Full text of Press Releases of the United States Department of the Treasury : Volume 409

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Treas.
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v.409

Department of the Treasury

PRESS RELEASES

The following numbers were not used:
JS-969, 985, 986, 989, 1025
JS-988 is the same as JS-998

( M T U I. O t IM Bl.lt A M M R S • 1500 I'l-NNSYIAAM A W I N I !•. NAN. • WASJI INC'I O N , !>.(.» 20220 • <2fi2*'«i22.2<>MJ

EMBARGOED UNTIL 11:00 A.M.
November 3, 2003

Contact:

Office of Financing
202/691-3550

TREASURY OFFERS 4-WEEK BILLS
The Treasury will auction 4-week Treasury bills totaling $17,000 million to
refund an estimated $15,000 million of publicly held 4-week Treasury bills maturing
November 6, 2003, and to raise new cash of approximately $2,000 million.
Tenders for 4-week Treasury bills to be held on the book-entry records of
TreasuryDlrect will not be accepted.
The Federal Reserve System holds $14,230 million of the Treasury bills maturing
on November 6, 2003, in the System Open Market Account (SOMA). This amount may be
refunded at the highest discount rate of accepted competitive tenders in this auction
up to the balance of the amount not awarded in today's 13-week and 26-week Treasury
bill auctions. Amounts awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New York
will be included within the offering amount of the auction. These noncompetitive bids
will have a limit of $100 million per account and will be accepted in the order of
smallest to largest, up to the aggregate award limit of $1,000 million.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
This offering of Treasury securities is governed by the terms and conditions
set forth in the Uniform Offering Circular for the Sale and Issue of Marketable BookEntry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended).
Details about the new security are given in the attached offering highlights.

oOo
Attachment

fs w

HIGHLIGHTS OF TREASURY OFFERING
OF 4-WEEK BILLS TO BE ISSUED NOVEMBER 6, 2003
November 3, 2003
Offering Amount $17,000 million
Maximum Award (35% of Offering Amount)... $ 5,950 million
Maximum Recognized Bid at a Single Rate.. $ 5,950 million
NLP Reporting Threshold
$ 5,950 million
NLP Exclusion Amount
$11, 800 million
Description of Offering:
Term and type of security
28-day bill
CUSIP number
912795 NZ 0
Auction date
November 4, 2003
Issue date
November 6, 2003
Maturity date
December 4, 2003
Original issue date
June 5, 2003
Currently outstanding
$46,089 million
Minimum bid amount and multiples....$1,000
Submission of Bids:
Noncompetitive bids: Accepted in full up to $1 million at the highest
discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids: Noncompetitive bids submitted through the Federal Reserve Banks as agents for
FIMA accounts. Accepted in order of size from smallest to largest
with no more than $100 million awarded per account. The total noncompetitive amount awarded to Federal Reserve Banks as agents for
FIMA accounts will not exceed $1,000 million. A single bid that
would cause the limit to be exceeded will be partially accepted in
the amount that brings the aggregate award total to the $1,000
million limit. However, if there are two or more bids of equal
amounts that would cause the limit to be exceeded, each will be
prorated to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a discount rate with three decimals in
increments of .005%, e.g., 4.215%.
(2) Net long position (NLP) for each bidder must be reported when
the sum of the total bid amount, at all discount rates, and the
net long position equals or exceeds the NLP reporting threshold
stated above.
(3) Net long position must be determined as of one half-hour prior
to the closing time for receipt of competitive tenders.
Receipt of Tenders:
Noncompetitive tenders:
Prior to 12:00 noon eastern standard time on auction day
Competitive tenders:
Prior to 1:00 p.m. eastern standard time on auction day
Payment Terms: By charge to a funds account at a Federal Reserve Bank
on issue date.

lureau of the Public Debt: BUREAU OF THE PUBLIC DEBT ANNOUNCES SERIES EE SAVINGS ... Page 1 of 1

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Public
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JUREAU OF THE PUBLIC DEBT ANNOUNCES SERIES EE SAVINGS BOND RATE
-OR NOVEMBER 2003 THROUGH APRIL 2004
OR IMMEDIATE RELEASE
lovember 3, 2003
he Bureau of the Public Debt today announced the rate for Series EE savings bonds issued on or after May 1, 1997.

IERIES EE SAVINGS BOND RATE - 2.61%

he 2.61 percent Series EE savings bond rate is in effect for bonds issued on or after May 1, 1997, that enter semiannual e
eriods from November 2003 through April 2004. The rate is 90 percent of the average 5-year Treasury securities yields for the
receding six months. A new interest rate is announced effective each May 1 and November 1. A 3-month interest penalty is applied to
nese bonds if redeemed before five years. The Series EE bonds on sale now increase in value monthly. The bond's interest rate is
ompounded semiannually.
iavers and investors can now open an on-line account to purchase EE Bonds in electronic form through the website
yww.treasurydirect.gov. Account holders can purchase, manage, and redeem such EE Bonds over the Internet 24 hours a day, seven
ays a week. These rates also apply to electronic EE Bonds.

JERIES EE BONDS ISSUED BEFORE MAY 1997

>eries EE Bonds issued before May 1997 earn various rates for semiannual earnings periods beginning between November 1, 20
vpril 1, 2004, depending on dates of issue. See the table on the back of this release for earnings on Series EE bonds issued from January
.980.

MATURED SERIES E SAVINGS BONDS AND SAVINGS NOTES

Series E savings bonds continue to reach final maturity and stop earning interest. Bonds issued from May 1941 through Oct
ilong with those issued from December 1965 through October 1973, have stopped earning interest. All Savings Notes, issued from May
.967 through October 1970, have stopped earning interest. Series E Bonds with issue dates shown here will reach final maturity in the
text six months.
E-Bonds Issued Stop Earning Interest
November 1963 through April 1964 November 2003 through April 2004
November 1973 through April 1974 November 2003 through April 2004

AORE INFORMATION

nformation about savings bonds is available at Public Debt's website at www.treasurydirect.gov. Check out our Savings Bo
o see how easy it is to find out what your bonds are worth, what they're earning, and even keep track of them. Or, download the free
Savings Bond Wizard™ to keep track of your savings bond portfolio. The table on the back of this release shows actual yields for Series
:E bonds. An Earnings Report, which contains rate and yield information for bonds is available by mail. Send a postcard asking for
Earnings Report" to Bureau of the Public Debt, 200 Third Street, Parkersburg, W V 26106-1328.
'A-629
Intellectual Property | Privacy & Security Notices | Terms & Conditions | Accessibility | Data Quality
U.S. Department of the Treasury, Bureau of the Public Debt
Last Updated September 27, 2004

dttp://www.publicdebt.treas.gov/com/comee 1103.htm

5/23/2005

bureau of the Public Debt: I BONDS TO EARN 2.19% W H E N BOUGHT FROM NOVEMBER 2003 ... Page 1 of

Bureau of the

Pubi IC
ur>itsd .!:• fa re; Deportment

of r.'^e Iteasury

[ BONDS TO EARN 2.19% WHEN BOUGHT FROM NOVEMBER 2003 THROUGH
\PRIL 2004
•OR RELEASE AT 10:00 AM
Jovember 3, 2003
BOND EARNINGS RATE 2.19%

"he earnings rate for I Bonds is a combination of a fixed rate, which will apply for the life of the bond, and the inflation rate. Th
>ercent earnings rate for I Bonds bought from November 2003 through April 2004 will apply for the first six months after their issue. The
jarnings rate combines the 1.10 percent fixed rate of return with the 1.08 percent annualized rate of inflation as measured by the
:onsumer Price Index for all Urban Consumers (CPI-U). The CPI-U increased from 184.2 to 185.2 from March 2003 to September 2003, a
;ix-month increase of 0.54 percent.
reasury's inflation-indexed I Bonds are designed to offer all Americans a way to save that protects the purchasing power of their
nvestment by assuring them a real rate of return above inflation. I Bonds have features that m a k e them attractive to m a n y investors.
"hey are sold at face value in denominations of $50, $75, $100, $200, $500, $1,000, $5,000, and $10,000 and earn interest for as long
is 30 years. I Bond earnings are added every month and interest is compounded semiannually. They are State and local income tax
exempt, and Federal income tax on I Bond earnings can be deferred until the bonds are cashed or they stop earning interest after 30
'ears. Investors cashing I Bonds before five years are subject to a 3-month earnings penalty.
>avers and investors can now open an on-line account to purchase I Bonds in electronic form through the website
vww.treasurydirect.gov. Account holders can purchase, manage, and redeem such I Bonds over the Internet 24 hours a day, seven days
i week. These rates also apply to electronic I Bonds.

: BOND FIXED RATE 1.10%

series I, inflation-indexed savings bonds purchased from November 2003 through April 2004 will earn a 1.10 percent fixed rate of retu
jbove inflation. The 1.10 percent fixed rate applies for the 30-year life of I Bonds purchased during this six-month period.

EARNINGS RATES FOR ALL I BONDS
Earnings rates and actual yields for I Bonds are shown in the I Bond Earnings Report on the back of this release.

*lORE INFORMATION

nformation about savings bonds is available at Public Debt's website at www.treasurydirect.gov. Check out our Savings Bond Calculator
o see how easy it is to find out what your bonds are worth, what they're earning, and even keep track of them. Or, download the free
Savings Bond Wizard a to keep track of your savings bond portfolio. An Earnings Report, which contains rate and yield information for
)onds is available by mail. Send a postcard asking for "Earnings Report" to Bureau of the Public Debt, 200 Third Street, Parkersburg, W V
'6106-1328.
>A-629

Intellectual Property | Privacy & Security Notices | Terms & Conditions | Accessibility | Data Quality
U.S. Department of the Treasury, Bureau of the Public Debt
Last Updated September 27, 2004

ittp://www.slgs.gov/com/comil 103.htm

5/23/2005

JS-965: U.S. Treasury Secretary John W . S n o w Remarks to the U.S.-Japan Business Cou... Page 1 of 3

F R O M T H E OFFICE O F PUBLIC A F F A I R S
November 3, 2003
JS-965
U.S. Treasury Secretary John W. Snow
Remarks to the U.S.-Japan Business Council Annual Meeting
Washington, D C
November 3, 2003
Good afternoon. It's a pleasure for me to address the U.S.-Japan Business Council
this afternoon.
The Administration's international economic strategy aims to raise economic growth
throughout the world. Japan and the United States, as the worlds two largest
economies, play a critical role in creating opportunities for the entire world. And you
in this room are in the front line of making that happen - as employers, producers of
goods and services, and also as shapers of economic policy in both of our
countries.
Your role is even more important because of the changing tenor of our economic
relations with Japan and our discussions with the Japanese government. Until just
a few years ago, these discussions were focused on market access. They were
often contentious. In addition, many in the United States viewed growth in Japan
as a threat to the U.S., as if world output were a zero-sum game.
We now recognize that growth abroad adds to opportunities for American workers
and producers, and enhances prosperity in the United States. W e welcome the
contribution that Japanese firms have m a d e to U.S. employment by investing here.
And American firms - your members - now play a critical role in financial services,
automobile production, retailing, pharmaceuticals, and a host of other industries in
Japan.
At the same time, the nature of the issues has shifted away from market access,
and towards market development, regulation, and corporate governance. These
are issues that affect domestic firms as well as foreign firms in Japan. And these
issues are often detailed and technical. Current financial services issues, such as
the development of defined contribution pensions and regulatory transparency, are
industry issues, not foreign firm issues.
I welcome your advice on the key policy issues that we face in the United States.
And I a m delighted by the role that many of you have played in advising the
Japanese Government and the Diet on policy issues.
We also rely on your ideas and analysis in shaping our own view about the
Japanese and American economies, and in shaping our discussions with the
Japanese government. This is why w e have m a d e private sector participation a
central part of the U.S.-Japan Economic Partnership for Growth. I strongly
encourage you to continue to develop joint policy recommendations for our two
governments, as you have done in the Joint Private Sector/Government
Commission.
Of course, there will continue to be a role for government-to-government
discussions to facilitate a more hospitable environment for trade and investment
between the United States and Japan. A recent and important result of these
discussions is our agreement in principle with Japan on the text of a new U.S.
Japan Bilateral Income Tax Treaty -- a treaty I was very pleased to announce
earlier this year. The proposed treaty reflects the deepening economic ties
between the United States and Japan, and the globalization of the two economies.
The proposed treaty reduces existing tax barriers to trade and investment between
the United States and Japan, most significantly by substantially reducing

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JS-965: U.S. Treasury Secretary John W . S n o w Remarks to the U.S.-Japan Business Cou... Page 2 of 3
withholding taxes imposed on cross-border dividends, interest, royalties and other
income. This includes the complete elimination of source-country withholding taxes
on royalties, certain interest, and certain inter-company dividends. I had an
opportunity to discuss the tax treaty with Japan's Finance Minister and Prime
Minister Koizumi in Japan last month. Both welcomed the agreement in principle
and shared m y view of the importance of a n e w treaty. I look forward to signing this
treaty as soon as possible.
This tax treaty is only one small example of our feeling that the U.S.-Japan alliance
is as strong as it has ever been. Our alliance forms a keystone of our security
relations in East Asia and our economic policy agenda world-wide. Japan has been
a vital ally in the war against terrorism. Japan's contribution to the war in Iraq w a s
greatly appreciated in the United States. Its generous contribution of $1.5 billion in
grant assistance to the reconstruction of Iraq will help that nation advance as a free
people.
Our cooperative efforts with Japan are particularly important for raising economic
growth around the world. At the recent IMF/World Bank meetings in Dubai, the
United States, Japan, and the other nations of the G 7 agreed on a n e w "G-7
Agenda for Growth." Under this milestone agreement, G-7 countries have
committed to concrete supply-side actions to increase productivity, spur growth,
and create jobs
Each country will identify its own policy plan under the Agenda. The United States
wiH work to lower health care costs, reduce frivolous lawsuits and streamline
regulations and needless paperwork through President Bush's Six Point Plan.
Japan reiterated its commitment to address the obstacles to sustained, vibrant
growth - in the banking sector, in ending deflation, and in carrying out structural
reforms and deregulation to raise growth.
The central part of an effective policy to enhance growth is promoting economic
flexibility - the ability to respond to market incentives and m o v e resources to new,
growing, and high productivity sectors.
Economic flexibility involves being able to respond to price signals, including signals
from international markets. The goals of raising growth can best be accomplished
in an international financial system that relies on the principles of free trade, free
capital flows, and market-based exchange rates a m o n g the major economies. This
principle w a s embraced by the United States, Japan, and the other m e m b e r s of the
G-7 in their statement in Dubai in September.
In the United States we had our own period of hardening of the arteries in the
1970's. But significant policy changes, including lowering marginal tax rates and
encouraging restructuring and adjustment, led to renewed American growth in the
last two decades.
Japan's postwar experience gave birth to the term "miracle economy." However,
as the Japanese economy has matured, its growth rate has fallen, and the
Japanese economy has struggled through the past decade. I believe that current
estimates of Japan's potential growth rate - 1 to VA percent per y e a r - undervalue
Japan's capabilities.
Statistics do show a loss of flexibility in the Japanese economy over time. One
striking p h e n o m e n o n is the decline in the rate of n e w firm formation in Japan - n e w
firms created each year fell from about 8 percent of total firms in the mid-1970s to
less than 4 percent in the past few years. There is also less exiting of old firms. A
m u c h smaller fraction of firms go bankrupt in Japan n o w than in the 1970s or
earlier. But firms that do go bankrupt are m u c h larger and older than before.
This suggests less bubbling up of new activity and new firms in Japan than in more
rapidly growing countries, or in the Japan of 30 years ago. And it m a y also indicate
that problems are allowed to linger, without being addressed, until firms eventually
collapse at great cost.
The continuing problems in the banking sector are surely part of the reason.
Unresolved bank and "distressed borrower" problems freeze productive assets in
place. Deflation and very low interest rates also delay the burden of servicing
debts, postponing hard decisions for banks and borrowers.

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JS-965: U.S. Treasury Secretary John W . S n o w Remarks to the U.S.-Japan Business Cou... Page 3 of 3
Fortunately, I believe that things are changing in Japan, in a way that will produce
more flexibility and stronger growth. Prime Minister Koizumi has clearly stated that
"no growth is possible without structural reform." The efforts of the Japanese
government to deregulate and institute structural reform in areas such as health
care, information technologies, and distribution and logistics should open up
opportunities for investment and growth.
Banks are making progress in resolving troubled borrowers and removing bad loan
claims from their books. A market has developed in distressed assets. And the
Japanese government has taken steps to encourage restructuring and revitalization
of troubled borrowers.
It's important that this process begin at an early enough stage to salvage real value
from companies. Banks need incentives to deal with risky loans, including
provisioning requirements.
Many Japanese firms are now restructuring for increased productivity and
efficiency. The sharp rise in corporate profits this year is in large part due to these
efforts, as is the recovery in the stock market. O n e of the indicators of increased
restructuring is the rise in mergers and acquisitions ( M & A ) activity. Here foreign
direct investment can m a k e a particularly valuable contribution, as it has in the U.S.
I applaud the Prime Minister's goal of doubling the volume of foreign direct
investment, as well as the emphasis that this Council has put on increasing foreign
direct investment.
President Bush and Prime Minister Koizumi will continue to pursue policies to
achieve stronger growth in both countries, and in the global economy. But for those
efforts to succeed, w e will need continued guidance and input from the leadership
of our two countries' business communities - such as from the membership of the
U.S. - Japan Business Council.
Thank you for your contributions now, and in the future.

http://www.treas.gov/press/releases/js965.htm

5/19/2005

JS-966: TREASURY ANNOUNCES MARKET FINANCING ESTIMATES

Page 1 of 1

F R O M T H E OFFICE O F PUBLIC AFFAIRS
November 3, 2003
JS-966
TREASURY ANNOUNCES MARKET FINANCING ESTIMATES
The Treasury Department announced today that it expects net borrowing of
marketable debt to total $117 billion in the October - December 2003 quarter. The
projected cash balance on December 31 is $35 billion. In the last quarterly
announcement on July 28, 2003, Treasury announced that it expected net
borrowing to total $126 billion with an end-of-quarter cash balance of $45 billion.
This decrease is due to higher receipts and lower outlays. The lower projected
cash balance on December 31 offsets the lower cash balance at the beginning of
the quarter and therefore does not impact net marketable borrowing this quarter.
Treasury also announced that it expects net borrowing of marketable debt to total
$160 billion in the January - March 2004. The projected cash balance on March 31
is $20 billion.
During the July - September 2003 quarter, Treasury's net marketable borrowing
totaled $82 billion and the cash balance on September 30 was $35 billion. O n July
28, Treasury announced that it expected net marketable borrowing to total $104
billion with a cash balance of $45 billion. The decrease in borrowing is primarily
attributable to higher receipts, lower outlays, and the lower end-of-quarter cash
balance, partially offset by lower net issues of State andLocal Government Series
securities.
Additional financing details relating to Treasury's Quarterly Refunding will be
released at 9:00 A.M. on Wednesday, November 5.

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JS-967: ACTING ASSISTANT SECRETARY MARK WARSHAWSKY on BORROWI... Page 1 of 3

PRESS ROOM

F R O M T H E OFFICE O F PUBLIC A F F A I R S
November 3, 2003
JS-967

ACTING ASSISTANT SECRETARY OF THE OFFICE OF ECONOMIC POLICY
MARK J. WARSHAWSKY
STATEMENT FOR THE TREASURY BORROWING ADVISORY COMMITTEE OF
THE BOND MARKET ASSOCIATION
Since the last meeting of the Advisory Committee three months ago, growth in the
U.S. economy has dramatically picked up steam. Last week the C o m m e r c e
Department reported that the pace of economic activity increased to a stunning 7.2
percent annual rate in the third quarter, well above expectations and the largest
increase since the first quarter of 1984. While some slowdown from that elevated
pace is to be expected, there is little doubt that the economy is now firmly on an
upward path.
After growing at a slow 1.4 percent pace late last year and early this year, positive
signs of improvement began to build through the spring. The swift conclusion of the
war in Iraq lifted the consumer mood. Attractive auto incentives and the extraction
of h o m e equity through a surge in mortgage refinancing also contributed to an
acceleration of personal consumption expenditures in the second quarter.
Indicators of investment demand such as new orders and shipments of nondefense
capital goods perked up as well, and the nascent recovery in real equipment and
software investment that w e witnessed in the last three quarters of 2002 resumed in
the second quarter of 2003 after a decline in the first. The firmer tone to investment
and consumption helped raise real G D P growth to a 3.3 percent annual rate in the
second quarter.
The passage of the Jobs and Growth Tax Relief Reconciliation Act in May provided
almost immediate additional support for the economy. By July, withholding tables
reflected reduced marginal tax rates on individual income, and the child tax credit
checks began to be delivered to households. The increase in bonus depreciation
and quadrupling of the expensing limit for small businesses encouraged business
investment. The reduction in taxes increased households' cash flow by an
estimated $35 billion and spurred businesses to take advantage of enhanced
capital expensing.
The impact was substantial. Total consumer spending grew at a 6.6 percent rate in
the third quarter, the largest gain since a rise of the same amount in the third
quarter of 1997, and equipment and software investment surged at a 15.4 percent
pace, the fastest since the first quarter of 2000. Production responded to the
pickup in final demand in the last two quarters, and manufacturing output rose at
almost a 3 percent annual rate in the third quarter.
More recently, there has been additional evidence of a recovery in the
manufacturing sector. The Institute for Supply Management's purchasing
managers index jumped sharply in October to 57.0 - the highest since January
2000 and the fourth consecutive reading above the 50-percent breakeven point that
signals expansion in manufacturing activity.
Many of the strengths that were evident going into the third quarter are likely to
continue to provide support to the economy going forward. Productivity growth has
been exceptional. The 3.9 percent annual rate of advance in nonfarm productivity
since the fourth quarter of 2000 - a period that includes both a recession and
recovery - is the strongest of any two-and-a-half year period in 30 years. Based on
the 9.0 percent increase in nonfarm business output indicated by last week's G D P
data and virtually no growth in worker hours, it appears likely that another large
productivity gain is in store for the third quarter when results are released later this
week.

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JS-967: ACTING ASSISTANT SECRETARY MARK WARSHAWSKY on BORROWI... Page 2 of 3
Businesses are beginning to reap the benefits of those productivity improvements.
Profits and cash flow are rising and unit costs have been held in check, paving the
w a y for further gains in investment. Small business optimism recently reached a
record high level, according to the National Federation of Independent Business,
and the Conference Board reported that confidence a m o n g large-company C E O s
w a s the strongest in 11 years. Improved business optimism is a first step in the
revitalization of labor markets.
Equity prices have climbed about 30 percent since mid-March, improving financing
conditions for business, as well as adding to household net worth. Boosted by the
tax cuts, real disposable personal income is rising, up at a 3.8 percent annual rate
through the first three quarters of the year. Household and business balance
sheets benefited from low interest rates over the past few years, leaving those
sectors in a good position to continue to spend. Rates are still quite low and yield
spreads are narrowing, enhancing prospects for investment.
The housing sector has been an engine of growth throughout the recession and
recovery and the homeownership rate has risen to a record 68.2 percent. Housing
continued to expand through the third quarter and construction starts and permits
point to further growth in residential investment ahead, a development supported by
the highest level in four years of homebuilder optimism regarding the six-month
outlook, according to the National Association of H o m e Builders.
The prospects for overall economic growth going forward are positive. Overseas
economies appear to be improving and providing a growing market for U.S. exports,
which rose 9.3 percent at an annual rate in real terms in the third quarter for the first
quarterly gain in a year. Production related to replenishing inventories should also
contribute to growth. Through the past few quarters inventories have been trimmed
to very low levels as businesses met a relatively large portion of d e m a n d out of
existing stockpiles. That is expected to turn around with the revival of strong
demand.
The latest Blue Chip consensus forecast expects real GDP growth to ease in the
fourth quarter to 3.7 percent and maintain that pace through next year. That rate is
above the estimated potential rate of growth of the economy, and the sustained
trend above potential should lead to a pickup in employment.
We have already seen signs of a budding upturn in labor markets, with payroll jobs
growing by 57,000 in September - the first job increase in eight months.
Unemployment claims appear to be moving lower and layoffs are declining. T h e
Conference Board's latest consumer confidence survey found their assessment of
both current and future employment conditions w a s more upbeat, contributing to a
4-percentage point increase in the confidence index in October.
Consumers' opinions on job conditions seem to have aligned with those of
professional forecasters, m a n y of w h o m expect that the acceleration in real growth
in the third quarter and over the following four quarters will lead to a sizable
increase in employment. Private sector estimates are converging on a job gain of
2.1 million over the four quarters ending in the third quarter of 2004.
Though positive signs are emerging and the outlook is favorable, we have seen
during the latest recession and recovery h o w sensitive labor markets have b e c o m e
compared to the experience of previous cycles. It appears to be taking longer for
labor markets to respond to an upturn in economic activity. Since creating n e w jobs
is a top priority of the Administration, in addition to the stimulus packages already at
work, the President recently unveiled a six-point plan to reduce barriers and
uncertainties that m a y be impeding businesses from hiring additional workers. T h e
plan includes a series of measures to help the economy operate more efficiently,
such as tort reform, providing an affordable energy supply, streamlining regulation,
opening n e w markets for U.S. products, making tax cuts permanent, and improving
the affordability of health care.
The substantial rise in health care costs has strapped the budgets of families,
businesses, and government, acting as a deterrent to hiring. After a period of
relatively slow health spending growth in the late 1990s, growth has accelerated
with the retreat of m a n a g e d care. Health spending n o w m a k e s up over 14 percent
of the economy. The Bureau of Labor Statistics' Employment Cost Index for health
benefits has risen 10.1 percent over the past year, following an 11.2 percent
increase the previous year. Employers are struggling to control health care costs

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JS-967: ACTING ASSISTANT SECRETARY MARK WARSHAWSKY on BORROWI... Page 3 of 3
without reducing or dropping coverage, because private-sector efforts to improve
value and efficiency in health care spending are in their nascence and are not well
developed. Sustained health care cost increases are preventing firms from hiring
n e w workers, while s o m e workers m a y be reluctant to change jobs for fear of losing
health insurance coverage.
The increasing strain of high and fast-growing health care costs not only impedes
the flexibility of U.S. labor markets but also puts a growing burden on the federal
budget. Already, one-quarter of federal outlays are dedicated to health care
expenses. A mere one percentage point decrease in the anticipated rate of growth
of health care spending would reduce the national debt by more than $600 billion
over the next 10 years. This Administration is committed to rooting out the causes
of wasteful care while preserving the incentives to sustain the miraculous
technological progress w e have witnessed in this sector.
In sum, growth in the economy appears to be firmly established and the outlook
going forward is bright. The Administration will continue to work to increase the rate
of job growth and to reduce any inefficiencies and barriers that m a y inhibit the
economy from maximizing its growth potential.

http://www.treas.gov/press/releases/js967.htm

5/19/2005

F R O M T H E OFFICE O F PUBLIC A F F A I R S
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
November 3, 2003
JS-968
First Quarterly Update of the 2003 - 2004 Priority Guidance Plan
Joint Statement by:
Pamela F. Olson
Assistant Secretary (Tax Policy)
U.S. Department of the Treasury
Mark W . Everson
Commissioner
Internal Revenue Service
Emily A. Parker
Acting Chief Counsel
Internal Revenue Service

W e are pleased to announce the first quarterly update of the 2003 - 2004 Priority
Guidance Plan.
On July 24, 2003, we released the 2003 - 2004 Priority Guidance Plan listing 268
projects for the plan year beginning July 1, 2003 and ending June 30, 2004. In our
Joint Statement that accompanied the release of the 2003 2004 Priority Guidance
Plan, w e emphasized our commitment to increased and more timely published
guidance. W e indicated that w e would update the plan quarterly to reflect additional
guidance that w e intend to publish during the plan year. Updating the plan also
provides flexibility to respond to developments arising during the year.
The attached update sets forth the guidance on the original 2003 - 2004 Priority
Guidance Plan that w e have published. Although the update m a y indicate that a
particular item on the plan has been completed, it is possible that one or more
additional projects may be completed in the plan year relating to that item. The
update also includes 20 items of additional guidance, some of which have already
been published.
We continue to invite the public to provide us with comments and suggestions as
w e identify and write guidance throughout the plan year.
The updated 2003 -2004 Priority Guidance Plan will be republished on the IRS
website on the Internet (www.irs.gov) under Tax Professionals, IRS Resources,
Administrative Information and Resources, 2003 - 2004 Priority Guidance Plan.
Copies can also be obtained by calling Treasury's Office of Public Affairs at (202)
622-2960.

Related Documents:
• First Quarterly Update of the 2003 2004 Priority Guidance Plan

http://www.treas.gov/press/releases/js968.htm

5/19/2005

OFFICE OF TAX POLICY
AND
INTERNAL REVENUE SERVICE
2003-2004 PRIORITY GUIDANCE PLAN
NOVEMBER 3, 2003 UPDATE
CONSOLIDATED RETURNS
1. Guidance under section 1502 regarding transactions involving obligations of
consolidated group members.
2. Guidance under section 1502 regarding rate or discount subsidy payments.
3. Final regulations under section 1502 regarding certain group structure changes.
4. Guidance under section 1502 regarding treatment of member stock.
Additional Projects:
5. Guidance under section 1504(a)(5)(C) and (D) regarding affiliation.

CORPORATIONS AND THEIR SHAREHOLDERS
1. Final regulations regarding the effect of reorganizations on attribute reduction in
respect of cancellation of indebtedness.
2. Guidance regarding redemptions of corporate stock.
3. Guidance regarding transactions involving the transfer or receipt of no net equity
value.
4. Final regulations regarding taxable asset acquisitions and dispositions of insurance
companies.
5. Guidance regarding the acquisition of businesses having certain nonqualified
settlement funds.
6. Guidance regarding the effect of pre-closing changes of acquiror stock value on
continuity of interest.
7. Guidance regarding the business purpose requirement under section 355.
• WILL B E P U B L I S H E D 11/17/2003 in IRB 2003-46 as R E V . R U L . 2003-110
(released 10/23/2003)

2
8. Guidance regarding the active trade or business requirement under section 355(b).
9. Guidance regarding predecessors and successors under section 355(e).

10. Guidance regarding the assumption of liabilities in certain transfers of property
11. Guidance regarding transfers of assets after putative reorganizations.
12. Guidance regarding certain cross-chain transactions.
13. Guidance under section 368(a)(1)(F).
14. Guidance under section 382.
• PUBLISHED 10/6/2003 in IRB 2003-40 as NOTICE 2003-65
(released 9/12/2003)
15. Guidance under section 1374 regarding liquidations of C corporations.
EMPLOYEE BENEFITS
A. Retirement Benefits
1. Guidance on phased retirement arrangements.
2. Guidance on distribution rules for rollover contributions.
3. Guidance updating Rev. Rul. 81-100.
4. Proposed regulations under section 401(a)(4) for cash balance plans.
5. Regulations under section 401(a)(9) on required minimum distributions.
6. Guidance on whether employees of a section 501(c)(3) organization who are
eligible to participate in a section 403(b) plan are excludable employees for section
401 (k) and (m) plans.
7. Guidance relating to annuity plans under section 403(b).
8. Final regulations under section 408(q).
9. Guidance under section 409(p) on S corporation ESOPs.
10. Revenue ruling under section 410(b)(6)(c).
11. Guidance under section 411 (a).

3
12. Guidance under sections 411 (b)(1)(H) and 411 (b)(2).
13. Guidance under section 411 (d)(6).
14. Guidance on mortality tables.
• P U B L I S H E D 9/22/2003 in IRB 2003-38 as N O T I C E 2003-62
(released 9/3/2003)
15. Guidance on section 412(i) plans.
16. Additional transitional rules when a PEO retirement plan is converted to a multiple
employer plan.
17. Regulations under section 415.
18. Guidance on section 416(g)(4)(H) for safe harbor 401 (k) plans.
19. Guidance on use of electronic technologies for various retirement plan
transactions.
20. Final regulations under section 417(a).
21. Guidance under section 417(e).
22. Guidance under section 420.
23. Guidance under section 457.
24. Revenue Procedure on model provisions for section 457(b) plans.
25. Guidance under section 3405 on actions by a duly authorized agent.
B. Executive Compensation, Health Care and Other Benefits, and Employment
Taxes
1. Guidance under section 35 on credit for health care insurance costs of eligible
individuals.
2. Guidance on election between taxable and nontaxable benefits.
3. Guidance under section 62(c) on payments to couriers.
4. Revenue ruling on electronic receipts and accountable plans.
• WILL B E P U B L I S H E D 11/3/2003 in IRB 2003-44 as REV. RUL. 2003-106
(released 10/20/2003)

4
5.

Guidance under section 83.

6. Guidance on disability payments.
7. Guidance on HRAs.
8. Revenue ruling under section 105 on nonprescription drugs.
• P U B L I S H E D 9/22/2003 in IRB 2003-38 as REV. RUL. 2003-102
(released 9/3/2003)
9. Guidance on debit cards.
10. Revenue ruling on the application of section 280G to various bankruptcy situations.
11. Guidance on health care provider incentive payments.
12. Final regulations on Incentive Stock Options.
13. Guidance on the employment taxation and reporting requirements applicable to
interest in nonstatutory stock options and deferred compensation transferred to a
former spouse incident to divorce.
14. Guidance under section 3121 regarding the definition of salary reduction
agreement.
15. Guidance on the employment tax treatment of bonuses paid to employees on the
signing of a collectively bargained agreement.
16. Guidance on FICA and FUTA tax with respect to incentive stock options under
section 422 and employee stock purchase plans under section 423.
17. Notice on issues with respect to the treatment of choreworkers.
• P U B L I S H E D 10/27/2003 in IRB 2003-43 as N O T I C E 2003-70
(released 10/3/2003)
18. Guidance on the reporting procedures for successor organizations following Rev.
Proc. 96-60.
19. Guidance under section 3504.
20. Revenue ruling under section 4980B on Medicare entitlement as a second
qualifying event.
21. Guidance on tips paid to restaurant employees.

5
22. Guidance on the deposit requirements for employment tax in connection with the
exercise of nonstatutory options.

EXCISE TAXES
1. Final regulations under section 4051 regarding the definition of highway vehicle in
sections 145.4051 and 48.4061 (a)-1.
2. Guidance regarding the definition of highway tractors subject to the heavy truck tax
under section 4051.
3. Guidance under section 4051(a)(2) and (3) regarding suitability for use.
4. Guidance under section 4081 regarding the entry into the United States of taxable
fuel.
5. Final regulations under section 4252 regarding toll telephone services.
6. Guidance under section 4261 regarding resellers of air transportation.
7. Guidance under section 4291 regarding the duties of the collector of collected
excise taxes.
8. Proposed regulations under section 6416(a)(4) regarding claims for gasoline tax.

EXEMPT ORGANIZATIONS
1. Guidance on joint ventures between exempt organizations and for-profit
companies.
2. Guidance on low-income housing partnerships and 501(c)(3) participation.
3. Guidance on downpayment assistance organizations.
4. Guidance on section 501 (c)(4) organizations.
5. Guidance concerning the internet and unrelated business income tax.
6. Regulations under section 529 regarding qualified tuition programs.
7. Guidance on reporting requirements applicable to Coverdell education savings
accounts.
• P U B L I S H E D 8/18/2003 in IRB 2003-33 as N O T I C E 2003-53
(released 7/31/2003)
8. Guidance on split interest trusts.

6

FINANCIAL INSTITUTIONS AND PRODUCTS
1. Proposed regulations regarding accruals on sales of REMIC regular interests
between payment dates.
2. Guidance on system upgrade payments made to utilities.
3. Final regulations under section 263(g).
4. Guidance under section 265(a)(2).
5. Proposed regulations on notional principal contracts.
6. Revenue ruling under section 446 concerning the timing rules of hedging
transactions not identified under section 1.1221-2(f).
7. Final regulations addressing the treatment of inducement fees for REMIC residual
interests.
8. Proposed regulations addressing valuation under section 475.
9. Final regulations under section 475(e) and (f).
10. Guidance under section 851 on the treatment of certain obligations backed by
Treasury securities for RIC diversification purposes.
11. Revenue ruling under section 856 on customary services performed by REITs.
12. Advance notice of proposed rulemaking on interest-only REMIC regular interests.
13. Final regulations on REMIC residual interests.
14. Guidance on credit card transactions.
15. Guidance under section 7872.
Additional Projects:
16. Proposed regulations clarifying the application of the TEFRA audit procedures to
REMICs.
17. Guidance regarding the application of section 1(h) to capital gain dividends of RICs
and REITs.

7
18. Revenue ruling under sections 1233 and 1259 regarding the transfer of a short
sale position from one broker to another.

GENERAL TAX ISSUES
1. Proposed regulations under section 21 regarding the credit for household and
dependent care expenses.
2. Final revenue procedure under section 23 regarding the credit for adoption
expenses.
3. Guidance under section 32.
4. Guidance under section 41 regarding the research credit.
5. Final regulations under section 41 regarding the computation of the research credit
in a controlled group.
6. Guidance under section 42.
7. Final regulations under sections 1.42-6 and 1.42-14 to conform to statutory
changes.
8. Guidance under section 45D regarding the new markets tax credit.
• P U B L I S H E D 8/25/2003 in IRB 2003-34 as N O T I C E 2003-56
(released 7/22/2003)
• P U B L I S H E D 9/29/2003 in IRB 2003-39 as N O T I C E 2003-64
(released 9/5/2003)
• P U B L I S H E D 10/14/2003 in IRB 2003-41 as N O T I C E 2003-68
(released 9/23/2003)
9. Final regulations under sections 46 and 167 relating to normalization.
10. Guidance under sections 51 and 51A on qualified IV-A recipient.
• WILL B E P U B L I S H E D 11/10/2003 in IRB 2003-45 as REV. RUL. 2003-112
(released 10/17/2003)
11. Guidance regarding the section 59(e) election.
12. Revenue ruling regarding disaster relief payments to businesses.
13. Revenue ruling under sections 61 and 162 on the proper treatment of Medicaid
rebates paid by pharmaceutical companies.
14. Guidance regarding the treatment of employee relocation costs.

8
15. Final regulations under section 121(c) regarding the reduced maximum exclusion
for gain on the sale of a principal residence.
16. Revenue ruling under sections 121 and 1031 regarding like-kind exchange of a
principal residence.
17. Guidance under section 152 regarding the release of a claim for exemption for a
child of divorced or separated parents.
18. Guidance under section 165 regarding the deduction for worthless stock of
subsidiaries for which an election under the check-the-box regulations has been
made.
19. Final regulations under section 167 regarding the income forecast method.
20. Proposed and temporary regulations under section 168 relating to like-kind
exchanges.
21. Final regulations under section 168 regarding depreciation of property for which
the use changes.
22. Proposed and temporary regulations under sections 168 and 1400L regarding
special depreciation allowance.
• P U B L I S H E D 9/8/2003 in F R as T E M P 9091
23. Guidance under section 168 regarding changes in classification of property.
24. Guidance under section 168 on asset classes and activity classes under Rev.
Proc. 87-56.
25. Guidance under section 172 regarding specified liability losses.
26. Guidance under section 174 regarding the treatment of inventory property.
27. Guidance under section 179 on elections.
28. Final regulations under section 221 regarding interest on education loans.
29. Revenue procedure under section 274 regarding the use of statistical sampling.
30. Final regulations under section 280F regarding vans and light trucks.
31. Final regulations under section 465 regarding interest other than as a creditor.
32. Guidance under section 1031 regarding reverse like-kind exchanges of property.

9
33. Revenue ruling under section 1241 on cancellation of lease or distributor
agreements.
34. Guidance on corporations chartered under Indian tribal law.
Additional Projects:
35. Revenue ruling under sections 61, 104, 130, and 139 regarding payments made to
claimants of the September 11th Victim Compensation Fund of 2001.
• WILL B E P U B L I S H E D 11/17/2003 in IRB 2003-46 as R E V . R U L . 2003-115

GIFTS, ESTATES AND TRUSTS
1. Guidance under section 642(c) regarding the contribution of a qualified
conservation easement.
2. Final regulations under section 643 regarding state law definition of income for
trust purposes.
3. Update revenue procedures under section 664 containing sample charitable
remainder unitrust provisions.
4. Guidance under section 664 regarding dividends and capital gains for charitable
remainder trusts.
5. Final regulations under section 671 regarding reporting requirements for widelyheld fixed investment trusts.
6. Guidance under sections 671 and 2036 regarding tax reimbursement provisions in
grantor trusts.
7. Guidance under section 2032 regarding section 301.9100 relief.
8. Guidance under section 2053 regarding post-death events.
9. Guidance under section 2632 regarding the election out of the deemed allocation
of the generation-skipping transfer tax exemption.
10. Guidance under section 2642 regarding issues related to the generation-skipping
transfer tax exemption.
11. Guidance under section 2642 regarding qualified severance.
12. Guidance under section 2651 regarding the predeceased parent rule.
13. Guidance under section 2704 regarding the liquidation of an interest.

10

Additional Projects:
14. Guidance under section 2702 regarding qualified interests.
• WILL B E P U B L I S H E D 11/3/2003 in IRB 2003-44 as N O T I C E 2003-72
(released 10/15/2003)

INSURANCE COMPANIES AND PRODUCTS
1. Revenue ruling concerning reserves used to calculate required interest under
section 812.
2. Guidance regarding substantially equal periodic payments under section 72(q).
3. Guidance regarding the 2001 CSO mortality tables.
4. Guidance regarding split-dollar life insurance.
• P U B L I S H E D 9/17/2003 in F R as T D 9092
Additional Projects:
5. Revenue ruling describing prior guidance on split-dollar life insurance that, due to
subsequent guidance, is obsolete.
• P U B L I S H E D 10/6/2003 in IRB 2003-40 as REV. RUL. 2003-105
INTERNATIONAL ISSUES
A. Subpart F/Deferral
1. Regulations on the allocation of subpart F income.
2. Regulations under section 959 on previously taxed earnings and profits.
3. Guidance on the PFIC provisions.
B. Inbound Transactions
1. Guidance on cross-border pension distributions.
2. Guidance under section 1441.
3. Guidance on securities lending.
4. Guidance on the treatment of certain financial products for withholding purposes.
5. Regulations under section 1446.

11

6.

Regulations relating to the reporting of bank deposit interest.

C. Outbound Transactions
1. Guidance on international restructurings.
2. Guidance follow-up to Notice 2003-46.
• P U B L I S H E D 10/21/2003 in F R as T D 9093 and REG-110385-99
D. Foreign Tax Credits
1. Regulations on the allocation of foreign taxes under section 901.
2. Regulations under sections 902 and 904.
3. Regulations on look-through treatment for 10/50 company dividends (see Notice
2003-5).
4. Regulations on the change of taxable year and foreign tax credits.
E. Transfer Pricing
1. Regulations on the treatment of cross-border services.
2. Regulations on cost sharing under section 482.
3. Guidance on the APA process (Rev. Proc. 96-53).
4. Regulations on global dealing.
F. Sourcing and Expense Allocation
1. Guidance on interest expense apportionment.
2. Regulations on the allocation and apportionment of charitable contributions.
3. Regulations relating to the treatment of fringe benefits.
4. Guidance on the source of payments for cross-border use of property.
5. Regulations under sections 863(d) and (e).
G. Treaties
1. Treaty guidance on the determination of residence for dual resident companies.

12

2.

Treaty guidance under the independent services article for nonresident partners.

3. Guidance on the procedures for claiming treaty waiver of insurance excise tax.
• WILL B E PUBLISHED 11/10/2003 in IRB 2003-45 as REV. P R O C . 2003-78
4. Guidance on reporting for Canadian RRSPs and other plans.
• PUBLISHED 8/25/2003 in IRB 2003-34 as NOTICE 2003-57
H. Other

1. Guidance on the definition of "qualified foreign corporation" for purposes of taxati
of dividends received by individuals.
• PUBLISHED 10/20/2003 in IRB 2003-42 as NOTICE 2003-69
• PUBLISHED 10/27/2003 in IRB 2003-43 as NOTICE 2003-71
2. Regulations under section 269B.
3. Guidance on cross-border insurance issues.
4. Guidance on possessions issues.
5. Regulations concerning the treatment of currency gain or loss.
6. Regulations under section 1503(d).
Additional Projects:
7. Revenue ruling relating to convention benefits under section 274(h).
• PUBLISHED 10/20/2003 in IRB 2003-42 as REV. RUL. 2003-109
8. Announcement of agreement relating to the limitaiton on benefits article in the
U.S.- Swiss Income Tax Convention.
• PUBLISHED 10/6/2003 in IRB 2003-40 as A N N . 2003-59
9. Announcement of agreement relating to deferred compensation under the U.S.Austrian Income Tax Convention.
• PUBLISHED 10/6/2003 in IRB 2003-40 as NOTICE 2003-58
10. Announcement of agreement implementing the mutual agreement procedures of
the U.S.-Dutch Income Tax Convention.
• WILL B E PUBLISHED 11/10/2003 in IRB 2003-45 as A N N . 2003-63
PARTNERSHIPS
1. Guidance regarding partnership transactions under section 337(d).

13

2.

Final regulations under section 460 regarding partnership transactions for longterm contracts.

3. Final regulations under section 704(b) regarding capital account book-up.
4. Guidance under section 704(b) regarding the allocation of foreign tax credits.
5. Guidance under section 704(c).
6. Guidance under section 707 regarding disguised sales.
7. Proposed regulations under section 721 regarding partnership interests issued for
services and the treatment of compensatory partnership options.
8. Update of the section 751 regulations.
9. Final regulations under section 752 regarding the assumption of partner liabilities.
10. Guidance under section 752 where a general partner is a disregarded entity.
11. Guidance on the application of section 1045 to certain partnership
transactions.
12. Guidance under section 6031 on the reporting requirements of tax-exempt bond
K
partnerships.
13. Guidance under section 7701 regarding Delaware Statutory Trusts.
14. Guidance under section 7701 regarding disregarded entities and collection issues.

SUBCHAPTER S
1. Revenue ruling under section 1361 regarding QSub elections.
2. Guidance on the treatment of LIFO recapture under section 1363(d).
3. Guidance under section 7701 on deemed corporation entity elections for electina
y
S corporations.

TAX ACCOUNTING
1. Final regulations under sections 162 and 263 regarding the deduction and
capitalization of expenditures for intangible assets.

14
2. Regulations under sections 162 and 263 regarding the deduction and capitalization
of expenditures for tangible assets.
3. Guidance under sections 162 and 263 regarding the deduction and capitalization
of costs incurred to fertilize established timber stands.
4. Revenue ruling regarding the deduction and capitalization of costs incurred by
utilities to maintain assets used to generate power.
5. Guidance under sections 165 regarding the treatment of preproduction costs of
creative property.
6. Regulations under section 263A regarding the simplified service cost and simplified
production methods.
7. Guidance under section 263A regarding "negative" additional section 263A costs.
8. Final regulations under sections 263A and 448 regarding adjustments under
section 481(a) for certain changes in accounting method.
9. Regulations under section 381 regarding changes in method of accounting.
10. Guidance under section 442 regarding the period for taking into account
adjustments resulting from certain changes in annual accounting period bypassthrough entities.
• WILL B E P U B L I S H E D 11/10/2003 in IRB 2003-45 as REV. P R O C . 2003-79
11. Revenue procedure under section 446 regarding changes in method of accounting
for rotable spare parts.
12. Regulations under section 446 regarding methods of accounting.
13. Temporary regulations under section 448 regarding the nonaccrual experience
method.
• P U B L I S H E D 9/4/2003 in F R as T E M P 9090
14. Final revenue procedure under section 451 regarding the treatment of advance
payments.
15. Revenue ruling under section 461 regarding the proper year for the deduction of
payroll taxes on deferred compensation by accrual method taxpayers.
16. Regulations under section 468B regarding certain escrow funds.
17. Guidance on the tax treatment of vendor allowances involving buildouts and image
upgrades.

15

18. Revenue ruling under section 1341 regarding the claim of right.
Additional Projects:
19. Notice under section 263A regarding the simplified service cost and simplified
production methods.
• P U B L I S H E D 9/2/2003 in IRB 2003-35 as N O T I C E 2003-59

TAX ADMINISTRATION
1. Update Rev. Proc. 85-35 regarding claims for relief by victims of terrorism.
2. Final regulations under section 5891 regarding structured settlement factoring
transactions.
3. Annual compilation of Tax Shelter Listed Transactions under section 6011.
4. Final regulations regarding electronic payee statements.
5. Proposed regulations regarding what constitutes a return under section
6020(b) for purposes of applying the failure to pay penalty.
6. Guidance regarding information reporting under section 6041 for commissions paid
to insurance agents.
7. Revenue ruling regarding information reporting for royalty payments under sections
6041 and6050N.
8.

Final regulations regarding information reporting and backup withholding for
purchasing card transactions.

9. Revenue procedure regarding Qualified Payment Card Agents.
10. Guidance regarding information reporting with respect to payments in lieu of
dividends m a d e to individuals.
• P U B L I S H E D 10/6/2003 in IRB 2003-40 as N O T I C E 2003-67
(released 9/16/2003)
11. Final regulations under section 6045(f) regarding the reporting of gross proceeds
to attorneys.
12. Final regulations under section 6050P regarding information reporting for
cancellation of indebtedness.
13. Proposed regulations under section 6091 regarding hand carrying returns.

16

14. Proposed regulations under section 6103 regarding the disclosure of unrelated
third party tax information in tax proceedings.
15. Final regulations under section 6103 regarding the definition of "agent".
16. Revenue procedure under section 6103 regarding fees charged for furnishing
certain returns and return information.
• P U B L I S H E D 10/27/2003 in IRB 2003-43 as R E V . P R O C . 2003-74
17. Final regulations regarding the ability of a return preparer to furnish a completed
copy of an income tax return to the taxpayer using a medium other than paper.
18. Withdrawal of regulations under former section 6152 relating to the election by a
decedent's estate to pay income tax in installments.
19. Update Rev. Ruls. 75-365, 366, and 367 regarding interests in real estate held by
a decedent.
20. Guidance regarding the use of summary assessment procedures with respect to
claimed Black Reparations and similar credits.
21. Guidance under section 6213 regarding math error assessments based on a Form
W-2.
22. Revenue ruling regarding the classification of items and the statute of limitations
under the T E F R A partnership provisions.
23. Revenue ruling under section 6231 regarding the application of certain TEFRA
partnership provisions to disregarded entities.
24. Final regulations under section 6302 regarding the minimum threshold for
depositing F U T A taxes.
25. Proposed regulations under sections 6320 and 6330 regarding collection due
process.
26. Notice regarding collection issues relating to property held as a tenancy by the
entirety arising from the Supreme Court's opinion in United States v. Craft.
• P U B L I S H E D 9/29/2003 in IRB 2003-39 as N O T I C E 2003-60
(released 9/11/2003)
27. Revenue ruling regarding the limitations on setoff.
28. Revenue ruling regarding setoff with respect to a taxpayer in bankruptcy.

17
29. Proposed regulations under section 6655 regarding estimated tax payments by
corporations.
30. Final regulations under sections 6662 and 6664 regarding penalties relating to tax
shelters.
31. Revenue procedure regarding the submission and processing of offers-incompromise.
• P U B L I S H E D 9/8/2003 in IRB 2003-36 as REV. P R O C . 2003-71
(released 8/21/2003)
32. Final regulations imposing a user fee for offers-in-compromise.
• P U B L I S H E D 8/15/2003 in F R as T D 9086
33. Guidance necessary to facilitate electronic tax administration.
34. Final regulations under section 7430 regarding qualified offers.
35. Proposed regulations under section 7430 regarding miscellaneous changes made
byTRA97andRRA98.
36. Update Rev. Proc. 87-24 regarding docketed Tax Court cases.
37. Proposed regulations regarding third party and John Doe summonses.
38. Revenue procedure regarding the early examination of questionable transactions.
39. Revisions to Circular 230 regarding practice before the IRS.
40. Revenue procedure expanding the prefiling agreement program.
Additional Projects:
41. Announcement regarding a delay of the implementation of the new rolling renewal
schedule for enrolled agents to renew their enrollment under Circular 230.
• WILL B E P U B L I S H E D 11/10/2003 in IRB 2003-45 as A N N . 2003-68
(released 10/27/2003)
42. Revenue ruling under section 6323 regarding the effect of actual knowledge of a
tax lien for priority purposes.
• WILL B E P U B L I S H E D 11/3/2003 in IRB 2003-44 as REV. RUL. 2003-108
43. Proposed regulations under section 6011 to remove impediments to electronic
filing of certain business returns.

18
44. Notice under section 6001 establishing a pilot program for entering into a record
keeping agreement relating to the research credit under section 41.
45. Revenue ruling under section 6402 regarding post-petition credits in chapter 13
bankruptcy cases.
46. Final regulations under section 6045 regarding information reporting relating to
taxable stock transactions.
47. Guidance under section 6041 regarding information reporting relating to debit or
credit card payments of health expenses.

TAX EXEMPT BONDS
1. Guidance under section 141 regarding naming rights.
2. Guidance on correction alternatives and voluntary compliance for tax exempt bond
provisions.
3. Final regulations under section 141 on refundings.
4. Proposed regulations under section 141 regarding allocation and accounting
provisions.
5. Regulations under section 142 regarding solid waste disposal facilities.
6. Guidance under section 143 regarding mortgage insurance fees.
7. Guidance under section 143 regarding average area purchase price.
8. Final regulations under section 148 regarding brokers' commissions and similar
fees.
9. Guidance on arbitrage.
10. Guidance under section 150 regarding change in use provisions.
11. Guidance under section 1397E regarding qualified zone academy bonds.
Additional Projects:
12. Revenue ruling under section 147(e) regarding helicopters.
• W I L L B E P U B L I S H E D 11/17/2003 in IRB 2003-46 as R E V . R U L . 2003-116
(released 10/29/2003)

19

A P P E N D I X - Regularly Scheduled Publications
JULY 2003
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for the
current month for purposes of sections 42, 382, 1274, 1288, and 7520.
• P U B L I S H E D 7/7/2003 in IRB 2003-27 as REV. RUL. 2003-71
2. Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability for the purpose of the full
funding limitation of section 412(c)(7) for plan years beginning in July 2003.
• P U B L I S H E D 7/28/2003 in IRB 2003-30 as N O T I C E 2003-48
(released 7/3/2003)
3. Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores m a y use in valuing inventories.
• P U B L I S H E D 7/21//2003 in IRB 2003-29 as REV. RUL. 2003-87
AUGUST 2003
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for the
current month for purposes of sections 42, 382, 1274, 1288, and 7520.
• P U B L I S H E D 8/18/2003 in IRB 2003-33 as REV. RUL. 2003-94
2. Revenue procedure providing the amounts of unused housing credit carryover
allocated to qualified states under section 42(h)(3)(D) for the calendar year.
• P U B L I S H E D 8/25/2003 in IRB 2003-34 as REV. P R O C . 2003-67
3. Notice providing the inflation adjustment factor to be used in determining the
enhanced oil recovery credit under section 43 for tax years beginning in the
calendar year.
• P U B L I S H E D 7/14/2003 in IRB 2003-28 as N O T I C E 2003-43
4. Notice providing the applicable percentage to be used in determining percentage
depleting for marginal properties under section 613A for the calendar year.
• P U B L I S H E D 7/29/2003 in IRB 2003-30 as N O T I C E 2003-54
5. Revenue ruling setting forth the terminal charge and the standard industry fare
level (SIFL) cents-per-mile rates for the second half of 2003 for use in valuing
personal flights on employer-provided aircraft.
• P U B L I S H E D 9/15/2003 in IRB 2003-37 as REV. RUL. 2003-89
6. Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability for the purpose of the full
funding limitation of section 412(c)(7) for plan years beginning in August 2003.

20
• P U B L I S H E D 9/2/2003 in IRB 2003-25 as N O T I C E 2003-58
(released 8/6/2003)
7. Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores may use in valuing inventories.
• P U B L I S H E D 8/25/2003 in IRB 2003-34 as REV. RUL. 2003-100
SEPTEMBER 2003
1. Revenue ruling setting forth tables of the adjusted appicable federal rates for the
current month for purposes of sections 42, 382, 1274, 1288, and 7520.
• P U B L I S H E D 9/8/2003 in IRB 2003-36 as REV. RUL. 2003-101
2. Revenue ruling providing the monthly bond factor amounts to be used by
taxpayers w h o dispose of qualified low-income buildings or interests therein during
the period July through September, 2003.
• P U B L I S H E D 8/18/2003 in IRB 2003-33 as REV. RUL. 2003-93
3. Revenue ruling under section 6621 regarding the applicable interest rates for
overpayments and underpayments of tax for the period October through
December 2003.
• P U B L I S H E D 9/29/2003 in IRB 2003-39 as REV. RUL. 2003-104
4. Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability for the purpose of the full
funding limitation of section 412(c)(7) for plan years beginning in September 2003.
• P U B L I S H E D 9/22/2003 in IRB 2003-38 as N O T I C E 2003-63
(released 9/4/2003)
5. Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores may use in valuing inventories.
• P U B L I S H E D 9/22/2003 in IRB 2003-38 as REV. RUL. 2003-103
6. Revenue procedure under section 62 regarding the deduction and deemed
substantiation of federal standard mileage amounts.
• P U B L I S H E D 10/27/2003 in IRB 2003-43 as REV. P R O C . 2003-76
7. Revenue procedure under section 62 regarding the deduction and deemed
substantiation of federal travel per diem amounts.
• WILL B E P U B L I S H E D 11/10/2003 in IRB 2003-45 as REV. P R O C . 2003-80
8. Update Notice 2002-62 to add approved applicants for designated private delivery
service status under section 7502(f). Will be published only if any new applicants
are approved.
• WILL B E C L O S E D W I T H O U T PUBLICATION

21
O C T O B E R 2003
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for the
current month for purposes of sections 42, 382, 1274, 1288, and 7520.
• P U B L I S H E D 10/14/2003 in IRB 2003-41 as R E V . RUL. 2003-107
(released 9/17/2003)
2. Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability for the purpose of the full
funding limitation of section 412(c)(7) for plan years beginning in October 2003.
• P U B L I S H E D 10/20/2003 in IRB 2003-42 as N O T I C E 2003-61
(released 10/6/2003)
3. Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores m a y use In valuing inventories.
• WILL B E P U B L I S H E D 11/3/2003 in IRB 2003-44 as REV. R U L 2003-113
4. Revenue procedure under section 1 and other sections of the Code regarding the
inflation adjusted items for 2004.
5. Revenue procedure providing the loss payment patterns and discount factors for
the 2003 accident year to be used for computing unpaid losses under section 846.
6. Revenue procedure providing the salvage discount factors for the 2003 accident
year to be used for computing discounted estimated salvage recoverable under
section 832.
7. Update of Rev. Proc. 2002-71 listing the tax deadlines that may be extended by
the Commissioner under section 7508A in the event of a Presidentially-declared
disaster or terrorist attack.
NOVEMBER 2003
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for the
current month for purposes of sections 42, 382, 1274, 1288, and 7520.
2. Revenue ruling providing the "base period T-Bill rate" as required by section
995(f)(4).
• WILL B E P U B L I S H E D 11/10/2003 in IRB 2003-45 as REV. RUL. 2003-111
3. Revenue ruling setting forth covered compensation tables for the 2004 calendar
year for determining contributions to defined benefit plans and permitted disparity.
4. Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability for the purpose of the full
funding limitation of section 412(c)(7) for plan years beginning in November 2003.

22

5.

Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores m a y use in valuing inventories.

6. Update of Rev. Proc. 2002-66 regarding adequate disclosure for purposes of the
section 6662 substantial understatement penalty and the section 6694 preparer
penalty.
• WILL B E P U B L I S H E D 11/3/2003 in IRB 2003-44 as R E V . P R O C . 2003-77
7. News release setting forth cost-of living adjustments effective January 1, 2004,
applicable to the dollar limits on benefits under qualified defined benefit pension
plans and other provisions affecting certain plans of deferred compensation.
• WILL B E P U B L I S H E D 11/10/2003 in IRB 2003-45 as N O T I C E 2003-73
(released 10/16/2003 as IR-2003-122)
DECEMBER 2003
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for the
current month for purposes of sections 42, 382, 1274, 1288, and 7520.
2. Revenue ruling providing the monthly bond factor amounts to be used by
taxpayers w h o dispose of qualified low-income buildings or interests therein during
the period October through December, 2003.
3. Revenue ruling under section 6621 regarding the applicable interest rates for
overpayments and underpayments of tax for the period January through March
2004.
4. Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability for the purpose of the full
funding limitation of section 412(c)(7) for plan years beginning in December 2003.
5. Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores m a y use in valuing inventories.
6. Revenue procedure setting forth, pursuant to section 1397E, the maximum face
amount of Qualified Zone Academy Bonds that m a y be issued for each state
during 2004.
7. Federal Register notice on Railroad Retirement Tier 2 tax rate.
JANUARY 2004
1. Revenue procedure updating the procedures for issuing private letter rulings,
determination letters, and information letters on specific issues under the
jurisdiction of the Chief Counsel.

23

2.

Revenue procedure updating the procedures for furnishing technical advice to
certain IRS offices, in the areas under the jurisdiction of the Chief Counsel.

3. Revenue procedure updating the previously published list of "no-rule" issues under
the jurisdiction of certain Associates Chief Counsel other than the Associate Chief
Counsel (International) on which advance letter rulings or determination letters will
not be issued.
4. Revenue procedure updating the previously published list of "no-rule" issues under
the jurisdiction of the Associate Chief Counsel (International) on which advance
letter rulings or determination letters will not be issued.
5. Revenue procedure updating procedures for furnishing letter rulings, general
information letters, etc. in employee plans and exempt organization matters
relating to sections of the C o d e under the jurisdiction of the Office of the
Commissioner, Tax Exempt and Government Entities Division.
6. Revenue procedure updating procedures for furnishing technical advice in
employee plans and exempt organization matters under the jurisdiction of the
Commissioner, Tax Exempt and Government Entities Division.
7. Revenue ruling setting forth tables of the adjusted applicable federal rates for the
current month for purposes of sections 42, 382, 1274, 1288, and 7520.
8. Revenue ruling setting forth the prevailing state assumed interest rates provided
for the determination of reserves under section 807 for contracts issued in 2003
and 2004.
9. Revenue ruling providing the dollar amounts, increased by the 2003 inflation
adjustment for section 1274A.
10. Revenue ruling setting forth the amount that section 7872 permits a taxpayer to
lend to a qualified continuing care facility without incurring imputed interest,
adjusted for inflation.
11. Revenue procedure providing procedures for limitations on depreciation
deductions for owners of passenger automobiles first placed in service during the
calendar year; amounts to be included in income by lessees of passenger
automobiles first leased during the calendar year; and the m a x i m u m allowable
value of employer-provided automobiles first m a d e available to employees for
personal use in the calendar year.
12. Revenue procedure providing the domestic asset/liability percentages and the
domestic investment yield percentages for taxable years beginning after

24
December 31, 2002, for foreign companies conducting insurance business in the
U.S.
13. Revenue procedure updating procedures for issuing determination letters on the
qualified status of employee plans under sections 401(a), 403(a), 409, and 4975.
14. Revenue procedure updating the user fee program as it pertains to requests for
letter rulings, determination letters, etc. in employee plans and exempt
organizations matters under the jurisdiction of the Office of the Commissioner, Tax
Exempt and Government Entities Division.
15. Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability for the purpose of the full
funding limitation of section 412(c)(7) for plan years beginning in January 2004.
16. Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores m a y use in valuing inventories.
FEBRUARY 2004
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for the
current month for purposes of sections 42, 382, 1274, 1288, and 7520.
2. Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores m a y use in valuing inventories.
3. Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability for the purpose of the full
funding limitation of section 412(c)(7) for plan years beginning in February 2004.
MARCH 2004
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for the
current month for purposes of sections 42, 382, 1274, 1288, and 7520.
2. Notice providing resident population of the states for determining the calendar year
state housing credit ceiling under section 42(h), the private activity bond volume
cap under section 146, and the qualified public educational facility bond volume
cap under section 142(k).
3. Revenue ruling providing the monthly bond factor amounts to be used by
taxpayers w h o dispose of qualified low-income buildings or interests therein during
the period January through March, 2004.
4. Revenue ruling under section 6621 regarding the applicable interest rates for
overpayments and underpayments of tax for the period April through June, 2004.

25

5.

Revenue ruling setting forth the terminal charge and the standard industry fare
level (SIFL) cents-per-mile rates for the first half of 2004 for use in valuing
personal flights on employer-provided aircraft.

6. Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability for the purpose of the full
funding limitation of section 412(c)(7) for plan years beginning in March 2004.
7. Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores m a y use in valuing inventories.
APRIL 2004
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for the
current month for purposes of sections 42, 382, 1274, 1288, and 7520.
2. Revenue ruling providing the average annual effective interest rates charged by
each Farm Credit Bank District.
3. Notice providing the inflation adjustment factor, nonconventional fuel source credit,
and reference price for the calendar year that determines the availability of the
credit for producing fuel from a nonconventional source under section 29.
4. Revenue procedure providing a current list of countries and the dates those
countries are subject to the section 911(d)(4) waiver and guidance to individuals
w h o fail to meet the eligibility requirements of section 911(d)(1) because of
adverse conditions in a foreign country.
5. Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability for the purpose of the full
funding limitation of section 412(c)(7) for plan years beginning in April 2004.
6. Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores m a y use in valuing inventories.
MAY 2004
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for the
current month for purposes of sections 42, 382, 1274, 1288, and 7520.
2. Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability for the purpose of the full
funding limitation of section 412(c)(7) for plan years beginning in M a y 2004.

26
3.

Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores m a y use in valuing inventories.

4. Revenue procedure providing guidance for use of the national and area median
gross income figures by issuers of qualified mortgage bonds and mortgage credit
certificates in determining the housing cost/income ratio under section 145.
JUNE 2004
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for the
current month for purposes of sections 42, 382, 1274, 1288, and 7520.
2. Revenue ruling providing the monthly bond factor amounts to be used by
taxpayers w h o dispose of qualified low-income buildings or interests therein during
the period April through June, 2004.
3. Revenue ruling under section 6621 regarding the applicable interest rates for
overpayments and underpayments of tax for the period July through September
2004.
4. Notice providing the calendar year inflation adjustment factor and reference prices
for the renewable electricity production credit under section 45.
5. Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability for the purpose of the full
funding limitation of section 412(c)(7) for plan years beginning in June 2004.
6. Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores m a y use in valuing inventories.

