Posts Tagged ‘Treasury’

Credit Card Companies, Processors, Other Financial Intermediaries and Their Clients May Be Targeted for Tax Fraud and Failure to Have Robust Anti-Money Laundering Processes

April 16, 2009

It was reported in the New York Times today that the federal government is widening its investigation of offshore tax evasion to include services sold by the First Data Corporation (“FDC”), a large processor of credit card transactions.


The IRS has asked FDC to turn over account information on “scores of merchants that sell or provide offshore services, like financial transactions processing and to identify American clients who through credit cards, debit cards and other financial processing

arrangements may have diverted unreported income offshore or received unreported income from undisclosed offshore sources…”


While not mentioned in the article, I would assume Treasury, FinCEN and the IRS as well as the Department of Justice and the FBI and State Attorney General Offices will widen the scope of the investigation to banks, credit card companies and other financial processors and intermediaries who may be facilitating both tax fraud and money laundering by both American and non-American clients in many offshore tax havens.


I would expect a likely result of this investigation will be front page civil and criminal enforcement of both tax fraud and money laundering under the tax laws and the Bank Secrecy Act as well as new  regulations which will impose robust reporting standards on these companies (e.g., SARs, CTRs, Tax reporting documentation, etc), as well as to require senior officers at these companies to certify that they have anti-money laundering and tax reporting processes in place together with other internal controls necessary to prevent tax evasion, money laundering and fraud by their clients.  



Mutual Funds: Should the Government Put Sunlight on their practices and rid their operations of conflicts?

April 12, 2009



John C Bogle, the founder of the Vanguard Group may be onto something.  He has suggested that investment advisors and money managers for mutual and other funds haven’t done a good job at the kind of diligence that will protect their investors from

huge losses by stating, “How could so many highly skilled, highly paid securities analysts and researchers have failed to question the toxic-filled, leveraged balance sheets of Citigroup and other leading banks and investment banks.”


Mr. Bogle has also suggested that the government must apply a federal standard of a fiduciary duty to institutional money managers and that there is a deep conflict of interest because money management firms and their employees who now serve two masters, their shareholders (e.g. Lehman Brothers) and their fund clients and that such conflicts can be resolved only by separating the money management units from the larger publicly traded banks and investment firms.  For example, under such a plan, the Deutsche Bank Group would spin off DWS Investments, its mutual fund unit or Sun Life of Canada would divest itself of MFS Investment Management.


As Treasury and the SEC get more into the weeds with the systemic regulation of these funds, Mr. Bogle’s ideas desire serious consideration by both Congress and the regulators, as well as consideration of the number of independent directors on the boards of these publicly-traded funds.


I question if these captive boards as they now exist for the public-traded funds provide any check against the excesses in the recent past.


I encourage your comments.



Will regulation of the hedge funds and private equity firms make the Bank Asset Plan Fail?

April 11, 2009

It has been suggested that hedge funds and private equity firms

will be reluctant partners in Treasury’s public-private investment funds

because Treasury Secretary Geithner and SEC Chairman Schapiro have both asked that new systemic regulations be adopted to manage these industries. 


I would think the result of these regulations will be to require senior officers in these firms to certify that they have robust AML and fraud prevention programs.  After the Madoff Ponzi scheme, the UBS case and other recent examples of greed, I would think that these regulations would be welcomed by both industries.


What do you think?  I encourage your comments

Are Venture Capital Firms a Systemic Risk?

April 10, 2009

It has been argued by some that venture capital firms are not a systemic risk.  Since VC funds have the ability like private equity and the hedge funds to set up structures which permit U.S (and foreign investors) to both evade taxes and to launder their money through such investments, I would arguethat the SEC and Treasury’s desire to impose regulation on this industry is now warranted.