma to export to the lucrative EU market, where medicinal cannabis sales are increasing after a number of countries legalized it. The European medicinal cannabis market is forecast to hit €58 billion ($65.6 billion) by 2028, according to Prohibition Partners. Germany is the largest economy on the continent and it is the major market for cannabis sales, ahead of the Netherlands and Italy. Aura Health is becoming well established there and FSD Pharma aims to join the party after agreeing to exchange 13,181,019 of its common shares for 13,562,386 Aura shares. The shares will be placed in escrow and released when the agent is satisfied.

A Consulting Agreement

As part of the deal, Aura will lend FSD its expertise in cracking the European market. It is expected that FSD will now become a preferred supplier to Pharmadrug for the German market. The Hamburg-based distributor, soon to become part of the Aura Health empire, will purchase 1,000kg per year from FSD when it becomes GMP-certified at a price of $7 per gram. “This agreement with Aura Health establishes a distribution channel for FSD in Germany and the Eurozone and allows the company to expand its footprint internationally,” said FSD founder and president Zeeshan Saeed. “As production at our Cobourg facility grows and following receipt of our euGMP certification, we will be able to supply our high-quality cannabis products to the medical markets in Europe.” Aura Health operates cannabis dispensaries in Nevada, Arizona and Florida, while it is building up a leading Israeli cannabis company and extending its tentacles across Europe.

Shares Soar After Milestone

It has been a busy week for FSD, which saw its share price increase 24.4% after gaining a license to sell medicinal cannabis across Canada. The plan is to ramp up production at its Ontario facility and invest in additional grow capacity. The sales license means that Canntab Therapeutics Limited (CSE: PILL) can now begin selling CBD and THC capsules in Canada and abroad. FSD and Canntab entered a collaboration and profit sharing agreement in Sept. 2018, with FSD providing space at its Cobourg facility and help in obtaining this coveted license. FSD has also agreed to buy US-based research and development specialist Prismic Pharmaceuticals Inc. for $17.5 million in shares. FSD said it wanted to purchase a firm that is dedicated to producing FDA-approved applications of synthetic cannabinoids. Shares in FSD opened at $0.28 today, up from $0.22 a month ago. Read the full article

#AuraHealth #FSDPharma #Germany #HUGE #Marijuana

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fletcherbancks-blog · 7 years ago

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mortgagebrokerplanotx · 5 years ago

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click2watch · 6 years ago

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$25 Million in 2 Weeks: BlockFi Booms as Bitcoin, Ether Investors Seek Interest

The Takeaway

BlockFi’s interest-yielding deposit accounts, launched in beta in January and fully live this month, have attracted more than $35 million in crypto. Most of it is being lent to institutional borrowers.

BlockFi’s terms of service give the company significant leeway over how it uses depositors’ funds and what interest rate it can pay them. This flexibility is needed for the company to grow fast, CEO Zac Prince says.

Institutional investors borrow crypto at individualized terms, at interest rates from 4 to 12 percent, and BlockFi can call in the loans at any time.

When crypto prices move dramatically, BlockFi manages risks by making borrowers put up more collateral or selling some of it.

BlockFi is planning to roll out new products every six months and raise more capital.

–––––––

BlockFi wasn’t the first lending startup in the cryptocurrency market, but it’s likely the one getting the most attention these days — including some heat from community members.

While it was founded in 2017, and began making fiat loans with crypto collateral in January 2018, the company was thrust into the spotlight earlier this month when it officially launched an interest-bearing deposit account. Seemingly too good to be true, the product entices investors with returns of up to 6.2 percent annually for holding their bitcoin or either.

So far, the product seems to be gaining traction. According to CEO and founder Zac Prince, users have already deposited more than $35 million worth of crypto, around 80 percent of it in bitcoin, into their interest-bearing accounts since beta testing began in January. Of that, $25 million, was gathered after the March 5 launch.

Yet skeptics almost immediately began looking under the hood.

For example, lawyer Stephen Palley noted that, while BlockFi is advertising 6.2 percent, according to the product’s terms and conditions page, the company can modify the rate at its discretion. Others pointed out that, as the deposits won’t be insured as they would be at a bank, “your upside is limited to 6.2 percent whereas your downside is 100 percent” if BlockFi fails.