[§-931: Brian C. Roseboro N o v e m b e r 2003 Quarterly Refunding Statement

Pa

S e 1 °f 2

PRLSS R O O M

FROM THE OFFICE OF PUBLIC AFFAIRS
November 5, 2003
JS-931
Acting Under Secretary for Domestic Finance
Brian C. Roseboro
November 2003 - Quarterly Refunding Statement
There will be no change in the issuance calendar this quarter. The financing
changes that Treasury has already put in place this year have created the capacity
to accommodate the anticipated increase in issuance.
For this quarterly refunding, we are offering $57 billion of notes to refund
approximately $24.8 billion of privately held notes and bonds maturing or called on
November 15, raising approximately $32.2 billion. The securities are:
1. A new 3-year note in the amount of $24 billion, maturing November 15,
2006.
2. A new 5-year note in the amount of $16 billion, maturing November 15,
2008.
3. A new 10-year note in the amount of $17 billion, maturing November 15,
2013.
These securities will be auctioned on a yield basis at 1:00 PM Eastern time on
Monday, November 10, Wednesday, November 12, and Thursday, November 13,
respectively. US Government Bond Markets are closed on Tuesday, November 11,
for the Veteran's Day Holiday. The balance of our financing requirements will be
met through the monthly issuance of 5-year notes, the 10-year note reopening and
10-year TIPS reopening, and 2-year note and bill offerings. The Treasury is likely to
issue cash management bills in early December and January.
Real (TIPS) Yield Curve
We are pleased to announce that effective, Friday January 2, 2004, Treasury will
begin daily publication of 5-year, 7-year, and 10-year real constant maturity yield
points (R-CMT) taken from Treasury's real yield curve. The Treasury real yield
curve is constructed by interpolating closing real bid yields on existing TIPS
(Treasury Inflation Protected Securities) with maturities between 3-1/2 years and 10
years Over time we intend extend the range of the real yield curve, and publish
real C M T points from 1-month to 10-years. Additionally, Treasury will publish a
dailv lonq-term average of all TIPS with maturities over 10 years for use as a proxy
for lonq-term real rates. The daily R-CMT points and long-term real averages as
well as more detailed information regarding the construction of these indices can be
foundatwww.treas.gov/offices/domestic-finance/debt-management/interest-rate/.
Monitoring Secondary Market Conditions
Alono with other government agencies, trade associations, and market participants,
Treasury continues to monitor conditions in the financing market. Smooth
functioning of the financing market, in general, and the market for specific issues in
Particular play a vital role in the functioning of the secondary market for Treasury
securities. W e continue to believe in market participants' ability to resolve this
matter.
Finally, the next quarterly refunding announcement will take place on Wednesday,

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931: Brian C. Roseboro N o v e m b e r 2003 Quarterly Refunding Statement

Page 2 o f 2

February 4, 2004.
Please send comments and suggestions on these subjects or others relating to
debt management to debt.management@do.treas.gov.

http://www.treas.gov/press/releases/js931.

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js932: Report T o The Secretary O f The Treasury From The Treasury Borrowing Advisory... Page 1 of 4

FROM THE OFFICE OF PUBLIC AFFAIRS

To view or print the PDF content on this page, download the free Adobe® Acrobat® Reade
November 5, 2003
js932
Report To The Secretary Of The Treasury From The Treasury Borrowing
Advisory CommitteeTesting2

Dear Mr. Secretary:
Since the Committee's last meeting on July 29th, the economy has begun
to show signs that a more robust recovery is underway. Recent data
showed that the economy expanded by 7.2% on an annualized basis in the
third quarter, the fastest quarterly pace of expansion since 1984.
Additionally, surveys of purchasing managers also suggest that the
manufacturing sector, which led the economic decline, is in the throws of
what most economists expect is a suitable rebound. Despite these positive
developments, the labor market remains relatively weak but stable. The
average duration of unemployment remains at nearly 20 weeks but claims
for unemployment insurance have fallen recently. Also, payrolls expanded
in September for the first time since January and are forecast to expand in
October as well. Since our last meeting the actual annual rate of inflation
has increased slightly on a year-to-year basis while the rate of core inflation
has continued to fall.
Short-maturity yields have risen since our last meeting. Two-year Treasury
note yields are up 23 basis points to 1.94% despite having fallen to a yield
of 1.45% during the period. Ten-year notes actually rallied slightly during
the period, and are five basis points lower at 4.39%. The 2-year/10-year
curve flattened by 28 basis points. Equity markets continued to improve
since our last meeting. The S & P 500 index has risen roughly 6.5% while
the N A S D A Q composite index is up over 1 2 % during the inter-meeting
period. In the currency markets, the dollar has depreciated over 8 % versus
the Yen and just over 1 % versus the Euro.
Against this economic and financial backdrop, the Committee began
consideration of debt management questions included in the quarterly
meeting Committee charge. In a new format, Treasury presented a chart
package, that will be released as part of the Treasury refunding
announcement, as part of the Committee charge
The first question asked for Committee's advice on whether Treasury's
current financing calendar provided sufficient flexibility given the current
fiscal outlook and if not what recommendations the Committee would m a k e
as changes to the calendar and over what time period. Prior to tackling the
charge, several m e m b e r s asked for additional clarity around O M B ' s
forecasting approach in order to try to ascertain the likelihood of a large
miss between actual deficits and forecasts in the short term. As it related to
the charge, one m e m b e r pointed out an increased seasonality to cash
flows caused primarily by the mid-month settlement of 5-year notes. This
had increased Treasury's reliance on cash management bills and in effect
decreased the effectiveness of the 1-month bill in handling seasonal cash
flows A s a solution, several members recommended changing 5-year note
issuance from mid-month to the end of the month. Treasury, however,
noted current 5-year and Treasury bill issuance afforded them significant

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js932: Report T o The Secretary O f The Treasury From The Treasury Borrowing Advisory... Page 2 of 4
flexibility and in the long run, mid-month maturities would help smooth cash
balances.
Several members felt that given the likelihood of higher than forecast
deficits in the future, rollover risk might be too high using the current
Treasury calendar. This might argue for an alternative schedule possibly
including more long-dated issuance. Another m e m b e r noted that if the
economy were approaching the turning point, Treasury did not want to be
harnessed with significant long-dated issuance just as the fiscal situation
improved. In effect, it w a s easier for Treasury to increase auction cycles in
a growing deficit world than to eliminate them as deficits declined. The
majority of the Committee members felt that Treasury's current financing
calendar provided sufficient flexibility given the current fiscal outlook.
The second question the Committee opined on was in reference to adding
an additional TIPS security to the financing calendar. The Committee w a s
asked what criteria should Treasury use in determining the appropriate
maturity for a n e w issue.
Treasury shared with the Committee that over the last eighteen months
they had received a great deal of input on the TIPS market from investors,
consultants and dealers. They felt this has helped them understand more
of the market dynamics currently at work. In general, the Committee felt
that this market w a s still in its infancy and could experience significant
growth in the future, so adding a new issue would continue to build on the
established curve and add to the overall liquidity of the product. The view
that TIPS were a diversifying asset in portfolios of equities and fixed
income w a s c o m m o n and will continue to be accepted by investors over
time. In fact, the view of TIPS as a diversifier w a s more c o m m o n than TIPS
as an inflation hedge.
Under the current issuance cycle, demand develops around the auction
process on one specific maturity point of the curve-10 years. The
discussion focused on maturities shorter than this liquidity point and longer
than this liquidity point.
The Committee first considered issuance of a new maturity in less than ten
years (e.g. three years or five years). Members felt that this could bring
s o m e continued interest and demand from foreign investors. S o m e
m e m b e r s thought that this would do little to further develop the existing
TIPS yield curve, while allowing for the view that foreign purchases of
nominal issuance had driven recent d e m a n d for Treasury securities.
A number of Committee members felt that there was genuine interest from
a number of investor groups for longer dated maturities. State and local
governments, pension funds, insurance companies and mutual funds had
all expressed interest in the longer end of the TIPS curve. This w a s viewed
as real structural d e m a n d in the market The Committee further discussed
potential long maturity possibilities. S o m e members of the Committee felt
the 20-year maturity or the 30-year maturity should be considered. O n e
Committee m e m b e r suggested that issuance in the 20-year maturity would
create a readily hedgeable security due to the outstanding 10-year TIPS
securities and the off-the-run 30-year TIPS securities. This would also
serve the purpose of further building out the yield curve for TIPS where
there is currently an issuance gap. A number of m e m b e r s felt that by
issuing in the long end, greater liquidity would be created and a liquidity
premium would be established. Members felt that investors had b e c o m e
more comfortable with the product, were demanding more issuance, and
would welcome longer-dated maturities. In support of this view, one
m e m b e r referenced a Federal Reserve Bank chart from the prior meeting
that illustrated a decrease in dealer positions. This w a s thought to be
indicative of increased d e m a n d for the product and a general maturation of
the product. There w a s little support for introducing a 30-year TIPS maturity

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5/19/2005

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js932: Report T o T h e Secretary O f T h e Treasury F r o m T h e Treasury B o r r o w i n g Advisory... P a g e 3 of 4
at this point in time.
The third question in the charge asked for the Committee's views on RP
fails, particularly on the M a y 13 10-year notes, which had persisted at
elevated levels, including current market conditions and the effectiveness
of both private sector initiatives and regulatory measures in reducing those
fails.
Members noted that fails increased capital charges, balance sheet usage
and counterparty risk on sell side institutions. In s o m e cases market
makers had been forced to divert resources from other businesses to
compensate for fails in the R P area generally reducing liquidity provided to
those other areas. O n e m e m b e r mentioned that while "normal" fails were
healthy for the market, long-term, chronic fails were not. Most m e m b e r s
agreed that private sector initiatives had reduced fails by about 9 0 %
primarily by pooling counterparty information and reducing "round-robin"
fails. Most also felt that fail reduction based on these types of private sector
initiatives had largely run its course.
Some members felt that from a regulatory perspective, increasing the
breadth of large position reporting might provide s o m e relief to the residual
fail situation, while others thought the remedy w a s a tap of the 5/13 issue.
The overwhelming majority agreed, however, that given the relative pricing
of the 5/13 ten-years to other securities in the sector, market forces
probably had not been allowed to run their course in reducing fails and that
a longer period of time w a s required for them to do so. Additionally,
m e m b e r s felt that Treasury might compromise the m a n y benefits accruing
to the current system by increasing regulation prematurely.
The Committee then addressed the question of the composition of
Treasury notes to refund approximately $24.8 billion of privately held notes
and bonds maturing on November 15 (including $3.4 billion of the 8-3/4%
11/15/03 - 08 that w a s called 7/15/03) as well as the composition of
Treasury marketable financing for the remainder of the October-December
quarter, including cash management bills and for the January-March
quarter.
To refund $24.8 billion of privately held notes and bonds maturing on
November 15, 2003, the Committee recommended a $25 billion 3-year
note due 11/15/06, a $17 billion 5-year note due 11/15/08 and a $19 billion
10-year note due 11/15/13. For the remainder of the quarter, the
Committee recommended two $26 billion 2-year notes issued in November
and December, a $17 billion 5-year note issued in December, and $14
billion of a re-opened 10-year note issued in December and due 11/15/13.
The Committee also recommended two cash management bills, one a $25
billion 12-day bill issued 12/3/03 and maturing on 12/15/03 and the other a
$12 billion 4-day bill issued 12/11/03 and maturing on 12/15/03. For the
January-March quarter, the Committee recommended financing as
contained in the attached table. Relevant features include three monthly 2year notes (one of $27 billion and two of $28 billion), three monthly 5-year
notes (one of $17 billion and two of $19 billion), a $26 billion 3-year note for
issuance in February and a $20 billion 10-year note issued in February
followed by a $15 billion reopening of that 10-year note in March. The
Committee further recommended a $12 billion 10-year TIPS for issuance in
January. It w a s noted that Treasury should allow for potential changes in
the TIPS maturity as discussed in the charge.
Respectfully submitted,
Timothy W. Jay
Chairman
Mark B. Werner
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js932: Report T o The Secretary O f The Treasury From The Treasury Borrowing Advisory... Page 4 of 4
Vice Chairman
Attachments (2)
Related Documents:
• Financing Tables Q1 2004
• Financing Tables Q 4 2003

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JS-970: M E D I A ADVISORY: United States and Japan To Sign N e w Us-Japan Income T...

Page 1 of 1

F R O M T H E OFFICE O F PUBLIC AFFAIRS
November 5, 2003
JS-970
MEDIA ADVISORY: United States and Japan To Sign New Us-Japan Income
Tax Treaty
Treasury Secretary John Snow and Ambassador Ryozo Kato, the Japanese
Ambassador to the United States, will hold a signing ceremony for the new USJapan income tax treaty at 4:30 p.m. E S T on Thursday, November 6, 2003 in the
Treasury Department's Cash Room, 1500 Pennsylvania Avenue, N W .
The Room will be available for pre-set at 3:30 p.m.
Media without Treasury or White House press credentials planning to attend
should contact Treasury's Office of Public Affairs at (202) 622-2960 with the
following information: name, social security number and date of birth. This
information may also be faxed to (202) 622-1999.

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5/19/2005

JS-971: SNOW AND EVANS URGE SENATE TO PASS PERMANENT INTERNET T... Page 1 of 1

FROM THE OFFICE OF PUBLIC AFFAIRS
November 5, 2003
JS-971
SNOW AND EVANS URGE SENATE TO PASS
PERMANENT INTERNET TAX MORATORIUM

Treasury Secretary John Snow and Commerce Secretary Don Evans today
expressed their strong support for passage of legislation to make the Internet tax
moratorium permanent. The moratorium applies to taxes on Internet access,
regardless of the speed of that access, and to multiple or discriminatory taxes on
electronic commerce.
"We believe that government should support the widespread availability and use of
the Internet, including the use of broadband technology, and not discourage the
Internet's growth through new access taxes. Keeping the Internet free of multiple or
discriminatory taxes will help create an environment for innovation and will help
ensure that electronic commerce remains a vital, and growing, part of our
economy. A permanent moratorium means a permanent victory for American
consumers and businesses."
"We urge the Senate to pass S. 150 as soon as possible so President Bush can
sign a permanent Internet tax moratorium."

http://www.treas.gov/press/releases/js971 .htm

5/19/2005

js-972: Statement of Secretary John W . S n o w on Senate<br> Passage of Amendments to t... Page 1 of 1

F R O M T H E OFFICE O F PUBLIC AFFAIRS
November 5, 2003
js-972
Statement of Secretary John W. Snow on Senate
Passage of A m e n d m e n t s to the Fair Credit Reporting Act
The United States Senate today took a significant step towards promoting access to
credit and financial services for American consumers and implementing tough new
safeguards against the spread of identity theft and its devastating effects,
implementing Administration proposals that I announced on June 30.
I congratulate the Senate on their action and look forward to working with both
Houses of Congress to ensure that the final legislation embodies the goals w e all
share.

http://www.treas.gov/press/releases/js972.htm

js-972: Statement of Secretary John W . S n o w on Senate<br> Passage of Amendments to t... Page 1 of 1

F R O M T H E OFFICE O F PUBLIC AFFAIRS
November 5, 2003
js-972
Statement of Secretary John W. Snow on Senate
Passage of A m e n d m e n t s to the Fair Credit Reporting Act
The United States Senate today took a significant step towards promoting access to
credit and financial services for American consumers and implementing tough new
safeguards against the spread of identity theft and its devastating effects,
implementing Administration proposals that I announced on June 30.
I congratulate the Senate on their action and look forward to working with both
Houses of Congress to ensure that the final legislation embodies the goals w e all
share.

http://www.treas.gov/press/releases/js972.htm

JS-973: Statement regarding Announcement by Brazil and the I M F

Page 1 of 1

F R O M THE OFFICE OF PUBLIC AFFAIRS
November 5, 2003
JS-973
Treasury Statement regarding today's Announcement by Brazil and the IMF
We welcome the announcement today by Brazil's Finance Minister Palocci
and IMF First Deputy Managing Director Krueger of a proposed one-year
extension of Brazil's IMF program. The United States expects to support
this proposal when it is reviewed by the IMF Executive Board. Brazil has
m a d e remarkable progress in restoring macroeconomic stability and
reducing vulnerabilities. Its performance under its IMF program has been
exemplary. A s Brazil graduates from reliance on IMF financing,its decision
to seek a precautionary extension of the program is a prudent step and will
support Brazil's macroeconomic and growth-oriented reforms. Brazil has
indicated that it does not intend further borrowing from the IMF under the
program extension.
-30-

http://www.treas.gov/press/releases/js973.htm

5/19/2005

T

^^iSMMk&^LC^;

PRESG R O O M

FROM THE OFFICE OF PUBLIC AFFAIRS
November 6, 2003
2003-11 -6-17-46-59-17428
U.S. International Reserve Position

The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, U.S. reserve assets
totaled $83,947 million as of the end of that week, compared to $84,588 million as of the end of the prior week.

I. Official U.S. Reserve Assets (in US millions)
October 24, 2003

October 31, 2003

84,588

83,947

TOTAL
1. Foreign Currency Reserves

Euro

Yen

TOTAL

Euro

Yen

TOTAL

a. Securities

7,877

14,400

22,277

7,729

14,287

22,016
0

0

Of which, issuer headquartered in the U.S.
b. Total deposits with:
b.i. Other central banks and BIS

12,882

2,893

15,775

12,642

2,870

15,512

b.ii. Banks headquartered in the U.S.

0

0

b.ii. Of which, banks located abroad

0

0

b.iii. Banks headquartered outside the U.S.

0

0

b.iii. Of which, banks located in the U.S.

0

0

2. IMF Reserve Position

23,474

23,397

3. Special Drawing Rights (SDRs) 2

12,018

11,979

4. Gold Stock3

11,043

11,043

0

0

5. Other Reserve Assets

II. Predetermined Short-Term Drains on Foreign Currency Assets
October 24, 2003
Euro
1. Foreign currency loans and securities

Yen

October 31, 2003

TOTAL

Euro

0

2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the U.S. dollar:

Yen

TOTAL
0

2. a. Short positions

0

0

2.b. Long positions

0

0

3. Other

0

0

III. Contingent Short-Term Net Drains on Foreign Currency Assets
October 24, 2003
Euro
1. Contingent liabilities in foreign currency

Yen

October 31, 2003

TOTAL

Euro

Yen

TOTAL

0

0

2. Foreign currency securities with embedded
options

0

0

3. Undrawn, unconditional credit lines

0

0

0

0

La. Collateral guarantees on debt due within 1
year
Lb. Other contingent liabilities

3.a. With other central banks
3.b. With banks and other financial institutions
Headquartered in the U.S.
3.c. With banks and otherfinancialinstitutions
Headquartered outside the U.S.
4. Aggregate short and long positions of
options in foreign
Currencies vis-a-vis the U.S. dollar
4. a. Short positions
4.a.l. Bought puts
4.a.2. Written calls
4.b. Long positions
4.b.l. Bought calls
4.b.2. Written puts

Notes:
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
(SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and
deposits reflect carrying values. Foreign Currency Reserves for the latest week m a y be subject to revision. Foreign Currency

Reserves for the prior week are final.
2/The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF and are
valued in dollar terms at the official SDR/dollar exchange rate for the reporting date. The entries for the latest week reflect any
necessary adjustments, including revaluation, by the U.S. Treasury to the prior week's IMF data. IMF data for the latest week m a y be
subject to revision. IMF data for the prior w e e k are final.
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.

5-974: Secretary S n o w Remarks to Treasury Roundtable of Jobs, Growth, and the Abolition of the Deat... Page 1 of 2

F R O M T H E OFFICE O F PUBLIC A F F A I R S
November 6, 2003
JS-974
U.S. Treasury Secretary John W. Snow
Remarks to
Treasury Roundtable of Jobs, Growth, and the Abolition of the Death Tax
November 6, 2003
Good morning. Thanks for joining us at the Treasury today for this roundtable on
jobs, growth, and the abolition of the death tax.
We have seen some very positive developments in our economy in recent weeks,
in large measure thanks to President Bush's leadership, his Jobs and Growth Plan,
his attention to our national security, and other steps he's taken to ensure a bright
future for our nation.
Last quarter produced outstanding growth, and manufacturing and investment
activity is accelerating in a big way. At the same time, we've got a lot further to go.
W e need more job creation, and w e won't be satisfied until every American w h o
wants a job can find one.
Our focus on spurring job creation is a big reason for convening this roundtable on
the death tax. The other reason is more an expression of our core values: the
death tax is simply unfair and wrong. It's anti-savings, anti-family, and anti-small
business. It needs to end. Let m e put on m y economist hat for a moment, and
quote one of our esteemed guests today, Professor Russell Lamb from the
University of North Carolina Economics Department. Professor Lamb said, "repeal
of the death tax is an example of sound economics meeting simple fairness."
I couldn't say it better myself.
In fact, we've got 278 economists, including Nobel Laureates Milton Friedman and
Vernon Smith, w h o have signed a public letter to the same effect -- a letter in
Professor Friedman's equally pithy language.
Today we're going to work on developing a better understanding of the costs and
consequences of the death tax. We're going to gather and distribute the latest
economic studies on the impact of the tax. We're going to hear from Nobel
Laureate Vernon Smith directly. And we're going to lay the groundwork for
renewing our efforts to permanently repeal the death tax.
I think the facts are pretty clear. The death tax falls on income that has already
been taxed, sometimes twice before. It forces the destruction of thousands of small
family businesses, and it discourages work, savings and asset-accumulation. It
diverts resources into tax avoidance and enforcement that could be spent in
economically productive activities. And in the end, some studies suggest it m a y
cost the government as much as it collects.
Permanent repeal of the death tax is a key part of President Bush's six-point plan
for economic growth, and your contributions to today's discussion will move us
toward our c o m m o n objectives of higher growth, job creation, and economic
security for the citizens of the United States.

http://www.treas.gov/press/releases/js974.htm

5/23/2005

1-974: Secretary S n o w Remarks to Treasury Roundtable of Jobs, Growth, and the Abolition of the Deat... Page 2 of 2

I'm looking forward to the discussion.

ittp://www.treas.gov/press/releases/js974.htm

5/23/2005

-975: SECRETARY JOHN SNOW REMARKS AT THE US-JAP AN INCOME TAX TREATY SIG... Page 1 of 2

F R O M T H E OFFICE O F PUBLIC A F F A I R S
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
November 6, 2003
JS-975

TREASURY SECRETARY JOHN W. SNOW
REMARKS AT THE
US-JAPAN INCOME TAX TREATY SIGNING CEREMONY
I would like to thank you all for being here today at this important ceremony, and I
would like to welcome our friends from Japan, especially the Honorable Ryozo
Kato, Ambassador of Japan to the United States.
I also would like to thank all those who worked so hard to bring this income tax
treaty to fruition, both from the Japanese side and from the American side. A s you
know, this new treaty has been many years in the making, and could not have been
concluded without the hard work of many people in each of our governments.
This Administration has made a strong commitment to our income tax treaty
program. Tax treaties are important to the overall international economic policy of
the United States because they serve to reduce tax barriers to international trade
and investment.
A healthy trade and investment relationship between the United States and Japan,
the world's two largest economies, is critical to creating economic growth
throughout the world. The new income tax treaty w e will sign today will significantly
reduce existing tax-related barriers to trade and investment between Japan and the
United States. By reducing such barriers, the new treaty will foster still-closer
economic ties between our two great nations. This will enhance the
competitiveness of our businesses, and create new opportunities for trade and
investment between our two nations.
Most significantly, the new income tax treaty completely eliminates source-country
withholding taxes on certain income, including:
• the elimination of withholding taxes on all royalty income,
• the elimination of withholding taxes on certain interest income, including interest
income earned by financial institutions, and
• the elimination of withholding taxes on dividend income paid to parent companies
with a controlling interest in the paying company.
The new income tax treaty also ensures treaty benefits in appropriate
circumstances for investments m a d e through partnerships, allowing flexibility in
business form. In addition, the new treaty includes important provisions regarding
the application of international standards for transfer pricing between affiliated
companies operating in both countries.
Since the current U.S.-Japan tax treaty was signed over 30 years ago, the
relationship between our two countries has become truly global in scope. Our
economic relationship is strong and increasingly interdependent. It is firmly rooted
in the shared interests and responsibility of the United States and Japan to promote
global growth and a vital world trading system.
I am very pleased to have the opportunity today to sign this new income tax treaty
between the United States and Japan. W e will be proud to transmit this treaty for
consideration by our Senate. W e look forward to the day when this new tax treaty

ttp://www.treas.gov/press/releases/js975.htm

5/23/2005

•975: SECRETARY JOHN SNOW REMARKS AT THE US-JAP AN INCOME TAX TREATY SIG... Page 2 of 2
is in force, operating to enhance the environment for trade and investment between
our two nations.
Documents Attached:

Related Documents:
• Convention Final
• Protocol Final
• U S Note Final

ttp://www.treas.gov/press/releases/js975.htm

5/23/2005

CONVENTION BETWEEN
THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND
THE GOVERNMENT OF JAPAN
FOR THE AVOIDANCE OF DOUBLE TAXATION
AND THE PREVENTION OF FISCAL EVASION
WITH RESPECT TO TAXES ON INCOME
The Government of the United States of America and the Government of Japan,
Desiring to conclude a n e w Convention for the avoidance of double taxation and the
prevention of fiscal evasion with respect to taxes on income,
Have agreed as follows:

ARTICLE 1
1. This Convention shall apply only to persons who are residents of one or both of the
Contracting States, except as otherwise provided in the Convention
2. The provisions of this Convention shall not be construed to restrict in any manner any
exclusion, exemption, deduction, credit, or other allowance now or hereafter accorded:
(a) by the laws of a Contracting State in the determination of the tax imposed by that
Contracting State; or
(b) by any other bilateral agreement between the Contracting States or any
multilateral agreement to which the Contracting States are parties.
3. (a) Notwithstanding the provisions of subparagraph (b) of paragraph 2:
(i) any question arising as to the interpretation or application of this
Convention and, in particular, whether a measure is within the scope of this
Convention, shall be determined exclusively in accordance with the provisions of
Article 25 of this Convention; and

2
(ii) the provisions of Article XVII of the General Agreement on Trade in
Services shall not apply to a measure unless the competent authorities agree that
the measure is not within the scope of Article 24 of this Convention.
(b) For the purposes of this paragraph, the term "measure" means a law, regulation,
rule, procedure, decision, administrative action, or any similar provision or action, as
related to taxes of every kind and description imposed by a Contracting State without
regard to Article 2 and subparagraph (d) of paragraph 1 of Article 3.
4. (a) Except to the extent provided in paragraph 5, this Convention shall not affect the
taxation by a Contracting State of its residents (as determined under Article 4) and, in the
case of the United States, its citizens.
(b) Notwithstanding the other provisions of this Convention, a former citizen or longterm resident of the United States may, for the period often years following the loss of
such status, be taxed in accordance with the laws of the United States, if the loss of such
status had as one of its principal purposes the avoidance of tax (as defined under the laws
of the United States).
5. The provisions of paragraph 4 shall not affect the benefits conferred by a Contracting
State under paragraphs 2 and 3 of Article 9, paragraph 3 of Article 17, and Articles 18, 19, 20,
23, 24, 25 and 28, but in the case of benefits conferred by the United States under Articles 18, 19
and 20 only if the individuals claiming the benefits are neither citizens of, nor have been lawfully
admitted for permanent residence in, the United States.

3
ARTICLE 2
1. This Convention shall apply to the following taxes:
(a) in the case of Japan:
(i) the income tax; and
(ii) the corporation tax
(hereinafter referred to as "Japanese tax");
(b) in the case of the United States, the Federal income taxes imposed by the Internal
Revenue Code but excluding social security taxes (hereinafter referred to as "United
States tax").
2. This Convention shall also apply to any identical or substantially similar taxes which are
imposed after the date of signature of the Convention in addition to, or in place of, those referred
to in paragraph 1. The competent authorities of the Contracting States shall notify each other of
any substantial changes which have been made in their respective tax laws, or changes in other
laws that significantly affect their obligations under the Convention, within a reasonable period
of time after such changes.

ARTICLE 3
1. For the purposes of this Convention, unless the context otherwise requires:
(a) the term "Japan", when used in a geographical sense, means all the territory of
Japan, including its territorial sea, in which the laws relating to Japanese tax are in force,
and all the area beyond its territorial sea, including the seabed and subsoil thereof over

4
which Japan has jurisdiction in accordance with international law and in which the laws
relating to Japanese tax are in force;
(b) the term "United States" means the United States of America. When used in a
geographical sense, the term includes the states thereof and the District of Columbia;
such term also includes the territorial sea thereof and the seabed and subsoil of the
submarine areas adjacent to that territorial sea, over which the United States exercises
sovereign rights in accordance with international law; the term, however, does not
include Puerto Rico, the Virgin Islands, Guam or any other United States possession or
territory;
(c) the terms "a Contracting State" and "the other Contracting State" mean Japan or
the United States, as the context requires;
(d) the term "tax" means Japanese tax or United States tax, as the context requires;
(e) the term "person" includes an individual, a company and any other body of
persons;
(f) the term "company" means any body corporate or any entity that is treated as a
body corporate for tax purposes;
(g) the term "enterprise" applies to the carrying on of any business;
(h) the terms "enterprise of a Contracting State" and "enterprise of the other
Contracting State" mean respectively an enterprise carried on by a resident of a
Contracting State and an enterprise carried on by a resident of the other Contracting
State;

5
(i) the term "international traffic" means any transport by a ship or aircraft operated
by an enterprise of a Contracting State, except when such transport is solely between
places in the other Contracting State;
(j) the term "national" of a Contracting State means:
(i) in relation to Japan, any individual possessing the nationality of Japan and
any juridical person or other organization deriving its status as such from the laws
in force in Japan; and
(ii) in relation to the United States, any individual possessing the citizenship
of the United States and any legal person, partnership or association deriving its
status as such from the laws in force in the United States;
(k) the term "competent authority" means:
(i) in the case of Japan, the Minister of Finance or his authorized
representative; and
(ii) in the case of the United States, the Secretary of the Treasury or his
delegate;
(1) the term "business" includes the performance of professional services and of other
activities of an independent character; and
(m) the term "pension fund" means any person that:
(i) is organized under the laws of a Contracting State;
(ii) is established and maintained in that Contracting State primarily to
administer or provide pensions or other similar remuneration, including social
security payments; and

6
(iii) is exempt from tax in that Contracting State with respect to the activities
described in clause (ii).
2. As regards the application of this Convention at any time by a Contracting State any term
not defined therein shall, unless the context otherwise requires, or the competent authorities
agree otherwise on the meaning of a term for the purposes of applying the Convention pursuant

to Article 25, have the meaning which it has at that time under the laws of that Contracting State
for the purposes of the taxes to which the Convention applies, any meaning under the applicable
tax laws of that Contracting State prevailing over a meaning given to the term under other laws
of that Contracting State.

ARTICLE 4
1. For the purposes of this Convention, the term "resident of a Contracting State" means any
person who, under the laws of that Contracting State, is liable to tax therein by reason of his
domicile, residence, citizenship, place of head or main office, place of incorporation, or any
other criterion of a similar nature, and also includes:
(a) that Contracting State and any political subdivision or local authority thereof;
(b) a pension fund organized under the laws of that Contracting State; and
(c) a person organized under the laws of that Contracting State and established and
maintained in that Contracting State exclusively for a religious, charitable, educational,
scientific, artistic, cultural or public purpose, even if the person is exempt from tax in that
Contracting State.

7
This term, however, does not include any person who is liable to tax in that Contracting State in
respect only of income from sources in that Contracting State, or of profits attributable to a
permanent establishment in that Contracting State.
2. Notwithstanding the provisions of paragraph 1, an individual who is a United States
citizen or an alien lawfully admitted for permanent residence in the United States under the laws
of the United States shall be regarded as a resident of the United States only if the individual:
(a) is not a resident of Japan under paragraph 1;
(b) has a substantial presence, permanent home or habitual abode in the United
States; and
(c) for the purposes of a convention or agreement for the avoidance of double
taxation between Japan and a state other than the United States, is not a resident of that
state.
3. Where by reason of the provisions of paragraph 1 an individual not described in
paragraph 2 is a resident of both Contracting States, then his status shall be determined as
follows:
(a) he shall be deemed to be a resident of the Contracting State in which he has a
permanent home available to him; if he has a permanent home available to him in both
Contracting States, he shall be deemed to be a resident of the Contracting State with
which his personal and economic relations are closer (center of vital interests);
(b) if the Contracting State in which he has his center of vital interests cannot be
determined, or if he does not have a permanent home available to him in either
Contracting State, he shall be deemed to be a resident of the Contracting State in which
he has an habitual abode;

8
(c) if he has an habitual abode in both Contracting States or in neither of them, he
shall be deemed to be a resident of the Contracting State of which he is a national;
(d) if he is a national of both Contracting States or of neither of them, the competent
authorities of the Contracting States shall settle the question by mutual agreement.
An individual who is deemed to be a resident of a Contracting State by reason of the provisions
of this paragraph shall be deemed to be a resident only of that Contracting State for the purposes
of this Convention
4. Where by reason of the provisions of paragraph 1 a person other than an individual is a
resident of both Contracting States, then the competent authorities of the Contracting States shall
determine by mutual agreement the Contracting State of which that person shall be deemed to be
a resident for the purposes of this Convention. In the absence of a mutual agreement by the
competent authorities of the Contracting States, the person shall not be considered a resident of
either Contracting State for the purposes of claiming any benefits provided by the Convention
5. Where, pursuant to any provision of this Convention, a Contracting State reduces the rate
of tax on, or exempts from tax, income of a resident of the other Contracting State and under the
laws in force in that other Contracting State the resident is subject to tax by that other
Contracting State only on that part of such income which is remitted to or received in that other
Contracting State, then the reduction or exemption shall apply only to so much of such income as
is remitted to or received in that other Contracting State.
6. For the purposes of applying this Convention:
(a) An item of income:
(i) derived from a Contracting State through an entity that is organized in the
other Contracting State; and

9
(ii) treated as the income of the beneficiaries, members or participants of that
entity under the tax laws of that other Contracting State;
shall be eligible for the benefits of the Convention that would be granted if it were
directly derived by a beneficiary, member or participant of that entity who is a resident of
that other Contracting State, to the extent that such beneficiaries, members or participants
are residents of that other Contracting State and satisfy any other conditions specified in
the Convention, without regard to whether the income is treated as the income of such
beneficiaries, members or participants under the tax laws of the first-mentioned
Contracting State.
(b) An item of income:
(i) derived from a Contracting State through an entity that is organized in the
other Contracting State; and
(ii) treated as the income of that entity under the tax laws of that other
Contracting State;
shall be eligible for the benefits of the Convention that would be granted to a resident of
that other Contracting State, without regard to whether the income is treated as the
income of the entity under the tax laws of the first-mentioned Contracting State, if such
entity is a resident of that other Contracting State and satisfies any other conditions
specified in the Convention.
(c) An item of income:
(i) derived from a Contracting State through an entity that is organized in a
state other than the Contracting States; and

10
(ii) treated as the income of the beneficiaries, members or participants of that
entity under the tax laws of the other Contracting State;
shall be eligible for the benefits of the Convention that would be granted if it were
directly derived by a beneficiary, member or participant of that entity who is a resident of
that other Contracting State, to the extent that such beneficiaries, members or participants
are residents of that other Contracting State and satisfy any other conditions specified in
the Convention, without regard to whether the income is treated as the income of such
beneficiaries, members or participants under the tax laws of the first-mentioned
Contracting State or such state.
(d) An item of income:
(i) derived from a Contracting State through an entity that is organized in a
state other than the Contracting States; and
(ii) treated as the income of that entity under the tax laws of the other
Contracting State;
shall not be eligible for the benefits of the Convention.
(e) An item of income:
(i) derived from a Contracting State through an entity that is organized in that
Contracting State; and
(ii) treated as the income of that entity under the tax laws of the other
Contracting State;
shall not be eligible for the benefits of the Convention.

11
ARTICLE 5
1. For the purposes of this Convention, the term "permanent establishment" means a fixed
place of business through which the business of an enterprise is wholly or partly carried on.
2. The term "permanent establishment" includes especially:
(a) a place of management;
(b) a branch;
(c) an office;
(d) a factory;
(e) a workshop; and
(f) a mine, an oil or gas well, a quarry or any other place of extraction of natural
resources.
3. A building site, a construction or installation project, or an installation or drilling rig or
ship used for the exploration of natural resources, constitutes a permanent establishment only if it
lasts or the activity continues for a period of more than twelve months.
4. Notwithstanding the preceding provisions of this Article, the term "permanent
establishment" shall be deemed not to include:
(a) the use of facilities solely for the purpose of storage, display or delivery of goods
or merchandise belonging to the enterprise;
(b) the maintenance of a stock of goods or merchandise belonging to the enterprise
solely for the purpose of storage, display or delivery;
(c) the maintenance of a stock of goods or merchandise belonging to the enterprise
solely for the purpose of processing by another enterprise;

12
(d) the maintenance of a fixed place of business solely for the purpose of purchasing
goods or merchandise or of collecting information, for the enterprise;
(e) the maintenance of a fixed place of business solely for the purpose of carrying on,
for the enterprise, any other activity of a preparatory or auxiliary character;
(f) the maintenance of a fixed place of business solely for any combination of
activities mentioned in subparagraphs (a) to (e), provided that the overall activity of the
fixed place of business resulting from this combination is of a preparatory or auxiliary
character.
5. Notwithstanding the provisions of paragraphs 1 and 2, where a person - other than an
agent of an independent status to whom the provisions of paragraph 6 apply - is acting on behalf
of an enterprise and has, and habitually exercises, in a Contracting State an authority to conclude
contracts in the name of the enterprise, that enterprise shall be deemed to have a permanent
establishment in that Contracting State in respect of any activities that the person undertakes for
the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4
that, if exercised through a fixed place of business, would not make this fixed place of business a
permanent establishment under the provisions of that paragraph.
6. An enterprise shall not be deemed to have a permanent establishment in a Contracting
State merely because it carries on business in that Contracting State through a broker, general
commission agent or any other agent of an independent status, provided that such persons are
acting in the ordinary course of their business.
7. The fact that a company which is a resident of a Contracting State controls or is
controlled by a company which is a resident of the other Contracting State, or which carries on

13
business in that other Contracting State (whether through a permanent establishment or
otherwise), shall not constitute either company a permanent establishment of the other.

ARTICLE 6
1. Income derived by a resident of a Contracting State from real property (including income
from agriculture or forestry) situated in the other Contracting State may be taxed in that other
Contracting State.
2. The term "real property" as used in this Convention shall have the meaning which it has
under the laws of the Contracting State in which the property in question is situated. The term
shall in any case include property accessory to real property, livestock and equipment used in
agriculture and forestry, rights to which the provisions of general law respecting real property
apply, usufruct of real property and rights to variable or fixed payments as consideration for the
working of, or the right to work, mineral deposits and other natural resources; ships and aircraft
shall not be regarded as real property.
3. The provisions of paragraph 1 shall apply to income derived from the direct use, letting,
or use in any other form of real property.
4. The provisions of paragraphs 1 and 3 shall also apply to the income from real property of
an enterprise.

ARTICLE 7
1. The profits of an enterprise of a Contracting State shall be taxable only in that
Contracting State unless the enterprise carries on business in the other Contracting State through

14

a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the
profits of the enterprise may be taxed in that other Contracting State but only so much of them as
is attributable to the permanent establishment.
2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State
carries on business in the other Contracting State through a permanent establishment situated
therein, there shall in each Contracting State be attributed to that permanent establishment the
profits which it might be expected to make if it were a distinct and separate enterprise engaged in
the same or similar activities under the same or similar conditions and dealing wholly
independently with the enterprise of which it is a permanent establishment.
3. In determining the profits of a permanent establishment, there shall be allowed as
deductions expenses which are incurred for the purposes of the permanent establishment,
including executive and general administrative expenses so incurred, whether in the Contracting
State in which the permanent establishment is situated or elsewhere.
4. Nothing in this Article shall affect the application of any law of a Contracting State
relating to the determination of the tax liability of a person in cases where the information
available to the competent authority of that Contracting State is inadequate to determine the
profits to be attributed to a permanent establishment, provided that, on the basis of the available
information, the determination of the profits of the permanent establishment is consistent with
the principles stated in this Article.
5. No profits shall be attributed to a permanent establishment by reason of the mere
purchase by that permanent establishment of goods or merchandise for the enterprise.

15
6. For the purposes of the preceding paragraphs of this Article, the profits to be attributed to
the permanent establishment shall be determined by the same method year by year unless there is
good and sufficient reason to the contrary.
7. Where profits include items of income which are dealt with separately in other Articles of
this Convention, then the provisions of those Articles shall not be affected by the provisions of
this Article.

ARTICLE 8
1. Profits from the operation of ships or aircraft in international traffic carried on by an
enterprise of a Contracting State shall be taxable only in that Contracting State.
2. For the purposes of this Article, profits from the operation of ships or aircraft include
profits derived from the rental of ships or aircraft on a full basis. They also include profits from
the rental of ships or aircraft on a bareboat basis if such rental activities are incidental to the
operation of ships or aircraft in international traffic. Profits from the inland transport of property
or passengers within either Contracting State shall be treated as profits from the operation of
ships or aircraft in international traffic if such transport is undertaken as part of international
traffic.
3. Notwithstanding the provisions of Article 2 and subparagraph (d) of paragraph 1 of
Article 3, provided that no political subdivision or local authority of the United States levies a
tax similar to the local inhabitant taxes or the enterprise tax in Japan in respect of the operation
of ships or aircraft in international traffic carried on by an enterprise of Japan, an enterprise of

16

the United States shall be exempt from the local inhabitant taxes and the enterprise tax in Japan
in respect of the operation of ships or aircraft in international traffic.
4. Profits of an enterprise of a Contracting State from the use, maintenance or rental of
containers, including trailers, barges and related equipment for the transport of containers, shall
be taxable only in that Contracting State except where such containers are used solely within the
other Contracting State.
5. The provisions of the preceding paragraphs of this Article shall also apply to profits from
the participation in a pool, a joint business or an international operating agency.

ARTICLE 9
1. Where
(a) an enterprise of a Contracting State participates directly or indirectly in the
management, control or capital of an enterprise of the other Contracting State, or
(b) the same persons participate directly or indirectly in the management, control or
capital of an enterprise of a Contracting State and an enterprise of the other Contracting
State,
and in either case conditions are made or imposed between the two enterprises in their
commercial or financial relations which differ from those which would be made between
independent enterprises, then any profits which would, but for those conditions, have accrued to
one of the enterprises, but, by reason of those conditions, have not so accrued, may be included
in the profits of that enterprise and taxed accordingly.

17

2. Where a Contracting State includes in the profits of an enterprise of that Contracting

State - and taxes accordingly - profits on which an enterprise of the other Contracting State has
been charged to tax in that other Contracting State and that other Contracting State agrees that
the profits so included are profits which would have accrued to the enterprise of the firstmentioned Contracting State if the conditions made between the two enterprises had been those
which would have been made between independent enterprises, then that other Contracting State
shall make an appropriate adjustment to the amount of the tax charged therein on those profits.
In determining such adjustment, due regard shall be had to the other provisions of this
Convention.
3. Notwithstanding the provisions of paragraph 1, a Contracting State shall not change the
profits of an enterprise of that Contracting State in the circumstances referred to in that
paragraph, if an examination of that enterprise is not initiated within se\en years from the end
the taxable year in which the profits that would be subject to such change would, but for the

conditions referred to in that paragraph, have accrued to that enterprise. The provisions of this

paragraph shall not apply in the case of fraud or willful default or if the inability to initiate
examination within the prescribed period is attributable to the actions or inaction of that
enterprise.

ARTICLE 10
1. Dividends paid by a company which is a resident of a Contracting State to a resident of
the other Contracting State may be taxed in that other Contracting State.

18
2. However, such dividends may also be taxed in the Contracting State of which the
company paying the dividends is a resident and according to the laws of that Contracting State,
but if the dividends are beneficially owned by a resident of the other Contracting State, except as
provided in paragraphs 4 and 5, the tax so charged shall not exceed:
(a) 5 percent of the gross amount of the dividends if the beneficial owner is a
company that owns directly or indirectly, on the date on which entitlement to the
dividends is determined, at least 10 percent of the voting stock of the company paying the
dividends;
(b) 10 percent of the gross amount of the dividends in all other cases.
This paragraph shall not affect the taxation of the company in respect of the profits out of which
the dividends are paid.
3. Notwithstanding the provisions of paragraph 2, such dividends shall not be taxed in the
Contracting State of which the company paying the dividends is a resident if the beneficial
owner of the dividends is:
(a) a company that is a resident of the other Contracting State, that has owned,
directly or indirectly through one or more residents of either Contracting State, more than
50 percent of the voting stock of the company paying the dividends for the period of
twelve months ending on the date on which entitlement to the dividends is determined,
and that either:
(i) satisfies the conditions described in clause (i) or (ii) of subparagraph (c) of
paragraph 1 of Article 22;

19

(ii) satisfies the conditions described in clauses (i) and (ii) of subparagraph (f)
of paragraph 1 of Article 22, provided that the company satisfies the conditions
described in paragraph 2 of that Article with respect to the dividends; or
(iii) has received a determination pursuant to paragraph 4 of Article 22 with
respect to this paragraph; or
(b) a pension fund that is a resident of the other Contracting State, provided that such
dividends are not derived from the carrying on of a business, directly or indirectly, by
such pension fund.
4. The provisions of subparagraph (a) of paragraph 2 and subparagraph (a) of paragraph 3
shall not apply in the case of dividends paid by a United States Regulated Investment Company
(hereinafter referred to as a "RIC") or a United States Real Estate Investment Trust (hereinafter
referred to as a "REIT"). The provisions of subparagraph (b) of paragraph 2 and subparagraph
(b) of paragraph 3 shall apply in the case of dividends paid by a RIC. In the case of dividends
paid by a REIT, the provisions of subparagraph (b) of paragraph 2 and subparagraph (b) of
paragraph 3 shall apply only if:
(a) the beneficial owner of the dividends is an individual holding an interest of not
more than 10 percent in the REIT or a pension fund holding an interest of not more than
10 percent in the REIT;
(b) the dividends are paid with respect to a class of stock that is publicly traded and
the beneficial owner of the dividends is a person holding an interest of not more than 5
percent of any class of the stock of the REIT; or
(c) the beneficial owner of the dividends is a person holding an interest of not more
than 10 percent in the REIT and that REIT is diversified.

20

5. The provisions of subparagraph (a) of paragraph 2 and subparagraph (a) of paragraph 3
shall not apply in the case of dividends paid by a company which is entitled to a deduction for
dividends paid to its beneficiaries in computing its taxable income in Japan The provisions of
subparagraph (b) of paragraph 2 and subparagraph (b) of paragraph 3 shall apply in the case of
dividends paid by such company, provided that not more than 50 percent of its assets consist,
directly or indirectly, of real property situated in Japan. Where more than 50 percent of the
assets of such company consist, directly or indirectly, of real property situated in Japan, the
provisions of subparagraph (b) of paragraph 2 and subparagraph (b) of paragraph 3 shall apply
only if:
(a) the beneficial owner of the dividends is an individual holding an interest of not
more than 10 percent in such company or a pension fund holding an interest of not more
than 10 percent in such company;
(b) the dividends are paid with respect to a class of interest in such company that is
publicly traded and the beneficial owner of the dividends is a person holding an interest
of not more than 5 percent of any class of interest in the company; or
(c) the beneficial owner of the dividends is a person holding an interest of not more
than 10 percent in the company and the company is diversified.
6. The term "dividends" as used in this Article means income from shares or other rights,
not being debt-claims, participating in profits, as well as income which is subjected to the same
taxation treatment as income from shares by the tax laws of the Contracting State of which the
payor is a resident.
7. The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the
dividends, being a resident of a Contracting State, carries on business in the other Contracting

21

State of which the company paying the dividends is a resident, through a permanent
establishment situated therein, and the holding in respect of which the dividends are paid is
effectively connected with such permanent establishment. In such case the provisions of Article
7 shall apply.
8. A Contracting State shall not impose any tax on the dividends paid by a company that is a
resident of the other Contracting State, except insofar as the dividends are paid to a resident of
the first-mentioned Contracting State or insofar as the holding in respect of which the dividends
are paid is effectively connected with a permanent establishment situated in that Contracting
State, nor shall it impose tax on a company's undistributed profits, except as provided in
paragraph 9, even if the dividends paid or the undistributed profits consist wholly or partly of
profits or income arising in that Contracting State.
9. A company that is a resident of a Contracting State and that has a permanent
establishment in the other Contracting State or that is subject to tax in that other Contracting
State on its income that may be taxed in that other Contracting State under Article 6 or under
paragraph 1 or 2 of Article 13 may be subject in that other Contracting State to a tax in addition
to any tax that may be imposed in that other Contracting State in accordance with the other
provisions of this Convention. Such tax, however, may be imposed on only the portion of the
profits of the company attributable to the permanent establishment and the portion of the income
referred to in the preceding provisions of this paragraph that is subject to tax under Article 6 or
under paragraph 1 or 2 of Article 13 that represents the amount of such income that is equivalent
to the amount of dividends that would have been paid if such activities had been conducted in a
separate legal entity. The provisions of this paragraph shall not apply in the case of a company
which:

22

(a) satisfies the conditions described in clause (i) or (ii) of subparagraph (c) of
paragraph 1 of Article 22;
(b) satisfies the conditions described in clauses (i) and (ii) of subparagraph (f) of
paragraph 1 of Article 22, provided that the company satisfies the conditions described in
paragraph 2 of that Article with respect to the income; or
(c) has received a determination pursuant to paragraph 4 of Article 22 with respect to
this paragraph.
10. The tax referred to in paragraph 9 shall not be imposed at a rate in excess of the rate
specified in subparagraph (a) of paragraph 2.
11. A resident of a Contracting State shall not be considered the beneficial owner of
dividends in respect of preferred stock or other similar interest if such preferred stock or other
similar interest would not have been established or acquired unless a person:
(a) that is not entitled to benefits with respect to dividends paid by a resident of the
other Contracting State which are equivalent to, or more favorable than, those available
under this Convention to a resident of the first-mentioned Contracting State; and
(b) that is not a resident of either Contracting State;
held equivalent preferred stock or other similar interest in the first-mentioned resident.

ARTICLE 11
1. Interest arising in a Contracting State and paid to a resident of the other Contracting State
may be taxed in that other Contracting State.

23
2. However, such interest may also be taxed in the Contracting State in which it arises and
according to the laws of that Contracting State, but if the beneficial owner of the interest is a
resident of the other Contracting State, the tax so charged shall not exceed 10 percent of the
gross amount of the interest.
3. Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State
shall be taxable only in the other Contracting State if:
(a) the interest is beneficially owned by that other Contracting State, a political
subdivision or local authority thereof, or the central bank of that other Contracting State
or any institution wholly owned by that other Contracting State;
(b) the interest is beneficially owned by a resident of that other Contracting State with
respect to debt-claims guaranteed, insured or indirectly financed by the Government of
that other Contracting State, a political subdivision or local authority thereof, or the
central bank of that other Contracting State or any institution wholly owned by that other
Contracting State;
(c) the interest is beneficially owned by a resident of that other Contracting State that
is either:
(i) a bank (including an investment bank);
(ii) an insurance company;
(iii) a registered securities dealer; or
(iv) any other enterprise, provided that in the three taxable years preceding the
taxable year in which the interest is paid, the enterprise derives more than 50
percent of its liabilities from the issuance of bonds in the financial markets or
from taking deposits at interest, and more than 50 percent of the assets of the

24
enterprise consist of debt-claims against persons that do not have with the resident
a relationship described in subparagraph (a) or (b) of paragraph 1 of Article 9;
(d) the interest is beneficially owned by a pension fund that is a resident of that other
Contracting State, provided that such interest is not derived from the carrying on of a
business, directly or indirectly, by such pension fund; or
(e) the interest is beneficially owned by a resident of that other Contracting State and
paid with respect to indebtedness arising as a part of the sale on credit by a resident of
that other Contracting State of equipment or merchandise.
4. For the purposes of paragraph 3, the terms "the central bank" and "institution wholly
owned by a Contracting State" mean:
(a) in the case of Japan:
(i) the Bank of Japan;
(ii) the Japan Bank for International Cooperatio n;
(iii) the Nippon Export and Investment Insurance; and
(iv) such other similar institution the capital of which is wholly owned by
Japan as may be agreed upon from time to time between the Governments of the
Contracting States through an exchange of diplomatic notes.
(b) in the case of the United States:
(i) the Federal Reserve Banks;
(ii) the U.S. Export-Import Bank;
(iii) the Overseas Private Investment Corporation; and

25
(iv) such other similar institution the capital of which is wholly owned by the
United States as may be agreed upon from time to time between the Governments
of the Contracting States through an exchange of diplomatic notes.
5. The term "interest" as used in this Article means income from debt-claims of every kind,
whether or not secured by mortgage and whether or not carrying a right to participate in the
debtor's profits, and in particular, income from government securities and income from bonds or
debentures, including premiums and prizes attaching to such securities, bonds or debentures, and
all other income that is subjected to the same taxation treatment as income from money lent by
the tax laws of the Contracting State in which the income arises. Income dealt with in Article 10
shall not be regarded as interest for the purposes of this Convention.
6. The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the
interest, being a resident of a Contracting State, carries on business in the other Contracting State
in which the interest arises, through a permanent establishment situated therein and the debtclaim in respect of which the interest is paid is effectively connected with such permanent
establishment. In such case the provisions of Article 7 shall apply.
7. Interest shall be deemed to arise in a Contracting State when the payor is a resident of
that Contracting State. Where, however, the person paying the interest, whether such person is a
resident of a Contracting State or not, has in a state other than that of which such person is a
resident a permanent establishment in connection with which the indebtedness on which the
interest is paid was incurred, and such interest is borne by such permanent establishment, then:
(a) if the permanent establishment is situated in a Contracting State, such interest
shall be deemed to arise in that Contracting State, and

26

(b) if the permanent establishment is situated in a state other than the Contracting
States, such interest shall not be deemed to arise in either Contracting State.
8. Where, by reason of a special relationship between the payor and the beneficial owner or
between both of them and some other person, the amount of the interest, having regard to the
debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the
payor and the beneficial owner in the absence of such relationship, the provisions of this Article
shall apply only to the last-mentioned amount. In such case, the excess part of the payment may
be taxed in the Contracting State in which it arises at a rate not to exceed 5 percent of the gross
amount of the excess.
9. Notwithstanding the provisions of paragraphs 2 and 3, a Contracting State may tax, in
accordance with its domestic law, interest paid with respect to the ownership interests in an
entity used for the securitization of real estate mortgages or other assets, to the extent that the
amount of interest paid exceeds the return on comparable debt instruments as specified by the
domestic law of that Contracting State.
10. Where interest expense is deductible in determining the income of a company that is a
resident of a Contracting State, being income which:
(a) is attributable to a permanent establishment of that company situated in the other
Contracting State; or
(b) may be taxed in the other Contracting State under Article 6 or paragraph 1 or 2 of
Article 13;
and that interest expense exceeds the interest paid by that permanent establishment or paid with
respect to the debt secured by real property situated in that other Contracting State, the amount of
that excess shall be deemed to be interest arising in that other Contracting State and beneficially

27
owned by a resident of the first-mentioned Contracting State. That deemed interest may be taxed
in that other Contracting State at a rate not to exceed the rate provided for in paragraph 2, unless
the company is described in paragraph 3 in which case it shall be exempt from such taxation in
that other Contracting State.
11. A resident of a Contracting State shall not be considered the beneficial owner of interest
in respect of a debt-claim if such debt-claim would not have been established unless a person:
(a) that is not entitled to benefits with respect to interest arising in the other
Contracting State which are equivalent to, or more favorable than, those available under
this Convention to a resident of the first-mentioned Contracting State; and
(b) that is not a resident of either Contracting State;
held an equivalent debt-claim against the first-mentioned resident.

ARTICLE 12
1. Royalties arising in a Contracting State and beneficially owned by a resident of the other
Contracting State may be taxed only in that other Contracting State.
2. The term "royalties" as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific
work including cinematograph films and films or tapes for radio or television broadcasting, any
patent, trade mark, design or model, plan, or secret formula or process, or for information
concerning industrial, commercial or scientific experience.
3. The provisions of paragraph 1 shall not apply if the beneficial owner of the royalties,
being a resident of a Contracting State, carries on business in the other Contracting State in

28

which the royalties arise, through a permanent establishment situated therein, and the right or
property in respect of which the royalties are paid is effectively connected with such permanent
establishment. In such case the provisions of Article 7 shall apply.
4. Where, by reason of a special relationship between the payor and the beneficial owner or
between both of them and some other person, the amount of the royalties, having regard to the
use, right or information for which they are paid, exceeds the amount which wo uld have been
agreed upon by the payor and the beneficial owner in the absence of such relationship, the
provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess
part of the payment may be taxed in the Contracting State in which it arises at a rate not to
exceed 5 percent of the gross amount of the excess.
5. A resident of a Contracting State shall not be considered the beneficial owner of royalties
in respect of the use of intangible property if such royalties would not have been paid to the
resident unless the resident pays royalties in respect of the same intangible property to a person:
(a) that is not entitled to benefits with respect to royalties arising in the other
Contracting State which are equivalent to, or more favorable than, those available under
this Convention to a resident of the first-mentioned Contracting State; and
(b) that is not a resident of either Contracting State.

ARTICLE 13
1. Gains derived by a resident of a Contracting State from the alienation of real property
situated in the other Contracting State may be taxed in that other Contracting State.

29

(a) Gains derived by a resident of a Contracting State from the alienation of shares or
other comparable rights in a company that is a resident of the other Contracting State and
that derives at least 50 percent of its value directly or indirectly from real property
situated in that other Contracting State may be taxed in that other Contracting State,
unless the relevant class of shares is traded on a recognized stock exchange specified in
subparagraph (b) of paragraph 5 of Article 22 and the resident, and persons related
thereto, own in the aggregate 5 percent or less of that class of shares.
(b) Gains derived by a resident of a Contracting State from the alienation of an
interest in a partnership, trust or estate may be taxed in the other Contracting State to the
extent that its assets consist of real property situated in that other Contracting State.
(a) Where
(i) a Contracting State (including, for this purpose in the case of Japan, the
Deposit Insurance Corporation of Japan) provides, pursuant to the domestic law
concerning failure resolution involving imminent insolvency of financial
institutions in that Contracting State, substantial financial assistance to a financial
institution that is a resident of that Contracting State, and
(ii) a resident of the other Contracting State acquires shares in the financial
institution from the first-mentioned Contracting State,
the first-mentioned Contracting State may tax gains derived by the resident of the other
Contracting State from the alienation of such shares, provided that the alienation is made
within five years from the first date on which such financial assistance was provided.
(b) The provisions of subparagraph (a) shall not apply if the resident of that other
Contracting State acquired any shares in the financial institution from the first-mentioned

30
Contracting State before the entry into force of this Convention or pursuant to a binding
contract entered into before the entry into force of the Convention.
4. Notwithstanding the provisions of paragraphs 2 and 3, gains from the alienation of any
property, other than real property, forming part of the business property of a permanent
establishment which an enterprise of a Contracting State has in the other Contracting State,
including such gains from the alienation of such a permanent establishment (alone or with the
whole enterprise), may be taxed in that other Contracting State.
5. Gains derived by a resident of a Contracting State from the alienation of ships or aircraft
operated by that resident in international traffic and any property, other than real property,
pertaining to the operation of such ships or aircraft shall be taxable only in that Contracting
State.
6. Gains derived by a resident of a Contracting State from the alienation of containers,
including trailers, barges and related equipment for the transport of containers, shall be taxable
only in that Contracting State except where such containers were used solely within the other
Contracting State.
7. Gains from the alienation of any property other than that referred to in the preceding
paragraphs of this Article shall be taxable only in the Contracting State of which the alienator is
a resident.

ARTICLE 14
1. Subject to the provisions of Articles 15, 17 and 18, salaries, wages and other similar
remuneration derived by a resident of a Contracting State in respect of an employment shall be

31

taxable only in that Contracting State unless the employment is exercised in the other
Contracting State. If the employment is so exercised, such remuneration as is derived therefrom
may be taxed in that other Contracting State.
2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a
Contracting State in respect of an employment exercised in the other Contracting State shall be
taxable only in the first-mentioned Contracting State if:
(a) the recipient is present in that other Contracting State for a period or periods not
exceeding in the aggregate 183 days in any twelve month period commencing or ending
in the taxable year concerned;
(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of
that other Contracting State; and
(c) the remuneration is not borne by a permanent establishment which the employer
has in that other Contracting State.
3. Notwithstanding the provisions of the preceding paragraphs of this Article, remuneration
derived in respect of an employment exercised aboard a ship or aircraft operated in international
traffic by an enterprise of a Contracting State may be taxed in that Contracting State.

ARTICLE 15
Directors' fees and other similar payments derived by a resident of a Contracting State in
his capacity as a member of the board of directors of a company which is a resident of the other
Contracting State may be taxed in that other Contracting State.

32

ARTICLE 16
1. Income derived by an individual who is a resident of a Contracting State as an
entertainer, such as a theater, motion picture, radio or television artiste, or a musician, or as a
sportsman, from his personal activities as such exercised in the other Contracting State, which
income would be exempt from tax in that other Contracting State under the provisions of Articles
7 and 14, may be taxed in that other Contracting State, except where the amount of the gross
receipts derived by such entertainer or sportsman, including expenses reimbursed to him or borne
on his behalf, from such activities does not exceed ten thousand United States dollars ($10,000)
or its equivalent in Japanese yen for the taxable year concerned.
2. Where income in respect of personal activities exercised in a Contracting State by an
individual in his capacity as an entertainer or a sportsman accrues not to the individual himself
but to another person that is a resident of the other Contracting State, that income may,
notwithstanding the provisions of Articles 7 and 14, be taxed in the Contracting State in which
the activities of the individual are exercised, unless the contract pursuant to which the personal
activities are performed allows that other person to designate the individual who is to perform
the personal activities.

ARTICLE 17
1. Subject to the provisions of paragraph 2 of Article 18, pensions and other similar
remuneration, including social security payments, beneficially owned by a resident of a
Contracting State shall be taxable only in that Contracting State.

33

2. Annuities derived and beneficially owned by an individual who is a resident of a
Contracting State shall be taxable only in that Contracting State. The term "annuities" as used in
this paragraph means a stated sum paid periodically at stated times during the life of the
individual, or during a specified or ascertainable period of time, under an obligation to make the
payments in return for adequate and full consideration (other than services rendered).
3. Periodic payments, made pursuant to a written separation agreement or a decree of
divorce, separate maintenance, or compulsory support, including payments for the support of a
child, paid by a resident of a Contracting State to a resident of the other Contracting State shall
be taxable only in the first-mentioned Contracting State. However, such payments shall not be
taxable in either Contracting State if the individual making such payments is not entitled to a
deduction for such payments in computing taxable income in the first-mentioned Contracting
State.

ARTICLE 18
1. (a) Salaries, wages and other similar remuneration, other than a pension and other
similar remuneration, paid by a Contracting State or a political subdivision or local
authority thereof to an individual in respect of services rendered to that Contracting State
or political subdivision or local authority thereof, in the discharge of functions of a
governmental nature, shall be taxable only in that Contracting State.
(b) However, such salaries, wages and other similar remuneration shall be taxable
only in the other Contracting State if the services are rendered in that other Contracting
State and the individual is a resident of that other Contracting State who:

34
(i) is a national of that other Contracting State; or
(ii) did not become a resident of that other Contracting State solely for the
purpose of rendering the services.
2. (a) Any pension and other similar remuneration paid by, or out of funds to which
contributions are made by, a Contracting State or a political subdivision or local authority
thereof to an individual in respect of services rendered to that Contracting State or a
political subdivision or local authority thereof, other than payments made by the United
States under provisions of the social security or similar legislation, shall be taxable only
in that Contracting State.
(b) However, such pension and other similar remuneration shall be taxable only in the
other Contracting State if the individual is a resident of, and a national of, that other
Contacting State.
3. The provisions of Articles 14, 15, 16 and 17 shall apply to salaries, wages and other
similar remuneration, and to pensions and other similar remuneration, in respect of services
rendered in connection with a business carried on by a Contracting State or a political
subdivision or local authority thereof.

ARTICLE 19
Payments which a student or business apprentice who is, or was immediately before
visiting a Contracting State, a resident of the other Contracting State and who is present in the
first-mentioned Contracting State for the primary purpose of his education or training receives
for the purpose of his maintenance, education or training shall be exempt from tax in the first-

35
mentioned Contracting State, provided that such payments are made to him from outside that
first-mentioned Contracting State. The exemption from tax provided by this Article shall apply
to a business apprentice only for a period not exceeding one year from the date he first begins his
training in the first-mentioned Contracting State.

ARTICLE 20
1. An individual who visits a Contracting State temporarily for the purpose of teaching or
conducting research at a university, college, school or other educational institution in that
Contracting State, and who continues to be a resident, within the meaning of paragraph 1 of
Article 4, of the other Contracting State, shall be exempt from tax in the first-mentioned
Contracting State on any remuneration for such teaching or research for a period not exceeding
two years from the date of his arrival.
2. The provisions of paragraph 1 shall not apply to income from research if such research is
undertaken primarily for the private benefit of one or more specific persons.

ARTICLE 21
1. Items of income beneficially owned by a resident of a Contracting State, wherever
arising, not dealt with in the foregoing Articles of this Convention (hereinafter referred to as
"other income") shall be taxable only in that Contracting State.
2. The provisions of paragraph 1 shall not apply to income, other than income from real
property, if the beneficial owner of such income, being a resident of a Contracting State, carries

36
on business in the other Contracting State through a permanent establishment situated therein
and the right or property in respect of which the income is paid is effectively connected with
such permanent establishment. In such case the provisions of Article 7 shall apply.
3. Where, by reason of a special relationship between the resident referred to in paragraph 1
and the payor, or between both of them and some other person, the amount of other income,
having regard to the right or property in respect of which it is paid, exceeds the amount which
would have been agreed upon between them in the absence of such relationship, the provisions
of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the
payment may be taxed in the Contracting State in which it arises at a rate not to exceed 5 percent
of the gross amount of the excess.
4. A resident of a Contracting State shall not be considered the beneficial owner of other
income in respect of the right or property if such other income would not have been paid to the
resident unless the resident pays other income in respect of the same right or property to a
person:
(a) that is not entitled to benefits with respect to other income arising in the other
Contracting State which are equivalent to, or more favorable than, those available under
this Convention to a resident of the first-mentioned Contracting State; and
(b) that is not a resident of either Contracting State.

