On April 24, the National Futures Association (NFA) issued a
notice to members regarding amendments to NFA Compliance Rule 2-46.
The amended rule modifies the NFA's quarterly pool reporting
requirements and extends related reporting deadlines to align the
NFA reporting requirements with the Commodity Futures Trading
Commission Form CPO-PQR reporting requirements under CFTC
Regulation 4.27. Under the revised rule, large commodity pool
operators (CPOs) (i.e., with assets under management (AUM)
of more than $1.5 billion) will fulfill their NFA and CFTC filing
obligations by submitting CFTC Form CPO-PQR within 60 days of the
end of each quarter. Small CPOs (AUM of less than $150 million) and
mid-size CPOs (AUM of $150 million to $1.5 billion) will satisfy
their NFA filing obligations by submitting CFTC Form CPO-PQR within
90 days of the end of each calendar year and submitting NFA Form
PQR (which is based substantially on Schedule A and Schedule B,
Item 6, of CFTC Form CPO-PQR) within 60 days of the end of each
quarter ending in March, June and September. CPOs that are dually
registered as investment advisers with the Securities and Exchange
Commission and file Form PF instead of CFTC Form CPO-PQR will
satisfy their NFA filing obligations by submitting NFA Form PQR
within 60 days of the end of each quarter ending in March, June and
September and CFTC Form CPO-PQR and a Schedule of Investments
within 60 or 90 days of each year end. Under revised Compliance Rule 2-46, NFA member commodity trading
advisors (CTAs) with a reporting requirement under CFTC Regulation
4.27 are required to file NFA Form PR within 45 days of the end of
each calendar quarter. The NFA has not finalized a date for the
first CTA filing, but noted that CTAs will not need to file
quarterly reports for the quarters ended March 31 and June 30 of
this year. For more information, click here. The US District Court for the Southern District of New York
recently ordered Uriel Sharef, a former Siemens AG board member and
German citizen accused of bribing Argentine government officials,
to pay a $275,000 civil penalty pursuant to a settlement agreement
with the Securities and Exchange Commission. This is the
second-highest civil penalty imposed on an individual under the
Foreign Corrupt Practices Act (FCPA). In December 2011, the SEC sued Sharef and six other Siemens
executives for their alleged participation in a complex bribery
scheme that spanned from 1996 through 2007. The case follows
several years after Siemens resolved its corporate liability for
bribery schemes by, among other things, paying $800 million in
criminal fines and disgorgement of wrongful profits. According to
the SEC's complaint, the group paid a total of $100 million to
Argentine officials, including two Presidents and several Cabinet
ministers, initially to secure a $1 billion government contract to
produce identity cards and, thereafter, in an attempt to
reauthorize the contract following its cancellation. Even after
Siemens failed to get the contract reinstated, bribes allegedly
continued to be paid to suppress evidence in an arbitration Siemens
commenced due to the contract's cancellation. Sharef, who was
the most senior executive named as a defendant, allegedly played a
role in the scheme from the outset, including meeting with
intermediaries in New York and devising a plan to funnel $27
million in bribes to Argentine officials through a sham arbitration
and other fraudulent means. The SEC also claimed that Sharef
directed his employees to help conceal the bribes from
Siemens's internal accounting controls. Sharef's consent to the penalty plus an injunction against
future violations is the latest development in a complex case. The
settlement in principle with Sharef was reached some months ago,
but was only announced this week. Another defendant, Bernd
Regendantz, also settled shortly after the SEC filed its case. He
agreed to a $40,000 penalty that the SEC deemed satisfied by
penalties paid in Germany. The remaining defendants have challenged
the SEC's claims and one has, thus far, succeeded. As reported
in
Corporate and Financial Weekly Digest of February 22,
2013, the court dismissed claims against one defendant, Herbert
Steffen, because his actions did not establish the minimum contacts
necessary to exercise personal jurisdiction over him in the United
States. SEC v. Sharef et al., No. 11-cv-9073 (SAS)
(S.D.N.Y. Apr. 15, 2013). A New York federal grand jury recently indicted a Swiss lawyer
and bank executive for their roles in allegedly assisting US
citizens with hiding assets in Swiss bank accounts, allowing the US
citizens to evade income taxes. This is one in a line of criminal
actions brought by the US Attorney's Office in Manhattan (USAO)
against foreign banks and tax advisors regarding use of offshore
accounts to evade US tax reporting and payment obligations. According to the indictment, Edgar Paltzer is a partner at an
unnamed Swiss law firm and specializes in wealth management and tax
matters; Stefan Buck held various positions at an unnamed Swiss
bank (Swiss Bank 1) and is currently a member of its executive
board. From 2000 to 2012, prosecutors claim that the pair opened
and managed undeclared accounts at various Swiss banks on behalf of
