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Department of the Treasury
PRESS RELEASES
Press release number HP-254 was not used.
Page 10f2
February 1, 2007
HP-242
Paulson, IRS Launch Campaign to Help
Low Income Taxpayers Take Advantage of
Tax Credit, Free Tax Help
Washington, DC - Treasury Secretary Henry M. Paulson, Treasurer Anna
Escobedo Cabral and IRS Commissioner Mark W. Everson and the IRS' national
partners launched Earned Income Tax Credit (EITC) Awareness Day at a Treasury
Department press conference today. The event kicks off a nationwide campaign to
inform taxpayers about this Important credit for working families and the availability
of free tax help.
"The Earned Income Tax Credit helps Americans who work hard but need extra
support to make ends meet - people who are often on the first step of the economic
ladder, gaining the experience and skillS to land a better job and earn a higher
income in the future," said Secretary Paulson. "Our goal is not just to help people
get by. Our goal is to help people get ahead."
More than 150 coalitions and partners across the nation marked EITC Awareness
Day With a series of news conferences or news releases promoting this valuable tax
credit for low-wage taxpayers. These organizations operate free tax preparation
sites for low-income individuals, for seniors and for other eligible taxpayers.
The Treasury officials were joined by partners Mayor Otis Johnson of Savannah,
Georgia, Brian Gallagher, chief executive officer of United Way of America, Elsie
Meeks, executive director of First Nations Oweesta Corporation and Linda EatmonJones, coordinator, DC CASH, for the kickoff event at the Treasury Department.
The Earned Income Tax Credit provides a refundable credit of up to $4,536 for
eligible families. EITC claimants are eligible for free tax preparation services
provided at 12,000 volunteer sites nationwide or they can also link to Free File
through IRS.gov if they Wish to prepare their own return.
In addition to providing help claiming the EITC, these free tax sites can help
qualified taxpayers request their one-time telephone excise tax credit.
"The IRS wants all eligible taxpayers to claim the EITC. Trained volunteers working
at these free tax preparation sites can help ensure that taxpayers receive all the
deductions and credits they are due. And, if you want to do your own taxes, there is
always Free File which is available at IRS.gov," said Commissioner Everson.
Many organizations offering free tax help also are encouraging taxpayers to save a
little money or open a bank account. The IRS is helping in this effort by creating a
new split-refund program that allows all taxpayers to diVide their refund among up
to three financial accounts, such as checking, savings and retirement.
"Tax time is an Ideal time to think about savings. For many taxpayers, tax refunds
are the largest checks they will receive throughout the year, and the new splitrefund program gives individuals and families the opportunity to build a nest egg for
the future," said Treasurer Cabral
During tax year 2005, more than 22 million returns received over $41 billion in
EITC. However, the IRS also estimates that as many as 25 percent of eligible
taxpayers fail to claim this tax credit.
http://www.treas.goy/press/releases/hp242.htm
3/1/2007
Page 2 of2
Eligible people who fail to claim EITC include Spanish speakers, individuals who
are self-employed or have service jobs in private households, childless taxpayers,
rural residents, and recipients of other types of public assistance such as food
stamps.
The credit was created in 1975 in part to offset the burden of Social Security taxes
and to serve as a work incentive. The amount of the credit varies but it is generally
determined by income and family size. Many states also have a local version of
EITC which also can increase a taxpayer's refund.
Tax preparers and taxpayers can find a wealth of information at IRS.gov. Both can
use the EITC Assistant at WW'.\ II', (JU" ';11<: which is an easy-to-use Interactive tool
to help determine If the taxpayer is qualified for EITC, This step-by-step online
program helps answer questions about eligibility, filing status, qualifying children
and credit amount. The EITC Assistant also is available in Spanish,
For the 2006 tax year, the maximum credit is $4,536 for a family with two or more
children: $2,747 for a family with one child and $412 If the taxpayer does not reside
with children,
The maximum amount of earned income allowed is higher for tax year 2006 than it
was for 2005, Please see Fact Sheet 2007-13 for all eligibility requirements,
Generally, a taxpayer may be able to take the credit for tax year 2006 if the
taxpayer:
•
•
•
has more than one qualifying child and earns less than $36,348 ($38,348 if
married filing jointly),
has one qualifying child and earns less than $32,001 ($34,001 if married
filing Jointly), or
does not have a qualifying child and earns less than $12,120 ($14,120 if
married filing Jointly),
The maximum amount of investment income also increased to $2,800 for tax year
2006,
The IRS reminds tax professionals that they must perform due diligence when
preparing an EITC tax return, To help, the IRS created an EITC Tax Preparer
Electronic Toolkit which is available at WW'.V 1;ltcfoILIXIJr.:pllels curn.