ARTICLE 22
1. Except as otherwise provided in this Article, a resident of a Contracting State that derives
income from the other Contracting State shall be entitled to all the benefits accorded to residents

37
of a Contracting State for a taxable year by the provisions of other Articles of this Convention
only if such resident satisfies any other specified conditions for the obtaining of such benefits
and is either:
(a) an individual;
(b) a Contracting State, any political subdivision or local authority thereof the Bank
of Japan or the Federal Reserve Banks;
(c) a company, if:
(i) the principal class of its shares, and any disproportionate class of its
shares, is listed or registered on a recognized stock exchange specified in clause
(i) or (ii) of subparagraph (b) of paragraph 5 and is regularly traded on one or
more recognized stock exchanges; or
(ii) at least 50 percent of each class of shares in the company is owned directly
or indirectly by five or fewer residents entitled to benefits under clause (i),
provided that, in the case of indirect ownership, each intermediate owner is a
person entitled to the benefits of this Convention under this paragraph;
(d) a person described in subparagraph (c) of paragraph 1 of Article 4;
(e) a pension fund, provided that as of the end of the prior taxable year more than 50
percent of its beneficiaries, members or participants are individuals who are residents of
either Contracting State; or
(f) a person other than an individual, if:
(i) residents that are described in subparagraph (a), (b), (d) or (e), or clause (i)
of subparagraph (c), own, directly or indirectly, at least 50 percent of each class of
shares or other beneficial interests in the person, and

38

(ii) less than 50 percent of the person's gross income for the taxable year is
paid or accrued by the person in that taxable year, directly or indirectly, to persons
who are not residents of either Contracting State in the form of payments that are
deductible in computing its taxable income in the Contracting State of which it is
a resident (but not including arm's length payments in the ordinary course of
business for services or tangible property and payments in respect of financial
obligations to a commercial bank, provided that where such a bank is not a
resident of a Contracting State such payment is attributable to a permanent
establishment of that bank situated in one of the Contracting States).
2. (a) A resident of a Contracting State shall be entitled to benefits of this Convention
with respect to an item of income derived from the other Contracting State if the resident
is engaged in the first-mentioned Contracting State in the active conduct of a trade or
business, other than the business of making or managing investments for the resident's
own account, unless these activities are banking, insurance or securities activities carried
on by a commercial bank, insurance company or registered securities dealer, the income
derived from the other Contracting State is derived in connection with, or is incidental to,
that trade or business and that resident satisfies any other specified conditions for the
obtaining of such benefits.
(b) If a resident of a Contracting State derives an item of income from a trade or
business activity in the other Contracting State, or derives an item of income arising in
the other Contracting State from a person that has with the resident a relationship
described in subparagraph (a) or (b) of paragraph 1 of Article 9, the conditions described
in subparagraph (a) shall be considered to be satisfied with respect to such item only if

39

the trade or business activity carried on by the resident in the first-mentioned Contracting
State is substantial in relation to the trade or business activity carried on by the resident or
such person in the other Contracting State. Whether a trade or business activity is
substantial for the purposes of this paragraph will be determined based on all the facts
and circumstances.
3. (a) Where the provisions of clause (ii) of subparagraph (c) of paragraph 1 apply in
respect of taxation by withholding at source, a resident of a Contracting State shall be
considered to satisfy the conditions described in that clause for a taxable year in which
the payment is made if such resident satisfies those conditions during the part of that
taxable year which precedes the date of payment of the item of income (or, in the case of
dividends, the date on which entitlement to the dividends is determined) and, unless that
date is the last day of that taxable year, during the whole of the preceding taxable year.
(b) Where the provisions of clause (i) of subparagraph (f) of paragraph 1 apply:
(i) in respect of taxation by withholding at source, a resident of a Contracting
State shall be considered to satisfy the conditions described in that clause for a
taxable year in which the payment is made if such resident satisfies those
conditions during the part of that taxable year which precedes the date of payment
of the item of income (or, in the case of dividends, the date on which entitlement
to the dividends is determined) and, unless that date is the last day of that taxable
year, during the whole of the preceding taxable year; and
(ii) in all other cases, a resident of a Contracting State shall be considered to
satisfy the conditions described in that clause for a taxable year in which the

40

payment is made if such resident satisfies those conditions on at least half the
days of the taxable year.
(c) Where the provisions of clause (ii) of subparagraph (f) of paragraph 1 apply in
respect of taxation by withholding at source in Japan, a resident of the United States shall
be considered to satisfy the conditions described in that subparagraph for a taxable year
in which the payment is made if such resident satisfies those conditions for the three
taxable years preceding that taxable year.
4. A resident of a Contracting State that is not described in paragraph 1 and is not entitled to
benefits with respect to an item of income under paragraph 2 shall, nevertheless, be granted
benefits of this Convention if the competent authority of the Contracting State from which
benefits are claimed determines, in accordance with its domestic law or administrative practice,
that the establishment, acquisition or maintenance of such resident and the conduct of its
operations are considered as not having the obtaining of benefits under the Convention as one of
its principal purposes.
5. For the purposes of this Article:
(a) the term "disproportionate class of shares" means any class of shares of a
company that is a resident of a Contracting State which is subject to terms or other
arrangements that entitle the holders of that class of shares to a portion of the income of
the company derived from the other Contracting State that is larger than the portion such
holders would receive absent such terms or arrangements;
(b) the term "recognized stock exchange" means:
(i) any stock exchange established under the terms of the Securities and
Exchange Law (Law No. 25 of 1948) of Japan;

41

(ii) the NASDAQ System and any stock exchange registered with the
Securities and Exchange Commission as a national securities exchange under the
Securities Exchange Act of 1934 of the United States; and
(iii) any other stock exchange agreed upon by the competent authorities; and
(c) the term "gross income" means the total revenues derived by a resident of a
Contracting State from its business, less the direct costs of obtaining such revenues.

ARTICLE 23
Subject to the provisions of the laws of Japan regarding the allowance as a credit against
Japanese tax of tax payable in any country other than Japan:
(a) Where a resident of Japan derives income from the United States which may be
taxed in the United States in accordance with the provisions of this Convention, the
amount of the United States tax payable in respect of that income shall be allowed as a
credit against the Japanese tax imposed on that resident. The amount of credit, however,
shall not exceed that part of the Japanese tax which is appropriate to that income.
(b) Where the income derived from the United States is dividends paid by a company
which is a resident of the United States to a company which is a resident of Japan and
which owns not less than 10 percent of the voting shares issued by the company paying
the dividends during the period of six months immediately before the day when the
obligation to pay dividends is confirmed, the credit shall take into account the United
States tax payable by the company paying the dividends in respect of its income.

42

For the purposes of this paragraph, income beneficially owned by a resident of Japan which may
be taxed in the United States in accordance with the Convention shall be deemed to arise from
sources in the United States.
2. In accordance with the provisions and subject to the limitations of the laws of the United
States (as it may be amended from time to time without changing the general principle hereof),
the United States shall allow to a resident or citizen of the United States as a credit against the
United States tax on income:
(a) the Japanese tax paid or accrued by or on behalf of such citizen or resident; and
(b) in the case of a company that is a resident of the United States and that owns at
least 10 percent of the voting stock of a company that is a resident of Japan and from
which the first-mentioned company receives dividends, the Japanese tax paid or accrued
by or on behalf of the payor with respect to the profits out of which the dividends are
paid.
For the purposes of this paragraph, the taxes referred to in subparagraph (a) of paragraph 1 and
paragraph 2 of Article 2 shall be considered Japanese taxes imposed on the beneficial owner of
the income. For the purposes of this paragraph, an item of gross income, as determined under
the laws of the United States, derived by a resident of the United States that, under this
Convention, may be taxed in Japan shall be deemed to be income from sources in Japan.
3. For the purposes of applying the preceding paragraphs of this Article, where the United
States taxes, in accordance with paragraph 4 of Article 1, a citizen, or a former citizen or longterm resident, of the United States who is a resident of Japan:
(a) Japan shall take into account for the purposes of computing the credit to be
allowed under paragraph 1 only the amount of tax that the United States may impose on

43

income under the provisions of this Convention that is derived by a resident of Japan who
is neither a citizen, nor a former citizen nor long-term resident, of the United States;
(b) for the purposes of computing the United States tax on income referred to in
subparagraph (a), the United States shall allow as a credit against the United States tax
the Japanese tax after the credit referred to in that subparagraph; the credit so allowed
shall not reduce the portion of the United States tax that is creditable against the Japanese
tax in accordance with that subparagraph; and
(c) for the exclusive purpose of allowing the credit by the United States provided for
under subparagraph (b), income referred to in subparagraph (a) shall be deemed to arise
in Japan to the extent necessary to allow the United States to grant the credit provided for
in subparagraph (b).

A R T I C L E 24
1. Nationals of a Contracting State shall not be subjected in the other Contracting State to
any taxation or any requirement connected therewith, which is other or more burdensome than
the taxation and connected requirements to which nationals of that other Contracting State in the
same circumstances, in particular with respect to taxation on worldwide income, are or may be
subjected. The provisions of this paragraph shall also apply to persons who are not residents of
one or both of the Contracting States.
2. The taxation on a permanent establishment which an enterprise of a Contracting State has
in the other Contracting State shall not be less favorably levied in that other Contracting State
than the taxation levied on enterprises of that other Contracting State carrying on the same

44
activities. The provisions of this paragraph shall not be construed as obliging a Contracting State
to grant to residents of the other Contracting State any personal allowances, reliefs and
reductions for taxation purposes on account of civil status or family responsibilities which it
grants to its own residents.
3. Except where the provisions of paragraph 1 of Article 9, paragraph 8 of Article 11,
paragraph 4 of Article 12, or paragraph 3 of Article 21 apply, interest, royalties and other
disbursements paid by a resident of a Contracting State to a resident of the other Contracting
State shall, for the purposes of determining the taxable profits of the first-mentioned resident, be
deductible under the same conditions as if they had been paid to a resident of the first-mentioned
Contracting State. Similarly, any debts of a resident of a Contracting State to a resident of the
other Contracting State shall, for the purposes of determining the taxable capital of the firstmentioned resident, be deductible under the same conditions as if they had been contracted to a
resident of the first-mentioned Contracting State.
4. Enterprises of a Contracting State, the capital of which is wholly or partly owned or
controlled, directly or indirectly, by one or more residents of the other Contracting State, shall
not be subjected in the first-mentioned Contracting State to any taxation or any requirement
connected therewith which is other or more burdensome than the taxation and connected
requirements to which other similar enterprises of the first-mentioned Contracting State are or
may be subjected.
5. Nothing in this Article shall be construed as preventing either Contracting State from
imposing a tax as described in paragraph 9 of Article 10 or paragraph 10 of Article 11.

45

6. The provisions of this Article shall, notwithstanding the provisions of Article 2 and
subparagraph (d) of paragraph 1 of Article 3, apply to taxes of every kind and description
imposed by a Contracting State or a political subdivision or local authority thereof.

ARTICLE 25
1. Where a person considers that the actions of ore or both of the Contracting States result
or will result for him in taxation not in accordance with the provisions of this Convention, he
may, irrespective of the remedies provided by the domestic law of those Contracting States,
present his case to the competent authority of the Contracting State of which he is a resident or,
if his case comes under paragraph 1 of Article 24, to that of the Contracting State of which he is
a national. The case must be presented within three years from the first notification of the action
resulting in taxation not in accordance with the provisions of the Convention.
2. The competent authority shall endeavor, if the objection appears to it to be justified and if
it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement
with the competent authority of the other Contracting State, with a view to the avoidance of
taxation which is not in accordance with the provisions of this Convention. Any agreement
reached shall be implemented notwithstanding any time limits or other procedural limitations in
the domestic law of the Contracting States, except such limitations as apply for the purposes of
giving effect to such an agreement.
3. The competent authorities of the Contracting States shall endeavor to resolve by mutual
agreement any difficulties or doubts arising as to the interpretation or application of this
Convention. In particular the competent authorities of the Contracting States may agree:

46

(a) to the same attribution of income, deductions, credits, or allowances of an
enterprise of a Contracting State to its permanent establishment situated in the other
Contracting State;
(b) to the same allocation of income, deductions, credits, or allowances between
persons;
(c) to the settlement of conflicting application of the Convention, including conflicts
regarding:
(i) the characterization of particular items of income;
(ii) the characterization of persons;
(iii) the application of source rules with respect to particular items of income;
and
(iv) the meaning of any term used in the Convention; and
(d) to advance pricing arrangements.
They may also consult together for the elimination of double taxation in cases not provided for in
the Convention.
4. The competent authorities of the Contracting States may communicate with each other
directly for the purposes of reaching an agreement in the sense of the preceding paragraphs of
this Article.

ARTICLE 26
1. The competent authorities of the Contracting States shall exchange such information as is
relevant for carrying out the provisions of this Convention or of the domestic law of the

47
Contracting States concerning taxes of every kind and description imposed by a Contracting
State insofar as the taxation thereunder is not contrary to the provisions of the Convention. The
exchange of information is not restricted by paragraph 1 of Article 1. If specifically requested by
the competent authority of a Contracting State, the competent authority of the other Contracting
State shall provide information under this Article in the form of authenticated copies of original
documents (including books, papers, statements, records, accounts, and writings).
2. Any information received under paragraph 1 by a Contracting State shall be treated as
secret in the same manner as information obtained under the domestic law of that Contracting
State and shall be disclosed only to persons or authorities (including courts and administrative
bodies) involved in the assessment, collection or administration of, the enforcement or
prosecution in respect of, or the determination of appeals in relation to, the taxes referred to in
the first sentence of paragraph 1, or to supervisory bodies, and only to the extent necessary for
those persons, authorities or supervisory bodies to perform their respective responsibilities. Such
persons, authorities or supervisory bodies shall use the information only for the purposes of
discharging such responsibilities. They may disclose the information in public court proceedings
or in judicial decisions.
3. In no case shall the provisions of the preceding paragraphs of this Article be construed so
as to impose on a Contracting State the obligation:
(a) to carry out administrative measures at variance with the laws and administrative
practice of that or of the other Contracting State;
(b) to supply information which is not obtainable under the laws or in the normal
course of the administration of that or of the other Contracting State;

48
(c) to supply information which would disclose any trade, business, industrial,
commercial or professional secret or trade process, or information, the disclosure of
which would be contrary to public policy (ordre public).
4. In order to effectuate the exchange of information as provided in paragraph 1, each
Contracting State shall take necessary measures, including legislation, rule-making, or
administrative arrangement, to ensure that its competent authority has sufficient powers under its
domestic law to obtain information for the exchange of information regardless of whether that
Contracting State may need such information for purposes of its own tax.
5. The provisions of this Article shall, notwithstanding the provisions of Article 2 and
subparagraph (d) of paragraph 1 of Article 3, apply to taxes of every kind and description
imposed by a Contracting State insofar as the taxation thereunder is not contrary to the
provisions of this Convention

ARTICLE 27
1. Each of the Contracting States shall endeavor to collect such taxes imposed by the other
Contracting State as will ensure that any exemption or reduced rate of tax granted under this
Convention by that other Contracting State shall not be enjoyed by persons not entitled to such
benefits. The Contracting State making such collections shall be responsible to the other
Contracting State for the sums thus collected.
2. In no case shall the provisions of paragraph 1 be construed so as to impose upon either of
the Contracting States endeavoring to collect the taxes the obligation to carry out administrative

49

measures at variance with the laws and administrative practice of that Contracting State or which
would be contrary to the public policy (ordre public) of that Contracting State.

ARTICLE 28
Nothing in this Convention shall affect the fiscal privileges of members of diplomatic
missions or consular posts under the general rules of international law or under the provisions of
special agreements.

ARTICLE 29
If a Contracting State considers that a substantial change in the laws relevant to this
Convention has been or will be made in the other Contracting State, the first-mentioned
Contracting State may make a request to that other Contracting State in writing for consultations
with a view to determining the possible effect of such change on the balance of benefits provided
by the Convention and, if appropriate, to amending the provisions of the Convention to arrive at
an appropriate balance of benefits. The requested Contracting State shall enter into consultations
with the requesting Contracting State within three months from the date on which the request is
received by the requested Contracting State.

50
ARTICLE 30
1. This Convention shall be subject to ratification, and the instruments of ratification shall
be exchanged as soon as possible. It shall enter into force on the date of the exchange of
instruments of ratification.
2. This Convention shall be applicable:
(a) in Japan:
(i) with respect to taxes withheld at source:
(aa) for amounts taxable on or after July 1 of the calendar year in which
the Convention enters into force, if the Convention enters into force before
April 1 of a calendar year; or
(bb) for amounts taxable on or after January 1 of the calendar year next
following the year in which the Convention enters into force, if the
Convention enters into force after March 31 of a calendar year; and
(ii) with respect to taxes on income which are not withheld at source and the
enterprise tax, as regards income for any taxable year beginning on or after
January 1 of the calendar year next following that in which the Convention enters
into force; and
(b) in the United States:
(i) with respect to taxes withheld at source:
(aa) for amounts paid or credited on or after July 1 of the calendar year
in which the Convention enters into force, if the Convention enters into
force before April 1 of a calendar year; or

51
(bb) for amounts paid or credited on or after January 1 of the calendar
year next following the date on which the Convention enters into force, if
the Convention enters into force after March 31 of a calendar year; and
(ii) with respect to other taxes, for taxable periods beginning on or after
January 1 of the calendar year next following the date on which the Convention
enters into force.
3. Notwithstanding the entry into force of this Convention, an individual who was entitled
to the benefits of Article 19 or 20 of the Convention between the United States of America and
Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to
Taxes on Income, signed on March 8, 1971 (hereinafter referred to as "the prior Convention") at
the time of the entry into force of this Convention shall continue to be entitled to such benefits
until such time as the individual would cease to be entitled to such benefits if the prior
Convention remained in force.
4. The prior Convention shall cease to have effect in relation to any tax from the date on
which this Convention has effect in relation to that tax in accordance with paragraphs 1 and 2.
Notwithstanding the preceding provisions of this paragraph, where any person entitled to
benefits under the prior Convention would have been entitled to greater benefits thereunder than
under this Convention, the prior Convention shall, at the election of such person, continue to
have effect in its entirety for the period of twelve months from the date on which the provisions
of this Convention otherwise would have effect under paragraph 2. The prior Convention shall
terminate on the last date on which it has effect in relation to any tax in accordance with the
preceding provisions of this paragraph.

52

ARTICLE 31
This Convention shall remain in force until terminated by a Contracting State. Either
Contracting State may terminate the Convention after the expiration of a period of five years
from the date of its entry into force, by giving to the other Contracting State, through the
diplomatic channel, six months prior written notice of termination. In such event, the
Convention shall cease to have effect:
(a) in Japan:
(i) with respect to taxes withheld at source, for amounts taxable on or after
January 1 of the calendar year next following the expiration of the six month
period; and
(ii) with respect to taxes on income which are not withheld at source and the
enterprise tax, as regards income for any taxable year beginning on or after
January 1 of the calendar year next following the expiration of the six month
period; and
(b) in the United States:
(i) with respect to taxes withheld at source, for amounts paid or credited on or
after January 1 of the calendar year next following the expiration of the six month
period; and
(ii) with respect to other taxes, for taxable periods beginning on or after
January 1 of the calendar year next following the expiration of the six month
period.

53

IN W I T N E S S W H E R E O F the undersigned, being duly authorized thereto by their
respective Governments, have signed this Convention.
DONE in duplicate at Washington this sixth day of November, 2003, in the English and
Japanese languages, each text being equally authentic.

FOR THE GOVERNMENT OF FOR THE GOVERNMENT OF
THE UNITED STATES OF AMERICA:
JAPAN:

PROTOCOL
At the signing of the Convention between the Government of the United States of
America and the Government of Japan for the Avoidance of Double Taxation and the Prevention
of Fiscal Evasion with respect to Taxes on Income (hereinafter referred to as "the Convention"),
the Government of the United States of America and the Government of Japan have agreed upon
the following provisions, which shall form an integral part of the Convention.

1. Notwithstanding the provisions of Article 2 of the Convention:
(a) the United States excise tax on insurance policies issued by foreign insurers shall
not be imposed on insurance or reinsurance policies, the premiums on which are the
receipts of a business of insurance carried on by an enterprise of Japan, to the extent that
the risks covered by such premiums are not reinsured with a person not entitled to the
benefits of the Convention or any other tax convention entered into by the United States
that provides exemption from such tax; and
(b) the United States excise tax with respect to private foundations shall not be
imposed on:
(i) dividends or interest derived by private foundations organized in Japan at
a rate in excess of the rates provided for in Articles 10 and 11 of the Convention,
respectively; and
(ii) royalties or other income derived by private foundations organized in
Japan.
2. With reference to subparagraph (e) of paragraph 1 of Article 3 of the Convention, the
term "any other body of persons" includes an estate, trust, and partnership.

2
3. With reference to subparagraph (m) of paragraph 1 of Article 3 of the Convention, it is
understood that a pension fund shall be treated as exempt from tax with respect to the activities
described in clause (ii) of that subparagraph even though it is subject to the tax stipulated in
Articles 8 or 10-2 of the Corporation Tax Law (Law No. 34 of 1965) of Japan or paragraph 1 of
Article 20 of its supplementary provisions.
4. In general, where an enterprise of a Contracting State which has carried on business in
the other Contracting State through a permanent establishment situated therein, receives, after the
enterprise has ceased to carry on business as aforesaid, profits attributable to the permanent
establishment, such profits may be taxed in that other Contracting State in accordance with the
principles stated in Article 7 of the Convention.
5. With reference to Article 9 of the Convention, it is understood that, in determining the
profits of an enterprise, application of the arm's length principle under that Article is generally
based on a comparison of the conditions in the transaction made between the enterprise and an
enterprise associated with it and the conditions in transactions between independent enterprises.
It is also understood that the factors affecting comparability shall include:
(a) the characteristics of the property or services transferred;
(b) the functions of the enterprise and the enterprise associated with it, taking into
account the assets used and risks assumed by the enterprise and the enterprise associated
with it;
(c) the contractual terms between the enterprise and the enterprise associated with it;
(d) the economic circumstances of the enterprise and the enterprise associated with it;
and

3
(e) the business strategies pursued by the enterprise and the enterprise associated with
it.
6. With reference to paragraphs 4 and 5 of Article 10 of the Convention, a United States
Real Estate Investment Trust (hereinafter referred to as a "REIT") or a company which is entitled
to a deduction for dividends paid to its beneficiaries in computing its taxable income in Japan is
"diversified" if the value of no single interest in real property exceeds 10 percent of the total
interests of such person in real property. For purposes of this paragraph, foreclosure property
will not be considered an interest in real property. Where such person holds an interest in a
partnership, it shall be treated as owning directly a proportion of the partnership's interests in
real property corresponding to the proportion of its interest in the partnership.
7. With reference to paragraph 9 of Article 10 of the Convention, it is understood that the
amount of such income that is equivalent to the amount of dividends that would have been paid
if such activities had been conducted in a separate legal entity shall be, for any taxable year, the
after-tax earnings from the company's activities described in that paragraph, adjusted to take into
account changes in the company's investment in the Contracting State imposing the tax referred
to in that paragraph
8. Fees received in connection with a loan of securities, guarantee fees and commitment
fees paid by a resident of a Contracting State and beneficially owned by a resident of the other
Contracting State shall be taxable only in that other Contracting State unless the beneficial owner
of such fees carries on business in the first- mentioned Contracting State through a permanent
establishment situated therein and such fees are attributable to, or the right in respect of which
such fees are paid is effectively connected with, such permanent establishment.

4
9. With reference to Article 13 of the Convention, it is understood that distributions made
by a REIT shall be taxable under paragraph 1 of that Article, to the extent that they are
attributable to gains derived from the alienation by the REIT of real property situated in the
United States.
10. (a) With reference to Article 14 of the Convention, it is understood that the benefits
enjoyed by employees under stock option plans relating to the period between grant and
exercise of an option are regarded as "other similar remuneration" for the purposes of that
Article.
(b) It is further understood that where an employee:
(i) has been granted a stock option in the course of an employment;
(ii) has exercised that employment in both Contracting States during the
period between grant and exercise of the option;
(iii) remains in that employment at the date of the exercise; and
(iv) under the domestic law of the Contracting States, would be taxable in both
Contracting States in respect of such benefits,
then, in order to avoid double taxation, a Contracting State of which, at the time of the
exercise of the option, the employee is not a resident may tax only that proportion of such
benefits which relates to the period or periods between grant and exercise of the option
during which the individual has exercised the employment in that Contracting State.
With the aim of ensuring that no unrelieved double taxation arises the competent
authorities of the Contracting States shall endeavor to resolve by mutual agreement under
Article 25 of the Convention any difficulties or doubts arising as to the interpretation or
application of Articles 14 and 23 of the Convention in relation to such stock option plans.

5
11. With reference to subparagraph (c) of paragraph 1 of Article 22 of the Convention, the
shares in a class of shares are considered to be regularly traded on one or more recognized stock
exchanges in a taxable year if the aggregate number of shares of that class traded on such stock
exchange or exchanges during the preceding taxable year is at least 6 percent of the average
number of shares outstanding in that class during that preceding taxable year.
12. With reference to paragraph 2 of Article 22 of the Convention, in determining whether a
person is "engaged ... in the active conduct of a trade or business" in a Contracting State under
that paragraph, activities conducted by a partnership in which such person is a partner and
activities conducted by persons connected to such person shall be deemed to be conducted by
such person. A person shall be connected to another if one possesses at least 50 percent of the
beneficial interest in the other (or, in the case of a company, at least 50 percent of the aggregate
vote and value of the company's shares) or if another person possesses, directly or indirectly, at
least 50 percent of the beneficial interest (or, in the case of a company, at least 50 percent of the
aggregate vote and value of the company's shares) in each person.
13. (a) For the purposes of applying the Convention, the United States may treat an
arrangement created by a sleeping partnership (Tokumei Kumiai) contract or similar
contract as not a resident of Japan, and may treat income derived subject to the
arrangement as not derived by any participant in the arrangement. In that event, neither
the arrangement nor any of the participants in the arrangement will be entitled to benefits
of the Convention with respect to income derived subject to the arrangement.
(b) Nothing in the Convention shall prevent Japan from imposing tax at source, in
accordance with its domestic law, on distributions that are made by a person pursuant to a

6
sleeping partnership (Tokumei Kumiai) contract or other similar contract and that are
deductible in computing the taxable income in Japan of that person.

IN WITNESS WHEREOF the undersigned, being duly authorized thereto by their
respective Governments, have signed this Protocol.
DONE in duplicate at Washington this sixth day of November, 2003, in the English and
Japanese languages, each text being equally authentic.

FOR THE GOVERNMENT OF FOR THE GOVERNMENT OF
THE UNITED STATES OF AMERICA:
JAPAN:

November 6, 2003

Excellency:
I have the honor to acknowledge receipt of Your Excellency's note of today's date which
reads as follows:

"Excellency:
I have the honor to refer to the Convention between the Government of Japan and the
Government of the United States of America for the Avoidance of Double Taxation and the
Prevention of Fiscal Evasion with respect to Taxes on Income which was signed today
(hereinafter referred to as "the Convention") and to the Protocol also signed today which forms
an integral part of the Convention, and to confirm, on behalf of the Government of Japan, the
following understanding reached between the Government of Japan and the Government of the
United States of America:

His Excellency
Ryozo Kato,
Ambassador of Japan.

2
1. In order to avoid application of the local inhabitant taxes or the enterprise tax as
provided for in paragraph 3 of Article 8 of the Convention, if a political subdivision or local
authority of the United States seeks to levy a tax similar to the local inhabitant taxes or the
enterprise tax in Japan on the profits of any enterprise of Japan from the operation of ships or
aircraft in international traffic in circumstances where the Convention would preclude the
imposition of a Federal income tax on those profits, the Government of the United States will use
its best endeavors to persuade that political subdivision or local authority to refrain from
imposing such tax
2. It is understood that the principle as set out in paragraph 1 of Article 9 of the Convention
may apply for the purposes of determining the profits to be attributed to a permanent
establishment. It is understood that the provisions of Article 7 of the Convention shall not
prevent the Contracting States from treating the permanent establishment as having the same
amount of capital that it would need to support its activities if it were a distinct and separate
enterprise engaged in the same or similar activities. With respect to financial institutions other
than insurance companies, a Contracting State may determine the amount of capital to be
attributed to a permanent establishment by allocating the institution's total equity between its
various offices on the basis of the proportion of the financial institution's risk-weighted assets
attributable to each of them.
3. With reference to Article 9 of the Convention, it is understood that double taxation can be
avoided only if tax authorities share a common understanding of the principles to be applied in
resolving transfer pricing cases. Therefore, the Contracting States shall undertake to conduct
transfer pricing examinations of enterprises and evaluate applications for advance pricing
arrangements in accordance with the Transfer Pricing Guidelines for Multinational Enterprises

3
and Tax Administrations of the Organisation for Economic Cooperation and Development
(hereinafter referred to as "the OECD Transfer Pricing Guidelines"), which reflect the
international consensus with respect to these issues. The domestic transfer pricing rules,
including the transfer pricing methods, of each Contracting State may be applied in resolving
transfer pricing cases under the Convention only to the extent that they are consistent with the
OECD Transfer Pricing Guidelines.
4. With reference to paragraphs 2 and 3 of Article 10 of the Convention, it is understood
that, in the case of Japan, the date on which entitlement to the dividends is determined is the end
of the accounting period for which the distribution of profits takes place.
5. With reference to subparagraph (c) of paragraph 3 of Article 11 of the Convention:
(a) it is understood that the term "bonds" includes bonds, commercial paper, and
medium-term notes, whether collateralized or not; and
(b) it is understood that bonds that are subject to transfer restrictions applicable to
private placements shall not be considered to have been issued in the financial markets.
The preceding sentence shall not apply to offerings qualifying for exemption from
securities registration requirements pursuant to Rule 144A promulgated under the
Securities Act of 1933 of the United States or any similar provisions under the domestic
law of Japan.
6. It is understood that the term "authorities (including courts and administrative bodies)
involved in the administration of the taxes" as referred to in paragraph 2 of Article 26 of the
Convention includes such authorities as provide legal advice to those governmental entities that
are directly involved in the assessment or collection, the enforcement or prosecution in respect
of, or the determination of appeals in relation to, the taxes, but are not themselves a part of such

4
entities, and includes, in the case of the United States, the Office of Chief Counsel for the
Internal Revenue Service.
7. It is understood that the term "supervisory bodies" as referred to in paragraph 2 of Article
26 of the Convention includes authorities that supervise the general administration of the
government of a Contracting State.
8. It is understood that the powers of the competent authority of each Contracting State to
obtain information include powers to obtain information held by financial institutions, nominees,
or persons acting in an agency or fiduciary capacity (not including information relating to
communications between a legal representative in its role as such and its client to the extent that
the communications are protected under domestic law), and information relating to the
ownership of legal persons, and that the competent authority of each Contracting State is able to
exchange such information in accordance with Article 26 of the Convention.

If the foregoing understanding is acceptable to the Government of the United States of
America, I have the honor to suggest that the present note and Your Excellency's reply to that
effect should be regarded as constituting an agreement between the two Governments in this
matter, which shall enter into force at the same time as the Convention.
I avail myself of this opportunity to extend to Your Excellency the assurance of my
highest consideration."

I have further the honor to confirm on behalf of the Government of the United States of
America that the foregoing understanding is acceptable and to agree that Your Excellency's note

5
and this note shall be regarded as constituting an agreement between the two Governments which
shall enter into force at the same time as the Convention
I avail myself of this opportunity to renew to Your Excellency the assurance of my
highest consideration.
For the Secretary of State:

JS-976: M E D I A A D V I S O R Y : Treasury Official to Meet with Financial Industry on Cybe... Page 1 of 1

PRLSS ROOM

F R O M T H E OFFICE O F PUBLIC A F F A I R S
November 6, 2003
JS-976
MEDIA ADVISORY
Treasury Official Visits Boston Tomorrow
to Meet with Financial Industry on Cyber Security Issues
Director of the Office for Critical Infrastructure Protection and Compliance Policy D.
Scott Parsons will be in Boston on Friday, November 7, 2003. H e will participate in
a joint public-private sector symposium for representatives of financial institutions
on security issues and protecting the financial industry from cyber attack.
"Protecting the Financial Sector and Cyber Security Risk Management - A Public
and Private Partnership" will take place from 8:30 a m - 4:30 pm. Mr. Parsons will
speak at 8:40 a m at Lindsay Hall on the campus of Bentley College in Waltham,
Massachusetts.
Sponsored by the Federal Deposit Insurance Corporation, the symposium
represents an outreach effort by the government's Financial and Banking
Information Infrastructure Committee (FBIIC) and the private sector's Financial
Services Sector Coordinating Council (FSSCC) to private sector financial firms in
the Boston metropolitan area.
At the Treasury Department, Mr. Parsons is Director of the Office of Critical
Infrastructure Protection, which was established after September 11, 2001 to
strengthen the nation's safeguards against terrorist activities and financial crime.
The Office plays a key role in coordinating public and private efforts to protect the
critical infrastructure of the financial services industry from attack.

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JS-977: Statement by Treasury Secretary John S n o w

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PRESS ROOM

F R O M T H E OFFICE O F PUBLIC A F F A I R S
November 7, 2003
JS-977
Statement by Treasury Secretary John Snow
Today's employment numbers are encouraging and demonstrate growth in the
economy.
They suggest that labor market conditions are becoming more favorable. The
revisions to August and September showing positive job growth for those months,
coupled with the pick up of 126,000 new jobs in October, is good news for
American workers and families.
However we must remain vigilant in our efforts to strengthen the environment for
job creation.
We must do more, as job creation has yet to take hold to the extent that it must for
every person who wants a job to find one.
Thus as the President has said, we can't rest until every American who wants work
can find work. So while today's report is cause for some optimism, w e cannot be
complacent.
This is precisely why President's six point plan for job creation is so important.

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JS-978: Treasury and I R S W i t h d r a w Proposed Lease-Stripping Regulations

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FROM THE OFFICE OF PUBLIC AFFAIRS

To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader
November 7, 2003
JS-978
Treasury and IRS Withdraw Proposed Lease-Stripping Regulations

Today the Treasury Department and the Internal Revenue Service
withdrew proposed regulations issued on December 27, 1996, relating to
the treatment of "obligation-shifting" transactions, including lease-stripping
transactions. The regulations provided complex rules for insuring that the
income from the transactions w a s accounted for properly.
"Since the proposed regulations were issued in 1996, the IRS has won two
court cases that have upheld the disallowance of tax benefits from lease
strip transactions. In view of the IRS's victories in these cases, w e have
concluded that the regulations are unnecessary to ensure proper
accounting and that the complexity of the proposed regulations outweighs
the potential benefit," stated Assistant Secretary for Tax Policy P a m Olson.
"Notice 2003-55 identifies lease strips as a listed transaction. The IRS will
continue to challenge the purported tax benefit claimed by a taxpayer from
a lease-stripping or similar transaction."
The text of REG-209817-96 is attached.
Related Documents:
• REG-209817-96

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[4830-01-p]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-209817-96]
RIN 1545-AU19
Treatment of Obligation-Shifting Transactions
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Withdrawal of notice of proposed rulemaking.
SUMMARY: This document withdraws a proposed regulation relating to the treatment of certain

multiple-party financing transactions in which one party realizes income from leases or other
similar agreements and another party claims deductions related to that income.
FOR FURTHER INFORMATION CONTACT: Pamela Lew, (202) 622-3950, (not a toll-free
number).
SUPPLEMENTARY INFORMATION:
Background
In Notice 95-53 (1995-2 C.B. 334) (modified and superseded by Notice 2003-55) (2003-

34 I.R.B. 395), the IRS and Treasury Department stated that regulations under section 7701(1

would be issued to recharacterize lease strips to prevent tax avoidance. On December 27, 1996
a notice of proposed rulemaking (REG-209817-96) relating to the treatment of certain
obligation-shifting transactions was published in the Federal Register (61 FR 68175). An
obligation-shifting transaction is transaction in which the transferee (the assuming party)

assumes obligations or acquires property subject to obligations under an existing lease or si

2
agreement and the transferor (the property provider) or any other party has already received or
retains the right to receive amounts that are allocable to periods after the transfer.
The proposed regulations recharacterize obligation-shifting transactions in a manner
intended to reflect the economic substance of the transactions and to clearly reflect the income of
the parties to the transaction. Under the recharacterization, the property provider and the
assuming party must report the income from the underlying property allocable to their respective
periods of ownership. This result is achieved by imputing a series of transactions to both the
assuming party and the property provider that results in a rent-leveling process based on the
constant rental accrual method described in ' 1.467-3(d). The assuming party is required to
recognize rental income for the period in which it owns the property or leasehold interest. The
property provider must adjust its income for any differences between amounts it recognized and
amounts it would have recognized if it had reported income on a level-rent basis for the periods
that it owned the property or leasehold interest. To account for the difference between rental
income the assuming party is required to recognize and rental income the assuming party
actually receives, the proposed regulations treat the assuming party as issuing an interest-bearing
note to the property provider as additional consideration for the obligation-shifting transaction.
Both parties must account for the resulting interest income and expense appropriately. To
account for any differences in timing or amount between payments the property provider actually
receives after the transaction and payments treated as being made to the property provider under
the note from the assuming party, the property provider is treated as an obligor or obligee under
a second loan, for which the property provider must account accordingly.

3
After careful consideration, the IRS and Treasury Department have concluded that the
complexity presented by these proposed regulations is not necessary to prevent tax avoidance in
these transactions. Since the publication of the proposed regulations, the Court of Appeals for

the District of Columbia Circuit has held that the partnership used in a lease strip was not a vali
partnership because the participants did not join together for a non-tax business purpose.
Andantech L.L.C. v. Commissioner, Nos. 02-1213; 02-1215, (D.C. Cir. June 17, 2003), 2003
U.S. App. LEXIS 11908, aff=g in part and remanding for reconsideration of other issues T.C.
Memo 2002-97 (2002). Also, in Nicole Rose v. Commissioner, 320 F.3d 282 (2d Cir. 2002)
aff=g per curiam 117 T.C. 328 (2001), the United States Court of Appeals for the Second Circuit
upheld the Tax Court=s determination that a lease transfer did not have economic substance.
In the opinion of the IRS and Treasury Department, the claimed tax treatment for lease
strips improperly separates income from related deductions, and lease strips do not produce the
tax consequences desired by the participants. See Notice 2003-55 (2003-34 I.R.B. 395).
List of Subjects in 26 CFR Part 1
Income taxes, reporting and recordkeeping requirements.
Withdrawal of Notice of Proposed Rulemaking
Accordingly, under the authority of 26 U.S.C. 7805, the notice of proposed rulemaking
(REG-209817-96) that was published in the Federal Register on December 27, 1996 (61 FR
68175) is withdrawn.

Dale F. Hart
Acting Deputy Commissioner for Services and
Enforcement.

JS-979: Remarks by Secretary S n o w to the Economic Club of Washington

Page

F R O M T H E OFFICE O F PUBLIC A F F A I R S
November 5, 2003
JS-979
U.S. Treasury Secretary Snow, Remarks to the Economic Club of Washington,
Washington, D C
Good evening. It is a pleasure to speak to the Economic Club of Washington again,
this time in m y capacity as Treasury Secretary. Thanks to former Senator George
Mitchell for inviting me.
Tonight I'd like to provide an overview of where the U.S. economy stands, and
where w e see it heading. We've seen a real turnaround this year, and the recovery
is clearly solidifying. But I would also emphasize that President Bush believes w e
have a lot more progress to make, especially with regard to employment. His
administration remains committed to economic policies that will sustain and bolster
the kind of growth w e saw last quarter.
First, consider our present situation. Last week the Commerce Department
reported that economic growth increased at a remarkable annualized rate of 7.2
percent in the third quarter. That's well above expectations and it's the largest
increase since 1984. While it will be difficult to grow at quite that pace in the
coming quarters, it seems clear that w e have entered a new phase of economic
expansion.
The signs of growth have been emerging since this spring. Personal consumption
increased in the second quarter, with help from automotive sales incentives and
h o m e mortgage refinancings. Investment demand such as new orders and
shipments of nondefense capital goods increased as well, and the recovery in real
equipment and software investment that w e saw in last three quarters of 2002
resumed in the second quarter of 2003. The factors contributed to annualized real
G D P growth of 3.3 percent in the second quarter.
These improvements point back to the passage of the President's Jobs and Growth
Act in May, which provided immediate support for the economy. In July,
withholding tables were revised to reflect reduced marginal tax rates on individual
income, and the child tax credit checks went out in the mail. The increase in bonus
depreciation and quadrupling of the expensing limit for small businesses
encouraged business investment. The reduction in taxes increased households'
cash flow by an estimated $35 billion and spurred businesses to take advantage of
enhanced capital expensing. Dividend tax relief has had a positive effect on the
markets, and enhanced families' sense of financial well-being. In fact, equity prices
have climbed about 30 percent since mid-March, improving financing conditions for
businesses, and adding to household net worth.
In short, the Jobs and Growth Act had a major impact on our economy. Total
consumer spending grew at a 6.6 percent rate in the third quarter, the largest gain
since 1997, and equipment and software investment surged at a 15.4 percent pace,
the fastest since early 2000. Production responded to the pickup in final demand in
the last two quarters, and manufacturing output rose near a 3 percent annual rate.
This week, there has been additional evidence of a recovery in the manufacturing
sector. The Institute for Supply Management's Purchasing Managers' index for
manufacturing jumped sharply in October to 57.0 - the highest since January
2000. That's the fourth consecutive monthly reading signaling an expansion in
manufacturing. ISM's non-manufacturing index also rose in October to the second
highest level in its six-and-a-half year history. In addition, this week w e saw that
construction activity continues to be strong.
Much of the strength we saw in the third quarter is likely to continue. In other
words, this is not a fleeting glimmer - there is real muscle behind the growth trend.
O n e key factor is the extraordinary productivity growth of American workers. The
3.9 percent annual rate of advance in nonfarm productivity since late 2000 has

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JS-979: Remarks by Secretary S n o w to the Economic Club of Washington

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been the strongest of any comparable period in 30 years. The 9 percent increase
in nonfarm business output seen in last week's G D P data suggests that another
large productivity gain is in store for the third quarter.
Productivity remains the foundation for higher standards of living in this country.
Productivity gains are starting to register as rising profits and cash flow for
businesses, paving the w a y for further growth in business investment and hiring.
Small business optimism recently reached a record high level, according to the
National Federation of Independent Business, and the Conference Board reported
that confidence a m o n g large-company C E O s w a s the strongest in 11 years.
Improved business optimism is a first step in the revitalization of labor markets.
Boosted by the President's jobs and growth plan, real disposable personal income
is rising, up at a 3.8 percent annual rate in the first three quarters of the year. That
m e a n s more m o n e y in the pockets of average Americans. Household and business
balance sheets gained from low interest rates over the past few years, leaving
those sectors in a good position to continue to spend. Rates are still very low, and
yield spreads are narrowing, enhancing prospects for investment.
Of course, the housing sector has also been an engine of growth through the past
recession and recovery. Homeownership has risen to a record 68.2 percent of
households, an achievement of which the President is proud. Housing continued to
expand through the third quarter and construction starts and permits point to further
growth in residential investment. Simply put, this Administration has a stellar
record on housing, and the Treasury Department remains deeply committed to the
President's housing goals.
Overseas, economies appear to be improving, providing a growing market for U.S.
exports. Exports rose 9.3 percent at an annual rate in real terms in the third
quarter, for the first quarterly gain in a year. Production related to replenishing
inventories should also contribute to growth. Through the past few quarters
inventories have fallen to very low levels as businesses met a relatively large
portion of d e m a n d out of existing stockpiles. That is expected to turn around with
the revival of strong demand.
Recent consensus forecasts expect real GDP growth to of about 4 percent in the
fourth quarter and maintain close to that pace through next year. That rate is above
the estimated potential rate of growth of the economy, and the sustained trend
above potential should lead to a pickup in employment.
We have already seen signs of a budding upturn in labor markets, with payroll jobs
growing by 57,000 in September -- the first job increase in eight months. The
Conference Board's latest consumer confidence survey found the assessment of
both current and future employment conditions w a s more upbeat, contributing to a
4-point increase in the confidence index in October.
Professional forecasters expect that the acceleration in real growth in the third
quarter and over the following four quarters will lead to a sizable increase in
employment.
Though positive signs are emerging and the outlook is favorable, it appears to be
taking longer for labor markets to respond to the upturn in economic activity.
Creating n e w jobs is a top priority for this Administration, and President Bush
recently unveiled a six-point plan to reduce barriers and uncertainties that m a y
impede businesses from hiring additional workers.
The plan includes a series of measures to help the economy operate more
efficiently.
First, we are working to make health care more affordable and its costs more
predictable, so employers can add n e w workers without also adding a large and
uncertain burden from health care costs. W e need to create an environment where
health care spending is focused on providing high quality, high value care.
Second, we are working to prevent frivolous lawsuits from diverting money from job
creation into legal battles. W e also intend to ensure that w h e n necessary lawsuits
proceed, the settlements are paid to the victims, not the trial lawyers.
Third, we are working to build a more affordable, reliable energy system that can
support the expansion of our economy.
Fourth, we are streamlining regulations and needless paperwork requirements that
reduce business productivity and deter growth.

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JS-979: Remarks by Secretary S n o w to the Economic Club of Washington

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Fifth, we are opening new markets to high value American products and bringing
down prices for American consumers through trade agreements.
And sixth, we are working to make tax relief permanent, so businesses and families
alike can plan for the future with confidence.
The economy is growing and the outlook is bright. But President Bush and this
Administration will not be satisfied until every American looking for work can find a
job. W e are continuing to work to spur job creation and reduce the barriers to
achieving our economy's greatest potential.
-30-

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JS-981: Treasury Department Announces Appointment of N e w Chief of Staff

PRESS ROOM

F R O M T H E OFFICE O F PUBLIC A F F A I R S
November 10, 2003
JS-981
Treasury Department Announces Appointment of New Chief of Staff
Treasury Secretary John Snow today announced the appointment of Christopher
Smith to serve as his Chief of Staff, replacing Tim Adams, w h o resigned.
Smith has served as Counselor to the Treasury Secretary since the beginning of
the George W . Bush Administration. Prior to that appointment, Smith worked for
the House Committee on W a y s and Means for twelve years from 1988-2000 in a
variety of capacities including Chief of Staff. Before moving to the Committee,
Smith was a budget examiner and a special assistant at the Office of Management
and Budget from 1987-1988, and a program evaluator at the U.S. General
Accounting Office from 1986-1987.
Adams' resignation is effective November 28th; Smith begins his new duties as
Chief of Staff December 1st.
In his resignation letter, Adams thanked Secretary Snow and his predecessor Paul
O'Neill, for "the wonderful opportunity to serve at such a storied and respected
institution." A d a m s also wrote, "It has also been an enormous honor to serve in the
Administration of President George W . Bush."
Secretary Snow praised Adams' tenure at the Department. "I want to publicly thank
Tim A d a m s for his outstanding service, his dedication to the Department and the
President, and for his valued advice. Tim possesses outstanding policy instincts
and leadership abilities that will certainly be missed."
"At the same time, I couldn't be more pleased Chris Smith has agreed to serve as
m y Chief of Staff. Chris brings with him a wide range of Capitol Hill experience,
legislative expertise and a profound knowledge of the Department. Chris' keen
perspective will be a valuable asset as w e continue to implement the President's
agenda for economic growth and job creation. I look forward to a seamless
transition" Secretary S n o w said.
The Chief of Staff is responsible for managing the day-to-day operations of the
Department generally and the Secretary's office specifically, coordinating policy
development and review within the Department and with other agencies and the
White House and assisting in setting the overall strategic direction of the
Department. The Chief of Staff is also responsible for advising the Secretary on a
wide variety of policy and management issues as well as on economic and market
conditions.

ATTACHMENTS:

ADAMS LETTER TO SECRETARY SNOW
ADAMS BIOGRAPHY
SMITH BIOGRAPHY
ADAMS LETTER TO SECRETARY SNOW
November 10, 2003

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JS-981: Treasury Department Announces Appointment of N e w Chief of Staff

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The Honorable John W. Snow
Secretary of the Treasury
1500 Pennsylvania Ave
Washington, D.C. 20220
Dear Mr. Secretary:
This letter is to inform you of my resignation from the position of Chief of Staff of the
United Sates Treasury Department effective November 28, 2003. I want to thank
you and your predecessor, Paul H. O'Neill, for the wonderful opportunity to serve at
such a storied and respected institution. It has also been an enormous honor to
serve in the Administration of President George W . Bush.
As I reflect back on the close to three years that I've served in my current capacity, I
a m awed by the depth and breadth of challenges that w e have encountered and a m
extremely proud at h o w the Treasury Department, as well as the entire
Administration, responded. Obviously, our first and most important priority w a s to
address the struggling U.S. economy, which had begun to implode months before
the start of this Administration. Under the President's bold leadership, w e enacted
two major tax cuts that allowed working families to keep more of their earnings that
have fuelled economic growth and generated n e w jobs. In fact, recent economic
data indicate that the economy clearly is on a trajectory of solid and sustainable
growth, but w e can not grow complacent until everyone w h o wants a job has one.
I am also proud of our response to the tragic events of September 11 .th Former
Under Secretary Peter Fisher and other senior Treasury officials worked diligently
to restore the N e w York financial markets to working order in record time and I
remember fondly as Secretary O'Neill stood with other leaders at the opening bell of
the re-opening of N e w York Stock Exchange. Working in concert with others in the
Administration, w e also moved quickly to provide needed funds so that N e w York
City could begin the recovery process. The Treasury Department also
distinguished itself in answering the President's call to fight and overcome the
agents of terror and those that support and harbor them. General Council David
Aufhauser, Juan Zarate and scores of individuals from International Affairs, the
General Council's office, O F A C , F I N C E N and the IRS have helped advance this
critical cause.
The Treasury Department has also played a key role in our government's effort to
rebuild a war-ravaged Afghanistan and to ensure that it is no longer a training
ground for terrorism. From the Tokyo donors conference in January of 2002 to our
recent visit to Kabul to participate in the issuance of licenses for several n e w banks,
Treasury has been at the forefront of prompting positive change in that country.
Iraq too has offered the Treasury Department an opportunity to employ our
expertise and show leadership. Under Secretary John Taylor, Peter McPherson,
George Wolfe and scores of others have successfully engaged in an historic effort,
often in harsh conditions and in harm's way, to help the Iraqi people rebuild their
lives and economy after decades of unimaginable fear and oppression. I believe
that Iraq will one day stand as a m o n u m e n t to America's resolve to do what is right
rather than what is popular and to our willingness to m a k e great sacrifices to bring
peace and freedom to those have never experienced it.
Finally, in addition to our efforts to restore economic growth, prosecute the financial
war on terrorism and assist government efforts in rebuilding Afghanistan and Iraq, I
a m proud of the leadership this Department has shown in addressing the needs of
the world's poor and those suffering from HIV/AIDS. W e witnessed first hand that
disease's tragic consequences for the continent of Africa and sought to help our
fellow citizens better understand the enormity of the crisis and the need for action.
W e also witnessed the m a n y heroes that toil away each day in anonymity in a
compassionate drive to relieve pain and suffering.
In response, this Administration has reversed years declining foreign assistance for
the poorest, moved the international financial institutions away from adding to the
burden of debt by emphasizing grants and challenged the donor community - both
public and private - to focus on outcomes rather than inputs. Moreover, I believe
that the President's proposed Millennium Challenge Account will prove to be an
historic catalyst for changing the w a y in which w e deliver foreign assistance and will
improve its effectiveness so that w e can better comfort those in heed. In fact, I a m
reminded by the President's remarks at the announcement of the M C A : " W e cannot
leave behind half of humanity as w e seek a better future for ourselves. W e cannot

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Page 3 o f 4

accept permanent poverty in a world of progress. There are no second-class
citizens in the h u m a n race."
Sincerely,

Timothy D. A d a m s

ADAMS BIOGRAPHY
Tim Adams, Chief of Staff since January 2001, comes to the Treasury Department
after several years in the private sector as an advisor to global financial institutions
and previous public service in the first Bush Administration.
In his current position, Adams is responsible for managing the day-to-day
operations of the Department generally and the Secretary's office specifically,
coordinating policy development and review within the Department and with other
agencies and the White House and assisting in setting the overall strategic direction
of the Department. H e is also responsible for advising the Secretary on a wide
variety of policy and management issues as well as on economic and market
conditions.
Prior to his current appointment, Adams spent most of 2000 in Austin, Texas as a
full-time senior m e m b e r of the Bush-Cheney campaign policy staff. While in Austin,
he worked on a variety of macroeconomic and technology related issues,
coordinated the policy operations at the 2000 Republican Platform and National
Convention in Philadelphia, directed the policy operations for Vice Presidential
candidate Cheney and, later, headed up the Treasury transition operations for the
newly elected team. A d a m s first became involved with the Bush for President effort
in January 1999 w h e n he joined a small group of economists advising thenGovernor-Bush on a variety of economic and technology policy matters.
From early 1993 until March of 2000, Adams held several positions at the G7
Group, which he co-founded and later led as the Managing Director. The G 7 Group
is a Washington-based consulting firm that forecasts and interprets economic and
political events for global financial institutions.
In the first Bush Administration, Adams held several policy-related positions,
including stints at the Ex-lm Bank, Treasury Department and the Office of
Management and Budget. Most notably, he served in the White House Office of
Policy Development from mid-1990 to January 1993, working on a broad range of
economics issues for Larry Lindsey, w h o formerly served as the chief economic
policy advisor to President George W . Bush.
Adams is a native of Kentucky. He holds an undergraduate and two graduate
degrees from the University of Kentucky.

SMITH BIOGRAPHY
Christopher A. Smith is Counselor to the Secretary of the Treasury. He provides
advice and counsel to the Secretary and senior m e m b e r s of the Administration's
economic team. H e concentrates his efforts on advancing high priority legislative
and policy matters on the Administration's domestic agenda, including: tax relief,
economic growth and jobs, health care, retirement security, homeland security, the
budget, and domestic finance. H e serves as a coordinating agent a m o n g the
various offices encompassing domestic policy within Treasury, and with the
National Economic Council. In particular, he works closely with the Office of Tax
Policy to advance the Administration's tax agenda. H e represents the Department
on a number of interagency and White House working groups. H e acts on the
Secretary's behalf as an advocate and liaison to the Congress, primarily to the tax
writing Committees and Congressional Leadership, as well as with external groups,
and advises the Secretary on legislative and political strategy.
Mr. Smith served on the Bush-Cheney Presidential Transition Team's Treasury
policy group from December, 2000 through inauguration. In particular, he helped

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JS-981: Treasury Department Announces Appointment of N e w Chief of Staff

Page 4 of 4

prepare the President-elect's budget and tax relief plans for subsequent action. He
conducted in-depth reviews of selected Treasury transition areas, and advised the
• Secretary-designate in preparation for Senate confirmation.
In 2000, Mr. Smith was the Chief of Staff for the House Committee on Ways and
Means. H e advised Chairman Bill Archer, Committee Members, and the House
Leadership on all matters coming before the Committee, including legislative,
policy, budget, and political strategies. H e implemented these strategies by
overseeing the Committee's 50 person majority staff and its diverse work in the
areas of taxation, trade, health care, Social Security, and h u m a n resources.
Mr. Smith was the Ways and Means Deputy Chief of Staff from 1995 until 2000. He
coordinated day to day management of committee operations during action on key
initiatives such as the Contract with America, welfare reform, the 1997 balanced
budget and tax relief legislation, and the IRS Restructuring and Reform Act. H e
served as a senior advisor to the Chairman and Chief of Staff on legislative, policy,
budget, and political decisions and on general legal matters.
Mr. Smith served on the Ways and Means Minority staff from 1988 to 1994 as a
Professional Assistant for International Trade, where he w a s a key participant in
legislation implementing major trade agreements, including the Uruguay Round and
North American Free Trade Agreements; and as a Professional Assistant for
Oversight and Investigations, where he conducted significant oversight
investigations and advanced remedial legislation on a variety of issues.
Before moving to the Committee, Mr. Smith was a budget examiner and special
assistant at the Office of Management and Budget from 1987 1988, and a program
evaluator at the U.S. General Accounting Office from 1986 1987
Mr. Smith received a B.A. degree in economics from Dickinson College in 1983 and
a Master of Public Administration degree from the George Washington University
( G W U ) in 1986. H e w a s awarded a Presidential Management Internship (PMI)
under the Reagan Administration upon graduation. Mr. Smith received the G W U
Department of Public Administration's Distinguished Alumni Award in 1997.

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JS-982: John B. Taylor Under Secretary of Treasury to Afghanistan-America S u m m i t Ge...

Page

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PRLSS ROOM

F R O M T H E OFFICE O F PUBLIC A F F A I R S
November 10, 2003
JS-982
The Time to Accelerate Reconstruction in Afghanistan
John B. Taylor
Under Secretary of Treasury for International Affairs
Afghanistan-America Summit
Georgetown University
November 10, 2003
It was exactly two years ago today. In the first major battle of Operation Enduring
Freedom, the Taliban were driven from the town Mazar-e-Sharif, a strategic
crossroads dating back to the days of Alexander the Great. Mazar's fall
represented the start of a major acceleration of the war to end the Taliban's terrible
rule over Afghanistan. Before the fall of Mazar, pundits were warning of many,
many months of fierce fighting before the end of the Taliban's control. Yet only
three days after the fall of Mazar, Kabul fell, then Kandahar fell, and then the
remnants of the Taliban fled to the mountains. By the end of November, the
international community was meeting in Washington to discuss our plans for
economic reconstruction. I remember that upbeat meeting very well.
Now is the time to start another major acceleration, but this time on the economic
reconstruction front. A s in the case of the battle for Mazar, much has been done to
prepare the way. The Afghan Transitional Authority under President Karzai is in
control of the economic functions of government. Finance Minister Ghani has
embarked on an impressive program to increase revenue. A new currency, the
afghani, has been successfully introduced. A law creating an independent central
bank has been passed. N e w commercial banking laws now allow foreign banks to
open in Kabul. An Afghan Investment Support Agency has been created to reduce
the red tape that entrepreneurs have had to endure when they start up or expand
their business. Afghanistan is also working to improve regional trade and transit
with its neighbors.
Construction of roads, bridges, airports and tunnels is underway. Schools have
been reopened, refurbished, or built from scratch; and millions of girls and boys are
back in school. The United States has fully supported this reconstruction effort.
And so have many other donors following that initial upbeat meeting in Washington
two years ago.
The World Bank, the Asian Development Bank, the International Monetary Fund,
and the U N agencies have played an important role.
Measurement systems are being put in place to measure the results of
reconstruction assistance with set timelines, so that financial aid is used effectively.
For example, the timeline for paving the U.S.-funded road construction from Kabul
to Kandahar is December 31. The same date applies to the road construction from
Kandahar to Spin Boldek funded by the Asian Development Bank.
In sum, the stage has been set. A surge in our reconstruction effort can now yield
big payoffs both economically and politically. Afghanistan is an extremely poor
country. Without strong economic growth, it will stay poor for a long time. A n
acceleration of the economic reconstruction effort now will help stimulate that
economic growth. It will also help to lock-in politically the important gains that have
been achieved thus far. W h e n the Afghan people go to the polls next June, how will
they view the improvements in their own lives? Will they feel that the transitional
government and the international community have met their commitments to help
reconstruct Afghanistan? Will they feel that the progress lives up to their
expectations? W e want the answer to be "Yes."

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To help make this acceleration effort a reality, last week the U.S. Congress passed,
and the President signed, a supplemental appropriations bill with an additional $1.2
billion for Afghanistan. W e have also re-programmed funding from the regular
budget to bring the total acceleration to over $1.6 billion. Our goal is to use these
funds to generate visible, measurable, on-the-ground results
As I have argued on many occasions, timelines for achieving measurable results
are needed if our assistance is to be effective. Timelines are especially needed if
you what to accelerate assistance; timelines measure the extent of the
acceleration. W e plan to finish this accelerated effort by June 2004. So, for each
sector, w e have set specific interim and final goals through June 2004.
A major part of our accelerated assistance will go towards improved security, which
is needed for an improved investment climate and for raising economic growth.
About $700 million will go for police, army training and counter narcotics. Our
stated goal is for over 19,000 police to be trained by June. About $900 million will
go to economic assistance, including roads, schools, health clinics, power
generation, and private sector initiatives. W e plan for 1,000 kilometers of
secondary roads to be completed. To further stimulate private sector economic
activity, w e have a goal of building 100 market centers and 5 n e w industrial parks.
And to help establish the rule of law w e are planning on 16 n e w provincial
courthouses.
This acceleration plan will not work if other donors do not also accelerate their
assistance. Even with the increased U.S. funding, there are still m a n y areas in
urgent need.
See "Making Reconstruction Work in Afghanistan," Council on Foreign Relations,
October 6, 2002.
These include irrigation projects, rebuilding major sections of the city of Kabul, and
the National Solidarity Program, which provides block grants for community projects
throughout Afghanistan.
To be successful the acceleration by other donors requires both speeding up
disbursements of existing pledges and making n e w pledges to be disbursed during
this crucial period. This, indeed, is what the United States is doing. For this
reason, the government of Afghanistan is urging other donors to accelerate their
assistance by moving forward commitments and by pledging additional funds this
month. W e , along with the government of Afghanistan, are also asking donors to
set measurable results and timelines to meet those results. The reconstruction of
Afghanistan is a collaborative effort and it is imperative that donors work together
closely. W e are pleased that the European Community has already c o m e forward
with an additional pledge. Japan has also committed to accelerating a portion of its
assistance. W e urge others to join in.
The United States is committed. We will continue to work with the international
community. W e look to Afghan government's continued leadership role. Our
ultimate goal is nothing short of security, freedom, and prosperity for the Afghan
people. With this timely acceleration, the Afghan people will be given the chance to
achieve that goal.

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JS-983: Acting Assistant Secretary Warshawsky at the Luncheon Speech for The Florida ... Page 1 of 5

PRLSS ROOM

F R O M T H E OFFICE O F PUBLIC A F F A I R S
November 7, 2003
JS-983
Acting Assistant Secretary Mark J. Warshawsky
U.S. Department of the Treasury
Luncheon Speech for The Florida Council of 100
Friday, November 7, 2003
It is a pleasure to join you today to discuss developments in the U.S. economy, the
Administration's economic policies, and the important role of international trade.
Current Developments in the U.S. Economy
In the Office of Economic Policy at the Treasury Department, my staff and I track a
broad array of economic and financial data every day. A s a result of this scrutiny, I
can tell you that economic fundamentals are sound and the U.S. economy is firmly
established on an upward path. Last week the Commerce Department reported
that economic activity increased at a 7.2 percent annual rate in the third quarter.
While some slowdown from that elevated pace is to be expected, we, as well as
private forecasters, expect strong expansion to continue through the fourth quarter
and well beyond.
After growing at a rather sluggish pace late last year and early this year, positive
signs of improvement began to build through the spring. The swift expulsion of the
regime of Saddam Hussein in Iraq lifted the consumer mood. Attractive auto
incentives and the extraction of home equity through a surge in mortgage
refinancing also contributed to an acceleration of personal consumption
expenditures in the second quarter. Indicators of investment demand such as n e w
orders and shipments of nondefense capital goods perked up as well, and the
nascent recovery in real equipment and software investment resumed in the second
quarter of 2003. The firmer tone to investment and consumption helped raise real
G D P growth to a 3.3 percent annual rate in the second quarter, more than double
the pace of the prior two quarters.
The passage of the Jobs and Growth Tax Relief Reconciliation Act in May provided
almost immediate additional support for the economy in the third quarter. By July,
withholding tables reflected reduced marginal tax rates on individual income, and
the child tax credit checks began to be delivered to households. This raised
households' cash flow and spurred consumer spending.
The increase in bonus depreciation and quadrupling of the expensing limit for small
businesses encouraged business investment.
The impact was substantial. Total consumer spending surged in the third quarter
and equipment and software investment shot up at its fastest rate since the first
quarter of 2000. Production responded to the pickup in final demand in the last two
quarters, and manufacturing output rose at almost a 3 percent annual rate in the
third quarter after declines in the prior three quarters.
Many of the strengths that were evident going into the third quarter are likely to
continue to provide support to the economy going forward. Productivity growth has
been exceptional, including very substantial gains in the past two quarters. The 4.3
percent rate of increase since the fourth quarter of 2000 - a period that includes
both recession and recovery - was the strongest of any eleven-quarter period in 40
years. Higher productivity means higher real wages for workers and rising
standards of living.
Businesses are beginning to reap the benefits of those productivity improvements.
Profits and cash flow are growing and unit costs have been held in check, paving
the way for further gains in investment. Small business optimism recently reached

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a record high level, according to the National Federation of Independent Business,
and the Conference Board reported that confidence a m o n g large-company C E O s
w a s the strongest in 11 years. Improved business optimism is a first step in the
revitalization of labor markets.
Equity prices have climbed about 30 percent since mid-March, improving financing
conditions for business as well as adding to household net worth. Boosted by the
tax cuts, real disposable personal income is rising. Household and business
balance sheets benefited from low interest rates over the past few years, leaving
those sectors in a good position to continue to spend. Rates are still quite low and
credit yield spreads are narrowing, enhancing prospects for investment.
The housing sector has been an engine of growth throughout the recession and
recovery and the homeownership rate has risen to a record 68.2 percent. Housing
continued to expand through the third quarter and construction starts and permits
point to further growth in residential investment ahead. This view is supported by
the highest level in four years of homebuilder optimism regarding the six-month
outlook, according to the National Association of H o m e Builders. Even with the
recent rise in interest rates, more than 80 percent of consumers still think it is a
good time to buy a home, according to the Michigan consumer sentiment survey.
Overseas economies appear to be improving and providing a growing market for
U.S. exports, which surged more than 9 percent at an annual rate in real terms in
the third quarter for the first quarterly gain in a year. The October index of
manufacturers' orders for exports of the Institute for Supply M a n a g e m e n t suggests
additional strength going forward. Inventory rebuilding and the production that it
stimulates should also contribute to growth. Through the past few quarters
inventories have been trimmed to very low levels as businesses met d e m a n d out of
existing stockpiles.
That is expected to turn around with the revival of strong demand. Recent
consensus forecasts expect real G D P growth to ease in the fourth quarter to 4.0
percent and roughly maintain that pace through next year. That rate is above the
estimated potential rate of growth of the economy, and the sustained trend above
potential should lead to a pickup in employment. In fact, the Labor Department
announced today that the unemployment rate dipped from 6.1 percent in August
and September to 6.0 percent in October. Payroll employment rose by 126,000
and results for August and September were revised up substantially. Today's
figures show that the economy created 286,000 jobs during the past three months,
the best performance since before the recession. More recent weekly
unemployment insurance claims suggest further progress w a s m a d e after the
October employment survey w a s taken.
The improvement in labor markets is already evident in Florida. Although still
somewhat elevated, Florida's unemployment rate has eased from a recent peak of
5.8 percent in late 2001 and n o w stands at 5.2 percent - roughly a percentage point
below the national average. Florida has added jobs since the economy entered
recession in early 2001. Since January of that year, nonfarm payroll employment in
the state has expanded by 176,000. That is the biggest increase of any state over
that period.
Professional forecasters expect that the acceleration in real growth in the third
quarter and over the coming year will lead to a sizable increase in employment.
Estimates are converging on a job gain of about 2 million over the four quarters
ending in the third quarter of 2004.
Though positive signs are emerging and the outlook is favorable, we have seen
during the latest recession and recovery h o w sensitive labor markets have b e c o m e
compared to the experience of previous cycles. It appears to be taking longer for
labor markets to respond to an upturn in economic activity. Since creating n e w jobs
is a top priority of the Administration, in addition to the stimulus packages already at
work, the President recently unveiled a six-point plan to reduce barriers and
uncertainties that m a y be impeding businesses from hiring additional workers. The
plan includes a series of measures to help the economy operate more efficiently,
such as tort reform, providing an affordable energy supply, streamlining regulation,
making tax cuts permanent, improving the affordability of health care, and opening
n e w markets for U.S. products.
U.S. and the Global Economy

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As all of you are well aware, opening new markets and increasing foreign demand
for U.S. goods and services is a key factor in enhancing our continued domestic
economic growth. Both empirical work and recent trends suggest that the behavior
of export markets has a far greater impact on manufacturing employment than
import competition. O n e study found that a 10 percent rise in overall sales due to
exports is associated with a 7 percent increase in employment, while a similar rise
in the import share of domestic sales is linked to a smaller 4 percent decline in
employment.
I probably don't have to do too much explaining to this audience about the benefits
of foreign trade, as Florida ranks as the eighth largest export-producing state in the
nation and is the sixth largest recipient of foreign direct investment (FDI). Foreign
affiliates provided over 300,000 jobs to state residents in 2000 (latest available),
ranking Florida fourth in the nation for FDI-related jobs. Like the rest of the country,
Florida's merchandise exports dropped in 2002. The decline w a s larger than the
national loss in percentage terms, as the State's key overseas markets, particularly
those in Latin America, generally experienced greater deterioration in economic
conditions. The diverse array of export goods produced in Florida, however, along
with its high value-added services exports such as consulting, legal, medical, and
financial services, should serve Florida well in the international marketplace going
forward.
I would now like to discuss the overall U.S. position in the world economy and the
Administration's efforts to enhance free trade and promote export growth. The
dimensions of total U.S. transactions with the rest of the world is typically measured
by the current account. The current account balance is equal to the difference
between national saving and investment, and mainly reflects the balance of trade in
goods and services, as well as net investment income and transfer payments.
Neither a deficit nor a surplus is inherently bad or good. W e would not be
concerned with a current account deficit if investment growth w a s strong and well
directed, increasing future economic growth that will be used to pay foreigners for
the financing of that investment, and still leave us with something left over to enjoy
in terms of an improved standard of living. Similarly, w e can expect foreign
developed economies in general (especially Japan and Western Europe) to tend to
lend to us more than w e lend to them because their economies are aging faster
than ours and because of the investment opportunities afforded by our highproductivity economy.
Nevertheless, these trends can become worrisome and be overdone if the current
account deficit is being used simply to finance increases in consumption with no
prospect of repayment. O n e sign of trouble would be an increase in domestic
interest rates. Flexibility of exchange rates is a good thing in general because it
helps the economy adjust to market forces, and allows the monetary authority to
focus on macroeconomic conditions (in the short run) and price stability (in the long
run), rather than trying to m a n a g e the exchange rate.
Recently our economic growth has improved greatly and we are seeing an
acceleration in investment (aided by fiscal policy measures that increased
depreciation write-offs for business equipment). This has led to an increase in the
current account deficit, td an annual rate of $554.7 billion in the second quarter or
5.1 percent of G D P . Our domestic interest rates are, however, still remarkably low.
We believe that much of the current account deficit is due to unnecessarily slow
foreign economic growth, which is impeding our exports. To correct that situation,
the Administration is aggressively encouraging pro-growth policies in other
countries. Secretary S n o w and other top officials such as C o m m e r c e Secretary
Evans and U.S. Trade Representative Zoellick have been traveling to Europe,
China, Japan and other key areas to encourage reforms that will raise growth.
Progress has been made, with the G-7 countries agreeing to a n e w "Agenda for
Growth" that incorporates accountability for performance as one of its features.
Domestically, we see a need to increase our national saving, both through personal
savings (which would be spurred by the Administration's two proposed tax-free
savings vehicles-retirement savings accounts and lifetime savings accounts), and
through decreased Federal deficits (by constraints on spending).
Regarding China, we have encouraged the adoption of a flexible, market-based
exchange rate. While there has been a great deal of attention to exchange rates,
w e have a broad agenda with China including seeking a direct opening of product

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and services markets to U.S. companies in accordance with China's commitments
to the World Trade Organization. China has m a d e s o m e progress in moving into
compliance with W T O rules but there has been a loss of m o m e n t u m , and
complaints from U.S. exporters have arisen regarding intellectual property rights,
trading rights and distribution services, transparency, and others. China has
agreed to m o v e to an open market-based economy and to abide by W T O rules, but
the pace of change has been very slow. A s complaints have mounted, Secretary
Evans has urged the Chinese that they "must m o v e faster by opening markets,
dropping trade barriers, and letting market forces determine economic decisions."
In an important recent development, Vice Premier Huang has accepted an invitation
to c o m e to the U.S. to engage in high-level talks with Secretary Snow.
Regarding Japan, the Administration has urged pro-growth reforms to bring about a
lasting recovery. These efforts appear to be bearing fruit. The Bank of Japan has
aggressively increased the m o n e y supply to counter deflation, and progress is
being m a d e in addressing problems in the banking system. While further efforts at
structural reforms would be beneficial, the Japanese economy is beginning to show
signs of improvement.
Remaining Barriers to Growth: Rising Health Care Costs
In addition to barriers to growth arising from imperfections in the flow of
international trade, I would like to touch on another structural impediment to growth
in the U.S.—rising health care costs. After a period of relatively slow health
spending growth in the late 1990s, growth has accelerated with the retreat of
managed care. Health spending n o w makes up over 14 percent of the economy.
The Bureau of Labor Statistics' Employment Cost Index for health benefits has
risen 10.1 percent over the past year, following an 11.2 percent increase the
previous year. Employers are struggling to control health care costs without
reducing or dropping coverage, because private-sector efforts to improve value and
efficiency are in their nascence and are not well developed. Sustained health care
cost increases are preventing firms from hiring n e w workers, while m a n y workers
m a y be reluctant to change jobs for fear of losing health insurance coverage.
In discussing the problem of rising health care costs, a distinction must be made
between low-value care and high-value care. Much of the growth in health
expenditures stems from life-saving technological progress. Mortality rates from
cardiovascular disease, the number one cause of death in this country, have fallen
by half over the past 40 years, much of that attributable to the technological
revolution in health care. Yet, in a Doctor Jekyll and Mr. Hyde sort of way, despite
the technological progress, the health care sector is inefficient, as studies have
indicated.
Going back to cardiovascular care, bypass surgery is ten times more c o m m o n in
the U.S. than in Canada, yet health outcomes are very similar a m o n g patients with
heart disease in both countries, according to one study. Dartmouth researchers
have found that there are wide geographic disparities in per capita Medicare
expenditures, even after controlling for age, sex, and race of the relevant
populations. These differences cannot be explained by differences in the price of
services or the health status of the relevant populations. Study after study has
shown that around 30 percent of health care expenditures are wasted: they do
nothing to improve, and in s o m e cases m a y even harm, health.
The increasing strain of high and fast-growing health care costs is placing a
growing burden on the federal budget. Already, one-quarter of federal outlays are
dedicated to health care expenses. A mere one percentage point decrease in the
anticipated rate of growth of health care spending would reduce the national debt
by more than $600 billion over the next 10 years. This is w h y the Administration is
committed to rooting out the underlying causes of wasteful care to moderate the
long-term growth rate of health care expenditures.
Conclusion
Let me wrap up by reiterating a few points before I take questions. The U.S.
economy is on solid footing and the outlook going forward is bright. The
Administration will continue to strive to increase the rate of job growth and to reduce
any inefficiencies and barriers that m a y inhibit the economy from maximizing its
growth potential, including opening n e w markets abroad for U.S. exports and
working to reduce growth in health care costs.