their clients, and took other measures to ensure that the Internal
Revenue Service would not discover that US citizens beneficially
owned the accounts. The indictment describes six unnamed clients of
defendants who did not report their Swiss bank accounts on annual
tax returns or foreign bank and financial account reports. The
means the defendants allegedly advised their clients to employ to
evade tax laws included repatriating funds from foreign accounts by
(i) transferring the monies to intermediary offshore accounts held
in the names of foreign corporate entities or trusts created for
that purpose; (ii) structuring the sizes of transfers to avoid
reporting obligations; (iii) making transfers to different
individuals or entities to conceal the identity of the beneficial
owner and (iv) converting the offshore funds into expensive jewelry
and thereafter transferring it to the accountholder in the United
States. Paltzer and Buck allegedly advised that these means would
shield clients' assets from financial reporting and income tax
obligations. The indictment further describes that in March 2009, the
Department of Justice (DOJ) reached a deferred prosecution
agreement with a different Swiss bank for substantially similar
conduct. In February 2012, another Swiss bank was indicted and pled
guilty to virtually identical charges. During the intervening
period from 2009 to 2012, prosecutors allege that Paltzer and Buck
actively courted clients from those banks, such that Swiss Bank 1
saw a 300% increase in customers who were US taxpayers. Paltzer and Buck have each been charged with one count of
conspiring with US citizens to evade taxes. The defendants reside
in Switzerland and, at the time the indictment was made public,
neither had been arrested. If convicted, they each face a maximum
sentence of five years in prison, a maximum term of three years of
supervised release, and a fine, which would be the greatest of (i)
$250,000; (ii) twice the gross pecuniary gain derived from the
offense or (iii) twice the gross pecuniary loss to the victims. US v. Paltzer et al., No. 13-cr-282 (S.D.N.Y. Apr. 16,
2013). On April 25 the Federal Deposit Insurance Corporation (FDIC) and
the Office of the Comptroller of the Currency (OCC) proposed for
public comment supervisory guidance to institutions subject to
their jurisdictions (i.e., state-chartered, non-member FDIC-insured
institutions, as well as national banks and federal thrifts,
respectively) that offer or may consider offering deposit advance
products. The proposal is intended "to ensure that banks are
aware of a variety of safety and soundness, compliance, and
consumer protection risks posed by deposit advance loans,"
according to the FDIC. The proposal "details the principles that the FDIC expects
financial institutions to follow in connection with deposit advance
products in order to effectively mitigate potential legal,
reputational, consumer protection, compliance, and credit risks.
The proposal discusses supervisory expectations for the use of
deposit advance products, including underwriting and credit
administration policies and practices. The proposal supplements
existing FDIC guidance on payday loans and subprime lending."
While "encouraging" institutions that offer such loans to
continue to do so, the FDIC made it clear that "deposit
advance products pose supervisory risks. These products share a
number of characteristics seen in traditional payday loans,
including: high fees; very short, lump-sum repayment terms; and
inadequate attention to the consumer's ability to repay. As
such, banks need to be aware of these products' potential to
harm consumers, as well as elevated safety and soundness,
compliance, and consumer protection risks." In a similar vein,
the OCC stated that it "will closely review the activities of
banks that offer or propose to offer deposit advance products,
through direct examination of the bank, examination of any third
party participating in such transactions under an arrangement with
the bank, and, where applicable, review of any licensing proposals
involving this activity. These examinations will focus not only on
safety and soundness risks, but also on compliance with applicable
consumer protection laws." Among other things, the proposal sets forth certain underwriting
criteria that institutions will be expected to follow: Although it issued a statement in support of heavier regulation
for deposit advance loans, it is unclear at this time whether the
Federal Reserve will follow the FDIC and OCC proposed guidelines.
The proposed guidance is expected to be published soon in the
Federal Register, with a 30-day comment period. The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
CFTC
NFA Amends CPO and CTA Quarterly Reporting
Requirements
LITIGATION
SDNY Imposes Second Highest Penalty Under Foreign
Corrupt Practices Act
Grand Jury Indicts Swiss Lawyer and Banker in Tax
Evasion Scheme
BANKING
FDIC and OCC Propose Limits on Deposit Advance
Loans
Corporate And Financial Weekly Digest - April 26, 2013
Katten Muchin Rosenman LLP
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On April 24, the National Futures Association (NFA) issued a notice to members regarding amendments to NFA Compliance Rule 2-46