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Europe will continue to drive markets in 2012. Add to this continued regulation pressures and more searching for returns. page 1
Banks may ditch past practice for profit growth and a focus on what works in current reg environment. page 2
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Capital Flow Vol Set to Balloon; China Looks to West on Regs; More pages 4-5
2012
2013
2014
FASB and IASB slowly refining the standard, but this more realistic accounting approach will hit bank capital. pages 12-13
Netherlands
Portugal
Germany
Belgium
Austria
Finland
Ireland
0%
Get treasury staff ready and provide corporate support via tax, legal or human resources to ease the confusion. pages 14-15
Cyprus
continued on page 3
Greece
France
Spain
Italy
EDITORs NOTEs
Founding Editor & Publisher Joseph Neu Managing Editor Ted Howard Contributing Editors Anne Friberg, CTP Bryan Richardson, CTP Advisory Board Andy Nash SVP, Treasurer Ahold Finance Group James Haddad Corporate Vice President Cadence Design Systems Chris Growney Principal, Director of Sales & Marketing Clearwater Analytics Susan Stalnecker VP & Treasurer E. I. DuPont Co. Peter Marshall Partner Ernst & Young LLP Adam Frieman Partner Etico Capital LLC David Rusate Deputy Treasurer General Electric Company Martin Trueb Senior VP & Treasurer Hasbro, Inc. David Wagstaff Managing Director, Head of US Tech, Media & Telecom HSBC Securities (USA) Inc. Michael Irgang Senior Director, Financial Risk Management McDonalds Corporation Arto Sirvio Director, Treasury Center Americas Nokia Peter Connors Partner Orrick, Herrington & Sutcliffe LLP Robert Vettoretti Director, Treasury and Financial Management Services PricewaterhouseCoopers LLP Doug Gerstle Assistant Treasurer Procter & Gamble Susan A. Hillman Partner Treasury Alliance Group LLC Michael Collins Managing Director, Head of Corporate Equity Derivatives Wells Fargo Securities, LLC Academic Advisors Gunter Dufey University of Michigan Donald Lessard Massachusetts Institute of Technology Richard Levich New York University The company and organizational affiliations listed above are for identification purposes only. Advisors to International Treasurer are not responsible for the information and opinions that appear in this or related publications and web sites. Responsibility is solely that of the publisher. ISSN:1075-5691 Vol. 18, No. 11 2012 The NeuGroup, Inc. 135 Katonah Avenue Katonah, NY 10536 (914) 232-4068 Fax (914) 992-8809 subscriberservices@itreasurer.com www.iTreasurer.com SUBSCRIPTION INFORMATION Published Monthly. Annual subscription rates are $295. International Treasurer is a publication of The NeuGroup, Inc.
Bank relationships
given recent news of banks like SocGen and RBS slashing investment banking positions. With their peers scrambling to catch up, the Swiss banks are even pitching their early response (which they at first forcefully resisted) as a competitive advantage in todays environment. Our status as a first mover in adapting our business model puts Credit Suisse in a position of financial strength, was the first major point CEO Brady Dougan made on the banks third quarter earnings call in November. Adding that this is a differentiator clients, counterparties and investors recognize. UBS CEO Sergio Ermotti delivered a similar message at an investment day later that same month: We believe our industryleading core capital position gives us a significant competitive advantage and puts UBS ahead of our global banking peers.
