Canadian Banks, CFTC Speculation Curbs, SEC ‘Purge’ Lawsuit: Compliance

Compliance with IRS financial disclosure rules intended to nab U.S. tax evaders in Canada is proving complicated because of the large number of dual U.S. and Canadian citizens, tax lawyers on both sides of the border say.

Dual citizens must file annual U.S. tax returns and complete a separate yearly IRS filing if they have Canadian or other non-U.S. financial accounts of more than $10,000, under Internal Revenue Service rules.

A third program requires banks and other financial institutions in Canada to disclose the identities of U.S. account holders to the IRS or risk having a portion of their income from U.S. investments withheld as soon as 2014.

The head of the Canadian Bankers Association, Terry Campbell, said the country’s 72 banks have no easy way of sifting through 20 million to 25 million accounts to find customers with a U.S. citizenship link.

Campbell, president of the Toronto-based Canadian Bankers Association, said the reporting requirements are “an enormous, enormous compliance burden” for the country’s banks.

Canadian Finance Minister Jim Flaherty called the U.S. reporting rules for banks and individuals burdensome and ineffective in combating tax evasion in a Sept. 16 statement.

The IRS “recognizes that many Canadians face complex tax situations because of dual citizenship,” Terry Lemons, an IRS spokesman, said in a statement. Recent publicity about the issue “has spotlighted a number of areas that the IRS will consider in our continuing effort to strike the right balance in administering the U.S. tax laws,” he said.

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Compliance Policy

CFTC to Face Lawmaker Scrutiny Over Speculation Curbs

The U.S. Commodity Futures Trading Commission, which has yet to complete Dodd-Frank Act limits on excessive speculation, will face scrutiny about the trading curbs at an Oct. 6 hearing led by Senator Carl Levin.

CFTC chairman Gary Gensler will testify at the hearing of the Permanent Subcommittee on Investigations, according to a statement released by Levin’s office yesterday.

The CFTC, after delaying consideration in September, delayed a final vote on the regulations until an Oct. 18 Washington meeting, Steve Adamske, the agency’s spokesman, said Sept. 27. The rule has among the most contentious stemming from Dodd-Frank, spurring more than 13,000 comments from supporters such as Delta Air Lines Inc. (DAL) and opponents including Barclays Capital.

The agency has come under pressure from lawmakers to complete the speculation rule, originally proposed in January.

The CFTC and Securities and Exchange Commission are leading U.S. efforts to write new derivatives rules for the $601 trillion global swaps market after largely unregulated trades helped fuel the 2008 credit crisis. The rules will govern trades conducted by Goldman Sachs Group Inc. (GS), Citigroup Inc. (C) and Cargill Inc., among other companies.

Basel Committee Agreed to Speed Up Review of Liquidity Plans

The Basel Committee on Banking Supervision said it will speed up a review of draft liquidity rules for lenders that are intended to take effect at the start of 2015.

The review will be completed “well in advance” of an original mid-2013 deadline for finishing an assessment of the measures, the group said yesterday.

The so-called liquidity coverage ratio requires banks to hold enough easily saleable assets to survive a 30-day credit crunch.

Basel III Hurts European Companies More Than U.S., S&P Says

European companies will pay as much as 50 billion euros ($68 billion) a year in additional borrowing costs under new capital rules for banks and insurers, more than triple the amount for U.S. borrowers, Standard and Poor’s said.

Higher funding costs, shortened loan maturities and a lower equity investor base may push up the cost of credit by 30 billion euros to 50 billion euros a year once Basel III and Solvency II are implemented fully by 2018, Blaise Ganguin, S&P’s chief credit officer for Europe, wrote in a report. U.S. borrowers will see costs increase by $9 billion to $14 billion.

Basel III imposes a global regulatory standard on the capital adequacy and liquidity of banks, while Solvency II is designed to boost insurers’ reserves. The euro-region crisis has left European lenders with as much as 300 billion euros of credit risk, according to the International Monetary Fund.

