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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

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

UBS to Clients, “You’re on the List!”

 

tax evasionSwiss banking giant UBS, announced that it will inform American clients whether information about their bank accounts will be turned over to the US Justice Department in a tax evasion investigation.  UBS is required to disclose information on over 4,300 American citizens who are clients of the firms private banking division.  The US Justice Department believes that wealthy Americans are using these accounts to conceal assets and are using the bank to hide money under the protection of Switzerland’s storied bank secrecy laws.

UBS has so far refused to name the individuals in public. U.S. authorities, meanwhile, have hoped that the identities of the individuals on the list would be kept secret for longer so that more Americans with undeclared assets abroad might come forward under a recently extended tax amnesty program.

According to a bank  spokesperson,  “UBS is currently examining which client relationships fulfill the government’s criteria of ‘tax fraud.”  The review may take some months but UBS is committed to informing clients that they are affected by the tax evasion investigation.  UBS has already informed 500 clients that they are the subject of an investigation by the US Justice Department.

The IRS on Monday said it would extend its deadline for an amnesty program that has been flooded with applications from people who hid assets overseas. The program promises no jail time and reduced penalties for tax dodgers who come forward.

The financial services industry can expect these types of investigations to become more commonplace.  Institutions that offer hedge funds and investment products that cater to High Net Worth investors will increasingly become  subject to greater scrutiny as the US Treasury Department and its enforcement arm the IRS moves to insure that compliance with tax laws and statutes are adhered too.

This resolution signifies that the IRS is serious about its intention to ramp up enforcement of the tax code.  The IRS has enhanced its focus on US citizens and corporations utilizing foreign banks and offshore investment vehicles.  The agency is concerned that investment products and financial services offered by foreign banks have enabled US citizens and corporations to avoid tax liabilities.  Products such as credit cards, hedge funds and other investment partnerships are coming under the exacting microscope of the IRS.

The IRS is under pressure to enforce compliance with federal tax statutes.  The US Treasury coffers are seriously depleted  and the IRS is is looking to assure all taxable revenue streams are identified and taxpayers pay taxes on all capital gains and income.  The IRS has developed an Industry Focus Issue, (IFI) audit strategy.  IFI’s provides IRS field auditors tax risk profiles of investment partnerships and other corporate entities that use offshore domiciles to harbor assets.  IFI guides field audit personnel through a risk based assessment of investment partnerships.  The IFI aggregates and ranks  Three Tiers of high risk tax compliance issues.  Examiners will conduct rigorous reviews of these issue sensitive factors.  Many of the factors concern the recognition of income and assets in custody outside of the US and repatriation of revenue derived in foreign domiciles.

Sum2 has published a product, IRS Audit Risk Program (IARP) that guides corporate tax managers and tax professionals through a risk assessment of their exposure to IFI risk factors.  The IARP is a strategic tool that corporate tax professionals utilize to score risk exposures, determine mitigation actions, estimate remediation expenses and manage tax controversy defense strategies.  The IARP is available for purchase on Amazon.com.

You Tube Video: O’Jays, For the Love of Money

Risk: tax evasion, compliance, reputation, prison

September 22, 2009 Posted by | Uncategorized | , , , , , , , , , , , , , , , , , , , , , , , , , | 4 Comments

IRS Audit Risk Survey for Hedge Funds (Interim Update 3)

irs-and-capitol21The 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

  • 76% of survey respondents are from North America
  • 6% are from Great Brittan
  • 13% are from other EU countries
  • 5 % are from Asia
  • 85% of respondents indicate an unawareness of IFI
  • 11% of respondents indicate they plan to alert investors to IFI impact
  • 10% of respondents indicated that they initiated actions to address IFI
  • 8% 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 29, 2009 Posted by | compliance, hedge funds, IARP, IRS, risk management | , , , , , , , , , , | Leave a comment

    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

    IRS Audit Risk Survey for Hedge Funds Interim Results

    sum2logoThe IRS has developed a methodology to determine an audit risk profile for hedge funds, private equity firms, CTA’s 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 first weekly report.

    Survey Highlights

    • 62% of survey respondents are from North America
    • 18% are from Great Brittan
    • 16% are from other EU countries
    • 4% are from Asia
    • 50% of respondents who viewed survey begin survey
    • 20% of respondents indicate an awareness of IFI
    • 9% of respondents indicated that they initiated actions to address IFI
    • 7% of respondents indicated that they have received action alerts from industry service providers concerning IFI
    • 2% of respondents indicated that they plan to communicate impact of IFI to fund investors

    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

    More information and alerts can be found here:  Credit Redi

    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.  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).

    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 16, 2009 Posted by | IARP, IRS, risk management, 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

    Sum2 Product Announcement: IRS Audit Risk Tool for Hedge Funds

    Sum2 IRS Audit Risk

    Sum2 Sound Practice Thought Leader

    Sum2, a recognized leader in sound practice solutions for the financial services industry is pleased to announce a new addition to its product portfolio; IRS Audit Risk Program for Hedge Funds (IARB).

    IRS Audit Risk Program (IARP) for Hedge Funds helps managers to determine IRS risk exposure to Tier I, II and III; IRS Industry Focus Issues (IFI).

    The IARP is a threat management and scoring tool that helps managers ascertain level of audit risk for each IFI Tier risk factor. The IARP aggregates and groups overall IFI Tier risk exposures. Managers and fund advisers can then take considered action to mitigate tax exposure risk factors, prepare for tax audits and organize defensive responses for potential mediation, arbitration or litigation of tax audit disputes.