Wall Street veteran Caitlin Long noted that by depositing their crypto with BlockFi, people expose themselves to a form of counterparty risk: “I didn’t see disclosure on that,” she wrote, adding that by rehypothecating clients’ funds – that is, lending out collateral – BlockFi may be exposing itself to legal challenges in some U.S. states.

Given the controversial yet clear market interest in this product, CoinDesk sat down with Prince to talk about the company’s policies, how BlockFi’s business works, and, most importantly, how it manages risk.

Lending fiat, borrowing crypto

BlockFi is currently offering two products to retail customers: cryptocurrency-backed loans and crypto-funded interest accounts. With the loans, the customer borrows U.S. dollars for one year at 4.5 percent interest, depositing bitcoin, litecoin or ether as collateral. They can only borrow up to 50 percent of what the pledged crypto is worth at the time.

Meanwhile, with the interest account, the customer deposits bitcoin or ether with BlockFi so that the asset can accumulate interest (denominated in crypto) every month. As mentioned, BlockFi is advertising a 6.2 percent annual compound interest rate for such accounts, which is two to three times better than a U.S.Treasury bond or a U.S. bank saving account yield.

Image of BlockFi’s CEO Zac Prince by Anna Baydakova for CoinDesk

But again, the terms and conditions explicitly say that the interest will be calculated by BlockFi at its discretion.

When asked if there is any benchmark BlockFi uses to determine the interest rate (the way, for example, a bank might take into account an index like LIBOR when setting the rate on a loan), Prince answered simply: “No.”

The absence of any formula allows BlockFi to flexibly change the rate and make it more attractive to potential users, he said, explaining that for now, the product doesn’t make money:

“The rate is a combination of the market and customer acquisition costs. This product will be for some amount of time, probably for for 3 to 18 months, a loss leader. We are OK with losing money for a while. If it was purely formulaic we probably wouldn’t have enough control to make sure it’s attractive enough to a large amount of people to hit our customer acquisition targets.”

To grow its user base quickly, BlockFi is planning to roll out new products every six months and to raise more capital. (It has already done several venture funding rounds, the largest one – led by Mike Novogratz’s Galaxy Digital – raising $52.2 million.)

Prince explained:

“We believe that we will be able to continue raising venture capital supporting the growth and at a certain point down the road [when] we’re a much bigger company, maybe we’re a public company, then we can say: ‘Ok, we turn to profit now.’ We anticipate being able to raise larger and larger amounts of venture capital for a while, at least for the next couple of years.”

…and lending crypto, too

The third thing BlockFi does, without advertising it to the retail market, is lend crypto to financial institutions. “We don’t really think of it being a product,” Prince said. “We think of this as of something we need to do to be able to deliver our product to our core customer, which is retail.”

This third element is what allows BlockFi to earn crypto that can be used to pay interest to its retail depositors. (The fiat loans are in a separate bucket, funded from the venture capital BlockFi raised.)

Most of the $35 million in deposits gathered is being lent to institutional borrowers: of every deposit, a bigger part goes to the lending business and a smaller part stays as a reserve, but the exact ratio is not disclosed.

Gemini Trust, founded by Cameron and Tyler Winklevoss, was chosen to handle custody for BlockFi’s clients, as well as the moving of crypto from the depositors to the institutional borrowers — BlockFi itself doesn’t hold the cryptographic private keys controlling the funds, Prince said.

Currently, BlockFi’s borrowers mostly belong to two groups, he said: people trading bitcoin futures and traditional financial institutions – in particular, proprietary trading firms and market makers.

The terms on which institutions borrow crypto vary on a case-by-case basis, Prince said. The interest rate can be between 4 and 12 percent, and the fiat collateral (which can be denominated in stablecoins, either the Gemini dollar or the Paxos Standard) can be between 110 and 150 percent of the loan amount. The relationships with borrowers are governed by individual ISDA agreements (the standard document governing over-the-counter derivatives transactions, made famous by the bestseller and movie “The Big Short“).

The term of the loan can vary, but BlockFi reserves the right to call in the loan with one’s week’s notice — the same amount of notice a depositor can give to withdraw crypto. This clause ensures the company will always have enough crypto to meet withdrawal requests, according to Prince.

