US Business Law Developments
December, 2011, the United States Patent and Trademark
Office (USPTO) announced a final rule change to
the newly introduced "Track One" Fast-Track-Patent-Processing
rules. Under the rules, an applicant may, for
an additional fee, request prioritized examination
for applications for which a request for continued
examination has been made on, before or after
December 19, 2011.
passing into law of the America Invents Act in
September, 2011, includes provision for prioritized
examination of patent applications. The goal of
prioritization is to provide a final disposition
within twelve months of prioritized status having
In his annual speech in November, 2011, David
J. Kappos, Under Secretary of Commerce for Intellectual
Property and Director of the United States Patent
and Trademark Office, announced that: "During
2011, the USPTO issued its' eight millionth patent
and reduced the backlog of patent applications
awaiting first action to 'well below' 700,000.
A milestone achieved through a series of initiatives
undertaken to improve the speed and quality of
May, 2010, the United States Patent and Trademark
Office (USPTO) had announced the expansion to
all applicants of its “Project Exchange”
program, which was expected to substantially reduce
the backlog of unexamined patents pending
before the Office.
the expanded Project Exchange, any applicant with
more than one application, filed prior to the
inception of the program could receive an expedited
review of one application in exchange for withdrawing
an unexamined application.
expanded Project Exchange gave all applicants
with multiple filings greater control over the
priority in which their applications were examined
and enabled priority applications to be examined
on an expedited basis.
providing incentives for applicants to withdraw
unexamined applications that were no longer important
to them, the USPTO hoped that Project Exchange
would appreciably reduce the backlog of unexamined
expanded Project Exchange was limited to 15 applications
per entity, although the scheme was only temporary
and closed at the end of 2010.
Whereas new patent applications are normally taken
up for examination in the order they are filed,
applications prioritized under this pilot were
advanced in the examination queue.
of August 2009, the USPTO had a patent application
backlog of more than 770,000. Moreover, there
are long waiting periods for patent review, and
the office has information technology systems
that are regarded as outdated and an application
process in need of modernization.
to a study by London Economics released on behalf
of the UK Intellectual Property Office, the cost
to the global economy of the delay in processing
patent applications may be as much as USD11.5bn
each year, preventing hi-tech businesses in sectors
such as telecoms, aviation and engineering from
getting to market as quickly as they otherwise
December, 2008, the Recording Industry Association
of America made a decision to drop its
independent prosecutions of online copyright violators,
instead making it the sole responsibility of the
Internet Service Providers concerned. The RIAA
believes its decision will enable a wider spectrum
of illegal file sharers to be caught and prosecuted,
with a graduated series of sanctions being dealt
out by the ISPs.
the move, the RIAA will reach agreements with
ISPs, allowing it to work in the background to
identify those individuals it believes to be illegally
downloading and sharing music files online, and
will then send emails detailing its findings to
the ISPs in question.
will then be the job of the ISPs to impose appropriate
punishments based upon the extent of the copyright
first step will normally be to contact an offender
with an official warning. If this is ignored,
however, then the ISP will have the power to slow
down the individual's internet connection to deter
them from downloading, and ultimately, if both
these measures fail, then the ISP will simply
disconnect the individual and permanently block
their internet access. Individuals will have the
right to challenge ISPs' actions under an administrative
procedure to be set in place.
RIAA has adopted this new approach as a drastic
last-ditch attempt to challenge the unremitting
level of copyright abuse which has been continuing
past five years has seen over 35,000 American
individuals successfully convicted and punished
on the basis of copyright infringement, yet this
has done little to reduce the overall number of
people taking part in the activity on an annual
July 2007, the US Senate Judiciary Committee adjusted
the terms of the Patent Reform Act of 2007,
limiting infringement damages, and seeking to
put an end to 'forum shopping' for patent disputes.
legislation, introduced earlier in the year, updates
current patent laws to provide reforms for patent
seekers and patent holders alike.
many important reforms, the bipartisan, bicameral
bill would create a pure "first-to-file"
system to bring clarity and certainty to the US
patent system. The bill also attempts to create
a more "streamlined and effective" way
of challenging the validity and enforceability
of patents, by allowing reviews to be undertaken
of patents after they have been granted.
amendment put forward by the Chairman of the Senate
Judiciary Committee, Patrick Leahy (D-Vt) would
limit the amount of infringement damages that
could be claimed "unless the claimant shows
that the patent's specific contribution over the
prior art is the predominant basis for market
demand for an infringing product or process".
ranking Committee member, Arlen Specter (R-Penn)
proposed linking the forum in which a patent dispute
can be heard to the plaintiff's place of residence
or business, or the area in which the infringement
is alleged to have primarily taken place.
bill is co-sponsored by Senator Leahy and Senator
Orrin Hatch (R-Utah), with the lower House companion
bill sponsored by Rep. Howard Berman (D-Cal).
Senator Leahy was keen to get the bill approved
and onto the Senate floor as soon as possible,
several of the panel members called for more time
to discuss the proposed changes to the legislation.
bills were subsequently approved by both the Senate
and House Judiciary Committees.
the legislation has the strong support of the
technology sector (which sees itself as more vulnerable
to patent infringement actions as a result of
the amount of patented technology contained in
hi-tech products), pharmaceutical and biotechnology
firms are less supportive, arguing that the labour
and cash-intensive process of developing a new
drug requires cast-iron patent protection, over
as long a period as possible.
May 2007, US Attorney General Alberto R. Gonzales
highlighted the Justice Department’s ongoing
efforts to protect intellectual property rights,
and unveiled a comprehensive legislative proposal,
entitled the “Intellectual Property
Protection Act of 2007”, to members
of the US Chamber of Commerce Coalition Against
Counterfeiting and Piracy.
addition to the proposed legislation, the Department’s
ongoing commitment to combating intellectual property
includes measures for implementing valuable resources,
and aggressively prosecuting counterfeiters, both
elements of the government-wide Strategy Targeting
Organized Piracy (STOP) Initiative.
Intellectual Property Protection Act of 2007 submitted
to Congress by AG Gonzales aims to enhance the
Justice Department's ability to prosecute crimes
and protect the intellectual property rights of
citizens and industries.
its many provisions, the Act includes measures
the maximum penalty for counterfeiting offenses
from 10 years to 20 years imprisonment where
the defendant knowingly or recklessly causes
or attempts to cause serious bodily injury,
and increase the maximum penalty to life imprisonment
where the defendant knowingly or recklessly
causes or attempts to cause death;
stronger penalties for repeat-offenders of the
broad forfeiture reforms to ensure the ability
to forfeit property derived from or used in
the commission of criminal intellectual property
restitution provisions for certain intellectual
property crimes (e.g., criminal copyright and
DMCA offenses); and
that the exportation and transhipment of copyright-infringing
goods is a crime, just as the exportation of
counterfeit goods is now criminal.
the proposed legislation, Gonzales observed that:
theft is not a technicality, and its victims are
not just faceless corporations — it is stealing,
and it affects us all. Those who seek to undermine
this cornerstone of US economic competitiveness
believe that they are making easy money; that
they are beyond the law. It is our responsibility
and commitment to show them that they are wrong."
in May 2007, the US Supreme Court delivered a
key decision on the role that the 'obviousness'
of an invention which contains pre-existing
technologies should have in the granting, or otherwise,
of a patent.
case of KSR International Co. v. Teleflex Inc
centred on gas pedals manufactured and supplied
by KSR to General Motors, which contain technology
allowing them to be adjusted according to the
height of the driver, in addition to containing
an electronic engine control system.
took infringement action against KSR in 2002,
arguing that it owned the patent for such a combination
of technologies. KSR countered that the obviousness
of the combination should invalidate Teleflex's
won its case in Federal District Court in Detroit,
but that decision was rejected by the United States
Court of Appeals for the Federal Circuit in 2005.
Supreme Court's verdict reversed the appeals court
decision and the case was sent back to the Detroit
District Court, in a move which could have far-reaching
implications for the granting of patents in the
on behalf of his peers, Justice Anthony Kennedy
reportedly observed that:
patent protection to advances that would occur
in the ordinary course without real innovation
retards progress and may ... deprive prior inventions
of their value."
that month, The Office of the United States Trade
Representative on Monday published that year's
edition of the Special 301 report on
the perceived adequacy and effectiveness of intellectual
property rights (IPR) protection by US trading
is the lifeblood of a dynamic economy here in
the United States, and around the world. We must
defend ideas, inventions and creativity from rip
off artists and thieves,” explained US Trade
Representative Susan C. Schwab, adding:
report underscores the Administration’s
scrutiny in pinpointing challenges in protecting
IPR and signals to our trading partners that effective
IPR protection will remain a critical focus in
in previous years, the USTR’s Special 301
report highlighted the prominence of concerns
with respect to China and Russia, in spite of
some evidence of improvement.