OUTLOOK 2012
Outlook, continued from page 1
from several conference calls with NeuGroup peer group members at the end of 2011, these strategies include: n Reviewing redenomination risks of existing contracts, including currency repayment. n Reviewing legal language of all financial contracts to see if local or international law presides. n Revising contract language, where possible, to address revaluations and include transition language in all new documentation. n Reviewing with CFO your commercial relationships and considering possible alternative supply sources and/ or changing your invoice currency. n Using natural hedges where possible; while this does not eliminate devaluation risk, it can reduce it and there would be fewer financial contracts to deal with. n Limiting durations of financial contracts so no significant positions exist. n Reviewing counterparty risk, monitoring CDS spreads; diversifying partners. n Repatriating in-country cash balances to less volatile regions. n Checking treasury/accounting systems for ability to handle valuation changes, dual currencies and the reporting. Given that this is all new territory both from a legal, contractual and market perspectivethe challenges are not easy. The companys relationship banks can be advisors in this regard, as no doubt they also are preparing for the prospect of a breakup. Despite all the consternation and
wondering whether Europe will or wont collapse, most observers feel a breakup or even an exit is unlikely. Currently eurozone leaders are hammering out a new treaty to tighten up the financials of the European Union. They feel they are making progress but given the seeming lack of urgency, its best for treasurers to forge ahead with their contingency plans. ReGUlatoRy BURdens While Europe probably takes the prize as 2011s Theme of the Year award, another theme could be Dodd-Frank Delay. According to law firm Davis Polk, by the end of 2011, 200 deadlines had come and gone and regulators have only been able to meet 51 of them. Concerning the derivatives portion of Dodd-Frank, the CFTC, the SEC and other regulators have missed 67 deadlines and finalized only 26 rules in 2011, according to Davis Polk (see chart page 6). Meeting deadlines for central clearing also looks doubtful. A 2009 G-20 mandate was for all standardized OTC derivative contracts to be traded on exchanges or e-trading platforms as well as cleared through central counterparties by end2012 at the latest. Observers like ISDA have hinted that this might not happen. Regulators progress hasnt been helped by politics. For instance, the CFTCs has severe budget woes. Earlier in 2011, the White House requested $308mn for the CFTC in its fiscal 2012 budgeta big increase from its previous $202mn budget. But Congress effectively froze the
agencys budget in December, giving it just $205mn. However, in a deal struck in mid-December, the CFTC reportedly will get an additional $10mn for staffing. So whats in store for 2012? Dodd-Frank and Basel III, the two 800 pound gorillas of the regulatory world, will continue to hold sway. In the US, there will definitely be some rule finalizations from US regulators, but the slow pace is expected to continue. We expect to see several key final rules in the first quarter, including the allimportant entity definitions and the enduser exemption from mandatory central clearing, said Sam Peterson, Senior Advisor, Derivatives Regulatory Advisory Services at Chatham Financial. Were still waiting on the final rule for margin requirements for non-cleared derivatives, although its now expected that this wont be released until after the G-20 has come to agreement on standards for them. The G-20 meets in Mexico in June. Mr. Peterson said that treasurers should keep an eye on the US Treasury Department, which has yet to finalize its proposed determination exempting FX forwards and FX swaps from most of the regulatory requirements. Another important issue, he said, concerns the treatment of inter-affiliate or intra-group transactions and what regulatory requirements will apply. The timing for this is not clear, he said. The CFTC also proposed phasing in the implementation and the enforcement of four regulatory requirements
continued on page 6
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Capital markets
Non-G7 annual capital outflows are simulated to be more than twice the size of G7 outflows by 2050. By this time, India and China would represent almost half of all annual gross capital outflows. n Indias national saving ratealready highincreases from 38 percent to 50 percent in 2050. In Germany, France, the UK, and the US, the saving rate is below 10 percent in 2050. n Global current-account imbalances (the sum of deficits and surpluses) rise from around 4percent of world GDP to around 8 percent at their peak. While such massive macroeconomic shifts will have profound strategic consequences for corporate business plans, they will also require treasury to be nimble enough to deal with whipsawing currency flows. The two are, of course, related, and the problem illustrates the importance of having treasury at the strategic decision-making table.