Managing risk

So what happens when crypto prices move significantly (as they often do)?

When the price goes down, clients’ collateral will shrink, too, and the loan-to-value (LTV) ratio of the loans will rise from 50 percent to a higher number. On the other hand, if prices soar, institutional crypto borrowers will find their loans much more expensive to pay back. But according to Prince, BlockFi has taken several measures to mitigate these risks.

For the fiat loans, if at some point the amount of cash a retail client borrowed becomes equal to 70 percent of the collateral instead of 50 percent, to return to a safer LTV ratio, BlockFi will contact the client and give them 72 hours to either pay back the loan, add more collateral or take no action. Choosing the third option means BlockFi will sell a part of the collateral on an exchange or through an OTC desk, use it to pay down the loan, and get the LTV “back into the safe zone,” as the terms and conditions page puts it.

The same mechanism works for institutional investors that borrow crypto: if the price of bitcoin goes up, and what they borrowed ends up costing more relative to the amount of cash collateral, BlockFi will contact them and ask them to add more cash. If the bitcoin price hits a certain preset level, which also varies from borrower to borrower, BlockFi can use the collateral to buy bitcoin and close out the loan.

The terms for institutions, again, are highly dependent on the level of trust a particular client has. As Prince put it:

“If, say, JP Morgan wanted to borrow a million dollars from us, we probably wouldn’t need to take any collateral.”

Plus, the loans are structured so that if need be, BlockFi can chase after the deeper pockets behind a borrower. “We’re making sure that we have passed through to a parent entity if we’re facing a subsidiary, in terms of a default,” Prince said.

Legal and regulatory

In case the borrower defaults, taking them to court won’t be a problem, Prince believes.

“The legal structure we use to lend someone crypto is no different than we would use, say, to lend somebody USD secured by Japanese yen,” he said.

As for regulatory compliance, BlockFi is a licensed lender in the states that require this — the cash loans are now available in 47 U.S. states.

“The biggest state we don’t support is Nevada because it requires you to have an office in the state, which isn’t something we plan on doing in the near term,” BlockFi’s director of marketing Brad Michelson told CoinDesk. He wouldn’t name the other two excluded states.

As for the interest accounts, they are available worldwide, except the states of New York, Connecticut and Washington and in any countries sanctioned by the U.S., the U.K. or the E.U.

BlockFi doesn’t hold a New York State BitLicense, which explains why it lends but won’t take deposits there.

“For the crypto loans, we don’t believe we need a BitLicense,” Prince said. “For the interest accounts, we don’t believe we need one either, but our opinion on that is not strong enough for us to offer it here.”

Some of BlockFi’s state lending licenses on display at its office

The fine print

The terms and conditions on BlockFi’s website say that the company “will lend, sell, pledge, rehypothecate, assign, invest, use, commingle or otherwise dispose of funds and cryptocurrency assets to counterparties, and we will use our commercial best efforts to prevent losses,” affording the lender significant leeway over its use of clients’ funds.

Further, users waive their rights to obtain a paper copy of the contract, file a class action against BlockFi or request a jury trial. The company also can change the terms at any time and it’s the user’s responsibility to review them “from time to time.”

Prince explained that what is described in the terms is just the real risk to a crypto investor, plainly stated.

“There is this conundrum that you’re put in: you have to be really, really careful in terms of what your agreement says to protect your company, because crypto is in this regulatory grey area,” he said. “The Catch-22 is you have lawyers, you disclose any risk, you’re trying to protect your company from the regulators, but that means you need to write stuff like this.”

He added:

“Scams don’t write stuff like this.”

As for rehypothecation, which Long and others consider antithetical to bitcoin’s promise, Prince argues it’s essential for the nascent crypto market to grow. One of the benefits of rehypothecation, he explained, is that it allows intermediaries to reduce trading fees and enable short selling.

“If you don’t have a market that goes both ways, you can’t find the true price of an asset. Rehypothecation is the major component enabling that,” he said.

At the end of the day, any investment is risky, and BlockFi is just being forthright about it, Prince argued, concluding:

“Read a risk disclosure of, say, an IPO, and maybe in the end you say: ‘This is the scariest thing ever, I’ll never invest in a stock again in my life!’”