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.-980: Treasury's Office of Financial Education Recognizes Cedar Point Federal Credit Union's

F R O M T H E OFFICE O F PUBLIC A F F A I R S
October 29, 2003
JS-980
Treasury's Office of Financial Education Recognizes
Cedar Point Federal Credit Union's Retirement Education Program

U.S. Treasury Assistant Secretary for Financial Institutions W a y n e A. Abemathy
today formally recognized the Cedar Point Federal Credit Union's Retirement
Education Program, RETIREMENT... Do You Have A Plan? with an honorary
certificate of recognition for their efforts in providing financial education to the
community of Lexington Park, M D .
"The Cedar Point Federal Credit Union Retirement Education Program is helping
potential retirees learn proactive ways to plan for their future," said Assistant
Secretary Abemathy. The transition from work to retirement comes with emotional
adjustments and financial concerns. Financial education can help older adults
budget and plan, avoid scams and other forms of financial abuse, and use
proceeds from lump-sum or other payments wisely. People can afford retirement
with determination, hard work, a sound savings habit, and a well-designed financial
plan.
**Statistics show that workers employed by firms that offer financial education
programs have higher participation rates in and contributions rates to 401 (k) plans
compared to firms that do not provide these programs. A lack of financial education
m a y cause workers to start saving too late in life to realize they understated
retirement goals. Individuals who do not plan for retirement have lower net wealth
and are less likely to invest in assets with higher expected returns.
Cedar Point Federal Credit Union is a member owned financial institution dedicated
to providing its sponsor, charter members, and potential members in the local
community with product and service excellence. This commitment is what led them
to establish their wholly owned subsidiary company Cedar Point Financial Services,
Inc. (CPFS). C P F S was originally established to educate credit union members
and potential members. Through the relationship C P F S has with Horner Townsend
and Kent, Inc. the credit union is able to provide the local community with access to
high quality educational tools to include no-cost, retirement-planning seminars. The
seminars are presented by William D. Morrison, C F P of Maryland Agency Financial
Group (MAFG), a branch office of Penn Mutual Life Insurance Agency, located in
Towson Maryland
The Treasury Department in 2002 established the Office of Financial Education to
strengthen the financial literacy of all Americans, and to provide guidance to
organizations providing financial
* (Robert Clark, Ann McDermed, Kshama Sawant, and Madeleine d'Ambrosio,
"Financial Education and Retirement Savings," Federal Reserve Bank Paper,
March 2003)
education programs. The Office works to ensure that people can gain the practical
knowledge and skills necessary to make informed financial choices throughout
various life stages. It focuses on four key areas: basic savings, credit management,
homeownership and retirement planning. More information can be found at
www.treasury.gov/financialeducation

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5/23/2005

js984: Keynote Address for Deputy Assistant Secretary Juan C. Zarate

Page

F R O M T H E OFFICE O F PUBLIC A F F A I R S
November 10, 2003
js984
Keynote Address for Deputy Assistant Secretary Juan C. Zarate Before the
Investment C o m p a n y Institute "Securing the Financial System against R o g u e
Capital"
November 10, 2003
I am very pleased to be with you today as you meet to discuss the Investment
Company Institute and mutual fund industry's involvement in the comprehensive
efforts to secure the financial system against rogue capital. The events of
September 11 th and the attacks w e have seen worldwide since then - including this
weekend's attacks in Riyadh - demonstrate, time and again, that w e are engaged
in a long term battle against those w h o both despise and strive to destroy our way
of life.
I appreciate the opportunity to speak with you because in this post-9/11 world, you,
and the financial community at large, are a vital partner in our efforts. Certainly, the
Treasury has needed to call on its established relationships in the private sector
and to cultivate new ones to ensure w e are doing everything in our power to
prevent additional catastrophic attacks and to protect the financial mediums around
the world from terrorist and criminal taint.
I was recently in Saudi Arabia with Secretary Snow, where we met with government
officials, to discuss, among other things, the c o m m o n terrorist threat w e face and
the measures w e are taking to combat terrorist financing and money laundering. In
our meeting with Crown Prince Abdullah, he said something that has deep
resonance for those of us w h o have been working on these issues for over two
years now. H e said quite plainly that the U S Treasury and Finance Ministries are
the greatest enemies of the terrorists.
Aside from being flattering to our work, I believe his words carry great truth on
several levels.
Since September 11th, we have led a global campaign to identify, disrupt, and
dismantle the sources and means of funding for al Qaida and global terrorism. As
this Administration has declared, the bankers of terror will be bankrupted and will be
held accountable for their facilitation of murder. The world's attention is now
focused on the short and long-term threats of terrorist financing and has created a
global system that is now seized of this issue. It is clear that the world now looks at
the problems of terrorism and complex criminal enterprises through the prism of
financial disruption and deterrence.
International terrorist groups need money to attract, support, and retain adherents
throughout the world as well as to secure the loyalty of other groups that share the
same goals. Thus, they need to devise schemes to raise, collect, and distribute
money to operatives preparing for attacks. Their fundraising schemes and the
movement of money internationally makes the terrorist funds vulnerable to
detection if w e have the right safeguards in place. It is now an accepted axiom
worldwide that when you track and stop tainted money, you can dismantle
international networks and save lives.
In this regard, we have designated over 330 individuals and entities as terrorists or
terrorist supporters and have worked with other governments to freeze over $136
million and seize well over $60 million. Over 170 countries have taken relevant
freezing measures and other steps to ensure that terrorists are deprived of the
means and channels of funding.
These actions not only capture funds found in the formal financial system at the
time blocking actions are taken but they serve to cut off those channels from the
formal financial system and deter like-minded supporters. This cooperative system

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also signals an enormous success in garnering international support in our efforts
In our actions and in our words, the Treasury Department and Finance Ministries
have shown quite clearly that in this war, financial intermediaries and facilitators
w h o infuse terrorist organizations with money, materiel, and support will be held
accountable along with those w h o perpetrate terrorist acts.
These have been our most public and striking efforts, but we have also undertaken
wide-scale reform of international standards of transparency and accountable in all
sectors. In conjunction with the Financial Action Task Force, w e worked to
promulgate the Eight Special Recommendations on Terrorist Financing. In these
Special Recommendations, the Finance Ministries of the world have drawn their
attention to the international risks that are specific to terrorist financing. For
example, the Special Recommendations require jurisdictions to register or license
informal banking sectors, like hawalas, which have operated under the radar of
government scrutiny until now. Countries like the United Arab Emirates have taken
proactive and important steps to inject transparency into this sector.
In addition, the Special Recommendations point out the need to set out n e w w a y s
to monitor the non-profit sector. O n e of the heinous revelations of the post 9/11
world is the fact that al Qaida and like-minded terrorist groups have co-opted
charities worldwide to raise m o n e y and to facilitate their agenda. W e have taken
steps not only to freeze the assets of 24 such charities, but w e have worked with
our international partners to ensure that charitable giving is not corrupted.
Countries like Saudi Arabia have taken significant strides in controlling and
monitoring a previously unregulated medium of financial activity. The worldwide
actions to shine the light of oversight on these previously unregulated financial
sectors are a success story that goes largely untold.
In that same vein, the international community has taken steps to toughen antim o n e y laundering standards. W e certainly know that criminals and terrorists alike
use similar channels to m o v e and launder money. That is w h y w e have focused
m u c h attention on h o w the world views the problem of m o n e y laundering and antim o n e y laundering controls. This year, for example, the F A T F completed the
revision of the 40 Recommendations on M o n e y Laundering. The changes reflect
m a n y of the concepts that w e n o w hold essential to a vibrant A M L regime. For
example, key changes to the 40 Recommendations include: (1) enhanced due
diligence with respect to correspondent banking accounts; (2) increased scrutiny for
politically exposed persons; and (3) prohibition on the use of shell banks.
Again, these changes are having real effects. Countries like Russia, which was
previously considered a non-cooperative country on these matters, have m a d e
wholesale changes to their laws and financial practices. Transparency and
accountability are n o w the m o d u s operandi of the international community.
Domestically, we have worked to expand our anti-money laundering regime, in a
smart and effective way. Title III of the U S A P A T R I O T Act supplied Treasury with a
host of n e w and important weapons to both systematically eliminate known risks to
our financial system as well as to identify and nullify n e w risks that develop. The
tragic events of September 11 have taught us three key lessons about financial
crime:
(1) although distinct in important respects, our ability to combat terrorist financing is
inextricably linked with our ability to combat m o n e y laundering generally;
(2) we must remain vigilant in our continuing efforts to identify the new ways in
which criminals and terrorists will attempt to use our o w n financial system to fuel
their enterprises; and
(3) the ability of governmental entities to obtain and share financial information is
critical to our success in identifying and bringing d o w n terrorist networks.
Title III of the PATRIOT Act reflects these lessons, providing us with the
mechanisms, the authority, and the initiative to take the steps necessary to protect
our financial system.
As former General Counsel David Aufhauser indicated recently, once complete and
if properly enforced, these changes will go far to prevent not only the laundering of
illicit proceeds, but also aid the financial system in preventing the use of clean
m o n e y to finance terror. The Act's principal focus on financial intermediaries, the
international gateways to the U S financial system, the expansion of due diligence
and monitoring requirements, enhanced reporting obligations, and renewed
commitment to information sharing comprise the elements of a comprehensive antiterrorist financing regime. While the end goal of devising systems capable of

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proactively identifying potential terrorist financing activities remains elusive, we are
creating the necessary infrastructure within financial institutions that will one day
support such systems.
For example, several sections of the Act focus on the correspondent account, the
international gateway to the U S financial system. These provisions require financial
institutions to conduct greater due diligence both before opening such accounts and
while they are open. The scrutiny given to these accounts not only augments the
audit trail, but also serves to deny certain foreign financial institutions access to the
U S financial system in the first place. Uniform customer identification regulations
recently issued will require all financial institutions to take important steps to verify
the identity of their customers. Additionally, w e have created a system pursuant to
section 314(a) of the Act to enable law enforcement to locate quickly the accounts
and transactions of those suspected of m o n e y laundering or the financing of
terrorism. While w e are still working closely with law enforcement and the financial
community on the operation of the system, since its creation, the system has been
used to send the n a m e s of well over 250 persons suspected of terrorism financing
to financial institutions. This has resulted in 1,739 matches that were passed on to
law enforcement.
A particularly important provision is Section 311 of the Act, which provides the
Secretary with the necessary ability to protect the U S financial system against
specific terrorist financing threats posed by foreign financial institutions, accounts,
transactions, or even entire jurisdictions. The Secretary can require U S financial
institutions to take appropriate countermeasures against such threats,
countermeasures which include requiring the termination of any correspondent
accounts involving the threat. W e have utilized this authority in the m o n e y
laundering context - against Nauru and the Ukraine -- and w e are presently
considering its use against financial institutions in connection with the financing of
terrorism, m o n e y laundering, and other financial crimes.
Since its passage, Treasury, the Financial Crimes Enforcement Network (FinCEN),
the financial regulators, and the Department of Justice have worked together to
draft and issue extensive regulations that implement the Act's provisions. A s David
Aufhauser recently outlined, a m o n g other things, w e have published regulations
that -(i)
Permit and facilitate the sharing of critical information between law
enforcement and the financial community, as well as a m o n g financial
institutions themselves;
(ii)
Close off our financial borders to foreign shell banks, require additional
due diligence for correspondent accounts maintained for foreign
financial institutions, and require foreign banks with correspondent
accounts in the United States to supply the n a m e of a U S agent for
service of process as well as the identities of their owners;
(iii)
Require U S financial institutions to establish customer identification and
verification procedures for all n e w accountholders;
(iv)
Expand the universe of financial institutions reporting potentially
suspicious activities to FinCEN; and
(v)
Expand our basic anti-money laundering regime to include a wide
range of financial service providers, such as the securities and futures
industry and m o n e y services businesses.
Our work is not yet finished in this field. W e are n o w completing several
regulatory packages that have direct relevance to your industry.
We are using the USA PATRIOT Act and the implementing regulations to combat
terrorist financing. While it is still premature to evaluate their impact, w e do have
s o m e indication of their effectiveness. For example, the section 314(a) system has
been used in m a n y cases and has resulted in a substantial number of leads. The
additional reporting and recordkeeping authorities have enhanced the database
FinCEN uses for its research and analysis in supporting terrorism investigations since September 11 th , FinCEN has supported 2,692 terrorism investigations. T h e
Terror Hotline established by FinCEN has resulted in 789 tips passed on to law
enforcement. Since the World Trade Center Attacks, FinCEN has m a d e 519
proactive case referrals to law enforcement based upon an analysis of information
in the Bank Secrecy Act database. With the expansion of the suspicious activity
reporting regime, financial institutions have filed 2,655 suspicious activity reports
("SARs") reporting possible terrorist financing. In addition to passing these reports
on to law enforcement, FinCEN has and will continue to analyze the S A R s to report
on systemic patterns in the financing of terrorism.
What has been essential in all of these efforts has been the partnership we have
felt with the private sector. A s w e have often said, the financial community, and

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especially those who are coming into the regulatory fold, are on the front lines of the
battle to secure the financial system. Since passage of the Act, the willingness of
the financial community to work with us in this fight has been remarkable.
Cooperation c o m e s in the form of formal and informal feedback on n e w regulations,
one-on-one assistance with specific investigations, and the proactive identification
of potential instances of the movement of funds to finance terrorism. While w e
expect the financial community to join us in this fight -- and they have done so -- w e
also recognize and appreciate these efforts, from the largest of financial institutions
to the smallest of the community banks.
We also recognize a responsibility on the part of the government, and the Treasury
in particular, to provide better service and contact to ensure the efficient, smart, and
effective implementation of the regulatory system. W e will need the help of the
financial community as w e m o v e forward, but there are certain things that the
Treasury and U S government must do in the coming months:
1. W e must ensure that the regulatory burden is commensurate with the
identified risks. M u c h of this calculus will depend on the interaction w e have
with the private sector to ensure that the regulations in place are effectively
targeted and implemented.
2. The government must strive to improve the feedback it provides to the
financial community. From the 314(a) process to general trend analysis,
feedback on the importance and usefulness of your efforts will help you
m a k e necessary adjustments and cost calculations for your compliance
systems and concomitant proactive efforts and investments.
3. The government and the private sector must build on the important
information sharing underway. Financial information, well developed and
analyzed, helps uncover the footprints of criminal activity. The P A T R I O T
Act, at its heart, is a piece of legislation that intends to break d o w n artificial
walls to allow for the sharing of timely information. In this respect, the
private sector, itself, needs to take greater advantage of the ability to share
information with your counterparts.
4. The government must ensure that w e are using technology to help us
amplify the use of financial information and reporting that is flowing into
FinCEN and the law enforcement community. W e need to ensure that
relevant, suspicious financial information and trends are being analyzed and
tracked in the most cost-effective manner possible.
All of this will further engender cooperation between the financial community and
the government in a manner that further allows you to serve vigilantly on the front
lines.
For those of us who have been working on these issues since 9/11, it is clear that a
centerpiece of the Treasury and Finance Ministries' ability to stem the flow of illicit
capital through the financial system is the relationship w e share with the private
sector. It is this perhaps that the Crown Prince noted w h e n he stated that w e are
the greatest enemies of the terrorists. W e have certainly taken important steps to
freeze assets and to m a k e structural reforms. But perhaps more importantly, the
Treasury and the Finance Ministries have the strength of the relationship with the
private sector upon which to call and the expertise and diligence of the financial
community upon which to rely.
Thank you again for the kind invitation to speak with you today. We look forward to
continuing to work with you and the mutual fund industry.

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JS-987: REMARKS BY TREASURY SECRETARY JOHN SNOW TO THE ARIZONA... Page 1 of 2
y'^SS^- ~~^-~-_

PRESS ROOM

F R O M THE OFFICE OF PUBLIC AFFAIRS
November 11, 2003
JS-987
REMARKS BY TREASURY SECRETARY JOHN SNOW
T O THE ARIZONA STATE C H A M B E R OF C O M M E R C E
PHOENIX, ARIZONA
TUESDAY, N O V E M B E R 11, 2003
Last week we heard some good news about the effects of tax relief on the
American economy. The Department of Labor reported that our economy added
126,000 new jobs in October. And over the past three months, there were 286,000
new jobs. The unemployment rate fell to 6 percent. The four-week average for
jobless claims has declined in six of the past seven weeks. And manufacturers
reported that orders and shipments are both rising.
This news comes one week after we heard that economic output rose at a 7.2
percent annual rate in the third quarter, the fastest pace of growth in nearly 20
years. ISM's manufacturing index advanced to 57.0 in October, its highest level
since January 2000. The non-manufacturing index rose to 64.7, the second highest
level on record. Factory shipments were up 1.4 percent in September and new
orders by 0.5 percent. Construction expenditures rose 1.3 percent in September for
a fourth increase in a row
America's economy is getting stronger every day. American companies are
investing. Americans are buying homes at a record pace, and homeownership is
near record levels. Stock market values have risen, adding about $2 trillion in
wealth for investors since the beginning of the year.
Arizona's economy has been growing stronger. The state's unemployment rate fell
to 5.6 percent in September from 6 percent in August. This compares favorably
with the national unemployment rate of 6.1 percent. Arizona added about 28,000
jobs in September. According to a recent report from Arizona's Office of Economic
Security, Arizona's cyclical industries are continuing to improve. In addition, home
sales have been robust.
We can all be encouraged, but we cannot be satisfied. These are early signs of
progress. Now we must turn this progress into broad and lasting gains for all
Americans.
The most important thing we can do to help those looking for work is to make sure
our current economic growth results in more new jobs. President Bush has
proposed a six-point economic plan to encourage companies to expand and hire
workers. W e must bring health care costs under control, reform our civil courts to
end the junk lawsuits hurting small businesses, cut needless regulations so that
small business owners can focus on pleasing their customers, instead of pleasing
bureaucrats. W e must pass a national energy policy to ensure an affordable and
reliable supply of energy to our economy, promote free trade agreements that bring
good jobs to America, and make tax relief permanent, so the gains we have seen
do not disappear when tax relief is scheduled to go away.
The tax relief of the past two years was based on a principle that when Americans
keep more of their own earnings, they spend more and invest more and move the
economy forward. We're now seeing that happen. Our economy is on a rising road,
and now we must take the remaining steps to ensure that our economy becomes a
lasting expansion, and our prosperity extends to every corner of America.

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PRESS ROOM

F R O M T H E OFFICE O F PUBLIC AFFAIRS
November 12, 2003
JS-990
Remarks by Deputy Assistant Secretary Michael A. Dawson before the
Jewelers Vigilance Committee, the Jewelers Board of Trade, and
Manufacturing Jewelers and Suppliers of America on the U S A PATRIOT Act
Regulations for the Jewelry Industry
I am here today to speak to an important category of financial institutions
jewelers. S o m e m a y not think of jewelers as financial institutions. Most
think of jewelers as retailers, wholesalers, dealers, manufacturers,
importers, and cutters and refiners of raw product. But not financial
institutions.
Unfortunately, criminals can and do think of jewelers as financial
institutions. Your products can be - and have been - used by criminals to
launder criminal proceeds, store value, transport value to other
jurisdictions, and convert the value into liquid forms to fuel criminal
enterprises. In Operation Meltdown, for example investigators in this city
discovered Colombian narcotics traffickers w h o were converting their
profits into gold; disguising the gold by alloying it with other elements or
casting it into the shape of industrial objects, like wrenches; shipping it to
Colombia; and re-selling it for cash.
Fortunately, jewelers are vigilant. They recognize that criminals are trying
to abuse their products and services. Jewelers have organized to protect
their industry and their individual reputations. Historically, jewelers
organized to prevent criminals from passing off artificial or impure product
as the real McCoy. Over time, however, your vigilance has extended to
guard against the possibility that criminals would use your products and
services to launder money and finance terrorism.

I a m here today to thank you for your vigilance. Thank you for working with
us as w e studied your industry and drafted proposed regulations. Thank
you for your comments on those proposed regulations. Thank you for your
strong commitment to comply with those regulations.
The USA PATRIOT Act
A s m a n y of you know, the President signed the U S A P A T R I O T Act into law
on October 26, 2001, just a few weeks after the attacks of September
11th. A s President Bush noted at its enactment, the Act provides
"intelligence and law enforcement officials important n e w tools to fight a
present danger."
Some of these new tools help us fight money laundering and terrorist
financing. They are concentrated in Title III of the Act.
There are m a n y important new tools in Title III. I will focus on just one, the
one which happens to be most relevant to your industry. That tool is

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Section 352, which directs the Treasury to require "financial institutions" to
create, implement, and test anti-money laundering programs.
Congress has defined the term "financial institution" very broadly. It was
defined well before the P A T R I O T Act to include banks, credit unions,
securities firms, futures firms, insurance companies, finance companies,
casinos, vehicle sellers, pawn brokers, travel agents, telegraph companies,
real estate settlements and closings firms, the U.S. Postal Service, and, of
course, dealers in precious metals, precious stones and jewels. In case it
missed anybody, Congress also gave the Secretary of the Treasury the
authority to d e e m additional businesses "financial institutions."

Prior to the P A T R I O T Act, the Treasury had the discretion to issue antimoney laundering regulations for any of these financial institutions, so long
as an administrative record to support such regulations. W h a t is n e w
under the P A T R I O T Act is that the Treasury is now obligated, not just
authorized, to issue anti-money laundering regulations for this wide array of
financial institutions. In other words, Congress has m a d e the determination
that money laundering regulations should be imposed on every "financial
institution."
The breadth of Title III of the P A T R I O T Act generally and Section 352
specifically reflects a recognition by Congress that criminals are
opportunistic. They seek the path of lowest resistance to laundering their
money. A s w e improve the controls in one avenue, such as banks, they
will turn to other avenues, such as precious metals or gems. Success in
one industry will drive criminals toward another industry. For a regulatory
approach to fighting money laundering to be successful, therefore, w e must
adopt a comprehensive approach.
As mentioned, Congress gave Treasury much of the responsibility to
implement Title III of the Act. Since the passage of the Act w e have
promulgated final or proposed rules requiring anti-money laundering
programs for a wide array of financial institutions including securities and
futures firms, mutual funds, money service businesses, credit card systems
operators, unregistered investment companies, investment advisors,
commodity trading advisors, life insurance and annuity companies, and, of
course, jewelers.
While the specifics of such regulations vary from industry to industry, the
required anti-money laundering programs must each have four c o m m o n
elements:
1.a written anti-money laundering program;
2.the designation of one or more individuals to head the program and to
provide guidance to other employees on the program and to oversee its
implementation;
3.training for employees; and
4.independent testing of the program to ensure that it is operating
appropriately and effectively.
Not long after the passage of the Act, w e reached out to your industry, and
found in you partners ready, willing and able to shoulder this c o m m o n
burden. All parts of the industry, from manufacturers, to retailers, and from
gold, silver, and platinum group metals, from diamonds to colored stones
dealers, all were extremely helpful and gracious as w e learned, and
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continue to learn about this varied and fascinating industry.
As you know, we published a proposed regulation, and received many
helpful comments, which w e are continuing to examine. I cannot c o m m e n t
on our specific thoughts regarding those comments and the shape of the
final rule. But I can say that your input will be evident in the final rules. W e
are grateful for your comments.
I can also say that we have learned lessons in applying our regulations to a
diverse array of financial institutions. In m y experience, these lessons
apply generally, whether you are talking about regulating banks, credit
unions, broker-dealers, mutual funds, commodity futures merchants,
m o n e y transfer businesses, or jewelers. I wish to speak to three such
lessons.
Diversity
First, we have learned the incredible diversity of the industries we
regulate. I have already spoken to horizontal diversity, the diversity of the
different industries w e n o w regulate. As mentioned, w e have taken steps
to recognize this diversity in the rules that w e have m a d e for each industry.
A dealer in colored stones operates very differently from a bank, an
insurance company, or a settler of commercial real estate deals. W e
recognize that important differences exist and seek to tailor our regulations
to the realities of each industry.
We have also sought to recognize this horizontal diversity in other ways.
For example, w e recently expanded the Bank Secrecy Act Advisory Group
to include m a n y industries that are newly regulated under the Bank
Secrecy Act. This Advisory Group w a s established by Congress to provide
the Secretary of the Treasury with the expertise, views, and perceptions of
the regulated community. In October, the Director of the Financial Crimes
Enforcement Network hosted the first meeting of the reconstituted Advisory
Group. The membership is now much more diverse. It includes, for
example not only representatives from depository institutions and their
regulators, but also representatives from securities firms, commodities
firms, insurance firms, money transfer businesses, casinos, and others.
In addition to horizontal diversity across industries, there is vertical diversity
within industries. For example, w e regulate money center banks in
Manhattan and community banks in Oberlin, Ohio. W e regulate the
Pentagon Federal Credit Union, with over $5 billion under management,
and credit unions operating one day a week out of a church basement.
Vertical diversity is particularly evident in the jewelry industry. For
example, jewelers include retailers as large as Wal-Mart or as rarified as
Tiffany and Company. Jewelers include small businessmen and w o m e n
operating one or two room shops to wholesalers with fully integrated
operations from extraction to sale. Jewelers include dealers in precious
g e m s and precious metals. Broadly conceived, jewelers include those
whose products are used for ornament and those whose products are used
for industrial purposes.
Our proposed regulations for jewelers recognize this vertical diversity in
several ways. For example, they recognize that dealers in industrial
diamonds or industrial sapphires are less likely to be used by m o n e y
launderers than g e m quality stones. A s another example, our proposed
regulations recognize that m a n y retailers sell jewelry as an incidental line of
business or as a hobby. Accordingly, the proposed regulations exempt
from compliance those w h o do $50,000 or less in jewelry business a year.
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In addition, our proposed regulations allow individual firms to tailor their
anti-money laundering programs to the specific risks they face and to the
specific nature of their businesses. For example, the program for a small
two-person business will generally be different from the program of a large
business with thousands of employees. A s another example, although it is
required that you designate one or more individuals as responsible for the
program, it is not required as a general matter that this program be a fulltime position. Of course, in large enterprises with significant levels of
money laundering risk it m a y be, but in most cases this will represent a
fraction of someone's duties, especially once the program is up and
running. In brief, the level and quality of your efforts should be
commensurate with the money laundering risks that exist. In other words,
you should first stratify your money laundering risk and then act
accordingly.
Focus
A second lesson we have learned is that there is a danger that overlyprescriptive regulation will change the focus from the people w e are trying
to stop - criminals - to the people w e need to stop them - honest financial
institutions. Overly prescriptive or inflexible regulations focus attention on
complying with the regulations, rather than on stopping money laundering.
Bad regulation can result in honest businesses being more concerned
about the legal risks they face for not complying with s o m e aspect of our
regulations than about the risk that their businesses will be victims of
money launderers or terrorist financiers. If that happens, w e lose. The
stakes are too high, to take our eyes off the ball. There are people out
there w h o are trying to kill us and our allies. The m o m e n t you start
worrying more about government bureaucrats than criminals, w e have got
you worried about the wrong thing. You are our biggest ally in this fight.
You are on the front lines. W e need you focused on stopping people from
using your business to finance terror.
Guidance & Feedback
Third, in all your efforts to stop the potential for criminal abuse of your
businesses, you need and deserve quality guidance and feedback from the
government. W e recognize that one of our tasks is to help you to identify
how criminals are targeting your industry and h o w your efforts are making a
difference. Such information is vital if you are to guard against m o n e y
laundering abuse effectively. W e also recognize that w e cannot expect you
all to become anti-money laundering experts. You have a right to the antimoney laundering expertise that exists in the government so that your
efforts can be better focused, more useful, and ultimately more effective.
Accordingly, w e have m a d e an effort to issue questions and answers along
with our regulations. This is part of our statutory obligation to issue a staff
commentary with our regulations. W e need to issue such commentary
more systematically. W e are also working to share information in other
ways. For example, w e indicated our willingness to offer staff views on
industry best practices, with an emphasis on providing what w e know about
money laundering abuse. W e are open to any ideas from any industry on
h o w w e can maximize the quality as well as the quantity of such
information sharing.
Conclusion
It is regrettable that criminals seek to exploit your businesses. Fortunately,
w e are prepared to meet them. Congress gave us the tools. But, as
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importantly, you gave us your trust. That was crucial. It made it possible
for us to work together to calibrate anti-money laundering regulations to
maximize their effectiveness and minimize their burdens on you and your
customers.
I know that many of you have already begun the effort to establish your
anti-money laundering programs, and I c o m m e n d those efforts. By the
time w e formally promulgate an anti-money laundering program
requirement, many of you will already have such systems in place, due in
part to training such as this conference. As a result, your employees will
already be effectively watching for money laundering abuse.
Thank you for your vigilance. Thank you for this opportunity to speak with
you today. Specifically, Cecilia Gardner, thank you for your kind invitation.

http://www.treas.gov/press/releases/js990.htm

5/19/2005

JS-991: Secretary John W . S n o w Remarks Center for Energy and Economic Development... Page i oi 5

PRESS ROOM

F R O M T H E OFFICE O F PUBLIC AFFAIRS
November 11, 2003
JS-991
U.S. Treasury Secretary John W. Snow
Remarks to Center for Energy and Economic Development Board Dinner
November 11, 2003
Scottsdale, Arizona
Good evening. It is my pleasure to join you for dinner tonight to speak to you about
two very important, and closely related subjects: energy and the economy. I'll take
the second part first, if you don't mind, because I see energy as a key component of
an overall economic development strategy.
Before I begin, I bring greetings from Spencer Abraham, our Energy Secretary, and
m y close friend on the cabinet. He is an exceptional spokesman for the President
on energy policy. He has shown real leadership on energy issues, and he is at the
forefront of our efforts to work with Congress on the energy legislation presently
before Congress.
First, let's talk about the state of the economy. It's doing better. When you consider
what this country has gone through in the past three years, the body blows of a
recession, terrorist attacks, a bursting bubble, and a rash of corporate scandals, it's
quite amazing that the economy is growing at its current pace. That's a real
testament to the strength of President Bush's economic leadership, to the flexibility
of the American economic system, and the perseverance and industry of the
American people.
Let me point out a couple specific indications of growth: last week the Department
of Labor reported that our economy added 126,000 new jobs in October. And over
the past three months, there were 286,000 new jobs. The unemployment rate fell to
6 percent. The four-week average for jobless claims has declined in six of the past
seven weeks. And manufacturers reported that orders and shipments are both
rising. This news comes one week after w e heard that economic output rose at a
7.2 percent annual rate in the third quarter, the fastest pace of growth in nearly 20
years. ISM's manufacturing index advanced to 57.0 in October, its highest level
since January 2000. The non-manufacturing index rose to 64.7, the second highest
level on record. Factory shipments were up 1.4 percent in September and new
orders by 0.5 percent. Construction expenditures rose 1.3 percent in September for
a fourth increase in a row.
America's economy is getting stronger every day. American companies are
investing. Americans are buying homes at a record pace, and homeownership is
near record levels. Stock market values have risen, adding about $2 trillion in
wealth for investors since the beginning of the year.
We can all be encouraged, but we cannot be satisfied. These are early signs of
progress. N o w w e must turn this progress into broad and lasting gains for all
Americans. The most important thing w e can do to help those looking for work is to
make sure our current economic growth results in more new jobs. President Bush
has proposed a six-point economic plan to encourage companies to expand and
hire workers.
I will get to that plan in a moment. First, however, I think its important to point out
that this economic growth w e are beginning to see didn't just happen by accident.
The President's Jobs and Growth Act passed in May, and it clearly provided the
boost the economy needed to get back on track. In July, withholding tables were
revised to show reduced marginal tax rates on income, and child tax credit checks
went out in the mail. That lifted consumer spending.

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5/19/2005

JS-991: Secretary John W . S n o w Remarks Center for Energy and Economic Development... Page 2
The President's plan also increased bonus depreciation and quadrupled the
expensing limit for small businesses, encouraging business investment. Dividend
tax relief had a positive effect on the markets. In fact, equity prices have climbed
about 30 percent since mid-March, improving financing conditions for businesses,
and adding to household net worth.
Still, the labor markets aren't picking up as fast as we'd like to see. I can tell you
that President Bush is not going to be satisfied with this recovery until every
American w h o wants a job has got one. We're not sitting back watching the number
roll in - we're out there making this economy better - making condition better for
growth, investment, and job creation.
President Bush unveiled the aforementioned six-point plan to further strengthen this
economy, and set us on a long-term path toward growth.
First, we are working to make health care more affordable and its costs more
predictable, so employers can add n e w workers without also adding a large and
uncertain burden of health care costs. W e need to create an environment where
health care spending is focused on providing high quality, high value care.
Second, we are working to prevent frivolous lawsuits from diverting money from job
creation into legal battles. W e also intend to ensure that when necessary lawsuits
proceed, the settlements are paid to the victims, not the trial lawyers.
Third, we are working to build a more affordable, reliable energy system that can
support the expansion of our economy. I'm going to dig into this one in a minute.
Fourth, we are streamlining regulations and needless paperwork requirements that
reduce business productivity and deter growth.
Fifth, we are opening new markets to high value American products and bringing
down prices for American consumers through trade agreements.
And sixth, we are working to make tax relief permanent, so businesses and families
alike can plan for the future with confidence.
Now, let me dig into point three back there, on energy, because I know you're
interested in that. Obviously, energy is a key sector in our economy. All the more
important because our economy is getting back on track, and that's going to m e a n
more demand for energy than ever before. Everything else w e do relies on energy nobody works when the lights are out and the car won't start.
The President's energy bill has been bouncing around in Congress for two years,
and in the meantime we've seen all kinds of signs that w e need to get that thing
passed. W e had the blackouts all through the Northeast this summer. We've had
fluctuating gas and oil prices, trading on political situations in the Middle East. The
energy bill is in conference now, final negotiations between the House and Senate,
and we're urging them to get it to the President, with his proposals intact.
As the President succinctly put it a few weeks ago, "we need to encourage
production, and w e need to encourage conservation. W e need to use energy
resources we've got in an environmentally friendly way. And w e need to advance
new kinds of energy."
Here's an overview of the President's energy vision.
To keep our economy moving far into the future, we must have a sound national
energy policy. Every person w h o owns a home, or works on an assembly line, or
drives a truck, or runs a small business depends on affordable, reliable supplies of
energy. Our economic security and our national security require secure sources of
energy. Congress must pass a sound energy plan - and that plan must have a few
key elements:
First, America needs more energy production close to home in our own country, in
our o w n hemisphere so that w e are less dependent on energy from unstable parts
of the world. Our nation and our hemisphere are rich in clean-burning natural gas

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5/19/2005

JS-991: Secretary John W . S n o w Remarks Center for Energy and Economic Development... Page 3 ot 3
but developing this resource has been hampered by restrictions on exploration. The
Congress should allow responsible exploration, bring more gas to market, and
lower costs for everyone. The Congress should promote research into nextgeneration nuclear plants and encourage investment in existing nuclear plants - to
expand a clean and unlimited source of energy. And the Congress should
encourage clean coal technology, so w e can use our nation's most plentiful energy
resource in an environmentally responsible way.
Let me touch on coal for a moment. Coal is our most abundant domestic energy
resource and that w e must ensure it has a strong future in our energy policy. This is
why the Administration supports $2 billion over 10 years for clean coal technology
to ensure a future for coal; n e w source review rulemakings which provided
regulatory certainty that coal plants could engage in routine maintenance without
triggering the application of unnecessary new source emissions controls; Clear
Skies legislation that would reduce emissions of Nox, S 0 2 and Mercury while
providing regulatory certainty; and a commitment to support a $1 billion publicprivate partnership to design, build and operate a virtually emissions-free, coalfired, electricity and hydrogen plant.
Second, America has an immediate need for better infrastructure pipelines, gas
terminals, and power lines - so that the flow of energy is reliable. The current grid is
old and inefficient - but Federal laws actually discourage n e w investment in
infrastructure, by keeping many investors from entering the electric or natural gas
business. The Congress needs to encourage n e w investment in a modern electric
grid by ending those rules, which are nearly seven decades old. W e need
mandatory - not voluntary - reliability standards for our power companies. Right
now,
the placement of new power lines often gets bogged down because local authorities
can block transmission wires which would go through their states. The Congress
should give Federal energy officials the authority to site n e w power lines when
necessary - so w e can create a reliable, national transmission grid.
Third, America must develop and deploy the latest technology to provide a new
generation of cleaner and more efficient energy sources. A lot of companies are
doing this ground-breaking research - and w e need more of it. The Congress
should expand tax credits for renewable energy sources like wind and solar power.
The Congress should fund new research into hydrogen fuel technology - engines
that run on hydrogen, and produce water, not exhaust fumes. W e should encourage
fuels m a d e from renewable sources, such as corn. W e would much rather replace
oil from the Middle East with farm products that c o m e from the heartland of
America. In all these ways, w e can grow our economy and clean our environment at
the s a m e time.
Both the House and Senate have passed energy bills that include these proposals.
N o w they need to iron out their differences and send the President a bill. Our
economy and our country have waited long enough. The President sent the
Congress a comprehensive energy plan more than two years ago. And two years
later, our energy challenges are only more difficult. The Congress should not wait
for further blackouts and price spikes before they act. For the sake of our economic
security, for the sake of American jobs and workers, the Congress should finalize a
comprehensive energy bill and take action this year to m a k e America less
dependent on foreign sources of energy.
Thanks again for inviting me to Scottsdale. It's been a pleasure to see all of you. It's
an exciting time for the U.S. economy, and it's m y privilege to share the President's
vision with you.
-30-

http://www.treas.gov/press/releases/js991 .htm

5/19/2005

JS-993: U.S. Designates 15 M e m b e r s of Italian Al-Qaida Cell

Page 1 of 1

PRESS ROOM

F R O M T H E OFFICE O F PUBLIC A F F A I R S
November 12, 2003
JS-993
U.S. Designates 15 Members of Italian Al-Qaida Cell
Designation C o m e s in Response to the Submission by Italy
of These Individuals to the U N
WASHINGTON - Today the U.S. Treasury Department announced the November
10th designation of fifteen individuals as terrorists. This action comes in support of
the submission by Italy of these individuals to be listed as terrorists by the United
Nations.
The individuals are designated for their involvement in Al Qaida terrorist cells in
Milan, Cremona, and Parma. According to documents provided by the Italian
government, the fifteen individuals have helped illegal immigration to Italy, and have
provided financial and material support for terrorist activities in Italy and elsewhere
in Europe. S o m e of the fifteen have also recruited volunteers for military camps in
Iraq, organized by the Ansar al Islam group. The Italian government has frozen the
assets of these individuals within Italy. Most of the fifteen are already in the
custody of Italian authorities.
The action follows from obligations to freeze the assets of individuals and
organizations pursuant to U N Security Council Resolutions and is consistent with
the Financial Action Task Force's Special Recommendation III on Terrorist
Financing. These names are being submitted by Italy for listing by the UN, which
will mean that all Member States are required to freeze the assets of those listed
and to bar cross-border travel. Although the U N listing is still pending, the U.S. has
determined that these individuals meet the standards for designation.
With the action, the U.S. and our international partners have designated 342
individuals and organizations as terrorists and terrorist supporters and have frozen
over $136.8 million and seized more than $60 million in terrorist-related assets.
Related Documents:
• A fact sheet providing further details, including the names of the 15
individuals

http.7/www.treas.gov/press/releases/js993.htm

5/19/2005

Page 1 of2

U.S. Treasury
Office of Public Affairs

FACT SHEET
Designation

of 15 Individuals

Tied to an Al Qaida

Cell in Italy

Since 1999, Italian law enforcement agencies, have conducted several terrorist related
investigations in order to expose terrorist cells linked with Al Qaida and operating in Italy. The
Tribunale Ordinario di Milano has found all fifteen individuals listed below to be involved in Al Qaedarelated criminal activities and members of terrorist cells located in Milan, Cremona, and Parma.
According to information provided by the Italian government, the fifteen individuals have helped illegal
immigration to Italy and provided financial and material means for terrorist activities in Italy and
Europe. S o m e of the fifteen have also recruited volunteers for military camps in Iraq, organized by the
Ansar Al Islam group.
The Italian government has frozen the assets of these individuals within Italy. Most of the
fifteen are already in the custody of Italian authorities. All are charged with participating in crimes such
as the following:
• Fabricating, receiving, providing, and hiding forged documents to be used by individuals in
order to reach military camps in Iraq and to m o v e throughout Europe in order to maintain
contacts with other transnational cells and to assist illegal immigrants in entering Italy and
the European Union;
Recruiting individuals for training in military camps, mainly in Iraq;
Collecting money for terrorist-related activities;
Organizing actions to carry out the terrorist cell's plans;
Planning to commit international terrorist activities in Italy and Europe;
Providing terrorists living in European and Middle-East countries with forged documents;
Maintaining contacts throughout Europe, the Middle-East, and Western Asia - in Pakistan,
Iran, Y e m e n , Iraq, Malaysia, Afghanistan;
Sharing religious and extremist ideals; and
Providing cell members with weapons and explosives.

As participants of the cells in Italy, each of the 15 individuals has acted for or on behalf of A
Qaeda. In particular, some have acted for or on behalf of A h m e d Fadhil Nazar A L - K H A L A Y L E H
(a.k.a. A b u Mussab A L - Z A R Q A W I ) , a terrorist leader with close operational ties to Al Qaeda, w h o was
designated by the United States government on September 23, 2003, and has also been designated by the
U N 1267 Sanctions Committee. S o m e of the following individuals has assisted or provided financial,
material or other support or services to or in support of Zarqawi's terrorist activities.
The Milan-based terrorist cell, organized and headed by El Ayashi, functioned as an associative
structure within the transnational terrorist organization led by Zarqawi. The cell was involved in forging
passports, collecting donations, and facilitating the illegal entry and departure of recruits into and out of
Italy to combat coalition forces in Iraq. In addition, this cell recruited "brothers" to send to Iraq via
Syria to the camps of Ansar Al Islam (a terrorist organization operating in Northern Iraq, linked to Al
Qaeda, and designated by the United States Government and the U N ) . The Milan cell also had key
individuals located in Parma and Cremona.
The cell included high-ranking Al Qaida operatives in direct contact with the organization's
http://www.treas.gov/press/releases/reports/italianalqaidacellfactsheet.htm 5/19/2005

Page 2 of2
leadership in Syria and Iraq. It supported itself with criminal activities with ramifications throughout
Italy and across Europe. Their key activity was to issue forged identification, transit, and residency
documents in order to aid individuals in other European countries, and even East Asia, to reach Western
countries freely and securely. The cell was organized according to specific roles, with the firm intention
to eventually strike imminently with acts of terrorism in different countries.
Some of the 15 individuals have acted for or on behalf of the following SDGT's, terrorist leaders
designated for their close operational ties to Al Qaeda: Ramzi M o h a m m e d Abdullah B I N A L S H I B H , a
terrorist leader responsible for planning the September 11 attacks and with close operational ties to Al
Qaeda, w h o was designated on September 30, 2002; Sami Ben Khemais ESSID, designated on April 19,
2002; Es Sayed Abdelkader M A H M O U D , was designated on April 19, 2002; Tarek M A A R O U F I ,
designated on August 29, 2002; Mokhtar B O U C H O U C H A , designated on April 19, 2002; Abdel
R A H M A N , designated on October 12, 2001; Abdelkader M a h m o u d E S S A Y E D , designated on April
19, 2002; Adel Ben S O L T A N E , designated on August 29, 2002.
Individuals
1.

| EL AYASHI, Radi Abd El Sarnie Abou El Yazid (POB: Egypt)

2.

1 CABDULLAAH, Ciise Maxamed (POB: Somalia)

3.

| HAMMID, Mohammed Tahir (POB: Iraq)

4.

[ MOSTAFA, Mohamed Amin (POB: Iraq/Kurdish)

5.

1 M O H A M E D , Daki (POB: Morocco)

6.

| AL SAADI, Faraj Farj Hassan (POB: Libya)

7.

SAADI, Nassim (POB: Tunisia)

8.

BEN ABDELHAKIM, Cherif Said (POB: Tunisia)

9.

RIHANI, Lotfi (POB: Tunisia) - Wanted by the Italian authorities

10.

BOUYAHIA, Hamadi (POB: Morocco)

11.

ROUINE, Lazher Ben Khalifa Ben Ahmed (POB: Tunisia)

12.

ZARKAOUI, Imed Ben Mekki (POB: Tunisia)

13.

TRABELSI, Mourad (POB: Tunisia)

14.
15.

| HAMRAOUI, Kamel Ben Mouldi (POB: Tunisia)
| DRISSI, Noureddine (POB: Tunisia)

-30-

http://www.treas.gov/press/releases/reports/italianalqaidacellfactsheet.htm

5/19/2005

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE CONTACT: Office of Financing
November 12, 2003

202-691-3550

RESULTS OF TREASURY'S AUCTION OF 4-WEEK BILLS
Term: 28-Day Bill
Issue Date:
Maturity Date:
CUSIP Number:

November 13, 2003
December 11, 2003
912795PA3

High Rate: 0.890% Investment Rate l/: 0.903% Price: 99.931
All noncompetitive and successful competitive bidders were awarded
securities at the high rate. Tenders at the high discount rate were
allotted 51.17%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted

Tendered

Tender Type
Competitive
Noncompetitive
FIMA (noncompetitive)

$

SUBTOTAL
Federal Reserve
TOTAL

$

39,981, 891
40, 460
0

$

13,959. 651
40, 460
0

40,022, 351

14,000, 111

2,555,,600

2,555, 600

42,577,,951

$

16,555, 711

Median rate
0.880%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate. Low rate
0.850%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio = 40,022,351 / 14,000,111 = 2.86
1/ Equivalent coupon-issue yield.

77/
http://www.publicdebt.treas.gov

\^Zz

JS=994: Secretary John W . Snow's Remarks to Albuquerque Chamber of C o m m e r c e

Page 1 of 2

PRLSS ROOM

F R O M T H E OFFICE O F PUBLIC AFFAIRS
November 12,2003
JS-994
Remarks By Treasury Secretary John S n o w
To The Albuquerque Chamber Of C o m m e r c e
Albuquerque, N e w Mexico
November 12, 2003
Last week we heard some good news about the effects of tax relief on the
American economy. The Department of Labor reported that our economy added
126,000 new jobs in October. And over the past three months, there were 286,000
new jobs. The unemployment rate fell to 6 percent. The four-week average for
jobless claims has declined in six of the past seven weeks. And manufacturers
reported that orders and shipments are both rising.
This news comes one week after we heard that economic output rose at a 7.2
percent annual rate in the third quarter, the fastest pace of growth in nearly 20
years. ISM's manufacturing index advanced to 57.0 in October, its highest level
since January 2000. The non-manufacturing index rose to 64.7, the second highest
level on record. Factory shipments were up 1.4 percent in September and new
orders by 0.5 percent. Construction expenditures rose 1.3 percent in September for
a fourth increase in a row.
America's economy is getting stronger every day. American companies are
investing. Americans are buying homes at a record pace, and homeownership is
near record levels. Stock market values have risen, adding about $2 trillion in
wealth for investors since the beginning of the year.
New Mexico's economy is changing, becoming much more diversified, with more
high-tech production and tourism. Although N e w Mexico's unemployment rate is 6.1
percent, the same as the national average (as of September), the jobless rate did
not increase as much in N e w Mexico as it did nationally. In fact, employment has
increased in the past few years and the unemployment rate is lower than it was in
some of the national boom years of the late 1990s. According to the N e w Mexico
Department of Labor, construction is now the state's fastest growing industry,
having not long ago been one of the state's weakest. As of September 2003,
employment in the construction industry was up 6.6 percent from a year ago.
We can all be encouraged, but we cannot be satisfied. These are early signs of
progress. N o w w e must turn this progress into broad and lasting gains for all
Americans.
The most important thing we can do to help those looking for work is to make sure
our current economic growth results in more new jobs. President Bush has
proposed a six-point economic plan to encourage companies to expand and hire
workers. W e must bring health care costs under control, reform our civil courts to
end the junk lawsuits hurting small businesses, cut needless regulations so that
small business owners can focus on pleasing their customers, instead of pleasing
bureaucrats. W e must pass a national energy policy to ensure an affordable and
reliable supply of energy to our economy, promote free trade agreements that bring
good jobs to America, and make tax relief permanent, so the gains w e have seen
do not disappear when tax relief is scheduled to go away.
To turn this six point plan for job creation into reality, we need to work with
Congress. Let m e close by saying it's an honor to work closely with
Congresswoman Heather Wilson. Heather is an important ally to me, as well as the
President, as w e work to implement his agenda to strengthen the economy and
create jobs.

http://www.treas.gov/press/releases/js994.htm

5/19/2005

JS--994: Secretary John W . Snow's Remarks to Albuquerque Chamber of C o m m e r c e

Page 2 of 2

5

? ^ The tax relief of the past two years was based on a principle that when Americans
keep more of their own earnings, they spend more and invest more and move the
economy forward. We're now seeing that happen. Our economy is on a rising road,
and now w e must take the remaining steps to ensure that our economy becomes a
lasting expansion, and our prosperity extends to every corner of America.
-30-

http://www.treas.gov/press/releases/js994.htm

5/19/2005

O I T H I O K IM BI.K

U J AIRS • 1500 fl N N N Y I A A M \ A V K M

EMBARGOED UNTIL 11:00 A.M.
November 10, 2003

I!, \.\V. • W A M I I \t; T O N . D.C. .• 2O220 •«202( <.222<>MI

Contact:

Office of Financing
202/691-3550

TREASURY OFFERS 4-WEEK BILLS
The Treasury will auction 4-week Treasury bills totaling $14,000 million to
refund an estimated $15,001 million of publicly held 4-week Treasury bills maturing
November 13, 2003, and to pay down approximately $1,001 million.
Tenders for 4-week Treasury bills to be held on the book-entry records of
TreasuryDirect will not be accepted.
The Federal Reserve System holds $13,664 million of the Treasury bills maturing
on November 13, 2003, in the System Open Market Account (SOMA). This amount may be
refunded at the highest discount rate of accepted competitive tenders in this auction
up to the balance of the amount not awarded in today's 13-week and 26-week Treasury
bill auctions. Amounts awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New York
will be included within the offering amount of the auction. These noncompetitive bids
will have a limit of $100 million per account and will be accepted in the order of
smallest to largest, up to the aggregate award limit of $1,000 million.
Note: The closing times for receipt of noncompetitive and competitive tenders
will be at 11:00 a.m. and 11:30 a.m. eastern standard time, respectively.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
This offering of Treasury securities is governed by the terms and conditions
set forth in the Uniform Offering Circular for the Sale and Issue of Marketable BookEntry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended).
Details about the new security are given in the attached offering highlights.

oOo
Attachment

^

99^

HIGHLIGHTS OF TREASURY OFFERING
OF 4-WEEK BILLS TO BE ISSUED NOVEMBER 13, 2003
November 10, 2003
Offering Amount $14,000
million
Maximum Award (35% of Offering Amount) . . . $ 4,900
million
Maximum Recognized Bid at a Single Rate.. $ 4,900 million
NLP Reporting Threshold
$ 4,900 million
NLP Exclusion Amount
$11,500 million
Description of Offering:
Term and type of security
28-day bill
CUSIP number
912795 PA 3
Auction date
November 12 , 2003
Issue date
November 13, 2003
Maturity date
December 11, 2003
Original issue date
June 12 , 2003
Currently outstanding
$44,800 million
Minimum bid amount and multiples....$1,000
Submission of Bids:
Noncompetitive bids: Accepted in full up to $1 million at the highest
discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids: Noncompetitive bids submitted through the Federal Reserve Banks as agents for
FIMA accounts. Accepted in order of size from smallest to largest
with no more than $100 million awarded per account. The total noncompetitive amount awarded to Federal Reserve Banks as agents for
FIMA accounts will not exceed $1,000 million. A single bid that
would cause the limit to be exceeded will be partially accepted in
the amount that brings the aggregate award total to the $1,000
million limit. However, if there are two or more bids of equal
amounts that would cause the limit to be exceeded, each will be
prorated to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a discount rate with three decimals in
increments of .005%, e.g., 4.215%.
(2) Net long position (NLP) for each bidder must be reported when
the sum of the total bid amount, at all discount rates, and the
net long position equals or exceeds the NLP reporting threshold
stated above.
(3) Net long position must be determined as of one half-hour prior
to the closing time for receipt of competitive tenders.
Receipt of Tenders:
Noncompetitive tenders:
Prior to 11:00 a.m. eastern standard time on auction day
Competitive tenders:
Prior to 11:30 a.m. eastern standard time on auction day
Payment Terms: By charge to a funds account at a Federal Reserve Bank
on issue date.

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE CONTACT: Office of Financing
November 12, 2003

202-691-3550

RESULTS OF TREASURY'S AUCTION OF 5-YEAR NOTES
Interest Rate: 3 3/8% Issue Date: November 17, 2003
Series:
K-2008
Dated Date:
CUSIP No:
912828BQ2
Maturity Date:

November 15, 2003
November 15, 2008

High Yield: 3.430% Price: 99-749
All noncompetitive and successful competitive bidders were awarded
securities at the high yield. Tenders at the high yield were
allotted 65.74%. All tenders at lower yields were accepted in full.
Accrued interest of $ 0.18544 per $1,000 must be paid for the period
from November 15, 2003 to November 17, 2003.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tender Type
Competitive
Noncompetitive
FIMA (noncompetitive)

Tendered
$

SUBTOTAL

$

36,368,673

Federal Reserve
TOTAL

36,184,290
184,383
0

Accepted

16,000,033 1/

2,178,499
$

38,547,172

15,815,650
184,383
0

2,178,499
$

18,178,532

Median yield
3.400%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate. Low yield
3.3 00%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio = 36,368,673 / 16,000,033 = 2.27
1/ Awards to TREASURY DIRECT = $110,487,000

3X rin
http://www.publicdebt.treas.gov

3ESS R O O M

F R O M THE OFFICE OF PUBLIC AFFAIRS
November 12, 2003
2003-11 -12-15-22-22-20942
U.S. International Reserve Position

The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, U.S. reserve assets
totaled $83,554 million as of the end of that week, compared to $83,947 million as of the end of the prior week.

I. Official U.S. Reserve Assets (in US millions)
October 31, 2003

November 7, 2003

83,947

83,554

TOTAL
1. Foreign Currency Reserves

Euro

Yen

TOTAL

Euro

Yen

TOTAL

a. Securities

7,729

14,287

22,016

7,676

14,392

22,039
0

0

Of which, issuer headquartered in the U.S.
b. Total deposits with:
b.i. Other central banks and BIS

12,642

2,870

15,512

12,534

2,891

15,425

b.ii. Banks headquartered in the U.S.

0

0

b.ii. Of which, banks located abroad

0

0

b.iii. Banks headquartered outside the U.S.

0

0

b.iii. Of which, banks located in the U.S.

0

0

2. IMF Reserve Position 2

23,397

23,179

3. Special Drawing Rights (SDRs)

11,979

11,867

4. Gold Stock 3

11,043

11,043

0

0

5. Other Reserve Assets

II. Predetermined Short-Term Drains on Foreign Currency Assets
October 31, 2003
Euro
1. Foreign currency loans and securities

Yen

November 7, 2003

TOTAL

Euro

0

2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the U.S. dollar:

Yen

TOTAL
0

2. a. Short positions
2.b. Long positions
3. Other

III. Contingent Short-Term Net Drains on Foreign Currency Assets
October 31, 2003
Euro

Yen

November 7, 2003

TOTAL

0

1. Contingent liabilities in foreign currency

Euro

Yen

TOTAL

0

La. Collateral guarantees on debt due within 1
year
l.b. Other contingent liabilities
2. Foreign currency securities with embedded
options
3. Undrawn, unconditional credit lines
3.a. With other central banks
3.b. With banks and other financial institutions
Headquartered in the U.S.
3.c. With banks and otherfinancialinstitutions
Headquartered outside the U.S.
4. Aggregate short and long positions of
options in foreign
Currencies vis-a-vis the U.S. dollar
4. a. Short positions
4.a.l. Bought puts
4.a.2. Written calls
4.b. Long positions
4.b.l. Bought calls
4.b.2. Written puts

Notes:
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
S O M A ) , valued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and
Jeposits reflect carrying values. Foreign Currency Reserves for the latest week m a y be subject to revision. Foreign Currency

Reserves for the prior week are final.
2/ The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF and are
valued in dollar terms at the official SDR/dollar exchange rate for the reporting date. The entries for the latest week reflect any
necessary adjustments, including revaluation, by the U.S. Treasury to the prior week's IMF data. IMF data for the latest week m a y be
subject to revision. IMF data for the prior week are final.
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.

JS-998: Treasury Department N a m e s William Fox as Director of The Financial Crimes E... Page 1 of 1

PRLSS ROOM

F R O M T H E OFFICE O F PUBLIC AFFAIRS
November 12,2003
JS-998
Treasury Department Names William Fox as Director
of The Financial Crimes Enforcement Network
Secretary of the Treasury John W. Snow today announced the appointment of
William J. Fox to be Director of the Financial Crimes Enforcement Network. Mr.
Fox is currently the Acting Deputy General Counsel and Associate Deputy General
Counsel where he has served as the principal assistant to the General Counsel on
terrorist financing and money laundering issues.
"Mr. Fox's demonstrated skill as an attorney and manager, his extensive experience
in financial enforcement issues, and his great working relationship with the law
enforcement, intelligence and financial regulatory communities will be a tremendous
asset as the Treasury Department cracks down on financial crimes across the
country and around the world," said Secretary Snow.
Mr. Fox has served in the Office of the General Counsel at the Department of the
Treasury since December 2000, in several positions including Deputy Assistant
General Counsel for Enforcement and Senior Advisor to the General Counsel.
From 1988 to 2000, Fox served at the Bureau of Alcohol, Tobacco and Firearms,
first as an Attorney in the Bureau's Chicago Office, then as Senior Counsel for
Alcohol and Tobacco and finally as Deputy Chief Counsel. Mr. Fox received both
his Bachelor's degree and Law degree from Creighton University in Omaha,
Nebraska.
Mr. Fox's appointment will be effective December 1, 2003, upon the departure of
current Director James F. Sloan.

http://www.treas.pv/press/releases/js998.htm

5/19/2005

F R O M T H E OFFICE O F PUBLIC AFFAIRS
November 13, 2003
JS-999
U.S Treasury Secretary John W. Snow
Keynote Address to the Tax Foundation
November 13, 2003
Washington, D C
Good afternoon. It's a pleasure to join the Tax Foundation today. Your tireless
efforts to educate the public about America's tax burden have made a big difference
here in Washington, and throughout the fifty states. Our tax policies are better for
it, and our economy is stronger.
Let's talk about the state of the economy. Thanks in part to the President's tax
policies, it's doing a lot better lately. W h e n you consider what this country has gone
through in the past three years, the body blows of a recession, terrorist attacks, a
bursting bubble, and a rash of corporate scandals, it's quite amazing that the
economy is growing at its current pace. That's a real testament to the strength of
President Bush's economic leadership, to the flexibility of the American economic
system, and the perseverance and industry of the American people.
Let me point out a couple specific indications of growth: last week the Department
of Labor reported that our economy added 126,000 new jobs in October. And over
the past three months, there were 286,000 new jobs. The unemployment rate fell to
6 percent. The four-week average for jobless claims has declined in six of the past
seven weeks. And manufacturers reported that orders and shipments are both
rising. This news comes one week after w e heard that economic output rose at a
7.2 percent annual rate in the third quarter, the fastest pace of growth in nearly 20
years. ISM's manufacturing index advanced to 57.0 in October, its highest level
since January 2000. The non-manufacturing index rose to 64.7, the second highest
level on record. Factory shipments were up 1.4 percent in September and new
orders by 0.5 percent. Construction expenditures rose 1.3 percent in September for
a fourth increase in a row.
America's economy is getting stronger every day. American companies are
investing. Americans are buying homes at a record pace, and homeownership is
near record levels. Stock market values have risen, adding about $2 trillion in
wealth for investors since the beginning of the year.
We can all be encouraged, but we cannot be satisfied. These are early signs of
progress. N o w w e must turn this progress into broad and lasting gains for all
Americans. The most important thing w e can do to help those looking for work is to
make sure our current economic growth results in more new jobs.
President Bush has proposed a six-point economic plan to encourage companies to
expand and hire workers. I will get to that plan in a moment. First, however, I think
it's important to point out that this economic growth w e are beginning to see didn't
just happen by accident.
The President's Jobs and Growth Act passed in May, and it clearly provided the
boost the economy needed to get back on track. In July, withholding tables were
revised to show reduced marginal tax rates on income, and child tax credit checks
went out in the mail. That lifted consumer spending.
The President's plan also increased bonus depreciation and quadrupled the
expensing limit for small businesses, encouraging business investment. Dividend
tax relief had a positive effect on the markets. In fact, equity prices have climbed
about 30 percent since mid-March, improving financing conditions for businesses,

http://www.treas.^ov/press/releases/js999.htm

5/19/2005

JS-999: U.S Trea^u^Secretary John W . S n o w Keynote Address to the Tax Foundation
and adding to household net worth.
Now, consider the situation we might have without the President's tax plans. The
Treasury Department ran an analysis on that scenario, and the results were stark.
Without the passage of the President's plans, by the second quarter in 2003, the
unemployment rate would have been nearly 1 percentage point higher. A s m a n y as
1.5 million fewer Americans would be working, and real G D P would have been as
much as 2 percent lower.
What's more, without the President's tax cuts, it is likely that by the end of 2004 the
unemployment rate would be as much as 1.6 percentage points higher than it will
be. 3 million fewer Americans would be working, and real G D P would be as much
as 3.5 to 4 percent lower.
Still, the labor markets aren't picking up as fast as we'd like to see. I can tell you
that President Bush is not going to be satisfied with this recovery until every
American w h o wants a job has got one. We're not sitting back watching the
numbers roll in - we're out there making this economy better - making conditions
better for growth, investment, and job creation.
President Bush has unveiled a six-point plan to further strengthen this economy,
and set us on a long-term path toward growth. Several of the planks are taxrelated.
First, we are working to make health care more affordable and its costs more
predictable, so employers can add new workers without also adding a large and
uncertain burden of health care costs. W e need to create an environment where
health care spending is focused on providing high quality, high value care.
Second, we are working to prevent frivolous lawsuits from diverting money from job
creation into legal battles. W e also intend to ensure that when necessary lawsuits
proceed, the settlements are paid to the victims, not the trial lawyers.
Third, we are working to build a more affordable, reliable energy system that can
support the expansion of our economy. I'm going to dig into this one in a minute.
Fourth, we are streamlining regulations and needless paperwork requirements that
reduce business productivity and deter growth.
Fifth, we are opening new markets to high value American products and bringing
down prices for American consumers through trade agreements.
And sixth, we are working to make tax relief permanent, so businesses and families
alike can plan for the future with confidence.
I would say that the fourth and sixth points are tax related. That is, streamlining
regulatory burdens and making the tax cuts permanent.
The complexities of tax law compliance are among the toughest regulatory burdens
in our economy. I can't think of any other kind of paperwork that puts a greater
crimp in job creation than the many thousand page brick of the tax code and the
productive resources that are wasted on complying with its rules. In other words,
excessive taxes reduce investment in our economy, but so do the excessive
burdens of complying with those tax laws.
Over the years, we have enacted both minor changes and major overhauls of our
tax laws. W e have grafted on more and more components to the point that the cost
of complying with the tax laws - just on the individual side - is at least $70 billion.
That doesn't count the cost of businesses' complying or the cost of the IRS'
administering it.
Some of the changes reflect an increasingly complicated world. But many do not.
Whatever the case, w e have paid insufficient attention to the costs w e impose on
society - the business world, in particular - in complying with the tax laws.
In the tax world, we have done the opposite of what the business world has done to

http://www.treas.gov/press/releases/js999.htm 5/19/2005

Page 2 ot 3

JS-999: U.S Treasury Secretary John W . S n o w Keynote Address to the Tax Foundation

Page 3 of 3

increase productivity. While the business world has simplified to increase
productivity, in the tax world, we've complicated things. While the business world
has taken every process down to its constituent parts and cut out the inefficiencies,
the points of friction that prevent the most streamlined operation and the
standardization of transactions, w e keep adding complexity in the tax world. T h e
result is an ever-increasing regulatory burden. More paperwork. Less output.
One area where we intend to take action to lighten regulatory burdens is on
simplified retirement savings rules. Retirement account regulations are a m o n g the
most complex in our tax code. A s Assistant Secretary for Tax Policy P a m Olson
has pointed out, in 1982, the IRS publication explaining individual retirement
accounts w a s 12 pages long. N o w it is 104 pages long. Today, there are six
different savings accounts with confusing and seemingly endless rules. The direct
result is that the tax code makes it more difficult for Americans to save for
retirement, or save for other key life events, such as education, health care, and
unexpected emergencies.
Last February, as part of the President's budget, he proposed two simple accounts
- retirement savings accounts and lifetime savings accounts - that will m a k e saving
for everyday life and retirement security easier and more attractive. This
simplification will encourage Americans to save more for their future, and thereby
invest more in our economy.
Another key area where the six point plan hits tax policy is point six: making tax
relief permanent. Nothing will kill our prosperity faster than a repeal of the
President's tax relief, which is scheduled to happen at the end of this decade if w e
don't take action now.
Consider this: if the 2001 and 2003 tax relief acts were to expire now, it would raise
taxes by an average of $1,544 for 109 million taxpayers in 2003.
One of the key elements of making tax relief permanent is making permanent the
repeal of the death tax. The death tax falls on income that has already been taxed,
sometimes twice before. It forces the destruction of thousands of small family
businesses, and it discourages work, savings and asset-accumulation. It diverts
resources into tax avoidance and enforcement that could be spent in economically
productive activities. And in the end, studies show, it m a y all be a wash. It costs
the government as much as it collects.
We're looking forward to working with the Tax Foundation to continue to get smart
tax policies enacted. Thanks again for keeping American taxpayers educated
about the tax laws and their government. W e appreciate your support.

