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The April 2009 edition of the International Association of Hedge Funds
Professionals (IAHFP)
newsletter |
Welcome to the April 2009 edition of
the IAHFP Newsletter.
Breaking news: Obama is Supporting
the New Stop Tax Haven Abuse Act
On February 17, 2007, Senators Barack Obama (D-IL), Carl Levin
(D-MI) and Norm Coleman (R-MN) introduced the Stop Tax
Haven Abuse Act.
On March 2, 2009, Senators Carl Levin, Whitehouse, McCaskill
and Bill Nelson introduced the new Stop Tax Haven Abuse
Act.
Two years ago the
bill was proposed by the three senators, but had not
passed until the end the session of the Congress, so it
was cleared from the books.
Now the situation is absolutely
different.
One of
the introducers, Senator Barack
Obama (D-IL), is now president of the United
States. He has said that the Stop Tax Haven Abuse Act is
a basic issue of fairness and integrity, and that there
is a need to crack down on individuals and businesses
that abuse tax laws.
The other
introducer, Senator Carl
Levin, Chairman of the Permanent Subcommittee on
Investigations, is a person involved in anti-money
laundering, abusive tax shelters and tax evasion many
years now.
He has
led the examination of the collapse of Enron and has
exposed deceptive tax and accounting practices. If there
is a person in the United States that has in depth
knowledge of the offshore tax practices, he is Senator
Levin.
He has said that "Secrecy breeds
tax evasion. Tax evasion eats at the fabric of society".
He is determined to go on with this
Act.
The Stop Tax Haven
Abuse Act targets tax evasion and the $100 billion tax
that is lost each year in the United States. As Congress
has passed an $800 billion recovery bill to deal with
the market crisis, on top of the $700 billion to help
the financial institutions, there is a need for money,
and the accelerated effort to fight tax evasion is of
paramount importance.
One of the consequences for
professionals: Tax compliance becomes a much more
important discipline, and tax compliance professionals
will be needed to understand and enforce the
Act.
The purpose of the bill
is clear: To restrict the use of offshore tax havens and
abusive tax shelters to inappropriately avoid Federal
taxation.
The Act is not
covering tax abuse in general, but includes a list of
jurisdictions that have been identified by the Internal
Revenue Service as secrecy jurisdictions.
These are:
Anguilla, Antigua and
Barbuda , Aruba, Bahamas, Barbados, Belize, Bermuda,
British Virgin Islands, Cayman Islands, Cook Islands,
Costa Rica, Cyprus, Dominica, Gibraltar, Grenada,
Guernsey / Sark / Alderney, Hong Kong, Isle of Man,
Jersey, Latvia, Liechtenstein, Luxembourg, Malta, Nauru,
Netherlands Antilles, Panama, Samoa, St. Kitts and
Nevis, St. Lucia, St. Vincent and the Grenadines,
Singapore, Switzerland, Turks and Caicos,
Vanuatu.
The bill establishes
some interesting evidentiary presumptions that will be
used:
1. U.S. taxpayers
that have formed, transferred assets to, were
beneficiaries of, or received money or property from an
offshore entity, using legal entities like a trust or
corporation, are in control
of these entities
2. The funds
received from offshore entities are taxable income, and
the funds transferred offshore have not yet been
taxed
3. Financial accounts
controlled by U.S. taxpayers in any country allow the
IRS to assert the minimum penalty for nondisclosure of
the account by the taxpayer.
4. Directors,
officers, or major shareholders of U.S. publicly traded
entities that are associated with an offshore entity,
control the offshore
entity.
The above assumptions
apply to offshore jurisdictions that have secrecy laws
and secrecy practices that unreasonably restrict the
ability of the U.S. authorities to obtain information,
and do not have good information exchange programs with
the United States.
After the European Union and the
extraterritorial application of European law introduced
in EU directives (like the 8th Company Law and Solvency
ii), the Offshore Financial Centers will be hit by this
interesting extraterritorial application of American law
introduced in the Stop Tax Haven Abuse Act.
Breaking News: New Hedge Fund Regulation
around the world
US President
Obama has promised a "21st century regulatory
framework to restore accountability, transparency, and
trust in financial markets". Hedge Funds have
beed specifically identified.
UK Prime Minister
Gordon Brown said at the Group of 20 Finance
Ministers and Central Bank Governors (G20) that
international financial institutions, including hedge
funds, should be regulated.
The G20 members agreed to establish
a new Financial Stability Board
(FSB) to regulate systemically important
financial institutions - that will include hedge
fund firms.
The Group of
20 decided to cooperate to combat the sources of
the current economic crisis and to exercise greater
oversight for "systematically
important" hedge funds.
French President
Nicolas Sarkozy and German Chancellor Angela
Merkel wanted more: They pushed hard for strict
oversight of all hedge
funds.
The "Hedge
Fund Transparency Act"
On January 29, 2009, Senators Chuck
Grassley (R-Iowa) and Carl Levin (D-Michigan) introduced
legislation to "close a loophole in securities law that
allows hedge funds to operate under a cloak of secrecy".
The name of the bill: "Hedge Fund
Transparency Act"
The Hedge Fund Transparency Act of
2009 will close the window of opportunity used by hedge
funds to escape the definition of an
"investment company" under the Investment Company Act of
1940.
Hedge funds could claim the exceptions
to the definition of an investment company contained in
§3(c)(1) or §3(c)(7) of the Investment Company Act. The
new bill removes these exceptions to the
definition.
According to Senator Carl
Levin:
"History has proven time and again
that markets are not self-policing. Today's financial
crisis is due in part to the government's failure to
regulate key market participants, including hedge funds
that have become unregulated financial heavyweights in
the U.S. economy."
"A key development is that, over the
last ten years, some of the largest U.S. banks and
securities firms have set up their own hedge funds and
used them to invest not only client funds, but also
their own cash. In some cases, these hedge funds have
commingled client and institutional funds and linked the
fate of both to high-risk investment strategies.
These hedge fund affiliates are
typically owned by the same holding companies that own
federally insured banks or federally regulated
broker-dealers.
Because of their ownership, size and
reach, their clientele, and the high-risk nature of
their investments, the failure of a hedge fund today can
imperil not only its direct investors, but also the
financial institutions that own them, lent them money,
or did business with them. From there, the effects can
ripple through the markets and impact the entire
economy.
Add on top of all that the Madoff scandal, and you've got
to ask how anyone in their right mind could believe that
the current regulatory exemption for hedge funds makes
sense.
The bill makes this technical change
to make it clear that hedge funds really are investment
companies, and they are not excluded from the coverage
of the Investment Company Act.
Instead, they are being given an
exemption from many of that law's requirements, because
they are investment companies which have voluntarily
limited themselves to one hundred or fewer beneficial
owners and to accepting funds only from investors of
means. Under current law, the two paragraphs allow hedge
funds to claim they are excluded from the Investment
Company Act - they are not investment companies at all
and are outside the SEC's reach.
Under our bill, the
hedge funds would qualify as investment companies -
which they plainly are -- but would qualify for
exemptions from many of the Act's requirements by
meeting certain criteria.
It is time to
bring hedge funds under the federal regulatory
umbrella.
With their massive investments,
entanglements with U.S. banks, securities firms, pension
funds, and other large investors, and their potential
impact on market equilibrium, we cannot afford to allow
these financial heavyweights to continue to operate free
of government regulation and oversight.
Dear
members,
- Visit the website of our
association.
- Write in your CV, resume, websites etc.
that you are members of the International Association of
Hedge Funds Professionals
(IAHFP)
- Take advantage of the distance learning
and online certification program of our Association - at
a cost that is unheard of.
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