USTR explained that:
remains a focus of US trade policy in the area
of intellectual property. Large-scale production
and distribution of IP-infringing optical media
and minimally-restrained Internet piracy are among
the major problems that require more enforcement
coming months will be a critical period, as Russia
moves to implement a variety of legal and law
enforcement improvements to which it committed
as part of a bilateral agreement with the United
States on Russia’s eventual accession to
the World Trade Organization (WTO). Implementation
of these commitments will be essential to completing
the final multilateral negotiations on the overall
the department added that:
made ambitious commitments to improve its IPR
protection and enforcement. As part of the Special
301 report, USTR is also announcing an out-of-cycle
review to evaluate Russia’s progress."
out-of-cycle reviews will be carried out with
respect to Brazil, the Czech Republic and Pakistan.
Special 301 report also provided an opportunity
for the US to recognize progress. Brazil is being
moved to the Watch List (from Priority Watch List),
reflecting significant improvements in copyright
enforcement, and five other trading partners –
Bahamas, Bulgaria, Croatia, the EU, and Latvia
– are being removed from the Special 301
year’s Special 301 report places 43 countries
on the Priority Watch List (PWL), Watch List (WL)
or the Section 306 monitoring list.
on the Priority Watch List are not deemed to provide
an adequate level of IPR protection or enforcement,
or market access for persons relying on intellectual
property protection. In addition to China and
Russia, 10 countries are on the PWL in this year’s
report: Argentina, Chile, Egypt, India, Israel,
Lebanon, Thailand, Turkey, Ukraine, and Venezuela.
trading partners are on the lower level Watch
List, meriting bilateral attention to address
the underlying IPR problems. The Watch List countries
are: Belarus, Belize, Bolivia, Brazil, Canada,
Colombia, Costa Rica, Dominican Republic, Ecuador,
Guatemala, Hungary, Indonesia, Italy, Jamaica,
Korea, Kuwait, Lithuania, Malaysia, Mexico, Pakistan,
Peru, Philippines, Poland, Romania, Saudi Arabia,
Taiwan, Tajikistan, Turkmenistan, Uzbekistan,
will continue to be subject to Section 306 monitoring
under a bilateral Memorandum of Understanding
that establishes objectives and actions for addressing
IPR concerns in that country.
April 2007, the US Trade Representative announced
that the United States would be making two requests
for World Trade Organization (WTO) dispute
settlement consultations with the People’s
Republic of China: one over deficiencies in China’s
legal regime for protecting and enforcing copyrights
and trademarks on a wide range of products, and
the other over China’s barriers to trade
in books, music, videos and movies.
and counterfeiting levels in China remain unacceptably
high,” Ambassador Schwab explained, continuing:
protection of intellectual property rights in
China costs US firms and workers billions of dollars
each year, and in the case of many products, it
also poses a serious risk of harm to consumers
in China, the United States and around the world.
We acknowledge that China’s leadership has
made the protection of intellectual property rights
a priority and has taken active steps to improve
IPR protection and enforcement."
while the United States and China have been able
to work cooperatively and pragmatically on a range
of IPR issues, and China has taken numerous steps
to improve its protection and enforcement of intellectual
property rights, we have not been able to agree
on several important changes to China’s
legal regime that we believe are required by China’s
bilateral dialogue has not resolved our concerns,
we are taking the next step by requesting WTO
consultations. We will continue to welcome dialogue
with China in an effort to resolve these issues.
We also look forward to continuing fruitful bilateral
discussions with China on other important IPR
matters we have been working on together, since
achieving comprehensive IPR protection requires
concerted efforts on many fronts. Ultimately,
it is in the best interest of all nations, including
China, to protect intellectual property rights.”
US Trade Representative added:
the same vein, we have discussed with China in
detail the harm to US industries, authors and
artists who produce books, journals, movies, videos,
and music caused by limiting the importation of
these products to Chinese state-owned entities,
and the problems caused by Chinese laws that hobble
the distribution of foreign home entertainment
products and publications within China. These
products are favorite targets for IPR pirates,
and the legal obstacles standing between these
legitimate products and the consumers in China
give IPR pirates the upper hand in the Chinese
we continue to have an open dialogue with China
in an effort to resolve these particular issues
with the help of the WTO dispute resolution mechanisms,
we will of course also continue to put serious
efforts into our joint work with China on innovation
policy, intellectual property protection strategies,
and the range of other important matters in our
bilateral economic relationship through the U.S.
– China Strategic Economic Dialogue and
the Joint Commission on Commerce and Trade.”
USTR announcement came despite the decision that
week by the Chinese Supreme People's Court to
reduce the threshhold levels for music and movie
piracy, effective immediately.
the decision, anyone possessing more than 500
pirated DVDs or CDs (down from 1,000) will face
criminal prosecution with gaol terms of up to
three years, instead of fines, while possession
of more than 2,500 pirated items (down from 5,000)
will triggers more severe penalties of up to seven
years in prison.
April, 2010, the United States Court of Appeals
ruled that the US Federal Communications Commission
(FCC) did not have the authority to dictate an
internet service provider’s network management
practices but, in a statement a month later, the
FCC announced that it believes it has found the
way to continue its broadband regulatory
2007, several subscribers to Comcast’s high-speed
internet service discovered that the company was
interfering with their use of peer-to-peer (P2P)
networking applications. P2P programmes allow
users to share large files directly with one another
without going through a central server. Such programs
also consume significant amounts of bandwidth,
and Comcast argued that it had an obligation to
manage its network capacity for its customers.
FCC then attempted to enforce “net neutrality”
principles and barred Comcast from interfering
with its customers’ use of P2P networking
applications by exercising an authority within
the Communications Act. It said that its action
was “reasonably ancillary to the... effective
performance of its statutorily mandated responsibilities.”
However, the court decided that the FCC had failed
to tie its assertion of ancillary authority over
Comcast’s internet service to any such responsibility,
and found for Comcast.
Comcast court decision created a serious problem
for the FCC to continue its broadband policies,
including reforming the Universal Service Fund
to provide broadband to all Americans, protecting
consumers and promoting competition by ensuring
transparency regarding broadband access services,
safeguarding the privacy of consumer information
and preserving the free and open internet. There
was uncertainty about the FCC’s ability
to perform the basic oversight functions it felt
to be essential and appropriate.
since the decision, the FCC has been searching
for a way forward. Its chairman, Julius Genachowski,
however, announced on May 6 that it believes it
has found a way to continue its role.
court decision had, he said, cast serious doubt
on the particular legal theory the FCC had used
since 2002 to justify its backstop role with respect
to broadband internet communications. The FCC
had then decided to classify a broadband internet
access service not as a “telecommunications
service” for purposes of the Communications
Act, but as something different - an “information
decision had led to broadband becoming the type
of service over which the FCC could exercise only
the indirect “ancillary” authority
judged inadequate in the Comcast case, as opposed
to the clearer direct authority exercised over
the FCC could, at this stage, fully reclassify
internet communications as a “telecommunications
service,” thereby restoring the FCC’s
direct authority over broadband communications
networks, but also imposing on providers of broadband
access services dozens of new regulatory requirements,
Julius Genachowski said that the FCC’s lawyers
had found another option.
this option, the FCC will only recognize the transmission
component of broadband access service as a telecommunications
service, and apply only the handful of provisions
under Title II of the Communications Act that,
prior to the Comcast decision, were widely believed
to be within the FCC’s purview for broadband.
will also forbear from application of the many
sections of the Communications Act that it considers
are unnecessary and inappropriate for broadband
access service, and put in place up-front forbearance
and meaningful boundaries to guard against regulatory
said that this approach will place federal policy
regarding broadband communications services on
the soundest legal foundation, thereby eliminating
as much of the current uncertainty as possible,
and would restore the status quo. It will not
change the range of obligations that broadband
access service providers faced pre-Comcast.
it is now being said in some quarters that the
treatment of broadband as a “telecommunications
service” will, in itself, create uncertainty
over the extent of the FCC’s powers in the
future. While the current FCC may exercise forbearance,
for example, over net neutrality, the FCC might
well be able to extend its reach in the future
by widening the scope of its regulatory powers
under the Act.
reached a November, 2008, agreement with the Authors
Guild and the Association of American Publishers
(AAP) under which the firm will pay USD125m to
resolve outstanding legal actions against it in
relation to its Google Book search service, which
offers full-text searching facilities to users.
agreement, reached after two years of negotiations,
and which is subject to approval by the US District
Court for the Southern District of New York. would
resolve a class-action lawsuit brought by book
authors and the Authors Guild, as well as a separate
lawsuit filed by five large publishers as representatives
of the AAP’s membership. These lawsuits
challenged Google’s plan to digitize, search
and show snippets of in-copyright books and to
share digital copies with libraries without the
explicit permission of the copyright owner.
money will be used to establish the Book Rights
Registry, to resolve existing claims by authors
and publishers and to cover legal fees. Holders
worldwide of US copyrights can register their
works with the Book Rights Registry and receive
compensation from institutional subscriptions,
book sales, ad revenues and other possible revenue
models, as well as a cash payment if their works
have already been digitized.
says that the agreement would:
more access to out-of-print books by generating
greater exposure for millions of in-copyright
works, including hard-to-find out-of-print books,
by enabling readers in the US to search these
works and preview them online;
Further expand the electronic market for copyrighted
books in the US, by offering users the ability
to purchase online access to many in-copyright
Provide free, full-text, online viewing of millions
of out-of-print books at designated computers
in US public and university libraries.
