Limit to compliance – taxes

from The New York Times

Privacy is important, but for what? Is ownership of real estate an issue of privacy? If you were a person of interest, like a celebrity, it might be an issue of privacy. But how about the rest of us?

Obviously, New York City Mayor De Blasio does not believe that real estate ownership information is subject to privacy. (Note: We are not discussing residence information, we are discussing ownership. Residence information is already considered to be public information.)

In times when New York City is witnessing an incredible growth in luxury apartments not just in Manhattan but in all of its boros, more and more people are being priced out of their homes. Rents have been going up much faster than wages, let alone the very sticky long-term unemployment rate. It is really indeed a shame that people must move away from the meager jobs they possess to be able to afford rent, even though that move might cost them their career network, the very group of people who will help them find a job should they lose one. Starting in a new place is very difficult.

Here’s an issue where the tax revenues that usually offset such disparities somehow have not been and are not. It is getting worse. On a line-by-line basis, everyone might be paying their correct taxes, but on an aggregate basis, there are many who do not seem to be paying.

This is very likely because of an accounting issue. A taxpayer can be completely compliant with all taxes, but still be paying less than economists have predicted because economists forgot to take into account a very important change that takes place when profits are earned by a corporation but is kept to raise the price of shares. The only way for investors, which are a class of people who can afford to buy much more than their needs and can afford to buy the productivity of other people, can only reap the benefits of the productivity of those people’s work they own through shares by… selling the shares. When those shares are sold, it is sold to other people who can afford to buy the productivity of people who work in a public corporation. Share prices rise due to increased net income, but rise in share price is not taxed at the earned income rate as employee’s must pay.

In this particular case, shell corporations are a great way to make real estate investments into parcels of interest rather than land, allowing shareholders to sell their interests even if the real estate generates net income.

Here’s the limitations of compliance. Compliance professionals in financial services cannot work on these types of policy issues because it requires changing the economics of our economy as a whole. Until this situation continues, compliance officers can only continue to make sure that the system perpetuates.


Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is a member of ACAMS and ACFE. 

Money Laundering In London’s Eyes

Money Laundering through real estate in London is in focus. NPR is reporting that about $200 Billion in real estate is owned by offshore corporations. Offshore corporations could be owned by a complex web of owners, ultimately owned by criminals. With foreign money feeding the real estate markets in major global cities like London and New York, law enforcement is bounding to investigate the compliance procedures taken to ensure the prevention of money laundering through real estate in these markets.


Will Standard Charters’ compliance leadership changes make a difference?


About the Author: M. C. Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. 



China’s New Corporate PR Problem

Corruption in the People’s Republic of China is nothing new to Western media consumers. The usual story is some corrupt politician in one of the ministries or provincial government who has been giving favorable contracts to friends and family for kickbacks. But in the past couple of years, a rise in a new type of corruption has been coming to light: corporate corruption.

https://chinadailymail.files.wordpress.com/2015/02/20-china-corruption.jpg
from China Daily Mail

Major Chinese corporations are generally state-owned and state-controlled. This makes these corporations arms of the government, even though they are participating in the private sector like other private sector firms. So, when corporate corruption takes place, the Chinese government is on the hook for them.

Chinese state-owned enterprises, especially China Construction Corporation (CCC), have been bidding for construction contracts in South Asian, Middle East and Africa against, primarily, South Korea. With the financial backing of the Chinese government, these firms have been winning the contracts for building infrastructure in Africa and private real estate projects elsewhere. Though these firms are working outside of China, their practices haven’t changed. Client-governments have been receiving bills that are twice as expensive as comparable projects, environmental studies and other feasibility studies have not been performed, and local officials have been getting offers to look the other way on these activities.

In a bold move, the Chinese government has primarily taken to defending CCC, asking client-governments to respect the contracts and pay up. Local governments find it hard to swallow such counter-accusations when China won’t produce evidence of work being done properly or at all. The Chinese government has a difficult time with diplomacy under such circumstances because they are considered intimately involved in these firms.

Corruption for Chinese firms like CCC puts Chinese government in a bind because it has been trying to crackdown on corruption in the government and cleanup its image. In the technology sector, firms like Xiomi has been able to prove to the world very quickly that it can compete fairly by producing better phones. If other sectors in China are to attempt to work across its borders, it’ll have to learn to compete with rules it can’t break.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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