Image of BlockFi’s CEO Zac Prince by Anna Baydakova for CoinDesk

This news post is collected from CoinDesk

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angrycollectordaze-me-blog · 6 years ago

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Essay代写：Community Banks in the United States

下面为大家整理一篇优秀的essay代写范文- Community Banks in the United States，供大家参考学习，这篇论文讨论了美国的社区银行。近几年来，从各方面的指标来看，美国的社区银行表现相当强劲。社区银行的资产收益率跟净资产收益率表现类似，已经稳稳地高于历史最好业绩时的基准。社区银行持续健康的一个有力指标是新社区银行持续创建的比率。美联储始终认为，社区银行将始终成为美国经济一个充满活力和勇于创新的行业。

Community Banks have long played an important role in the U.S. economy. However, after entering the 21st century, community Banks are confronted with a changing business environment and face many major challenges. Ben Bernanke, chairman of the federal reserve, speaks at the national convention and the world conference on technology in Las Vegas, Nevada, on March 8. This paper discusses the robustness of community Banks, their role in the economy, and how the federal reserve, the regulator of community Banks, is adapting to the new environment.

By all measures, community Banks have generally performed strongly recently. For example, the average return on equity, which fell in the wake of the 2001 recession, is still stable and rising slightly. Generally speaking, the return on assets of community Banks is similar to that of return on equity, and has been steadily higher than the benchmark of the best performance in history. Net interest margins are still higher than at big Banks, and have widened even since 2003. In terms of various indicators to measure the quality of loans, the performance of community Banks is also quite high. Moreover, the fed's on-site and off-site inspection systems only detected potential problems at a handful of community Banks. The capital adequacy ratio of community Banks is still very high, and there is still a lot of room for community Banks to continue absorbing savings.

A strong indicator of the continued health of community Banks is the rate at which new community Banks are created. For example, if we define a community bank as a bank or savings institution with total real assets of about $1 billion, there will be about 700 new community Banks established from the beginning of 2000 to the end of 2005, with an average annual growth rate of 120. Clearly, many people are still optimistic about the future of community banking. The fed has always believed that community banking will remain a vibrant and innovative sector of the U.S. economy.

At the same time, community Banks are also facing great challenges. Trans-regional expansion of bank operation, rapid update of financial service technology, increasing importance of non-bank financial service institutions, evolution of economic growth model and other factors are changing the banking industry. While many of the changes have improved the efficiency of the financial system as a whole, they have reduced the cost to Banks' customers; But it should also be acknowledged that these changes are new challenges, even daunting ones, for community Banks.

We have seen major changes in the structure of American banking in recent decades. By that definition, the share of banking assets owned by community Banks fell from 20% in 1994 to around 12% in 2005. The total number of community Banks fell from more than 10, 000 in 1994 to about 7, 200 in 2005. Other definitions of community banking and other measures of industry structure, such as the share of total savings, have also recently shown a downward trend.

Much of the focus on community banking can be attributed to mergers. A recent study by fed staff found that more than 3,500 Banks and thrifts merged between 1994 and 2003. In 92% of mergers, the target institution's total assets are at least $1 billion. Although bank mergers declined from the late 1990s, at least 200 mergers were completed each year from 2000 to 2005.

Research by our fed staff and other economists shows that community Banks continue to play an important role not only in providing financial services, particularly for small businesses, but also in providing financial retail services nationwide. Indeed, researches on community Banks habitually believe that the central principle of "community Banks" is Relationship finance. Relationship finance means that the value-added of financial services mainly depends on the continuous personal contacts between bankers and clients. Personal contacts speed up the flow of information and allow for more personalized services. Relationship finance strengthens the domestic economy by effectively providing credit and other financial services.

However, recent research also confirms what many community bankers say: traditional concepts of relationship finance are changing with the nature of the community bank-client relationship.

The traditional research paradigm holds that small businesses and households are often opaque. In other words, information about these potential customers is costly and difficult to quantify. Thus, effective provision of credit to these customers requires intimate interaction to obtain "soft" or qualitative information, such as the borrower's personal qualities or information about local market conditions and investment opportunities. This research paradigm argues that big Banks have a comparative advantage in lending to relatively transparent customers because they can obtain "hard" or quantifiable information from them, such as standardised accounting data. Community Banks, on the other hand, have a comparative advantage in lending to opaque small businesses and households.