“This historic settlement is a win for everyone,”
said Richard Sarnoff, Chairman of the Association
of American Publishers. “From our perspective,
the agreement creates an innovative framework
for the use of copyrighted material in a rapidly
digitizing world, serves readers by enabling broader
access to a huge trove of hard-to-find books,
and benefits the publishing community by establishing
an attractive commercial model that offers both
control and choice to the rightsholder.”
mission is to organize the world's information
and make it universally accessible and useful.
Today, together with the authors, publishers,
and libraries, we have been able to make a great
leap in this endeavor,” said Sergey Brin,
co-founder & president of technology at Google.
“While this agreement is a real win-win
for all of us, the real victors are all the readers.
The tremendous wealth of knowledge that lies within
the books of the world will now be at their fingertips.”
hard work writing a book, and even harder work
getting paid for it,” said Roy Blount Jr.,
President of the Authors Guild. “As a reader
and researcher, I’ll be delighted to stop
by my local library to browse the stacks of some
of the world’s great libraries. As an author,
well, we appreciate payment when people use our
work. This deal makes good sense.”
John Lefebvre, the founder and former president
of payment services company Neteller, pleaded
guilty to charges that he conspired with others
to promote illegal gambling by providing
payment services in the United States
to offshore internet gambling businesses.
to Michael J. Garcia, the United States Attorney
for the Southern District of New York, the Neteller
Group provided payment services to internet gambling
businesses located outside the United States,
so those businesses could take bets from gamblers
in the United States, where such betting is now
and fellow co-founder Stephen Lawrence, both Canadian
citizens, were arrested in connection with the
charges in January.
PLC, formerly known as Neteller, Inc., is an internet
payment services company that was founded by Lawrence
and Lefebvre in 1999. Neteller is based in the
Isle of Man and its shares are listed on the London
Stock Exchange, although trading in the company's
stock has been suspended.
began processing internet gambling transactions
in approximately July 2000. Internet payment services
companies like Neteller allow gambling companies
to transfer money collected from United States
customers to bank accounts outside the United
States. According to Neteller’s 2005 annual
report, Lawrence and Lefebvre, through Neteller,
provided payment services to more than 80% of
worldwide gaming merchants.
defendants held senior positions within Neteller;
Lawrence served as the company's chief executive
officer until December 2002, its executive director
from 2001 until mid-2003 and as chairman until
May 2006. Lefebvre was president of the company
from 2000 until 2002 and a board member until
approximately December 2005.
has revealed that as of 18 January 2007, US customers
were no longer able to transfer funds using its
services to or from any online gambling site.
The company's board made the decision in the light
of the passing of the Unlawful Internet Gaming
Enforcement Act of 2006 (UIGEA) by Congress last
year, and the attendant.
2005, it is said that Neteller processed over
$7.3 billion in financial transactions, and prosecutors
alleged that 95% of the firm's revenue was derived
from money transfers involving internet gambling
pleaded guilty to a number of charges, including:
one count of conspiracy to use the wires to transmit
in interstate and foreign commerce bets; conducting
illegal gambling businesses; engaging in international
financial transactions for the purpose of promoting
illegal gambling; and operating an unlicensed
money transmitting business.
55, faces a maximum sentence of 5 years’
imprisonment and a fine of $250,000, or twice
the gross gain or loss from the offense, when
he is sentenced before United States District
Judge P. Kevin Castel on October 29, 2007. Lawrence
also admitted to forfeiture allegations, requiring
him to forfeit $100 million.
a related case, Lawrence pleaded guilty on June
29, 2007 to participating in the same conspiracy
and also admitted to a forfeiture allegation of
$100 million, for which he is jointly responsible
June 2007, the government of Antigua and Barbuda
argued that it is entitled to compensation
of US$3.4 billion from the United States
to rectify the damage to its economy caused by
the long-running e-gaming dispute between the
given the go-ahead by the World Trade Organisation,
Antiguan finance minister Errol Cort said in a
statement that the compensation would take the
form of withdrawing intellectual property protection
for US trademarks, patents and industrial designs.
feel we have no other choice in the matter, we
have fought long and hard for fair access to the
US market and have won at every stage of the WTO
process," said Cort. "Until such time
as the United States is willing to work with us
on achieving a reasonable solution to this trade
dispute, we will continue to use every legitimate
remedy available to protect the interests of our
WTO’s Dispute Settlement Body was set to
review Antigua & Barbuda's request at its
end of July sitting and decide whether such sanctions
are reasonable. If approved, the sanctions could
be put into place immediately thereafter. However
the US also has the right to refer the issue to
further arbitration and was expected to exercise
this option, thus stringing out the protracted
dispute for at least another three to four months,
with the dispute panel's decision not expected
to come until the end of the year.
dispute between the two countries began when the
US decided to block banks and credit card companies
from processing payments made by US residents
to online gaming companies based offshore, citing
both moral and security justifications. A huge
proportion of the global e-gaming market was thus
wiped out at a stroke for the 32-registered online
casinos in Antigua & Barbuda, a move which
also threatens the jurisdiction's attempts to
diversify its economy. According to the Antiguan
government, income has fallen to $130 million
a year from $1 billion among the jurisdiction's
online casinos in 2000, when earlier US restrictions
on online gaming were imposed.
United States decision to withdraw from one of
its WTO commitments after it finally lost its
battle with Antigua and Barbuda provoked a storm
of outrage and concern. The previous month, it
emerged that the United States had decided to
sidestep the ruling by the WTO dispute resolution
panel in favour of Antigua by simply rescinding
one of its services agreements. "We did not
intend and do not intend to have gambling as part
of our services agreement," stated Deputy
US Trade Representative John K. Veroneau, in an
announcement that shocked many observers. "What
we are doing is just clarifying our commitments."
WTO treaty allows a country to withdraw commitments
to open its services market to foreign investors.
However, the US could potentially have to renegotiate
with any of the other 149 member countries if
they raise objections to its decision. Member
countries affected by the US ban on offshore online
gaming firms may also have a case to claim compensation
from the US government.
April 2007, Rep. Barney Frank (D-MA) has introduced
legislation into the House of Representatives
that would create an exemption to the
ban on online gambling for properly licensed operators,
allowing Americans to lawfully bet online.
Internet Gambling Regulation and Enforcement Act
of 2007 establishes a federal regulatory and enforcement
framework to license companies to accept bets
and wagers online from individuals in the US,
to the extent permitted by individual states,
Indian tribes and sport leagues. All such licenses
would include protections against underage gambling,
compulsive gambling, money laundering and fraud.
existing legislation is an inappropriate interference
on the personal freedom of Americans and this
interference should be undone,” said. Rep.
Frank, who is Chairman of the House Financial
2006, the House passed the Unlawful Internet Gambling
Enforcement Act, restricting the handling of payments
by US financial institutions for unlawful forms
of internet gambling. That law prohibits the use
of payment instruments by such institutions to
handle the processing of any form of internet
gambling that is illegal under US federal or state
argued that traditional forms of legalized gambling
already exist in nearly every state and by continuing
to prohibit internet gambling in the US, Americans
who choose to gamble online are without meaningful
consumer protections. He said that the proposed
legislation would institute practical and enforceable
standards to bring transparency to internet gambling
and provide consumers the protections they expect
March 2007, the Recording Industry Association
of America launched a new and strengthened
campus anti-piracy initiative that significantly
expands the scope and volume of its deterrent
efforts, while offering a new process that gives
students the opportunity to avoid a formal lawsuit
by settling prior to a litigation being filed.
RIAA, on behalf of the major record companies,
sent 400 pre-litigation settlement letters to
13 different universities. Each letter informed
the school of a forthcoming copyright infringement
lawsuit against one of its students or personnel.
RIAA requested that universities forward those
letters to the appropriate network user. Under
this new approach, a student (or other network
user) can settle the record company claims against
him or her at a discounted rate before a lawsuit
is ever filed.
initial wave of the new initiative included letters
in the following quantities sent to: Arizona State
University (23 pre-settlement litigation letters),
Marshall University (20), North Carolina State
University (37), North Dakota State University
(20), Northern Illinois University (28), Ohio
University (50), Syracuse University (37), University
of Massachusetts – Amherst (37), University
of Nebraska – Lincoln (36), University of
South Florida (31), University of Southern California
(20), University of Tennessee – Knoxville
(28), and University of Texas – Austin (33).
RIAA, on behalf of the major record companies,
will pursue hundreds of similar enforcement actions
against university network users each month.
have transformed how we do business, and online
music has experienced a sea change compared to
three years ago,” observed Mitch Bainwol,
Chairman and CEO of the RIAA.
legal marketplace that barely existed in 2003
is now a billion dollar business showing real
promise. Many rogue sites have gone under and
fans have a far better understanding of the right
and wrong ways to enjoy music. No matter how much
we adapt, though, any new business model must
always necessarily rely upon a respect for property
rights. That’s why we must continue to enforce
late March, 2012, the US Chamber of Commerce published
the 2012 Financial Regulatory Reform Card. The
report card evaluates the progress made by regulators
in implementing Dodd-Frank rules. The
four categories graded are:
diversity of capital formation;
U.S. competitiveness through financial regulatory
the integrity of accounting and auditing.
category contains a number of subcategories that
are also graded. The report includes 'suggestions
to improve the grade and how regulators and Congress
can complete the task to ensure that the ultimate
outcome of regulatory reform is a robust capital
formation system that benefits consumers, investors,
and job creators.
