Yes, it is actually possible to organize your offshore company with the ownership documented with bearer stocks. Join me as I dive into the fine details of a WSJ article.
4/6 – Wall Street Journal – Panama Papers: Hiding Cash Has Become Crummy Business – Even Switzerland has joined the crackdown on hiding money. Prosecutors there leaked information on the Malaysian scandal. That’s a whole other story that I won’t go into. The point is Swiss prosecutors are going after money launderers and embezzlers. Swiss prosecutors. You know, from Switzerland. Land-of-the-numbered-account Switzerland.
More detail from the article:
The offshore “business” has been shrinking for a long time. Article says the firm of Mossack Fonseca & Co saw a two-thirds decline in the number of companies they incorporated between 2005 and 2015, dropping from 13,287 to 4,341 in a decade.
Article says the Panama Papers say the law firm’s clients have incorporated 16,323 companies over the last three years but have closed up 28,777 in the same time. That’s a net shrinkage of over 12,000.
The company represented around 6,000 businesses in 2005 whose ownership was evidenced using bearer shares. Currently they represent 170. That’s a drop of 97% in a decade in the number of clients using bearer shares.
Bearer shares. Did you know that was even a thing? Before I get to that, let me describe bearer bonds.
Previously mentioned the massive leak of data about offshore banking that hit headlines this past Sunday. This is now called either the Panama Papers or Panama leak, take your pick. Here are a few of the initial articles on the follow-up that I found interesting.
There are more and deeper issues than just tax evasion. By the way, the term we should be discussing is tax evasion, not tax avoidance. Avoidance means complying with the tax law in order to lawfully reduce your tax bill. Evasion means breaking the law.
Simple introduction to offshore banking
4/4 – Vox – The Panama Papers leak, explained with an adorable comic about piggy banks – Simple cartoon gives a great illustration of a little boy hiding some quarters from his mommy in a piggy bank stored in his little friend’s closet. Lots of other little boys to the same. Eventually the friend’s mommy finds all the piggy banks and calls all the moms.
Some of the little boys may just have wanted to hide a few extra quarters from mommy because they wanted some privacy. Others may have been stealing lunch money from their schoolmates and don’t want mommy to know. Some may have been stealing from mommy’s purse. Yet others may have been wanting to save up a couple of dollars to buy an actual surprise birthday present for mommy and daddy. Some have gotten tired of their siblings sneaking into their piggy bank.
Old style money laundering. Image courtesy of DollarPhotoClub.com
A massive amount of whistle blower information was announced over the weekend. The files are from a large law firm in Panama that helped companies and individuals set up offshore companies. This is called the Panama Papers.
There are many legitimate reasons to use offshore companies. There are many illegitimate reasons too.
I’ve just started looking at the story. Here are a few introductory tidbits.
Severe fines against large banks for violating anti-money laundering rules has led the banks to place a heavy focus on making sure their customers are legit. The result is a closing accounts of customers who have too high a risk of being shady. The unintended consequence is legitimate businesses and legitimate charities have difficulty finding a place to do their banking.
In a wonderful irony, articles at The Wall Street Journal on two successive days illustrate the tension. The articles leave you wondering in opposite directions. One article makes you think the banks ought to get serious about screening clients and shut down a bunch of accounts. The other article makes you wonder why these charities doing such wonderful work are getting all their accounts closed for no good reason.
First, charities finding themselves without bank accounts.
Another charity that operates a hospital in Syria had their accounts closed by BofA. After moving to Wells Fargo, their accounts were closed there. Staff at the hospital went four months without pay while the charity tried to figure how to get money into the country.
Authors have spoken to eight other charities who have had their accounts closed. Many others have had money transfers going into Syria, Turkey, or Lebanon held up for varying lengths of time.
Article mentions that banks are under pressure from the U.S. federal government to monitor their customers accounts and close those accounts which could be related to money laundering, whether related to drug running, terrorist financing, or other illegal activity.
We need to understand what those two comments mean and how to cope with the implications. Tom Hood’s article points toward those waves that are soon to crash down on our heads.
It’s a VUCA world
Major changes we are in can be summarized by that phrase: …
Here are a few recent articles of interest to auditors:
Charles Hall discusses common deficiencies in government audits. Issues also apply to single audits for NPOs and all pension audits.
FASB removes the effective dates from PCC alternatives, which means they can be applied at any time by a private company without going through the preferability analysis.
FASB starts to think about whether to record expenditures for intangible assets on the balance sheet.
First, the AICPA pulled in a selection of peer reviews performed on “must-select” engagements. The oversight was performed by highly experienced peer reviewers, meaning it is our calling CPAs who looked at the audit workpapers and peer review workpapers.
A ‘virus’ that can infect your quality control system.
How to quickly check if someone is licensed.
Risks of working for the Big 4.
Deep background on the Private Company Council.
2/10 – CPA-Scribo – How Internal Viruses Affect Accounting Firms – No, not the kind of viruses you were thinking. This is caused by staff doing a quick search on the ‘net to find a sample note and pull down an erroneous example, which spreads to most financial statements issued over the next year.
Charles Hall provides a frighteningly real illustration how such a virus could hit a firm.
The U.S. unit of Olympus admitted it made payments to doctors and hospitals as an inducement to buy Olympus equipment. The company agreed yesterday to pay $646M and enter into two deferred prosecution agreements in return for settling two criminal charges.
I don’t usually follow Foreign Corrupt Practices Act settlements, but this one caught my eye. I’ve not previously been aware of the Anti-Kickback Statute, which prohibits kickbacks from vendors to health care providers in the federal medical reimbursement marketplace. Olympus admits to violating both sets of laws.
The rules describing how to account for all leases were drastically revised on February 25, 2016. That is when the accounting rule setters, FASB, issued their document called Accounting Standards Update 2016-02 – Leases (Topic 842).
You will be hearing a lot more about these changes over the next few years.
(Cross post from my other blog, Nonprofit Update. Although written for an audience of charity finance staff and senior leadership, this is a helpful headsup notice for CPAs.)
Highlights
In extremely brief summary, the new rules require all entities preparing financial statements (including nonprofit organizations) to record all leases as an asset and liability. The assets will be called right to use assets and will be amortized over the life of the lease. An offsetting liability will be recorded. Whether the asset will be reported at the sum of total future payments or at the discounted present value of future payments would depend on the nature of the lease.
Has been rather quiet lately on the Libor front, other than six traders have been acquitted after a mere one day of jury deliberations. A few updates:
2/12 – The Wall Street Journal – Last Wave on LIBOR: CFTC Likely to Charge Multiple Banks for Rate Rigging – Article cites sources saying the CFTC and British Financial Conduct Authority will be likely bringing civil charges in the next few months against Citigroup and HSBC. FCA has dropped an investigation of J.P. Morgan Chase but CFTC still has that investigation open.
