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G-20 Fallout: French Banks Exit Tax Havens

french bank tokenAn official at the French Banking Federation announced that French banks plan to close shut branches and subsidiaries in countries considered tax havens. France’s banks intend to halt business activities in countries that remain on the OECD’s so-called “gray list” at the end of March 2010.

The Organization for Economic Cooperation and Development advocates regulatory standards for global banking industry. It tracks countries that do not comply with the basic regulatory guidelines and publishes a “gray list” of countries that do not comply with international tax information exchange rules.

All French Banks will comply with this action. BNP Paribas earlier announced it will stop operating in countries considered tax havens after the bank indicated that it would close branches in Panama and the Bahamas.

Global hedge funds that operate in OECD non-compliant jurisdictions have an increased tax risk profile.  Tax professionals need to assess the potential benefits derived from continued operations in these high risk domiciles with the rising compliance and tax risk factors these jurisdictions pose.

Sum2’s IRS Audit Risk Program (IARP)  helps tax professionals and compliance managers determine and score risk exposures of investment partnerships IRS Industry Focus Issues.

Click for more information on IARP.

Risk: compliance, regulatory, tax audit, reputation

October 1, 2009 Posted by | associations, banking, hedge funds, IARP, OECD, off shore, private equity, reputational risk, risk management, Tax, Treasury | , , , , , , , , , , , , , , , , , , , | 2 Comments

Perp Walks Begin: UBS Client Pleads Guilty

litigation_blindForbes digital news service reports that a  New Jersey client of the international banking giant UBS has pleaded guilty to concealing more than $6 million in assets in Swiss bank accounts.   Juergen Homann of Saddle River is the fifth US client of UBS to plead guilty in an ongoing federal investigation into the bank’s practices.  UBS officials have admitted helping wealthy American clients use foreign accounts to hide assets from the IRS.

Homann, 66, is a German-born U.S. citizen runs an industrial mineral and chemical trading company that does business mainly between China and Latin America.  Prosecutors say Homman established an account with UBS in the late 1980’s in the name of a Liechtenstein foundation. Under the advice of Swiss lawyer Matthias Rickenbach, prosecutors say Homann transferred his assets to a Hong Kong corporation to hide assets from the IRS.  Rickenbach was indicted for fraud in August for his alleged role in helping wealthy clients conceal their assets.

Under terms of the plea agreement, Homann pleaded guilty to one count information for purposely failing to report his foreign accounts. He acknowledged in a Newark federal courtroom Friday that in addition to not filing the required disclosure forms, he failed to report the account on his individual tax return and failed to report income earned on the account.  Homann faces a maximum sentence of five years in prison and a fine that could potentially reach several million dollars.

UBS has entered into an agreement with the authorities to divulge names of some 4,450 wealthy Americans suspected of evading taxes through secret bank accounts.

Michael Ben’Ary, a trial attorney with the U.S. Department of Justice’s tax division, said Homann’s guilty plea is part of a wider multi-agency investigation that is continuing in New Jersey and nationally.

UBS clients Steven Michael Rubinstein of Boca Raton, Fla., Robert Moran of Ft. Lauderdale, Fla. and Jeffrey Chernick of Stanfordville, N.Y. have all pleaded guilty to filing a false tax return as part of the case. UBS client John McCarthy of Malibu, Calif., has pleaded guilty for failing to report his ownership of and interest in a foreign financial account.

“The IRS is serious about pursuing people with hidden offshore accounts, and we are stepping up our international efforts,” IRS Commissioner Doug Shulman said in a statement. “People should make sure they meet their filing requirements. Failure to do so can carry serious consequences.”

Sum2 publishes the Corporate Audit Risk Program (CARP).  The CARP helps corporate entities that utilize offshore structures and investment partnerships assess their risk exposures to IRS Industry Focus Issues.  The CARP is a vital tool to uncover and mitigate costly exposures to IRS tax audit risk.

Order your CARP here.