7/www.treas.gov/press/releases/js999.htm

5/19/2005

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, D C 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE CONTACT: Office of Financing
November 13, 2003

202-691-3550

RESULTS OF TREASURY'S AUCTION OF 10-YEAR NOTES
Interest Rate: 4 1/4% Issue Date: November 17, 2003
Series:
E-2013
Dated Date:
CUSIP No:
912 82 8BR0
Maturity Date:

November 15, 2003
November 15, 2 013

High Yield: 4.360% Price: 99.116
All noncompetitive and successful competitive bidders were awarded
securities at the high yield. Tenders at the high yield were
allotted 70.60%. All tenders at lower yields were accepted in full.
Accrued interest of $ 0.23352 per $1,000 must be paid for the period
from November 15, 2003 to November 17, 2003.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tender Type Tendered Accepted
Competitive
Noncompetitive
FIMA (noncompetitive)

$

SUBTOTAL

32,,172,,507
155,,610
0
32,,328,,117

Federal Reserve
TOTAL

$

17,000i,027 1/

1,.633, 874
$

33, 961, 991

16,844,,417
155,,610
0

1,633,,874
$

18,633, 901

Median yield
4.33 0%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate. Low yield
4.3 00%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio = 32,328,117 / 17,000,027 = 1.90
1/ Awards to TREASURY DIRECT = $91,007,000

http://www.publicdebt.treas.gov

1)1 I "II I- 1)1' PI HI. I ( \ l K \ l k S • 1500 I'* V ^ Y I . Y W I i.\M"M.I.\.H.i XV \S II l> (. I OS . D.t .» 2022H •illll 622-201.11

EMBARGOED UNTIL 11:00 A.M.
November 13, 2003

CONTACT:

Office of Financing
202/691-3550

TREASURY OFFERS 13-WEEK AND 26-WEEK BILLS
The Treasury will auction 13-week and 26-week Treasury bills totaling $32,000
million to refund an estimated $31,828 million of publicly held 13-week and 26-week
Treasury bills maturing November 20, 2003, and to raise new cash of approximately $172
million. Also maturing is an estimated $17,000 million of publicly held 4-week
Treasury bills, the disposition of which will be announced November 17, 2003.
The Federal Reserve System holds $14,581 million of the Treasury bills maturing
on November 20, 2003, in the System Open Market Account (SOMA). This amount may be
refunded at the highest discount rate of accepted competitive tenders either in these
auctions or the 4-week Treasury bill auction to be held November 18, 2003. Amounts
awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New
York will be included within the offering amount of each auction. These
noncompetitive bids will have a limit of $100 million per account and will be accepted
in the order of smallest to largest, up to the aggregate award limit of $1,000
million.
TreasuryDirect customers have requested that we reinvest their maturing holdings
of approximately $990 million into the 13-week bill and $757 million into the 26-week
bill.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
This offering of Treasury securities is governed by the terms and conditions set
forth in the Uniform Offering Circular for the Sale and Issue of Marketable Book-Entry
Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended).
Details about each of the new securities are given in the attached offering
highlights.
oOo

Attachment

j-s

M

HIGHLIGHTS OF TREASURY OFFERINGS OF BILLS
TO BE ISSUED NOVEMBER 20, 2 0 03
November 13, 2003
Offering Amount $16,000 million $16,000 million
Maximum Award (35% of Offering Amount)
$
Maximum Recognized Bid at a Single Rate
$
NLP Reporting Threshold
$
NLP Exclusion Amount
$

5,600
5,600
5,600
5,600

million
million
million
million

$ 5,600 million
$ 5,600 million
$ 5,600 million
None

Description of Offering: ,. m
Term and type of security
91-day bill
182-day bill
.
912795 PL 9
912795 PZ 8
CUSIP number
91^/ys FL, y
Auction date
November 17, 2003
November 17, 2003
issue date
November 20, 2003
November 20, 2003
Maturity date
February 19, 2004
May 20, 2004
Original issue date
August 21, 2003
November 20, 2003
Currently outstanding
$21,725 million
Minimum bid amount and multiples
$1,000
$1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
^ • t. • ~ \^* *„
Noncompetitive bids: Accepted in full up to $1 million at the highest discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids: Noncompetitive bids submitted through the Federal Reserve
Banks as agents for FIMA accounts. Accepted in order of size from smallest to largest with no more than $100
million awarded per account. The total noncompetitive amount awarded to Federal Reserve Banks as agents for FIMA
accounts will not exceed $1,000 million. A single bid that would cause the limit to be exceeded will
be partially accepted in the amount that brings the aggregate award total to the $1,000 million limit. However,
if there are two or more bids of equal amounts that would cause the limit to be exceeded, each will be prorated
to avoid exceeding the limit.
Competitive bids:

nnro

n

i nno

(1) Must be expressed as a discount rate with three decimals in increments of .005*, e.g., 7.100,5,
(2) Net long position (NLP) for each bidder must be reported when the sum of the total bid amount,
discount rates, and the net long position equals or exceeds the NLP reporting threshold stated
(3) Net long position must be determined as of one half-hour prior to the closing time for receipt

n mc?.

7.105o.
at all
above.
of

competitive tenders.
Receipt of Tenders:
_
Noncompetitive tenders
Prior to 12:00 noon eastern standard time on auction day
Competitive tenders
Prior to 1:00 p.m. eastern standard time on auction day
Payment T e n s By charge to a funds account at a Federal Reserve Bank on issue date, or payment of full par amount
with tender. 'TreasuryDirect customers can use the Pay Direct feature, which authorizes a charge to their account of
record at their financial institution on issue date.

JS-1002: Statement by Secretary S n o w on today's meeting of the President's Working Gr... Page 1 ot

•H-HBH-Hll-WiVHig
PRESS ROOM

F R O M T H E OFFICE O F PUBLIC A F F A I R S
November 14, 2003
JS-1002
Statement by Treasury Secretary John Snow
Following today's meeting of the President's Working Group on Financial
Markets
"One of the issues we discussed today were the reports about improprieties in the
mutual fund industry. Given the mutual fund industry's substantial contribution to
financial markets, it is critical that the working group be kept up-to-date on reform
efforts in this area. Chairman Donaldson briefed the other members of the working
group on the status of the Commission's ongoing review and anticipated policy
reforms of the mutual fund industry. More than 54 million Americans households
use mutual funds as an effective way to invest and save for their families and their
futures. Mutual funds are an important part of our vision for an ownership society.
If any insider in the mutual fund business engaged in improprieties to the detriment
of hard-working investors, they should be held to account. Chairman Donaldson at
the S E C is very focused on cracking down on wrongdoing . I a m confident that the
reforms he has initiated will help to protect mutual fund investors, and that
wrongdoers will be punished to the fullest extent of the law."
Background on the President's Working Group on Financial Markets
The President's Working Group on Financial Markets (the "Working Group") was
established by Executive Order 12631 in March 1988 in response to the stock
market crash in October 1987. The chairman of the Working Group is the
Secretary of the Treasury, and the other members are the chairmen of the Board of
Governors of the Federal Reserve System, the Securities and Exchange
Commission, and the Commodity Futures Trading Commission.
The Working Group issued its report on the 1987 market crash in May 1988, and
conducted follow-up work in 1991. The Working Group did not meet regularly in the
early 1990s and was relatively inactive until 1994, when it was reactivated by thenSecretary Bentsen.
Although the Working Group was created originally to address issues related to the
1987 stock market crash, it now serves as a forum through which the participating
agencies exchange information on and coordinate regulatory policy regarding U.S.
financial markets more generally. For example, the Working Group has drafted and
proposed legislation designed to improve financial contract netting, and it has
written reports and developed recommendations on circuit breakers, hedge funds,
and over-the-counter derivatives markets. It also is a forum used to exchange
information during market turmoil through ad hoc conference calls and meetings.

http://wwwjreas.gov/press/releases/jsl 002.htm

5/19/2005

federal financing bank

NEWS

FEDERAL FINANCING BANK
2003 PRESS RELEASE
November 2003

Brian Jackson, Chief Financial Officer, Federal Financing Bank (FFB)
announced the following activity for the month of November 2003.
FFB holdings of obligations issued, sold or guaranteed by other Federal
agencies totaled $32.1 billion on November 30, 2003, posting a decrease of
$427.5 million from the level on October 31, 2003. This net change was the
result of a decrease in holdings of agency debt (U.S. Postal Service) of
$612.4 million and a net increase in holdings of government-guaranteed
loans of $184.9 million. The FFB made 44 disbursements and received 7
prepayments during the month of November.
Below are tables presenting FFS November loan activity and FFB
holdings as of November 30, 2003.

FEDERAL FINANCING BANK
November 2003 ACTIVITY

<fs~ i°^3

Date

Amount ofAdvance

Final Maturity

Interest Rate

Semi-Annually
Quarterly

CY DEBT
OSTAL SERVICE
ostal Service

11/17

$226,800,000.00

11/18/03

1.051%

Semi-Annually

ostal Service

11/21

$694,000,000.00

11/24/03

1.061%

Semi-Annually

ostal Service

11/24

$941,000,000.00

11/25/03

1.051%

Semi-Annually

ostal Service

11/25

$609,000,000.00

11/26/03

1.051%

Semi-Annually

ostal Service

11/26

$506,000,000.00

11/28/03

1.061%

Semi-Annually

ostal Service

11/28

$850,000,000.00

12/1/03

1.092%

Semi-Annually

'ostal Service

11/28

$287,600,000.00

12/1/03

1.081%

Semi-Annually

iRNMENT-GUARANTEED LOANS
RAL SERVICES ADMINISTRATION
rancisco OB

11/10

$60,008.19

8/1/2005

2.007%

Semi-Annually

Atlanta University

11/25

$10,219,482.71

1/1/2011

3.039%

Semi-Annually

Atlanta University

11/25

$13,681,385.32

7/1/2004

1.094%

Semi-Annually

stone College

11/25

$131,699.28

7/1/2031

4.881%

Semi-Annually

enburg Electric #882

11/03

$3,900,000.00

4/1/2024

5.005%

Quarterly

untyEMC#814

11/03

$1,700,000.00

12/31/2036

5.043%

Quarterly

Kentucky Power #2019

11/04

$25,000,000.00

1/3/2033

5.024%

Quarterly

ide Electric #679

11/5

$39,838,000.00

12/31/2019

4.333%

Quarterly

o Electric #653

11/06

$649,000.00

1/3/2034

5.035%

Quarterly

ngton Electric #655

11/06

$550,000.00

1/2/2035

5.054%

Quarterly

arroll E.M.C. #859

11/07

$6,193,000.00

1/3/2011

3.904%

Quarterly

l Telephone Co. #719

11/07

$463,000.00

3/31/2004

1.009%

Quarterly

Drne Elec. Coop. #2007

11/10

$1,236,000.00

12/31/2031

5.086%

Quarterly

r's Rural Elec. #2046

11/10

$1,000_,.000.00

3/31/2004

1.018%

Quarterly

ois Power #792

11/10

$1,150,000.00

1/2/2035

5.141%

Quarterly

Dis Power #2020

11/10

$7,059,000.00

1/3/2033

5.107%

Quarterly

ck-Wood Elec. #842

11/12

$2,100,000.00

12/31/2036

5.180%

Quarterly

ye Power #2080

11/13

$23,470,000.00

12/31/2025

4.743%

Quarterly

/e Power #2081

11/13

$19,398,000.00

12/31/2025

4.743%

Quarterly

OF EDUCATION

L UTILITIES SERVICE

1/3/2033

4.940%

Quarterly

$5,000.00

12/31/2035

4.901%

Quarterly

11/18

$500,000.00

3/31/2004

0.988%

Quarterly

o Elec. #869

11/19

$1,285,000.00

1/3/2005

1.364%

Quarterly

iha Elec. #616

11/20

$4,763,000.00

1/3/2034

4.916%

Quarterly

ichian Elec. #748

11/20

$4,660,000.00

12/31/2031

4.871%

Quarterly

9t-Craven Elec #608

11/19

$1,296,000.00

12/31/2029

4.817%

Quarterly

rs Mutual Elec. Co. #898

11/20

$120,000.00

12/31/2036

4.969%

Quarterly

lai Elec. #752

11/21

$2,600,000.00

12/31/2031

4.806%

Quarterly

te #475

11/21

$8,682,000.00

12/31/2025

4.722%

Quarterly

ite #757

11/21

$6,015,000.00

12/31/2025

4.596%

Quarterly

ite #2052

11/21

$32,694,000.00

I/03/34

4.860%

Quarterly

unty Electric #876

11/21

$1,000,000.00

3/31/2014

4.111%

Quarterly

Dn County rural #609

11/24

$1,000,000.00

1/3/2034

4.836%

Quarterly

il Georgia Elec. #2010

11/25

$2,044,000.00

1/3/2012

3.887%

Quarterly

lentral Energy #660

11/25

$7,076,000.00

1/2/2035

4.921%

Quarterly

[entucky Power #2019

11/25

$25,000,000.00

1/3/2033

4.886%

Quarterly

sage Electric Coop. #815

11/26

$500,000.00

12/31/2036

4.921%

Quarterly

antucky Power #2019

11/14

$25,000,000.00

e Elec. #843

11/18

fadkin Elec. #852

Return To top

FEDERAL FINANCING BANK HOLDINGS
November 2003
(in millions of dollars)

Bank Holdings
Federal
Financing
October 31,
Nov. 30, 2003
2003

Program

Monthly Net Fiscal Year
Change
Net Change
11/1/0310/1/0311/30/03
11/30/03

Agency Debt:
$3,387.60

$4,000.00

($612.40) ($3,885.80)

$3,387.60

$4,000.00

($612.40) ($3,885.80)

FmHA-RDIF

$805.00

$805.00

$0.00

$0.00

FmHA-RHIF

$1,830.00

$1,830.00

$0.00

$0.00

$4,270.2

$4,270.2

$0.00

$0.00

U.S. Postal Service
Subtotal*
Agency Assets:

Rural Utilities Service-CBO

Subtotal*

$6,905.20

$6,905.20

$0.00

$0.00

$1,673.10

$1,685.80

($12.70)

($15.40)

$103.90

$79.80

$24.00

$24.60

Government-Guaranteed Lending:
DOD-Foreign Military Sales
DoEd-HBCU+

$1.30

$1.30

$0.00

($0.90)

DHUD-Public Housing Notes

$1,054.80

$1,133.20

($78.50)

($78.50)

General Services Administration+

$2,143.10

$2,147.20

($4.1)

($4.00)

$9.60

$9.60

$0.00

$0.00

$607.50

$607.50

$0.00

$0.00

$16,127.20

$15,869.20

$257.90

$509.00

$73.60

$75.40

($1.80)

($3.70)

$3.10

$3.10

$0.00

$0.00

Subtotal*

$21,797.10

$21,612.20

$184.90

$431.10

Grand total*

$32,089.90

$32,517.40

DHUD-Community Dev. Block Grant

DOI-Virgin Islands
DON-Ship Lease Financing
Rural Utilities Service
SBA-State/Local Development Cos.
DOT-Section 511

($427.50) ($3,454.70)

*figures may not total due to rounding; +does not include capitalized interest

Return To top

Return to 2003 Press Releases
Return to PRESS RELEASES
Last Updated on 1/22/04

JS-1089: Speech by Randal K. Quarles: U.S.-EU Cooperation on Financial Issues

PRESS ROOM

F R O M T H E OFFICE O F PUBLIC A F F A I R S
November 14,2003
JS-1089
U.S. - EU Cooperation on Financial Issues
Keynote Speech by Randal K. Quarles
U.S. Treasury Assistant Secretary for International Affairs
Armonk, N Y
November 14, 2003
I am very pleased to join you this evening at the opening of the second annual
symposium on Building the Financial System of the 21 st Century. M y compliments
to Hal Scott, head of the Program on International Financial Systems at Harvard
Law School, and his colleagues for putting this event together, and to Citigroup for
making this facility available.
This is my second tour of duty in Washington, the two stints punctuating about 20
years spent in the practice of law on Wall Street - and each time back inside the
Beltway I have been struck by how rapidly the Fourth Estate begins to seem of
transcendent importance. W e all read the headlines, and sometimes they are
unpleasant for policy-makers. And in the area of the US-European relationship, the
headlines of late have not been great: "Europe opposes U.S. at the UN", "US-EU
relationship strained on trade issues", "US and EU, again at loggerheads" Well, m y
message for you tonight is altogether different. In the financial sphere, the U S European relationship is strong and cooperation is excellent. To make this point, I
a m going to spend a little time tonight reviewing US-European cooperation in three
important areas: strengthening global growth, promoting a strong and integrated
transatlantic capital market, and furthering our c o m m o n efforts to fight the financing
of terrorism.
Agenda for Growth
If you were to sum up this Administration's economic policy in one word, it would be
"growth" Whether considering the industrialized countries, the emerging markets of
Latin America or Asia, or the developing countries of Africa and elsewhere,
economic growth is the principal means of addressing the quite different challenges
each of these countries faces. And w e have made this a theme of our engagement
in each area. In developing countries w e have stressed that private-sector-led
growth, not aid from the official sector, will be the strongest and most durable
means of ending poverty. In the emerging markets w e have stressed that steps to
promote stability—while important—cannot be allowed to stifle growth. And in the
industrialized world w e have stressed that each of the major economies must take
the necessary steps - different for each of us - to get back on a path of strong G D P
growth.
The US has been doing its part. Last week's US economic data was unambiguously
strong. Productivity growth remained exceptional, G D P growth far exceeded
expectations, and the employment data showed that the economy is creating jobs.
Clearly, the U.S. economy is recovering. Other parts of the world are also growing Canada, the United Kingdom, and Asia. But in continental Europe, growth remains
weak, and on the whole the world relies too much on the United States as the
engine for growth. Much of the focus over European growth is currently on
macroeconomic tools. But perhaps more significantly, there is widespread and
growing recognition among U S and European officials that the acid test for boosting
productivity lies with supply side policy changes, such as pension, labor market and
tax policy reforms, and increasingly concrete actions are being taken to back up this
recognition.
As you know, Germany is now moving forward with Agenda 2010, including labor

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JS-1089?S^chby"Randal K. Quarles: U.S.-EU Cooperation on Financial Issues

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market reform, and France—not to be outdone—is moving ahead with Agenda
2006, including ways to address the pension issue. The Berlusconi government is
also putting forward pension and tax proposals. All of these efforts are consistent
with the EU's Lisbon Agenda, which in itself moves growth forward more than might
once have been expected from the EU.
Less than two months ago, at the G-7 Ministerial in Dubai, all the G-7 Ministers and
Central Bank Governors committed to an Agenda for Growth. Under this Agenda,
the G 7 will focus on "supply side" surveillance and they will benchmark progress in
implementing structural reforms aimed at bolstering medium term growth. While w e
should not expect immediate and heroic progress, the Agenda for Growth shows
that U S and European officials are committed to working together to strengthen the
world economy and in a w a y that w e in the U S , at least, think is focused on the right
and most central topic.
US-EU Financial Markets Dialogue
Our common efforts to support global growth are a natural transition for a
discussion of the US-EU financial markets dialogue, which is a key focus of this
conference. Various studies have underscored that in a decade, an integrated and
efficient European capital market could boost European growth by over one
percentage point.
The agenda for this conference highlighted the term ''greater disharmony of
regulation". I will admit that when I read this, I thought of the phrase from the great
Persian Persian mystic Jalal ad-Din Rumi: "All of your anxiety is because of your
desire for harmony: Seek disharmony. Then you will gain peace." Yet, as
aesthetically satisfying as it might have been for m e to take that as m y theme
tonight, in the end I could not—for in m y view w e are not witnessing disharmony. To
the contrary, w e are witnessing meaningful and significant steps in Europe and the
U S toward regulatory convergence. Rather than there being a breach over financial
issues, officials on both sides are working together to accommodate or resolve
extra-territorial effects caused by law or regulation. The m o v e toward global
financial markets, and the positive implications that entails for saving, investment
and growth, is continuing, and it is being substantially facilitated by cooperative
management of the US-EU financial relationship.
Eighteen months ago, a technical team from the US -- consisting of the Treasury,
the Fed, and the S E C -- met with the European Commission to begin the informal
financial market dialogue. Since then, U S and E U officials have met almost
quarterly at either the senior working level or the policy level in Brussels and
Washington. Financial regulators from both sides have actively participated, and
rightly so since so many of the issues involved fall within their spheres of
responsibility. The U S and E U participants in the process see eye-to-eye on the
purposes and objectives of the process. Both sides understand h o w fundamentally
important this process is, and w e are in 1 0 0 % agreement on the agenda.
For our part, we have been interested in discussing with the Commission Europe's
Financial Services Action Plan (FSAP). This is a bold plan, consisting of 42
directives, regulations and other measures aimed at quickly building the legal and
policy infrastructure for an integrated European capital market.
• As noted, the US has a profound interest in seeing faster growth in Europe
and financial market liberalization and integration is one key component of
this agenda.
• W e are also interested in seeing the development of a robust transatlantic
capital market that rewards competition and innovation, and that contributes
to improving the allocation of global resources at lower cost to consumers.
• And needless to say, U S financial institutions are globally based; they have
major interests in Europe; w e have an interest in seeing them be able to
compete fairly throughout the world.
The United States strongly supports the Financial Services Action Plan. But,
unsurprisingly, buried in the details of these 42 measures are m a n y thorny issues.
The EU also cares deeply and understandably about financial market developments
in the US. Though the start of the dialogue predated the Enron and WorldCom
imbroglios, with the rapid progression of Sarbanes-Oxley Act, which sailed through

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JS-1089: Speech by Randal K. Quarles: U.S.-EU Cooperation on Financial Issues

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Congress in July 2002, Europe had all the more reason to accelerate talks with us
on corporate governance issues. I know that Commissioner C a m p o s will touch on
these issues tomorrow night. Both Europe and the United States are interested in
other financial issues as well, such as the evolution of Basle II and clearing and
settlement processes.
All of us in the US and EU who are party to the dialogue know that both sides have
different legal, historical, and cultural traditions; that w e are not identical; and that
our actions have unintended "spillover effects on each other. Recognizing this, our
overarching goal in the Dialogue is to see through these differences, and to work
together to achieve our c o m m o n objectives in substance. That is w h y w e meet
often. W e don't negotiate, though - regulatory agencies such as the S E C , Fed and
O T S are independent agencies, whose job is to protect a sound financial system at
home. But w e discuss, and w e avoid public spats. W e seek to identify issues
coming down the pike; w e discuss the implications of these issues for each other;
and on the basis of improved understandings, w e seek to iron out legitimate
problems ex ante; and when such problems arise, w e seek to work them out. W e
know that if this process is managed successfully, it is a win-win for the U S , Europe
and the world.
Let me tee up some key issues that we will undoubtedly delve into during the
conference.
The EU's top agenda item in the Dialogue has been the implementation of
Sarbanes-Oxley, especially the implications of its provisions on auditor
independence, loans to bank executives and directors, certification of financial
statements by C E O s and C F O s , and standards related to audit committees. These
issues were thoroughly discussed through the dialogue and a timelines document
agreed to between the U S and EU, as well as in S E C roundtables and other
bilateral contacts. While the letter and spirit of Sarbanes-Oxley were fully observed,
E U concerns were accommodated.
The EU is also closely following developments related to auditor registration under
the Public C o m p a n y Accounting Oversight Board - the P C A O B . Under the direction
of P C A O B Chairman McDonough, one of our country's foremost international
financial statesmen, the P C A O B has launched bilateral talks with the E U to better
understand and address ongoing E U concerns, and both sides are confident that
the many difficult issues will be resolved.
EU officials have also raised the issue of the SEC allowing foreign trading screens
in the U S that would compete with U S exchanges. This presents difficult and
complex regulatory issues. The S E C staff continues to work through these issues.
On the US side, we are keenly interested in the Financial Conglomerates Directive,
the Investment Services Directive and other directives and developments.
Regarding the F C D , I want to note that because of a conflict, I have not been
personally involved in dealing with this topic. S o in the following remarks I will be
describing Treasury's position with the caveat that it is not one that I have
personally been involved in formulating.
• The FCD requires that foreign supervisory regimes be "equivalent" for
foreign-based firms to operate in the European financial market without
costly legal and financial infrastructural changes. W e , of course, believe that
U S supervision across the board is top flight. But Europe has focused on
the prudential position of financial conglomerates at the "top" company level,
whereas in the U S , investment banks are supervised at the broker-dealer
level. A n equivalence finding is essential.
• Europe is putting forward an investment services directive. In m a n y
European countries, equities are only traded on exchanges. In the U S ,
investment banks can "internalize" transactions and provide "price
improvements" for larger customers, a practice that is also prevalent in the
U K market. Again, the dialogue is about rewarding efficiency and innovation
and respecting market practices.
• The nature of the process of European rule-making is also important. W e
want to see an open, transparent process in which there is healthy
consultation with market participants. The markets are always a step ahead
of the regulators; they know their business. Sound regulation is essential,
but excessive regulation that stymies market innovation should be avoided.
Regulators and markets need to work together to achieve the best outcome.
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JS-1089: Speech by Randal K. Quarles: U.S.-EU Cooperation on Financial Issues

Page 4 of 5

I'm pleased to say that under the FSAP, consultation and transparency with
markets have vastly improved.
• W e would also like to see strengthened procedures for M & A activity through
takeovers in Europe, which would benefit efficiency, the investment climate
and European growth. Notions of reciprocity - allowing restrictions to
investors from the U S because our rules are different - would go in the
opposite direction. The data speak clearly - different rules have not stifled
vigorous M & A activity between U S and E U firms.
To add to this already very full discussion plate, a large and overhanging issue is
international work in the F A S B and IASB to converge global accounting standards.
Serious work is proceeding apace on this score, and this is a welcome and healthy
development. O n c e there is one standard, accounting in the U S and E U - if
consistently applied, implemented, and enforced -- will be very similar, though not
identical, exercises. In the meantime, difficult issues are raised. For example, under
Europe's transparency directive, all securities admitted to trading in European
markets by 2005 will have to have to produce financial reports on the basis of IAS
and there is no provision for grandfathering of existing securities. But U S firms that
are huge issuers in the Euromarkets use U S G A A P . Will they no longer be able to
tap the Euromarkets on this basis after the beginning of 2005? W e will need to
continue tackling this issue resolutely and expeditiously in the Dialogue. But w e
should not lose sight of the bigger picture - surely convergence between the U S
and Europe will accelerate m o m e n t u m toward an even more dynamic and
enormous transatlantic capital market.
In the final analysis, the Dialogue aims to put in place a key piece of global financial
market infrastructure for the 21 s t century and a n e w pillar for stronger world growth.
The potential benefits are enormous. It is important that the dialogue succeeds, and
I believe it will.
US-EU Cooperation in Combating Terrorist Financing
Finally, let me say a few words about US-EU cooperation in the combating of
terrorist financing. Since September 11th, the United States and the E U have
campaigned jointly to publicly identify and designate terrorist entities and their
financial backers, and freeze their assets. For example, nearly every terrorist
individual and entity designated by the United States also has been designated by
the E U or s o m e of its m e m b e r states. In a joint action in M a y 2002, the U.S. and E U
simultaneously designated 18 terrorists and terrorist groups. Moreover, the United
States and the E U have established a fluid, informal mechanism for sharing
information on terrorists and their supporters.
Recent terrorist finance developments at the EU member-state level also are
positive. Just this Monday, the Treasury Department designated 15 individuals in
support of the Italian submission of these individuals, as terrorists linked to al
Qaida, to the United Nations. In June, w e joined Italy in designating 16 individuals
associated with the Algerian based Armed Islamic Group. The s a m e day, Treasury
designated a m e m b e r of the Hamburg, Germany, al Qaida cell that planned the
September 11th attacks. With the support of the United States, Italy and Germany
submitted these names to the United Nations. Last year, the U.S. and Italy also
joined together last year in submitting to the U N the names of 25 individuals and
entities linked to al Qaida. And in M a y of this year, the U.S. joined several
European countries in designating the al-Aqsa International Foundation, a charity
funding Hamas.
As for Hamas itself, we were very encouraged by the September decision of the EU
Foreign Ministers to designate the group as a whole. Before this, the E U had only
designated the military wing of H A M A S .
Despite these positive developments, particularly that on Hamas, there is room for
improvement by the E U on both substantive and procedural issues. First, the
submission and coordination of terrorist names for designation by the E U could be
significantly accelerated. EU's "Clearinghouse" process, which is the mechanism
the E U has established to designate individuals and entities as terrorists or terrorist
supporters, needs to be streamlined. The Clearinghouse's unanimity requirement,
its very high designation standard and its bureaucratic nature, combine to m a k e the
process too lengthy and cumbersome.

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JS-1089T Speech by Randal K. Quarles: U.S.-EU Cooperation on Financial Issues

Page 5 ot 5

Second, the assets of "internal terrorists" are being left unblocked in a number of
European countries. This is because under current E U treaty interpretation, the E U
cannot direct m e m b e r states to block the assets of individuals and entities of socalled "internal terrorists." W e hope our European friends will close this loophole.
Our EU counterparts know that the United States is pressing for resolution on these
critical issues, which w e believe will enhance the EU's ability to combat terrorist
financing more effectively. Still, the day-to-day cooperation between Europe and the
U S has been excellent and much has been achieved.
Conclusion
The US-EU efforts to strengthen global growth, to promote a transatlantic capital
market through the informal financial markets dialogue, and to combat the financing
of terrorism reflect our desire to achieve greater harmony and efficiency on both
sides of the Atlantic. Good progress is being m a d e on all fronts through cooperation
and hard work, which will surely benefit the United States, Europe, and the world.
That is w h y I believe the U S - E U economic and financial relationship is strong and
healthy and yet another reason w h y it's important for everyone - particularly those
of us in Washington - to remember that you can't always believe what you read in
the papers.

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JS-10047TraX3TjRY AND IRS SUSPEND TAX EXEMPT STATUS OF THREE ORG... Page 1 oi i

PRLSS R O O M

FROM THE OFFICE OF PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
November 14, 2003
JS-1004
TREASURY AND IRS SUSPEND TAX EXEMPT STATUS OF
T H R E E ORGANIZATIONS IDENTIFIED WITH TERRORISM

Today the Treasury Department and the Internal Revenue Service announced the
suspension of the tax exempt status of three organizations: Benevolence
International Foundation, Inc., Global Relief Foundation, Inc., and Holy Land
Foundation for Relief and Development. The tax exempt status of these
organizations is being suspended because they have been designated as
supporting or engaging in terrorist activity or supporting terrorism. Contributions
made to an organization during the period that the organization's tax-exempt status
is suspended are not deductible for federal tax purposes.
"We will continue to use all available means to fight the financial war on terrorism,"
stated Treasury Assistant Secretary for Tax Policy Pam Olson. "Today's
announcement is another example of that effort. Organizations found by the United
States government to support terrorism should not be exempt from federal income
tax and contributions to those organizations should not be deductible for federal tax
purposes.'
"The IRS supports the war on terrorism," said IRS Commissioner Mark W. Everson.
"The agency's efforts include scrutinizing tax-exempt organizations that may
support terrorism. In addition, our criminal investigators follow the flow of terroristrelated financing to countries around the world, including the Middle East. In Iraq,
our special agents help trace and recover assets from Saddam Hussein's regime."
Prior to the effective date of suspension of exemption under section 501 (p), these
three organizations were designated under Executive Order 13224, entitled
"Blocking Property and Prohibiting Transactions With Persons W h o Commit,
Threaten To Commit, or Support Terrorism." Contributions made to these
organizations in violation of the Executive Order prior to this suspension are not tax
deductible under the Internal Revenue Code.

Related Documents:
• The text of Announcement 2003-74

http://www.treas.gov/press/releases/jsl004.htm

5/19/2005

Suspension of Tax-Exempt Status of Organizations Identified With
Terrorism

A n n o u n c e m e n t 2003- 74
I. Purpose
This announcement is a public notice of the suspension under section
501 (p) of the Internal Revenue Code of the federal tax exemption of certain
organizations that have been designated as supporting or engaging in terrorist
activity or supporting terrorism. Contributions m a d e to an organization during the
period that the organization's tax-exempt status is suspended are not deductible
for federal tax purposes.
II. Background
The federal government has designated a number of organizations as
supporting or engaging in terrorist activity or supporting terrorism under the
Immigration and Nationality Act, the International Emergency Economic Powers
Act, and the United Nations Participation Act of 1945. Federal law prohibits most
contributions to organizations that have been so designated.
Section 501 (p) of the Code was enacted as part of the Military Family Tax
Relief Act of 2003 (P.L. 108-121), effective November 11, 2003. Section
501(p)(1) suspends the exemption from tax under section 501(a) of any
organization described in section 501(p)(2). A n organization is described in
section 501(p)(2) if the organization is designated or otherwise individually
identified (1) under certain provisions of the Immigration and Nationality Act as a
terrorist organization or foreign terrorist organization; (2) in or pursuant to an
Executive Order which is related to terrorism and issued under the authority of
the International Emergency Economic Powers Act or section 5 of the United
Nations Participation Act of 1945 for the purpose of imposing on such
organization an economic or other sanction; or (3) in or pursuant to an Executive
Order issued under the authority of any federal law, if the organization is
designated or otherwise individually identified in or pursuant to the Executive
Order as supporting or engaging in terrorist activity (as defined in the Immigration
and Nationality Act) or supporting terrorism (as defined in the Foreign Relations
Authorization Act) and the Executive Order refers to section 501(p)(2).
Under section 501(p)(3) of the Code, suspension of an organization's tax
exemption begins on the date of the first publication of a designation or

2
identification with respect to the organization, as described above, or the date on
which section 501 (p) w a s enacted, whichever is later. This suspension continues
until all designations and identifications of the organization are rescinded under
the law or Executive Order under which such designation or identification w a s
made.
Under section 501(p)(4) of the Code, no deduction is allowed under any
provision of the Internal Revenue C o d e for any contribution to an organization
during any period in which the organization's tax exemption is suspended under
section 501 (p). Thus, for example, no charitable contribution deduction is
allowed under section 170 (relating to the income tax), section 545(b)(2) (relating
to undistributed personal holding company income), section 556(b)(2) (relating to
undistributed foreign personal holding company income), section 642(c) (relating
to charitable set asides), section 2055 (relating to the estate tax), section
2106(a)(2) (relating to the estate tax for nonresident aliens) and section 2522
(relating to the gift tax) for contributions m a d e to the organization during the
suspension period.
Prior to the effective date of suspension of exemption under section
501 (p), the three organizations listed below were designated under Executive
Order 13224, entitled "Blocking Property and Prohibiting Transactions With
Persons W h o Commit, Threaten To Commit, or Support Terrorism."
Contributions m a d e to these organizations in violation of the Executive Order
prior to this suspension are not tax deductible under the Internal Revenue Code.
III. Notice of Suspensions and Nondeductibility of Contributions
Organizations whose tax exemption has been suspended under section
501 (p) and the effective date of such suspension are listed below. Contributions
m a d e to these organizations during the period of suspension are not deductible
for federal tax purposes.
Benevolence International Foundation, Inc.
Palos Hills, Illinois
Effective Date: November 11, 2003
Global Relief Foundation, Inc.
Bridgeview, Illinois
Effective Date: November 11, 2003

3
Holy Land Foundation for Relief and Development
Richardson, Texas
Effective Date: November 11, 2003
IV.

Federal Tax Filings

An organization whose exempt status has been suspended under section
501 (p) does not file Form 990 and is required to file the appropriate Federal
income tax returns for the taxable periods beginning on the date of the
suspension. The organization must continue to file all other appropriate federal
tax returns, including employment tax returns, and m a y also have to file federal
unemployment tax returns.
V. Contact Information
For additional information regarding the designation or identification of an
organization described in section 501(p)(2), contact the Compliance Division at
the Office of Foreign Assets Control of the U.S. Treasury Department at 202-6222490. Additional information is also available for download from the Office's
Internet H o m e Page at www.treas.gov/ofac.
For additional information regarding the suspension of the federal tax
exemption of an organization under section 501 (p), contact Robert Fontenrose at
(202) 283-9484 at the Internal Revenue Service.

JS-1005: U.S Treasury'Secretary John W . S n o w Remarks to the Confederation of British ... Page 1 of 7

F R O M T H E OFFICE O F PUBLIC AFFAIRS
November 18, 2003
JS-1005
U.S Treasury Secretary John W. Snow
Remarks to the Confederation of British Industry
November 18, 2003
Birmingham, U.K.
Good morning. It is a great pleasure to be with you today and have this opportunity
to renew m y ties with the CBI and so many of you that I knew from m y private life
where m y days were filled with the same worries and concerns as yours are today.
It's also very nice to be here with m y good friend Chancellor Brown.
It's been said before, but the relationship between the U.S. and the U.K. is a special
one, in political, cultural, security and economic terms. I'm going to focus on the
latter, the economic terms, of course. Not only is the U.K. a major market for
American products and services, and vice versa, as well as a leading source of
investment and joint venture opportunities in both directions. The United Kingdom
is also a bridge between the United States and continental Europe. Working
together, Chancellor Brown and I have helped to give the G 7 finance ministers a
newfound focus on productivity and economic growth. Thus our relationship is
even larger and more significant than the direct flows of trade and investment
between our nations would suggest.
People from the world of finance, commerce and industry share much in common
whether their companies are based in the U K or the USA. Under the relentless
pressures of the marketplace, w e are all compelled to worry about our cost
structures, our competitive position, new opportunities for growth, building effective
organizations, and creating shareholder value. Even the most successful business
people always keep on guard for the new products, the new technologies, and the
new ideas that threaten their position.
We all know that success depends on continuously getting better and better; that
market positions of prominence are not foreordained; that profitable growth and
rising shareholder value require relentless effort and infinite attention to detail.
Success depends on hard work and always being open to new ideas, new
technologies, and new products. The life of business is inherently restless and
uncertain. W e talk about the virtues of competition in the abstract and w e are all
made better because of our competitors, but the fact is that competition makes sure
that none of us have a quiet or tranquil life. You know that from your years in
business and I know it from mine. And those realities of business life are a shared
heritage of all of us who have made industry our calling.
Let me say as well that the world is a better place because we don't have the luxury
of quiet life. Because w e are continuously forced to innovate, reduce costs and
become more productive, business and industry are at the very center of the wealth
creation process that does so much to enhance the prosperity and wellbeing of the
world. Our high standards of living and economic abundance depend deeply on
business and industry generating jobs and the wealth, and the new products that
change the world and make it a better place. Across the globe people are striving
to have higher standards of living, to know prosperity and abundance, and business
lies at the very center of the process; it makes abundance and prosperity possible.
So I applaud you for what you do.
But the government also has a critical role to play. Its role is to create an
environment in which you can be successful - not by propping you up, not by
subsidizing you, not by protecting your market position. Those strategies have
been tried and they never really work in the long run. No, government's role is

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something altogether different. Its job is to establish the conditions in which you
can succeed, to allow you to earn the rewards for your best efforts and your best
ideas; to give you the freedom to innovate, grow, adopt n e w technologies; and
continuously hone and adjust production, including the relationship of labor to
capital, to create wealth for your owners.
Businesses need to be able to plan, and to plan they need to know with some
certainty the rules of the game. Government sets the rules of the g a m e and they
have an obligation to do so in a w a y that is open and transparent so that
businesses can plan with a reasonable measure of certainty for their future. Having
spent a career in business I know that the great enemy of enterprise is uncertainty
uncertainly with respect to tax policy, trade policy, regulatory policy, competitive
policy - all areas where government plays a dominant role.
Government also has responsibility to establish sound monetary and fiscal policy, to
maintain the value of the currency and keep inflation and deflation in check. At a
bare minimum, government must protect property rights. Capital is and must be
cowardly. It goes where it feels safe and protected and respected. A s stewards of
capital, you know this to be the case and carefully assess "country risks" before
investing capital. This is a message that Chancellor Brown and I emphasize over
and over to developing and emerging market countries. Enhanced prosperity in
these countries depends upon foreign direct investment, which will only be
forthcoming where property rights are honored.
Finally, government has an obligation to continuously assess the barriers to greater
growth and prosperity and to take steps to eliminate them. These impediments to
prosperity are found in all economies and are widely observed: labor market
policies that inhibit appropriate mobility; regulatory policies that add more to
society's costs than to its benefits; industrial policy that subsidizes non-competitive
enterprises and frustrates the play of competitive forces; state pension plans that
claim a disproportionate share of a nation's capital and thereby frustrate private
capital formation. In the United States, I would add our notorious tort liability
system as another example.
Removing these impediments to growth and prosperity takes political will and
political courage. In the United States, President Bush has laid out an ambitious
agenda for maximizing growth and job creation. H e proposed a six-point plan to
address these challenges, focusing on making health care more affordable and its
costs more predictable; working to prevent frivolous lawsuits from diverting money
from job creation into legal battles; working to build a more affordable, reliable
energy system; streamlining regulations and needless paperwork requirements;
opening n e w markets to high value American products; and working to m a k e tax
relief permanent, so businesses and families alike can plan for the future.
Achieving progress in these areas requires a significant degree of commitment and
personal leadership from the President.
It is clear to me that Prime Minister Blair and Chancellor Brown have demonstrated
a remarkable degree of leadership and commitment to achieve productivity gains
and sustained economic growth here in the United Kingdom. I look forward to
working with the Chancellor on our new joint initiative to encourage further
achievements in our economies.
Leadership pays off. As various private sector economists have remarked recently,
the U.S. recovery has real muscle to it and is sustainable. That is good news for
us, but it is good news for the U K and the rest of the world as well.
There can be no doubt about the fact that the last three years have been difficult for
the U.S. economy as w e have faced an unprecedented number of challenges
beginning with a steep decline in economic activity that President Bush inherited.
A s w e look back on it there can be no doubt that the economy w a s in a decline as
the n e w Administration took office. Beyond that w e have had to weather the
terrorist attacks of 9-11, the dotcom bubble and the collapse of the stock market,
which took $2 trillion out of our equity markets. Then emerged the corporate
scandals that shook confidence in our capital markets, a regional energy crisis, and
two wars - Iraq and Afghanistan. And of course all of this w a s occurring while'the
other major industrial economies of the world were weak.
I am often asked by my fellow finance ministers and others how the American
economy could weather such shocks and still perform as well as it did. T h e answer

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lies in the inherent flexibility and resiliency of the U.S. economy.
Things we did thirty years ago to deregulate our transportation sector are paying
huge dividends today in making our economy more flexible and resilient. Financial
sector policies adopted years ago: deregulation of the fixed fee arrangement for
brokers; opening up financial services to allow banks into non-banking financial
services and vice versa; and the development of hedge funds and derivatives,
which played a part in spreading risks and reducing their concentration in the
banking sector.
Our basic labor market policy has been extraordinarily important in creating high
degrees of labor mobility and avoiding labor market rigidities. Over the course of
many years the U.S. has adopted policies to m a k e the economy more flexible,
competitive and resilient, as w e faced the unprecedented shocks of the last three
years.
With the economy coming back we are beginning to see positive signs on the jobs
front as well. Here again, it is important to put the jobs situation into context. With
the "bubble economy" of the 1990s, many firms in many industries expanded
rapidly. They had the wind in their sails and it looked like the clear path to
profitability lay in growth. And grow they did and expand they did.
But the bubble burst and American industry found that it no longer had the wind in
its sails. D e m a n d slowed markedly beginning in the latter part of 2000 and it only
recently has begun to c o m e back. With the much weaker demand conditions, and
unable to rely on growth to propel earnings, American business began to
aggressively attack their cost structures. For the better part of the last three years
cost reductions, streamlining and reworking processes have been the focal point of
management's attention.
Today our cost structures have been "leaned out." Our enterprises are much more
productive, and as the economy rebounds that should produce much better
earnings and free cash flow for U.S. businesses. In fact, it is already beginning to
happen as indicated by the earnings reports for the second and third quarters.
Two things happened here that affected jobs. First, having been burdened by overexpansion management has been reluctant to add additional workers until they are
convinced that the strong demand conditions will continue well into the future. And
of course in the aftermath of the corporate scandals and new governance laws,
American businesses became more cautious and risk averse.
A second factor at work is the high productivity in American industry today, which
means w e can do more with less. Higher productivity is a good thing. It leads to
higher real wages and greater disposable income. It leads to better cash flows and
higher profitability, which in turn drives equity values. But it has also slowed down
the job creation process.
Fortunately, as I have said, we are entering into a much better environment for job
creation and signs are pretty good that w e have turned the corner.
The more interesting question is: where will we find the jobs of the future?
We know that jobs are more abundant when people have ample disposable
income. Increasing people's disposable income w a s a key objective of the
President's Jobs and Growth Bill. W e also know that jobs are tied to capital and the
willingness of someone to invest. In the United States there is roughly $100,000 of
capital behind every job. To create new jobs someone needs to have the incentive
to invest and investment, of course, occurs when the expected returns exceed the
cost of capital.
By reducing the cost of capital the President's plan is designed to encourage more
investment and create new jobs. Strong aggregate demand, ample disposable
income, capital availability, and investment all have an important role to play.
But regarding precisely where the jobs of the future will come from, I think the
honest answer is no one knows for sure. Jobs c o m e from n e w ideas, from
discovery, from innovations. And by its very nature the innovations of the future are

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not known today. What we do know is that new ideas, new discoveries, new
technologies and innovation lie ahead of us if w e take the steps to properly
encourage the process of innovation.
I don't know where new jobs will come from, but I know how they come: from capital
and labor finding the most productive opportunities in the market, from n e w ideas
and investors and innovators prepared to risk their capital and their efforts to create
something new. Essentially, what a prominent Scotsman from Kirkaldy - no, not
Chancellor Brown - A d a m Smith! - called the invisible hand.
The policies that will create jobs faster and better are those that create greater
flexibility in the economy - policies that acknowledge that elected leaders in a
capitalist democracy are at their best when they let markets decide rather than
trying to pick the winners.
I'll share with you a figure that illuminates my point. Over the past decade in the
United States, around 30 million jobs have been lost every year, give or take a few
million. In fact, in the year 2000, when unemployment hit its lowest point in the
decade, 33 million jobs were lost. The key is that over the s a m e period, about 30
million jobs were created every year, give or take a few million. In s o m e years the
gain is slighter greater than the loss. In other years the opposite is true.
Policymakers do best when they focus their efforts on policies that create a climate
in which net jobs are created. That means focusing on flexibility, openness, capital
formation, and, ultimately, productivity.
When these conditions exist innovative ideas with flourish and entrepreneurs and
businesses will identify n e w opportunities for profits and m o v e capital and labor to
take advantage of them. The result of that process is higher productivity - higher
output per hour worked and per dollar invested, and over time that productivity
creates higher living standards. What this process provides is a continuous path
from lower value activity to higher value work and keeping the economy open and
flexible so that this process can work is the central role of economic policy makers.
In well functioning economies new ideas are displacing old ideas; new management
processes are displacing old management processes; n e w technologies are
displacing older technologies. And all the while productivity is rising, the standard
of living is rising, and wealth is rising and people have the opportunity to lead more
abundant lives.
That is the path of progress and looked at from an historical perspective the effects
are staggering. A century ago 4 0 % of the U.S. workforce w a s in agriculture, at a
time when our population totaled 40 million. Today agriculture accounts for less
than 2 % of our workforce and we're a nation of nearly 300 million people. Imagine
the United States today if with 4 0 % of its workforce in farming. Of course if that
were the case w e wouldn't have the necessary workers for our huge growth
industries such as information technology, biotechnology and healthcare.
It sounds nice in theory, of course. But when you look closely it can be messy. The
process, when it's working, constantly disrupts the status quo. Let's face it aggressive entrepreneurs and businesses are constantly trying to put their
competition out of business, and if they're successful, the competition goes looking
for n e w work.
At the same time, businesses that pursue a new opportunity are taking a risk. They
often fail. The key is that they learn, and try again. The secret of American
economic success in a sense is failure - or perhaps the fact that w e allow people to
fail and start over again. If it were easy to exploit n e w opportunities, they wouldn't
be opportunities for long.
Those who take the risks - with their time, money, and reputations, must be able to
claim their reward when they succeed, and claim their lessons w h e n they fail. A lot
of people learned lessons in the dotcom boom and bust, for example. S o m e
succeeded, but most did not. But there is no stigma in America for having worked
for a start-up company that failed.
With all this economic disruption, the perpetual temptation of government, which

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naturally caters to the status quo, is to block change. Think about that. Vested
interests always have a greater stake in the past than the future. T h e past created
them, and keeps them where they are.
But a wise government has to balance those interests with a vision for the future. It
needs to allow the visionaries, the entrepreneurs, to keep pushing ahead, falling
down, and getting up - creating jobs and prosperity. At the s a m e time, it needs to
attend to those w h o suffer from the disruption, with education, training and other
assistance to help them onto their feet.
Raising standards of living and creating jobs doesn't happen by accident - good
policies that preserve flexibility - such as low marginal tax rates, low taxes on
capital, low barriers to trade and labor movement - these kinds of bottom-up
policies encourage growth. Investment in education and training is also important,
because it allows people to find opportunities and adapt to change more quickly.
But policies that direct growth, that smack of central planning, tend to jam the
signals from the market. And even if they push the economy forward in the short
term, they eventually lead to collapse. They often push it in the wrong direction.
They don't heed the call of the market, or of competition, they heed only political
expedience.
We strive to encourage entrepreneurship, capital formation, and education, and
we're starting to see the results. This year's tax program w a s the first in decades to
focus on reducing taxes on capital formation, such as taxes on dividends and
capital gains. At the s a m e time, the President's "No Child Left Behind" Act invests
more in education, and it introduced key concepts of innovation and competition
into the market for education. In education, as in business, there should be
rewards for success.
We've also focused on enhancing the mobility of labor. Our mobile society is a key
factor in our prosperity and economic resilience. We've introduced proposals to
strengthen the functionality and security of national credit standards to m a k e ease
mobility in our economy.
Labor mobility facilitates another kind of mobility, which also lies at the heart of
America's success - that is the mobility within income categories. Mobility within
income categories has helped avoid the dangers of class consciousness.
Immigrants are inherently optimistic and feel they and their families have the
chance to enjoy greater prosperity.
Efficient financial markets also play a role. In the financial markets, we've been
rebuilding investor trust with strong but fair oversight and disclosure measures.
Investors need to know what kind of risks they're taking with their capital - they
should expect reasonable risks to partake in n e w market opportunities. That's the
fair part. But they should not ever have to take a risk on the character and honesty
of those managing their capital. That's the strong part.
Financial market regulations, like tax policy, should encourage the right kind of risk
taking, but they should leave no doubt about the integrity of the system.
Innovations in finance have been as essential to the success of the American
economy as innovations in technology. The prominence of venture capital m a y be
the most obvious, truly American financial innovation.
A marketplace where innovative ideas and innovative capital work together has
created s o m e of our greatest economic success stories in places like Silicon Valley
and Boston's Route 28. Our university system also has played a big part by
allowing faculty and students to test their ideas in the marketplace, even as they
pursue academic careers. It is no accident that venture-funded tech start-ups tend
to cluster around our top research universities.
Other innovations in finance such as stock options have allowed managers and
employees to participate more fully in the success of their businesses. While there
have been cases of abuse involving stock options, their appropriate use can allow
small companies with great ideas to compete with large companies with great
wealth.

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Innovations in mortgage financing have allowed American homeownership to reach
all time highs, near 7 0 % of households, and new kinds of mortgages, as well as
innovations in credit markets, have put homeownership in reach of millions w h o
could never before achieve it.
Innovations in derivatives have spread financial risks more broadly in markets, and
allowed the American economy to bounce back from the body blows of recent
years.
That economic bounce back has been much in the financial news of late. 7.2%
growth last quarter, after 3.3% the previous quarter. And it looks like the balance in
the labor markets is beginning to favor the forces of job creation - but it's still early
in the process, and w e have no intention of resting on our laurels. Not in the U.S.,
and not in the global economy, where higher growth and productivity is more
needed than ever.
As we look at the global economy today it is hard to escape the conclusion that
growth has been far too uneven - particularly in the largest industrial nations. The
U.S., now starting to experience the benefits of the fiscal policy, and the Federal
Reserve's monetary policies, is now growing at a healthy pace. The Britain has
demonstrated consistent growth, but the other major world economies - particularly
Japan, Germany and France, are performing well below their potential.
This is an issue for all of us. With the dramatic expansion of trade in recent
decades, the world economy is more connected than ever before. For the United
States, this means that our success in creating jobs and sustained economic
growth depends in no small measure on other economies. W h e n other economies
are growing and expanding, their demand for the things w e produce is greater.
By the same token, as the United States grows, we generate more domestic
income and buy more from the rest of the world. Successfully managing our
economy is as important to the rest of the world as their success is to us. For the
UK, integrated into the single European market, this is doubly true
We must all take steps to accelerate growth, especially in those economies that are
lagging. At the recent G-7 finance ministers meeting in Dubai, m y colleagues and I
agreed on an Agenda for Growth, as each nation committed to increase growth at
home. This acknowledgement, in m y view, was a milestone. The barriers to
growth in each of our countries are different, but w e have all agreed to tackle those
w e face, and to monitor and discuss each other's progress.
Enhancing the outlook for global growth will be the focus for the G-7 next year when
the U.S. hosts the leaders Summit at Sea Island. The following year, when Prime
Minster Blair will chair the leaders Summit, I hope w e will be in a position to point to
real progress across all of our economies. Chancellor Brown and I share a deep
commitment to seeing that happen and have had several conversations on the
question how can w e combine our efforts to press forward on the global growth
agenda. The United States chairs the G 7 finance minister meetings next year and
the Britain the following year, so Chancellor Brown and I will m a k e the most of this
back-to-back opportunity.
Though we all face challenges to faster growth, the issue is most pressing for the
major economies in Europe where growth is stagnant. Chancellor Brown knows
this. A few weeks ago in the Wall Street Journal, he pointed to s o m e of the key
areas where Europe could do better and offered sound counsel for the EU. If I
m a y quote m y esteemed colleague, he observed that "the right response to global
competitive pressure is to liberalize, deregulate, remove the old state aid subsidies,
agree an open competition policy, and remove barriers that hamper companies
crossing borders."
The Chancellor knows whereof he speaks. In a recent OECD study of industrial
economies, the U K was found to have the least overall restrictive regulatory
regime. The study looked at things like barriers to trade, administrative regulation
and economic regulation. It's no coincidence that the U K w a s able to avoid the
major slowdown seen in other large European economies or that, along with the
US, it ranks at the forefront among industrial countries in information technology
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The Chancellor also said "Europe must embrace labor-market flexibility as the only
modern route to full employment, put current and n e w regulations to that flexibility
test, and devise n e w incentives to help people m o v e from welfare to work."
Finally he said that "Europe must be outward-looking and internationalist... and that
a strong transatlantic economic partnership - and a pro-European, pro-Atlantic
consensus - is critical to long-term prosperity." I couldn't agree more. This w a s the
essence of our discussions in Dubai, where w e renewed our commitment to
tackling our domestic challenges to benefit our o w n economies and lay a basis for
balanced global growth.
In the United States, President Bush's reforms emanate from the s a m e broad policy
outlook: create an environment that encourages flexibility, capital formation and
innovation, and in turn leads to job creation, productivity, and higher living
standards.
The UK has its own important agenda - improving skills and labor productivity,
expanding research and development tax credits, supporting entrepreneurs and job
seekers, and reforming the financial sector.
I look forward to working with our UK friends on our common economic challenges.
Together, w e plan to expand the flows of trade and investment across the Atlantic
and enhance cooperation between our universities in areas such as
entrepreneurship and technology transfer. I also look forward to hosting a
business-government forum next year with Chancellor Brown to discuss c o m m o n
opportunities to promote innovation, raise productivity and increase research and
development, while encouraging closer ties between academic centers and
enterprise
I think this is an historic moment.
The world's leading economies are all committed to ending the period of stagnation,
and moving forward to renewing growth and creating jobs in all of our countries.
W e have begun to m a k e progress - passing President Bush's jobs and growth
package in the United States, and moving forward with his six-point plan for the
economy. The UK, too, has m a d e great strides in providing an environment for
enterprise, innovation, growth and prosperity. I have confidence in Great Britain's
leadership and industry, and I believe that you, and our other European and
international partners, are up to the challenge.
Thank you.

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JS-1006: Treasury N a m e s R o y Ramthun as Senior Advisor to the Secretary for Health Ini... Page 1 of 1

PRESS ROOM

F R O M THE OFFICE O F PUBLIC AFFAIRS
November 17, 2003
JS-1006
TREASURY DEPARTMENT NAMES ROY RAMTHUN AS
SENIOR ADVISOR T O THE S E C R E T A R Y FOR HEALTH INITIATIVES
Today, Roy J. Ramthun joins the Treasury Department as Senior Advisor to the
Secretary for Health Initiatives.
In this position, Mr. Ramthun is responsible for advising the Secretary and senior
Administration officials regarding the Administration's health initiatives. Ramthun
will coordinate Treasury's activities in support of the Administration's health
objectives, including those directed at health care costs and access to affordable
health insurance, including proposals in the President's budget for health care tax
credits, as well as continued implementation of the Health Coverage Tax Credit
enacted under the Trade Act of 2000 (HCTC), and other related matters.
Mr. Ramthun succeeds Mr. Ruben King-Shaw, who previously held this position at
Treasury.
Mr. Ramthun mostly recently worked for Humana, Inc. in Louisville, KY, from 1999
to 2003. At Humana, Inc., one of the nation's largest publicly traded health benefits
companies, Mr. Ramthun served in a variety of senior capacities, most recently in
the internal Consulting Practice. He served from 1996 to 1999 as Director, Federal
Affairs for Humana, Inc. in Washington, DC.
From 1990 to 1995, he served as a Professional Staff Member on the U.S. Senate
Finance Committee, where he developed and wrote legislation for Medicaid, longterm care insurance, health care reform, and maternal and child health. Prior to
joining the Senate Finance Committee, he worked as a Legislative Analyst at the
U.S. Department of Health and Human Services, Health Care Financing
Administration, Office of Legislation and Policy, Division of Medicaid Legislation.
Mr. Ramthun earned his Bachelor of Science degree in Biochemistry from the
University of Michigan, and his Master of Science in Public Health from the
University of North Carolina.

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JS-1007: Asst. Secretary Quarles' Remarks to Organization for International Investment

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PRESS ROOM

F R O M T H E OFFICE O F PUBLIC AFFAIRS
November 5, 2003
JS-1007
Remarks of
The Honorable Randal K. Quarles
Assistant Secretary for International Affairs
U.S. Department of the Treasury
Before the
Organization for International Investment (OFII)
Fourth Annual General Counsel Conference
Introduction
Thank you for inviting me to be here today. I appreciate the opportunity to review
with you the current climate for foreign direct investment, the commitment of the
Administration to the traditional open investment policy of the United States, and
the optimism that can be gleaned from the hopeful signs of a rebound in U.S.
economic activity.
Unfortunately, the last couple of years have been colored by a pessimism that was
difficult to avoid in the midst of what were dramatic shocks to our nation and its
economy, including terrorist attacks, global conflict, corporate scandals, and a
recession. All these factors combined to create uncertainty about the present and
apprehension about the future prospects for the U.S. economy. At the same time,
sluggish activity in the other major economies of the world meant that there was no
significant stimulus to spur global economic growth, and no cause for foreign
investors to feel confident that future prospects for corporate revenues and profits
would be improving.
As Secretary Snow continues to stress in his discussions with international
financial leaders -- most recently at the G-20 Finance Ministers Meeting in Mexico
in October -- the United States cannot be the sole engine of global economic
growth. Other industrial nations need to take appropriate steps -- including
fundamental structural reforms where necessary - to move their economies
forward, increasing economic activity, creating jobs, and generally contributing to
global prosperity.
While much remains to be done, the policies of the Administration designed to
foster a pickup in U.S. economic activity are beginning to be felt. Last month the
economy exceeded expectations and added new jobs. Inflation is low. After-tax
incomes are rising. Productivity is high. Industrial production is on the rise.
Housing starts remain strong. Confidence among large-company C E O s reached its
highest level in eleven years according to the Conference Board. Corporate
earnings are showing a nice upturn, with many exceeding expectations.
In short, it appears to be an excellent time for foreign investors to reevaluate
postponed decisions about investing in the United States and to consider new
opportunities.
It will come as no surprise to OFII members that foreign direct investment in the
United States was much slower during this period of pessimism than it had been in
recent years. In fact, in 2002 total foreign direct investment in the United States
actually decreased for the first time since at least 1946, when data were first
complied by the Department of Commerce. Though the decrease was only a slight
1 %, it followed an 8 % increase in 2001. At least part of the slowdown was
inevitable given the robust pace of the 1998-2000 period. Foreign direct investment
in the United States increased 1 4 % in 1998, 2 3 % in 1999, and 3 2 % in 2000. It
stands to reason, however, that some of the decline in foreign direct investment is

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the result of uncertainty about when the U.S. economy would recover, and about
whether the future path of economic activity would be unduly curtailed because of
the necessary adjustments that have to be m a d e to bolster our security protections.
In that regard, some foreign investors have expressed concern that in the
aftermath of 9/11 and the follow-up emphasis on protecting national security that
the United States would alter its traditional policy toward foreign investment.
U.S. Investment Policy
U.S. investment policy is based on a two-pronged approach:
First, the United States is open to foreign direct investment; and
Second, the United States seeks to promote similar open investment regimes in
other nations around the world.
As a nation we have traditionally held to this open investment policy because it is in
our interest to do so. The United States is the host for more foreign direct
investment than another other country in the world. This investment brings n e w
technologies and management techniques, which increase productivity, create jobs,
and increase economic growth - all factors that contribute to a rising standard of
living for all Americans. It also increases consumer choice and welfare.
This is a challenging time for the United States as it seeks to shore up and improve
security and, at the s a m e time, preserve the welcoming climate for foreign direct
investment that has been an important contributor to the strength and vitality of the
U.S. economy - recognizing that the strength of our economy is itself an important
element in maintaining our overall security. This tension between security and
openness is nowhere more evident than in the implementation of the so-called
Exon-Florio provision by the Committee on Foreign Investment in the United States
(CFIUS).
CFIUS and the Implementation of Exon-Florio
Treasury chairs the interagency CFIUS that was established by Executive Order of
the President in 1975 and which in 1988 w a s given certain responsibilities to act on
behalf of the President in implementing the Exon-Florio provision (section 721 of
the Defense Production Act of 1950). Exon-Florio provides authority to the
President to investigate foreign acquisitions of U.S. companies from a national
security perspective and to take action, if necessary, to prohibit a transaction that,
in his judgment, threatens the national security when existing laws are not adequate
to ameliorate the threat. CFIUS has twelve m e m b e r agencies with the addition of
the Department of Homeland Security this past February and includes Defense,
State, Justice, and Commerce.
In implementing Exon-Florio, CFIUS seeks to balance national security concerns
with the open investment policy. The CFIUS membership includes s o m e agencies
with a policy focus more closely attuned to national security concerns as
traditionally conceived and others focused more on maintaining the open
investment climate. A s the chair, Treasury's goal is to bring these views together
into a coherent policy approach, so that CFIUS can implement Exon-Florio to meet
the national security objectives of the statute and do so in a manner that does not
compromise our open investment policy.
We believe we have been successful in achieving this goal. The implementation of
Exon-Florio by CFIUS has not chilled the overall climate for foreign investors by
imposing arbitrary and unjustified bureaucratic performance requirements. The
existence of Exon-Florio raises the awareness of foreign investors contemplating
acquisitions of U.S. companies to the importance of national security considerations
and it helps to ensure that foreign investments are structured in ways to avoid
national security problems.
While the confidentiality provided under Exon-Florio precludes a discussion of the
details of any particular CFIUS review, enough information has filtered to the press
for most of you to know that in recent months there have been a couple of
contentious reviews that have strained the balance between national security and

http://www.treas.gov/press/releases/jsl007.htm

5/19/2005

JS-1007: Asst. Secretary Quarles' Remarks to Organization for International Investment
open investment. In an era where the attention of the government has been drawn
to efforts to secure our homeland, it is inevitable that there will be a consideration of
what constitutes our "critical infrastructure" and h o w best to protect this
infrastructure. The debate is on-going. While it is essential in the current
environment to reemphasize a continued commitment to protecting the national
security, it is also essential that the fundamental principle of U.S. policy be kept in
clear focus - foreign investment is enormously beneficial to the U.S. economy and
our economic strength is one of the most important bulwarks of our security itself.
Foreign investment is an important auxiliary to domestic investment, providing an
added spur to economic growth, job creation and a higher standard of living. In the
competitive global economy, the enviable position of the United States as the
leader in attracting and retaining foreign investment is best maintained by an open
investment policy.
International Investment Initiatives
This openness to foreign investment at home also provides the United States with
the necessary credibility in the international community to encourage other
countries to adopt more liberal investment regimes. Congressional approval of
Trade Promotion Authority (TPA) legislation in 2002 has given the Administration
greater opportunities to conclude market-opening trade and investment
agreements.
The Administration has taken advantage of these opportunities by pursuing several
initiatives designed to increase investment opportunities for U.S. companies
overseas, which is the largest group of investors abroad. For example, the U.S.
recently concluded negotiations on bilateral free trade agreements (FTAs) with
Chile and Singapore. These FTAs provide U.S. investors with access to the
Chilean and Singaporean markets, as well as important protections for their
investments.
The U.S. is currently negotiating FTAs with thirty-four western hemisphere countries
(the Free Trade Area of the Americas or FTAA), Australia, five Central American
countries (Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua),
Morocco, and the Southern African Customs Union (Botswana, Lesotho, Namibia,
South Africa, Swaziland). The U.S. is pressing for high standard investment
chapters in these agreements. Also, the U.S. has announced its intention to pursue
an F T A with Bahrain and the Dominican Republic and is considering F T A
negotiations with other countries.
In addition, Trade Ministers met in Cancun in September to consider launching
investment negotiations under the auspices of the W T O as part of the Doha Round
of multilateral trade negotiations. While the United States w a s prepared to
establish the institutional framework within the W T O to establish rules on
investment, and to begin negotiating rules governing transparency affecting
international investment, W T O Members were unable to reach a consensus to start
the negotiations. A s appropriate, the U.S. will continue to work toward the
negotiation of W T O rules on investment that maintain high levels of protection for
U.S. investors and help facilitate investment flows globally.
Furthermore, the U.S. has reinvigorated the Bilateral Investment Treaty (BIT)
program, which w a s initiated in 1982 as a w a y to encourage investment
liberalization and economic development overseas. The U.S. is working diligently
to complete a n e w prototype BIT, which incorporates the T P A investment policy
objectives. The U.S. Government looks forward to putting this n e w prototype into
practice by negotiating high standards BITs with appropriate candidates.
Conclusion
While this is a demanding time for our nation as we seek to ensure security
protections, w e also have to be mindful that these safeguards do not impose undue
barriers to foreign direct investment. This is also a time of opportunity - a time for
the United States to reaffirm its commitment to an open investment policy at h o m e ,
securing the liberalization of investment regimes overseas, and to reestablish its
conviction that this policy can coexist with strong national security laws and
regulations. In particular, w e believe that the Exon-Florio provision and the C F I U S
process are sufficiently flexible to meet the requirements of protecting national
security without discouraging foreign investment. Proposals that seek to advance
security protections by tipping the balance away from open investment are

http://www.treas.gov/press/releases/jsl 007.htm

Page 3 of 4

JS-1007: Asst. Secretary Quarles' Remarks to Organization for International Investment
counterproductive because foreign investment is essential to the continued growth
and prosperity of our economy and a healthy economy is a vital component of our
security as a nation.
Thank you.

http://www.treas.goy/press/releases/j s 1007 .htm

5/19/2005

JS-1008: Snow, Greenspan Letter to Committee Chairmen on Mutual Funds

Page 1 of 1

PRESS ROOM

FROM THE OFFICE OF PUBLIC AFFAIRS

To view or print the PDF content on this page, download the free Adobe® Acrobat® Rea
November 18, 2003
JS-1008
Snow, Greenspan Letter to Committee Chairmen on Mutual Funds

Mutual Fund
Related Documents:
• Mutual Fund

http://www.treas.gov/press/releases/jsl 008.htm

5/19/2005

• •.,o*j±"iy/.