n
Regulatory watch
The same holds true for derivatives reform, especially concern surrounding credit derivatives. Amid the Basel III, Dodd-Frank creation process, many observers speculated that banks and financial companies would move their derivative trading operations to less restrictive parts of the worldsome suggested Asia would be the destination. However, the last year has shown otherwise. For instance, just about all of the major trading centers in Asia are implementing, or planning to implement, OTC derivative-clearing initiatives in an effort to make the market more transparent. China, India, Hong Kong, Singapore, South Korea and Japan are looking to create central clearing entities for derivatives trading. Another development concerning China is the increasingly less direct approach of its State Administration of Foreign Exchange (SAFE) in ensuring compliance and even guiding adherence to its rules. Increasingly, SAFE is relying on banks to act as its intermediary and gatekeeper, with severe penalties for those that fail to do so. This frees up regulators to work with banks and even some corporates to better shape and understand the practical ramifications of regulations, which should be good news for corporate players in the Chinese market. In this way, SAFE is also starting to take more of a backseat to the PBOC, including on issues related to the use of dim sum bond proceeds in mainland China. The central bank will also be watching closely how the growth of the CNH market will impact its liquidity management and monetary policies onshore. Compliance with rules and regs will continue to be a major challenge in emerging markets in the coming year and beyond, especially in the larger economies that have multiple government agencies and ministries in charge of various aspects of the business playing field. It is therefore important to navigate the different bodies in ways that will maximize the chances of a positive outcome and never assume that just because a particular infraction has been met with look-the-other-way enforcement in the past, this will continue
BEsT Of ITREAsURER.COm
to be the case. Political winds change and targets do too.
Banking relations
economies, especially the Middle East and Africa, in favor of lending to entities in banks home jurisdictions. This provides yet more proof that MNCs should be seeking to finance their overseas initiatives in local markets, wherever possible. While the top tier banks say they will be there for their clients even in the worst of times, their retrenchment in the fourth quarter indicates otherwise.
Risk management
ack in the good old days European sovereigns were premier counterpartiesthe ones able to call the shots when it came to collateral agreements. Because of their size and status, European sovereigns (ES) demanded collateral from dealers in a one-way credit support annex (CSA) but never had to post it themselves. But with ESs in crisis these agreements need to be two-waythat is, sovereigns should now put up collateral too, according to a group of financial trade groups. In a recently published paper, the groupsthe Association for Financial Markets in Europe (AFME), the
International Capital Market Association (ICMA) and the International Swaps and Derivatives Association (ISDA)write that with the one-way structure, dealers are on the hook for billions of dollars; and with proposed Basel III requirements on capital, liquidity and a coming credit value adjustment surcharge, one-way agreements will drain even more liquidity from an already thin market (see related story The Collateral Shortage and Corporations at iTreasurer.com). The groups recommendations for two-way CSAs come at a time when banks face increasing pressure to hold more cash to buffer against another financial crisis. But banks maintain that holding these bigger cushions would force them to pass on costs to their clients and otherwise raise prices on certain transactions. The Associations believe the use of one-way CSAs by ES has created meaningful credit risks in the financial system and has also drained liquidity from the banking system, the groups said. And because dealers usually hedge expected potential exposure risk with interest rate and FX products, they will attract significant capital charges under proposed Basel III rules. Two-way CSAs would not only solve all of these issues, the groups said, they would also increase transparency.
Distributor Financing Bankers Acceptance Bill Discounting N/A L/C Discounting A/R Discounting 20% 20% 30% 30%
60%
DISTRIBUTOR FINANCING POPULAR Nearly 70 percent of members of the NeuGroups recently launched Asia Treasurers Peer Group are pursuing customer nance initiatives. Most are offering distributor nancing. The overall push for increased customer nancing comes as China opens up more sectors to foreign investment. According to the Chinese Government, the goal is to encourage investment in strategic emerging industries.