    The IARP uses a scoring methodology to determine a funds exposure and level of preparedness to meet IFI audit risk factors. The IARP guides managers through a thorough IFI risk assessment. It helps managers formulate and initiate actions required to mitigate the threat of IFI risk exposures.

    The IARP helps to identify and calculate expenses associated with mitigation initiatives. The IARP helps managers to assign mitigation responsibilities to staff members or service providers and tracks any open risk issues.

    The IARP links to issue specific IRS resources and documentation that clearly outlines the risk factor, documentation and agency engagement guidance pertaining to the specific IFI risk factor. These critical tax compliance resources enable managers to determine the severity an IFI risk factor represents and helps to align corporate resources needed to address it.

    The IARP is a necessity for hedge funds, private equity firms, CTAs, RIAs, global multinationals and corporations utilizing offshore structures. The IARP is a critical resource for CFOs, CCOs, CROs and internal corporate counsel. Corporate treasury executives that engage in innovative transactions, recognize unusual revenue sources and employ sophisticated tax strategies will benefit from the use of this product. CPA firms and corporate tax attorneys with a focus on financial services industry will find the IARP an indispensable risk discovery and client engagement tool.

    The IARP 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 discover opportunities to assure profitability and growth. The IARP product is available as an industry standard MS Excel© application and is delivered by digital download.

    More information on our sound practice product suits can be found on our Sum2 website or by phone 973.287.7535.

    Please visit our bog Credit Redi.

    We can always be reached by e-mail at customer.service@sum2.com

    The IARP is available for purchase on Amazon.com.

    A single user license can be purchased for $395.00.

    The link can be found here: IARP for Hedge Funds.

    March 5, 2009 Posted by | IARP, IRS, NP, private equity, regulatory, 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

    SRZ’s Maginot Line

    maginot_line_19441Schulte Roth Zabel’s (SRZ) Annual Private Investment Funds Seminar is the kick off event of the year for the AIM industry. In years past it was an event that was full of bravado from an industry flush with great expectations and giddiness over compensation levels that rivaled a small country’s GDP. This years event had more circumspection then bluster and more reflection on how to fashion a considered response to industry challenges squarely in the vortex of the market meltdown.

    The shocking transformation and radical reconfiguration of the capital markets industry is underway. In the wake of the Lehman bankruptcy, Bear Stearns merger, market crashes, credit crisis, bank insolvency, recession and lastly the coup de grace of the Madoff scandal put these intrepid wealth managers through a trying year.

    Myriad challenges and crises tested many firms management acumen and forced managers to work extra hard to earn that 2 and 20.  With hedge fund closure rates expected to approximate 25%-45% this year, the industry is confronted with enormous challenges. The excess capacity in the industry, heightened regulatory oversight, liquidity constraints and elevated client risk aversion will foster market compression and a dramatic alteration in market dynamics. The well managed, well positioned, well focused and well capitalized funds will thrive on the volatility. Uncertainty is always the mother of invention and the best and brightest of the breed will no doubt find numerous opportunities amidst the massive market dislocations currently underway.

    SRZ a leading legal firm servicing the industry effectively laid out an industry battle plan to address many of these acute challenges. In the Crisis Management breakout session the panel offered an interesting metaphor of a hedge fund as an intricate and complex ecosystem. The topology of a fund complex is comprised of many parts that at times may have contradictory and competing interests.

    The Crisis Management session conducted a quarterly review of market events that occurred in 2008 as the capital markets deteriorated and the credit crisis deepened. The panels review was an instructive exercise on how managers need to constructively engage problems with an intentional risk management program and how it affects each stakeholder in the hedge fund ecosystem. The principle objective was determining the best course of action to either save the fund or effect an orderly liquidation of the investment partnership. In all instances the strategy needed to consider how to serve the greatest good for all fund stakeholders. SRZ offered attendees a brilliant crisis management game plan for fund managers. It was one of the better presentations on risk management that I have ever attended.

    The general session was also very interesting and engaging. The central theme was that hedge funds are under extreme liquidity pressure. The drivers are distressed portfolio valuations, counter-party deleveraging, risk aversion in the markets, market liquidity and increased redemption pressures from investors. SRZ has developed a series of innovative redemption strategies it calls gates. The gates are designed to protect the level of assets under management by controlling an orderly outflow of capital so as not to endanger the overall liquidity and asset level of the fund. SRZ again shows why it is the leading player in the space by offering innovative solutions to industry needs. A great example of a market leader demonstrating leadership by offering innovative product development solutions.

    The overall tenor of the conference reminded me of the construction of the Maginot Line. In years past investors were eagerly throwing money at hedge fund mangers to get a slice of the alpha pie. Today hedge fund managers need to build sophisticated battlements to keep the assets of the investment partnership under their control. In a sense the industry as moved from an offensive posture to a defensive one. SRZ is assisting its hedge fund clients to create a defensible business structure that will protect the long term sustainability of the fund and ultimately serve the greatest good of the funds partners and stakeholders.

    During these times of extreme market duress tactics and strategies must be employed to protect the fund from excessive redemption runs that would ultimately serve to create a self fulfilling prophesy of liquidation.

    Clients who have access to a war council of professionals like SRZ should be well suited to engage the battles they will encounter in the coming year and survive to enjoy the peace and spoils won during the next business cycle.

    You Tube Video: Edith Piaf, Mon Legionnaire

    Risk: market, credit, legal, reputation

    January 15, 2009 Posted by | hedge funds, legal, risk management | , , , , , , , , , , , , , , , | 2 Comments