Yet this division of Labour between big and small Banks has begun to blur. Today, bankers and researchers are well aware that low-cost information processing fees, improved credit scoring system and more mature management techniques are increasingly reducing the opacity of information of many small businesses and households. Credit card borrowing is proof of that. Technological and financial innovations, including economies of scale in credit scoring, securitisation and data processing, have combined to make credit card borrowing a "hard" information, transaction-driven business. It is very different from traditional unsecured personal borrowing, which relies heavily on personal knowledge and personal relationships.

Some of the latest data from the fed's small business finance survey may provide useful information about how the role of markets and community Banks is changing. The fed does this every five years. The latest figures are from the end of 2003, and these are preliminary figures that will be released later this year. These figures are based on our survey of more than 4,200 small businesses nationwide, representing approximately 6.3 million small businesses across the United States. Surveys show that small businesses are the main users of financial services. For example, the share of small businesses doing some kind of financial business in a bank or savings institution rose from 92 percent in 1998 to 96 percent in 2003. There are many types of financial businesses that are gaining share, especially in the area of "financial management services". Financial management services include the following services, such as check clearing, cash management, letter of credit and credit card processing.

According to these surveys, community Banks remain important providers of these services, despite increasing competitive pressures. About 37 percent of small businesses that reported using Banks and thrifts in 2003 used community Banks, down from 42 percent in 1998. Over the same period, the share of small businesses using financial services provided by non-depository financial institutions shot up from 40% in 1998 to 54% in 2003.

While the survey shows that community Banks face increasing competition and competition from non-deposit financial institutions, it also highlights the importance of community Banks' traditional strengths, such as local branch offices. In 2003, for example, the median distance between the headquarters of small businesses and their Banks or thrifts was three miles, roughly the same as in 1998. Part of the reason for the success of nondepository financial institutions may be that the median distance between small business customers and their nondepository financial institutions has plummeted from 83 miles in 1998 to 37 miles in 2003. Much of the change is due to the closer relationship between customers and non-depository financial institutions that provide loans. Proximity and convenience are important.

The data collected as part of the bank's community reinvestment act activities also demonstrate the importance of proximity to customers. The CRA act is known to focus on financial services and borrowing provided by Banks within the local community. Using CRA and other data, we can approximate the share of loans that deposit-taking financial institutions lend to small businesses in the local market. The data also show increased competitive pressure from borrowers outside the market between 1996 and 2004. This conclusion does not surprise you at all. But in dollar terms, the share of loans to small businesses from outside the market has not risen above 18% in any given year. The vast majority of small business owners borrow from local lenders.

We know that community banking is complicated. From a financial point of view, the community bank performance is still quite strong, there is still considerable room to enter the community bank. However, new technologies and new management methods have nearly obliterated the information advantages of some traditional relational finance, and community Banks have lost some market shares to large Banks and non-deposit financial institutions. But the data also suggest that many customers want local financial services; They value proximity and convenience. I believe that community Banks' ability to provide strong relationships and personalized financial services remains an important reason for their continued success.

Like community Banks, bank supervisors must adapt to changing financial and economic conditions. Below we discuss some of the recent ways in which the federal reserve has regulated community Banks, and would like to briefly comment on some of the major financial risks we have observed.

In the 1990s, bank regulators began to adopt a more forward-looking, risk-focused regulatory approach. In this approach, regulators assess business activities that appear to pose the greatest risk, mainly through on-site inspections. At the same time, special attention will be paid to procedures for Banks to assess, monitor and manage those risks. The purpose of this kind of regulation is to solve the problems in management and internal control before financial performance suffers significant losses rather than afterwards.