In addition to on-line tools, the IRS also produces Publication 596, Earned Income
Credit, which explains all the eligibility rules and also includes a worksheet to
determine eligibility. The publication is available III English and Spanish.
http://www.treas.gov/press/releases/hp242.htm
311/2007
Page 1 of 1
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February 2, 2007
HP-243
Statement of Secretary Paulson on International Affairs
Under Secretary Adams
Washington, D.C. - Secretary Paulson made the following statement today on the
resignation announcement of International Affairs Under Secretary Timothy D.
Adams
I am deeply grateful to Tim Adams for his unsurpassed dedication and leadership in
serving the President and the Treasury Department.
Tim helped shape this Administration's economic policy from its roots in Austin in
the early stages of the 2000 campaign. For the last two years, Tim has traveled
around the world representing the American people and strengthening our
relationships with key economic partners. The U.S. economy and our global
economic ties are stronger thanks to his work.
During his tenure at Treasury, Tim has advised three Secretaries, and helped this
Department navigate the economic shocks of a recession, corporate scandals,
terrorist attacks, and the war on terror. He played a key role in developing and
implementing policies that are bringing new opportunity and hope to people in the
world's poorest countries. such as the Millennium Challenge Corporation and the
historic debt relief initiative.
In the critical U.S.-China economic relationship, Tim has worked to integrate China
into the global system and put them on a path to increased currency flexibility. He
sought to improve and strengthen the fabric of our international financial institutions
by pushing them to adapt and respond to today's challenges and opportunities.
Particularly through his influential efforts to modernize the IMF, he sought to ensure
that our key multilateral institutions are prepared to playa beneficial role in our
evolving global economy.
Tim's good humor, keen intellect, and genuine regard for the men and women
around him have made him a valued member of the Treasury family. With great
respect and appreciation, we bid Tim farewell and best wishes.
REPORTS
•
Click here to view Under Secretary Adams' Letter of Resignation
http://www .treas.goy/press/releases/hp ,243 .htrn
3/1/2007
DEPARTMENT OF THE TREASURY
WASHINGTON. DC
UNDER SECRETARY
February 2,2007
The President
The White House
Washington, DC 20500
Dear Mr. President:
It has been my great honor to serve in your Administration at the Treasury Department
through two terms, three secretaries, and nearly six years. However, my responsibilities
to my spouse and three young children are simply incompatible with the demands of
continued service in the Administration, and I refuse to give anything but my best as I
endeavor. to make a difference in public service. So it is with some sadness that T, hereby,
tender my resignation as Under Secretary of the Treasury (International Affairs) effective
at the optimal time to facilitate a smooth transition.
Over these past years, we have faced many challenges ranging from recession to the
terrorist attacks of September 11, 2001, to the enduring poverty in too many parts of the
world. You have responded to these challenges with achievements of lasting importance.
It has been my privilege to playa variety of roles in these accomplishments. More
recently, during my tenure as Under Secretary, I have been proud to have helped to
modernize the International Monetary Fund and craft the U.S. Government's response to
the emergence of new economic powers, such as China and India. I have also enjoyed
helping our government seize the opportunities and confront the challenges of
globalization, while working to sustain rapid economic growth, open markets and
improve our economy's competitiveness.
Finally, during my tenure at Treasury, r have been deeply impressed by the diverse
talents, commitment to excellence, and dedication to the Nation of your appointees and
that of the career Treasury employees who are among the finest civil servants in the
world. I have every confidence that this talented team will continue to make great strides
during the final two years of your Administration and I wish you every success in those
efforts.
Sincerely,
Page 1 of 1
February 2, 2007
HP-244
Treasury to Hold Technical Briefing on Blue Book
U.S. Treasury officials will hold a background media briefing of the General
Explanations of the Administration's Fiscal Year 2008 Revenue Proposals, also
known as the "Blue Book."
Who
Assistant Secretary for Tax Policy Eric Solomon
Deputy Assistant Secretary for Tax Analysis Robert Carroll
What
Budget Blue Book Technical Briefing
When
Monday, February 5 1:00 p.m. (EST)
Where
Department of Treasury
Media Room 4121
1500 Pennsylvania Ave., NW
Washington, DC
Media interested in attending the event at the Treasury Department must have
Treasury press credentials or should contact Briltni Aldridge for clearance at (202)
622-2960 or brittni.aldridge@do.treas.gov with the following information: name,
Social Security number, and date of birth.
http://www.treas.goy/press/releases/hp244.htm
3/]/2007
Page I of 1
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February 2, 2007
HP-245
Treasury Economic Update 2.02.07
"We saw the importance of trade for U.S. workers in this morning's strong GOP
data. GOP growth in the fourth quarter was 3.5 percent and inflation was moderate
at 1.5 percent. Trade contributed more than 1.6 percentage points to growth, with
double-digit export gains accounting for more than 1 percentage point. We have
reached a cross-over point in which American exports are growing faster than
imports - and have been doing so for 4 straight quarters."