Failure to get it right will deprive job creators
of the investments, loans, and other forms of
credit they need.'
May, 2010, the United States Senate approved legislation
which would lead to the most radical shake-up
of US financial regulation since the
Restoring American Financial Stability bill has
been drawn up to prevent a repeat of the events
which led to the financial crisis and the deepest
economic recession since the Great Depression.
The legislation scraped through the Senate on
the afternoon of May 20 after securing vital Republican
votes. It must now be reconciled with companion
legislation pending in the House of Representatives
before President Obama can sign the legislation
main provisions of the bill include:
creation of an independent consumer protection
watchdog, housed at the Federal Reserve which
will be tasked with ensuring that American consumers
receive clear and accurate information when
shopping for mortgages, credit cards, and other
financial products, and protecting them from
hidden fees, abusive terms, and deceptive practices;
Tough new capital and leverage requirements
on 'too big to fail' financial institutions
in a bid to prevent the taxpayer from having
to bail out failed banks, including new rules
on how failed financial firms are liquidated
and more rigorous standards and supervision
on the financial industry;
The creation of a new council to identify and
address systemic risks posed by large, complex
companies, products, and activities and to provide
an 'advanced warning system' of looming systemic
Tougher transparency requirements for certain
unregulated and over-the-counter financial instruments;
A streamlined federal banking supervision system
which will supposedly protect smaller community
Giving shareholders a greater say on executive
Tougher transparency rules for credit ratings
Stronger oversight and enforcement powers for
regulators to allow them to pursue cases of
fraud, conflicts and manipulation more aggressively.
The bill is based largely on the blueprint for
financial regulatory reform announced by the President
earlier this year, and Obama welcomed the Senate
goal is not to punish the banks, but to protect
the larger economy and the American people from
the kind of upheavals that we’ve seen in
the past few years. And today’s action was
a major step forward in achieving that goal,"
he commented shortly after the Senate vote.
will be no more taxpayer-funded bailouts -- period.
If a large financial institution should ever fail,
we will have the tools to wind it down without
endangering the broader economy. And there will
be new rules to prevent financial institutions
from becoming 'too big to fail' in the first place,
so that we don’t have another AIG,"
President sought to counter claims that the legislation
would strangle the US financial industry and reduce
its international competitiveness.
reform I sign will not stifle the power of the
free market. It will simply bring predictable,
responsible, sensible rules into the marketplace.
Unless your business model is based on bilking
your customers and skirting the law, you should
have nothing to fear from this legislation,"
many Senate Republicans continued to criticize
the proposed law. Nevada Senator John Ensign said
that the Wall Street bill could create "unintended
consequences" which could ultimately "bring
more damage" on the US economy, while Texas
Senator John Cornyn fears that the bill would
punish "small business owners and community
bankers who had little or nothing to do with the
were voiced at a November, 2008, Bermuda insurance
conference over the threat posed by US Congressman
Richard Neal's legislation to Bermuda’s
thriving insurance market.
concern has mounted following the Congressman’s
proposal, introduced into the House of Representatives
in September, which would end the advantage
of offshore reinsurance entities over American
companies. The bill disallows deductions
for excess reinsurance premiums with respect to
US risks paid to affiliated insurance companies
that are not subject to US tax. The legislation
also provides the US Treasury with authority to
prevent avoidance of the provisions of the bill.
the recent conference XL Capital CEO Michael McGavick
warned that the move would have a huge impact
on the Bermudan insurance industry saying, “the
threat to Bermuda's insurance industry coming
from some quarters in Washington was more than
threat was further emphasised by Finance Minister
Paula Cox who said “the US tax issue is
a real threat to Bermuda's national economic interests
and a threat we take seriously,” although
she added that the Bermuda government and insurance
industry are lobbying hard to put their case across.
insurers feel the move is unfair arguing that
the reason why insurance firms are so prominent
in Bermuda is because of the complexity of the
US regulatory system, and the added complexity
of having to file separate forms for each state.
Kading, President of Association of Bermuda Insurers
and Reinsurers has described the move as a triple
economic whammy for US citizens wishing to get
insured and a straightjacket for insurers needing
likely outcome of this discriminatory tax legislation
would be to make it more expensive and difficult
for US consumers to get insurance protection.
This is not what American consumers need when
they are also dealing with housing market chaos,
financial instability and record high gas prices,"
he said in September.
to Neal, since 1996, the amount of reinsurance
sent to offshore affiliates has grown dramatically,
from a total of USD4bn ceded in 1996 to USD34bn
in 2007, including USD19bn alone to Bermuda affiliates.
There has also been a steep rise in premiums written
in the US by offshore entities, which have doubled
in the last decade, representing USD54bn in direct
premiums written in 2006. Again, Bermuda-based
companies represent the bulk of this growth, although
Switzerland is also a favourable jurisdiction
due to its network of tax treaties.
July 2007, the US Securities and Exchange Commission
voted unanimously to adopt a new antifraud
rule under the Investment Advisers Act
that will clarify the Commission's ability to
bring enforcement actions under the Advisers Act.
rule applies to investment advisers not only of
hedge funds, but also of private equity funds,
venture capital funds, and mutual funds. Collectively,
these funds hold trillions of dollars of investors'
assets and play an important and growing role
in our capital markets," explained SEC Chairman
rule will give the Commission an important tool
to help us police this market — to deter
misconduct and to call to task those who breach
their obligations to investors."
new rule will make it a fraudulent, deceptive,
or manipulative act, practice, or course of business
for an investment adviser to a pooled investment
vehicle to make false or misleading statements
to, or otherwise to defraud, investors or prospective
investors in that pool.
rule will apply to all investment advisers to
pooled investment vehicles, regardless of whether
the adviser is registered under the Advisers Act.
the new rule, a pooled investment vehicle will
include any investment company and any company
that would be an investment company but for the
exclusions in Sections 3(c)(1) or 3(c)(7) of the
Investment Company Act.
in July 2007, it emerged that the United States
Supreme Court had agreed to hear a case
involving the deductibility of fees incurred by
trust managers, with the verdict promising
to have widespread ramifications for the US trust
case of Knight v. Commissioner of Internal Revenue,
comes to the Supreme Court on appeal from the
Second Circuit US Court of Appeals in New York.
The outcome of the case rests on whether the court
decides that trustees may deduct fees paid to
outside advisors in the course of managing assets
in the trust, and if so, how much.
may deduct fees, known as trustees' commissions,
for managing trusts, but the lower courts have
been unable to agree whether fees paid to investment
advisors such as banks are deductible. The issue
is complicated by the fact that the law seems
to be being applied differently across the states,
with some allowing the trustee to fully deduct
the outside advisory fee, and others arguing that
the expenses don't qualify as above-the-line deductions,
and are subject to the standard 2% miscellaneous
deductions limitation, as stipulated in the Internal
case was brought by Michael Knight, trustee of
the Rudkin Trust, who claimed a full deduction
for the trust's investment management fees based
on an earlier decision by the Sixth Circuit Court
of Appeals. However, he subsequently lost the
case in the US Tax Court, and an appeal to the
Second Circuit was dismissed.
the case was not anticipated to have a great effect
on the US trust industry in terms of lost business,
the verdict is expected to reach far and wide
in terms of how trustees and their accountants
approach the issue of tax.
June 2007, it emerged that new legislative proposals
that would tax as corporations all publicly
traded partnerships that directly or indirectly
derive income from investment adviser or asset
management services would leave the majority
of US venture capital firms unaffected.
to the introduction of a bill that aimed to tax
such funds at 35% instead of 15%, Mark Heesen,
president of the National Venture Capital Association
(NVCA), said in a statement that "almost
no" venture capital firms would be affected
by the proposals since they are aimed at funds
which are publicly traded.
Bill proposed by Senators Baucus (D-MT) and Grassley
(R-IA) is directed at publicly-traded partnerships,"
Heesen stated. "As almost no venture capital
firms are publicly held, this proposed legislation
does not impact our business."
added that the NVCA has met with staff members
of the Senate Finance Committee, Joint Tax, and
the House of Representatives Ways and Means Committee
over previous months to explain how the venture
capital model is "taxed correctly".
remain hopeful that lawmakers will continue to
demonstrate an understanding that the existing
venture capital tax structure is appropriate and
critical to economic growth in the US," Heesen
National Venture Capital Association (NVCA) represents
approximately 480 venture capital and private
equity firms. According to a 2006 Global Insight
study, venture-backed companies accounted for
10.4 million jobs and $2.3 trillion in revenue
in the United States in 2006.
