Bloomberg News

Tax-Dodge Crackdown, ‘Big’ Insurers, Tourre Trial: Compliance

July 22, 2013

The Organization for Economic Cooperation and Development proposed a blueprint for cracking down on tax-dodging strategies used by companies such as Google Inc. (GOOG:US), Apple Inc. (AAPL:US) and Yahoo! Inc. (YHOO:US)

German Finance Minister Wolfgang Schaeuble called the OECD’s plan a “major step.” The proposal aims to develop rules over the next two years preventing companies from escaping taxes by putting patent rights into shell companies, taking interest deductions in one country without reporting taxable profit in another, and forcing them to disclose to regulators where they report their income around the world.

The 40-page report will complement efforts by deficit-laden governments to increase revenue they collect from profitable enterprises. It follows hearings in the U.S. and U.K. revealing how companies avoided billions in taxes by attributing profits to mailbox subsidiaries in places like Bermuda and the Cayman Islands.

The U.K. Parliament has held three hearings since November on corporate tax dodging -- examining strategies used by Google, Amazon and Starbucks Corp. (SBUX:US) In May, the U.S. Senate held a hearing on Apple’s offshore tax strategies. The companies all say they’ve complied with international tax laws.

A pair of the OECD proposals calls for rules to make it harder to shift profits by assigning intellectual property, such as patent rights, to offshore units. Under current law, such offshore subsidiaries can take credit for profits arising from patents developed in countries like the U.S. and U.K. -- generally with cash the parent companies provided to them in the first place.

Mountain View, California-based Google, for example, has avoided as much as $2 billion in worldwide income taxes annually by attributing profits to a subsidiary in Bermuda that holds the rights to its intellectual property for sales outside the U.S., as reported by Bloomberg News in December.

The OECD is a government-funded think tank that was charged by the G-20 to tackle the issue.

For more, click here, and click here.

Compliance Policy

China Regulators to Allow More Banks to Sell ABS, Reuters Says

China will allow more banks to sell asset-backed securities to support economic growth, Reuters reported, citing unidentified people.

The rules from the country’s banking and securities regulators will also scrap a quota on such issuances, Reuters reported. The government will control the pace of securitization to avoid risks, according to the report.

The State Council urged banks in June to better use existing credit and step up efforts to contain financial risks. The China Securities Regulatory Commission said Feb. 26 it would allow more firms to develop asset-backed securities businesses with the goal of boosting liquidity.

The securities regulator didn’t immediately respond to faxed questions seeking comment July 19. Calls to the China Banking Regulatory Commission’s news department weren’t immediately answered.

Chinese regulators reined in the money supply in June in an effort to force investors to shift funds out of shadow banking, which allows lenders to bypass controls and capital requirements.

Compliance Action

Allianz Joins AIG on FSB’s List of Too-Big-to-Fail Insurers

American International Group Inc. (AIG:US) and Allianz SE (ALV) are among insurers deemed systemically important by global financial rule makers, meaning they may face tougher capital standards and tighter regulation.

The list of nine too-big-to-fail insurers, including MetLife Inc. (MET:US) and Prudential Financial Inc. (PRU:US) in the U.S. and France’s Axa SA (CS), was published late in the day on July 18 by the Financial Stability Board, the Basel, Switzerland-based body set up by the Group of 20 nations.

The FSB, led by Bank of England Governor Mark Carney, is coordinating global regulators’ response to the worst financial crisis since the Great Depression to prevent a repeat of the turmoil that followed the collapse of Lehman Brothers Holdings Inc. and bailout of AIG.

Also on the list are Prudential Plc and Aviva Plc (AV/) of the U.K., China’s Ping An Insurance Group Co. (2318) and Italy’s Assicurazioni Generali SpA. (G)

Insurers identified as too big to fail will have to draw up recovery and resolution plans to limit the economic fallout should they go bust, the International Association of Insurance Supervisors said.

Implementation details for higher “loss absorbency requirements” are to be developed by the end of 2015 and will apply from January 2019, the FSB said. The nine companies on the list, which will be revised every year, will immediately face stricter supervision, the FSB said.

“Even though we continue to be of the opinion that the insurance business in general and Allianz in particular does not represent a systemic risk, we acknowledge the decision of the FSB and will continue to support its efforts for more stable financial markets,” Dieter Wemmer, chief financial officer of Munich-based Allianz, said in a statement July 19. “We are well positioned to manage the new requirements.”