&\ZU*yy;

"--t-' ?*i*r--'

November IS. 2003
J he Hn:KVi;blc Richard C. Shelby
CLwnr.an
Committee on Huuki-.g, Housing, and Urban Affair*
United Slales Senate
V-ashiiiiUon, D C 20510
Dear Chairman Shelb\:
Much recem p..bho attention has been focused on mutual funds, ar\l rightly so. Wheihe:
w e consider their role m providing financial resources to fur.d business growih and development
ar.il job creation, or w e consider their si-urVant service in helping people irjves: for cdi.cnlion.
ie;iiei:ient. or other needs, mutual funds- tirefinancialintermediaries t-iat occupy a ran|or place in
OUT national economy.
In view of their importance, we applaud effort lo slrengihec arid prciicci ihe irust in the
inie;.;,rily i>~ Tiutual funds ai:<l to ivvig to justice those w h o "have violated thai trust. Such
misdeeds harm investors whi'.c l-hre:i:e.ning the ability ofrn.ir.tial funds to fulfill ihcir valuable
economic mission.
A s Congress considers 'his nui'.ier. w e would urtjc you lo keen a few key priricip.c.s ir.

mmo:
i

«
•

Criniiiv.il> w h o ur.o mutual fund./ to ..tJif from im- u.ii.-.j .„i' n(Uj!'M,i.!j w,^,^, ',., 1.^1
and misdeeds must be appiebendcd and punished prompih in order to preserve ihe
integrity of these fmauc-.a! ins'.innors and to preserve the trust placed in them.
W c should m a k e sure dial fees associated with mutual funds are fully subject lo the
rompctiltve tesrs of the mark el place.
Information ami disclosure reqaireineii:.> should be designed to provide investois with
ieal value nil her than seive mainly lo increase co.^ls and decrease returns.

W e appreciate your leadership and commilmeri to u sirong and vibrant lir.anciul system
th;ii employs capital, throui'h the intermediation of mutual itmds and other linancuii' institution.*..
efficiently and productively lo promote eeortomie i-nv.vth a"d higher stacdards ol"livinii. W e
look forward *.o continuim1. :o work with vou in lhat efiori
Sincere! v.

0-^~u/4^
John "W. S m m
Secretary of Ihe Treasury

A Ian Greenspan 1/
Chairman
Board of Governor^ of ihe
Federal Reserve Svs'.cm

November 18.2003
flie I lonorab-c Michael G. Oxley
Chairman
Coir.niillce on financial Services
U.S. IIouse of R epresentative.%
Wa.-hirgton. D C ?.05 15
Dear Chairman Oxley:
Much recent public ailenion has been focused on mutual funds, ar.d rightly so. \\ licthei'
we. consider their role In pro\iding financial resources lo finnl business growth and development
and job creation, or we consider llic-> significant service in helping people invest for education,
retirement, or other needs, militia", funds are financial intermediaries that occupy a major place in
oui nat.ona; economy.
In \ie\A of their importance, we applaud e Forts lo strengthen and protect I've trust in the
integrity of mutual funds and to bring to justice those w h o lun e \ iokited that misi. Si.eh
ri'sdeeds haim investors wbiic threatenine. the abi'.ily of miituil fiaids to faillll their valuable
economic mission.
As Congress considers this matter, \sc would urge youio keep a tew key prhieipics in
mind:
• Cruuir.als who use mutual funds lo steal from investors or otherwise engage m fraud
and misdeed.- must be apprehended and punished promptly in order to preserve the
ulcgnt_\ of these financial insi.iti.lions and to preserve the trust placed in them.
• W e should make saie that fees associated v\ith mutual funds are f.illy subject lo the
competitive tests of the market place
• In formation and disclosure- requirements should be designed to pro\ ide investors with
real value rathe:" chan serve mainly to increase costs and decrease returns.
We appreciate your leacer-hip Jind commitmenl lo a strong and vibrant financial system
lh.it employs capital, throtigh the intermediation of mutual iurxis and other financial institutions,
ef:lcie".ily and productively :o promote economic growth and higher sinndards of living. W e
look forward lo continuing to work w.'.a you in dial effort.
Sincerely,

-*-^— (As N£>W**John W . S n o w
Sccietary of ihe Treasury

Alan Greenspan vj
Chairman
Hoard of Governor* of the
federal Reserve System

JS-1009: Arnie Havens Testimony Before the Senate Committee on Finance

PRLSS ROOM

F R O M T H E OFFICE O F PUBLIC AFFAIRS
November 18, 2003
JS-1009
Statement of Arnie Havens
Before the Senate Committee on Finance

Mr. Chairman, Senator Baucus, and M e m b e r s of the Committee, thank you
for the opportunity to appear before you today, and especially for your
prompt scheduling of this hearing. I a m honored to be President Bush's
nominee to serve as General Counsel for the Department of the Treasury,
and I a m grateful to Secretary S n o w for his confidence in m e . If you will
permit m e , I will take a m o m e n t to introduce the m e m b e r s of m y family that
are here today.
As you may know, I grew up in Evanston, Illinois. My parents were
passionate about a number of things, but chief a m o n g them w a s assuring
that m y sister and I received a quality education, and they sacrificed m u c h
to give us that opportunity. They also taught us by example the importance
of giving back to our community in recognition of the obligation w e have as
citizens living in a democracy. Volunteering and assuming positions of
responsibility in community organizations, albeit at times challenging, w a s
simply a given in our family. These important lessons and others help to
explain w h y - for m e - public service is both a privilege and an obligation.
The opportunity to return to public service at this time s e e m s especially
important in this post 9/11 environment. Today, our Nation faces
challenges that w e must and can meet so that our children's and their
children's freedoms and futures remain bright. I welcome the opportunity, if
confirmed, to contribute what I can toward meeting these challenges.
Mr. Chairman, I believe that the solid education my parents encouraged
and helped m e achieve along with the professional experiences that
followed have prepared m e well for the responsibilities I will undertake as
General Counsel, if I a m confirmed by the Senate. M y legal training has
prepared m e throughout m y career to solve complex problems by
identifying issues, assessing relevant statutory and regulatory provisions,
and crafting solutions to meet the goals of m y clients.
My government service as an Assistant Legislative Counsel for the House
of Representatives and the Minority Counsel and Staff Director of the
House Energy and C o m m e r c e Committee taught m e to be precise,
analytical and thorough in developing legal proposals, and gave m e a
detailed understanding of the legislative and regulatory processes.
In the private sector, I have provided strategic advice to my clients, and
have advocated their interests in a variety of forums. This has helped m e
to formulate clear and cogent legal and policy arguments, and to present
them in a persuasive and effective manner.
I understand the responsibilities of the position to which I have been
nominated are great. The legal issues facing the Treasury Department
today are a m o n g the most important and sweeping in government, ranging
from the financial war on terrorism to interpretation of the tax code.
Decisions of the Department directly impact individual citizens and
businesses in very profound and personal ways. It is clear to m e that

http://www.treas.gov/press/releases/jsl009.htm 5/20/2005

Page 1 of 2

JS-1009: Arnie H a v e n s Testimony Before the Senate Committee on Finance

Page 2 of 2

assuming leadership of the Treasury's legal division and providing candid
advice to the Secretary and other Treasury clients will be both challenging
and immensely rewarding. If confirmed, I welcome this challenge, and
pledge to you that I will work hard every day to carry out m y
responsibilities.
I thank you again, Mr. Chairman, for allowing me to appear before you
today, and I a m happy to answer any questions that you and other
members of the Committee may have.

http://www.treas.gov/press/releases/js 1009.htm

5/20/2005

JS-1009: Arnie H a v e n s Testimony Before the Senate Committee o n Finance

P a g e 1 of 2

PRESS ROOM

F R O M T H E OFFICE O F PUBLIC AFFAIRS
November 18, 2003
JS-1009
Statement of Arnie Havens
Before the Senate Committee on Finance

Mr: Chairman, Senator Baucus, and Members of the Committee, thank you
for the opportunity to appear before you today, and especially for your
prompt scheduling of this hearing. I a m honored to be President Bush's
nominee to serve as General Counsel for the Department of the Treasury,
and I a m grateful to Secretary S n o w for his confidence in m e . If you will
permit m e , I will take a m o m e n t to introduce the m e m b e r s of m y family that
are here today.
As you may know, I grew up in Evanston, Illinois. My parents were
passionate about a number of things, but chief a m o n g them w a s assuring
that m y sister and I received a quality education, and they sacrificed m u c h
to give us that opportunity. They also taught us by example the importance
of giving back to our community in recognition of the obligation w e have as
citizens living in a democracy. Volunteering and assuming positions of
responsibility in community organizations, albeit at times challenging, w a s
simply a given in our family. These important lessons and others help to
explain w h y - for m e - public service is both a privilege and an obligation.
The opportunity to return to public service at this time seems especially
important in this post 9/11 environment. Today, our Nation faces
challenges that w e must and can meet so that our children's and their
children's freedoms and futures remain bright. I welcome the opportunity, if
confirmed, to contribute what i can toward meeting these challenges.
Mr. Chairman, I believe that the solid education my parents encouraged
and helped m e achieve along with the professional experiences that
followed have prepared m e well for the responsibilities I will undertake as
General Counsel, if I a m confirmed by the Senate. M y legal training has
prepared m e throughout m y career to solve complex problems by
identifying issues, assessing relevant statutory and regulatory provisions,
and crafting solutions to meet the goals of m y clients.
My government service as an Assistant Legislative Counsel for the House
of Representatives and the Minority Counsel and Staff Director of the
House Energy and C o m m e r c e Committee taught m e to be precise,
analytical and thorough in developing legal proposals, and gave m e a
detailed understanding of the legislative and regulatory processes.
In the private sector, I have provided strategic advice to my clients, and
have advocated their interests in a variety of forums. This has helped m e
to formulate clear and cogent legal and policy arguments, and to present
them in a persuasive and effective manner.
I understand the responsibilities of the position to which I have been
nominated are great. The legal issues facing the Treasury Department
today are a m o n g the most important and sweeping in government, ranging
from the financial war on terrorism to interpretation of the tax code.
Decisions of the Department directly impact individual citizens and
businesses in very profound and personal ways. It is clear to m e that

http://www.treas.goy/press/releases/js 1009.htm

5/20/2005

JS-1009: Arnie H a v e n s Testimony Before the Senate Committee on Finance

Page 2 of 2

assuming leadership of the Treasury's legal division and providing candid
advice to the Secretary and other Treasury clients will be both challenging
and immensely rewarding. If confirmed, I welcome this challenge, and
pledge to you that I will work hard every day to carry out m y
responsibilities.
I thank you again, Mr. Chairman, for allowing me to appear before you
today, and I a m happy to answer any questions that you and other
members of the Committee may have.

http://www.tTeas.gov/press/releases/jsl009.htm

5/20/2005

/ ' *

LAUNDERING
STRATEGY

JS-1011: Treasury & IRS Shut D o w n Abusive Tax Avoidance Transaction Involving Con... Page 1 of

PRESS ROOM

F R O M T H E OFFICE O F PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Readers.

November 19, 2003
JS-1011
Treasury & IRS Shut Down Abusive Tax Avoidance Transaction Involving
Contested Liability Trusts
Today the Treasury Department and the Internal Revenue Service issued guidance
to prevent the use of trusts to accelerate deductions for liabilities that a taxpayer is
contesting. The use of a trust to accelerate improperly deductions under section
461(f) is now a "listed transaction". A taxpayer using a trust for this purpose will
have to disclose it to the IRS and an advisor promoting its use will be required to
keep a list of taxpayers.
"The notice and regulations are part of our continuing efforts to identify and shut
down abusive tax avoidance transactions," stated Treasury assistant Secretary for
Tax Policy P a m Olson. "Once again, w e have put taxpayers on notice. A taxpayer
that uses improperly a trust to accelerate a deduction for a contested liability will
have to disclose that to the IRS."
Taxpayers have transferred their own stock or the stock or note of a related party to
contested liability trusts to satisfy the requirements of section 461 (f). The temporary
regulations provide that such a transfer does not satisfy the requirements of section
461(f). In addition, the temporary regulations clarify that a taxpayer's transfer of
money or other property to a trust, escrow account, or court to provide for the
satisfaction of a contested workers compensation, tort, or other payment liability
generally does not satisfy the economic performance requirement of the Code.
Rather, economic performance occurs when payment is made to the claimant.
Notice 2003-77 also denotes as listed transactions certain transfers to contested
liabilities trusts, including transfers in which the transferor has retained control over
the trust assets.
-30Related Documents:
• Notice 2003-77
• TD9095
• Reg. 136890-02

http://www.treas.gov/press/releases/jsl011 .htm

5/20/2005

Part III -Administrative, Procedural, and Miscellaneous
Transfers to Trusts to Provide for the Satisfaction of Contested Liabilities
Notice 2003-77
The Internal Revenue Service and Treasury Department are aware of certain
transactions that use contested liability trusts improperly to attempt to accelerate
deductions for contested liabilities under * 461(f) of the Internal Revenue Code. This
notice alerts taxpayers and their representatives that these transactions are tax
avoidance transactions and identifies these transactions, and substantially similar
transactions, as listed transactions for purposes of • 1.6011-4(b)(2) of the Income Tax
Regulations and ' ' 301.6111-2(b)(2) and 301.6112-1 (b)(2) of the Procedure and
Administration Regulations. This notice also alerts parties involved with these
transactions of certain responsibilities that m a y arise from their involvement with these
transactions.
LAW
Section 461(f) provides an exception to the general rules of tax accounting by
allowing a taxpayer to deduct a contested liability in a year prior to the resolution of the
contest if the following conditions are satisfied: (1) the taxpayer contests an asserted
liability; (2) the taxpayer transfers m o n e y or other property to provide for the satisfaction
of the asserted liability; (3) the contest with respect to the asserted liability exists after
the time of transfer; and (4) but for the fact that the asserted liability is contested, a
deduction would be allowed for the taxable year of the transfer (or for an earlier taxable
year) determined after the application of the economic performance rules. If these
requirements are satisfied, a taxpayer m a y deduct the liability in the taxable year of the
transfer.
On November 19, 2003, the Service and Treasury Department filed with the
Federal Register proposed and temporary regulations under • 461(f). Section 1.4612T(c)(1) of these temporary regulations, which replaces and restates ' 1.461-2(c)(1),
provides that a transfer for the satisfaction of an asserted liability is a transfer of m o n e y
or property beyond the taxpayers control to: (1) the person asserting the liability; (2) an
escrowee or trustee pursuant to a written agreement (among the escrowee or trustee,
the taxpayer, and the person w h o is asserting the liability) providing that the m o n e y or
other property be delivered in accordance with the settlement of the contest; (3) an
escrowee or trustee pursuant to an order of a court or government entity providing that
the m o n e y or other property be delivered in accordance with the settlement of the
contest; or (4) a court with jurisdiction over the contest. A n account is in the taxpayers
control unless the taxpayer has relinquished all authority over the m o n e y or other
property transferred.

2
Section 1.461-2T(c)(1)(iii) provides that the following actions are not transfers to
provide for the satisfaction of an asserted liability: (1) the purchase of a bond to
guarantee payment of the asserted liability; (2) an entry on the taxpayers books of
account; and (3) a transfer to an account in the taxpayers control. The temporary
regulations clarify that a transfer in taxable years beginning after December 31, 1953,
and ending after August 16, 1954, of any indebtedness of a taxpayer or any promise by
the taxpayer to provide services or property in the future is not a transfer to provide for
the satisfaction of an asserted liability. In addition, the temporary regulations provide
the express rule that a transfer (other than to the person asserting the liability) of a
taxpayers stock, or the indebtedness or stock of a person related to the taxpayer (as
defined in section 267(b)), is not a transfer to provide for the satisfaction of an asserted
liability.
Section 461(h)(2)(C) provides that, if a workers compensation or tort liability
requires a payment to another person, then economic performance occurs as payments
to the person are made. The Conference Report accompanying enactment of ' 461(h)
states:
In the case of workers= compensation or tort liabilities of the
taxpayer requiring payments to another person, economic
performance occurs as payments are m a d e to that person.
Since payment to a section 461(f) trust is not a payment to
the claimant and does not discharge the taxpayers liability
to the claimant, such payment does not satisfy the economic
performance test.
H.R. Rep. No. 861, 98th Cong., 2d Sess. 871, 876 (1984).
Section 461(h)(2)(D) provides that in the case of other liabilities, economic
performance occurs at the time determined under regulations prescribed by the
Secretary. Section 1.461-4(g)(2) through (7) describes other liabilities for which
payment is economic performance.
Section 1.461 -4(g)(1 )(ii)(A) provides that payment does not include the furnishing
of a note or other evidence of indebtedness of the taxpayer.
Section 1.461-4(g)(1)(i) provides that, for certain liabilities for which payment is
economic performance, economic performance does not occur as a taxpayer m a k e s
payments in connection with the liability to any other person, including a trust, escrow
account, court-administered fund, or any similar arrangement, unless the payments
constitute payment to the person to which the liability is owed. In Maxus Energy
Corporation and Subsidiaries v. United States, 31 F.3d 1135, 1144, 1145 (Fed. Cir.
1994), the taxpayers payment to a settlement fund effectively constituted payment to
the person to which the liability w a s owed because the claimants agreed to look solely
to the fund to satisfy their claims and, therefore, the taxpayers payment to the fund
discharged its liability to the claimant.

3
Section 1.461-2T(e)(2) provides that, except as provided in " 4 6 8 B or the
regulations thereunder, economic performance does not occur w h e n a taxpayer
transfers m o n e y or other property to a trust, escrow account, or court to provide for the
satisfaction of a contested workers compensation, tort, or other liability designated in '
1.461-4(g) unless the trust, escrow account, or court is the claimant or the taxpayers
payment to the trust, escrow account, or court discharges the taxpayers liability to the
claimant.
ANALYSIS
The Service and Treasury Department have become aware of transactions in
which taxpayers have established trusts purported to qualify under • 461(f), but that fail
to comply with the requirements of ' 461(f) or the regulations by reason of: (1)
retention of powers over the trust assets (such as the power to substitute assets, to pay
the contested liabilities out of assets other than those in the trust, or to limit the
trustee=s ability to sell the taxpayers assets that the taxpayer transferred to the trust),
contrary to the requirement that the taxpayer relinquish control over the property
transferred; (2) transfer to the trust of related party notes under circumstances indicating
the liability is not genuine or that there is no intent between the parties to enforce the
obligation, which is not a valid transfer to provide for the satisfaction of an asserted
liability; or (3) establishment of trusts for contested tort, workers compensation, or other
liabilities designated in ' 1.461-4(g), for which economic performance requires payment
to the claimant.
Transactions that are the same as, or substantially similar to, the following
transactions are identified as Alisted transactions@ for purposes of ' ' 1.60114(b)(2), 301.6111 -2(b)(2) and 301.6112-1 (b)(2):
(1) transactions in which a taxpayer transfers money or other property in taxable
years beginning after December 31, 1953, and ending after August 16, 1954, to a trust
purported to be established under ' 461(f) to provide for the satisfaction of an asserted
liability and retains any one or more of the following powers over the m o n e y or other
property transferred: to pay any liabilities ultimately due to the claimant out of assets
other than those transferred to the trust; to substitute m o n e y or other property for
property transferred to the trust; to prohibit payment to the claimant by the trustee until
instructed by the taxpayer; to prohibit notification to the claimant of the trust=s
establishment; to limit the trustee=s ability to sell the property after it is transferred to
the trust; and to limit the trustee=s ability to enforce notes or rights relating to other
property transferred to the trust;
(2) transactions in which a taxpayer transfers any indebtedness of the taxpayer
or any promise by the taxpayer to provide services or property in the future in taxable
years beginning after December 31, 1953, and ending after August 16, 1954, to a trust
purported to be established under ' 461(f) to provide for the satisfaction of an asserted

4
liability;
(3) transactions in which a taxpayer transfers money or other property after July
18, 1984, to a trust purported to be established under • 461(f) to provide for the
satisfaction of a workers compensation or tort liability;
(4) transactions in which a taxpayer transfers money or other property in taxable
years beginning after December 31, 1991, to a trust purported to be established under
1
461(f) to provide for the satisfaction of a liability for which payment is economic
performance under ' 1.461-4(g), other than a liability for workers compensation or tort;
and
(5) transactions in which a taxpayer transfers stock issued by the taxpayer, or
indebtedness or stock issued by a party related to the taxpayer (as defined in * 267(b)),
on or after November 19, 2003, to a trust purported to be established under ' 461(f) to
provide for the satisfaction of any asserted liability.
Independent of their classification as Alisted transactions^ transactions that are
the s a m e as, or substantially similar to, the transactions described in this notice m a y
already be subject to the disclosure requirements of ' 6011 (' 1.6011-4), the tax shelter
registration requirements of ' 6111 (• ' 301.6111-1T, 301.6111-2), or the list
maintenance requirements of ' 6112 (' 301.6112-1). Persons required to register
these tax shelters under '6111 w h o have failed to do so m a y be subject to the penalty
under ' 6707(a). Persons required to maintain lists of investors under ' 6112 who have
failed to do so (or w h o fail to provide such lists w h e n requested by the Service) m a y be
subject to the penalty under • 6708(a). In addition, the Service m a y impose penalties
on parties involved in these transactions or substantially similar transactions, including
the accuracy-related penalty under ' 6662.
Transactions that are the same as, or substantially similar to, the transactions
described in this notice are identified as "listed transactions" for purposes of §§ 1.60114(b)(2), 301.6111-2(b)(2) and 301.6112-1 (b)(2) effective November 19, 2003, the date
this notice is released to the public. The references to specific taxable years and dates
in the description of transactions covered by this notice are intended to provide
consistency with the temporary and proposed regulations under § 461(f) filed with the
Federal Register on November 19, 2003. Only those transactions covered by the
provisions (including the effective date provisions) of the disclosure, tax shelter
registration, and list maintenance requirements under §§ 6011, 6111, and 6112 and the
regulations thereunder will be subject to those requirements.
DRAFTING INFORMATION
The principal author of this notice is Norma Rotunno of the Office of the
Associate Chief Counsel (Income Tax & Accounting). For further information regarding
this notice, contact Ms. Rotunno at (202) 622-7900 (not a toll-free number).

[4830-01-p]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9095]
RIN 1545-BA91
Transfers to Provide for Satisfaction of Contested Liabilities
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final and temporary regulations.
SUMMARY: This document contains regulations relating to transfers of money or other
property to provide for the satisfaction of contested liabilities. The regulations affect
taxpayers that are contesting an asserted liability and that transfer their own stock or
indebtedness, the stock or indebtedness of a related party, or a promise to provide
services or property in the future, to provide for the satisfaction of the liability prior
resolution of the contest. The regulations also affect taxpayers that transfer money or

other property to a trust, an escrow account, or a court to provide for the satisfaction of
a liability for which payment is economic performance. The text of these temporary

regulations also serves as the text of the proposed regulations set forth in the notice of
proposed rulemaking on this subject in the Proposed Rules section in this issue of the
Federal Register.
DATES: Effective Date: These regulations are effective November 19, 2003.
Applicability Dates: For dates of applicability, see ' 1.461-2T(g).
FOR FURTHER INFORMATION CONTACT: Norma Rotunno, (202) 622-7900 (not a toll

2
free number).
S U P P L E M E N T A R Y INFORMATION:
Background
This document contains amendments to the Income Tax Regulations (26 C F R
Part 1) under section 461(f) of the Internal Revenue Code (Code) relating to the transfer
of money or other property to provide for the satisfaction of an asserted liability that a
taxpayer is contesting. Section 461(f) provides an exception to the general rules of tax
accounting by allowing a taxpayer to deduct a contested liability in a year prior to the
resolution of the contest if the following conditions are met: (1) the taxpayer contests an
asserted liability, (2) the taxpayer transfers money or other property to provide for the
satisfaction of the asserted liability, (3) the contest with respect to the asserted liability
exists after the time of transfer, and (4) but for the fact that the asserted liability is
contested, a deduction would be allowed for the taxable year of the transfer (or for an
earlier taxable year) determined after the application of the economic performance
rules. If these requirements are satisfied, a taxpayer may deduct the liability in the
taxable year of the transfer.
Section 461(f)(2) requires the taxpayer to transfer money or other property to
provide for the satisfaction of the asserted liability. Neither the statute nor the
regulations specifically define money or other property. The examples in the regulations
and the legislative history involve only transfers of cash.
Under ' 1.461-2(c)(1) of the Income Tax Regulations, a transfer for the
satisfaction of an asserted liability is a transfer of money or other property beyond the

3
taxpayers control to: (1) the person asserting the liability, (2) an escrowee or trustee
pursuant to a written agreement (among the escrowee or trustee, the taxpayer, and the
person who is asserting the liability) providing that the money or other property be
delivered in accordance with the settlement of the contest, (3) an escrowee or trustee
pursuant to an order of a court or government entity providing that the money or other
property be delivered in accordance with the settlement of the contest, or (4) a court
with jurisdiction over the contest. The taxpayer must relinquish all authority over the
money or other property transferred.
To qualify for a deduction, section 461(f)(4) provides that a deduction is allowed
in the taxable year of the transfer only if, but for the fact that the asserted liability is
contested, a deduction would be allowed for the taxable year of the transfer (or for an
earlier taxable year) Adetermined after application of subsection (h).@ Congress added
the quoted language to section 461(f)(4) when Congress enacted section 461(h), which
provides, for amounts with respect to which a deduction would be allowable after July
18, 1984, that the all events test is not met any earlier than when economic
performance has occurred with respect to the liability. Section 461(h)(2)(C) provides
that payment to another person is required to satisfy economic performance for
liabilities arising out of any workers compensation act or any tort. The Conference
Report accompanying enactment of section 461(h) explains the impact of the economic
performance requirement on trusts established under section 461(f):
In the case of workers= compensation or tort liabilities of the taxpayer
requiring payments to another person, economic performance occurs
as payments are m a d e to that person. Since payment to a section
461(f) trust is not a payment to the claimant and does not discharge

4
the taxpayers liability to the claimant, such payment does not satisfy
the economic performance test.
H. R. Rep. No. 861, 98th Cong., 2d Sess. 871, 876 (1984).
For transfers in taxable years beginning after December 31, 1991, ' 1.4614(g)(2)-(7) expands the list of liabilities for which payment Ato the person to which the
liability is owed@ constitutes economic performance (payment liabilities). The additional

payment liabilities listed in ' 1.461-4(g)(2)-(6) include liabilities for breach of contrac
the extent of incidental, consequential, and liquidated damages) or violation of law,
rebates and refunds, awards, prizes, jackpots, insurance, warranty and service
contracts, and taxes. In addition, ' 1.461-4(g)(7) characterizes as payment liabilities
other liabilities for which other specific rules are not provided.
Section 1.461-4(g)(1)(ii)(A) provides that payment does not include the furnishing
of a note or other evidence of indebtedness of the taxpayer.
Section 1.461-4(g)(1)(i) provides that, for liabilities for which payment is
economic performance, economic performance does not occur as a taxpayer makes
payments in connection with a liability to any other person, including a trust, escrow
account, court-administered fund, or any similar arrangement, unless the payments
constitute payment to the person to which the liability is owed under paragraph
(9)0 )(ii)(B)- Section 1.461-4(g)(1 )(ii)(B) states that payment is accomplished if a cash
basis taxpayer in the position of the person to which the liability is owed would be
treated as having actually or constructively received the amount of the payment as
gross income under section 451.
Explanation of Provisions

5
Transfers of Property to Provide for the Satisfaction of an Asserted Liability
The regulations remove '1.461-2(c)(1) and add ' 1.461-2T(c)(1). The temporary
regulations restructure the provisions of current ' 1.461-2(c)(1) for greater clarity but
retain all of the rules in ' 1.461-2(c)(1), including the requirement that the taxpayer must
transfer money or other property beyond the taxpayers control and relinquish all
authority over the money or other property transferred. The temporary regulations
clarify that the transfer of the indebtedness of a taxpayer or of any promise by the
taxpayer to provide services or property in the future is not a transfer to provide for the
satisfaction of an asserted liability. See Eckert v. Burnet, 283 U.S. 140 (1931);
Willamette Industries, Inc., v. Commissioner, 92 T.C. 1116 (1989), aff=d, 149 F. 3d
1057 (9th Cir. 1998). In addition, the temporary regulations provide the express rule that
a transfer (other than to the person asserting the liability) of a taxpayers stock, or the
indebtedness or stock of a person related to the taxpayer (as defined in section 267(b)),
is not a transfer to provide for the satisfaction of an asserted liability. These rules are
consistent with section 468B(d)(1)(B), which excludes as a qualified payment to a
designated settlement fund the transfer of any stock or indebtedness of the taxpayer (or
any related person). See ' 1.461-4(g)(1)(ii)(A), which provides that payment does not
include the furnishing of a note or other evidence of indebtedness of the taxpayer or a
promise of the taxpayer to provide services or property in the future.
Economic Performance Rules for Payment Liabilities
Section 1.461-4(g) provides that economic performance occurs in the case of a
liability requiring payment to another person arising out of a workers compensation act,

6
tort, or other designated liability as payments are made to the person to which the
liability is owed. Therefore, the temporary regulations provide in * 1.461-2T(e)(2) that,
except as provided in section 468B or the regulations thereunder, economic
performance does not occur when a taxpayer transfers money or other property to a
trust, escrow account, or court to provide for the satisfaction of a contested workers
compensation, tort, or other liability designated in ' 1.461-4(g) unless the trust, escrow
account, or court is the claimant or the taxpayers payment to the trust, escrow
account, or court discharges the taxpayers liability to the claimant. See Maxus Energy
Corporation and Subsidiaries v. United States, 31 F.3d 1135 (Fed. Cir. 1994). Rather,
economic performance occurs in the taxable year in which the taxpayer transfers money

or other property to the person asserting the liability that the taxpayer is contesting, or i
the taxable year in which payment from the trust, escrow account, or court registry is
made to the person to which the liability is owed.
Effective Date
In general, the temporary regulations apply to transfers made in taxable years
beginning after December 31, 1953, and ending after August 16, 1954. However, the
temporary regulations apply to transfers of any stock of the taxpayer or any stock or
indebtedness of a related person on or after November 19, 2003. Section 1.4612T(e)(2)(i) applies to transfers of money or other property after July 18, 1984, the
effective date of section 461 (h). Similarly, ' 1.461-2T(e)(2)(ii) applies to transfers of
money or other property after July 18, 1984, to satisfy workers compensation or tort
liabilities, and applies to transfers of money or other property in taxable years beginning

7

after December 31, 1991, the effective date of ' 1.461-4(g), to satisfy payment liabilit

designated under ' 1.461-4(g) (other than liabilities for workers compensation or tort).
Special Analyses
It has been determined that this Treasury decision is not a significant regulatory
action as defined in Executive Order 12866. Therefore, a regulatory assessment is not
required. It also has been determined that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. Please refer to

the cross-referenced notice of proposed rulemaking published elsewhere in this issue of

the Federal Register for applicability of the Regulatory Flexibility Act (5 U.S.C. chapt
6). Pursuant to section 7805(f) of the Code, these temporary regulations will be
submitted to the Chief Counsel for Advocacy of the Small Business Administration for
comment on their impact on small business.
Drafting Information
The principal author of these regulations is Norma Rotunno of the Office of the
Associate Chief Counsel (Income Tax & Accounting). However, other personnel from
the IRS and Treasury participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in part as follows:

8
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.461-2 is amended by:
1. Removing paragraph (a)(5).
2. Revising paragraph (c)(1).
3. Redesignating paragraph (e)(2) as paragraph (e)(3) and revising it.
4. Adding new paragraph (e)(2).
The addition and revisions read as follows:
'1.461-2 Contested liabilities.
*****

(c) * * *
(1) [Reserved]. For further guidance, see ' 1.461 -2T(c)(1).
*****

(e) * * *
(2) [Reserved]. For further guidance, see ' 1.461-2T(e)(2).
(3) Examples. The provisions of this paragraph are illustrated by the following
examples:
Example 1. A, an individual, makes a gift of certain property to B, an individual.
A pays the entire amount of gift tax assessed against him but contests his liability for
the tax. Section 275(a)(3) provides that gift taxes are not deductible. A does not satisfy
the requirement of paragraph (a)(1)(iv) of this section because a deduction would not be
allowed for the taxable year of the transfer even if A did not contest his liability to the
tax.
Example 2. [Reserved]. For further guidance, see ' 1.461-2T(eK3), Example 2.
* * * * *

Par. 4. Section 1.461-2T is added to read as follows:

9
' 1.461-2T Contested liabilities (temporary).
(a) and (b) [Reserved]. For further guidance, see ' 1.461 -2(a) and (b).
(c) Transfer to provide for the satisfaction of an asserted liability—(1) In general.
(i) A taxpayer may provide for the satisfaction of an asserted liability by transferring
money or other property beyond his control to(A) The person who is asserting the liability;
(B) An escrowee or trustee pursuant to a written agreement (among the
escrowee or trustee, the taxpayer, and the person who is asserting the liability) that the
money or other property be delivered in accordance with the settlement of the contest;
(C) An escrowee or trustee pursuant to an order of the United States or of any
State or political subdivision thereof or any agency or instrumentality of the foregoing, or
of a court, that the money or other property be delivered in accordance with the
settlement of the contest; or
(D) A court with jurisdiction over the contest.
(ii) In order for money or other property to be beyond the control of a taxpayer,
the taxpayer must relinquish all authority over the money or other property.
(iii) The following are not transfers to provide for the satisfaction of an asserted
liability(A) Purchasing a bond to guarantee payment of the asserted liability;
(B) An entry on the taxpayers books of account;
(C) A transfer to an account that is within the control of the taxpayer;
(D) A transfer of any indebtedness of the taxpayer or of any promise by the

10
taxpayer to provide services or property in the future; and
(E) A transfer to a person (other than the person asserting the liability) of any
stock of the taxpayer or of any stock or indebtedness of a person related to the taxpayer
(as defined in section 267(b)).
(c)(2) through (d) [Reserved]. For further guidance, see ' 1.461-2(c)(2) through
(d).
(e) Deduction otherwise allowed--(1) [Reserved]. For further guidance, see
'1.461-2(e)(1).
(2) Application of economic performance rules to transfers under section 461(f).
(i) A taxpayer using an accrual method of accounting is not allowed a deduction under
section 461(f) in the taxable year of the transfer unless economic performance has
occurred.
(ii) Economic performance occurs for liabilities requiring payment to another
person arising out of any workers compensation act or any tort, or any other liability
designated in ' 1.461-4(g), as payments are made to the person to which the liability is
owed. Except as provided in section 468B or the regulations thereunder, economic
performance does not occur when a taxpayer transfers money or other property to a
trust, an escrow account, or a court to provide for the satisfaction of an asserted
workers compensation, tort, or other liability designated under ' 1.461-4(g) that the
taxpayer is contesting unless the trust, escrow account, or court is the person to which
the liability is owed or the taxpayers payment to the trust, escrow account, or court
discharges the taxpayers liability to the claimant. Rather, economic performance

11
occurs in the taxable year the taxpayer transfers money or other property to the person
that is asserting the workers compensation, tort, or other liability designated under
' 1.461-4(g) that the taxpayer is contesting or in the taxable year that payment is made
from a trust, an escrow account, or a court registry funded by the taxpayer to the person
to which the liability is owed.
(3) Examples. The provisions of this paragraph (e) are illustrated by the following
examples:
Example 1. [Reserved]. For further guidance, see ' 1.461-2(e)(3), Example 1.
Example 2. Corporation X is a defendant in a class action suit for tort liabilities.
In 2002, X establishes a trust for the purpose of satisfying the asserted liability and
transfers $10,000,000 to the trust. The trust does not satisfy the requirements of
section 468B or the regulations thereunder. In 2004, the trustee pays $10,000,000 to
the plaintiffs in settlement of the litigation. Under paragraph (e)(2) of this section,
economic performance with respect to X = s liability to the plaintiffs occurs in 2004. X
m a y deduct the $10,000,000 payment to the plaintiffs in 2004.
(f) [Reserved]. For further guidance, see ' 1.461-2(f).
(g) Effective date. (1) Except as otherwise provided, this section applies to
transfers of money or other property in taxable years beginning after December 31,
1953, and ending after August 16, 1954.
(2) Paragraph (c)(1 )(iii)(E) of this section applies to transfers of any stock of the
taxpayer or any stock or indebtedness of a person related to the taxpayer on or after
November 19, 2003.
(3) Paragraph (e)(2)(i) of this section applies to transfers of money or other
property after July 18, 1984.
(4) Paragraphs (e)(2)(ii) and (e)(3) of this section apply to-

(i) Transfers after July 18, 1984, of m o n e y or other property to provide for the
satisfaction of an asserted workers compensation or tort liability; and
(ii) Transfers in taxable years beginning after December 31, 1991, of money or

other property to provide for the satisfaction of asserted liabilities designated in ' 1.4614(g) (other than liabilities for workers compensation or tort).

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.

Approved: November 12, 2003.
Pamela F. Olson,
Assistant Secretary of the Treasury.

[4830-01-p]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-136890-02]
RIN 1545-BA90
Transfers to Provide for Satisfaction of Contested Liabilities
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking by cross-reference to temporary regulations
and notice of public hearing.
SUMMARY: In the Rules and Regulations section of this issue of the Federal Register,

the IRS is issuing temporary regulations relating to the transfer of indebtedness or stock
of a taxpayer or related persons or of a promise to provide services or property in the
future to provide for the satisfaction of an asserted liability that the taxpayer is
contesting. The temporary regulations also relate to transfers of money or other
property to a trust, an escrow account, or a court to provide for the satisfaction of a
liability for which payment is economic performance. The text of those temporary
regulations also serves as the text of these proposed regulations. This document also
provides notice of a public hearing on these proposed regulations.
DATES: Written or electronic comments must be received by February 19, 2004.
Requests to speak and outlines of topics to be discussed at the public hearing
scheduled for March 23, 2004, must be received by March 2, 2004.
ADDRESSES: Send submissions to: CC:LPD:PR (REG-136890-02), room 5226,

2
Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC. 20044.
Submissions may be hand delivered Monday through Friday between the hours of 8
a.m. and 4 p.m. to: CC:LPD:PR (REG-136890-02), Courier's Desk, Internal Revenue
Service, 1111 Constitution Avenue, NW., Washington, DC, or sent electronically via the

IRS Internet site at www.irs.gov/regs. The public hearing will be held in the 7th floor
auditorium, Internal Revenue Building, 1111 Constitution Avenue NW., Washington, DC.
FOR FURTHER INFORMATION CONTACT: Concerning the hearing, submission of
comments, and/or to be placed on the building access list to attend the hearing,
Guy Traynor, (202) 622-7180; concerning the proposed regulations, Norma Rotunno,
(202) 622-7900 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of Provisions
Temporary regulations in the Rules and Regulations section of this issue of the
Federal Register amend the Income Tax Regulations (26 CFR Part 1) relating to
section 461(f) of the Internal Revenue Code (Code). The temporary regulations provide

the express rule that transfers of the indebtedness of a taxpayer or of any promise to
provide services or property in the future, or transfers (other than to the person

asserting the liability) of a taxpayers stock, or the indebtedness or stock of a person

related to the taxpayer (as defined in section 267(b)), are not transfers to provide fo
satisfaction of an asserted liability. The temporary regulations also provide rules

relating to the application of the economic performance rules to transfers of money or

other property under section 461(f) to provide for the satisfaction of a contested wor

3
compensation or tort liability, or other liability for which payment is economic
performance under ' 1.461-4(g). The text of the temporary regulations also serves as
the text of these proposed regulations. The preamble to the temporary regulations
explains the amendments.
Special Analyses
It has been determined that this notice of proposed rulemaking is not a
significant regulatory action as defined in Executive Order 12866. Therefore, a
regulatory assessment is not required. It also has been determined that section 553(b)
of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these
regulations, and because the regulation does not impose a collection of information on
small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply.
Pursuant to section 7805(f) of the Code, this notice of proposed rulemaking will be
submitted to the Chief Counsel for Advocacy of the Small Business Administration for
comment on its impact on small business.
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments (a signed original and eight (8)
copies) or electronic comments that are submitted timely to the IRS. The IRS and
Treasury Department request comments on the clarity of the proposed rules and how
they can be made easier to understand. All comments will be available for public
inspection and copying.
A public hearing has been scheduled for March 23, 2004, in the 7th floor

4
auditorium of the Internal Revenue Building, 1111 Constitution Avenue NW.,
Washington, DC. Due to building security procedures, visitors must enter at the

Constitution Avenue entrance. In addition, all visitors must present photo identification
to enter the building. Because of access restrictions, visitors will not be admitted
beyond the immediate entrance area more than 30 minutes before the hearing starts.
For information about having your name placed on the building access list to attend the
hearing, see the

AFOR

FURTHER INFORMATION CONTACTS section of this

preamble.
The rules of 26 CFR 601.601 (a)(3) apply to the hearing. Persons who wish to
present oral comments at the hearing must submit written comments and an outline of
the topics to be discussed and the time to be devoted to each topic (signed original and
eight (8) copies) by March 2, 2004. A period of 10 minutes will be allotted to each
person for making comments. An agenda showing the scheduling of the speakers will
be prepared after the deadline for receiving outlines has passed. Copies of the agenda
will be available free of charge at the hearing.
Drafting Information
The principal author of these regulations is Norma Rotunno, Office of the
Associate Chief Counsel (Income Tax & Accounting). However, other personnel from
the IRS and Treasury Department participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations

5
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.461-2 is amended by revising paragraphs (c)(1), (e)(2), (e)(3),
and (g) to read as follows:
'1.461-2 Contested liabilities.
[The text of proposed paragraphs (c)(1), (e)(2), (e)(3), and (g) is the same as the

text of ' 1.461-2T(c)(1), (e)(2), (e)(3), and (g) published elsewhere in this issue of the
Federal Register.]

Deputy Commissioner for Services and Enforcement.

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE CONTACT: Office of Financing
November 17, 2003

202-691-3550

RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Term: 182-Day Bill
Issue Date:
Maturity Date:
CUSIP Number:

November 20, 2003
May 20, 2004
912795PZ8

High Rate: 1.010% Investment Rate 1/: 1.033% Price: 99.489
All noncompetitive and successful competitive bidders were awarded
securities at the high rate. Tenders at the high discount rate were
allotted 70.04%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tender Type Tendered Accepted
Competitive
Noncompetitive
FIMA (noncompetitive)

$

38,220,074
1,023,576
75,000

$

14,902,142
1,023,576
75,000

SUBTOTAL 39,318,650 16,000,718 2/
Federal Reserve 5,892,642 5,892,642
TOTAL $ 45,211,292 $ 21,893,360
Median rate 1.005%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate. Low rate
0.98 0%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
3id-to-Cover Ratio = 39,318,650 / 16,000,718 = 2.46
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $813,621,000

JS
s

-'

///^~
http://www.publicdebt.treas.gov

'RLSS ROOM

FROM THE OFFICE OF PUBLIC AFFAIRS
November 18, 2003
2003-11-18-15-59-20-26890
U.S. International Reserve Position

The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, U.S. reserve assets
totaled $84,666 million as of the end of that week, compared to $83,554 million as of the end of the prior week.
I. Official U.S. Reserve Assets (in US millions)
November 7, 2003

November 14, 2003

83,554

84,666

TOTAL
1. Foreign Currency Reserves ]

Euro

Yen

TOTAL

Euro

Yen

TOTAL

a. Securities

7,676

14,392

22,039

7,826

14,507

22,333

0

Of which, issuer headquartered in the U.S.

0

b. Total deposits with:
b.i. Other central banks and BIS

12,534

2,891

15,425

12,799

2,914

15,713

b.ii. Banks headquartered in the U.S.

0

0

b.ii. Of which, banks located abroad

0

0

b.iii. Banks headquartered outside the U.S.

0

0

b.iii. Of which, banks located in the U.S.

0

0

2. IMF Reserve Position

23,179

23,529

3. Special Drawing Rights (SDRs)

11,867

12,047

11,043

11,043

0

0

4. Gold Stock

3

5. Other Reserve Assets

II. Predetermined Short-Term Drains on Foreign Currency Assets
November 7, 2003
Euro
1. Foreign currency loans and securities

Yen

November 14, 2003

TOTAL

Euro

0

2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the U.S. dollar:

Yen

TOTAL
0

2. a. Short positions
2.b. Long positions
3. Other

III. Contingent Short-Term Net Drains on Foreign Currency Assets
November 7, 2003
Euro

Yen

TOTAL

0

1. Contingent liabilities in foreign currency

November 14, 2003
Euro

Yen

TOTAL

0

l.a. Collateral guarantees on debt due within 1
year
l.b. Other contingent liabilities
2. Foreign currency securities with embedded
options
3. Undrawn, unconditional credit lines
3.a. With other central banks
3.b. With banks and other financial institutions
Headquartered in the U.S.
3.c. With banks and other financial institutions
Headquartered outside the US.
4. Aggregate short and long positions of
options in foreign
Currencies vis-a-vis the U.S. dollar
4. a. Short positions
4.a. 1. Bought puts
4.a.2. Written calls
4.b. Long positions
4.b.l. Bought calls
4.b.2. Written puts

Notes:
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
(SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and
deposits reflect carrying values. Foreign Currency Reserves for the latest week m a y be subject to revision. Foreign Currency

Reserves for the prior week are final.
2/The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF and are
valued in dollar terms at the official SDR/dollar exchange rate for the reporting date. The entries for the latest week reflect any
necessary adjustments, including revaluation, by the U.S. Treasury to the prior week's IMF data. IMF data for the latest week m a y be
subject to revision. IMF data for the prior week are final.
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.

JS-1013: Implementation of Recommendations by the International Financial Institutions ... Page 1 of 1

PRESS ROOM

F R O M T H E OFFICE O F PUBLIC AFFAIRS
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November 19, 2003
JS-1013
Report on Implementation of Recommendations Made by the International
Financial Institutions Advisory Commission

Report(s):
• Report on Implementation of Recommendations Made by the International
Financial Institutions Advisory Commission

http://www.treas.gov/press/releases/jsl 013 .htm

5/20/2005

Report on Implementation of Recommendations M a d e by the
International Financial Institutions Advisory Commission
October

2003

The intemationalifoa"^1 ihsrftiitihns (TFIR) play^^m^toLrala^J^R-i4^to.r-Tva-ti^r>f4
community's effort to strengthen the foundations for global growth, particularly in
reducing the frequency and depth of financial crises and supporting productivity gains
essential to poverty reduction.. The March 2000 report by the International Financial
Institutions Advisory Commission, chaired by Dr. Alan Meltzer, provided insights into
the h o w the IFIs might better realize their goals.
This is the third and final annual xeport updating the Administration's progress "to
implement such recommendations as are deemed feasible and desirable" in the
Department of the Treasury's response to the Commission's report.,' The need to
increase the effectiveness of the IFIs is ongoing and, as such, Treasury's work in
improving these organizations will continue.

HIPC
The Commission unanimously recommended that the IhdF and MDBs "write-offin their
entirety all claims against heavily indebted poor countries (HIPCs) that implement an
effective economic and social development strategy, In the three years since the report was published, 27 countries have reached the so-called
H I P C Decision Point - w h e n the country begins to receive both IFI and bilateral debt
reduction. Eight of the H I P C countries have gone on to achieve the Completion Point w h e n outstanding debt stock is irrevocably cancelled. The United States and all other G7 countries n o w forgive 100 percent of outstanding concessional debt contracted prior to
the 1999 Cologne Summit and have called on all bilateral creditors to do the same.
Additionally, the U.S. and several other countries have agreed to cancel all nonconcessional debt contracted before the Cologne Summit.
To reduce the accumulation of more debt, the World Bank and the African Development
Bark, have sharply increased proportion of assistance given in the form of grants rather
than loans. Measures that reward good policies, strengthen institutions, and encourage
growth in developing countries ultimately offer the best hope for sustained growth and
poverty reduction.

1

The Treasury response was prepared pursuant to section 603(i)(l) of the Foreign Operations, Export
Financing, and Related Programs Appropriations Act, 1999 (section 101(d) of Public L a w 105-277)
Previous update reports from 2001 and 2002 are available on the U S Department of the Treasury's
website at htto://www.tte3s.gov/press/releases/reDorts/roeltzer.pdf and
http://www.treas.gov/press/releases/reports/meltzer02.pdf. respectively

U.S. Department of the Treasury -IFI Advisory Commission Recommendations
2003 Report on Implementation -Page 2

INTERNATIONAL MONETARY FUND
The Commission directed many of its recommendations at the role and functions of the
International Monetary Fund (IMF)
A number of the Commission's insights have led to serious debate and, with strong
support from the Department of the Treasury, the I M F has undertaken several reforms
over the past three years
Crisis Prevention
The prevention of international financial crises lies at the heart of the IMF's mission
The Treasury has focused intensely on strengthening the IMF's perfomiance in crisis
prevention over the past three years. The IMF's debt sustainability analyses were
recently improved to better account for likely shocks and various policy compliance
outcomes.
Industrial countries have by far the largest role to play in crisis reduction. This is why
work on standards and codes in industrial countries is a central aspect of the IMF's crisis
prevention efforts. The Financial Sector Assessment Program (FSAP), created jointly
with the World Bank,now incorporates vulnerability analysis into surveillance and
program work with industrial countries. Another joint IMF/Bank undertaking, the
Reports on the Observance of Standards and Codes (ROSCs), fuither helps countries
identify sectors for concern and leads to focused technical assistance programs. In
existence since 1999, R O S C s cover eleven economic sectors, allowing markets and
policymakers to compare country performance against a global benchmark. In November
2002, IMF/World Bark Boards added a twelfth area, anti-money laundering and
combating the financing of terrorism ( A M L / C F T ) , to the list.. Over 50 R O S C s were
carried out over the past year, bringing the total number completed to nearly 350, with
almost half of I M F members conipleting at least one. The U.S.. has supported this effort,
and Treasury has posted the completed U.S. R O S C s on its website.
In addition, three more countries subscribed to the Special Data Dissemination Standard
( S D D S ) this year, bringing the total to 53 countries (plus the European Central Bank)
whose data are available publicly through the IMF's S D D S website. The broader
General Data Dissemination Standard ( G D D S ) continues to serve a dual role as a
framework for countries to improve tfeir statistical systems as well as a primary database
covering countries not yet linked to international capital markets.
Adding Predictability in the Case of Debt Restructuring
Over the last year, major progress has also been made in improving I M F crisis resolution
strategies. Collective action clauses in sovereign debt (CACs) are becoming the market
standard - an important step in institutionalizing a contractual method of speeding
resolution of unsustainable sovereign debt situations. The U.S. led a consultative group
of G 1 0 representatives to explore options for the design of C A C s , and the I M F provided
market research to demonstrate that countries'use of such clauses do not d a m p e n market
appetite or otherwise decrease prices on international debt. The I M F n o w actively

U.S. Department of the Treasury -IFI Advisory Commission Recommendations
2003 Report on Implementation -Page 3
promotes the uses of CACs in its bilateral and multilateral surveillance and through
workshops with issuers and legal practitioners, and the U.S.. continues to work with the
I M F to ensure that emerging markets consider the use of C A C s before they tap
international markets. In the second quarter of 2003, n e w issuances with C A C s outpaced
those Without C A C s for the first time.,
Transparency and Accountability at the I M F
The I M F has improved the transparency of its o w n operations and its dialogue with
member countries. Over the past three years, the I M F has improved transparency of its
finances - a strong Commission recommendation. Independent audits of I M F finances
are carried out by private independent films. T o improve accountability, a new
Independent Evaluation Office (IEO) within the I M F was created in 2002. The I E O is to
m a k e arms-length analyses that inform and accelerate reform efforts. The IEO completed
two n e w studies this year on capital account crises and the role of fiscal adjustment in
IMF-supported programs, both of which provided insight for I M F management leading to
operational changes.
The IMF has increased transparency of program and surveillance (Article TV)
consultations with m e m b e r countries. Since the I M F authorized voluntary publication of
Article IV staff reports in June 1999, the majority of these reports have been published.
Data ending March 2003 indicate this hend is strengthening: 6 4 % of Article IV and Use
of Fund resources staff reports were published over the past year, compared with 5 9 %
during the previous year. The same data indicate that 8 2 % of public information notices
were published following Article IV consultations. Effective July 2004, the I M F will
implement a n e w transparency policy, including "voluntary but presumed publication"
for Article IV documents and Use of Fund resources reports.
Clarifying Limits on Access to Large Scale Loans
A s part of a major reform effort to clarify the limits on access to large scale I M F loans, a
n e w exceptional access report is required. Where exceptional access to I M F resources is
considered appropriate, the Managing Director will n o w generally not recommend Board
approval unless the country consents to staff report publication, making this exceptional
access report public.
More Focused Conditionality
In recent years, the I M F conditions had become too wide ranging and excessively
detailed. For this reason, n e w guidelines for conditionality were adopted in 2002. The
guidelines returned the I M F to its core mandate of monetary, fiscal, and exchange rate
policy, and limited the IMF's core responsibilities to efforts to ensue proper functioning
of both domestic and international financial markets.
Many IMF programs are provided for "seal of approval" reasons. The practice of linking
donor flows to IMF-supported programs can lead to pressure to take on I M F lending
w h e n no financial need exists. Treasury has worked vdrh the I M F to identify substitutes
for signaling in lieu of funded programs. A n I M F policy change in January 2003 created

U.S. Department of the Treasury -IFI Advisory Commission Recommendations
2003 Report on Implementation -Page 4
an "Assessment Letter" that will allow donors to evaluate the quality of a country's
macroeconomic policy.
The new IMF policy on safeguards ensures country accountability for IMF loans by
requiring accounting, reporting and/or auditing assessments under program conditionality
for m a n y borrowing countries. N e w safeguards assessments were completed for 14
member countries in the first six months of 2003
Poor Countries
Strategies for lending to poor countries have been examined over the past year, and the
I M F has invited discussion of its role in helping poor countries,. In m a n y cases, the I M F
need not lend to poor countries in order to have a policy impact. The Treasury bas voiced
its desire to see poor countries draw on the IMF's technical assistance and expertise,
particularly in countries where accumulation of large debts can be counterproductive.
Treasury has been persistent in pressing for up front policy achievements in countries that
previously have failed to demonstrate policy commitment to economic stability and
growth.. The goal is to raise the quality of monetary and fiscal policy in the poorest
countries. A s the I M F moves forward to develop poor country strategies, Treasury will
advocate that the Poverty Reduction and Growth Facility ( P R G F ) be, at least partly, in
the form of grants rather than loans.

MULTILATERAL DEVELOPMENT BANKS
The majority report of the Meltzer Commission recommended a number of operational
and policy reforms to improve the policy performance of the multilateral development
banks (MDBs).
The MDBs are important instruments for helping to support economic growth and raise
living standards around the world. Treasury is working with the M D B s to improve their
effectiveness in improving the lives and prospects of the world's poor. This requires
increasing grantfinancing,mainstreaming results measurement, focusing assistance on
good performers, increasing transparency, and supporting private sector-led growth.
Increasing Grant Financing
The Meltzer Commission recommended that grants should replace loans in M D B
operations in poor countries without capital market access.
As a result of strong U.S. leadership in the 13th IDA replenishment negotiations in 20012002 (the 1.3" round of replenishment negotiations where donors push for reforms and
commit financing for IDA, the World Bank's concessional arm), the IDA-13 Agreement
provides for a significant expansion in grant funding for the world's poorest countries.
Starting in July of 2002 and continuing for three years, I D A grants account for 18-21% of
overall I D A resources, a total of about $4.5 billion. Grants are therefore n o w a major
factor in IDA's overall assistance - havingrisenfar beyond IDA's historical level of
grant funding of less than 1 % of overall I D A resources. 52 projects have c o m e to the
I D A Board from July 2002 through September 2003. O f this group, approximately 12"

U.S. Department of the Treasury -IFI Advisory Commission Recommendations
2003Report on Implementation -Page 5
projects have begun to disburse funds and are in the early stages of implementation.
There have been m a n y examples of strong results measurement frameworks in the grantfinanced projects, demonstrating measurable indicators and expected outcomes of the
grant financing.
U S. leadership on grants was also crucial in the 2002 replenishment agreement for the
African Development Fund, k n o w n as AfDF-9, more than doubling the share of grants to
18-21%. In both I D A and A f D F , grants will be used for productivity-enhancing
assistance for education, health, nutrition and potable water and sanitation; for H I V / A I D S
projects and natural disaster reconstruction; and for post-conflict assistance. Donors to
the International Fund of Agricultural Development (IFAD) also agreed in the IFAD-6
replenishment to increase grants to 1 0 % (from the historical average of 5 % ) of total
annual assistance, beginning in 2004.
Mainstreaming Results Measurement
The M D B s must give top priority to delivering and measuring development results at all
levels. At the suggestion of the United States, the World Bank has taken this challenge
on by establishing an "Incentive Contribution" structure in its latest I D A agreement that
allows donors to increase their levels of funding if concrete measurable results are
achieved.. Donors and developing countries alike will benefit from routinely quantifying
development achievements and understanding the reasons for success or failure. This
will significantly increase accountability.
Under IDA-13, World Bank management agreed to measure concrete progress toward
• Establishing a new results measurement system, drawing on timely and high quality
diagnostic analyses that identify a country's ability to make the best use of I D A
resources. These include assessments of public expenditure processes, financial
accountability regulations, and investment climates., World Bank management m a d e
good on this commitment, and in April 2003 Treasury pledged the first installment of
the U.S. Incentive Contribution ($100 million). In addition, I D A developed a series
of long-term results indicators for the next replenishment (IDA-14).
• Achieving specific targets in IDA borrowing countries relating to education, health
and private sector development to which the United States has tied its $200 million
incentive contribution for the coming year. These targets include increasing the
primary education completion rate and measles immunization coverage (both in terms
of population-weighted average and numbers of countries with positive growth), and
decreasing the time and cost required for business start-up by 7 % . Treasury has
suggested that the World Bank explore the concept of an audit of its o w n performance
in meeting this commitment.
The United States also achieved agreement to improve results measurement in recently
completed replenishment agreements for the African Development Bank's concessional
window (AfDF), IF A D and the Global Environment Facility (GEF). The A f D F will
develop quantifiable and monitorable performance indicators for all sectors, and

U.S. Department of the Treasury -IFI Advisory Commission Recommendations
2003 Report on Implementation -Page 6
rigorously incorporate these in its operations. The African Development Bank (AfDB) is
also developing a results-based management system. IF A D will establish a system to
measure and report quantifiable results, both for individual projects and aggregated by
category across the organization. Donors to G E F agreed to estimate and track project and
program results for each environmental focal area, and both G E F and IFA D will establish
independent evaluation units. The Inter-American Development Bank (IDB) is also
putting in place an enhanced results measurement system that will be led by a Chief
Development Effectiveness Officer, a n e w senior management position. The European
Bank for Reconstruction and Development ( E B R D ) recently created a n e w monitoring
system to measure project results (the Transition Impact Monitoring System) in order to
improve its measuring and monitoring of projects during the implementation stage.
This is just the start of actions that Treasury wants to see the MDBs take to
fundamentally shift their focus to mainstream measurable results. Outcome goals,
baselines and post-completion evaluations must be embedded in the design and
implemented throughout the life of country, sector, and institutional strategies as well as
loans. Treasury is promoting this in replenishment negotiations, policy statements at the
M D B Boards, and meetings with management representatives of the M D B s , W e have
gained the support of G-8 colleagues - setting out an ambitious results measurement
agenda for all of the M D B s to undertake.
Focusing Assistance on Good Performers
Last year at Monterrey, President Bush and other world leaders committed to a n e w
partnership between developed and developing countries that link sound policies, good
governance, and the rule of law to the mobilization of additional funds to achieve our
c o m m o n development goals. In the M D B s , w e will continue to emphasize the
importance of linking assistance to sound policies through performance based allocation
systems. Such systems are in place or being developed in the concessional windows of
all the institutions. For example, the IDA-13 Agreement called for a stronger emphasis
on governance in its performance-based allocation formula - with the result that 17
countries had their I D A lending allocations reduced due to poor governance ratings for
FY03. A s a result of U S . leadership, agreement was reached to establish performance
based allocation systems for the first time in last year's replenishment negotiations for
I F A D and G E F . W e have urged the World Bank to m o v e aggressively toward full
disclosure of the performance rating system it uses to allocate resources to poor countries,
including individual country performance scores used to apportion concessional I D A
resources as well as the scores of the components that make up the country performance
scores.
Increasing Transparency
As a result of consistent U.S pressure, the M D B s n o w systematically disclose to the
public a broad range of key documents on their lending operations and country and sector
strategies. There has been an extraordinary increase in the disclosure of World B a n k
documents since its n e w disclosure policy took effect at the beginning of 2002. The
policy, which bas been complemented by a more pro-active outreach effort, provided for
the release of a greater number of project-related documents; disclosure of the Chairman's

U.S. Department of the Treasury - I F I Advisory Commission Recommendations
2003 Repoi t on Implementation -Page 7
summaries of Board discussions on Country Assistance Strategies (CASs) and Sector
Strategy Papers (SSPs); and a more systematic approach (with a reduced lapse of time) to
accessing Bank archives.
In April 2003, the EBRD adopted revisions to its Public Information Policy that increase
the scope of information m a d e available to the public through the publication of certain
project evaluation documents and a schedule of forthcoming Board discussions. While
positive steps, the U S. believes them to be insufficient and continues to urge greater
disclosure of key documents, including environmental reviews, draft country strategies
and summaries of Board discussions. The information disclosure policies at the Asian,
African and Inter-American Development Banks are currently under review and the
Administration is emphasizing the need for each of these institutions to implement "best
practices" and a presumption of disclosure in all cases. A m o n g the specific transparency
measures w e are pushing for are: disclosure of documents prior to their consideration by
the Boards of Directors; issuance of the minutes of the Boards of Directors meetings;
publication of output and outcome indicators and results for projects while they are being
executed and when they are completed; and posting of annual reports on fraud by
corruption investigations units, including statistical summaries and case studies.
Increasing Support for Private Sector Led Growth
Treasury is working with each of the M D B s tofindbetter ways to promote private sectorled growth which is essential for poverty reduction, including through diagnostics and
support to improve developing countries' investment climates., The focus of next year's
World Development Report, the World Bank's flagship document, is on the links
between investment climate improvements, growth and poverty reduction. The World
Bank's "Doing Business" program is helping developing countries to identify and take
steps to remove obstacles to investment. I D A has committed to establish targets for
beneficiary countries to meet in reducing business start-up times and costs. T o
emphasize the importance of these actions, the United States has based its $200 million
additional contribution to I D A partially on progress in these areas. The I F C and I D A because of U S . insistence - have launched promising initiatives to expand small and
nlicro businesses' access to credit. The E B R D continues its work supporting loans to
small and micro enterprises through local partner banks in m a n y of its countries of
operations.

BANK FOR INTERNATIONAL SETTLEMENTS
The Commission made four main recommendations concerning the Bankfor
International Settlements (BIS) that the BIS continue in its role as a financial standard
setter, that the BIS align its risk measures more closely with credit and market risk; that
the BIS streamline its organizational structure; and that the BIS undertake only
membership expansion "gi'aditally and deliberately
Recent developments at the BIS broadly coincide with these recommendations- The BIS
continues to serve as the primary forum for cooperation a m o n g central banks to address
internationalfinancialand monetary stability issues, and also acts as a prime counterparty

U.S. Department of the Treasury - IFI Advisory Commission Recommendations
2003 Report on Implementation -Page 8
and provider of financial instruments for central banks The research and publication
functions of the BIS add m u c h value to the world of international banking and finance,
and the BIS's Financial Stability Institute has expanded its series of seminars and
workshops worldwide.
The BIS has focused on the collection of higher quality data and in February announced a
series of steps to improve international consolidated banking statistics. The Basel 11
Capital Accord, slated for implementation at year-end 2006, will improve the
international capital adequacy framework through a three-pillared approach: n e w
m i n i m u m capital requirements, enhanced supervisory review of capital adequacy, and
greater public disclosure,. Several countries, including the United States, have already
begun work on rules to integrate the n e w standards.
The BIS this year changed its unit of account from the gold franc to the SDR. The
General Manager explained the m o v e would "assist in managing the Bank's operations
and economic capital more efficiently and enhance the transparency of its accounts." The
BIS also recently elected to repurchase all privately held shares in order to maintain
control exclusively a m o n g its central bank shareholders.
Membership in the BIS has risen by six since 1999, to 51 countries. In addition, the BIS
has opened two representative offices (one in H o n g K o n g and the other in Mexico City)
to improve information exchange with emerging economies in Asia and the Americas.

