IRS Rules, Currency Probe, Central Bank: Compliance

U.S. clients of 106 Swiss banks face almost double the present penalties under new rules announced by the agency if they don’t disclose their accounts to the Internal Revenue Service by August.

The penalties are among changes to the IRS’s offshore voluntary disclosure program, which has drawn 45,000 account holders who paid $6.5 billion since 2009. Starting Aug. 4, taxpayers making such disclosures will have to pay a penalty of 50 percent of an account’s value, not the current 27.5 percent.

The 106 Swiss banks are seeking to avoid U.S. Justice Department prosecution by disclosing how they helped Americans evade taxes. The U.S. can use that information to seek taxpayers’ identities under a U.S.-Swiss tax treaty. Clients who disclose their accounts after Aug. 4 will face a 50 percent penalty whether or not the U.S. has already learned their names.

The IRS also might learn taxpayers’ identities from data provided by Credit Suisse Group AG, which pleaded guilty in May and paid a $2.6 billion penalty, or from any bank worldwide turning over information under the Foreign Account Tax Compliance Act, which takes effect July 1.

Compliance Action

Currency Probe Widens as U.S. Prosecutors Said to Target Markups

U.S. prosecutors are broadening their investigation of the foreign-exchange industry as they question salespeople at the world’s biggest banks on their practices, according to two people with knowledge of the matter.

The Justice Department has been asking bankers and clients how much sales teams charge customers to exchange currency, the people said, asking not to be identified because the interviews are private. The move is the first indication prosecutors are probing sales practices.

According to more than a dozen current and former salespeople and traders interviewed by Bloomberg News, it’s common to charge what’s called a hard markup, tacking on a small margin for a salesperson’s services. Some clients who make currency deals infrequently or in small amounts are known to pay little attention to the rates. The Justice Department is scrutinizing whether banks committed fraud by failing to disclose the practice properly to customers, the people said.

Banks are conducting internal investigations to show cooperation with the government in bids for leniency should the probes lead to disciplinary action.

China to Strengthen Due Diligence, Post-Investment Management

China Investment Corp., the nation’s sovereign wealth fund, said it has a plan to rectify mismanagement found by the National Audit Office.

It will strengthen due diligence before overseas investment and boost its post-investment management, according to an e-mailed statement. The fund also is fixing problems in its financial management, it said.

The National Audit Office found that mismanagement at the $575 billion fund led to overseas investment losses, according to a report by the auditor.

Compliance Policy

European Central Bank Seeks to Stem Exodus From Benchmark Panels

The European Central Bank wants regulators to be given the authority to compel banks to participate in setting key financial benchmarks.

Robust powers for supervisors are a “crucial” part of a planned European Union law to curb rate-rigging, the central bank said in a note to governments obtained by Bloomberg News. The mandate should apply to “critical benchmarks” underpinning the financial markets, it said.

Supervisors should be equipped to counter “free rider behavior” by major users of a benchmark who seek to escape taking part in rate-setting, according to the June 2 note.

Regulators are grappling with how to respond to rigging scandals afflicting benchmarks from the London interbank offered rate to the foreign-exchange markets. The scandals and subsequent moves to toughen oversight prompted an exodus of banks from some rate-setting panels.

The central bank note was submitted as part of negotiations between governments on draft EU rules presented last year by Michel Barnier, the EU’s financial-services chief. A spokesman for the bank declined to comment on the document.


BlackRock, Pimco Sue Banks Over Mortgage-Bond Trustee Roles

BlackRock Inc., the world’s biggest money manager, and Pacific Investment Management Co. are among investors that sued banks including Citigroup Inc. and Deutsche Bank AG over their roles as mortgage-bond trustees, as investors continue to try to recover losses from the financial crisis.

The banks knew the loans underlying trillions of dollars of residential mortgage-backed securities were misrepresented and failed to invoke their rights to force the sellers to buy them back or act against servicers, causing billions of dollars in losses, according to complaints filed June 18 in New York State Supreme Court in Manhattan.

Spokespeople and representatives for the banks declined to comment on the suits.

The cases are Blackrock Allocation Target Shares: Series S Portfolio v. U.S. Bank National Association, 651864/2014; Blackrock Balanced Capital Portfolio (FI) v. Deutsche Bank National Trust Co., 651865/2014; BlackRock Allocation Target Shares: Series S Portfolio v. Bank of New York Mellon, 651866/2014; BlackRock Allocation Target Shares: Series S Portfolio v. Wells Fargo Bank N.A., 651867/2014; BlackRock Balanced Capital Portfolio (FI) v. Citibank N.A., 651868/2014; and BlackRock Core Active Libor Fund B v. HSBC Bank USA, 651869/2014, New York State Supreme Court, New York County (Manhattan).

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