“Our expectation is that the FSB will rely on regulators in the U.S. to implement G-SII policy measures for U.S.- headquartered companies,” Bob DeFillippo, a spokesman for Prudential Financial, said in a statement using an abbreviation for global systemically important insurers. “Prudential will remain engaged at both the global and domestic level on developing regulatory standards that are beneficial to consumers and preserve competition.”

“AIG looks forward to working with our international, federal and state regulators to develop a regulatory framework for large global insurers that is both robust and consistent,” Jon Diat, a spokesman for the New York-based company, said in a statement.

MetLife is reviewing the proposed policy measures, said John Calagna, a spokesman for the New York-based company.

Ping An will continue to augment its operational management standards and risk management capability, the insurer said July 19, adding that its solvency is above regulatory requirement.

Generali said it was put on the list because of its non-insurance activities.

Axa declined to comment.

Courts

Tourre Jurors Hear Phone Call Misstating Paulson Role in Deal

Jurors in the U.S. Securities and Exchange Commission’s case against Fabrice Tourre heard a much-fought-over phone call the SEC is using as evidence that Tourre misled a key participant in the 2007 transaction at the center of the fraud case against him.

An SEC lawyer on July 19 played a recording of the phone call between Gail Kreitman, a former Goldman Sachs Group Inc. (GS:US) saleswoman, and an employee of ACA Management LLC, the firm that was paid to select the 90 mortgage-backed securities underlying the deal known as Abacus 2007-AC1.

The SEC claims Tourre, 34, a former Goldman Sachs vice president, hid from investors in the deal the role of the Paulson & Co. hedge fund in helping select the assets, which it was betting would fail. Tourre also misled ACA into thinking Paulson, run by billionaire John Paulson, was making an equity investment in Abacus, rather than taking a purely short position, the SEC claims.

Evidence presented in the case shows Paulson never considered an equity investment in Abacus. The SEC claims that Tourre falsely told Kreitman that Paulson was long, not short. Lawyers for Tourre lost a pretrial bid to bar the recording from the trial.

Jurors are scheduled to hear this week from Laura Schwartz, the SEC’s star witness, who was the senior ACA executive on the Abacus deal, and from Tourre himself. Paulson is expected to testify as a witness for Tourre, possibly on Aug. 1.

The case is SEC v. Tourre, 10-cv-03229, U.S. District Court, Southern District of New York (Manhattan).

RP Martin Brokers Conspired With UBS, HSBC Workers, SFO Says

Two former RP Martin Holdings Ltd. brokers charged over manipulation of the London interbank offered rate conspired with employees at UBS AG (UBSN), Tullett Prebon Plc (TLPR), Rabobank Groep and HSBC Holdings Plc (HSBA), U.K. prosecutors alleged in court papers.

Terry Farr, 41, and James Gilmour, 48, were charged with conspiring with employees of the firms and Tom Hayes, a former UBS trader in Tokyo who was arrested with the two men in December, over a three-year period. Farr was also charged with conspiring to rig yen Libor after Hayes had left UBS and was working for Citigroup Inc. (C:US), from the end of 2009 until September 2010.

Farr and Gilmour appeared July 19 in court for the first time since being charged and they will appear at a July 30 hearing.

Hayes was charged with eight counts of conspiracy to defraud by the SFO last month. He has also been charged by the U.S. Justice Department, which is running a parallel criminal investigation.

“It is regrettable that of all the very many organizations and individuals who may have contributed to the failings of Libor-setting, the SFO has chosen to charge Mr. Farr, an unqualified interbank broker who had no responsibility whatsoever for setting Libor rates, a minnow in a very large pond, for doing what he believed to be his job,” his lawyers at Bindmans LLP said in an e-mailed statement earlier this week.

A lawyer for Gilmour, Sean Curran, declined to comment. Farr’s lawyers declined to comment beyond their previous statement.

Dominik Von Arx, a spokesman for Zurich-based UBS, and Jezz Farr, a spokesman for London-based HSBC, declined to comment on the hearing. Calls to Tullet Prebon and RP Martin weren’t immediately returned.

Roelina Bolding, a spokeswoman for Netherlands-based Rabobank, didn’t immediately respond to a request for comment.

To contact the reporter on this story: Carla Main in New Jersey at cmain2@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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