Risk: tax, compliance, penalties, reputation, litigation

September 26, 2009 Posted by | AML, banking, hedge funds, IARP, IRS, off shore, private equity, regulatory, Sum2, Tax, Treasury | , , , , , , , , , , , , , , , , , , , , , , , , | 2 Comments

IRS Audit Risk Survey for Hedge Funds (Interim Update 2)

irs-and-capitol2The IRS has developed a methodology to determine an audit risk profile for hedge funds, private equity firms, CTAs, RIAs and corporations using offshore structures. Sum2 has commissioned a survey to determine financial services industry awareness and readiness for IRS audit risk factors.

The survey seeks to determine industry awareness of IRS Industry Focus Issue (IFI) risk exposures for hedge funds, private equity firms, RIAs, CTAs and corporations using offshore structures. The survey is open to fund management executives, corporate treasury, tax managers and industry service providers.

CPAs, tax attorneys, compliance professions, administrators, custodians and prime brokers are also welcomed to participate in the study. The study’s purpose is to determine the level of industry preparedness and steps fund managers are taking to mitigate potential exposures to IFI audit risk.

Sum2 will share weekly interim results of the surveys findings. The survey will run for four weeks. This is the second weekly report.

Survey Highlights

  • 65% of survey respondents are from North America
  • 15% are from Great Brittan
  • 12% are from other EU countries
  • 3% are from Asia
  • 78% of respondents indicate an unawareness of IFI
  • 18% of respondents indicate they plan to alert investors to IFI impact
  • 17% of respondents indicated that they initiated actions to address IFI
  • 11% of respondents indicated that they have received action alerts from industry service providers

Take the Survey

We invite you to participate in a survey to determine industry awareness of IRS Industry Focus Issue risk for hedge funds, private equity firms, RIAs, CTAs and offshore corporate structures.

The survey can be accessed here: IRS Audit Risk Survey for Hedge Funds

The survey is open to fund management executives and industry service providers to the industry. CPAs, tax attorneys, compliance professions, administrators, custodians, consultants and prime brokers are welcome to take the study. The study’s purpose is to determine the level of industry preparedness and steps fund managers are taking to mitigate potential exposures to IRS Industry Focus Issue risk.

Sum2 is looking to use the survey to better respond to the critical needs of fund managers and the alternative investment management industry by improving our just released IRS Audit Risk Program (IARP).

This survey asks ten questions. The questions concern your awareness of IFI and how it pertains to your fund or fund management practice.  The survey seeks to determine overall industry risk awareness, potential exposure to IFI risk factors and any mitigation initiatives you plan to address IFI risk factors.

It should take no more then 5 minutes to complete the questionnaire. Your participation in this study is completely voluntary. There are no foreseeable risks associated with this project. However, if you feel uncomfortable answering any questions, you can withdraw from the survey at any point. It is very important for us to learn your opinions. Your survey responses will be strictly confidential and data from this research will be reported only in the aggregate. Your information will be coded and will remain confidential.

If you have questions at any time about the survey or the procedures, you may contact Sum2 at 973.287.7535 or e-mail us at customer.service@sum2.com

Thank you for your participation.

March 22, 2009 Posted by | hedge funds, IARP, IRS, off shore, private equity, Tax | , , , , , , , , | 1 Comment

Hedge Fund Audit Risk and Foreign Nationals

irs-logo-no-text1Sum2 is conducting a study to determine fund management industry awareness and preparedness to address recent IRS initiatives concerning the use of Industry Focus Issues (IFI) to guide agency field engagements.

The survey can be accessed here:

IRS Audit Risk Survey for Hedge Funds

Sum2 asked industry participants to take part in the survey that were not domiciled in the US. Though the IRS is not the national tax authority for fund managers located outside of the US the audit guidelines that the agency is developing has a high focus on foreign nationals investing in funds with a US nexus. This has implications for any individuals, institutions and subscribers to fund of funds regardless of their nationality. The IRS has developed three tiers of IFI that relate to the investment management industry and four (4 ) of the fourteen (14) First Tier IFI concerns foreign nationals participation in US domiciled partnerships. The IFI risk profiling that will guide agency field agents examination of investment partnerships and other fund structures will impact all partners in a investment fund corporation.