REPORTS
•
Treasury Economic Update 2.02.07
http://www.treas.goy/press/releases/hp245.htm
3/l/20C
TREASURY ECONOMIC UPDATE 2.02.07
""We saw the importance of trade for U.S. workers in this morning's strong
GDP data. GDP growth in the fourth quarter was 3.5 percent and inflation was
moderate at 1.5 percent. Trade contributed more than 1.6 percentage points
to growth, with double-digit export gains accounting for more than 1
percentage point. We have reached a cross-over point in which American
exports are growing faster than imports - and have been doing so for 4
straight quarters."
u.s. Treasury Secretary Henry M. Paulson, January 31.2007
Indicators of a Strong & Sustainable U.S. Economy:
Economic Growth: 3.5% GOP growth in the 4th quarter. Our economy has grown a solid 3.4% over the
past 4 quarters. (Last updated: January 31, 2007)
Business Investment: Capital investment increased a strong 6.8% over the 4 quarters of 2006. (Last
updated: January 31, 2007)
Job Growth: 111,000 new jobs created in January. More than 2.1 million new jobs have been created
over the past 12 months. In addition, employment estimates for November and December were revised
up, adding 81,000 jobs. Since August 2003, more than 7.4 million jobs have been created - more jobs
than all the other major industrialized countries combined. Our economy has added jobs for 41 straight
months. Employment has increased in 49 states within the past year. (Last updated: February 2, 2007)
Low Unemployment: 4.6% unemployment rate - close to a 5-1/2 year low. Unemployment rates
have decreased or held steady in 42 states over the past year. (Last updated: February 2, 2007)
Tax Revenues: Tax receipts up 11.8% in fiscal year 2006 (FY06) on top of FY05's 14.6% increase.
Receipts have grown another 8% percent so far in FY07. (Last updated: January 12, 2007)
Steady Productivity: Labor productivity has grown at an annual rate of 3% over the past five years.
(Last updated: December 5, 2006)
Americans are Keeping More of Their Hard-Earned Money:
Real Wages Grew 1.7% Over the Past 12 Months (ending December). This translates into an
extra $585 for the average full-time production worker.
Real After-Tax Income Per Person has Risen 9.7% - an extra $2,499 per person - since the
President took office.
Pro-Growth Policies will Enhance Long-Term U.S. Economic Strength:
On February 5, the Administration will present its proposal to balance the budget by
2012. Economic growth has generated increased tax receipts and dramatically improved the budget
outlook. A robust economy has helped produce rapid increases in federal receipts which combined with
spending restraint has put us on track to meet the President's goal to cut the deficit in half over the next
five years. The time has come for both political parties to work together on comprehensive earmark reform
that produces greater transparency and accountability to the congressional budget process, including full
disclosure for each earmark and cutting the number and cost of all earmarks by half.
Page 1 of2
February 5, 2007
HP-246
Proposed Treasury Budget for FY 2008
The President's proposed budget for Treasury in fiscal year (FY) 2008 reflects the
Department's dedication to promoting economic opportunity, strengthening national
security, and exercising fiscal discipline.
"The President's proposed Treasury funding for FY 2008 supports Treasury's
priorities of promoting economic opportunity, combating threats to the national and
economic security of the U.S., and striving for a more effective and efficient federal
government," said Treasury Secretary Henry M Paulson. Speaking of the budget
as a whole, Paulson said "If we can keep our economy growing by continuing with
economic policies that keep taxes low and drive job creation and productivity, while
restraining spending, we can achieve a balanced budget by 2012."
The Treasury appropriations request for FY 2008 is $12.1 billion, a 4.7 percent
increase over the President's FY 2007 request of $11.6 billion.
Promoting Economic Opportunity
The Treasury Department, through offices including Economic Policy, International
Affairs, Tax Policy, and Domestic Finance, provides analysis, economic forecasting,
and policy guidance on issues ranging from tax policy to international financial
crises.
The FY 2008 budget provides additional resources to support Treasury in its role as
Chair of the Committee on Foreign Investment in the United States (CFIUS),
including administering the interagency CFIUS process.
Treasury requests $28.6 million for the Community Development Financial
Institutions (CDFI) Fund, $207 million above the FY 2007 request. These funds will
allow CDFI to continue its mission to expand the capacity of financial institutions to
provide credit, capital, and financial services to underserved populations and
communities in the United States.
Strengthening National Security
The Office of Terrorism and Financial Intelligence (TFI) plays an important role in
helping to combat threats to the nation and the financial system of the United
States. By drawing on our unique and powerful authorities, as well as financial
intelligence, the Treasury helps to safeguard the financial system against abuse by
weapons proliferators, terrorists, narcotics traffickers, rogue regimes, and other bad
actors. To support these efforts, Treasury requests a 23.8% increase for TFI
relative to the FY 2007 request.