Source: NeuGroup Peer Research; ATPG, Fall 2011 For additional information visit iTreasurer.com
n
OUTLOOK 2012
Outlook, continued from page 3
central clearing, trading, and documentation of and margining requirements for non-cleared trades. Based upon the type of entities entering into the derivative transactions, these requirements will likely be phased in over the course of the first half of 2012 (see IT, October 2011). Basel III is the other big ape. Its liquidity and capital requirements will start to really sting banks in 2012. Thats because although the rules dont start to kick in until 2015, banks dealing with the crisis have been encouraged to begin complying nowif they hadnt already in 2011. One bit of good news is that the Bank for International Settlements, the entity writing the Basel rules, recently said banks will be able to dip into the liquidity buffers during times of stress. For treasurers, the new buffer requirements will surely raise the cost of doing business as banks pass on the cost to their corporate clients. Thats because all of the necessary reengineering of bank balance sheets will likely create credit scarcity; thus corporates can expect to pay more for bank credit. This will eventually force treasurers toward disintermediation and down more attractive funding paths. These will include tapping capital markets and squeezing all they can out of working capital enhancement projects. This is already happening in Europe where banks are weakest. There, companies are bypassing banks altogether,
according to the Financial Times, and raising cash via the bond market. CasH and investinG For several years now corporate cash and investment managers have been straining to find suitable places to put company cash. In 2011 corporates started to break out of their risk-averse stances and in 2012, this will continue. I think much of the put the money under the mattress strategy has abated, said Chris Growney, director of sales and marketing at Clearwater Analytics. He said this was basically because companies cannot sit on low return accounts forever and interest-rate levels are likely to remain low for some time. As a result, Mr. Growney said many companies are outsourcing money in separate accounts and taking risks on the margin but not at the core. This is particularly true of companies that are cash-flow positive. For them it is important that the investments are diversified because current assets plus the forecast free cash flow ensure a lot of money will be tied up in extremely low-yielding investments. In general Mr. Growney said, companies are exiting mutual funds and going into separate accounts, which can have a range of product types, but are generally the traditional corporate cash investments such as short-term government, corporate and some asset-backed
products. Rotation to separate accounts is both a focus on better control and visibility, and on transparency of the investments, he said. At several NeuGroup peer group meetings in late 2011, treasurers were told they might improve returns by using non-MMF mutual funds and exchange traded funds. Nonetheless, the focus will remain on not losing money. People hate getting zero returns, but its still better than negative returns, said a treasurer at US MNC. Despite this view, his company was exploring new assets, including euro commercial paperA1, P1 and F1 only. This provides liquidity and a few basis points, he said. And every basis point is precious in this (low) rate environment. The treasurer was also looking into seasoned bonds, for instance, a 10-year note with 18 months to maturity. These explorations will continue, with the overall goal, as the above treasurer noted, to be able to get your money back from wherever its been put. *** So just like last year, 2012 will be a challenge to treasurers, as they continue to navigate the choppy waters churned up by the chaos of the financial crisis. Regulation and finding yield will occupy much of their time while a teetering Europe will a remain a looming presence in the background.
4 59 22 1
2
23
3 25
12
Finalized
Source: Davis Polk
Facilitated by
A session on treasury incentive schemes confirmed that Singapore has actively sought to maintain its lead in incentive matters. A regional treasury center coupled with the headcount of a manufacturing or R&D facility provides unbeatable tax incentives. Penang/ Malaysia and to some extent Indonesia have sought to import Singapores ideas but there are other disadvantages. One trend to watch is what incentive regimes PRC companies avail themselves of, starting with the PRC treasury vehicles. OUtlook: Participants particularly noted the tax advantages that can be negotiated with Singapore if companies not only locate a treasury center and other white-collar work like R&D there, but also provide bluecollar opportunities like manufacturing. As MNCs increasingly look for cost reduction, significant tax savings become an important factor.