The new rules will lead to a 10 percent to 20 percent increase over current interest costs for corporate borrowers in Europe and the U.S., depending on banks’ return on equity targets of 8 percent to 15 percent, according to S&P. The regulations are due to start in 2013, with the final stages of the banking reform introduced in 2018.

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Compliance Action

Dutch Arrest Four Men Suspected of $200 Million Ponzi Scheme

Dutch authorities arrested four men suspected of selling more than $200 million in investments in U.S. life insurance policies in an alleged Ponzi scheme.

Quality Investments BV is suspected of having sold investment products to hundreds of investors, mainly in the Netherlands and Belgium, the Dutch Fiscal Information and Investigation Service said in a statement yesterday.

Provident Capital Indemnity Ltd., the Costa Rica-based firm accused by U.S. prosecutors and the Securities and Exchange Commission in January of conducting life settlement bonding fraud, would provide the securities, the Dutch authorities said.

No one at Quality Investments was available to comment on the allegations, according to a telephone operator at its Amsterdam offices, who declined to be identified.

Italy, Spain Extend Short-Selling Bans, Esma Says

Italian and Spanish financial market regulators extended temporary bans on short selling of financial shares that were introduced last month in a bid to stem market volatility, the European Securities and Markets Authority said in an e-mailed statement.

Italy’s market regulator, Consob, said the ban, due to expire on Sept. 30, will remain in place until Nov. 11, according to a statement on its website.

The ban in Spain, also due to expire on Sept. 30, will remain in place “until the market conditions allow it to be lifted,” Spain’s market regulator said in Madrid.

U.K. to Close Loophole for Solar Park Extensions in October

The U.K. Department of Energy and Climate Change will eliminate a regulatory loophole allowing extensions to solar plants completed before August to receive higher incentives.

Extensions to solar parks built before the feed-in tariff solar premiums were cut on Aug. 1 won’t qualify for the old tariffs from Oct. 18, according to the results of a consultation on the changes posted on the department’s website Sept. 27. They will only be eligible for the rate available when they are completed.

On July 27, the government started a one-month consultation aiming to change the clause by the end of October.

Chaoda’s Chairman, Fidelity Manager Accused of Insider Trading

Chaoda Modern Agriculture Holdings Ltd. (682)’s Chairman Kwok Ho, Chief Financial Officer Andy Chan and Fidelity Management’s George Stairs were accused by Hong Kong’s financial secretary of insider trading.

The government alleges Kwok and Chan told Stairs about a June 2009 share placement three days before it was publicly announced, and the fund manager traded profitably as a result, according to a notice released by Hong Kong’s Market Misconduct Tribunal Sept. 27.

While insider trading can be punished by 10 years in prison and a HK$10 million ($1.3 million) fine in a criminal court in Hong Kong, the tribunal hearing this civil case only has the power to disgorge profits made or losses avoided. It can also ban individuals from being a director or manager of a corporation, and from dealing in any securities.

Boston-based Fidelity Investments conducted a thorough internal review of the matter in 2009 and believes that Stairs didn’t violate any laws or regulations, according to spokesman Vincent Loporchio.

“He continues to be an employee in good standing,” Loporchio said.

Rimsky Yuen, a lawyer for Kwok, and Graham Harris, a lawyer for Andy Chan, didn’t comment on the case after the proceedings.

Tribunal chairman Michael Lunn said he returned to Hong Kong yesterday afternoon to convene the hearing.

Spain, the Netherlands Given Deadline for Bank Capital Rules

The European Commission has handed Spain and the Netherlands a deadline of Dec. 29 to implement agreed changes to the region’s bank capital rules.

The Dutch government has yet to adopt the necessary legislation to implement the measures, which include limits on the amount of loans a bank can make to a single business, the commission said. Spain needs to take “technical measures” to complete its application of the rules.

The changes originally had an Oct. 31 deadline across the European Union, the commission said today in an e-mailed statement.

U.K. FSA Fines Towry Investment $773,000 Over Incorrect Data

The U.K.’s Financial Services Authority fined Towry Investment Management Ltd. 494,000 pounds ($773,000) for misleading the regulator and failing to comply with client money rules, the FSA said in an e-mailed statement today.