Exercising Fiscal Discipline
One of Secretary Paulson's highest priorities is keeping the U.S on the path to
achieve the President's goal of reducing budget deficits and balancing the budget
by 2012. The Treasury Department is committed to reducing the deficit by
exercising fiscal discipline and ensuring the most efficient and effective use of
taxpayer dollars while at the same time boosting revenues through continued
economic growth.
http://www. treas.goy/press/releases/hp 246.htrn
311/2007
Page 2 of2
Enforcing the Nation's Tax Laws Fairly and Efficiently
As part of Treasury's comprehensive strategy to address the tax gap, the
President's Budget requests $11.095 billion in appropriations for the IRS to expand
its enforcement activity and to continue Improvements in taxpayer service.
An in-depth press briefing on the revenue proposals, including release of the "Blue
Book" will be held at 1:OOpm (EST) today in room 4121 of the Treasury Building.
(Media without Treasury press credentials should contact Frances Anderson at
(202) 622-2960, or frances.anderson@do.treas.gov with: name, Social Security
number, and date of birth.)
Summary of Treasury's FY 2008 Budget Request:
http://www.treas.gov/offices/managementibudgetibudgetinbri ef/fy20081
http://www.treas.gov/press/releases/hp246.htm
3/1/2007
Page 1 of2
February 5, 2007
2007 -2-5-12-5-14-17695
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 $64,961 million as of the end of that week, compared to $64,852 million as of the end of the prior week.
I. Official U.S. Reserve Assets (in US millions)
January 26, 2007
I
TOTAL.
I
11 Foreign Currency Reserves 1
I
la Securities
I
February 2, 2007
I
64,852
-=
.r,.,
12,244
I
64,961
Yen
TOTAL
Euro
10,4 73
22,717
12.312
Of which, issuer headquartered in the US.
I
Yen
II
10,514
TOTAL
I
22,826
0
0
b. Total deposits with:
Ibi Other central banks and BIS
Ib.ii. Banks headquartered in the US.
Ib.ii. Of which, banks located abroad
Ib. iii Banks headquartered outside the
12,221
I
I
US.
5,101
I
I
b.iii. Of which, banks located in the U.S.
17,322
I
I
12,278
0
0
0
0
0
0
0
I
2. IMF Reserve Position 2
I
4,990
13 Special Drawing Rights (SDRs) 2
-
I
I
14. Gold Stock 3
15 Other Reserve Assets
If).
5,123
I
I
II
U,IUL
I
0
I
II
I
4,874
I
8,820
11,041
11,041
0
0
I
II. Predetermined Short-Term Drains on Foreign Currency Assets
January 26, 2007
I
I
TOTAL
Euro
1. Foreign currency loans and securities
0
I
I
I
I
February 2, 2007
Euro
Yen
I
I
I
I
I
TOTAL
0
2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the U.S. dOllar:
2.a. Short positions
12.b. Long positions
13. Other
I
I
I
I
I
0
I
I
0
I
I
0
I
0
0
0
III. Contingent Short-Term Net Drains on Foreign Currency Assets
January 26, 2007
I
I
I
I
II
Euro
I
II
http://www.treas.gov/press/releasesI 2007251251417695.htm
Yen
I
I
TOTAL
I
I
II
February 2, 2007
Euro
I
II
Yen
I
II
TOTAL
I
I
I
3/1/2007
Page 2 of2
1. Contingent liabilities in foreign currency
0
0
I
I
I
I
I
I
I
I
I
I
I
I
0
I
I
I
I
0
1.a. Collateral guarantees on debt due within 1
year
11.b. Other contingent liabilities
2. Foreign currency securities with embedded
options
13
Undrawn, unconditional credit lines
13 a
With other central banks
3.b. Wlfh banks and other financial insfltutions
I~ced;n the US
I
0
I
I
I
I
I
0
I
I
0
I
I
I
anks and other financialll7stitutlolls
Headquanered outside the U. S.
4. Aggregate short and long positions of options
in foreign
Currencies vis-a-vis the U.S. dollar
4.a. Shon positions
i4.a.1. Bought puts
I
I
I
I
I
I
I
I
I
I
I
II
II
I
1
0
4.a.2. Written calls
4.b. Long positions
114.b.1: Bought calls
4.b.2. Written puts
I
I
Notes:
11 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 may be subject to revision. Foreign Currency
Reserves for the prior week are final.
21 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 SDRldoliar exchange rate for the reporting date. The entries for the latest week reflect any
necessary adjustments, including revaluation, by the US Treasury to IMF data for the prior month end.
31 Gold stock is valued monthly at $42.2222 per fine troy ounce.
http://www.treas.goy/press/releaseS/2007251251417695.htm
3/1/2007
Page 1 of2
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February 5, 2007
hp-247
Treasury Releases FY 2008 Blue Book
Washington. DC - The U.S Treasury Department today released its General
Explanations of the Administration's Fiscal Year (FY) 2008 Revenue Proposals,
often referred to as the Blue Book.
