Citi fires 11 more in Mexico over fraud
Michael Corkery and Elisabeth Malkin of the New York Timesreported yesterday that Citgroup has fired an additional 11 employees, including four high-ranking executives in Mexico, as the bank tries to put a costly loan fraud in its rearview mirror.
On Monday afternoon, the board of the bank was briefed on an internal investigation into the $400 million fraud involving a large Banamex client. According to Corkery and Malkin, Citigroup’s chief executive, Michael Corbat, flew to Mexico City the next day and by Tuesday evening, the 11 employees in Mexico were fired, a person briefed on the matter said.
Among those fired were four of the bank’s top executives in Mexico: its head of corporate banking, head institutional risk officer, head of trade finance, and head of trade and treasury solutions, the article stated.
The bank had previously fired one Banamex employee, who was arrested in February and is suspected of processing falsified documents that helped the client, the oil services company OceanografÃa, obtain a loan that it cannot afford to repay.
Bill limiting inversions coming this week, Levin says
A bill that will limit US companies’ ability to move their legal addresses out of the country for tax purposes through mergers will be introduced this week by Senator Carl Levin (D-MI), Richard Rubin and James Rowley of Bloombergreported yesterday.
Levin said his bill would alter a rule that sets a minimum foreign-ownership requirement at 20 percent. President Obama has proposed raising that threshold to 50 percent, which would raise $17 billion for the government over the next decade, Rubin and Rowley wrote.
“If you are serious about stopping people from changing their address to avoid paying taxes, you’ve got to close that loophole,” Levin said, according to the article.
At least 14 US companies have completed inversion deals since January 2012 or are considering them, including Eaton Corp. PLC, Chiquita Brands International Inc., and Pfizer Inc. Pfizer is looking to use the tactic in its acquisition of AstraZeneca PLC. The combined company would be managed in the United States while its legal tax address would be in the United Kingdom where the corporate tax rate is lower.
Senate Finance Committee Chairman Ron Wyden (D-OR) said last week that he plans to address such corporate inversions and any legislation would be retroactive to May 8.
Senate panel backs transport bill to maintain funding
The Senate Environment and Public Works Committee today passed a six-year transportation bill that would keep federal spending on highways and mass transit at current levels but does not tackle the looming shortfall in the Highway Trust Fund, Eric Beech of Reutersreported.
The panel voted with bipartisan support to advance the legislation, which would spend about $53 billion a year and adjust for inflation, to the full Senate. It is not clear when the Senate will consider the bill, Beech noted.
Other committees in the Senate and House of Representatives are working on ways to pump money into the trust fund, which pays for about 45 percent of what states spend on roads and bridges and is forecast to run out of money by the end of August.
The gas tax that supports the fund hasn't been raised since 1993 and covers only about $35 billion a year of the approximately $53 billion in annual federal highway and mass transit spending, the article stated.
Why hedge funds don’t worry about carried interest tax rules
According to Victor Fleischer, a professor of law at the University of San Diego, hedge fund managers don’t use the carried interest tax loophole. They need something more exotic.
“Until recently, many fund managers would defer a portion of their fees in a Cayman Islands corporation, which would act as the equivalent of a titanic tax-deferred retirement account. Congress closed that loophole in 2009, although some investments parked offshore will not be deemed repatriated (and will not be taxed) until 2017,” he wrote in a DealBook column for the New York Times yesterday.
“To replace the Cayman strategy, many top hedge fund managers have entered the business of reinsurance, using Bermuda-based reinsurance companies as a capital base for investment in their hedge funds. Insurance companies must hold capital in reserve, and there is nothing to stop an insurance company from holding a huge reserve and investing that capital in a hedge fund. By stapling a small reinsurance business onto billions of dollars of hedge fund capital, any profits can be indefinitely deferred from tax offshore. Better yet, when the fund manager sells an interest in the Bermuda company, the gain may be taxed at the lower long-term capital gains rates.”
Two questions loom over tax break extenders
According to John D. McKinnon of the Wall Street Journal, those questions are: Will Senate Democrats roll the dice and try to add a measure that would restrict moves by some US firms to relocate overseas, in order to lower their taxes? Or will Republican senators roll the dice and kill the extender bill unless they are allowed to add an amendment repealing an unpopular tax on medical devices?
The answer to both questions appears to be no, McKinnon wrote yesterday.
“Republicans might decide to fight it out on the extenders bill, which probably won’t receive final approval until after the November elections anyway. But the odds of achieving their goal of repealing the medical device tax – part of President Barack Obama’s health care overhaul – seem low,” he noted.
“For Democrats, the worry appears to be risking further alienating Republicans if they try to add the anti-inversion legislation being developed by Senator Carl Levin (D-MI). Many Republicans view that approach as counter-productive because it could further weaken the chances for a comprehensive tax overhaul. It also could accelerate emigrations, they worry.”
IRS scandal linked to DC eyed
A conservative watchdog group claims it has smoking gun e-mails tying the IRS targeting of Tea Party groups straight to Washington, DC – suggesting partisan harassment was not confined to a Cincinnati office, as Whiteâ¨House officials have insisted, Bob McGovern of the Boston Heraldwrote today.
Judicial Watch, through a federal lawsuit, obtained a July 2012 e-mail from a top IRS official in Washington on how Tea Party applications were being handled.
A DC-based IRS attorney replied they were “working the Tea Party applications in coordination with Cincy. We are developing a few applications here in DC and providing copies of our development letters with the agent to use as examples in the development of their cases,” according to the article.
“It shows that what the White House and president told the country about this is incorrect. It wasn’t low-level people in Cincinnati,” Judicial Watch President Tom Fitton told the Boston Herald. “This e-mail confirms that it was Washington, DC, that was directing the Tea Party scrutiny, it wasn’t Cincinnati.”
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- Accounting for earnings manipulation (Wall Street Journal)
- Global accounting standards-setters renew commitment to cooperation (Compliance Week)
- Tax giveaways unite lawmakers (Fox News)
- IRS spells out tax exemptions on retirement plan payments (BenefitsPro)
- I will support the fair tax when its backers tell the truth (Forbes)
- Britain’s leading tax expert makes a slightly embarrassing little boo boo (Forbes)
- Hey, Illinois legislators. Knock knock. Your promise is here. (Chicago Tribune)
- Johnny Football’s Texas residency can cut his NFL income tax (Don’t Mess With Taxes)
- Mark A. Adler named deputy director and chief trial counsel in the PCAOB Division of Enforcement and Investigations (PCAOB)
- Bret Dooley appointed to the Emerging Issues Task Force (FASB)
- Intuit acquires accounts payable app Invitbox (BoxFreeIT)