JS-1014: Treasury Designates B u r m a and T w o Burmese Banks to be of "Primary M o n e y ... Page 1 of 1

F R O M T H E OFFICE O F PUBLIC AFFAIRS
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November 19, 2003
JS-1014
Treasury Department Designates Burma and Two Burmese Banks to be of
"Primary Money Laundering Concern" and Announces Proposed
Countermeasures
Secretary of the Treasury John W. Snow today announced the designation of
Burma and two Burmese banks to be of "primary money laundering concern" under
Section 311 of the U S A PATRIOT Act. In conjunction with this designation,
Treasury announced a notice of proposed rulemaking that would require U.S.
financial institutions to terminate correspondent accounts involving Burmese
financial institutions, subject to certain specified exemptions. Correspondent
accounts involving the two specific banks that have been designated, Myanmar
Mayflower Bank and Asia Wealth Bank, would have to be terminated without
exception.
"President Bush and the Department of the Treasury are committed to cracking
down on money laundering wherever it occurs. By employing the tough new tools of
the PATRIOT Act against Burma, w e send a strong message around the world that
the United States will safeguard our own financial system from under-regulated
banking systems and financial institutions that facilitate criminal activity," said
Secretary Snow.
The designation of Burma is the result of its failure to remedy serious deficiencies in
its anti-money laundering system, and is consistent with the Financial Action Task
Force's (FATF) call on November 3, 2003, for its members to take anti-money
laundering countermeasures against Burma.
The designation of Myanmar Mayflower Bank and Asia Wealth Bank represents the
first designation by the Secretary of specific foreign financial institutions found to be
of "primary money laundering concern." These two institutions have been linked to
narcotics trafficking organizations in Southeast Asia.
Treasury will continue to work with Burma to implement a comprehensive and
effective anti-money laundering system in that country. Until Burma implements an
anti money laundering regime that meets international standards, Treasury will
continue to take steps necessary to ensure that criminal proceeds emanating from
Burma do not reach the U.S. financial system.
Section 311 of the USA PATRIOT Act gives the Secretary of the Treasury the
authority to designate a foreign jurisdiction, foreign financial institution, type of
account or a type of transaction to be of primary money laundering concern. Once
designated, the Secretary can require U.S. financial institutions to take appropriate
special measures against the concern. The Treasury Department has employed
Section 311 twice before against Ukraine and Nauru.
30Related Documents:
• Fact Sheet

http://www.treas. eov/press/rel eases/j s 1014.htm

5/20/2005

DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
November 19,2003
Treasury Department Designates Burma and Two Burmese Banks to be of
"Primary M o n e y Laundering Concern" and Announces Proposed Countermeasures
Under Section 311 of the U S A P A T R I O T Act

Fact Sheet
Overview:
The Treasury Department today announced the designation of B u r m a and two
Burmese banks, M y a n m a r Mayflower Bank and Asia Wealth Bank, to be of "primary
money laundering concern." In conjunction with this designation, Treasury
announced a notice of proposed rulemaking that would require U.S. financial
institutions to terminate correspondent accounts involving Burmese financial
institutions, subject to certain specified exemptions. Correspondent accounts
involving the two specific banks that have been designated would have to be
terminated without exception.

Background:
Section 311
• Title III of the U S A P A T R I O T Act amends the anti-money laundering provisions of the
Bank Secrecy Act ( B S A ) to promote the prevention, detection, and prosecution of
international money laundering and thefinancingof terrorism.
• Section 311 authorizes the Secretary of the Treasury - in consultation with DOJ, the
State Department, and appropriate Federalfinancialregulators - to designate a foreign
jurisdiction, institution, class of transactions, or type of account to be of "primary
money laundering concern," and to require U.S. financial institutions to take certain
"special measures" against the primary money laundering concern.
• These special measures could range from enhanced recordkeeping or reporting
requirements to a requirement to terminate correspondent banking relationships with
the designated entity and are meant to provide Treasury with a range of options to most
effectively target specific money laundering and terrorist financing concerns.

Financial Action Task Force (FATF)
• Established in 1989, the F A T F is the premier international body dedicated to the fight
against m o n e y laundering and terroristfinancing.F A T F sets international standards in
the areas of m o n e y laundering and terrorist financing, and seeks to ensure global
compliance with those standards.
•

A m o n g the FATF's most important and successful initiatives is the Non-Cooperative
Countries and Territories ( N C C T ) process. Through the N C C T process, the F A T F
identifies and takes action against countries that fail to implement comprehensive antim o n e y laundering regimes. Once a country is placed on the N C C T list, F A T F members
inform their respective financial institutions of the designation. If the designated
jurisdiction continues to fail to take appropriate remedial action after a period of time,
F A T F then calls upon its members to impose additional countermeasures.

• FATF has called on members to impose countermeasures only three times - in the cases
of Ukraine, Nauru, and n o w Burma. In each instance, the U.S. has designated the
jurisdiction a "primary m o n e y laundering concern" under Section 311.
For further information on the FATF, please go to www.fatf-gafi.org.

Burma's Anti-Money Laundering System
In June 2001 B u r m a was placed on the F A T F N C C T List for its lack of basic anti-money
laundering provisions and weak oversight of its banking system. Following up on this
designation by the F A T F , in April 2002, F i n C E N issued an advisory to U.S. financial institutions
advising that enhanced scrutiny be given to all transactions involving Burma. In taking these
actions, F A T F and F i n C E N cited to the following significant, structural deficiencies in the
Burmese anti-money laundering system:
• Burma lacked a basic set of anti-money laundering laws and regulations.
• M o n e y laundering was not a criminal offense for crimes other than drug trafficking in
Burma.
• The Burmese Central Bank had no anti-money laundering regulations for financial
institutions.
• Banks licensed by B u r m a were not legally required to obtain or maintain
identification information about their customers.
• Banks licensed by B u r m a were not required to maintain transaction records of
customer accounts.
• B u r m a did not require financial institutions to report suspicious transactions.
• B u r m a had significant obstacles to international co-cooperation by judicial authorities.
In June 2002, Burma responded to this international pressure by enacting an anti-money
laundering law that purportedly addressed some of these deficiencies. The necessary
regulations required for its effective implementation, however, are not in place. A s a result,
the Burmese anti-money laundering law is ineffective and unenforceable, and cannot be
regarded as effectively remedying the identified deficiencies.

A s a result of Burma's lack of progress, on October 3, 2003, the F A T F called upon its m e m b e r
jurisdictions to impose additional countermeasures on B u r m a as of N o v e m b e r 3, 2003.

Myanmar Mayflower Bank and Asia Wealth Bank
The U.S. has information that two Burmese banks - M y a n m a r Mayflower Bank and Asia Wealth
Bank - are controlled by and used to facilitate m o n e y laundering for such groups as the United
W a State A r m y - a m o n g the most notorious drug trafficking organizations in Southeast Asia.
The Burmese government has failed to take any regulatory or enforcement action against these
financial institutions, despite their well-known criminal links.
The designations of Myanmar Mayflower Bank and Asia Wealth Bank are independent from the
designation of B u r m a as a jurisdiction, and represent thefirsttime that the Treasury Department
has used its authority under Section 311 against a foreign financial institution.

Effect of Application of Section 311
The designation of B u r m a is intended to deny Burmesefinancialinstitutions access to the U.S.
financial system through correspondent accounts. Thus, the proposed rule would prohibit U.S.
financial institutions from establishing or maintaining any correspondent account for, or on
behalf of, a Burmese financial institution. This prohibition would extend to any correspondent
account maintained by a U.S. financial institution for any foreign bank if the account is used by
the foreign bank to provide a Burmese financial institution indirect access to the U.S. financial
system. In such a case, the U.S. financial institution would be required to ensure that the
account no longer is used to provide such access, including, if necessary, terminating the
correspondent relationship. The proposed rule does provide for limited exemptions, referred to
as general licenses, in order to allow for financial services to be provided consistent with those
permitted by Treasury's Office of Foreign Assets Control's B u r m a sanctions program.
A list of the general licenses can be found at
www.treas.gov/offices/eotffc/ofac/sanctions/snactguide-burma.html

Myanmar Mayflower Bank and Asia Wealth Bank are covered by the general Burma designation
and proposed rule. Treasury, however, has taken independent action in order to reinforce the
importance of termination of relationships with these two institutions, and to ensure that no
exemptions are available for them. The designation of these two institutions will remain in place
until it is demonstrated that they have severed their links with narcotics trafficking organizations.
Under this designation transactions would not be permitted with M y a n m a r Mayflower Bank and
Asia Wealth Bank under the limited exemptions that apply to other Burmese financial
institutions.

JS-1015: Implementation O f Legislative Provisions Relating T o T h e International Moneta... Page 1 of 1

PRESS ROOM ~ " " ="

FROM THE OFFICE OF PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
November 19, 2003
JS-1015
Implementation Of Legislative Provisions Relating To The International
Monetary Fund

Report(s):
• Legislative Mandates Report

http://www.treas.goy/rjress/releases/js 1015.htm

5/20/2005

IMPLEMENTATION OF
LEGISLATIVE PROVISIONS
RELATING TO THE
INTERNATIONAL MONETARY FUND

A Report to Congress
in accordance with
Sections 1503(a) and 1705(a) of the
International Financial Institutions Act
and
Section 801(c)(1)(B) of the
Foreign Operations, Export Financing, and Related Programs
Appropriations Act, 2001

United States Department of the Treasury
October 2003

Table of Contents
Introduction 1
International Financial Institutions Act, Section 1503 Provisions, by Subsection
1. Exchange Rate Stability
2. Independent Monetary Authority, Internal Competition, Privatization,
Deregulation, Social Safety Nets, Trade Liberalization
3- Strengthened Financial Systems
4. Bankruptcy L a w s & Regulations
5. Private Sector Involvement
6. Good Governance
7. Channeling Public Funds Toward Productive Puiposes
8. Individual Economic Prescriptions
9. Core Labor Standards
10. Discouraging Ethnic and Social Strife
11. Environmental Protection
12. Greater Transparency
13. Evaluation
14. Microenterprise Lending

1

-

2
4
5
5
8
10
10
10
.11
11
12
12
13

Foreign Operations, Export Financing, and Related Programs Appropriations Act, 2001, Section
801(c)(1)(B) Provisions, by Subsection
I. Suspension of Financing for Diversion of Funds -.13
II. I M F Financing as Catalyst for Private Sector Financing
III. Conditions foi Disbursement
IY. Trade Liberalization
V, Focus on Short-Term Balance of Payments Financing
VI. Progress toward Graduation from Concessionary Financing

14
14
15
15
15

Introduction
This is the fifth report prepared in accordance with Sections 1503 and 1705(a) of the
International Financial Institutions Act (the IFI Act - codified at 22 United States code sections
262o-2 and 262r-4).1 This report also covers policies set forth in Section 801(c)(1)(B) of the
Foreign Operations, Export Financing, and Related Program Appropriations Act 2001, 2 as
required by amended Section 1705 of the IFI Act. The report reviews actions taken by the
United States duringfiscalyear 200.3 to promote these legislative provisions in International
Monetary Fund ("IMF" or the "Fund") country programs. Earlier reports under these provisions
are available on the Department of the Treasury's website (www.treas.gov/press/reports.html).
The Treasury Department and the Office of the United States Executive Director ("USED")
at the I M F consistently endeavor to build support in the IMF's Executive Board for the
objectives set out in this legislation. These efforts include meetings with I M F staff and other
Board members on individual program and I M F policies, as well as formal statements by the
U S E D in the I M F Board. Our objective in doing so has been to support strengthened
commitments in I M F programs, policy actions by program countries, and policy decisions at the
I M F itself.
An assessment of the overall effectiveness of the Treasury and USED's office in promoting
the legislative provisions was published in a G A O Report dated January 200 L 3 The report found
that the "Treasury has instituted a systematic process for applying legislative mandates
concerning the Fund to individual countries, based on their economic circumstances."
Report on Specific Provisions
[. Section 1503(a)
(1) Exchange Rate Stability
Article I of the IMF's Articles of Agreement states that one of the purposes of the IMF is "to
promote exchange stability, to maintain orderly exchange arrangements a m o n g members, and to
avoid competitive exchange depreciation." The I M F advises countries that exchange rate
stability can only be achieved through the adoption of sound macroeconomic policies. While the
Fund recognizes the right of each m e m b e r country to choose its o w n exchange rate regime, it
1

These provisions were enacted in Sections 610 and 613 of the Foreign Operations, Export Financing, and Related
Programs Appropriations Act, 1999(Public L a w 105-277, division A, § 101(d), title VI, §§ 610 & 613). Section
1705(a) was amended by Section 803 of the Foreign Operations, Export Financing, and Related Programs
Appropriations Act, 2001 (Public L a w 106-429, title VIII, § 80.3).
'Public L a w 106-429, title VIII, § 801(c)(1)(B).
3
Efforts to Advance United Stales Policies at the Fund, General Accounting Office ( G A O ) , January 2001. A s
required under section 504 of H R. 3425, as enacted in Appendix E to section 1000(a)(5) of Public L a w 106-113
(making consolidated appropriations for Fiscal Year 2000), the G A O conducted a review of Treasury's
implementation of legislative objectives for I M F reform Its work focused "on the measures taken by United States
agencies to promote I M F practices that are consistent with United States policies set forth in federal law and the
influence United States policy has over the IMF's operations and other members' positions, as illustrated by specific
cases."
1

advises countries on macroeconomic and financial policies necessary to support the
sustainability of that regime and raises caution where it views arrangements to be inconsistent
with broader macroeconomic policy choices.
(2) Policies to increase the effectiveness cf the IMF in promoting market-oriented reform,
trade liberalization, economic growth, democratic governance, and social stability
through:
(A) Establishment cf an independent monetary authority
With the support of the United States, the IMF has been a consistent advocate of greater
independence of monetary authorities across a range of countries. I M F conditionality frequently
includes measures to strengthen central bank autonomy and accountability. The I M F also
provides technical assistance to help countries achieve these goals. In addition, the Fund
promotes these objectives through assessments of compliance with internationally-agreed upon
standards and codes, as well as rules for safeguarding the use of I M F resources. Examples of
United States activities in the last year with regard to these issues include the following:
• In discussions with the Brazilian authorities, the United States continued to highlight the
benefit of increased central bank independence, including the importance of operational
autonomy to strengthen the credibility of the inflation-targeting regime, to reinforce lower
inllationary expectations, and to allow interest rates to fall.
• In a June 200.3 discussion on Argentina, the USED emphasized the importance of steps to
strengthen central bank autonomy and legal protection for its officials.
(B) Fair and open internal competition among domestic enterprises
With United States support, the IMF encourages member countries to pursue policies that
improve internal economic efficiency. These measures m a y include ending directed lending (or
other relationships between government and businesses based on favoritism), improving antitrust enforcement, and establishing a sound and transparent legal system. While the World Bank
has the lead mandate on these issues, the I M F has at times incorporated related measures into
programs w h e n it considered them critical to macroeconomic stability. For example,
• The USED recently supported the inclusion of structural benchmarks in Uruguay's IMF
program that require the issuance of decrees to foster competition in the telecommunications
(observed in March 200.3) and oil (scheduled for December 200.3) sectors.
(C) Privatization
While the World Bank is primarily concerned with privatization, tlie IMF has made it a
component of country program where significant distortions and government ownership of
business enterprises have created substantial inefficiencies in the allocation of resources and tlie
production of goods. Collaborating with the World Bank, the Fund lias supported tlie use of
competitive and transparent means of privatization so that borrowing countries might achieve

gains in economic efficiency and improve theirfiscalpositions. Examples of I M F programs in
which tlie U S E D has advocated privatization include tlie following:
• The state-ownerl bank, Guyana National Cooperative Bank ("GNCB"), was privatized in
March 200.3. In September 2002, tlie U S E D supported tlie approval of Guyana's three-year
P R G F , which called for tlie privatization or resolution of G N C B . This was also m a d e a
completion point trigger under its Heavily Indebted Poor Countries ("HIPC") program.
• In tlie IMF Board discussion of South Africa's Article IV review in August 200.3, the USED
welcomed the sale of a significant share of Telekom and encouraged the government to
follow through on plans to accelerate tlie privatization and restructuring of public enterprises
to increase efficiency and growth.
(D) Economic deregulation and strong legal frameworks
Markets are distorted and entrepreneurship is stifled without strong property rights,
enforcement of contracts, and fair and open competition. While these issues are addressed as
part of tlie World Bank's mandate, tlie I M F periodically includes measures in its programs, in
collaboration with the World Bank, w h e n they are considered critical to tlie m e m b e r country's
macroeconomic performance. Examples of U S E D efforts to encourage these reforms include the
following:
• During discussions of Bosnia in 2003, tlie USED encouraged the government to take steps to
improve tlie business climate and raise its growth rate, including through deregulation.
• In April 200.3, tlie USED noted that Belarus had not taken tlie steps needed to put tlie
economy clearly on a market-oriented path and urged a number of steps, including
deregulation, to improve tlie inhospitable business climate.
(E) Social safety nets
The World Bank takes tlie lead on issues involving tlie design and implementation of social
safety nets, but it is imperative that social safety nets fit into a soundfiscalframework, an issue
in which the I M F takes tlie lead. While growth is tlie key ingredient for poverty reduction, social
safety nets can play an important role in promoting ownership and alleviating tlie impact of
poverty on the most affected segments of society. Against this background, tlie United States
encouraged efforts by tlie I M F , World Bank, Asian Development Bank and Inter-American
Development Bank to develop social safety net guidelines, building on tlie lessons of experience
in Latin America and East Asia. Additionally, the United States has been a strong proponent of
increased IFI funding for productivity-building investments in public education, health and other
social services. Finally, tlie United States continues to press its grants initiative with tlie
multilateral development banks and has supported steps taken by tlie IFIs to revise their lending
frameworks to focus more on tlie reduction of poverty indicators. The United States has
supported this policy goal in tlie following examples:

3

•

At a Board discussion in M a y 2003, the U S E D urged Kazakhstan to focus on increasing
resources devoted to education, health, and the provision of a well-targeted social safety net.

• In July 2003, the USED argued that Dominica should enhance its social safety net to help
cushion the blow of potential civil service layoffs, assuming resources could be found.
(F) Opening of markets for agricultural goods through reductions in trade barriers
The IMF, with the support of the United States, has been a consistent advocate of open
markets and trade liberalization, while recognizing that further reform is primarily a matter for
member countries to pursue. The I M F encourages a multilateral, rules-based approach to trade
liberalization across all sectors of the global economy, including, but not limited to, the
agricultural sector. Tlie Fund is prepared, along with tlie World Bank, to provide transitional
assistance to m e m b e r countries, which are experiencing payment imbalances arising from the
passage of trade reform. Examples of when tlie United States has supported trade liberalization:
• In its 2003 Board statements, the USED urged Brazil to pursue further trade liberalization
• In 2002 and 2003, the USED suggested that certain European countries, including Belgium
and Germany, could act as voices within the European Union for more rapid trade
liberalization.
(3) Strengthened financial systems and adoption of sound banking principles and practices
Tlie joint IMF-World Bank Financial Sector Assessment Program ("FSAP") has emerged as
a critical instrument forfinancialsector surveillance and advice. Fifty-seven F S A P assessments
had been completed with fourteen additional reviews underway and twenty-nine reviews planned
as of August 200.3
Results from the FSAPs are used to generate assessments of compliance with key financial
sector standards such as the Basel Committee's Core Principles for Effective Banking
Supervision, tlie International Organization of Securities Commission's Objectives and
Principles of Securities Regulation, and the IMF's o w n Code of Good Practices on
Transparency in Monetary arid Financial Policies. T h e latter report is often provided to the
public through the Reports on the Observance ojStandards and Codes ("ROSCs"),
In 2002, the Executive Boards of the IMF and World Bank reached conditional agreement on
incorporating Anti-Money Laundering/Combating Financing of Terrorism ( A M L / C F T ) into
areas and standards useful to their work, and endorsed a 12-month pilot program of A M L / C F T
reviews as part of their F S A P and Off-Shore Financial Center ("OFC") assessments. S o m e key
examples of where the U S E D lias supported tlie strengthening of financial systems are:
• Strengthening the banking sector has been a central pillar of Turkey's program. The United
States took the lead in advancing these issues through discussions with I M F staff and Turkish
authorities. S o m e of tlie program's conditions include addressing weak state banks
(including designing and adhering to a privatization strategy for three state banks), reducing

4

nonperforming loans in tlie banking system, and strengthening tlie regulatory oversight of tlie
bank regulator.
• In tlie discussion of Bangladesh's request for a PRGF in June 2003, the USED strongly
recommended that all national commercial banks be privatized during tlie P R G F term. Tlie
U S E D noted experiences in other countries where state ownership of large banks led to
repeated mismanagement and public bailouts.
o In Board statements in 200.3, tlie USED encouraged Uruguay to restructure Banco de la
Republica, tlie largest state owned bank, and to ensure that it meets prudential norms.
(4) Internationally acceptable domestic bankruptcy laws and regulations
Tlie IFIs have continued to build upon worlc started after tlie Asian financial crisis to promote
more effective insolvency and debtor-creditor regimes. While tlie World Bank normally leads
reviews of domestic insolvency laws, tlie I M F is supporting this agenda in several important
ways. Additionally, tlie I M F and tlie World Bank have supported adoption of tlie Model L a w on
Cross-Border Insolvency developed by tlie U N (the U N C I T M L Model L a w ) to facilitate tlie
resolution of increasingly complex cases of insolvency, where companies have assets in several
jurisdictions. Finally, tlie IFIs provide technical assistance to help emerging market economies
develop efficient insolvency regimes. With tlie support of the United States, tlie I M F has worked
with tlie World Bank to promote improved insolvency regimes in a number of countries.
• In 2002 aiid 2003, tlie USED continued to emphasize the need for a clear and impartial legal
framework for bankruptcy proceedings in Argentina that would, a m o n g other things, help to
improve investor confidence.
• During 2002 and 2003, tlie USED encouraged Brazil to reform weak bankruptcy laws and
allow lenders to collect on collateral, which would boost bank lending aiid contribute to
lower borrowing spreads. Tlie U S E D also stressed that increasing tlie efficiency of the
judicial system would be necessary to maximize tlie benefits of banluuptcy reform,
particularly in light of tlie large backlog of bankruptcy cases.
(5) Private Sector.Involvement
The United States continues to work to assure that tlie private sector plays an appropriate role
in tlie resolution of financial crises. In tlie last year, tlie I M F , with tlie support of tlie United
States, has taken important steps towards achieving tlie reform agenda on crisis prevention and
resolution, as specified in tlie G-7 Action Plan of April 2002. T h e Fund lias strengthened its
surveillance of m e m b e r countries and instilled more discipline in tlie use of official sector
financing, especially through tlie establishment of rules aiid procedures governing exceptional
access to Fund resources. Additionally, tlie emergence of collective action clauses (see Section
C, below), supported by tlie I M F , as an accepted contractual, market-based approach to
sovereign debt restructurings will lend predictability aiid efficiency to crisis resolution
frameworks. In particular, tlie United States lias advocated policies that include:

5

(A) Increased Crisis Prevention through Improved Surveillance and Debt and Reserve
Management
The United States has urged the IMF to strengthen further its surveillance function and crisis
prevention capabilities, especially its assessment of debt sustainability, balance sheet
vulnerabilities, and currency mismatches.
•

In the past year, the I M F took additional steps to iinprove its assessment of public and
external debt sustainability. In April 200.3, the Fund incorporated a revised, more robust
analytical framework for evaluating debt sustainability into selected surveillance assessments
and all Use of Fund Resources reports.

• In July 200.3, tlie Board reviewed tlie role of balance sheet impacts and currency mismatches
in financial crises and determined that a strengthened analytical framework was required to
identify related vulnerabilities during the Fund's surveillance assessments.
The IMF continues to encourage, with strong United States support, member countries to
make their economic andfinancialconditions more transparent. Countries are urged to provide
additional information to private market participants by publishing Article IV assessments and
program documentation as well as by regularly releasing data consistent with the IMF's Special
Data Dissemination Standard ( S D D S ) (see Section 12).
• In September 2003, the Board amended tlie Fund's document publication guidelines,
determining that the publication of Use of Fund Resources staff reports and Article IV
surveillance reports (after July 2004) will remain voluntary, but presumed. Additionally,
after July 2004, all exceptional access reports will generally be published as a pre-condition
for tlie Board's approval of such an arrangement.
(B) Strengthening cf Emerging Markets' Financial Systems
The IMF continues to work with other IFIs to promote stronger financial systems in
emerging market economies (see Section 3). It is also actively involved, with the World Bank,
in monitoring the implementation of the Core Principles for Effective Banking Supervision. The
IMF, with United States support, has increased its cooperation with the World Bank in this area,
through the joint F S A P and cooperative assessments of other standards and codes (see Section
12).
(C) Use of Collective Action Clauses in Sovereign Bonds
Sovereign debt instruments governed by New York law conventionally have included
majority enforcement but not inajority restructuring provisions. A s a result, debt restructurings
of these emerging market instruments have tended to be protracted, with adverse consequences
for sovereigns and bondholders.
The United States has worked actively with the IMF and the private sector to promote the
market's adoption of majority restructuring provisions (together with inajority enforcement
6

provisions, "collective action clauses") in order to improve debt restructuring processes. Critical
advances were m a d e in 200.3, and emerging market issuers, including Brazil, Korea, South
Africa, and Turkey, are increasingly including collective action clauses in sovereign debt
offerings governed by N e w Yorlc law.
Tlie IMF, encouraged by tlie United States, has made collective action clauses an important
element of its crisis resolution agenda. Tlie I M F will continue to encourage future issuers to
follow this trend in strengthening market practices through bilateral and multilateral surveillance.
(D) Lending into Arrears
The IMF's policy enables tlie Fund to provide financial support for policy adjustments,
despite tlie presence of actual or impending arrears on a country's obligations to private creditors,
where: (i) prompt I M F support is considered essential for tlie successful implementation of the
member's adjustment program; and (ii) tlie m e m b e r is pursuing appropriate policies and is
making a good faith effort to reach a collaborative agreement with creditors. In September 2002,
tlie I M F , with support from tlie United States, took steps to clarify its assessment of "good faith"
actions, seeking to reduce tlie market's uncertainty about w h e n and under what conditions tlie
I M F will lend into arrears. T o meet the IMF's criteria, m e m b e r countries should (i)
expeditiously initiate a dialogue with creditor classes and continue these discussions until the
debt restructuring is resolved, (ii) provide creditors with lion-confidential information in a timely
manner, and (iii) provide creditors with tlie opportunity to influence the restructuring program.
(E) Promotion of Orderly Workouts
In April 200.3, tlie International Monetary and Financial Committee, with the strong support of
tlie United States, concluded that collective action clauses, rather than a statutory restructuring
mechanism, would more effectively address workout problems while retaining private iiiarlcet
support.
(F) Formal Linkage between Provision of Official Financing and Private Sector
Involvement
The United States continues to press tlie IMF to improve tlie selectivity with which it lends
• In September 2002, tlie United States worked to clarity that for tlie Fund to extend resources
beyond normal borrowing limits, the following criteria must be met at a m i n i m u m : (i) the
m e m b e r must be experiencing "exceptional balance of payments pressures on tlie capital
account" which cannot be addressed with normal resources, (ii) an analysis concludes that
debt levels will be sustainable, (iii) reasonable prospects exist for the m e m b e r to regain
access to private capital markets during tlie program term, and (iv) tlie member's policy
program can reasonably be expected to succeed.
• In January and February 200.3, tlie Fund, with support from the United States, published
procedures to guide its decision-making process on granting exceptional access. These
guidelines require tlie following: (i) a "higher burden of proof in program documentation",

7

(ii) early consultation with the Board on sovereign-creditor negotiations, (iii) the issuance of
a staff note specifically outlining all of the relevant considerations, and (iv) an ex-post
evaluation of such programs within twelve months of their completion.
(G) Facilitation of Discussions between Debtors and Creditors
RSTirjteTl^bo^e7trre~UTTit^
and private sectors to promote the use of collective action clauses in external sovereign bond
contracts, to encourage early dialogue, coordination and communication between sovereigns and
bondholders, and to discourage disruptive legal action. In addition, improving interaction
between debtor countries and private creditors has been a key focus of the IMF's Capital Market
Consultative Group ( C M C G ) .
(H) Combining the Provision of IMF Funding with Efforts to Achieve Private Sector
Involvement
The IMF promotes private sector involvement and aims to develop a system in which
countries can address debt problems in a market-based, orderly fashion. It recognizes the need to
preserve the fundamental principle that creditors should bear the consequences of the risks they
assume, while neither undermining the equally essential principle that debtors should honor their
obligations nor encouraging default.
(6) Good governance
The IMF's commitment to promoting good governance is outlined in its 1996 Declaration on
Partnership for Sustainable Global Growth and its 1997 Guidelines on Good Governance. The
I M F also supports good governance through its emphasis on transparency and its promotion of
market-based reforms-4 Recently, the I M F has been particularly active in promoting good
governance through its efforts to protect against abuse of the financial system and to fight
corruption.
Protecting against Abuse of the Financial System, including Money Laundering
The United States and other IMF members have stressed the importance of integrating antimoney laundering and counter-terrorist financing issues into the IFI's financial sector
assessments, surveillance, and diagnostic activities., A s a result, and after a year of preparatory
work a m o n g the F A T F , the I M F and World Bank, in the fall of 2002, the Executive Boards of
the I M F and World Bank endorsed a 12-month pilot project. The program will assess global
compliance with the anti-money laundering and counter-terrorist financing standards based on
the F A T F 40 Recommendations on M o n e y Laundering and the 8 Special Recommendations on
Terrorist Financing.
These assessments are being conducted by the IMF and World Bank, with the FATF's and
the FATF-style regional bodies' (FSRBs) participation, in the context of financial sector and off4

I M F financing is provided to central banks to address balance of payments difficulties ThQ I M F does not lend to
fund specific projects in member countries aimed at procurement and financial management controls
8

shore financial center assessments. Tlie methodology applied in these assessments was
developed jointly by the IFI's and the F A T F , with input from the F S R B s , and represents a
comprehensive and unified method for measuring countries' implementation of the F A T F
Recommendations. Over 50 assessments are expected to be completed during tlie pilot project
which ends in October 2003. Tlie pilot is progressing well and will be reviewed by the I M F and
World Bank policy-making bodies during tliefirsthalf of next year. 'Tlie goal is that such
A M L / C F T assessments will become a permanent part of tlie I M F and World Bank's oversight
aiid surveillance of financial systems. This is crucial to the wai on terrorism and will help
anchor the foundations of sustainable growth and development.
• In April 200.3, tlie USED recognized Russia's efforts to combat money laundering and the
financing of terrorism that led F A T F to remove Russia from the list of non-cooperative
countries. However, further progress is needed on the legal framework and enforcement
mechanisms, such as allowing banks to terminate relationships with customers suspected of
laundering funds.
• In June 2003, the USED urged additional steps by Madagascar to regulate the gemstone
mining sector since its current unregulated status leaves the country vulnerable to moneylaundering and other criminal activity aiid serves as a source of possible terrorist financing.
The U S E D also encouraged Madagascar to continue working with the World Bank on a
Mineral Resources Governance project to help reduce illegal activities in tlie mining sector.
Other Good Governance nnd Anti-Corruption Measures
The Fund's involvement has focused on those governance aspects that are generally
considered part of tlie IMF's core expertise, such as improving public administration, increasing
government transparency, enhancing data dissemination, aiid implementing effective financial
sector supervision. However, members have agreed that the IMF's role should also extend into
other areas, where anti-corruption efforts would clearly have a positive impact on tlie
macroeconomic environment. Transparency is central to good governance and accountability,
and the 2003 G-S Declaration on Fighting Good Governance and Improving Transparency
called for full disclosure of I M F Article IV staff reports. Tlie I M F Board of Directors has since
agreed that the publication of the staff reports will be presumed beginning in July 2004 (see
Section 5). Examples of United States aiid I M F support for policies that encourage good
governance include the following:
• Commenting on Kenya in May 200.3, the USED cited "corruption as perhaps the single most
immediate barrier to good policies and growth - and poverty reduction" and stressed the
importance of implementing recently passed anti-coiruption measures.
• Tlie 2003 Interim Poverty Reduction Strategy Paper ("PRSP") for Bangladesh has the
promotion of good governance as one of its key focal areas. With the help of the Bank aiid
the Fund, Bangladesh has begun to take steps to address its fiduciary and financial
management weakness, but more is needed, and w e have encouraged the IFIs to remain
active in this area.

9

•

Haiti's I M F Staff-Monitored Program includes steps to reduce discretionary ministerial
accounts and to audit public enterprises. The United States has put great emphasis on the
inclusion of these measures to improve transparency and accountability in Haiti.

(7) Channeling public funds away from unproductive purposes, including large "show case"
projects and excessive military spending, and toward investment in human and physical
capital to protect the neediest and promote social equity
The Fund published a Code of Good Practices on Fiscal Transparency in 1998 that aims to
enhance fiscal policy transparency, promote quality audit and accounting standards, and reduce
or eliminate off-budget transactions, which are often the source of unproductive government
spending. A s of M a y 2003, 55 countries had completed IMF-led fiscal transparency reviews,
which compare local budgetary practices with internationally-agreed upon standards and codes.
The I M F also encourages countries to conduct "public expenditure reviews" with the World
Bank. Below are several examples of efforts to focus government expenditure on investment in
human capital and other productive purposes:
• In a June 2002 Board statement, the USED expressed concern about the accuracy of
Rwanda's military spending reports and supported bringing all spending on-budget as
transparency is critical for maintaining donor confidence. The U S E D also stressed that
Rwanda's continued involvement in the Congo diverts resources from priority sectors and
deters foreign investment in the region.
• At the July 200.3 review of the Democratic Republic of Congo's PRGF, the USED expressed
disappointment that the government did not meet its commitment on priority spending for the
poor. The U S E D highlighted that the sum of defense, security, and institutional expenditure
again amounted to approximately 5 0 % of total government primary expenditure, while social
expenditures, at 7 % of primary expenditures, fell far short of the program's 1 5 % target.
(8) Economic prescriptions appropriate to the economic circumstances of each country
The United States has supported flexibility in Fund programs while emphasizing the need to
focus conditionality on issues critical to growth and macroeconomic stability using measurable
results. Further, countries that borrow from the I M F on concessional terms prepare P R S P s
through a participatory process designed to ensure that each program meets the specific needs of
the country that prepares it.
(9) Core Labor Standards (CLS)
To assist the USED in addressing labor issues, the Treasury Department works closely with
the United States Labor Department and the State Department to assess labor standards in I M F
program countries. Core labor standards provide a useful benchmark for assessing countries'
treatment of workers against internationally agreed-upon standards. A s has been noted in past
reports, there is some reluctance by m a n y m e m b e r countries to address this issue in the I M F ,
particularly in the context of the effort to focus Fund conditionality more narrowly. However,

10

during the past year, tlie U S E D lias m a d e an effort to raise critical labor issues in Board
discussions. For example,
• In October 2002, tlie USED urged Guatemala to continue implementing labor reforms
regarding the rights of association and collective bargaining.
•

In March 2003, the U S E D called for further analysis of n e w labor market legislation in
Indonesia and encouraged adherence to core labor standards.

• In April 2003, the USED argued that core labor standards in Sri Lanka should be fully
respected, including in export processing zones,.
(10) Discouraging practices that may promote ethnic or social strife
By helping lo create the conditions for a sound economy, IMF assistance facilitates the
reduction of ethnic and social strife, to the extent such strife is driven in part by economic
deprivation. For example, with United States support, tlie I M F has increasingly encouraged the
strengthening of social safety nets. Tlie I M F also encourages consultation with various segments
of society in the development of prograins so that they have an opportunity to participate in the
implementation of national priorities. I M F assistance has helped to free up resources for more
productive public investment by contributing to a reduction in country military expenditures.
The United States has also advocated that an analysis of tlie impact on tlie poor, carried out by
the World Bank, be conducted and that remedial measures, as appropriate, be incorporated into
Fund programs. A s an example of United States advocacy in this area:
• In a June 2003 review of Sudan's Staff-Monitored Program, the USED opposed the
government's request for credit towards a "Rights Accumulation Program", which would
have permitted Sudan to accumulate credit in the I M F , to be disbursed at a future dale. Tlie
U S E D argued that Sudan must first achieve peace before proceeding to such a level of
engagement with the Fund.
(11) Link between environmental and macroeconomic conditions and policies
Tlie World Bank has the lead responsibility for environmental issues in individual countries,
but environmental policies at times can be transparent from a fiscal perspective. Tlie United
States has urged tlie inclusion of measures in I M F programs to tax polluting activities, fund
environmental protection efforts, and remove subsidies on environmentally-harmful products or
activities. Tlie following are a few examples in which the United States has commented on
environmental policies in country programs:
• In a February 200.3 Board discussion, the USED highlighted the importance of forestry
policy to Cambodia's economy and stressed tlie need to develop sustainable forestry
management plans that would help raise rural incomes, in particular, by fixing tlie forestry
concession process so that it is more transparent and effective.

ii

•

In June 2003, the U S E D noted tlie importance of forestry to Papua N e w Guinea's economy
and stressed tlie need to implement sustainable policies to maximize tlie long-run benefits
from this sector.

(12) Greater transparency
Over tlie last several years, tlie I M F has increased significantly the amount of information on
its programs that it lias m a d e available to tlie public. The United States lias stressed the need to
build on this progress and expand the number of publications and I M F practices open to public
scrutiny. In September 200.3, tlie Board amended the Fund's document publication guidelines,
determining that tlie publication of Article IV (effective July 2004) and Use of Fund Resources
staff reports will be presumed. After July 2004, all exceptional access reports, including a
special report setting out tlie justification for tlie proposed program and supporting data,
including debt sustainability, will be published generally as a pre-condition for the Board's
approval of such an arrangement.
• 135 countries, 73% of IMF members, have chosen to publish at least one staff Article IV
paper, compared to only 82 countries w h e n this Treasury Department report was last
published in October 2002. Additionally, 170 countries, or 9 2 % of members, have published
at least one Public Information Notice ("PIN").
• 459 Reports on Observance of Standards and Codes ("ROSCs") modules for 98 members
have been completed, of which 318 have been published for 81 economies.
• The United States has made available self-assessments on 9 of tlie 12 ROSC modules aiid
recently completed an IMF-ledfiscalpolicy transparency R O S C .
The United States lias advocated greater transparency in member countries in the following
examples:
• At Malaysia's Article IV review in October 2002, tlie USED stressed that greater
transparency with respect to nonfinancial public enterprises would clarify tlie countercyclical role of fiscal policy, support more efficient use of public resources, and permit a
better understanding of public debt dynamics.
• In a September 2003 program review for Mongolia, tlie USED expressed strong concern
about tlie lack of transparency in tlie financing arrangements for several large infrastructure
projects and urged that mining sector revenues be handled in a transparent manner as they
c o m e on line.
(13) Greater IMF accountability and enhanced self-evaluation
In April 2000, with tlie strong urging of the USED, tlie Executive Board agreed to establish
an Independent Evaluation Office ("IEO") to supplement existing internal and external
evaluation activities. The I E O provides objective and independent evaluation on issues related to

12

the I M F and operates independently of Fund management and at arm's length from the I M F
Board.
• In 2002-200.3, the IEO completed three evaluations, examining (i) the prolonged use of IMF
resources, (ii) the role of the I M F in the capital account crises in Brazil, Indonesia, and
Korea, and (iii) fiscal adjustment in IMF-supported programs.,
•

The Executive Board discussed the IEO's report on prolonged use in September 2002 and
again in March 2003, following the release of findings by a designated staff-level Task
Force. The Board has taken steps to implement the IEO's recommendations, including
suggested changes to its surveillance functions, program conditionality terms, and program
design

• In May 2003, the Board discussed the IEO's report on the IMF's role in selected capital
account crises. Executive Directors agreed with the central recommendation that the Fund's
surveillance functions must be enhanced through more rigorous stress-testing of capital
account exposure. The Board endorsed the report's conclusions on program design and is
examining ways to evaluate more effectively balance sheet effects and to improve program
conditionality and flexibility in capital account crises.
• In August 2003, the Executive Board reviewed the IEO report on fiscal adjustment in IMFsupported programs and supported its recommendations that program documents should
more fully justify fiscal adjustment requirements and that internal reviews should more
carefully assess near-term program implications.
(14) Structural reforms which facilitate the provision of credit to small businesses, including
microenterprise lending
The provision of micro-credit is an important component of structural adjustment, especially
in economies where state-directed lending is prevalent and the provision of credit to individuals
and small companies is limited., Responsibility for assistance in establishing micro-finance
programs lies with the World Bank, and regional development banks. The Treasury Department
strongly supports these efforts by the multilateral development banks.
• In an IMF Board statement, the USED commended the Brazilian government's plans to
develop credit cooperatives and to increase lending to microenterprises and S M E s . The
United States also encouraged the authorities to adopt best practices for lending in the S M E
sector in order to guarantee the long-term durability of these initiatives,.
11. Section 801(c)(lVB)
(I) Suspension of IMF financing if funds are being diverted for purposes other than the
purposefor which the financing was intended
With strong United States support, the IMF has taken steps in the past several years to
ensure that I M F resources are used solely for the purposes for which they are intended. These
13

steps constitute a serious and far-reaching initiative to strengthen the system for safeguarding the
use of Fund resources and for deterring the misreporting of data to the IMF.
The IMF's safeguards framework, which toolc effect in 2000, requires countries receiving
funds to submit to external financial audits of their central bank's data. This process is designed
to provide assurances that central banks have adequate control, accounting, reporting and
auditing-systems4rv-pteee-to^
critical gaps identified during the assessment process must be remedied before additional I M F
resources can be disbursed. In April 2002, with the support of the United States, the Executive
Board agreed to adopt safeguards assessments as a permanent policy.
As of June 2003, the IMF had completed 79 safeguard assessments, comprising 52 full and
27 transitional reviews and covering 65 central banks. M e m b e r countries had implemented 8 8 %
of the Fund's high-priority recommendations, proposed under program conditionality or letter of
intent commitments? The U S E D continues to focus on implementation of this policy, raising its
concerns with the Board where appropriate.
• In March 2003, the USED encouraged continued efforts to address weaknesses identified in
Indonesia's safeguards assessment.
• In June 2002, the USED strongly emphasized the importance of completing a safeguards
assessment in Vietnam. T o date in 2003, no I M F disbursements have been m a d e due to the
government's failure to m a k e progress on this issue.
(II) IMF financing as a catalyst for private sector financing
The IMF recognizes that if structured effectively, official financing can complement and
attract private sector flows., The Fund promotes policy reforms that catalyze private financing
and allow countries to regain access to international private capital markets as quickly as
possible. (See Section 5 above for a more in-depth discussion of private sector involvement.)
(HI) Financing must be disbursed (i) ON the basis of specific prior reforms; or (ii)
incrementally upon implementation of specific reforms after initial disbursement
The United States has been an advocate of conditionality on IMF loans and has supported the
Fund's stepped-up focus on results-oriented lending. I M F disbursements are tranched based on a
country's performance against specified policy actions, both prior to and during the program.
• In September 2002, the IMF approved new guidelines on the conditionality terms of Fund
programs, seeking to tailor reforms to country specific economic conditions, eliminate
provisions not central to reaching program objectives, and increase national responsibility for
reforms. These policies are also expected to improve the consistency between structural
conditions and the Fund's core expertise, reduce costly and inefficient overlap with the
World Bank, and focus greater attention on performance measurement and structural
5

As of June 2003, member countries had implemented 64% of the Fund's lower priority recommendations, not
proposed by program conditionality or letters of intent The implementation rate was 7 1 % for all recommendations
14

benchmarks in Stand-By Arrangements and Extended Fund Facility arrangements. The I M F
will complete a review of these guidelines in 2004.
(IV) Open markets and liberalization of trade in goods and services
The IMF has been a consistent advocate of open markets and trade liberalization. (See
•Seetien-2-)
(V) IMF financing to concentrate chiefly on short-term balance of payments financing
In September 2000, with strong United States support, the IMF agreed to reorient IMF
lending to discourage casual or excessive use, and provide incentives to repay as quickly as
possible. In particular, the I M F shortened the expected repayment periods for both Stand-By and
Extended Arrangements and established surcharges for higher levels of access.
("I) Graduation from receiving financing on concessionary terms
The United States supports comprehensive growth strategies to move countries from
concessional to market-based lending. The United States works closely with the I M F and World
Bank to promote a growth-oriented agenda in developing countries based on strong monetary
and fiscal policies, trade liberalization, and reduction of impediments to private sector job
creation. The I M F extends concessional credit through the PRGF.. Eligibility is based
principally on a country's per capita income and eligibility under the International Development
Association ("IDA"), the World Bank's concessional window (the current cutoff point for I D A
eligibility is a 1999 per capita G D P level of $885). Factors that would contribute to reduced
reliance on concessional resources include a country's growth performance and prospects,
capacity to borrow on non-concessionary terms, vulnerability to adverse external developments
such as swings in commodity prices, and balance of payments dynamics. T o lower reliance on
concessional lending and promote debt sustainability, the G-7 countries, acting on the initiative
of the United States, have agreed to expand the use of grants in multilateral development bank
lending to the world's poorest countries.

15

JS-1016: Parsons Remarks on Protecting Financial Critical Infrastructure , Cleveland, O H

Page 1 of 2

FROM THE OFFICE OF PUBLIC AFFAIRS
November 20, 2003
JS-1016
Remarks of D. Scott Parsons
Director, Office of Critical Infrastructure Protection and Compliance Policy
Before the Financial and Banking information Infrastructure Committee and
the Financial
Services Sector Coordinating Council's Conference on Protecting the
Financial Infrastructure
Cleveland, Ohio
I am here in Cleveland today because the financial infrastructure we seek to protect
exists outside Washington, D.C. A s Secretary S n o w has said, our financial system
is the engine of our economy. N o where is that more evident than in a city like
Cleveland, where world-class financial institutions stand should to shoulder with
leaders of our industrial economy.
In partnership with the FDIC, the Department of the Treasury and our colleagues in
the public and private sectors are speaking to audiences in twenty-four cities across
the United States. After our eighteen month tour, w e will have spoken to 6,000
individuals; on average, 250 people per city. Through this outreach, w e hope to
encourage you - stewards of financial services in Cleveland - to implement policies
and programs that will further strengthen the U.S. critical financial infrastructure.
As recent events attest, the United States financial system is remarkably resilient.
During the power outage in August that affected cities from Cleveland to N e w York
City, the financial system performed extraordinarily well. With one exception, the
bond and major equities and futures markets were open the next day at their
regular trading hours.
Major market participants were well prepared, having invested in contingency plans,
procedures, and equipment such as backup power generators. Our job is to ensure
that the financial system remains resilient and that Americans and the world
continue to have confidence that the system will be there for them - especially in
times of stress or adversity, which is when people need it most.
Four principles guide our efforts to assist in the protection of the U.S. financial
infrastructure. These principles guided our decisions as the financial system
recovered from the attacks of September 11 th. They guide our actions still. First
and foremost, the financial system is about people. W e at the Department of the
Treasury, our sister regulators, and you in the private sector have a responsibility to
protect the people w h o work in the financial sector, such as tellers, loan officers,
traders and technicians.
These individuals make up the institutions upon which we all rely. It was the heroic
commitment of these professionals to their institutions, customers, and colleagues
that helped the system recover from the attacks of September 11th and weather the
power outage of August 14-15. Also, it is people w h o use the financial system and
rely on it to finance the American Dream: buying a house, financing their children's
education, and investing in a secure retirement. W e must ensure that people
continue to have confidence in their financial institutions.
That brings me to the second principle: confidence. Confidence in the reliability of
financial institutions to clear checks, execute transactions, and satisfy insurance
obligations helps the system weather significant disruption from evolving threats. By
relying on the system, Americans can m a k e business decisions for the future and
conduct necessary business in the present.
Third, we must ensure that the financial system remains accessible and open for

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JS-1016: Parsons Remarks on Protecting Financial Critical Infrastructure , Cleveland, O H

Page 2 of 2

business when the safety of the employees permits. During times of disaster,
investors depend on markets to price the impact of the disruption on assets. The
longer markets are closed, the longer investors must go without knowing what the
impact will be. This uncertainty can itself be harmful to the economy, compounding
the impact of any disruption. The sooner w e can eliminate this uncertainty, the more
w e can mitigate the impact and speed recovery.
Fourth, we want to promote responsible decision-making and problem-solving
within the private sector. Financial institutions should m a k e the appropriate
decisions without waiting for guidance from Washington. After all, it is you w h o o w n
and operate the majority of the systems. And it is you w h o have the expertise on
how to fix them. W e will help when needed, but w e intend for you to find the
necessary solutions.
With these principles in mind our strategy is clear. The President himself
established this strategy when he called for close and voluntary relationships
between the government and the private sector to protect our critical physical and
cyber infrastructure. A s the President wrote, "the success of our protection efforts
will require close cooperation between government and the private sector at all
levels."
One successful manifestation of this strategy is the Financial Services Information
Sharing and Analysis Center (FS/ISAC). The FS/ISAC has emerged as a leader in
information sharing for the financial sector, allowing authorized users to submit
reports on security threats and solutions. Earlier this year, for example, the
FS/ISAC w a s instrumental in alerting its members to the existence of the Internet
worm called "Slammer." W e believe that the FS/ISAC's efforts helped minimize the
worm's impact on the U.S. financial system.
Next month, the Treasury Department will help launch a next-generation FS/ISAC.
This next-generation FS/ISAC will integrate physical and cyber threat information,
allow members to tailor the alerts they receive, provide a secure medium for
collaboration, and enable the financial sector to coordinate their responses in real
time. Treasury is pleased to be making a significant investment in one-time
upgrades in the technology that supports the FS/ISAC. I hope that all of you will
consider joining the FS/ISAC as members.
I would like to close with the words of President George W. Bush. As he wrote in
the National Strategy for the Physical Protection of Critical Infrastructure, "[t]he
terrorist enemy that w e face is highly determined, patient, and adaptive. In
confronting this threat, protecting our critical infrastructures and key assets
represents an enormous challenge. W e must remain united in our resolve,
tenacious in our approach, and harmonious in our actions to overcome this
challenge and secure the foundations of our Nation and w a y of life."
I would like to thank Chairman Powell and the hard-working professionals at the
FDIC for organizing this conference. And thank you all for attending.

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JS-1017: Media Advisory: United States and Aruba will sign Tax Information Exchange ... Page 1 of 1

F R O M T H E OFFICE O F PUBLIC AFFAIRS
November 21, 2003
JS-1017
Media Advisory:
United States and Aruba will sign Tax Information Exchange Agreement on
Friday
Treasury Secretary John Snow will hold the United States-Aruba tax information
exchange agreement signing ceremony at 1:15 p.m. EST on Friday, November 21,
2003 in the Treasury Department's Media Room (Room 4121), 1500 Pennsylvania
Avenue, N W . Treasury Secretary John Snow and Aruba's Prime Minister Nelson O.
Oduber, will be signing the tax information exchange agreement.
The Room will be available for pre-set at 12:30 p.m.
Media without Treasury or White House press credentials planning to attend
should contact Treasury's Office of Public Affairs at (202) 622-2960 with the
following information: name, social security number and date of birth. This
information may also be faxed to (202) 622-1999.

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JS-1018: Secretary John Snow's Statement at Signing of U.S.-Aruba Tax Information Ex... Page 1 of 2

PRESS ROOM

F R O M T H E OFFICE O F PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
November 21, 2003
JS-1018
United States and Aruba Sign Agreement
to Exchange Tax Information
Statement by Treasury Secretary John S n o w
Today Treasury Secretary Snow signed a new agreement with the Kingdom of the
Netherlands that will allow for exchange of information on tax matters between the
United States and Aruba. The agreement was signed by Treasury Secretary John
Snow and Prime Minister Nelson Oduber of Aruba.
At the signing ceremony, Treasury Secretary Snow delivered the following remarks:
"I would like to thank you all for being here today and welcome our friends from the
Kingdom of the Netherlands, particularly Prime Minister Oduber of Aruba and
Aruba's Minister of Finance Nilo J.J. Swaen.
The United States and Aruba have developed a close and cooperative relationship
on law enforcement matters. W e greatly value this cooperation, particularly now as
w e continue to work to ensure that no safe haven exists anywhere in the world for
the funds associated with illicit activities, including terrorism, money laundering, and
tax evasion.
We have an obligation to enforce our tax laws, because failing to do so undermines
the confidence of honest taxpayers in the fairness of the U.S. tax system. Access
to needed information is vital to our efforts to ensure full and fair enforcement of our
civil and criminal laws.
This new tax information exchange agreement is an important development. I want
to thank Prime Minister Oduber for his participation in this signing ceremony and for
demonstrating that Aruba and the United States share the c o m m o n goals of
upholding international standards and ensuring that our financial institutions are not
used to further illicit activities of any kind.
This new tax information exchange agreement we are signing today is the ninth
such agreement the United States has signed with a significant financial center in
the last two years. It is the first such agreement that I will have the privilege to sign,
and I do not intend for it to be the last. I hope that Aruba's cooperation with the
United States will serve as an example to other financial centers in the region and
around the world.
We will continue to work vigorously to extend our network of exchange of
information agreements to cover additional financial centers throughout the world
and to improve our existing information exchange relationships."
Background Information
In the last two years, the United States has negotiated and concluded important
new tax information agreements with eight significant offshore financial centers:
Antigua and Barbuda, The Bahamas, the British Virgin Islands, the Cayman
Islands, Guernsey, Isle of Man, Jersey, and the Netherlands Antilles. Each of these
agreements reflects the international standards for tax information exchange that
the United States has been a leader in establishing.

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In January 2003, the United States entered into a Mutual Agreement with
Switzerland under the current U.S.-Swiss Income Tax Convention that is intended
to facilitate more effective tax information exchange between the two countries. At
the same time, the two governments agreed that more must be done to bring the
U.S.-Swiss tax information exchange relationship up to international standards.

Related Documents:
• "Tax Information Exchange Agreement"
Associated Links:
• Photo

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5/20/2005

AGREEMENT BETWEEN
THE UNITED STATES OF AMERICA
AND THE KINGDOM OF THE NETHERLANDS IN RESPECT OF
ARUBA
FOR THE EXCHANGE OF INFORMATION
WITH RESPECT TO TAXES

The United States of America and the Kingdom of the Netherlands in respect of Aruba;

Desiring to facilitate the exchange of information with respect to taxes, recognizin

critical importance of sharing information with one another to prevent abuse of thei

fiscal laws, and determined to cooperate in the prevention of financial crimes and t
terrorism through sharing of information;
Have agreed as follows:

ARTICLE 1
OBJECT AND SCOPE OF THE AGREEMENT

1. The Contracting Parties shall assist each other to assure the accurate assessment

and collection of taxes, to prevent fiscal fraud and tax evasion, and to develop impr

information sources for tax matters. The Contracting Parties shall provide assistanc

exchange of information, authorized pursuant to Article 4, and such related measures
agreed upon by the competent authorities pursuant to Article 5.
2. Information shall be exchanged to fulfill the purpose of this Agreement without

regard to whether the person to whom the information relates is, or whether the info

by, a resident or national of a Contracting Party, provided that information is pres
territory, or in the possession or control of a person subject to the jurisdiction,
Party.

2

3.

As regards the Kingdom of the Netherlands, this Agreement shall apply only to

Aruba.

ARTICLE 2

TAXES COVERED BY THE AGREEMENT
1. This Agreement shall apply to the following taxes imposed by or on behalf of a
Contracting Party:
a) in the case of the United States of America, the following taxes:
(i) Federal income taxes;
(ii) Federal taxes on self-employment income;
(iii) Federal estate and gift taxes; and
(iv) Federal excise taxes; and
b) in the case of Aruba, the following taxes:
(i) the income tax (inkomstenbelasting);
(ii) the wages tax (loonbelasting);
(iii) the profit tax (winstbelasting);
(iv) the dividend withholding tax (dividendbelasting);
(v) the inheritance tax (successiebelasting); and
(vi) the excise tax (accijnzen).
2. This Agreement shall apply also to any identical or substantially similar taxes
imposed after the date of signature of the Agreement in addition to or in place of the existing

The competent authority of each Contracting Party shall notify the other of changes in laws whi
may affect the obligations of that Contracting Party pursuant to this Agre ement.
3. This Agreement shall not apply to the extent that an action or proceeding concerning
taxes covered by this Agreement is barred by the applicant Party's statute of limitations.

3
4.

This Agreement shall not apply to taxes imposed by political subdivisions of either

Contracting Party and, in the case of the United States, to taxes imposed by states or possessions of
the United States.

ARTICLE 3
DEFINITIONS
1. In this Agreement, unless otherwise defined:
a) The term "competent authority" means:
(i) in the case of the United States of America, the Secretary of the Treasury or
his delegate; and
(ii) in the case of Aruba, the Minister of Finance and Economic Affairs or his
authorized representative.
b) The term "Contracting Party" means the United States or the Kingdom of the
Netherlands in respect of Aruba as the context requires.
c) The term "national" means:
(i) in the case of the United States, any United States citizen and any legal
person, partnership, corporation, trust, estate, association, or other e ntity
deriving its status as such from the laws in force in the United States; and
(ii) in the case of Aruba, any individual who is a citizen of Aruba and any
person other than an individual deriving its status as such from the laws of
Aruba.
d) The term "person" includes an individual and a partnership, corporation, trust,
estate, association or other legal entity.
e) The term "tax" means any tax to which the Agreement applies.

4
t)

The term "information" means any fact or statement, in any form whatever,

including (but not limited to) declaration of an individual and documents, records,
or tangible property of a person or a Contracting Party.
g) The terms "applicant Party" and "requested Party" mean, respectively, the
Contracting Party applying for or receiving information and the Contracting Party
providing or requested to provide such information.
h) For purposes of determining the geographical area within which jurisdiction to
compel production of information may be exercised, the term "United States"
means the United States of America, including Puerto Rico, the Virgin Islands,
Guam, and any other United States possession or territory.
i) For purposes of determining the geographical area within which jurisdiction to
compel production of information may be exercised, the term "Aruba" means that
part of the Kingdom of the Netherlands that is situated in the Caribbean area and
consisting of the Island Aruba.
2. Any term not defined in this Agreement, unless the context otherwise requires or the
competent authorities agree to a common meaning pursuant to the provisions of Article 5, shall
have the meaning which it has under the laws of the Contracting Party relating to the taxes which
are the subject of this Agreement.

ARTICLE 4

EXCHANGE OF INFORMATION
1. The competent authorities of the Contracting Parties shall exchange information
that is foreseeably relevant to the administration and enforcement of the domestic laws of the
Contracting Parties concerning taxes covered by this Agreement, including information to effect
the determination, assessment, and collection of tax, the recovery and enforcement of tax claims, or

5
the investigation or prosecution of tax crimes or crimes involving the contravention of tax
administration.
2. The competent authority of the requested Party shall provide information
upon request by the competent authority of the applicant Party for the purposes referred to in
paragraph 1. If the information available in the tax files of the requested Party is not sufficient to
enable compliance with the request, that Party shall take all relevant measures, including
compulsory measures, to provide the applicant Party with the information requested.
a) The requested Party shall have the authority to:
(i) examine any books, papers, records, or other tangible property which may
be relevant or material to such inquiry;
(ii) question any person having knowledge or in possession, custody or control
of information which may be relevant or material to such inquiry;
(iii) compel any person in possession, custody, or control of information which
may be relevant or material to such inquiry to appear at a stated time and
place, and produce the books, papers, records, or other tangible property;
(iv) provide for a signed certification, from a person who is qualified by reason
of position, authority, and knowledge, of the authenticity of such books,
papers, records, or other tangible property, that if falsely made would
subject the person providing the certification to criminal penalty under the
laws of the requested Party; and
(v) compel any individual having knowledge of information which may be
relevant or material to such inquiry to appear at a stated time and place and
to give a declaration under circumstances that, if the declaration were
falsely given, would subject the individual to criminal penalty under the laws
of the requested Party.

6
b)

Privileges under the laws or practices of the applicant Party shall not apply in the

execution of a request but shall be preserved for resolution by the applicant Party.
3. The requested Party shall provide information requested pursuant to the provisions
of this Article regardless of whether the requested Party needs such information for purposes of its
own tax. Moreover, if specifically requested by the competent autho rity of the applicant Party, the
requested Party shall:
a) specify the time and place for the taking of a declaration or the production of books,
papers, records, and other tangible property;
b) permit the presence of individuals designated by the competent authority of the
applicant Party as being involved in or affected by execution of the request,
including an accused, counsel for the accused, individuals charged with the
administration and enforcement of domestic laws of the applicant Party covered by
this Agreement, and a commissioner or magistrate present for the purpose of
rendering evidentiary rulings or determining issues of privilege under the laws of
the applicant Party;
c) provide individuals permitted to be present with an opportunity to question,
directly or through the executing authority, the individual giving a declaration or
producing books, papers, records, and other tangible property;
d) secure original and unedited books, papers, records, and other tangible property;
e) secure or produce true and correct copies of original and unedited books, papers,
and records;
i) determine the authenticity of books, papers, records, and other tangible property
produced;
g) examine the individual producing books, papers, records, and other tangible
property regarding the purpose for which and the manner in which the item
produced is or was maintained;

7
h)

permit the competent authority of the applicant Party to provide written questions

to which the individual producing books, papers, records, and other tangible
property is to respond regarding the item produced;
i) obtain from a person who is qualified by reason of position, authority, and
knowledge a signed certification of the authenticity of such books, papers, records,
or other tangible property that if falsely made would subject the person providing
the certification to criminal penalty under the laws of the requested Party;
j) ensure both that the individual giving the declaration does so under circumstances
that, if the declaration were falsely given, would subject the individual to criminal
penalty under the laws of the requested Party, and that the individual evidences his
awareness of such circumstances;
k) perform any other act not in violation of the laws or at variance with the
administrative practice of the requested Party; and
I) certify either that procedures requested by the competent authority of the applicant
Party were followed or that the procedures requested could not be followed, with an
explanation of the deviation and the reason there fore.
4. The provisions of the preceding paragraphs shall not be construed so as to impose
on a Contracting Party the obligation:
a) to carry out administrative measures at variance with the laws and administrative
practice of that Party or of the other Contracting Party;
b) to supply particular items of information which are not obtainable:
i) under the laws or in the normal course of the administration of that Party;
or
ii) under the laws or in the normal course of the administration of the other
Contracting Party;

8
c)

to supply information which would disclose any trade, business, industrial,

commercial, or professional secret or trade process;
d) to supply information, the disclosure of which would be contrary to public policy;
e) to supply information requested by the applicant Party to administer or enforce a
provision of the tax law of the applicant Party, or any requirement connected
therewith, which discriminates against a national of the requested Party. A
provision of tax law, or connected requirement, will be considered to be
discriminatory against a national of the requested Party if a national of the
requested Party is subject to treatment thereunder that is more burdensome than
the treatment to which a national of the applicant Party that is in the same
circumstances, particularly with respect to taxation on worldwide income, is or may
be subject;
f) notwithstanding subparagraphs (a) through (e) of this paragraph, the requested
Party shall have the authority to obtain and provide, through its competent
authority, information held by financial institutions, nominees, or persons acting in
agency or fiduciary capacity (not including information that would reveal
confidential communications between a client and an attorney, solicitor, or other
legal representative where the client seeks legal advice), or information in respect of
ownership interests in a person.
5. Except as provided in paragraph 4, the provisions of the preceding paragraphs shall
be construed so as to impose on a Contracting Party the obligation to use all legal means and its
best efforts to execute a request. A Contracting Party may, in its discretion, take measures to obtain
and transmit to the other Party information which, pursuant to paragraph 4, it has no obligation to
transmit.

9
6.

The competent authority of the requested Party shall allow representatives of the

applicant Party to enter the requested Party to interview individuals and examine books and
records with the consent of the individuals contacted.
7. Any information receded by a Contracting Party shall be treated as secret in the
same manner as information obtained under the domestic laws of that Party and shall be disclosed
only to individuals or authorities (including judicial and administrative bodies) involved in the
determination, assessment, collection, and administration of, the recovery and collection of claims
derived from, the enforcement or prosecution in respect of, or the determination of appeals in
respect of, the taxes which are the subject of this Agreement, or the oversight of the above. Such
individuals or authorities shall use the information only for such purposes. These individuals or
authorities may disclose the information in public court proceedings or in judicial decisions.
8. To demonstrate the foreseeable relevance of the requested information the applicant
Party shall at least provide the following information:
a) the identity of the person under examination or investigation; and
b) the tax purpose for which the information is requested.

ARTICLE 5

MUTUAL AGREEMENT PROCEDURE
1. The competent authorities of the Contracting Parties shall agree to implement a
program to carry out the purposes of this Agreement. This program may include, in addition to
exchanges specified in Article 4, other measures to improve tax compliance, such as exchanges of
technical know-how, development of new audit techniques, identification of new areas of noncompliance, and joint studies of non-compliance areas.
2. The competent authorities of the Contracting Parties shall endeavor to resolve by
mutual agreement any difficulties or doubts arising as to the interpretation or application of this

10
Agreement. In particular, the competent authorities may agree to a common meaning of a term and
may determine when costs are extraordinary for purposes of Article 6.
3. The competent authorities of the Contracting Parties may communicate with each
other directly for the purposes of reaching agreement under this Article.

ARTICLE 6
COSTS
Unless the competent authorities of the Contracting Parties otherwise agree, ordinary costs

incurred in providing assistance shall be borne by the requested Party and extraordinary cos
incurred in providing assistance shall be borne by the applicant Party.

ARTICLE 7
IMPLEMENTATION
A Contracting Party shall enact such legislation as may be necessary to effectuate this
Agreement.

ARTICLE 8
ENTRY INTO FORCE
This Agreement shall enter into force upon an exchange of notes between the Contracting
Parties confirming that each has met domestic, constitutional, statutory and any other
requirements necessary to effectuate this Agreement.

ARTICLE 9
TERMINATION
This Agreement shall remain in force until terminated by one of the Contracting Parties.
Either Contracting Party may terminate the Agreement at any time after the Agreement enters

11
force, provided that at least three months prior notice of termination has been given through
diplomatic channels.

DONE at Washington, in duplicate, this 21st day of November, 2003.

FOR THE UNITED STATES OF FOR THE KINGDOM
AMERICA:
OF THE NETHERLANDS
IN RESPECT OF ARUBA:

2003-11-21-15-23-11-14960: Secretary John S n o w and Prime Minister Nelson Oduber of... Page 1 of 1

PRESS ROOM

F R O M T H E OFFICE O F PUBLIC AFFAIRS
November 21, 2003
2003-11-21-15-23-11-14960
Secretary John Snow and Prime Minister Nelson Oduber of Aruba
Sign Tax Information Exchange Agreement

Media Contact
All media queries should be directed to
The Press Office at (202) 622-2960.
Only call this number if you are a member of the media.
High Resolution Image

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JS-1019 -Statement by Secretary S n o w on the Fair Credit Reporting Act Conference Report Page 1 of 1

PRESS ROOM

F R O M T H E OFFICE O F PUBLIC AFFAIRS
November 21, 2003
JS-1019
Statement by Secretary Snow on the Fair Credit Reporting Act Conference
Report
I congratulate Chairman Oxley and Chairman Shelby, subcommittee chairman
Bachus, Ranking Members Frank and Sarbanes, and the House and Senate
conferees on completing their excellent work to strengthen the provisions of the Fair
Credit Reporting Act. This legislation embodies the Administration
recommendations I outlined on June 30 to fight identity theft and to make our credit
reporting system, which is the envy of the world, even more effective in extending
credit and financial services to more and more people.'Because of the work of the
conferees, American consumers and law enforcers will have important new tools to
fight identity theft, and consumer credit information will be more accurate and will
be handled more safely than ever before. W e will all benefit from this major
x
legislation.