The Administration's FY 2008 Budget includes measures to permanently extend the
President's tax relief enacted in 2001 and 2003, the President's proposal for a new
standard deduction to make health insurance more affordable and a set of
proposals to improve compliance with the US. tax system. The FY 2008 Budget
also includes initiatives to:
•
•
•
•
•
•
Improve Americans' Competitiveness
Provide Alternative Minimum Tax (AMT) Relief
Simplify and Encourage Savings
Strengthen Education
Provide Incentives for Charitable Giving
Extend Various Expiring Tax Provisions
Helping More Americans Afford Health Insurance
As the President discussed in his 2007 State of the Union Address. the current tax
treatment of health care has contributed to the rapid growth in health care costs and
generally provides little or no benefit to people whose employer does not offer
health insurance coverage. The President has proposed a new standard deduction
for health insurance to help make insurance more affordable. The proposal
removes the existing tax bias for individuals to purchase overly generous health
insurance and also provide a strong incentive for the uninsured to purchase
insurance.
Families who choose coverage, whether directly or through an employer, could
deduct a standard $15,000; individuals who choose coverage could deduct $7,500.
A family or individual that spends less on health insurance than the standard
deduction amount would still receive the full $15,000 or $7,500. The deduction
would apply for purposes of both the income tax and payroll tax.
Treasury estimates that about 3 to 5 million more people would have health
insurance under the proposal.
Click here for more information 011 President Bush's affordable health care proposal
Improving Tax Compliance
The Treasury Department released a comprehensive strategy to improve tax
compliance in September 2006. The strategy builds upon the demonstrated
experience and current efforts of the Treasury Department and IRS to improve
compliance with a commitment to taxpayer service.
The Treasury has put forward 16 proposals in the budget to help improve
compliance, with an emphasis on additional reporting without creating excessive
http://www.treas.gov/press/releases/hp247.htm
3/1/2007
Page 2 0[2
burdens on compliant taxpayers. The Department also asked for $409 million for
the IRS to step up compliance efforts. Additional funding is also provided for more
research to study the sources of non-compliance.
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Improving Americans' Competitiveness
The tax system should promote the competitiveness of U.S. workers and
businesses in the global economy. The FY 2008 Budget also includes proposals to
promote savings for all Americans and encourage investment by entrepreneurs. In
the coming months, the Treasury Department will engage in a public dialogue on
how our tax system can be improved to make the U.S. more competitive in the
global economy.
AMT Relief
The Administration is concerned that the individual AMT may impose substantial
burdens upon taxpayers who were not the originally intended targets of the
individual AMT. The President's FY 2008 Budget proposes to extend for one year
through 2007 provisions that address the rapid rise in the number of taxpayers
affected by the AMT In the near term. The Administration urges Congress to create
a longer term solution to the problems associated with the individual AMT.
The proposal would increase the AMT exemption levels for 2007 to $43,900 for
single and head of household filers, $65,350 for married taxpayers filing joint
returns, and $32,675 for married taxpayers filing separate returns. In addition, the
proposal would allow an individual to reduce 2007 tax liability by the full amount of
nonrefundable personal credits even if tax liability is reduced to an amount that is
less than the individual's tentative minimum tax.
Without long-term changes, an estimated 25 million Americans will fall subject to
the AMT.
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http://www.treas.goy/press/releases/hp247.htm
3/1/2007
Page 1 of2
February 6, 2007
HP-248
Testimony of Treasury Secretary
Henry M. Paulson
before the House Ways and Means Committee
on the President's Fiscal Year 2008 Budget
Washington, D.C. - Chairman Rangel, Ranking Member McCrery, Members of the
Committee:
I am pleased to be here today to provide an overview of the President's budget for
fiscal year 2008. As the Secretary of the Treasury, my top priority is keeping
America's economy strong for our workers, our families, and our businesses. And
the President's budget supports that goal.
We start from a pOSition of strength. Our economy appears to be transitioning from
a period of above-trend growth to a more sustainable level of about three percent
growth. More than 7.4 million jobs have been created since August 2003. Our
unemployment rate is low at 4.6 percent. And over the last 12 months, real wages
have increased 1.7 percent. Economic growth is finding its way into workers'
paychecks as a result of low inflation. That means family budgets are going further.
Strong economic growth also benefits the government's fiscal position. In the first
quarter of fiscal year 2007, budget receipts totaled $574 billion, an increase of 8
percent over the same period in fiscal year 2006. As a result of increased revenue
over the last two years, we have brought the federal budget defiCit down to 1.8
percent of GDP.
The President has submitted a budget that reflects our strong economy and our
nation's priorities: continued job creation and wage growth, vigorous prosecution of
the war on terror, increased access to affordable health insurance, improved energy
security, and a strong fiscal position from which we can address long-term
challenges such as strengthening Social Security and Medicare for future
generations
This budget supports a strong economy by maintaining fiscal discipline. It maintains
our current tax policy, which has helped our economy rebound from recession to its
current robust health. With a steadily growing economy, tax revenues combined
with fiscal discipline should bring the federal budget into balance in five years. In
fact, we are submitting a budget that includes a surplus in 2012, which is
achievable if we keep our economy growing. While no one has a crystal ball, our
economic assumptions are close to the consensus of professional forecasters.