Finance Committee Chairman Baucus and ranking
committee Republican Chuck Grassley introduced
the bill because, in the words of Grassley, some
firms are "pretending to be something they’re
not to avoid most, if not all, corporate taxes".
unfair to allow a publicly traded company to act
like a corporation but not pay corporate tax,
contrary to the intent of the tax code,"
he said upon the bill's introduction, adding:
"If left unaddressed, the tax concerns presented
by the public offerings of investment managers,
like private equity and hedge fund management
firms, could fundamentally erode the corporate
in June 2007, a former United States Treasury
Secretary suggested that fund managers
receiving pay through performance fees were not
paying their fair share of tax, adding
fuel to the debate as to whether curbs should
be placed the escalating sums earned by the top
as a panelist at a tax reform conference organised
by the Hamilton Project, part of the Brookings
Institution, Robert E. Rubin, a Treasury Secretary
during the Clinton administration, was asked whether
it would be more appropriate for fund managers
earning profits from managing others' money, known
as carried interest, to pay income tax at rates
of up to 35%, instead of capital gains tax, which
can be taxed at 15%.
seems to me what is happening is people are performing
a service, managing peoples’ money in a
private equity form, and fees for that service
would ordinarily be thought of as ordinary income,”
Rubin said. He went on to state that the issue
should be examined “with great seriousness”
by the Congressional tax committees.
the standard basic fee structure for managers
of hedge and private equity funds is 20% of gains
made by the fund, plus a 2% management fee. This
has helped to fuel some massive pay increases
for the heads of the most successful funds. According
to Alpha magazine, the average pay of the 25 top
performing fund managers was $570 million last
year. The highest paid of these fund managers
was James Simons, chairman of Renaissance Technologies,
who earned $1.7 billion.
May 2007, the US Departments of Treasury,
Justice, and Homeland Security joined together
in issuing the 2007 National Money Laundering
Strategy, a report detailing continued
efforts to dismantle money laundering and terrorist
2007 National Money Laundering Strategy is a direct
result of close cooperation by the Departments
of Justice, Treasury and Homeland Security, along
with our foreign counterparts, and signifies our
collective commitment to fight money laundering,"
announced Assistant Attorney General Alice S.
Fisher, of the Justice Department's Criminal Division.
of this strategy will greatly assist in efforts
to seize and forfeit millions in illegal proceeds
that flow through the international financial
2007 Strategy addresses the priority threats and
vulnerabilities identified by the Money Laundering
Threat Assessment released in 2006.
Assessment – the first government-wide analysis
of its kind – brought together the expertise
of regulatory, law enforcement, and investigative
officials from across the government, culminating
in a comprehensive analysis of specific money
laundering methods, patterns of abuse, geographical
concentrations, and the associated legal and regulatory
2007 Strategy builds on initiatives and programs
pioneered in preceding National Money Laundering
Strategies, and places an emphasis on bolstering
the efficiency of the anti-money laundering processes
currently in place.
every type of case, from human smuggling and drug
trafficking to intellectual property rights violations
and illegal alien employment schemes, the need
to hide and move ill-gotten gains is a constant.
ICE's anti-money laundering initiatives are at
the forefront of attacking existing and emerging
money laundering threats" observed Julie
L. Myers, Assistant Secretary for Immigration
and Customs Enforcement at the Department of Homeland
added: "ICE's trade transparency unit, bulk
cash smuggling initiative and programs targeting
illegal money service businesses and stored value
card schemes are making it less profitable to
commit these crimes."
the 2007 Strategy focuses on "leveling the
playing field internationally", according
to the US Treasury, by "helping to ensure
U.S. financial institutions are not disadvantaged
through the implementation of controls and standards
to combat money laundering and terrorist financing".
money laundering is a global threat the United
States is working to address through international
bodies, including the Financial Action Task Force
(FATF), and through direct private sector outreach
in regions around the world."
February 2007, bipartisan legislation was reintroduced
into Congress that aimed to close the
supposed $17 billion capital gains tax gap
by making the tax code fairer and simpler for
taxpayers, but placing more reporting requirements
on brokers and mutual funds.
Simplification Through Additional Reporting Tax
(START) Act, first introduced in March 2006 was
sponsored by Senators Evan Bayh (D-IN) and Tom
Coburn (R-OK) and Congressmen Rahm Emanuel (D-IL)
and Walter Jones (R-NC).
legislation will require brokerage houses and
mutual fund companies to track and report to taxpayers
and the Internal Revenue Service investment information
related to capital gains taxes. The lawmakers
say that this will make it easier for taxpayers
to file their tax returns and help the IRS tackle
would-be cheaters who intentionally under-report
capital gains, as well as taxpayers who make innocent
mistakes on their tax returns.
most common error, deliberate or otherwise, made
by taxpayers when calculating gains from the sale
of securities is mis-stating the original purchase
price. The new legislation, which is supported
by President Bush, would take the reporting out
of the taxpayers' hands and require brokers to
track the purchase price and report the adjusted-cost
basis to the IRS.
2005, 32 million taxpayers reported a capital
gain or loss.
lawmakers are forecasting that the legislation
would bring in $7 billion in tax revenues over
business would succeed if it failed to collect
$17 billion in sales every year, and the United
States government can't afford to operate that
way either," Bayh observed.
has said that the START Act makes the tax code
fairer by ensuring that the IRS receives an independent
verification of individuals' investment value,
as currently occurs with wages. Americans cannot
underpay their taxes related to wages because
their employers submit wage information reports,
W-2 forms, to the IRS. No comparable reporting
occurs with stocks and capital gains income.
the deficit and simplifying the tax code is a
win-win for the 130 million taxpayers who are
confused by a tax code that becomes more complex
and burdensome every year," Bayh concluded.
In July 2007, US District Judge Lewis Kaplan dismissed
charges against more than a dozen former executives
of accounting firm KPMG, in a legal ruling
that dealt a blow to the US government's crackdown
against illegal tax shelters.
a 64-page opinion, Judge Kaplan ruled that he
had little choice but to dismiss the charges against
13 former senior KPMG officials because the government
had denied them their constitutional right to
counsel by pressuring their former employer to
cut off payment of legal fees.
Judge Kaplan stated that his ruling had been made
"with the greatest reluctance", he decided
that the Justice Department had "foreclosed
these defendants from presenting the defenses
they wished to present and, in some cases, even
deprived them of counsel of their choice".
is intolerable in a society that holds itself
out to the world as a paragon of justice,"
case will proceed against against three other
former KPMG staff who weren't entitled to have
their legal fees covered by the firm, and also
against two lawyers who did not work for KPMG.
August 2005, KPMG agreed to pay $456 million in
penalties to cover former clients who participated
in tax shelters known as Blips, Flip, Opis and
Short Option Strategy. Under the agreement, prosecution
was deferred, with the government agreeing to
drop charges after 31st December 2006 if KPMG
submitted to outside monitoring and discontinued
some types of tax-related activity. The withholding
of legal fees to the defendants was a condition
of this settlement.
former KPMG employees and two others were accused
of helping to structure and sell the tax shelters,
which were deemed abusive by the Internal Revenue
Service. The agency has estimated that the tax
shelters helped investors avoid some $2.5 billion
government has said that the case is the largest
criminal trial in US history, and the ruling will
be seen as a setback in its fight to stamp out
abusive tax sheltering. Prosecutors have admitted
that Judge Kaplan had little choice but to throw
out the charges, but this could clear the way
for the government to reinstate the charges on
a statement, Michael J. Garcia, the United States
Attorney for the Southern District of New York,
revealed that he "respectfully disagrees"
with Judge Kaplan as to whether there was any
constitutional violation in this case. "We
will continue to pursue appellate review,"
April 2007, a Senate Finance Committee hearing
on the prevalence of tax fraud and identity theft
highlighted the need for tighter control
of the loosely-regulated US tax preparation industry,
according to Chuck Grassley, Committee ranking
beware,” Grassley said. “Sharks are
in the water. The predators feed on the hope of
making easy money. The ease of stealing identities
and the lack of federal oversight of paid tax
preparers are just chum for tax cheats. Be very
careful with your personal financial information.
If you use a paid preparer, choose someone you
argued that the IRS needs to pay aggressive attention
to the filing of false tax returns using stolen
identities. “Identity theft is one of the
fastest-growing crimes in the United States, and
it is increasingly being used in the filing of
false returns. Yet the IRS has no systematic way
of identifying cases involving claims of identity
theft or the impact of these cases in terms of
the dollar value of refunds issued."
added: "Resolution of cases involving identity
theft can be time consuming, frustrating and difficult
for the victims. But instead of reaching out to
help the taxpayers who fall victim, sometimes
the IRS interrogates them as though they were
said in 2006, more than 62% of all individual
taxpayers used a paid preparer to complete their
tax return. As a result, these preparers have
a direct, substantial impact on tax compliance.
tax return preparers are honest, knowledgeable
individuals who serve the community well in providing
sound financial advice, but there are clearly
some sharks in the water,” Grassley stated.
“These sharks are preying on innocent taxpayers,
either through bad advice, incompetence, or downright
Senate Finance Committee ranking member went on
to add that the IRS and the Department of Justice
need to pick up the pace on preparer cases. He
also said Congress needs to take action to ensure
that paid preparers are competent and ethical
enough to maintain the integrity of the tax system.