+1,028%
4% 13% 11% 6% 85% 82% 83% 78% 81% 81% 80% 5% 14% 6%
3% 29%
15%
7%
14% 7%
15% 7%
13% 6%
14% 5%
78%
79%
68%
Oct 2010
Mar 2011
Apr 2011
May 2011
Jun 2011
Jul 2011
Aug 2011
Sep 2011
Oct 2011
Nov 2011
Source: SWIFT. Customer initiated and institutional payments, sent and received, based on value1
SWIFTs Jan Dewaele gave an overview of where SWIFT-enabled solutions for eBAM stand, while Pole Yu from IT2 shed light on how the TMS side of an eBAM solution could look. Key TakeaWays 1) Paper documents are still a fact of life. Paperless account management (including for the accountopening process) is still a ways away, but some progress is being made. 2) Not for making new friends. For the foreseeable future, eBAM may be a solution for account maintenance, or opening or closing an account with a relationship bank, but it is unlikely that it will become a vehicle for establishing accounts with new relationships, largely for know-your-customer rule reasons. 3) How good is your own eBAM process? Not all the onus for effective bank account administration is on banks or SWIFT. On the in-house side, the most natural place to keep bank-account related details is in the TMS. Many TMSs have already achieved integration with SWIFT and offer important tools like audit and control features in addition to their workflow tools. 4) Dont standardize to the fullest list of requirements. The eBAM Central Utility that SWIFT is piloting
eBAM in Asia
(continued on p. 10)
is essentially a central database of all bank/ country account requirements and variants to XML standards for electronic communication of account-management related information. But the big fear from the group was that this would push banks toward adopting the most onerous banks requirements in each market, rather than the minimum requirements of the central bank. They want substantial corporate input on the pilot, and corporate voices to be weighed equally. OUtlook: Perhaps the SWIFT Central Utility will go some way toward its goal of providing a source of truth about central-bank requirements so that practitioners know how to meet the minimum prerequisites. MNCs are not waiting for eBAM to make progress. Many are centralizing bank account administration and even creating centers of excellence for such activities within treasury operations or shared services centers.
Rahul Guptan and Paul Landless of Clifford Chances Singapore office shared some of their expertise on the regulatory ins and outs of India and China, and highlighted the different regulatory agencies, the reach of their powers and jurisdictions in the two countries. Key TakeaWays 1) Beware Indias regulatory uncertainty. India has a large number of government agencies and sub-departments that exercise influence over the environment in which companies navigate their businesses. Unfortunately, some have overlapping jurisdictions and some agencies do not interpret the law in the same way. Coupled with the agencies wide-ranging powers to investigate businesses for perceived infractions, India is a country in which to tread carefully. It was noted that with some agencies, it is better to approach on ones own behalfRBI, for example, is business-friendly and wants to promote foreign investmentwhile with others, it is better to go via legal counsel, a bank or other expert advisor. 2) China is adopting Western standards. China is looking at the regulatory initiatives of the West and is even attempting to influence their shape. China is almost too keen on Basel III, Paul remarked. For example, the capital cushion for top international institutions was promoted actively by China and the country has plans to accelerate its adoption of Basel III (though few Chinese financial institutions are yet considered internationally significant). The same holds true for derivatives reform, especially concerning credit derivatives.
3) Chinas SAFE is working more through partner banks. Another development concerning China is the increasingly less-direct approach of SAFE in ensuring compliance and even guiding adherence to its rules. Increasingly, SAFE is relying on banks to act as its intermediary and gatekeeper, with severe penalties for failure to do so. This frees up regulators to work with banks and even some corporates to better shape and understand the practical ramifications of regulations, which should be good news for corporate players in the Chinese market. 4) PBOC is more assertive. In this way, SAFE is also starting to take more of a backseat to the PBOC, including on issues related to use of dim sum bond proceeds in mainland China. The central bank will also be watching closely how the growth of the CNH market will impact its liquidity management and monetary policies onshore. oUtlook: Compliance with rules and regs will continue to be a major challenge in emerging markets, and especially in the larger economies that have multiple government agencies and ministries in charge of various aspects of the business playing field. It is important to never assume that just because a particular infraction has been met with look-the-otherway enforcement in the past this will continue to be the case. Political winds and targets change. And places like India actually do have impartial justice systems that offer recourse. It's also untrue that regulatory bodies are only looking to prevent reasonable business conduct.