To adapt, the federal reserve and other financial regulators must also consider the competitive pressures facing community Banks. This pressure has made the cost of regulation for community Banks a big problem. Wherever possible, we have simplified the regulatory process and worked to remove unnecessary regulatory measures. For example, based on industry feedback and regulatory experience, the fed recently revised the policy reporting rules for small bank holding companies to increase the total assets of eligible companies from $150 million to $500 million. These revisions are in line with changes in the banking and economic environment since the first policy reports were issued in 1980. Although only 6% of the assets of all bank holding companies were affected by the revision, the revision exempts about 85% of the total bank holding companies from reporting to the fed, thereby reducing the regulatory burden on many small firms. The companies will also be exempt from submitting uniform risk-based capital guidelines, and will be allowed to submit short semi-annual reports instead of uniform quarterly financial budgets. Under the revised terms, the exemption will not extend to bank holding companies with large non-bank businesses or large off-balance sheet businesses that hold large amounts of public debt or stock. Of course, we and other bank regulators will continue to strengthen prudential capital standards for all deposit-taking institutions, including deposit-taking institutions that are part of bank holding companies that are exempt.

Regulators have adjusted their procedures to take into account the needs of other community banking institutions. It is well known that the big Banks must accept the minimum capital standards in the new Basel capital accord. Similarly, federal bank regulators are considering changes to existing capital adjustment guidelines to regulate Banks that are not subject to the new Basel capital accord. These possible changes to Basel 1 are intended to increase the risk sensitivity of the framework and to help eliminate any unfair competition arising from the implementation of Basel 2.

The recent changes to the CRA rules provide another example that regulators are taking into account the uniqueness of community Banks. Last year, the federal reserve and other federal regulators jointly issued final CRA regulations. The regulation proposes that Banks with assets between $250 million and $1 billion are called small and medium-sized Banks, thereby reducing the full compliance burden. Smaller Banks now submit fewer data and reports to regulators, and they meet only two sets of cross-cutting CRA tests -- optimized lending tests and community development tests -- rather than the three-part CRA standard that only large Banks must accept. These changes are intended to reduce the operating costs of small Banks and improve regulatory flexibility, but still meet CRA's community development goals.

The fed has also become increasingly reliant on automated off-site testing tools to determine testing objectives and limit the burden of on-site inspections. Since the late 1990s, for example, fed regulators have overseen many small bank holding companies using an off-site testing program. We support the plan. The plan is to set up a target detection system aimed at identifying the negative factors in the parent company or non-bank institutions of insured deposit institutions. The plan could prompt us to restrict on-the-spot testing of bank holding companies that might pose a risk to insured deposit-taking institutions. We also use statistical models to detect the state of state Banks, which can quickly resolve any problems that arise between routine scheduled field tests. This year, we fully updated these models to improve their capabilities. As a result of these efforts, today's regulators can carry out more off-site regulatory activities, which helps reduce the burden of on-site inspections on institutions like community Banks.

In addition to these changes, the fed is participating in an ongoing joint inter-agency review of bank regulation under the economic growth and regulatory documentation reduction act. The purpose of this assessment is to simplify testing procedures and regulatory requirements at the appropriate time, but these changes must follow the objective of maintaining the safety and soundness of the bank. The fed also supports changes to various regulations that would ease the regulatory burden. These include changes recently proposed to allow regulators to widen the time interval between on-site inspections. For well-run, well-capitalised Banks of $500m, the gap between on-site inspections can be 18 months. The change triples the current threshold for bank size and makes it possible for some 1,200 community Banks to comply with the proposal for expanded on-site inspections.

Well-run and innovative community Banks will continue to play an important role in the U.S. economy. Community Banks provide their customers with the necessary financial services and make major contributions to the sustained growth of the local and national economies. Community Banks have done well over the past decade. But neither bankers nor regulators should be complacent. There is no doubt that we will continue to be asked to assess changes in the environment and adjust accordingly. Changes in the environment are often complex, difficult to understand, and even more difficult to predict.

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coin-river-blog · 6 years ago

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February 21, 2019 8:32 PM

Here’s a brief questionnaire you might not want to ignore.

For those who happened to have invested in the BitConnect coin (BCC) and became a victim of the BitConnect fallout of January 2018, the FBI is looking for you. The agency has posted a call on its website asking that potential victims fill out a questionnaire in order to assist the federal assessment of the BitConnect collapse.

Before shutting down, BitConnect users loaned their BCC to the company in exchange for promised returns based on how long the coins were on loan. The loans were placed into a four-tier investment system depending on the loan's dollar value, but regardless of what tier investors were in, BitConnect promised earnings of up to 40 percent per month.