The company “failed to maintain adequate records” of client money and provided “inaccurate information” to the FSA, the regulator said. Towry earned a 30 percent discount on the fine by agreeing to settle at an early stage.

Royal Bank of Scotland Faces Loan-Document Probe, FT Reports

Royal Bank of Scotland Group Plc (RBS), Britain’s biggest government-owned bank, faces U.S. Securities and Exchange Commission scrutiny over demands by investors that it repurchase some debts, the Financial Times reported.

The inquiry is part of a probe into how financial firms handled faulty mortgage loans, the newspaper reported today, citing unidentified people familiar with the matter. The regulator has sought information on “document deficiencies,” related to remedial measures and early payment defaults, the London-based bank said in an Aug. 30 regulatory filing.

The SEC is investigating whether banks misled shareholders about how many loans they might be forced to repurchase because of early defaults, the Financial Times reported. Regulators are also investigating whether lenders had enough reserves to fund repurchases or handle related litigation, according to the report.

The SEC began an inquiry in October, which was converted into a formal investigation in January, according to the filing.

Pholida Phengsomphone, a spokeswoman for RBS, declined to comment on the inquiry. The bank is fully cooperating with the probe, according to the filing. John Nester, a spokesman for the SEC, declined to comment.

Courts

SEC Sued Over 1998 Policy of Purging Files Linked to Probes

The U.S. Securities and Exchange Commission was accused in a lawsuit by a government watchdog of illegally destroying documents from probes of Bernard Madoff, Bank of America Corp. (BAC) and Lehman Brothers Holdings Inc. (LEHMQ)

Citizens for Responsibility and Ethics in Washington yesterday asked a federal judge in Washington to order the commission and its chairman, Mary Schapiro, to preserve investigative records and attempt to recover files that were destroyed.

The SEC’s data policy came under scrutiny after Darcy Flynn, a 13-year SEC employee, claimed in a letter to U.S. Senator Charles Grassley that the agency destroyed documents including materials related to Goldman Sachs’ trades of American International Group Inc. (AIG) credit-default swaps in 2009, as well as insider-trading probes and investigations of possible financial fraud in 2007 and 2008.

John Nester, an SEC spokesman, declined to comment on the suit.

The case is Citizens for Responsibility and Ethics in Washington v. U.S. Securities and Exchange Commission, 11-cv- 01732, U.S. District Court, District of Columbia (Washington).

SEC Sues NIR’s Ribotsky for Stealing $1 Million From Clients

The U.S. Securities and Exchange Commission sued investment firm NIR Group LLC and its principal for allegedly hiding poor performance from investors and siphoning more than $1 million for personal use.

Corey Ribotsky, the sole managing member of Long Island- based NIR, wrote checks to himself from the firm’s $876 million AJW family of hedge funds from 2004 to 2009, even after his head accountant told him he was violating the law, the SEC said yesterday in a complaint filed in federal court in New York. The agency also sued Daryl Dworkin, an NIR analyst accused of falsifying client reports under Ribotsky’s direction.

Ribotsky used client funds to pay for luxury items including Lexus and Mercedes automobiles and a Rolex watch, the SEC said.

NIR and Ribotsky will fight the SEC’s claims, according to a statement from Brad Gerstman, Ribotsky’s lawyer. “The complaint appears to be a stretch in an attempt to justify approximately two years of time and resources poured into the investigation,” Gerstman said.

Interviews/Speeches

German Banks Association Says EU Transaction Tax is ‘Mistake’

Plans to introduce a European financial-transactions tax is a “mistake,” according to the BdB Association of German Banks.

“Such a tax is dangerous for European financial markets and ultimately puts at risk economic growth,” said Michael Kemmer, general manager of the BdB.

The European Union proposed a financial-transactions tax that would take effect in 2014 and raise about 57 billion euros ($78 billion) a year, prompting renewed opposition from the U.K.

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

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

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