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JS-1020: Secretary S n o w on House Passage of the Medicare Prescription Drug Bill Treas... Page 1 of 1

PRESS ROOM

F R O M T H E OFFICE O F PUBLIC AFFAIRS
November 24, 2003
JS-1020
Secretary John Snow, Statement regarding the Passage of the Medicare
Prescription Drug Bill
Today's action by the House on bipartisan Medicare Prescription Drug legislation
brings us one step closer to strengthening America's commitment to the health of
our senior citizens. This Administration is very pleased with the results of House
passage, and w e are looking forward to swift Senate passage and speeding the
final bill to the President's desk for his signature. I applaud the leadership of
Secretary Thompson who helped get us to this historic point.
As Managing Trustee of the Medicare Trust Fund, let me point out that this bill has
the support of Democrats, Republicans, and the A A R P the largest seniors
organization in this country - -because it is good for 40 million seniors and disabled
persons on Medicare. The bill will help seniors pay for prescription drugs, and it
gives the greatest benefits to those who most need help. That assistance will help
ensure economic security for seniors, many living on fixed incomes.
These benefits will give every American senior citizen the same kinds of health care
choices enjoyed by member of Congress and most working Americans. Seniors
who are happy with their current coverage need not make any change. It also
greatly expands the former Medical Savings Accounts into new and innovative
Health Care Savings Accounts, which will be a welcome option for many
Americans. In addition, this bill includes reforms that will ensure the future of the
Medicare system, so it is available to Americans in the decades ahead. Congress
and the President have a historic opportunity to deliver prescription drug benefits to
all American seniors. I urge the Senate to now keep our commitment, and pass this
bill.
-30-

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JS-1021: Assistant'Secretary Quarles' Remarks to Latin American Federation of Banks

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PRESS ROOM

F R O M T H E OFFICE O F PUBLIC AFFAIRS
November 24, 2003
JS-1021
Remarks of
Randal K. Quarles
Assistant Secretary of the Treasury for International Affairs
The Latin American Federation of Banks Annual Assembly
Miami, Florida
U.S. Engagement with Latin America - The Economic Dimension
Thank you for inviting me to speak with you today. It is a pleasure to be here,
especially at a time when the further integration of our Hemisphere is at such a
critical juncture.
I know this audience is following the progress of FTAA negotiations—or ALCA, as it
is better known throughout much of our Hemisphere—very closely. As you know,
the U.S. Treasury Department is highly engaged in these discussions, particularly
with respect to the negotiations on trade in financial services. Improving the
conditions for financial institutions to provide services throughout the Hemisphere is
part of our trade liberalization agenda in the W T O , the FTAA, CAFTA, as well as
bilateral agreements. Our goal is to provide banks with the right to establish a
commercial presence in any partner country and have these operations treated on
the same basis as any other domestic institution. In a phrase, w e want trade in
financial services to be based on the principle of national treatment. Under this
principle, the same rules would apply to all, taking into account the specific
characteristics of each country's national regulatory system. Given how highly
regulated the financial sector is in every country, w e are also seeking commitments
to regulatory transparency, so that banks will know in advance what kind of
reporting they will be required to make and can comment on proposed regulations
in order to avoid any unintended consequences.
Recent economic research shows how important open, transparent financial
sectors are to higher economic growth. A 2001 World Bank study found that
countries with fully open financial services sectors grow 1 percent faster, on
average, than other countries—for developing countries, the average increase in
G D P growth was even higher. Liberalization attracts scarce capital in the form of
foreign direct investment and introduces foreign competition, improving efficiency in
accumulating and allocating funds. With foreign firms, comes international best
practices and new technology exposure for local managers. Savers and borrowers
benefit from reduced inefficiencies, which lower costs and improve service and
quality. These benefits can include access to better service channels, faster
access to services, better credit assessment procedures and information-gathering
techniques, and a wider choice of products and vendors.
Treasury's interest in the FTAA negotiation is much broader than liberalization of
trade in financial services. Historical experience is clear: reducing barriers to trade
and investment is a catalyst for economic growth and development. President
Bush has made free trade a central component of his global economic policy
because free trade provides a foundation for raising living standards in the United
States and throughout the world. The successful negotiation of the FTAA is critical
to economic growth, development, and the reduction of poverty in Latin America
and the Caribbean.
The FTAA negotiations are one element of the Bush Administration's agenda for
raising economic growth in our Hemisphere. I would like to spend the rest of m y
time today discussing other parts of this agenda—in particular, the steps the Bush
Administration is taking to assist countries of the region resolve and prevent
economic crises, and to help promote economic development in the countries of

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Latin America and the Caribbean. As I believe this summary will show, we are
engaged with the region on the financial side as never before, laying the basis for
what w e hope will be a more prosperous future for all of our citizens.
Economic Interdependence of the United States and Latin America
A few statistics tell the story of the deep economic links between the United States
and Latin America and the Caribbean:
• According to the U.S. Census Bureau's Foreign Trade Statistics, the United States
imported more than $200 billion in goods from Latin America and the Caribbean in
2002, and the United States exported nearly $150 billion in goods to the countries
of the region. That w a s more than one-fifth of total U.S. exports last year.
• As of 2002, the United States had more than $270 billion invested in Latin
America and the Caribbean. Just ten years ago, total U.S. investment in the region
w a s one-third that amount.
• More than 37 million people of Hispanic origin currently reside in the United
States, representing 13 percent of our population. S o m e have m a d e the United
States their permanent home. But millions of others work in the United States with
the intention of returning to their countries.
• According to the IDB, workers sent an estimated $32 billion in remittances to their
h o m e countries in Latin America and the Caribbean in 2002. The vast majority of
that c a m e from the United States. In several countries, remittance flows equal or
exceed earnings from major exports, and account for at least 10 percent of G D P in
six countries in the region.
The United States has a vested interest in seeing all the countries of Latin America
and the Caribbean prosper. Following the events of 9/11, there w a s fear that U.S.
engagement in the Hemisphere would be limited to tightening border controls and
tracking financial flows. The institutions that many of you represent are key allies in
these efforts. Securing the global financial system from criminals and the financiers
of terror is critical to ensuring the world's security.
To guard against criminal abuses, financial institutions must institute customer due
diligence procedures and anti-money laundering/counter terrorist financing
compliance programs in line with international standards, as established by the
Basel Committee on Banking Supervision and the Financial Action Task Force.
Such compliance programs include designation of compliance officers and other
measures to ensure that all suspicious transactions are identified and reported to
the appropriate authorities; provision of training to educate employees on current
reporting obligations and procedures, as well as indicators of suspicious activity;
ensuring adequate screening procedures and high standards are used when hiring
staff; and, establishment of an auditing function to test the system.
These efforts are critical, to be sure. But these initiatives alone do not begin to
capture the breadth of U.S. financial engagement in the region. The Bush
Administration has sought to advance a range of regional and country-specific
initiatives to increase economic growth and stability in the Hemisphere.
Crisis Resolution and Crisis Prevention
As we all know, the Latin America and Caribbean region has experienced serious
economic difficulties during the last few years. The United States has provided
critical assistance to the countries of the region to help them try to prevent the
outbreak of financial crises and to weather them when they occur so that economic
stability can be reestablished as quickly as possible. Let m e describe a few
examples.
In August 2001, the United States supported a $15 billion IMF program for Brazil to
help provide a cushion for that country from the effects of the crisis in Argentina. In
part due to this assistance, the situation in Brazil remained relatively stable even as
Argentina slid more deeply into crisis. Later in 2002, Brazil began to experience
intense financial pressures of its o w n in the lead-up to the presidential election last
October. Bank lines to Brazil were reduced sharply, the real fell rapidly, and the
government's borrowing spreads reached a high of about 2,400 basis points above
U.S. Treasuries. In this context, the United States supported a $30 billion IMF

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program for Brazil in August 2002 to bolster stability during this period of preelection financial market volatility and provide a solid economic policy framework for
the incoming Brazilian administration.
Since taking office at the beginning of this year, the administration of President Lula
has taken bold moves to strengthen Brazil's fiscal position, ensure the integrity of
the inflation targeting regime and restore market confidence that Brazil is moving in
the right direction. The Lula team has aggressively pursued structural reforms,
such as pension and tax reform. Market confidence has improved dramatically.
Brazil's borrowing spreads have fallen to less than 600 basis points over U.S.
Treasuries, and the currency has strengthened more than 20 percent since the
beginning of 2003. The IMF program did not create these conditions, but w e think
that our support for the program helped to create the space for Lula to prove the
commitment of his administration to strong policies.
The United States also provided vital support to Uruguay in 2002, as that country
dealt with a banking crisis that originated with the turmoil in neighboring Argentina.
With banking system deposits falling rapidly and the government's borrowing
spreads surging, the United States provided a $1.5 billion short-term bridge loan to
Uruguay in August 2002 until expanded assistance from the IMF, World Bank, and
Inter-American Development Bank could be approved. W e were determined to try
to avoid a collapse of the banking sector that would have put even more pressure
on the currency and increased the government's debt burden. A s w e have seen
elsewhere, the collapse of the banking sector and the payments system can turn
temporary contractions into deep and prolonged depressions. Assistance from the
U.S. government and the international financial institutions allowed Uruguay to end
the bank run, avoid a collapse of the payments system, and resume economic
growth. In the spring of 2003, Uruguay completed a highly successful marketbased debt exchange (with over 90 percent participation) that substantially reduced
its debt service obligations in near-term years. Economic growth in Uruguay has
resumed, with real G D P increasing at an annual rate of 9 percent in the first quarter
and 14 percent in the second quarter of 2003.
The United States has played an integral role in supporting efforts to reestablish
economic stability and restore economic growth in Argentina. U.S. leadership w a s
crucial to facilitating the launch of Argentina's $3 billion transitional IMF program at
the beginning of this year. The purpose of the transitional program w a s to lock in
sound fiscal and monetary policies that would allow Argentina to stabilize its
economy in the period leading up to and immediately following the presidential
elections in May. U.S. support for the transitional program w a s controversial; critics
predicted that Argentina would quickly fall off-track and that the program would fail.
In fact, Argentina's real G D P grew at annual rates of 10 percent and 6.5 percent in
the first two quarters of 2003. This strong growth helped the government outperform its IMF fiscal targets during the transitional program. International reserves
have grown $2.5 billion since the beginning of the year, the currency has
appreciated 18 percent, and the Argentine government unfroze $4 billion in bank
deposits last spring without igniting a renewed crisis as many had feared.
The philosophy underlying the transitional program was that it would provide a
bridge until a n e w presidential administration with a popular mandate c a m e into
office—an administration that could implement the broad-based economic reforms
needed to lay the foundation for sustainable long-run growth in Argentina. This n e w
three-year IMF program launched in September provides a framework for the
Argentine government to tackle s o m e of the key impediments to growth through tax
reform; measures to strengthen the banking system; reform of fiscal relations
between the federal government and the provinces (which played such a large role
in the crisis); and the institutionalization of good monetary policy. It also requires
Argentina to proceed with a debt restructuring and normalize its relations with
creditors. T h e success of the IMF program is dependent upon the effectiveness of
the Argentine government's efforts to implement it. In the area of debt negotiations,
consistent with the IMF's policy on lending into arrears, w e expect the Argentine
government to maintain a collaborative dialogue with its creditors. This dialogue
should be consistent with a viable economic program and take into account the
broad financial parameters which determine the envelope of resources available for
restructured claims. It should also be open to creditors' input on restructuring
strategies and the design of individual instruments.
The case of Colombia provides a good example of successful crisis prevention
through a combination of effective domestic policies and strong U.S. support for
engagement by the international
financial institutions. In September 2002, risk
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spreads on Colombian bonds jumped to nearly 1,100 basis points and the peso
depreciated close to 20 percent, as investors focused on a possible financing gap in
2003. President Uribe took bold measures to restore market confidence, passing
important tax, pension and labor market reforms and defining a strong economic
program for the future. The United States supported the efforts of the international
financial institutions to build on these measures through budget support by the
multilateral development banks and approval of a two-year, $2 billion IMF program.
The measures helped restore market confidence and Colombia w a s able to return
to international markets, issuing a $500 million, 10-year Global bond in December
2002. Today, risk spreads for Colombia are less than 500 basis points and the
currency is stable.
The United States continues its efforts to assist countries facing economic crisis.
Recent events in Bolivia provide a n e w set of challenges. The United States has
worked closely with the n e w administration of President Mesa and the international
financial institutions to define Bolivia's immediate needs and mobilize the financial
resources needed to address them. In the Dominican Republic, the United States
acted to help stabilize the deteriorating financial situation in the wake of a major
banking crisis last spring. Negotiation of an IMF program during the s u m m e r led to
an improvement in financial conditions, though recent government actions with
respect to the electricity sector have led to renewed concerns. The United States is
working directly with Dominican authorities and with the IMF, World Bank, and InterAmerican Development Bank to get the economic program back on track and
restore stability.
I would also like to mention the leadership countries in the region have provided to
promote economic stability in global capital markets. In 2002, the United States
proposed the inclusion of collective action clauses in sovereign bond contracts to
facilitate the resolution of sovereign debt crises when they occur. Mexico w a s the
first country to introduce such clauses in February 2003, and w a s followed soon
after by Brazil and Uruguay. The use of collective actions clauses represents an
important step in institutionalizing a contractual method of speeding resolution of
unsustainable sovereign debt situations. Thanks to the leadership provided by
Mexico, Brazil, Uruguay, and others, collective action clauses are becoming the
market standard—in the second quarter of 2003, n e w sovereign debt issuances
with C A C s outpaced those without C A C s for the first time.
Promoting Economic Development
Our efforts to increase economic stability go hand-in-hand with the Administration's
policies to increase economic growth and promote economic development in the
Hemisphere.
The United States has supported economic development through a variety of
channels. The first is official bilateral support. Through the United States Agency
for International Development (USAID), the United States provides annual
investment of more than $850 million to improve the quality of life and strengthen
•the economies of Latin American and Caribbean countries. These funds are being
used, for example, to strengthen educational systems, address key health
concerns, and improve countries' climate and capacity for trade and investment
activities.
Lower-income countries in Latin America and the Caribbean will also be eligible to
benefit from the Administration's major n e w initiative in the area of foreign aid—
President Bush's proposed Millennium Challenge Account, or M C A . The M C A
represents an entirely n e w w a y of providing development assistance. Under the
M C A , assistance funds will be channeled to countries that are pursuing policies that
have been shown to increase economic growth. The M C A selection criteria are
designed to identify countries that are "ruling justly" (such as combating corruption,
strengthening the rule of law, and improving civil liberties), "investing in
people" (such as making investments in education and health that build h u m a n
capital), and "promoting economic freedom" (such as opening markets, improving
regulation, and improving the environment for private investment). The goal is to
provide incentives for countries to adopt these growth-promoting policies and
support countries that are laying the foundation for sustained economic growth.
President Bush has proposed a 50 percent increase in U.S. official development
assistance to fund the M C A — a n additional $5 billion per year by FY2006.
The Treasury Department has a special role to play in the U.S. bilateral assistance

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effort in the region, providing technical assistance in the areas of tax collection,
banking oversight, fiscal planning and other areas related to countries' fiscal and
economic stability. Treasury's technical assistance program is aimed at supporting
countries' o w n efforts to build strong institutions capable of meeting the needs of
their citizens. Treasury advisors work directly with officials in finance ministries and
central banks to establish best practices, increase transparency, and reinforce
accountability of governments to the people they serve. Treasury maintains
technical assistance programs in a dozen countries in Latin America and the
Caribbean. W e have full-time resident advisors in Colombia, Honduras, Nicaragua,
Paraguay and Peru. I a m struck by the frequency with which the finance ministers
and central bank governors with w h o m w e meet underline the value of Treasury's
technical assistance program to their work.
The Bush Administration has also worked to facilitate access to another powerful
source of funds for economic development: remittances from workers in the United
States to their families back h o m e in Latin America and the Caribbean. Annual
remittance flows to the region are more than four times the annual flow of official
development assistance from all sources and provide households with an important
source of capital for consumption and investment purposes. However most
remittance channels are expensive to use, with fees as high as 40 percent, and
often difficult to access. T o increase the efficiency of remittance services for
senders and receivers and to help m a k e these services more affordable and
accessible for more people, the Treasury Department has been working with other
U.S. government agencies to promote increased competition in the remittance
industry.
Progress has been made in this area under the U.S.-Mexico Partnership for
Prosperity, established by President Bush and President Fox to promote greater
economic cooperation between our two countries. The Partnership has focused on
improving the remittance channels between the United States and Mexico by
promoting knowledge of the commercial opportunities presented by the remittance
market, strengthening the infrastructure for cross-border payments, and expanding
financial literacy programs to increase the number of remittance senders that are
comfortable using banks, and other financial institutions.
These efforts have borne fruit. Several financial institutions have introduced new
remittance products to Mexico. Since 1999, the average cost of sending
remittances has been halved from $31 to $14 per transaction—with s o m e well
below $ 1 0 — a s more financial institutions have entered the remittance market.
Treasury's "First Accounts" program has helped bring more migrant workers into
the financial system by providing $8 million to financial institutions and communitybased organizations to foster financial literacy among underserved communities in
the United States. Remittances from the United States to Mexico jumped 30
percent during the first half of this year versus the s a m e period in 2002, and are
expected to reach $12 billion for all of 2003. Households are using these savings
to increase investment in education, and on food and health care for their families.
Under the Partnership, the Federal Reserve Bank of Atlanta and the Bank of
Mexico have worked together to strengthen the financial infrastructure for payments
between the United States and Mexico by establishing a cross-border automated
clearing house (ACH) system that will enable any bank in the United States to
transfer money to any bank in Mexico at a very low rate. I a m pleased to announce
that the A C H is scheduled to become operational for all payments from the United
States to Mexico starting in December. The A C H represents a powerful tool for
increasing the use of banks for remittances and commercial payments since it
promises to substantially reduce the cost of such transfers, particularly for smaller
banks. I strongly encourage those here today to look into the n e w commercial
opportunities provided by the A C H and contact the Federal Reserve Bank of Atlanta
to find out h o w to sign up for the service.
The U.S.-Mexico Partnership for Prosperity is one example of the bilateral and
multilateral dialogues the Bush Administration has launched to advance policies
that increase economic growth in the Hemisphere. Secretary Snow's first foreign
trip—aside from travel associated with the regular meetings of the G - 7 — w a s to
Brazil, Colombia, and Ecuador to get a first-hand look at the steps these
governments are taking to strengthen their economies. At the U.S.-Brazil
Presidential Summit in June 2003, President Bush and President Lula announced
the formation of the U.S.-Brazil Group for Growth, which held its inaugural session
in August. Treasury has also initiated a series of meetings with different groupings
of hemispheric finance ministers, beginning with a meeting of all the finance

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ministers of the Western Hemisphere in September 2002 and continuing with
Secretary Snow's meeting with the Central American finance ministers in April
2003. W e plan to hold another such meeting with finance ministers from s o m e
South American countries in the upcoming months.
Conclusion
Some have expressed the fear that the recent political and economic turbulence in
Latin America presages a turn away from market-oriented economic reform in the
region. In considering this view, I find it worthwhile to look at the example of Brazil.
President Lula is clearly a leader with an ambitious vision for social progress in
Brazil, articulated so eloquently in his inauguration speech. His words then—and
the reforms that his administration has pursued since—recognized the inextricable
link between the achievement of macroeconomic stability and economic growth, on
the one hand, and the achievement of social objectives such as ending hunger, on
the other. The Lula administration's effective implementation of economic policy to
date enhances its capacity to focus attention and resources on the critical work of
improving social conditions for all Brazilians. O n e might contrast Brazil's situation
with that of Venezuela, where the turn away from market-oriented policies has
resulted in a sharp economic contraction and intensification of social pressures.
Political leaders in the region have the ultimate responsibility for building the
domestic political consensus needed to support the adoption and implementation of
policies that promote economic growth. It is a task that requires constant attention
to convincing the public of the centrality of good economic policies to the
achievement of higher living standards, less poverty, and a better life for all citizens.
The United States stands ready to support the countries of the region in this
endeavor.

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tfSS R O O M

F R O M T H E OFFICE O F PUBLIC AFFAIRS
November 25, 2003
2003-11-25-13-0-35-16825
U.S. International Reserve Position

The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, U.S. reserve assets
totaled $84,992 million as of the end of that week, compared to $84,666 million as of the end of the prior week.
I. Official U.S. Reserve Assets (in US millions)
November 14, 2003

November 21, 2003

84,666

84,992

TOTAL
1. Foreign Currency Reserves

Euro

Yen

TOTAL

Euro

Yen

TOTAL

a. Securities

7,826

14,507

22,333

7,949

14,448

22,397
0

0

Of which, issuer headquartered in the U.S.
b. Total deposits with:
b.i. Other central banks and BIS

12,799

2,914

15,713

12,989

2,902

15,891

b.ii. Banks headquartered in the U.S.

0

0

b.ii. Of which, banks located abroad

0

0

b.iii. Banks headquartered outside the U.S.

0

0

b.iii. Of which, banks located in the U.S.

0

0

2. IMF Reserve Position

23,529

23,586

3. Special Drawing Rights (SDRs)

12,047

12,076

4. Gold Stock3

11,043

11,043

0

0

5. Other Reserve Assets

II. Predetermined Short-Term Drains on Foreign Currency Assets
November 14, 2003
Euro

Yen

TOTAL

November 21, 2003
Euro

1. Foreign currency loans and securities
0
2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the U.S. dollar:

Yen

TOTAL
0

2.a. Short positions
2.b. Long positions
3. Other

III. Contingent Short-Term Net Drains on Foreign Currency Assets
November 14, 2003
Euro
1. Contingent liabilities in foreign currency

Yen

TOTAL
0

November 21, 2003
Euro

Yen

TOTAL
0

1 .a. Collateral guarantees on debt due within 1
year
l.b. Other contingent liabilities
2. Foreign currency securities with embedded
options
3. Undrawn, unconditional credit lines
3.a. With other central banks
S.b. With banks and otherfinancialinstitutions
Headquartered in the U.S.
3.c. With banks and otherfinancialinstitutions
Headquartered outside the U.S.
4. Aggregate short and long positions of
options in foreign
Currencies vis-a-vis the U.S. dollar
4.a. Short positions
4.a.l. Bought puts
4.a.2. Written calls
4.b. Long positions
4.b.l. Bought calls
4.b.2. Written puts

Notes:
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
(SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and
deposits reflect carrying values. Foreign Currency Reserves for the latest week m a y be subject to revision. Foreign Currency

Reserves for the prior week are final.
2/The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF and are
valued in dollar terms at the official SDR/dollar exchange rate for the reporting date. The entries for the latest week reflect any
necessary adjustments, including revaluation, by the U.S. Treasury to the prior week's IMF data. IMF data for the latest week m a y be
subject to revision. IMF data for the prior week are final.
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.

JS-1022: Treasury Proposed Regulation Implementing Claims Procedures Under the Terr... Page 1 of 1

PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
November 25, 2003
JS-1022
Treasury Department Announces Proposed Regulation Implementing Claims
Procedures Under the Terrorism Risk Insurance Act
The Treasury Department today announced a proposed regulation under the
Terrorism Risk Insurance Act of 2002, which was signed into law by President Bush
on November 26, 2002.
Today's regulation contains procedures for insurers to follow in filing claims for
payment of the federal share of compensation for insured losses under the
Terrorism Risk Insurance Program. It is the latest in a series of regulations that
Treasury has issued throughout the year to implement this program. Insurers and
other interested parties will have the opportunity to submit formal comments on the
regulation, and the comment period will last for 30 days from the date of the
regulation's publication in the Federal Register.
"The Terrorism Risk Insurance Program plays an important role in strengthening the
nation's economy against the effects of international terrorism" said Treasury
Assistant Secretary for Financial Institutions W a y n e Abernathy, who oversees the
Program. "This temporary backstop for insurers promotes the availability of
terrorism risk insurance coverage and encourages the development by the private
sector of increasingly available resources for this protection."
Previously issued regulations laid the groundwork for the program, clarified the
program scope, and implemented disclosure requirements of the Act. This
proposed rule lays out the requirements and conditions insurers must meet in order
to file for federal payment for covered losses. It clarifies elements of insured losses
that are to be reimbursed under the Program and establishes fundamental
documentation and recordkeeping necessary for insurers to receive the federal
share of compensation for terrorism losses.
"Treasury seeks to establish operational procedures that suitably emulate the best
practices of the reinsurance industry" added Jeffrey S. Bragg, Executive Director of
the Terrorism Risk Insurance Program. "Our goal is to respond quickly to insurer
claims for payment while maintaining appropriate financial controls over the use of
taxpayer funds."
The Terrorism Risk Insurance Program is a temporary federal reinsurance program
designed to encourage the development of private sector resources and
arrangements for managing risk of loss due to acts of international terrorism. The
authority for the program expires on December 31, 2005.
Regulations and other information related to the Terrorism Risk Insurance Program
can be found at http://www.treasury.gov/trip/.

http://www.treas.gov/press/releases/js 1022.htm

5/20/2005

JS-1023: Secretary Snow's Statement on Senate Passage of Medicare Legislation

Page 1 of 1

PRESS ROOM

F R O M T H E OFFICE O F PUBLIC AFFAIRS
November 25, 2003
JS-1023
Secretary John Snow, Statement Regarding
Senate Passage of the Medicare Prescription Drug Bill
Today's Senate passage of bipartisan Medicare Prescription Drug legislation is an
important victory for the health of America's senior citizens. This Administration is
very pleased with the work of the House and Senate, and w e are looking forward to
speeding the final bill to the President's desk for his signature. I applaud the good
work by Secretary Thompson and the President's leadership that helped get us to
this historic point.
As Managing Trustee of the Medicare Trust Fund, let me point out that this bill
received the support of Democrats, Republicans, and the A A R P the largest
seniors' organization in this country - -because it is good for 40 million seniors and
disabled persons on Medicare. The plan will help seniors pay for prescription
drugs, and it gives the greatest benefits to those who most need help. That
assistance will help ensure economic security for seniors, many living on fixed
incomes.
These benefits will give every American senior citizen the same kinds of health care
choices enjoyed by member of Congress and most working Americans. Seniors
who are happy with their current coverage need not make any change. It also
greatly expands the former Medical Savings Accounts into new and innovative
Health Care Savings Accounts, which will be a welcome option for many
Americans. In addition, this plan includes reforms that will ensure the future of the
Medicare system, so it is available to Americans in the decades ahead. Congress
and the President have taken historic action to deliver prescription drug benefits to
all American seniors, and should be commended for their efforts.

http://www.treas.eov/press/releases/jsl023.htm

5/20/2005

JS-1024: Secretary "Jonn Snow's Statement onThird Quarter G D P Report

Page 1 of 1

F R O M T H E OFFICE O F PUBLIC AFFAIRS
November 25, 2003
JS-1024
Secretary John W. Snow's Statement
on the 2003 Third Quarter Gross Domestic Product Report
Today's reports of strong real GDP growth in the third quarter and improving
consumer confidence are further evidence that the President's economic policies
are moving the U.S. economy in the right direction. Growth cannot be expected to
continue at such rapid rates, but on balance, these indicators are providing
continued positive evidence that our economy is beginning to recover. And while
this news is encouraging, our work will not be complete until w e ensure that every
American who wants a job can find a job. It will be important to make steady
progress on President Bush's economic program to sustain growth and create jobs.

http://www.treas.gov/press/releases/jsl024.htm

5/20/2005

JS-1026: Treasury ancTlRS Simplify Reporting Requirements For U S Persons With Cana... Page 1 of 1

PRESS ROOM

F R O M T H E OFFICE O F PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
November 26, 2003
JS-1026
Treasury and IRS Simplify Reporting Requirements For US Persons With
Canadian Retirement Plans
Today the Treasury Department and the Internal Revenue Service issued guidance
simplifying the U.S. reporting rules that apply to U.S. persons with interests in two
c o m m o n types of Canadian retirement plans. Notice 2003-75 sets forth the
information that U.S. persons holding interests in Canadian Registered Retirement
Savings Plans ("RRSPs") and Canadian Registered Retirement Income Funds
("RRIFs") are required to include on a statement attached to their U.S. tax returns.
The Treasury and the IRS are developing a simple form for this information
reporting.
These new simplified reporting rules are designed to permit taxpayers holding
interests in R R S P s and RRIFs to meet their information reporting obligations by
using readily available information. The new simplified reporting rules represent a
substantial reduction in paperwork burden for the U.S. citizens and residents who
hold interests in these retirement plans.
-30Related Documents:
• Notice 2003-75

http://www.treas.gov/press/releases/js 1026.htm

Part III -Administrative, Procedural, and Miscellaneous
RRSP and RRIF Information Reporting
Notice 2003-75

S E C T I O N 1. B A C K G R O U N D .
Notice 2003-25, 2003-18 I.R.B. 855, and Notice 2003-57, 2003-34 I.R.B. 397,
provided guidance to taxpayers regarding their 2002 taxable year information reporting
obligations with respect to Canadian registered retirement savings plans ("RRSPs") and
registered retirement income funds ("RRIFs"). These Notices stated that Treasury and
the IRS intended to develop an alternative, simplified reporting regime for these
Canadian retirement plans for future taxable years.
This notice describes the new simplified reporting regime that Treasury and the
IRS have developed for taxpayers w h o hold interests in R R S P s and RRIFs. The new
reporting regime, which is effective for taxable years beginning after December 31,
2002, is in lieu of the filing obligations under section 6048 (Form 3520 (Annual Return to
Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts) and Form
3520-A (Annual Information Return of Foreign Trust with a U.S. Owner)) that otherwise
apply to U.S. citizens and resident aliens w h o hold interests in R R S P s and RRIFs and
to the custodians of such plans. The new simplified reporting regime is designed to
permit taxpayers to meet their reporting obligations by using information that is readily
available to them.
SECTION 2. NEW REPORTING REGIME.
.01. New Form. Under the authority of section 6001 of the Internal Revenue
Code, Treasury and the IRS are designing a new form that a U.S. citizen or resident
alien w h o holds an interest in an R R S P or RRIF must complete and attach to his or her
Form 1040. The new form also will coordinate the reporting rules with the procedure set
forth in section 4 of Revenue Procedure 2002-23, 2002-1 C.B. 744, for making the
election under Article XVIII(7) of the U.S.-Canada income tax convention to defer U.S.
income taxation of income accrued in the R R S P or RRIF.
.02. Interim Reporting Rules for Beneficiaries Making the Election to Defer U.S.
Income Taxation on Income of an R R S P or RRIF. Until the form referred to in section
2.01 of this notice is available, any U.S. citizen or resident alien w h o is a beneficiary (as
defined in section 2.06 of this notice) of an R R S P or RRIF and w h o has m a d e the
election described in section 4 of Revenue Procedure 2002-23 with respect to the
R R S P or RRIF, or w h o is making such election effective for the 2003 taxable year and
subsequent taxable years, must
-1 -

(i)
(ii)

(iii)

attach a copy of each such election to his or her Form 1040;
indicate the balance in each R R S P or RRIF at the end of the taxable year
either on the copy of the election or by attaching a copy of a statement
issued by the custodian of the R R S P or RRIF; and
comply with section 2.05 of this notice if he or she has received any
distributions during the taxable year from such R R S P or RRIF.

.03. Interim Reporting Rules for Beneficiaries Not Making the Election to Defer
U.S. Income Taxation on Income of an R R S P or RRIF. Until the form referred to in
section 2.01 of this notice is available, any U.S. citizen or resident alien w h o is a
beneficiary (as defined in section 2.06 of this notice) of an R R S P or RRIF and w h o has
not m a d e the election described in section 4 of Revenue Procedure 2002-23 with
respect to the R R S P or RRIF, and w h o is not making such election for the 2003 taxable
year, must attach a statement to his or her Form 1040 that includes the following
information:
(i)
The caption " C A N A D I A N R R S P " or " C A N A D I A N RRIF," whichever is
applicable;
(ii)
The taxpayer's n a m e and taxpayer identification number;
(iii) The taxpayer's address;
(iv) The n a m e and address of the custodian of the R R S P or RRIF and the
plan account number, if any;
(v)
The amount of contributions to the R R S P or RRIF during the taxable year;
(vi) The undistributed earnings of the R R S P or RRIF during the taxable year in
each of the following categories: interest, dividends, capital gains, and
other;
(vii) The total amount of distributions received from the R R S P or RRIF during
the taxable year; and
(viii) The balance in the R R S P or RRIF at the end of the taxable year.
The taxpayer must provide a separate statement for each R R S P or RRIF of which he or
she is a beneficiary. In addition to attaching the statement described in this section 2.03
to his or her Form 1040, the taxpayer must report the undistributed earnings for that
taxable year of all such R R S P s and RRIFs on Schedule B (Interest and Ordinary
Dividends) or D (Capital Gains and Losses), as appropriate, and on line 8a, 9, 13, or 21
of the Form 1040. The taxpayer must also comply with section 2.05 of this notice if the
taxpayer has received any distributions during the taxable year from such R R S P or
RRIF.
.04. Interim Reporting Rules for Annuitants of RRSPs and RRIFs. Until the form
referred to in section 2.01 of this notice is available, if a U.S. citizen or resident alien is
an annuitant (as defined in section 2.06 of this notice) under an R R S P or RRIF that has
no beneficiary (as defined in section 2.06 of this notice), and the annuitant receives a
distribution from the R R S P or RRIF, the annuitant must in the year of distribution attach
a statement to his or her Form 1040 that includes the following information:
(i)
The caption " A N N U I T A N T U N D E R C A N A D I A N R R S P ' or " A N N U I T A N T
U N D E R C A N A D I A N RRIF," whichever is applicable;

2

(ii) The annuitant's n a m e and taxpayer identification number;
(iii) The annuitant's address;
(iv) The n a m e and address of the custodian of the R R S P or RRIF and the
plan account number, if any;
(v)
The total amount of distributions received from the R R S P or RRIF during
the taxable year; and
(vi) The balance in the R R S P or RRIF at the end of the taxable year.
The annuitant must provide a separate statement for each such R R S P or RRIF from
which he or she has received a distribution during the taxable year. The annuitant must
comply with section 2.05 of this notice with respect to such distributions.
.05. Distributions. A U.S. citizen or resident alien who has received any
distributions during the taxable year from an R R S P or RRIF must report the total
amount of distributions received during the taxable year from all such R R S P s and
RRIFs on line 16a of the Form 1040 and the taxable amount of all such distributions (as
determined under section 72) on line 16b of the Form 1040.
.06. Definition of Beneficiary and Annuitant. For purposes of the new simplified
reporting regime described in this notice, a beneficiary of an R R S P or RRIF is an
individual w h o is subject to current U.S. income taxation on income accrued in the
R R S P or RRIF or would be subject to such taxation had the individual not m a d e the
election under Article XVIII(7) of the U.S.-Canada income tax convention to defer U.S.
income taxation of income accrued in the R R S P or RRIF. For these purposes, an
annuitant of an R R S P or RRIF is an individual w h o is designated pursuant to the R R S P
or RRIF as an annuitant.
.07. Record Retention. Taxpayers must retain supporting documentation
relating to information required by the new reporting regime, including Canadian Forms
T4RSP, T4RIF, or N R 4 , and periodic or annual statements issued by the custodian of
the R R S P or RRIF.
SECTION 3. SECTIONS 6048 AND 6677 ARE NOT APPLICABLE
The new simplified reporting regime, instituted under the authority of section
6001, provides the information needed for tax compliance purposes. Therefore,
pursuant to section 6048(d)(4), no reporting will be required under section 6048 with
respect to R R S P s and RRIFs that have beneficiaries or annuitants w h o are subject to
the new simplified reporting regime. Accordingly, the associated penalties described in
section 6677 do not apply to such R R S P s and RRIFs and their beneficiaries or
annuitants. A beneficiary or annuitant of an R R S P or RRIF may, however, be subject to
other penalties.
SECTION 4. EFFECT ON OTHER DOCUMENTS.
Notice 2003-25, Notice 2003-57, and section II.E of Notice 97-34 (pertaining to

3

reporting for certain transfers to RRSPs), 1997-1 O B . 422, are superseded to the extent
inconsistent with this notice.
SECTION 5. EFFECTIVE DATE.
This notice is effective for taxable years beginning after December 31, 2002.
SECTION 6. PAPERWORK REDUCTION ACT.
The collection of information contained in this notice has been reviewed and
approved by the Office of Management and Budget in accordance with the Paperwork
Reduction Act (44 U.S.C. 3507) under control number 1545-1865.
An agency may not conduct or sponsor, and a person is not required to respond
to, a collection of information unless the collection of information displays a valid O M B
control number.
The collection of information in this notice is in section 2. This information will be
used to compute and collect the right amount of tax. The likely respondents are
individuals.
The estimated total annual reporting burden under the new simplified reporting
regime for taxpayers w h o hold interests in R R S P s and RRIFs is 1,500,000 hours. The
estimated annual burden per respondent varies from 0.5 hour to 5 hours, depending on
individual circumstances, with an estimated average of 2 hours. The estimated number
of respondents is 750,000.
The estimated annual frequency of responses is once per respondent per plan.
The new simplified reporting regime substantially reduces the reporting burden of
taxpayers w h o hold interests in R R S P s and RRIFs. Under the prior regime, the
average estimated reporting burden w a s more than 50 hours per Form 3520 (more than
100 hours per respondent). In addition, the new simplified reporting regime eliminates
the requirement to file Form 3520-A, reducing the burden of a custodian by more than
40 hours per R R S P or RRIF.
Books or records relating to a collection of information must be retained as long
as their contents m a y become material in the administration of any internal revenue law.
Generally, tax returns and tax return information are confidential, as required by 26
U.S.C. 6103.
SECTION 7. DRAFTING INFORMATION.
The principal author of this notice is Willard W. Yates of the Office of Associate
Chief Counsel (International). For further information regarding this notice
contact Willard W . Yates on (202) 622-3880 (not a toll-free call).

4

-1027: Treasury & IRS Issue Guidance O n Information Reporting O n Dividends F r o m ... Page 1 of 1

PRESS ROOM

F R O M T H E OFFICE O F PUBLIC A F F A I R S
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
November 26, 2003
JS-1027
Treasury & IRS Issue Guidance On Information Reporting On Dividends From
Foreign Corporations
Today, the Treasury Department and the IRS issued guidance on information
reporting on dividends from foreign corporations under the provisions of the Jobs
and Growth Tax Relief Reconciliation Act of 2003, which provides for a 15-percent
(5-percent for taxpayers in the 10 and 15-percent tax brackets) tax rate for certain
dividends received by individuals. By reducing the rate of tax for individuals on
certain dividends, the 2003 Act reduces the double tax on dividends. Notice 200379 provides guidance for persons required to prepare Form 1099-DIV and other
information reporting with respect to dividends from foreign corporations and for
individuals receiving such forms.
The Form 1099-DIV for 2003 includes a separate box identifying the amount of
dividends eligible for the 15-percent (or 5-percent) tax rate. A dividend paid by a
foreign corporation is eligible for the reduced tax rate if it satisfies the special rules
applicable to foreign dividends under the 2003 Act. For 2003 information reporting,
the Notice provides simplified procedures for applying these special rules in
connection with the reporting of foreign dividends on Form 1099-DIV. The Notice
also provides that an individual w h o receives a Form 1099-DIV with respect to a
foreign dividend generally may rely on that form, unless the individual knows or has
a reason to know that the dividend did not in fact satisfy the special rules applicable
to foreign dividends for purposes of qualification for the reduced tax rate.
The simplified procedures described in the Notice apply to information reporting for
2003. In addition, the Notice briefly describes the certification procedure Treasury
and the IRS intend to develop for use for information reporting with respect to
foreign dividends beginning in 2004 and requests comments on that proposal.
The Notice also describes for 2003 when a security (or an American depositary
receipt in respect of such security) issued by a foreign corporation that is not
ordinary or c o m m o n stock (such as preferred stock) will be considered readily
tradable on an established securities market in the United States for purposes of
the 2003 Act rules regarding qualification for the reduced tax rate applicable to
certain dividends. (Notice 2003-71 provides guidance on when ordinary or c o m m o n
stock issued by a foreign corporation is considered readily tradable on an
established securities market in the United States.)
-30Related Documents:
• Notice 2003-79

http://www.treas.gov/press/releases/js 1027.htm

5/20/2005

Part III -Administrative, Procedural, and Miscellaneous
Information reporting for distributions with respect to securities issued by foreign
corporations.
Notice 2003-79

S E C T I O N 1. O V E R V I E W
The Jobs and Growth Tax Relief Reconciliation Act of 2003 (P.L. 108-27, 117
Stat. 752) (the "2003 Act") w a s enacted on M a y 28, 2003. Subject to certain limitations,
the 2003 Act generally provides that a dividend paid to an individual shareholder from
either a domestic corporation or a "qualified foreign corporation" is subject to tax at the
reduced rates applicable to certain capital gains. A qualified foreign corporation
includes certain foreign corporations that are eligible for benefits of a comprehensive
income tax treaty with the United States which the Secretary determines is satisfactory
for purposes of this provision and which includes an exchange of information program.
In addition, a foreign corporation not otherwise treated as a qualified foreign corporation
is so treated with respect to any dividend it pays if the stock with respect to which it
pays such dividend is readily tradable on an established securities market in the United
States.
This notice provides guidance for persons required to make returns and provide
statements under section 6042 of the Internal Revenue C o d e (e.g., Form 1099-DIV)
regarding distributions with respect to securities issued by a foreign corporation, and for
individuals receiving such statements. The notice provides simplified procedures for
persons required to m a k e such returns and provide such statements for 2003. T h e
notice also describes w h e n a security (or an American depositary receipt in respect of
such security) issued by a foreign corporation that is other than ordinary or c o m m o n
stock (such as preferred stock) will satisfy the readily tradable test (as described in
Section 2.01 below). T h e notice also describes generally the certification process that
Treasury and the IRS intend to develop for future years.
Section 2 of this notice describes the "qualified foreign corporation" determination
under the 2003 Act and describes the information reporting requirements with respect to
dividends generally. Section 3 addresses the determinations required under the 2003
Act for information reporting of a distribution with respect to a security of a foreign
corporation, including h o w the readily tradable test applies to a security that is other
than ordinary or c o m m o n stock. Section 4 sets forth simplified procedures for
information reporting for 2003. Section 5 briefly describes the certification procedure
Treasury and the IRS intend to develop for use beginning in 2004.
SECTION 2. BACKGROUND
.01 The 2003 Act

Section 1 (h)(1) of the Internal Revenue C o d e generally provides that a taxpayer's
"net capital gain" for any taxable year will be subject to a m a x i m u m tax rate of 15
percent (or 5 percent in the case of certain taxpayers). T h e 2003 Act added section
1 (h)(11), which provides that net capital gain for purposes of section (1 )(h) m e a n s net
capital gain (determined without regard to section 1(h)(11)) increased by "qualified
dividend income". Qualified dividend income m e a n s dividends received during the
taxable year from domestic corporations and "qualified foreign corporations." Section
1 (h)(11 )(B)(i). Subject to certain exceptions, a qualified foreign corporation is any
foreign corporation that is either (i) incorporated in a possession of the United States
(the "possessions test"), or (ii) eligible for benefits of a comprehensive income tax treaty
with the United States which the Secretary determines is satisfactory for purposes of
this provision and which includes an exchange of information program (the "treaty
test").1 Section 1 (h)(11 )(C)(i). Subject to the s a m e exceptions, a foreign corporation
that does not satisfy either of these two tests is treated as a qualified foreign corporation
with respect to any dividend paid by such corporation if the stock with respect to which
such dividend is paid is readily tradable on an established securities market in the
United States (the "readily tradable test").2 Section 1(h)(11)(C)(ii). A qualified foreign
corporation does not include any foreign corporation which for the taxable year of the
corporation in which the dividend w a s paid, or the preceding taxable year, is a foreign
personal holding c o m p a n y (as defined in section 552) (a "FPHC"), a foreign investment
company (as defined in section 1246(b)) (a "FIC"), or a passive foreign investment
c o m p a n y (as defined in section 1297) (a "PFIC") (the "foreign investment c o m p a n y
exclusion test"). Section 1(h)(11)(C)(iii).
A distribution with respect to a security issued by a qualified foreign corporation
also is subject to the other limitations in section 1(h)(11). In particular, the recipient
must satisfy the holding period requirements of section 1(h)(11)(B)(iii) (the "holding
period test"). In addition, the distribution must constitute a dividend for U.S. federal
income tax purposes. Accordingly, the security with respect to which the distribution is
m a d e must be equity rather than debt for U.S. federal income tax purposes (the "equity
test"), and the distribution must be out of the corporation's earnings and profits rather
than a return of capital (the " E & P test").
The determination whether a distribution with respect to a security issued by a
foreign corporation is eligible for the reduced rates of tax under the 2003 Act therefore
requires a series of separate determinations. These determinations are discussed in
more detail in Section 3. First, the security with respect to which the distribution is
m a d e must satisfy the equity test. Second, the distribution must satisfy the E & P test.
Third, the security must satisfy the readily tradable test, or the foreign corporation must
satisfy either the possessions test or the treaty test. Fourth, the foreign corporation
must satisfy the foreign investment c o m p a n y exclusion test. Fifth, the recipient of the
distribution must satisfy the holding period test.
Notice 2003-69, 2003-42 I.R.B. 851, contains the current list of the U.S. tax treaties that meet
these requirements.
Notice 2003-71, 2003-43 I.R.B. 922, provides guidance on when ordinary or common stock is
considered readily tradable on an established securities market in the United States.

•02 Information Reporting
In General. Any person that m a k e s payments of dividends aggregating $10 or
more during any calendar year, or any person that receives payments of dividends as a
nominee and m a k e s payments aggregating $10 or more in a calendar year to another
person with respect to the dividends received, must report those payments to the IRS
by filing an information return. Section 6042(a). In addition, a person filing such a
return must furnish to every person with respect to w h o m such information is reported a
statement of the aggregate amount of payments required to be shown on the
information return. Section 6042(c). If a person furnishing such a statement is unable
to determine the portion of the payment that constitutes a dividend or is paid with
respect to a dividend, the person making the payment is required to treat it as a
dividend or an amount paid with respect to a dividend. Section 6042(b)(3).3
Information Returns. Information returns under section 6042 must be filed on
Form 1099, which specifies that the aggregate amount of dividends (or, in the case of a
nominee, amounts paid with respect to dividends) is reported on Form 1099-DIV.4
Form 1099-DIV and its instructions have been revised to reflect the 2003 Act. The
instructions require filers to enter in Box 1a of the form the aggregate amount of
ordinary dividends paid and to enter in Box 1b the portion of dividends in Box 1a that
qualifies for reduced rates under the 2003 Act ("qualified dividends"). The instructions
direct filers to include in Box 1b dividends for which it is impractical to determine
whether the holding period test has been met. A s described above, a distribution with
respect to a security issued by a foreign corporation must satisfy specific requirements
under the 2003 Act in order to be considered a qualified dividend.
Regulations under section 6042 provide that a person required to make an
information return under that section generally must do so not later than February 28
(March 31 if filed electronically) of the year following the calendar year in which the
dividend w a s paid. Section 1.6042-2(c) of the Income Tax Regulations. A person
required to furnish a payee statement under that section generally must do so not later
than January 31 of the year in which the information return is to be filed.5
Penalties. Section 6721 imposes a penalty if a person fails to file a timely correct
information return, including a return under section 6042. Section 6722 imposes a
penalty if a payor fails to furnish to a payee a timely correct information statement,
including a statement under section 6042. Section 6724(a) provides that the penalties
under sections 6721 and 6722 do not apply if the failure to comply is due to reasonable
cause and not to willful neglect.
3

Notice 2003-67, 2003-40 I.R.B. 752, provides guidance to brokers and individuals regarding
provisions in the 2003 Act that affect information reporting for payments in lieu of dividends.

4

Revenue Procedure 2002-57, 2002-39 I.R.B. 575, provides circumstances under which a person
required to file Form 1099 m a y file a substitute.

5

See Section 1.6042-3 of the Income Tax Regulations for guidance on when dividends are subject
to information reporting.

Recipients of Payee Statements. Section 6662 imposes a penalty if a taxpayer
substantially understates its income tax liability. Section 6664(c) provides that no
penalty shall be imposed under section 6662 with respect to any portion of an
underpayment if it is shown that there w a s a reasonable cause for such portion and that
the taxpayer acted in good faith with respect to such portion. The regulations under
section 6664 provide that the determination of whether a taxpayer acted with
reasonable cause and in good faith is m a d e on a case-by-case basis, taking into
account all pertinent facts and circumstances. Under those regulations, a taxpayer's
reliance on erroneous information reported on a Form 1099 indicates reasonable cause
and good faith, provided the taxpayer did not know or have reason to know that the
information w a s incorrect. Section 1.6664-4(b)(1) of the Income Tax Regulations. For
these purposes, a taxpayer generally knows, or has reason to know, that the
information on an information return is incorrect if such information is inconsistent either
with other information reported or furnished to the taxpayer or with the taxpayer's
knowledge of the transaction. ]d.
The instructions to Form 1040 for 2003 state that some distributions that are
reported as qualified dividends in Box 1b of Form 1099-DIV m a y not actually be
qualified dividends. For example, the instructions provide examples illustrating
situations in which amounts reported as qualified dividends in Box 1b of Form 1099-DIV
are not qualified dividends because the recipient of the dividends failed to satisfy the
holding period test.
SECTION 3. ANALYSIS
This Section discusses the information reporting determinations with respect to
each of the tests relevant to whether a distribution with respect to a security issued by a
foreign corporation is a qualified dividend.
.01 Ecuitv Test
In order to be a qualified dividend, a distribution must be made with respect to
equity rather than indebtedness, as determined under U.S. federal income tax
principles. The characterization of an instrument for U.S. federal income tax purposes
depends on the terms of the instrument and all surrounding facts and circumstances.
See, e.g.. Notice 94-47, 1994-1 O B . 357.
Common or ordinary shares generally are treated as equity for U.S. federal
income tax purposes. For a security issued by a foreign corporation other than a
c o m m o n or an ordinary share (such as a preferred share), a person required to m a k e a
return under section 6042 m a y not be aware of all the information relevant to
determining whether a particular security is debt or equity, although such a person does
have access to information contained in public filings with the S E C . A foreign
corporation generally will have all the information relevant to applying the equity test.
For 2003 information reporting, a person required to make a return under section
6042 for a distribution with respect to a security issued by a foreign corporation shall

treat the security as satisfying the equity test if the security is a c o m m o n or an ordinary
share. In addition, if the security is not a c o m m o n or an ordinary share, such person
shall treat the security as satisfying the equity test if the foreign corporation has a public
statement filed with the S E C stating that the security will be, should be, or more likely
than not will be properly classified as equity rather than as debt for U.S. federal income
tax purposes.
For 2004 and future information reporting, Treasury and the IRS intend to issue
regulations providing a certification procedure under which foreign corporations m a y
certify that a security with respect to which a distribution is m a d e meets the equity test.
A s discussed below, it is expected that it will be possible to m a k e such certification
either in a public S E C filing (such as in a Form 20-F) or in a public statement with a
copy filed with the IRS.
.02 E&P Test
In order to be a qualified dividend, a distribution must be a dividend. Section 316
generally provides that a dividend m e a n s any payment m a d e by a corporation to its
shareholders out of earnings and profits. A person required to file an information return
under section 6042 m a y not know in a given circumstance whether a distribution by a
corporation represents a distribution of earnings and profits. If a person making a
payment of or with respect to a distribution by a corporation is unable to determine the
portion of such a payment that is a dividend or is paid with respect to a dividend, then
under section 6042 the person making the payment must treat the entire payment as a
dividend or as an amount paid with respect to a dividend. Section 6042(b)(3).
.03 Tests in the Alternative: Readily Tradable Test, Possessions Test, and
Treaty Test
(a) Readily Tradable Test. A foreign corporation is treated as a qualified foreign
corporation with respect to any dividend paid by such corporation if the stock with
respect to which that dividend is paid is readily tradable on an established securities
market in the United States. Notice 2003-71 defines w h e n ordinary or c o m m o n stock is
considered readily tradable on an established securities market in the United States. In
addition, for 2003, a security (or an American depositary receipt in respect of such
security) issued by a foreign corporation that is other than ordinary or c o m m o n stock
(such as preferred stock) will satisfy the readily tradable test if it is listed on a national
securities exchange that is registered under section 6 of the Securities Exchange Act of
1934 (15 U.S.C. § 78f) or on the Nasdaq Stock Market as described in Notice 2003-71.
(See Section 3.01 for discussion of the equity test.)
(b) Possessions Test. The 2003 Act provides that, in order to satisfy the
possessions test, a corporation must be incorporated in a possession of the United
States. For 2003 and future years, a person required to m a k e a return under section
6042 shall treat a corporation incorporated in a possession of the United States as
satisfying the possessions test.
(c) Treaty Test. The 2003 Act provides that, in order to satisfy the treaty test, a

corporation must be eligible for benefits of a comprehensive income tax treaty with the
United States which the Secretary determines is satisfactory for purposes of section
1 (h)(11) and which includes an exchange of information program. Notice 2003-69
contains the current list of treaties that meet the requirements of the 2003 Act.
Treaties generally confer benefits only on "residents" of the countries that are
parties to the treaty and frequently include a "limitation on benefits" provision designed
to ensure that treaty benefits are not available to persons engaged in "treaty shopping."
For example, the mere fact that a corporation is organized in a country m a y not be
sufficient for the corporation to qualify for benefits under the relevant treaty. The terms
of each treaty, including any limitation on benefits provision, reflect the particular
circumstances of the relevant treaty partner relative to the United States. T h e
determination as to whether a particular foreign corporation would be eligible for
benefits under a particular treaty can be a fact-intensive determination. A foreign
corporation generally will have all the information relevant to applying the treaty test.
For example, a foreign corporation that receives U.S. source income eligible for a
reduced rate of withholding under a treaty generally must complete a Form W - 8 B E N
certifying under penalties of perjury that, a m o n g other items, it is a resident of the
relevant country within the meaning of the relevant treaty and satisfies the limitation on
benefits provision, if any, provided in that treaty. A s discussed in Section 5 below, for
2004 and future information reporting Treasury and the IRS intend to develop a
certification procedure under which a foreign corporation m a y certify that it meets the
treaty test. For corporations that complete a Form W - 8 B E N for other purposes, it is
expected thatfilinga copy of this form with the IRS could be used as a m e a n s of
meeting the certification requirement with respect to the treaty test, depending on the
circumstances.
Treasury and the IRS recognize that the fact-intensive nature of the
determination whether a foreign corporation is eligible for benefits under a treaty,
coupled with the need for persons required to m a k e information returns to begin work
n o w on processing those returns and related payee statements, m a k e s it appropriate to
use a simplified procedure for 2003 information reporting.
For 2003 information reporting, a person required to make a return under section
6042 shall treat a foreign corporation as satisfying the treaty test provided that (i) the
foreign corporation is organized in a country w h o s e income tax treaty with the United
States is listed in Notice 2003-69, and (ii) if the relevant treaty contains a limitation on
benefits provision, the corporation's c o m m o n or ordinary stock is listed on an exchange
covered by the public trading test in that limitation on benefits provision. However, a
person required to m a k e such a return shall not treat a foreign corporation as satisfying
the treaty test if such person knows or has reason to know that the corporation is not
eligible for benefits under the relevant treaty. For this purpose, a person will be
considered to have reason to know the corporation is not eligible for treaty benefits if the
corporation has so stated in its most recent S E C annualfiling(if any) for the security
(e.g., Form 20-F).
For example, assume that a foreign corporation is incorporated in Austria and
that its c o m m o n stock is listed on the Vienna exchange. T h e U.S.-Austria income tax

treaty is listed in Notice 2003-69, and the Vienna exchange is covered by the public
trading test in the limitation on benefits provision of the U.S.-Austria income tax treaty.
A person required to m a k e a return under section 6042 would treat the Austrian
corporation as satisfying the treaty test unless the person knew or had reason to know
that the corporation w a s not eligible for benefits of the U.S.-Austria income tax treaty.
.04 Foreign Investment Company Exclusion Test
The 2003 Act provides that a qualified foreign corporation does not include any
foreign corporation that is a F P H C , FIC, or PFIC for the taxable year in which the
dividend w a s paid or the preceding year. A foreign corporation generally will have all of
the information relevant to making these determinations. M a n y foreign corporations that
are publicly traded in the United States currently m a k e these determinations each year
and provide discussions regarding one or more of these determinations in their annual
filings with the S E C , such as Form 20-F. However, not all foreign companies provide
such a discussion in their U.S. public filings. Additionally, m a n y foreign companies that
are not publicly traded in the United States do not include discussions regarding these
determinations in their public filings in their h o m e jurisdiction.
As discussed below, Treasury and the IRS intend to develop a certification
procedure for 2004 and future information reporting under which a foreign corporation
m a y certify that it satisfies the foreign investment company exclusion test. For 2003
information reporting, Treasury and the IRS believe it is appropriate to use a simplified
procedure that is based on the knowledge of persons required to m a k e a return under
section 6042. Accordingly, a person required to m a k e a return under section 6042 for
2003 shall treat a foreign corporation as satisfying the foreign investment company
exclusion test unless the person knows or has reason to know that the corporation is or
expects to be a F P H C , FIC, or PFIC. For this purpose, a person would have the
requisite reason to know if a corporation has stated in its most recent annual public filing
with the S E C that it is or expects to be a F P H C , FIC, or PFIC. 6
.05 Holding Period Test
The 2003 Act provides that a recipient of a dividend must satisfy certain holding
period requirements in order for the dividend to be considered a qualified dividend. The
instructions to Form 1099-DIV direct a person required to file Form 1099-DIV to report in
Box 1b as qualified dividends any dividends for which it is impractical to determine
whether the recipient has met the holding period requirements for the stock with respect
to which the dividend is paid. Accordingly, if a person required to m a k e a return under
section 6042 has determined that a recipient has satisfied the relevant holding period
requirements or if it is impractical for such person to determine whether a recipient has
satisfied the holding period requirements, the person required to m a k e such return shall
treat the recipient as satisfying the holding period test.
.06 Waiver of Penalties for Reporting Based on Simplified Procedures
A U.S. person owning a share in a foreign corporation m a y be subject to a number of separate
reporting rules. See e ^ , Form 8621 (annual return for shareholders owning stock in a PFIC).

T h e IRS will exercise its authority under section 6724(a) of the C o d e to waive
penalties under sections 6721 and 6722 with respect to reporting of calendar year 2003
payments if a person required to m a k e a return under section 6042 m a k e s a good faith
effort to report payments consistent with the simplified procedures contained in this
notice.
.07 Distributions That Do Not Satisfy the Simplified Procedures In This Notice
This notice describes simplified information reporting procedures for 2003 for a
distribution with respect to a security issued by a foreign corporation. A person required
to m a k e a return under section 6042 m a y believe a particular distribution should be
reported in Box 1b of Form 1099-DIV as a qualified dividend even though the
distribution does not satisfy the simplified information reporting procedures. In that
case, the person required to m a k e a return under section 6042 m a y report the
distribution in Box 1b as a qualified dividend, subject to the applicable penalty
provisions.
For example, assume that a foreign corporation incorporated in the United
Kingdom issues equity securities to U.S. persons in a private placement under S E C
Rule 144A. A s s u m e further that the foreign corporation does not have its ordinary or
c o m m o n stock listed on any stock exchange. Finally, a s s u m e that the equity, E & P and
holding period tests are satisfied. Under these facts, the securities would not satisfy the
readily tradable test (because the privately placed securities would not be considered
readily tradable) and the foreign corporation would not satisfy the possessions test
(because the corporation is not incorporated in a possession). Additionally, the
simplified procedure described in this notice regarding the treaty test would not be
satisfied (because the foreign corporation's ordinary or c o m m o n stock is not listed on
exchange covered by the public trading test in the limitation on benefits provision of the
U.S.-U.K. income tax treaty). A person required to m a k e a return under section 6042
m a y nonetheless believe that the foreign corporation is in fact eligible for benefits under
the U.S.-U.K. income tax treaty and thus satisfies the treaty test. Such a person could
report a distribution with respect to the security in Box 1b of Form 1099-DIV as a
qualified dividend. However, a person doing so could be subject to applicable penalty
provisions if the foreign corporation did not in fact satisfy the treaty test and such person
did not have reasonable cause for believing the foreign corporation satisfied the treaty
test.
.08 Payments Reported on Form 1099-DIV for 2003
For taxable years beginning in 2003, a recipient of Form 1099-DIV may treat
amounts reported in Box 1b as qualified dividends, unless and to the extent that the
recipient knows or has reason to know that such amounts are not qualified dividends.
A s provided in § 1.6664-4(b)(1), such reliance m a y constitute reasonable cause and
good faith reliance for purposes of applicable penalties, depending on the facts and
circumstances. In addition, a recipient of Form 1099-DIV m a y treat a dividend excluded
from Box 1b as a qualified dividend if such person believes the dividend is a qualified
dividend, subject to applicable penalties in the event the amount so reported is not in

fact a qualified dividend.
S E C T I O N 4. S U M M A R Y O F G U I D A N C E F O R 2003
•01 Persons Reguired to File Form 1099-DIV
For 2003 information reporting, a person required to make a return under section
6042 shall report a distribution with respect to a security issued by a foreign corporation
in Box 1b of Form 1099-DIV as a qualified dividend if:
1.
either the security with respect to which the distribution is m a d e is a
c o m m o n or an ordinary share, or a public S E C filing contains a statement that the
security will be, should be, or more likely than not will be treated as equity rather than
debt for U.S. federal income tax purposes; and
2.
either:
a.
the security is considered "readily tradable on an established securities
market in the United States";
b.
the foreign corporation is organized in a possession of the United States;
or
c. the foreign corporation is organized in a country whose income tax treaty with
the United States is listed in Notice 2003-69, and if the relevant treaty contains a
limitation on benefits provision, the corporation's c o m m o n or ordinary stock is listed on
an exchange covered by that limitation on benefits provision's public trading test, unless
the person required to file an information return knows or has reason to know that the
corporation is not eligible for benefits under that treaty; and
3.
the person required to file Form 1099-DIV does not know or have reason
to know that the foreign corporation is or expects to be, in the taxable year of the
corporation in which the dividend w a s paid or was, in the preceding taxable year, a
F P H C , FIC. or PFIC; and
4.
the person required to m a k e a return under section 6042 determines that
the owner of the distribution has satisfied the holding period test or it is impractical for
such person to m a k e such determination.
The IRS will exercise its authority under section 6724(a) of the Code to waive
penalties under sections 6721 and 6722 with respect to reporting of calendar year 2003
payments if persons required to file Form 1099-DIV m a k e a good faith effort to report
payments consistent with the above rules. A person required to m a k e a return under
section 6042 m a y report a distribution in Box 1b as a qualified dividend even if the
distribution does not satisfy the simplified information reporting procedures for 2003,
subject to the applicable penalty provisions.
.02 Recipients of Form 1099-DIV for 2003
For taxable years beginning in 2003, a recipient of Form 1099-DIV may treat
amounts reported in Box 1b as qualified dividends, unless and to the extent the
recipient knows or has reason to know that such amounts are not qualified dividends.

SECTION 5. SUMMARY OF EXPECTED GUIDANCE FOR FUTURE YEARS

For years after 2003, Treasury and the IRS intend to issue regulations providing
procedures for a foreign corporation to certify that it is a qualified foreign corporation. It
is expected that such regulations generally will require persons required to file
information returns to report a distribution with respect to a security issued by a foreign
corporation as a qualified dividend if the corporation has m a d e an appropriate
certification under penalties of perjury to the effect that:
1.
for any security that is not a c o m m o n or an ordinary share, the security is
equity rather than debt for U.S. federal income tax purposes;
2.
where a security is not readily tradable on an established securities
market in the United States and where the foreign corporation is not incorporated in a
possession, the foreign corporation is eligible for the benefits of a tax treaty with the
United States that meets the requirements of the 2003 Act; and
3.
the foreign corporation is not, in the taxable year of the corporation in
which the dividend was paid, and was not, in the preceding taxable year, a FPHC, FIC,
or PFIC.
It is expected that certifications will be made annually and that these certifications
would be m a d e available by the foreign corporation to the public. It is further expected
that the regulations will provide procedures under which a foreign corporation submits
its certification to the IRS for date stamping. For publicly traded companies, it is
expected that the regulations will provide that such certification may be m a d e in a public
S E C filing (such as in a Form 20-F).
SECTION 6. EFFECTIVE DATE
This notice is effective for taxable years beginning on or after January 1, 2003.
SECTION 7. COMMENTS
Treasury and the IRS invite interested persons to comment on the information
reporting and certification procedures to be developed for years after 2003. Written
comments m a y be submitted to CC:PA:LPD:PR (Notice 2003-79), room 5207, Internal
Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, D C 20044.
Submissions m a y be hand delivered Monday through Friday between the hours of 8 a m
and 5 p m to: CC:PA:LPD:PR (Notice 2003-79), Courier's desk, Internal Revenue
Service, 1111 Constitution Avenue, N W , Washington, D C 20224. Alternatively,
taxpayers m a y submit comments electronically via the following e-mail address:
Notice.Comments(5)Jrscounsel.treas.gov. Please include "Notice 2003-79" in the
subject line of any electronic communications.
SECTION 8. PAPERWORK REDUCTION ACT
The information collection referenced in this notice has been previously reviewed
and approved by the Office of Management and Budget as part of the promulgation of
Form 1099-DIV. See O M B Control Number 1545-0110. This notice merely provides
additional guidance regarding the proper filing of such returns and furnishing of such
statements.

A n agency m a y not conduct or sponsor, and a person is not required to respond
to, a collection of information unless the collection of information displays a valid O M B
control number.
Books or records relating to a collection of information must be retained as long
as their contents m a y become material in the administration of any internal revenue law.
Generally tax returns and tax return information are confidential, as required by 26
U.S.C. §6103.
SECTION 9. CONTACT INFORMATION
The principal author of this notice is Michelle S. Lyon of the Office of Associate
Chief Counsel (International). For further information regarding this notice contact Ms.
Lyon on (202) 622-3880 (not a toll-free call).

-1028: Treasury N a m e s Robert Carroll A s Deputy Assistant Secretary For Tax Analysis

Page 1 of 1

PRESS ROOM

F R O M T H E OFFICE O F PUBLIC AFFAIRS
November 28, 2003
JS-1028
Treasury Names Robert Carroll As
Deputy Assistant Secretary
For Tax Analysis
The Treasury Department today announced that Robert Carroll has been appointed
as Deputy Assistant Secretary for Tax Analysis. He will provide economic advice
and analysis for the Office of Tax Policy with regard to all aspects of the economics
of Federal taxation. H e will be responsible for the development, analysis and
implementation of tax policies and programs. He replaces Andrew Lyon and begins
his new post on December 1.
Dr. Carroll was most recently a Visiting Scholar in the Tax Analysis Division of the
Congressional Budget Office, where^he provided analyses of investment incentives,
tax reform, income dynamics, and the distributional effects of taxes.
From July 2002 to June 2003 he served as a Senior Economist (Public Finance)
with the President's Council of Economic Advisers. He was responsible for
providing economic analysis and briefings on a variety of public finance issues,
including the President's Jobs & Growth Act, tax reform, tax simplification,
international taxation, and retirement security.
Prior to the CEA, he was a Financial Economist with the Treasury Department's
Office of Tax Analysis, Revenue Estimating Division from 1996 to 2002, a position
he also held from 1990 to 1995. H e was responsible for preparing economic
analyses of Administration and Congressional proposals. He worked for Ernst &
Young, LLP, from 1995 to 1996, as Manager, Policy and Regulatory Economics.
He holds a Ph.D. and a Masters in Economics from Syracuse University and a B.S.
in Economics from State University of N e w York. He resides in Arlington, Virginia.
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