U. S. legislation targets company formation agents and hedge fund operators

SOURCE: OffshoreAlert

MIAMI, FL: February 28, 2007

Offshore Financial Centers have become better regulated from within over the last few years, largely due to political pressure from the world’s major countries, whose governments were concerned about tax evasion. Now there is a proposal to regulate them from without.

In a bill co-sponsored by U. S. presidential hopeful Senator Barack Obama that was tabled before the U. S. Senate on February 17, 2007, U. S.-based company formation agents and operators of hedge funds and private equity funds that accept business from foreign clients will be legally required to ‘know their offshore clients’.

Essentially, they will have to conduct due diligence on foreign sources of revenue – or face regulatory penalties. For example, “all unregistered investment companies” will be required “at a minimum” to “use due diligence to identify and evaluate any foreign person (including the nominal and beneficial owner or beneficiary of a foreign corporation, partnership, trust, or other foreign entity) planning to supply or supplying funds to be invested with the advice or assistance of that unregistered company”.

The proposed due diligence requirements are among several provisions of proposed legislation that has been named the ‘Stop Tax Haven Abuse’ bill by its sponsors, Senators Obama, Carl Levin and Norm Coleman.

Apart from clamping down on offshore tax evasion by U. S. taxpayers that the Senators claim costs the Treasury approximately $100 billion per year, the bill is also intended to make it more difficult for U. S. residents to circumvent U. S. securities and money laundering laws using offshore structures.

The bottom line is that pretty much anyone involved in international finance these days had better be careful about who they are dealing with and accepting money from. If they don’t take reasonable steps to ensure that they are not assisting wrongdoers, hefty fines and even prison sentences is a more real possibility today than ever before.

The ‘Stop Tax Haven Abuse’ bill stems from a 400-page plus report that was released last year by the U. S. Senate Permanent Subcommittee on Investigations, whose Chairman and Ranking Minority Member are Senators Levin and Coleman, respectively.

The Chief Investigator for this report, Bob Roach, will be on hand at the 5th OffshoreAlert Financial Due Diligence Conference in Miami, Florida on April 24-25, 2007 to answer any questions you have about the ‘Stop Tax Haven Abuse’ bill and anything else concerning the U. S. Senate’s investigation of offshore financial centers.

More information about this and other topics to be discussed at the 5th OffshoreAlert Due Diligence Conference can be viewed online at http://www.offshorealertconference.com/OACV/agenda.asp.