The duration of the survey will be four weeks. Sum2 will be releasing interim weekly results of the survey. The first interim update will be released later today. So far respondents of the survey have indicated an extremely low level of awareness about the IFI and its potential impact on fund partnerships.

One of the goals of the survey was to create visibility for our new IRS Audit Risk Program (IARP) product. In future releases of the product, we plan to incorporate other tax domiciles.

We encourage all global participants to review the survey to determine how it may impact their fund management business.

We also welcome any comments or insights from industry participants about how IFI may impact their investment fund partnerships company’s and how Sum2’s IARP can be improved to help investment partnerships more effectively mitigate and manage audit tax risk.

In particular we welcome insights and intelligence on EU market application and best practices guidelines industry participants employ to monitor and manage tax audit threats. As with all risk management products, there is a lot of interest in the IARP product in the United States.

We are looking forward to the release of subsequent additions of the IARP that speak to managing audit tax risk in other domiciles and tax jurisdictions.

We welcome your insights into initiatives or trends that impact the global fund management industry.

Thank you for your response.

March 16, 2009 Posted by | hedge funds, IARP, IRS, NP, off shore, private equity, regulatory, Tax | , , , , | Leave a comment

Sum2 Commissions IRS Audit Risk Study

IRS Audit Risk

IRS Audit Risk

Sum2 has commissioned a survey to determine financial services industry awareness and readiness for IRS audit risk factors.  The survey seeks to determine industry awareness of IRS Industry Focus Issue risk exposures for hedge funds, private equity firms, RIAs, CTAs and corporations using offshore structures.

The survey is open to fund management executives, corporate treasury, tax managers and industry service providers.  CPAs, tax attorneys, compliance professions, administrators, custodians and prime brokers are welcome to take the study.

The study’s purpose is to determine the level of industry preparedness and steps fund managers are taking to mitigate potential exposures to IRS Industry Focus Issue risk.

The goal of the survey is to help Sum2 better respond to the critical needs of fund managers and the alternative investment management industry by improving our just released IRS Audit Risk Program (IARP) for fund managers.

Product information on IARP can be accessed here.

If you are unaware of the issues raised in this study, IRS background information can be found here.

Sum2 has also posted a series of alerts on the subject on our Credit Redi blog which can be found here.

This survey asks ten questions. The questions concern participants awareness about IFI that pertain to their fund or fund management practice. The survey seeks to determine overall industry risk awareness, awareness of potential risk exposure to IFI risk factors and any mitigation initiatives managers may plan to address IFI risk factors.   It should take no more then 5 minutes to complete the questionnaire.

Participation in this study is completely voluntary. There are no foreseeable risks associated with this project.   If  participants feel uncomfortable answering any questions, they can withdraw from the survey at any point.   It is very important for us to learn your opinions.

Survey responses will be strictly confidential and data from this research will be reported only in the aggregate.   Respondent data will be coded and will remain confidential.   If you have questions at any time about the survey or the procedures, you may contact Sum2, LLC at 973.287.7535 or by email at customer.service@sum2.com.

Thank you for your time and support.