To LeaRn MoRe
interesting to monitor the balance of regional and global topics on future meeting agendas. Already, the ATPG pilot event covered a wide range of topics and it is likely that many of them will be revisited over the coming meeting cycles. The participants have decided to transition the ATPG from its pilot phase to a membership peer group with two meetings per year consistent with The NeuGroups US and European models. As group members, they would prefer an April/October meeting schedule and continue to meet in Singapore. Planning for the April event will begin in early 2012.
We would like to thank the participants at the 2011 Fall Meeting of The Treasurers Group of Thirty-2 Peer Group for their open dialogue and relevant contributions to our discussions. Your active involvement continues to make the T30 a highly valued contributor to our network of forums for peer knowledge exchange. Thank you!
The T30-2 is a NeuGroup meeting alternative.SM
Sponsored by:
Facilitated by:
PRoGRessive ImPaiRment
NOVEMBER 2009
Exposure Draft on Loan Impairment
JANUARY 2011
Supplementary Document on Asset Categories IASB and FASB proposed dividing loans into a good book and a bad book depending on their credit risk.
JULY 2011
Deliberations Begin on Three Buckets Approach
DECEMBER 2011
More Agreements Elaborating Bucket Approach Boards decide trigger for moving out of rst bucket will be deterioration in 12-month forecast of expected losses.
IASB addresses impairment of nancial instruments carried at amortized cost. Proposes provisioning based on lifetime of expected losses.
Based on comments on the SD, boards begin considering a three-bucket bad book, with each bucket holding progressively impaired assets.
BUCKET BUSINESS
At their joint meeting in mid-December, the IASB and FASB boards made the following decisions regarding the joint impairment accounting standard. The boards: n Decided that the objective of the first bucket would be to capture the losses on financial assets expected in the next twelve months. Previously, they had considered 12 and 24 months. The banks in Ernst & Youngs survey unanimously backed the 12-month option, saying the approach aligns better with existing Basel II expected loss forecasts and other forecasts they perform. n Agreed to measure the lifetime expected losses on the portion of financial assets on which a loss event is expected over the next 12 months. n Agreed that the financial assets would move out of Bucket One when there is a more than insignificant deterioration in credit quality since initial recognition and the likelihood of default is such that it is at least reasonably possible that the contractual cash flows may not be recoverable. n Decided that recognition of lifetime expected credit losses would be based on the likelihood of not collecting all the cash flows, rather than using a loss-given-default method. n Agreed to offer examples of when recognition of lifetime expected losses would be appropriate. n One big problem with deciding when to move assets out of Bucket On is how to bundle small ones together in a rational manner. The boards decided upon the following principles: > Assets are to be grouped on the basis of shared risk characteristics. > An entity may not group financial assets at a more aggregated level if there are shared risk characteristics for a sub-group that would indicate that recognition of lifetime losses is appropriate. > If a financial asset cannot be included in a group because the entity does not have a group of similar assets, or if a financial asset is individually significant, an entity is required to evaluate that asset individually. > If a financial asset shares risk characteristics with other assets held by an entity, the entity is permitted to evaluate those assets individually or within a group of financial assets with shared risk characteristics.
The US accounting standard setter responded in November to the SECs condorsement approach to the convergence of US GAAP and IFRS, saying it needed to be amended to avoid the loss of regulatory authority. The condorsement proposal, floated by the SEC in May 2011 in a staff paper, essentially would: 1. Incorporate IASB standards into US GAAP 2. Transfer oversight authority from single regulators (such as the SEC) to a multinational regulator 3. Cede much of the design of accounting standards to the IASB, with FASB given the chance to endorse rules once theyre complete and before they are applied in the US (hence condorsement from convergence + endorsement) The trouble with this is FASB would be forced to make a yes-or-no decision at the end of the process, rather than having control all along, and would therefore be somewhat railroaded into endorsing rules it might not be entirely comfortable with. Condorsement also reduces FASB and the SEC oversight authority. And the plan would rapidly set up international governance, which given the IASBs mixed record on timely rule design, seems unwise. In its November comment letter, FASB argued for more authority for national standard setters, more independence for rulemakers in generala reference to the IASBs politically charged decision making, and more influence for FASB staff within the IASB.