Last year, the committee passed a bill that would
regulate paid preparers and provide better taxpayer
protection and assistance, but it did not come
before the full Senate for a vote.
need to look at getting a similar bill passed
this year,” Grassley argued. “I understand
that no amount of regulation is going to prevent
outright fraud, but Congress and the IRS can do
much more to protect taxpayers. Anyone can hang
a shingle and call himself a tax preparer. Taxpayers
are paying for professional service, and they
should get it.”
urged the IRS to impose stringent oversight of
the paid tax preparation community, and where
applicable, impose penalties and prevent the practitioner
from preparing returns and representing taxpayers
before the IRS. He also said that the agency should
consider whether current law provides adequate
protection to prevent identity theft used in the
filing of false tax returns, and what can be done
to better assist identity theft victims in resolving
their cases with the IRS.
addition, Grassley suggested that the IRS should
consider whether it is fulfilling its obligation
to help taxpayers understand and comply with their
tax obligations. This includes determining whether
free electronic filing methods are effective in
assisting taxpayers to determine their correct
tax liability, and if not, determining the IRS’
proper role in ensuring that such a method exists.
January 2007, the Dubai International Financial
Centre (DIFC) announced the issuance of
the first license to a US law firm, Akin
Gump Strauss Hauer & Feld LLP, to open an
office at the DIFC.
from the DIFC, Akin Gump will have access to a
broad range of emerging markets stretching across
Africa, the Middle East and South Asia.
Gump, a firm with 15 offices around the world
and a well-established Middle East presence, is
now registered by the Dubai Financial Services
Authority and authorised to provide legal services
to financial institutions operating in the DIFC.
Gump’s Chairman, R. Bruce McLean, commented:
“We entered the Dubai market to advise our
clients on increasing investment to and from the
Middle East. The area’s dramatic growth
and continued development has further solidified
our commitment to the region. We are very pleased
to be the first US law firm to be licensed in
the DIFC, and we hope that others will follow
Alshaali, Chief Executive Officer of the DIFC
Authority, stated that: “The ability to
provide specialist legal advice is an important
part of the infrastructure we are creating within
the DIFC. As we continue to grow both horizontally
and vertically, the DIFC is strengthening its
many core competencies, including legal advice.
The continued rapid growth of the DIFC proves
that this centre has become a truly international
gateway for capital, which benefits Dubai, the
UAE and the wider Middle East. In this regard,
we are especially pleased to welcome Akin Gump.”
In May, 2010, bill HB-314 completed its journey
through the Delaware General Assembly to update
the state's captive insurance legislation.
This legislation adds provisions to Chapter 69
of Title 18 of the Delaware Code that will expressly
provide for the licensing of agency captives and
Teichman, chair of the Delaware Captive Insurance
Association's (DCIA’s) Legislative Committee,
said that Delaware’s existing statute provided
the flexibility to license agency and branch captives
through its special purpose provisions "and,
indeed, we have licensed one agency captive in
by adding these express provisions to Chapter
69, we let the marketplace know that Delaware
is open for business to agency and branch captives,
and we think our new agency and branch captive
provisions provide advantages that you will not
find in any other domicile,” Teichman explained.
has a longstanding history of regularly updating
its corporate and business entity laws to keep
these laws abreast of changes in the marketplace.
was signed into law by Governor Jack A. Markell,
who said: “This bill passed with overwhelming
support from both parties in both chambers of
our state legislature. I am happy to sign this
bill into law and I look forward to seeing even
more growth from our captive insurance industry
here in Delaware.”
Gregory Lavelle, a Republican, welcomed the new
law, observing that “the passage of this
legislation demonstrates the steadfastness of
Delaware lawmakers in making Delaware a superior
place to form a captive.”
Thomas Kovach, also a Republican, pointed out
the bipartisan nature of HB-314, noting that the
bill passed unanimously in the House and nearly
so in the Senate. "This legislation demonstrates
the willingness of lawmakers on both sides of
the aisle to come together to improve Delaware’s
business friendly environment,” he said.
increasing number of company finance professionals
in the United States would consider adopting
International Financial Reporting Standards
(IFRS) sooner than on the path recently outlined
by the Securities and Exchange Commission in its
proposed IFRS roadmap, according to a December,
2008, survey from Deloitte.
half (42%) of more than 200 finance professionals
representing companies of various sizes and industries
surveyed by Deloitte in November indicated they
would consider implementation of IFRS sooner than
2014, if that were permitted under the mandated
adoption date proposed by the SEC recently. This
represents a significant increase from a similar
Deloitte IFRS study performed earlier in 2008
that showed 30% of respondents would consider
adopting IFRS, if given a choice.
observed a steady increase in interest around
IFRS from all types of US companies, not just
multinationals and not just large companies. Company
executives are beginning to understand and recognize
the potential benefits that will likely result
from reporting in IFRS,” said D.J. Gannon,
leader of Deloitte’s IFRS service offering
in the United States.
there’s a lot of work to be done and executives
really need to begin to understand the impact
that IFRS will have on their organizations,"
the leading factors driving companies’ interest
in considering adopting IFRS sooner was simplified
financial accounting and reporting and, separately,
improved financial reporting and transparency.
Both of these factors were cited by 37% of the
companies surveyed by Deloitte that would consider
to the survey, the top perceived challenges among
respondents that would consider adopting early
include: lack of accounting technical guidance
(33%) and lack of skilled personnel (32%). Eighteen
percent recognized the cost of conversion as a
in the survey that would consider adopting IFRS
at an earlier date are predominantly in the technology,
media and telecommunications (TMT), manufacturing
and financial services industries. Fifty-seven
percent of respondents from companies operating
in the TMT industry would consider adopting before
2014. For financial services, 42% of respondents
would consider early adoption.
percent of respondents from companies with revenues
between USD1bn and USD10bn indicated they would
consider switching to IFRS before 2014; meanwhile
25% of respondents from companies with more than
USD10bn in revenues stated they would consider
adopting at an earlier date. And, interestingly,
50% of respondents from companies with USD1bn
or less in revenues also expressed interest in
percent of respondents from companies with more
than half of their operations outside the United
States also voiced interest in early IFRS adoption,
while a third of respondents with less than 50%
of their operations outside the United States
indicated they would consider adopting prior to
June 2007, a Senate subcommittee hearing on the
vexed issue of executive stock options has concluded
that new tax and accounting rules are
needed to bring more transparency for investors
regarding CEO pay, and to rein in huge
and undeserved salaries enjoyed by some bosses
at non-performing companies.
hearing, held by the Senate’s Permanent
Subcommittee on Investigations examined corporate
accounting and tax rules that require corporations
to report one set of stock option compensation
figures to investors on their financial statements
and completely different figures to the Internal
Revenue Service on their tax returns.
Fortune 500 companies that were among the nine
who helped the Subcommittee with its calculations
contributed to the hearing, along with the Acting
Commissioner of the IRS Kevin Brown, the SEC Director
of Corporation Finance, and three stock option
options are a major factor in the growing gap
– now chasm – between executive pay
and average worker pay,” said Sen. Carl
Levin (D - Mich), subcommittee chairman. “Companies
pay their executives with stock options in part
because, right now, those stock options often
generate huge tax deductions that are 2, 3, even
10 times larger than the stock option expense
shown on the company books."
said that nine companies examined by the subcommittee
claimed stock option tax deductions over five
years that exceeded their stock option expenses
by more than $1 billion, or 575%, even after using
tougher new accounting rules to calculate the
IRS data, examining tax returns for periods ending
between December 2004 to June 2005, shows a stock
option book-tax gap of $43 billion, "which
means US companies legally reduced their taxes
by billions of dollars for that period by claiming
$43 billion more in stock option tax deductions
than the stock option compensation amount shown
on their books," Levin stated.
companies did not break the law," he continued.
"They are benefiting from an outdated and
overly generous stock option tax rule that produces
tax deductions that often far exceed the companies’
options give employees the right to buy company
stock at a set price for a specified period of
time, usually 10 years. According to Forbes magazine,
in 2006, the average pay of the chief executive
officers of 500 of the largest US companies was
$15.2 million. Nearly half of that amount, 48%,
came from exercised stock options that produced
average gains of about $7.3 million. On the high
end, one CEO cashed in stock options for $290
million, another for $270 million. Forbes also
published a list of 30 CEOs in 2006, who each
had at least $100 million invested stock options
that had yet to be exercised. In the United States,
average CEO pay has grown from100 times average
worker pay to nearly 400 today, according to Levin.
options are valuable and legitimate incentive
tools used to reward and retain high performing
executives,” said Norm Coleman (R - Minn),
ranking member of the subcommittee. “However,
anything can be problematic in excess, and I fear
we have reached that point. It is clear that favorable
tax and accounting rules have caused companies
to issue far too many stock options on far too
generous terms, greatly contributing to the meteoric
rise in executive pay."