The President's budget addresses important domestic priorities. Health care is high
on this list. Under current law, the tax subsidy for health insurance purchased
through employers will average more than $300 billion a year for the next ten years.
For that huge expenditure we get a system in which rising costs are a burden to
families and businesses, and in which millions of people have no insurance at all.
The President's proposal would make health care more affordable and more
accessible. It would give all taxpayers who buy health insurance, whether on their
own or through their employer, and no matter the cost of the plan, the same
standard tax deduction for health insurance - $15,000 for a family, or $7,500 for an
individual. The President's proposal would help hold down health care costs by
removing the current tax bias that encourages over-spending. Costs would become
http://www.treas.gov/press/releases/hp248.htm
3/1/2007
Page 2 0[2
clearer, giving patients more power to make informed choices about their health
care spending. The proposal would also Jumpstart the individual insurance market,
so consumers have more choices than are available today. Health care would
become more consumer-driven, more affordable, and more accessible for millions
of Americans.
Energy security IS another concern of the American people, and it IS a priority
addressed in the President's budget. President Bush has put forth an ambitious
goal of reducing America's projected gasoline consumption by 20 percent over the
next 10 years We can achieve this goal by dramatically increasing the supply and
use of alternative fuels, and improving fuel-efficiency by reforming and increasing
CAFE.
The expanded fuels standard will provide entrepreneurs and investors a guaranteed
demand for alternative fuels, which will accelerate private investment and
technological development. Reforming CAFE will allow us to increase the fuel
economy of our automobiles as fast as technology allows. With a more diverse fuel
supply and better fuel efficiency, we can make our economy less vulnerable to
supply disruptions and confront climate ch '1ge through technologies that reduce
carbon dioxide emissions.
Finally, the President's budget, by emphasizing fiscal discipline and economic
growth, lays the right foundation for dealing with entitlement reform - a challenge
we all have a responsibility to address. Strengthening Social Security and Medicare
IS the most important step we can take to ensure the retirement security of our
children and grandchildren, the long-term stability of the federal budget, and the
continued growth of the American economy. I look forward to sitting down with
Democrats and Republicans, without pre-conditions, and finding common ground
on these critical issues.
Mr. Chairman, the President's budget priOrities - a strong economy, national
security, fiscal discipline, health care and energy innovation, and laying the
groundwork for entitlement reform - are the right priorities for America and for the
workers, businesses, and investors who drive our economy.
I am confident that, working together, we will keep our economy strong and chart a
course for maintaining our global economic leadership in the years ahead.
Thank you for the opportunity to discuss this today - and I now welcome your
questions.
http://www.treas.gov/press/releases/hp248.htm
3/1/2007
Page 1 of2
February 6, 2007
HP-249
Testimony of Treasury Secretary
Henry M. Paulson
before the Senate Finance Committee
on the President's Fiscal Year 2008 Budget
Washington, D.C. - Chairman Baucus, Senator Grassley. Members of the
Committee:
I am pleased to be here today to provide an overview of the President's budget for
fiscal year 2008. As the Secretary of the Treasury, my top priority is keeping
America's economy strong for our workers, our families, and our businesses. And
the President's budget supports that goal.
We start from a position of strength. Our economy appears to be transitloning from
a period of above-trend growth to a more sustainable level of about three percent
growth. More than 7.4 million Jobs have been created since August 2003. Our
unemployment rate is low at 4.6 percent. And over the last 12 months, real wages
have increased 1.7 percent. Economic growth is finding Its way into workers'
paychecks as a result of low inflation. That means family budgets are going further.
Strong economic growth also benefits the government's fiscal position. In the first
quarter of fiscal year 2007, budget receipts totaled $574 billion, an increase of 8
percent over the same period in fiscal year 2006. As a result of increased revenue
over the last two years, we have brought the federal budget deficit down to 1.8
percent of GOP.
The President has submitted a budget that reflects our strong economy and our
nation's priorities: continued job creation and wage growth, vigorous prosecution of
the war on terror, increased access to affordable health insurance, improved energy
security, and a strong fiscal position from which we can address long-term
challenges such as strengthening Social Security and Medicare for future
generations.
This budget supports a strong economy by maintaining fiscal discipline. It maintains
our current tax policy, which has helped our economy rebound from recession to its
current robust health. With a steadily growing economy, tax revenues combined
with fiscal discipline should bring the federal budget into balance in five years. In
fact, we are submitting a budget that includes a surplus in 2012, which is
achievable if we keep our economy growing. While no one has a crystal ball, our
economic assumptions are close to the consensus of professional forecasters.
The President's budget addresses important domestic priOrities. Health care is high
on this list. Under current law, the tax subsidy for health insurance purchased
through employers will average more than $300 billion a year for the next ten years.
For that huge expenditure we get a system in which riSing costs are a burden to
families and businesses, and in which millions of people have no insurance at all.