Eventually, in January 2018, authorities in Texas and North Carolina filed cease and desist orders against BitConnect, claiming BCC was an unregistered security. Just a few days after the orders were filed, BitConnect announced it was closing its lending and exchange site. In the closure announcement, the company cited bad press, the cease and desist orders, and an apparent distributed denial-of-service attack as the reasons behind its decision to halt operations.

That January also saw Kentucky issue a temporary restraining order as part of a lawsuit against BitConnect; it froze the company's assets. Along with claiming BitConnect was both a pyramid and a Ponzi scheme, the Western District Court of Kentucky ordered the company to:

"(a) disclose all Bitcoin and other cryptocurrency wallet addresses, (b) all cryptocurrency trading account addresses, and (c) the identity of the holder/owner of any wallet or cryptocurrency address to which Defendants have transferred any Bitcoin or other cryptocurrency in the past 90 days, so that these assets can be monitored and traced."

Since then, the moves made by authorities in the BitConnect saga have done little to shed light on who was actually involved in the anonymously run site. So far, mostly regional heads have been the focus of arrests and investigations connected to BitConnect. In August 2018, the former head of BitConnect India, Divyesh Darji, was arrested by the Gudjarat Criminal Investigation Department after fleeing to Dubai following the company's closure. More recently, in January 2019, Australia's federal court placed a travel ban on and froze the bank accounts of John Bigatton, a promoter for BitConnect. The court's decision is part of an investigation by the Australian Securities and Investment Commission, which is looking into Bigatton's involvement with the company.

In its post looking for BitConnect victims, the FBI states the answers on the questionnaire may result in the agency reaching out to collect more information. While plenty of questions still surround BitConnect, the FBI's search raises one more: Does Carlos Matos, BitConnect's biggest fan, need to fill out a questionnaire, or will the "investor's" infamous video suffice?

Nicholas Ruggieri studied English with an emphasis in creative writing at the University of Nevada, Reno. When he’s not quoting Vines at anyone who’s willing to listen, you’ll find him listening to too many podcasts, reading too many books, and crocheting too many sweaters for his dogs, RT and Peterman.

ETHNews is committed to its Editorial Policy

Like what you read? Follow us on Twitter @ETHNews_ to receive the latest BitConnect, FBI or other Ethereum law and legislation news.

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adrianjenkins952wblr · 6 years ago

Text

TrueUSD Partners with Nexo to Provide Holders With Instant Loans on Cryptocurrency

Tory Reiss

In all the huff and shuffle surrounding the several recent stablecoin offerings, even the most dutiful reader might have overlooked TrueUSD (TUSD). However, December has turned out to be an eventful month for the stablecoin, as they today announced that they are the first which has successfully passed three separate security audits.

This means that as far as any expert can surmise, their smart contract does not contain any bugs or injection opportunities which might, for instance, enable the creation of new units. The audits were performed by security firms Certik, SlowMist, and Zeppelin.

CCN had the pleasure of speaking to TrueUSD Co-Founder Tory Reiss on a variety of subjects, most importantly the subject of TrueUSD’s partnership with Nexo, a company which lends cryptonaughts money based on their cryptoassets.

Even the most diehard crypto believer might find it necessary from time to time to generate fiat cash for real-life purposes. Medical emergencies, natural disasters, tax time – life happens. Nexo allows a user to lock up blockchain assets and receive a loan based on their value at the time. Various assets have various lending rates, as Reiss explained:

Nexo essentially allows you to lock up your crypto and then get cash out without selling it, because you’re basically just taking a loan against your crypto balance. So there’s no taxable event. With things like Bitcoin, because they’re so volatile, they make you collateralize it a lot. But what’s really cool is in our partnership with them, we negotiated a pretty unique agreement, where they’ll loan you almost 95% of the value of the TrueUSD that you lock up. You can then pull that cash out instantly, use it for whatever you want – pay bills, buy something, and then you pay back the loan and you get your TrueUSD back.