May 2007, Senator Hilary Rodham Clinton,
one of the many candidates to have put themselves
forward as potentially the next Democratic president
of the United States, proposed that tax
breaks should be cut for large corporations
and that President Bush's tax cuts rolled back
for the wealthy, to restore income equality in
a speech at the Manchester School of Technology
in New Hampshire, she called for a return to shared
prosperity and tax fairness, while expanding access
to quality education and healthcare for all Americans.
believe that one of the most crucial jobs of the
next President is to define a new vision of economic
fairness and prosperity for the 21st century --
a vision for how we ensure greater opportunity
for our next generation," Clinton said. "I
consider myself a thoroughly optimistic and modern
progressive. I believe we can grow our economy
in the face of global competition -- and in a
way that benefits all Americans. I believe we
can curb the excesses of the marketplace -- and
provide more opportunities for more Americans
outlined her 'Nine Point Plan' which includes
leveling the playing field and reducing special
breaks for big corporations, eliminating incentives
for American companies to ship jobs and profits
overseas, reforming the governance of corporations
and the financial sector, and restoring fiscal
responsibility to government by rolling back income
elected President in November 2008, Clinton would
also scale back oil and gas subsidies and change
parts of the tax code which reward companies for
offshoring jobs by enabling them to defer paying
American taxes for as long as they hold the money
abroad, a policy she said puts companies that
create jobs in America at a competitive disadvantage.
once and for all get rid of the incentives for
American companies to ship jobs and profits overseas.
It is one thing for the marketplace to encourage
overseas investment. It's another for our own
tax code to do so," she said, adding: "We
actually put companies that want to create jobs
here on our shores at a disadvantage to those
who ship jobs to tax havens."
also wants to toughen further rules of corporate
governance and provide for greater scrutiny of
CEO pay. "The way I see it, allowing CEOs
to escape with golden parachutes while their companies
abandon workers' pensions does not honor our values.
We need to open up CEO compensation to public
scrutiny and public challenge and ensure that
boards of directors are independent when determining
CEO pay. And we need to update our regulations
to confront the emerging problems in our sub-prime
and private equity markets."
in May 2007, new legislation increasing
the federal minimum wage by more than
two dollars per hour and providing small businesses
with a number of offsetting tax relief measures
was approved by the United States Congress.
measure, included in a supplementary military
spending bill, increases the federal minimum wage
to $7.25 per hour over two years. The supplemental
bill was approved in the house with a final 280-142
vote, and in the Senate with a 80-14 vote.
minimum wage is designed to go up in three stages:
from the current $5.15 to $5.85 60 days after
enactment; to $6.55 one year later; and to $7.25
one year after that. According to Sen. Edward
Kennedy (D - Mass.), the principal advocate for
the increase in Congress, an estimated 13 million
Americans will benefit from the move.
bill also contains a $4.84 billion package of
tax relief to help small firms swallow the increase
in the minimum wage - much less than desired by
Republicans and half of the amount originally
voted for in the Senate.
one of the Democrats' priorities after taking
control of Congress following last November's
mid-term elections, the minimum wage legislation
repeatedly stalled as lawmakers haggled over the
amount of accompanying tax relief. Once agreed,
the measures were delayed further when included
in a previous military spending bill that was
vetoed by President Bush because it set an artificial
deadline for troop withdrawal from Iraq. Democrats
have been forced to compromise with the new supplemental
bill, which removes such commitments.
there are many aspects of this conference report
that I cannot support, I am pleased that it will
finally allow us to get a minimum wage bill to
the President’s desk," said Kennedy.
increase is long overdue. The minimum wage bill
passed the House and Senate in January and February
of this year. Unfortunately, Republicans prevented
the bill from going to conference until they could
make sure it included a big enough tax giveaway
for businesses. We’ve overcome many obstacles
– and faced every procedural trick in the
book – to get this minimum wage increase
across the finish line. Democrats stood together,
and stood firm, to say that no one who works hard
for a living should have to live in poverty,"
in six states in April 2007 recommended that their
state adopt a key reform to outlaw a variety
of 'abusive' income-tax-avoidance strategies practiced
by large corporations, a report by the
Center on Budget and Policy Priorities showed.
to the report by the nonpartisan research organization
and policy institute, eighteen states had already
adopted the reform, known as “combined reporting,”
as of the start of 2007. In recent weeks, the
governors of Iowa, Massachusetts, Michigan, New
York, North Carolina, and Pennsylvania all proposed
the reform as part of their new budgets.
York’s legislature approved this proposal
on April 1, while on March 10, West Virginia’s
legislature enacted a combined reporting bill
that was not initiated by the governor, but which
he is expected to sign.
governors decided this year, independently of
one another, that it’s time to make their
corporate tax systems fairer and stronger by adopting
this reform,” said Michael Mazerov, a senior
fellow at the Center and the report’s author.
“Tax experts have long urged states to take
this step, and this year a growing number of states
Center's study reported that, to avoid state corporate
income taxes, a number of large, multistate corporations
have devised strategies to move profits out of
the states in which they are earned and into states
in which they will be taxed at lower rates - or
not at all. They do this by creating subsidiaries
largely or solely as tax shelters in “tax
haven” states like Delaware and then artificially
shifting funds to them in the form of royalties
report cited as an example the case of retailer
Wal-Mart, which has transferred ownership of all
of its stores to a Wal-Mart subsidiary. In most
states, this enables Wal-Mart to deduct the “rent”
it pays the subsidiary (i.e., the rent it pays
itself) from the income that is subject to state
corporate taxes. The subsidiary receiving the
rent isn’t taxed because it qualifies as
a tax-exempt Real Estate Investment Trust under
federal and state law.
Center argues that this practice is wrong because
it costs states billions of dollars in revenue,
forcing individuals and small businesses which
lack the resources to exploit the loophole to
pay higher taxes than would otherwise be necessary.
They also give multistate corporations an unfair
tax advantage over in-state corporations and smaller
businesses, the Center said.
reporting is considered to create a level playing
field for all businesses by treating a parent
corporation and most of its subsidiaries as a
single corporation for income tax purposes; the
state taxes a share of the entities’ combined
nationwide income, depending on how much of the
corporation’s total activity takes place
in that state.
report noted that sixteen states have mandated
and successfully used combined reporting for decades,
but this group has only recently begun to expand,
even after the US Supreme Court ruled in 1983
that combined reporting was both fair and constitutional.
the explosive revelations from the Bernard Madoff
investment scandal continue to reverberate across
the financial world, investors who have
lost money in Madoff's funds may be
able to reach for one crumb of comfort in the
form of the US tax code, it emerged in December,
many investors still counting the cost of putting
their trust - and substantial sums of money
- into what has allegedly turned out to be Wall
Street's largest-ever Ponzi scheme, tax advisors
are pointing to certain sections of the US tax
code which could allow investors to recoup significant
sums through 'theft loss' provisions.
the theft loss rules, taxpayers can deduct a
loss against 90% of their adjusted gross income,
plus USD100. Therefore, an investor with an
income of USD100,000 who lost USD1m would -
theoretically - be able to deduct USD989,900.
Also, because of the nature of the loss, taxpayers
affected by the scam are entitled to claim an
'ordinary' (as opposed to a 'capital') loss
deduction under section 165 of the US tax code,
and therefore carry back unused losses by three
years (as opposed to two). They can also carry
forward unused losses to the next 20 tax years.
the Internal Revenue Service would allow such
a claim is another matter entirely. At the very
least, taxpayers seeking such deductions, and
especially those adjusting previous tax returns,
can expect an IRS audit for their troubles.
victims of investment fraud may qualify for
a little known tax break that until now, not
many people have been eligible for," said
Michael Rozbruch, founder and CEO of Tax Resolution
Services. However, he warned that: "To
recover your losses, you will need to go back
and amend your tax returns, which means you
will inevitably be audited." Rozbruch added
that professional advice is essential for taxpayers
in such scenarios.
the current economic climate and the likelihood
of falling tax revenues in the year ahead, the
IRS, which could face tax revenue losses in
the billions of dollars (as much as USD17bn
according to one estimate), is unlikely to want
to become an unwitting victim of the Madoff
scandal too. Therefore, it remains questionable
at present whether the agency would uphold such
substantial theft loss claims.
the December 11 arrest of the seventy-year-old
Madoff, the list of companies and individuals
facing steep financial losses based on their
dealings with Madoff and companies affiliated
with or controlled by him has grown to include
individuals and institutions across the United
States. In addition, Madoff's fund obtained
money from some of Europe's largest banks, including
institutions in the United Kingdom, Spain, France
and Italy, and their clients.
this were a traditional bank robbery, the eyewitness
reports would say that Madoff walked out with
billions of dollars as someone held the door
open for him," says Jeffrey Zwerling, a
founding partner of Zwerling, Schachter and
Zwerling, which has been retained by individuals
and entities allegedly duped by Madoff.
it's true, it's just amazing in terms of the
audacity, if nothing else," Zwerling observed.
July 2007, the Securities and Exchange Commission
published for public comment a proposal
to eliminate the current requirement that foreign
private issuers filing their financial statements
using International Financial Reporting Standards
(IFRS), as published by the International Accounting
Standards Board (IASB), also file a reconciliation
of those financial statements to US Generally
Accepted Accounting Principles (GAAP).