The President's proposal would make health care more affordable and more
accessible. It would give all taxpayers who buy health insurance, whether on their
own or through their employer, and no matter the cost of the plan, the same
standard tax deduction for health insurance - $15,000 for a family, or $7,500 for an
individual. The President's proposal would help hold down health care costs by
removing the current tax bias that encourages over-spending. Costs would become
http://www.treas.goy/press/releases/hp249.htm
3/1/2007
Page 2 of2
clearer, giving patients more power to make informed choices about their health
care spending. The proposal would also jumpstart the individual insurance market,
so consumers have more choices than are available today. Health care would
become more consumer-driven, more affordable, and more accessible for millions
of Americans.
Energy security is another concern of the American people, and it is a priority
addressed in the President's budget. President Bush has put forth an ambitious
goal of reducing America's projected gasoline consumption by 20 percent over the
next 10 years. We can achieve this goal by dramatically increasing the supply and
use of alternative fuels, and improving fuel-efficiency by reforming and increasing
CAFE.
The expanded fuels standard will provide entrepreneurs and investors a guaranteed
demand for alternative fuels, which will accelerate private investment and
technological development. Reforming CAFE will allow us to increase the fuel
economy of our automobiles as fast as technology allows. With a more diverse fuel
supply and better fuel efficiency, we can make our economy less vulnerable to
supply disruptions and confront climate change through technologies that reduce
carbon dioxide emissions.
Finally, the President's budget, by emphasizing fiscal discipline and economic
growth, lays the right foundation for dealing with entitlement reform - a challenge
we all have a responsibility to address. Strengthening Social Security and Medicare
is the most important step we can take to ensure the retirement security of our
children and grandchildren, the long-term stability of the federal budget, and the
continued growth of the American economy. I look forward to sitting down with
Democrats and Republicans, without pre-conditions, and finding common ground
on these critical issues.
Mr. Chairman, the President's budget priorities - a strong economy, national
security, fiscal discipline, health care and energy innovation, and laying the
groundwork for entitlement reform - are the right priorities for America and for the
workers, businesses, and investors who drive our economy.
I am confident that, working together, we will keep our economy strong and chart a
course for maintaining our global economic leadership in the years ahead.
Thank you for the opportunity to discuss this today - and I now welcome your
questions.
http://www.treas.gov/press/releases/hp249.htm
3/1/2007
Page 1 of 4
February 7,2007
HP-250
Testimony of Treasury Assistant Secretary Clay Lowery
before the House Financial Services Committee
Washington, DC - Mr. Chairman, Ranking Member Bachus, and distinguished
members of the Committee, I appreciate the opportunity to appear before you to
discuss the Committee on Foreign Investment in the United States (CFIUS) and
H.R. 556, the "National Security Foreign Investment Reform and Strengthened
Transparency Act of 2007". I am here speaking on behalf of the administration, the
Treasury Department, and CFIUS.
First. let me assure the Committee that the administration is committed to improving
CFIUS in a manner that continues to protect national security and ensures a strong
U.S. economy. To this end, an open investment environment in this country serves
as a positive example and thereby supports U.S. investment abroad. We believe
the Committee shares these goals, and I look forward to working with you to
achieve them.
I appreciate the opportunity to appear before the Committee to discuss the current
state of the CFIUS process and update the Committee on the many changes we
have made to the CFIUS process since I appeared before this Committee last year.
Furthermore, I appreciate the opportunity to discuss the legislation introduced by
your distinguished colleague, Congresswoman Maloney, as well as the
administration's priorities for any CFIUS reform legislation.
Before I discuss CFIUS reform and the importance of an open investment climate, I
would like to review briefly CFIUS and Exon-Florio.
CFIUS AND EXON-FLORIO
CFIUS was established by Executive Order in 1975 with the Secretary of the
Treasury as its chair. Its central purpose at that time was to monitor foreign
investment in the United States. CFIUS was given expanded responsibilities In
1988 following the enactment of the Exon-Florio amendment to the Defense
Production Act of 1950. Exon-Florio provides for a national security review of
foreign acquisitions of companies engaged in interstate commerce in the United
States. It also allows the President to take action, if necessary, to suspend or
prohibit a transaction that, in his Judgment, threatens the national security if existing
laws, other than the International Emergency Economic Powers Act, are not
adequate or appropriate to address the threat. The President delegated to CFIUS
his authority to investigate transactions under Exon-Florio.
From enactment of Exon-Florio in 1988 through 2006, CFIUS reviewed over 1,700
foreign acquisitions of companies for potential national security concerns. In 2006,
CFIUS investigated 113 filings, a 74 percent increase over 2005. This trend
appears to continue, as 14 transactions were notified to CFIUS by the end of
January 2007. In 2006, CFIUS conducted seven 45-day second stage
investigations, the most ever in a single year.