Please start with the survey by clicking here: IRS Audit Risk Study

March 8, 2009 Posted by | hedge funds, IARP, NP, off shore, risk management, Sum2, Tax | , , , , , , , , , , | Leave a comment

IRS Has Hedge Funds in its Crosshairs

irs_logo-bwThe earths axis seemed to have tilted way off course last year. The global capital and credit markets crashed. Venerated banking institutions moved dangerously close to insolvency forcing mergers with better capitalized banks. The bulge bracket investment banking institutions disappeared. Some were acquired by traditional banks, others converted to a bank holding company structure; while others declared bankruptcy. In response the Federal Reserve, Treasury Department and SEC initiated unprecedented concerted interventionist actions. The passage of EESA legislation and the implementation of the $750bn TARP program are the first in many expected moves by the government to maintain the solvency of the banking system as a national economic security issue. In addition to these initiatives the government has also passed a massive $750bn economic stimulus bill to kick start the economy. All told over $1.5 trillion dollars has recently been appropriated by the federal government to address the economic crisis. This massive capital infusion has ratcheted up the federal budget deficit. It will be incumbent on the Treasury Department and the IRS to make a concerted effort to uncover new sources of revenue to finance these massive spending programs.

Hedge funds, private equity firms, CTA’s and other corporations that utilize elaborate corporate structures, engage in sophisticated transactions and recognize uncommon forms of revenue, losses and tax credits will increasingly fall under the considered focus of the IRS. Times have changed and so has the posture and practice of the IRS. The agency is transitioning its organizational posture by moving away from a benign customer service resource and assuming the form of an activist body that is intent on assuring compliance and enforcement of US tax laws. In particular it is building up its expertise and resource to more effectively address the audit challenges the complexity and sophistication hedge funds present.

The IRS has developed its industry issue competencies. It has developed a focused organizational structure that assigns issue ownership to specific executives and issue management teams. This vertical expertise is further enhanced with issue specialists to deepen the agencies competency capital and industry issue coordinators that lends administrative and agency management efficiency by ranking and coordinating responses to specific industry issues. Clearly the IRS is building up its portfolio of skills and industry expertise to address the sophisticated agility of hedge fund industry tax professionals.

To better focus the resources of the agency the IRS has developed a Three Tiered Industry Issue Focus. Tier I issues are deemed most worthy of in depth examinations and any fund management company with exposure in these areas need to exercise more diligence in its preparation and response. Tier I issues are ranked by the IRS as being of high strategic importance when opening an examination of hedge funds and other sophisticated corporate structures. This is followed by Tier II and Tier III focus areas that include significant examination issues but are ranked according to the agencies strategic significance of the market vertical. Clearly the IRS is investing significant organizational and human capital to address an industry that will no longer fly beneath the agencies radar. This institutional investment will be called upon to generate a considerable return on the investment in the hopes that the discovery of lucrative tax revenue streams will help to pay down the massive spending deficits of the federal government.

This development has clearly raised the tax compliance and regulatory risk factors for hedge funds and other fund managers. Significant tax liabilities, penalties and expenses can be incurred if this risk factor is not met with well a well considered risk management program. In response to this industry threat, Sum2 has developed an IRS Audit Risk program that allows a hedge fund CFO to quickly ascertain its IRS risk exposures within the Three Industry Focus Tiers.

The IRS Audit Risk program provides a threat scoring methodology to ascertain level of risk within each Tier item and aggregates overall Tier exposures. The product also uses a scoring methodology to determine your level of preparedness to meet the audit risk, mitigation actions required and potential exposures of the risk. The IRS Audit Risk calculates expenses associated with mitigation initiatives and assigns mitigation responsibility to staff members or service providers. The IRS Audit Risk links to issue specific IRS resources and documentation that will help you determine if the issue is a audit risk factor for your firm and the resources you will need to addresses it.

The IRS Audit Risk for Hedge Funds product is a vertical application of Sum2’s Profit|Optimizer product series. The Profit|Optimizer is a C Level risk management tool that assists managers to uncover and mitigate business threats and spot opportunities to maintain profitability and sustainable growth.

The IRS Audit risk for Hedge Funds product is available for down load on Amazon.com.