Commission voted unanimously on June 20, 2007,
to issue the proposal for public comment.
staff also published a report containing some
general observations about the application of
IFRS based on staff reviews of annual reports
from more than 100 foreign private issuers containing
financial statements prepared for the first
time using IFRS.
the SEC's current rules, foreign private issuers
are required to reconcile to US GAAP the financial
statements that they file with the Commission
if their financial statements are prepared using
any basis of accounting other than US GAAP.
proposed amendments would:
to foreign private issuers that file financial
statements that comply with the English language
version of IFRS as published by the IASB,
those issuers to file those financial statements
in their annual filings and registration statements
without reconciliation to US GAAP.
Commission has taken a significant step on this
important policy matter that was outlined in
the 'Roadmap' announced in 2005," announced
Conrad Hewitt, SEC Chief Accountant.
staff continues to evaluate the considerations
supporting the acceptance of IFRS financial
statements and looks forward to receiving public
input during the comment period."
comment period extended for 75 days after the
proposal was published in the Federal Register.
June 2007, US Congressman Charles B. Rangel
praised the Department of Homeland Security
(DHS) for allowing Americans to temporarily
travel to Canada, Latin America and the Caribbean
without a passport, as long as they
have proof of having applied for one.
have to commend DHS for listening to the needs
of Americans, who often just wanted to see loved
ones abroad or take a well-deserved vacation,"
said Rangel. "They have shown real leadership
in trying to correct a mistake, instead of blindly
following a course that is clearly having problems."
June 8, the US government announced that US
citizens traveling to Canada, Mexico, the Caribbean,
and Bermuda who have applied for but not yet
received passports can nevertheless temporarily
enter and depart from the United States by air
with a government issued photo identification
and Department of State official proof of application
for a passport, through September 30, 2007.
This was due to longer than expected processing
times for passport applications in the face
of record-breaking demand, the government said.
State Department's Western Hemisphere Travel
Initiative (WHTI) was intended to strengthen
border security and facilitate entry into the
United States for citizens and legitimate international
visitors, as mandated by the Intelligence Reform
and Terrorism Prevention Act of 2004. However,
as early as last fall, Rangel and other members
of the Congressional Black Caucus had urged
the agency to revisit their decision. DHS conceded,
and announced that it would delay the implementation
of the requirements until June 1, 2009 for land
crossings at the borders and for cruise passengers
traveling within the Western Hemisphere.
delay did little to prevent record number of
applications and long waiting times since the
beginning of the year. Rangel said his offices
were being inundated with phone calls from constituents
who had applied in some cases as early as February.
Rangel said the issue was symptomatic of some
of the problems that DHS and immigration officials
experience in processing not just passport requests,
but visa petitions and citizenship applications.
need to wait until we have the technology and
personnel in place to process the demand for
all these applications," said the Congressman.
"Security is not just about regulations.
We have to invest the time and money to help
provide federal agencies with practical resources
that they need to implement these requirements."
officials said that travelers who have not applied
for a passport should not expect to be accommodated.
The temporary decision also does not affect
entry requirements to other countries. Americans
traveling to a country that requires passports
must still present those documents.
May 2007, the US Treasury welcomed a statement
released by the Securities and Exchange Commission
and the Public Company Accounting Oversight
Board regarding their votes to address
the implementation of Section 404 of the Sarbanes-Oxley
SEC and the PCAOB, after carefully considering
the effects of Section 404, moved this week
to strike the right balance in enhancing financial
reporting quality and eliminating unintended
costs," announced Under Secretary for Domestic
Finance Robert K. Steel. "These key reforms
should ensure that Section 404 is implemented
in a risk-based and appropriately-scalable fashion,
without sacrificing investor protection or diminishing
the value of sound internal controls over financial
reporting. Now that the regulators have acted,
it is critical that public companies and the
auditing profession respond to this call."
added: "Treasury congratulates the SEC,
the PCAOB and their chairmen, Chris Cox and
Mark Olson, for their cooperation in working
to uphold investors' confidence in and the competitiveness
of America's capital markets."
previous week, the Securities and Exchange Commission
unanimously approved interpretative guidance
to help public companies strengthen their internal
control over financial reporting while reducing
unnecessary costs, particularly at smaller companies.
The new guidance will enhance compliance under
Section 404 of the Sarbanes-Oxley Act of 2002
by focusing company management on the internal
controls that best protect against the risk
of a material financial misstatement.
never intended that the 404 process should become
inflexible, burdensome, and wasteful. The objective
of Section 404 is to provide meaningful disclosure
to investors about the effectiveness of a company’s
internal controls systems, without creating
unnecessary compliance burdens or wasting shareholder
resources,” explained SEC Chairman Christopher
Cox. “With the Commission’s new
interpretative guidance for management on the
evaluation and assessment of its internal controls
over financial reporting, companies of all sizes
will be able to scale and tailor their evaluation
procedures according to the facts and circumstances.
And investors will benefit from reduced compliance
guidance enables companies of all sizes to focus
on what truly matters to the integrity of the
financial statements – risk and materiality,”
added Conrad Hewitt, Chief Accountant. “Providing
management with its own guidance for evaluating
internal control over financial reporting will
ensure an appropriate balance between management's
evaluation process and the audit process. While
the guidance is intended to help public companies
of all sizes, smaller companies, which will
begin complying with Section 404 this year,
should benefit from its scalability and flexibility.
We have also worked closely with the PCAOB to
better align our interpretative guidance and
the PCAOB’s proposed auditing standard,
which the PCAOB will consider for adoption tomorrow.”
Commission also approved rule amendments providing
that a company that performs an evaluation of
internal control in accordance with the interpretive
guidance satisfies the annual evaluation required
by Exchange Act Rules 13a-15 and 15d-15. The
Commission additionally amended its rules to
define the term “material weakness”
as “a deficiency, or combination of deficiencies,
in internal control over financial reporting,
such that there is a reasonable possibility
that a material misstatement of the company's
annual or interim financial statements will
not be prevented or detected on a timely basis.”
Commission further voted to revise the requirements
regarding the auditor’s attestation report
on the effectiveness of internal control over
financial reporting to more clearly convey that
the auditor is not evaluating management’s
evaluation process but is opining directly on
internal control over financial reporting.
in May 2007, the SEC announced that it would
host a roundtable discussion in June on the
topic of selective mutual recognition.
mutual recognition would involve the SEC permitting
certain types of foreign financial intermediaries
to provide services to US investors under an
abbreviated registration system, provided those
entities are supervised in a foreign jurisdiction
under a securities regulatory regime substantially
comparable (but not necessarily identical) to
that in the United States.
roundtable will explore whether selective mutual
recognition would benefit US investors by providing
greater cross-border access to foreign investment
opportunities, while still preserving investor
roundtable took place on June 12, 2007, and
consisted of a series of panels designed to
reflect the views of different constituencies,
including investors, exchanges, and broker-dealers.
A separate panel also considered the issue of
how the SEC can best assess regulatory comparability
US capital markets are a vital part of the larger
global marketplace," explained SEC Chairman
in technology have eliminated many barriers
to cross-border access between US and foreign
markets. Consequently, it is imperative that
the Commission consider the implications of
increased US investor demand for foreign investment
the same time, we are seeing the international
coalescence of a group of securities regulators
who share many of the same concerns about investor
protection and market efficiency that we at
the SEC have — a development that I believe
could greatly improve investor protection world-wide."
roundtable should assist the Commission in developing
an appropriate regulatory response to the changing
nature of the global market, in a way that allows
the SEC to strengthen its investor protection
March 2007, the Securities and Exchange Commission
published new rules for deregistration
by foreign companies, as adopted by
the Commission on March 21.
Commission voted unanimously to adopt changes
to the rules that govern when a foreign private
issuer may terminate the registration of a class
of equity securities, and when it may cease
its reporting obligations regarding a class
of equity or debt securities.
the previous rules, a foreign private issuer
may exit the Exchange Act registration and reporting
regime if the class of the issuer’s securities
has less than 300 record holders who are US
of the increased globalization of securities
markets since the current rules were adopted,
a foreign private issuer may find it difficult
to terminate its Exchange Act registration and
reporting obligations, despite the fact that
there is relatively little interest in the issuer's
securities among United States investors.
currently a foreign private issuer can only
suspend, and cannot terminate, a duty to report
arising under Section 15(d) of the Exchange
eliminating conditions that had been considered
a barrier to entry, the amended rules aim to
encourage participation in US markets and increase
believe that the amended rules will better serve
the needs of both US investors and foreign private
issuers. We recognize the importance of foreign
private issuers to the US capital markets and
expect that the new deregistration rules should
in fact promote capital formation in the US
and make our markets more attractive to foreign
companies without sacrificing important investor
protections,” announced John W. White,
Director of the Division of Corporation Finance
at the SEC.
rules represent a key step in the Commission’s
continuing efforts to respond to the challenges
and needs of our markets’ increasing globalization.
This effort includes improving the efficiency
and effectiveness of implementation of Section
404 of the Sarbanes-Oxley Act and actively considering
eliminating the requirement that foreign private
issuers reconcile their IFRS financial statements
to US GAAP.”
effective date of the adopted rules was 60 days
from their publication in the Federal Register.