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rately on their individual tax form 90-22.1. FBAR is not an income tax return and is not mailed with any income tax return; the deadline for filing is June 30, 2012. Also, the form must be received on or before June 30 to be considered filed, not just postmarked on that date, and requests for time extensions to file your FBAR will not permitted. Current FBAR rules will impose a significant reporting burden on financial professionals. Salome Tinker, AFP However, if you find yourself missing the filing deadline it is best to file as soon as possible and include an explanation as to your tardiness in order to present yourself in the best light. Penalties are stiff and a proactive approach to breaches, past and present, is your best bet to limit, or possibly waive, your costs of noncompliance. Remember that besides civil penalties, there may be criminal penalties for non-filing. Consulting with your tax advisorcorporate tax departments can also be helpfulis the best way to approach any voluntary disclosure. NeW 8938 tax foRm For year-ending 2011 tax reporting, the IRS has introduced form 8938. The form is far more extensive than the original draft and US individual taxpayers must now attach it to their Form 1040 individual income tax return if they have foreign financial assets that exceed a specific threshold. This threshold varies depending upon filing status, but the IRS has the authority to set the threshold as low as $50,000. For the new Form 8938, the minimum failure to file penalty is $10,000 plus a penalty of up to $50,000 for continued failures after IRS notification. For a US individual who is required, but fails, to file both an FBAR and a new Form 8938, the penalties can be imposed for both
omissions; that creates very real personal liability. And there are additional penalties for non-disclosure on income related to these accounts as well. Because individuals in the treasury and other parts of finance deal extensively with foreign banks accountsoften a regular part of their jobsome voices in the industry are speaking up against the excessive personal risk these requirements place on those groups. A September 2011 Association of Financial Professionals comment letter to the Financial Crime Enforcement Network and the IRS expresses this concern, and requests that the US Treasury reconsider its current guidance and exempt, or provide filing relief, from the FBAR reporting requirements to those US persons with signature or other authority over, but no financial interest in the foreign bank or financial account of their employers. Current FBAR rules will impose a significant reporting burden on financial professionals who are not the intended focus, said Salome Tinker, AFPs director of governance, accounting and compliance. Treasury should also adopt retroactive filing relief, she added. GUilty Until PRoven Innocent The question is will the IRS back down and consider revising some of the new tax regulation as it pertains to foreign activity? The increased work entailed in managing tax exposures for foreign banks and financial institutions is expected to be onerous, so much so that the Canadian Prime Minister met recently with representatives of the US Department of Treasury to discuss the detrimental impact and costs FATCA will have on Canadian banks. And there are rumblings from China that it plans to ignore the initiative altogether. But, despite the outcry by Canada and other countries concerned with the overly burdensome nature of the new FATCA requirements, the IRS is forging ahead.
TYPE OF ASSETS TO DISCLOSE Accounts at a foreign nancial institution, owned directly Accounts at a foreign nancial institution, signature authority but no nancial interest Direct ownership of stock in foreign corporation Foreign partnership interest, such as offshore hedge fund or private equity fund Interests in foreign nancial assets with joint ownership Interest in foreign nancial assets, constructively owned Yes No Yes Yes Yes, and each joint owner must report separately Yes for some Yes Yes No No Yes, and each joint owner must report separately Yes, if ownership is greater than 50% of the entity
* Threshold applies to aggregate value of all affected assets, as of 12/31/2011. Range is from $50,000 for a single taxpayer living in the US to $400,000 for couples ling jointly who live overseas. There are higher thresholds for intra-year asset values.
Source: American Institute of CPAs, as of December 1, 2011
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The FX Managers Peer Groups 1 and 2 n The Global Cash and Banking Group n The Treasury Investment Managers Peer Group n The European Treasurers Peer Group n The Latin American Treasury Managers Peer Group n The Asia Treasurers Peer Group
n
jneu@neugroup.com