The product can be purchased here: Sum2 e-commerce

You Tube Music Video: Beatles, Taxman

Risk: tax liability, penalties, reputation

March 3, 2009 Posted by | compliance, EESA, hedge funds, IRS, legal, NP, off shore, private equity, regulatory, reputational risk, risk management, SEC, TARP | , , , , | Leave a comment

The Black Knight

Sir Allen Stanford

Sir Larceny-A-Lot

Sir Allen Stanford turns out to be no knight in shining armor. He’s just another greedy creep who thought he was entitled to other peoples money.   Sir Allen might just be another garden variety Ponzi Schemer; but compared to Madoff this guy is a piker.   The theft of $8bn is petty larceny compared to Madoff’s massive $50bn swindle.

It is becoming startling clear that we can no longer view these types of events as isolated incidents. Sir Allen may be this weeks poster child for capitalists gone wild; but the shock and awe of audacious financial crime is becoming a consistent lead story on the nightly news.  Public trust in the financial markets is at stake.  If people cannot trust their financial fiduciary the whole system goes down.

The SEC’s reluctance to act on information concerning Madoff irregularities and the announcement that over 500 public firms are being reviewed for possible fraudulent business practices are raising a public outcry for more vigorous oversight and protection.  The swirling rumors of bank insolvencies, nationalizations and news of  their egregious failure to adhere to basic risk management precepts are turning the skeptical taxpayers  into vocal opponents of the TARP program and any future bank bailouts.

The allegations that UBS marketed a tax evasion scheme to attract over 50,000 US clients to their private banking business with the promise that it would shield them from onerous tax liabilities may be the straw that breaks the camels back.   US taxpayers are struggling from the burdensome pain of high taxes they dutifully pay.   They are confused and frightened by the orgy of government spending and how the financial industry bailouts will effect them.  The credit crisis and the stunning losses people incurred in their retirement and investment portfolios is casting widening doubt about the trustworthiness of the banking system.  Citizens are urging their elected representatives that all financial service providers must come under a microscope of  scrutiny and oversight.  Consumers want assurances that all fiduciaries are sound.  Taxpayers are demanding that regulators insist that financial institutions provide a level of transparency to assure consumers that they are in compliance with all regulatory mandates, have a program of risk management controls and offer proof of an ethical corporate governance program.

The US tax payer has made it clear that they can no longer shoulder an egregious tax burden that continues to finance insolvent financial institutions that failed miserably to manage risk or comply with the barest minimum standards of proper corporate governance.

The allegations that surfaced suggesting that Sanford Financial may be linked to money laundering for Latin American drug cartels through The Bank of Antigua and related banking enterprises in Venezuela and Ecuador is sure to usher in a new era of aggressive enforcement initiatives by regulators.   The practice of  selling worthless CDs to retail investors that promised high rates of interest is the tip of the spear in a sophisticated money laundering scheme.  This will create some added urgency for regulators to conduct an in depth reviews of financial institutions AML compliance programs.  Examiners will aggressively pursue fund managers  to determine that Know Your Customer (KYC), Customer Identification Procedures (CIP) and Politically Exposed People  (PEP) programs are meeting acceptable standards to detect and deter money laundering.  Of  particular concern will be hedge fund complexes with incorporated off shore structures.  To be sure, examiners will liberally interpret and claim jurisdictional nexus on all offshore structures linked to US domiciled funds.  The US Treasury coffers are bare and it will look to collect taxes on any revenue sources it deems as taxable.

Financial institutions need to demonstrate to counter parties,  regulators, SROs and most importantly investors; that they have a sound risk management program in place that protects the funds investors against all classes of operational risk.    Sum2 offers an AML audit program fund managers use to maintain compliance standards  that  demonstrate program excellence to regulators and investors.

You can believe the examiners are sharpening their spears.  Looking to bag a kill and make an example of wayward managers with lax compliance controls.  Be ready, be vigilant and be prepared.

You Tube Video: Moody Blues: Nights in White Satin

Risk: money laundering, regulatory, operations, reputation

February 23, 2009 Posted by | AML, hedge funds, off shore, operations, regulatory, reputation | , , , , , , , , | Leave a comment