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Who Holds the Master Key?

That's the name of a new white paper which covers 'limited condition' status of FATCA, how to analyze investment accounts and how to navigate through both FATCA legislative provisions and the updated AIFMD investment restrictions. Available now for download, with a recording of the Thomson Reuters webcast called: 'Unintended Consequences that Affect Wealth Management'.

We hope you find this white paper and webcast useful.

COMPLYING WITH FATCA

Any financial institution, regardless of its global location, that does not voluntarily comply with FATCA will find that 30% of any U.S.- sourced payments (e.g. a corporate dividend or a maturing principal payment from a U.S. corporate or government bond) will be withheld. Because U.S. stocks and bonds are so widely owned across the globe, virtually all financial institutions receive substantial U.S.-sourced payments, mostly on behalf of clients who have no connection to the U.S. Allowing 30% of these payments to be withheld is clearly not an acceptable option.

Moreover, adequate grounds to establish a U.S. connection can be deceptively simple, since the U.S. government claims that simply using the U.S. dollar -- which nearly every bank in the world does -- gives it jurisdiction, even if there are no other connections to the U.S. It is clear that institutions must either comply with the provisions of FATCA or seek exemption. It is possible for a firm to be awarded 'limited conditional' FATCA status, which means that the institution is exempt from reporting because it is deemed to be compliant and information secrecy laws come into force.

When analyzing an investment account, the provisions of FATCA require the account to be classified into one of the following three categories:

• 'Approved' as of 1 July 2014
• 'Limited conditional' until the end of 2015.
• These administrators are deemed to be FATCA compliant and may register first and verify their status later.
• Rejects

The enormous quantity of FFIs that fall into neither category. The IRS calls them 'rejects' The first step in seeking 'limited conditional' status is to establish whether or not a U.S. individual or entity is part of a foreign financial institution (FFI) and then whether the FFI concerned is in a jurisdiction that restricts the provision of information. If this is indeed the case, then 'limited conditional' registration is awarded and the FFI is declared compliant with FATCA. This means that the FFI can sign the new W8 BEN-E declaration. If not, then the FFI must first register for a Global Intermediary Identification Number (GIIN) before it can sign the W8 BEN-E. It is possible for an FFI to be dealing with restricted and unrestricted information. An example would be an FFI having both a Foreign Retirement Plan and a Mutual Fund would mean this FFI would have ''limited conditional'' covering the retirement plan and a GIIN covering the mutual fund.

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There are now far more restrictions on investment in the EU than ever before and some have argued that this has effectively shut the U.S. market out of the EU because private equity managers or hedge funds in the U.S. can now face stiff regulatory penalties. Many investors now invest indirectly via their pension funds. There have been concerns raised about the volume of additional paperwork for the IRS to handle and further, that U.S. business will be negatively affected, but the fact remains: if you want to invest in U.S. dollar-denominated investments you must be FATCA compliant, whether or not you are American. Likewise, if you want to invest inside the EU, you must do so via an EU compliant entity.

The last 5 years have seen an enormous increase in the volume of regulations with which firms must comply. Many of these regulations effectively amount to capital control, including FATCA, with its far-reaching powers of enforcement. Despite freedom of movement of capital in the EU, the same applies in practice as a result of the AIFMD.

Justification for these new regulations, including those governing the exchange of financial information, ranges from a need to uncover and reduce tax fraud, to narrowing the gap between expected and actual tax revenues. On the other side of the coin, there is an argument that both the EU through its directive of 2003 and its subsequent upgrade in 2014 and the U.S. through its formal legal determination on foreign retirement plans are being overly prescriptive.

Whatever the views of the nature and depth of the regulations, it is clear that non-compliance is not an option. And it is equally clear that complexity will only increase. Rigorous - and necessarily flexible - compliance programs are here to stay.

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Professionally assisting individuals, shareholders, and corporations, raise capital and obtain liquidity is Silverbear Capital's raison d'etre. By design they are a small agile group of seasoned professionals primarily experienced in securities collateralized lending, and international banking and finance.

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Silverbear Capital are always on the lookout for international share based financing opportunities in the $1MM-$50MM range. They also enjoy consulting with public entities regarding M&A, uplisting and capital raising strategies, with an emphasis on synergistic partnerships with companies located in Hong Kong and mainland China. Along those lines, they also serve to assist individuals and companies with making inroads to these regions, and can make introductions with nearly any industry in the Asian markets within a matter of days.

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