Nexo Offers Friendlier Rates For TrueUSD Than Other Cryptos

For their part, Nexo is happy to lend to stablecoin holders based on their holdings. As Reiss told us, they charge a lot less on such loans because the assets have far less volatility by design. Antoni Trenchev, a Managing Partner at Nexo, said in a press release:

At Nexo we know how essential trust is for our instant crypto loan model and for the blockchain space in general. That is why we are happy to work closely with TrustToken, the company underpinning TrueUSD. Their model of regular verification of escrowed balances and the legal protection against embezzlement of the underlying USD will set the tone for the entire stablecoins industry. TrueUSD as a withdrawal or repayment option is much appreciated by Nexo’s clients and stablecoins will continue to play a crucial role because they bear the all welcomed characteristics of crypto, minus the volatility.

Nexo currently supports a few cryptos, with voting ongoing as regards to others that should be added in the future. CCN does not actively endorse any loan service, and encourages our readers to thoroughly review the terms of any prospective loans before engaging.

One important thing prospective users should note is that the minimum loan amount on Nexo is $1,000. The minimum redemption amount through the TrueUSD platform itself is $10,000. This means that a savvy trader who is just starting out now has another option for liquidating just a small portion of his or her TUSD holdings.

Nexo is currently working on automating the process of allowing users to participate as liquidity providers through stablecoins. In the future, the minimum contribution to earn interest (of rates around 6.5% annually) will be $1,000. At present time, however, it is aimed at exchanges and large holders and the minimum contribution is $100,000.

TrueUSD Is The First TrustToken TUSD Symbol

TrueUSD is the first token on the TrustToken platform. It has a network market capitalization of around $200 million at time of writing. Rather than a single centralized entity for holders to divest their TUSD tokens, a network of Trust entities is available within the TrueUSD redemption platform.

The TrustToken platform will ultimately enable the secure tokenization of many types of real assets, including things like real estate, business interests, sports teams, or intellectual properties. Basically anything that can be owned can be tokenized and thus traded. TrueUSD is merely the proof of concept of the TrustToken platform. In some regards, it can be seen as an effort to create a parallel economy with the blockchain at its heart.

One important differential between TUSD and USDC, PAX, or GUSD is that it is independent of exchanges. Where USDC is born of Circle, PAX is born of itBit, and GUSD is a Gemini creation, TUSD lives on its own network of liquidity.

Another part of their big December announcement is that they have expanded their network of Trust companies beyond firms regulated in Nevada. They now have outfits in Delaware and Ohio, as well.

The stablecoin wars are ongoing. Many aspects of it have not been fully reported in either the mainstream or crypto press. TUSD’s role thus far seems to be quietly trading far and above its market capitalization – $1.1 billion over the past month.

Featured image from Shutterstock.

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Source link https://ift.tt/2RaMxrK

#IFTTT #Cryptocurrency and Bitcoin

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vanessawestwcrtr5 · 6 years ago

Text

TrueUSD Partners with Nexo to Provide Holders With Instant Loans on Cryptocurrency

Tory Reiss

Nexo Offers Friendlier Rates For TrueUSD Than Other Cryptos

TrueUSD Is The First TrustToken TUSD Symbol

Another part of their big December announcement is that they have expanded their network of Trust companies beyond firms regulated in Nevada. They now have outfits in Delaware and Ohio, as well.

Featured image from Shutterstock.

Get Exclusive Crypto Analysis by Professional Traders and Investors on Hacked.com. Sign up now and get the first month for free. Click here. Advertisement

Source link https://ift.tt/2RaMxrK

0 notes

courtneyvbrooks87 · 6 years ago

Text

TrueUSD Partners with Nexo to Provide Holders With Instant Loans on Cryptocurrency

Tory Reiss

Nexo Offers Friendlier Rates For TrueUSD Than Other Cryptos

TrueUSD Is The First TrustToken TUSD Symbol

Another part of their big December announcement is that they have expanded their network of Trust companies beyond firms regulated in Nevada. They now have outfits in Delaware and Ohio, as well.

Featured image from Shutterstock.

Get Exclusive Crypto Analysis by Professional Traders and Investors on Hacked.com. Sign up now and get the first month for free. Click here. Advertisement

Source link https://ift.tt/2RaMxrK

#IFTTT #Cryptocurrency and Bitcoin

0 notes