IMPORTANCE OF FOREIGN DIRECT INVESTMENT TO THE U.S. ECONOMY
The administration views investment, including investment from overseas, as vital
to continued economic growth, job creation, and building an ever-stronger America.
The free flow of capital In open and competitive markets contributes directly to
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3/1/2007
Page 2 of 4
higher productivity, growth and efficiency When capital is free to flow in response
to market demand, it is used most efficiently, thereby maximizing economic growth.
As Secretary Paulson has stated, "The U.S. experience illustrates the benefits of
openness and competition. Our economy is by far the world's strongest because it
is built on openness - openness to people of all nationalities, openness to new
ideas, openness to investment, and openness to competition."
In 2005, foreign direct investment (FDI) into the United States totaled almost $100
billion, double the annual average in the early 1990s. The stock of FDI in the United
States reached almost $1.9 trillion at the end of 2005. The United States is also the
largest Investor in foreign markets, with the stock of U.S. direct investment
overseas totaling nearly $2.5 trillion at the end of 2005.
U.S. affiliates of foreign-headquartered multinationals perform a major share of
many activities central to continued economic growth and rising living standards In
the United States. Inward foreign direct investment benefits the foundations of the
U.S. economy -- playing a substantial role in our recent productivity boom.
Research has shown that multinational firms are more productive than firms
focused primarily on domestic markets. The relatively high productivity of U.S.
affiliates of foreign-owned firms is attributable, in part, to their relatively high levels
of investment in physical capital, research and development, and exporting and
importing. U.S. affiliates account for 5.7 percent of output and 4.7 percent of
employment (and one-third of these jobs are in manufacturing): they also account
for a major share of U.S. exports (19 percent). imports (26 percent), capital
investment (10 percent). and research and development expenditures (13 percent).
A large portion of the benefits of foreign companies' productivity accrues directly to
their American workers. Americans working for foreign firms in the United States
earned an average annual compensation of over $63,000, more than thirty percent
above average annual compensation for workers in the rest of the economy.
Despite the important and immediate benefits of foreign direct investment in the
United States, we have experienced recent controversies relating to particular
foreign investments in the United States. These controversies, coupled with some
troubling signs that other countries are pursuing barriers to foreign investment, and
increasingly negative media coverage of the U.S. investment climate. underscore
the need to improve and reform the CFIUS process. It is also important to note that
our actions to reform CFIUS are and will continue to be closely watched.
PROTECTION OF NATIONAL SECURITY
The administration regards our nation's security as its top priority and supports
efforts to reform the CFIUS process to address more effectively national security
imperatives since 9/11. In just the last year, CFIUS has instituted a number of
reforms to address concerns about the CFIUS process raised by Congress, several
of which are also proposed in your legislation
•
•
•
•
•
•
CFIUS now notifies and provides briefings to the Congressional Committees
of jurisdiction on every case for which action has concluded under the ExonFlorio amendment.
To ensure accountability, every case is briefed up to senior policy officials
within CFIUS agencies and only individuals confirmed by the Senate can
certify the conclusion of a CFIUS review.
As chair of CFIUS, Treasury encourages parties to transactions to consult
with CFIUS and provide a draft notice before filing a formal notice. Prefilings give CFIUS more time to conSider transactions and result in more
detailed formal filings that better address CFIUS's concerns.
Withdrawn transaclions are monitored carefully by Treasury and other
agencies. Treasury notifies parties that refilings must occur promptly unless
the transaction is terminated.
CFIUS has formalized a longstanding policy that allows agencies to request
a notice for any transaction that has not yet been voluntarily notified or that
was withdrawn and has not yet been refiled.
CFIUS has strengthened its communications and deliberations process.
Treasury hosts weekly policy level meetings to discuss all pending CFIUS
http://www.treas.goy/press/releases/hp250.htm
3/1/2007
Page 3 of 4
•
cases.
The Director of National Intelligence (DNI) has a more formal role. Through
the DNI, the intelligence community provides briefings and Intelligence
summaries on every transaction. Intelligence officials also participate In
weekly CFIUS policy meetings.
ADMINISTRATION'S VIEWS ON LEGISLATIVE REFORM
During the last Congress, this Committee was instrumental in shaping a CFIUS
reform bill, H.R. 5337, which passed the House of Representatives unanimously.
On September 14, 2006, the administration delivered to the Committee Chairman
and Ranking Member its views letter on CFIUS reform. In it, we brought to the
attention of the Committee a number of areas where we differed in how we should
reach our common goal of enhancing national security and preserving the United
States as an attractive environment for direct investment.
As the legislation before us is based on H.R. 5337, I believe it would be useful for
me to review the administration's views letter, which reflects our priorities for CFIUS
reform. Let me reiterate to the members of this Committee that we stand ready to
work with you to ensure that the CFIUS process is improved to protect national
security while preserving an open investment climate that creates jobs and
continues to support economic growth.
Accountability
The administration shares Congress's goal of ensuring senior-level accountability.
As noted above, we therefore seek the clearance of Senate confirmed officials at
the conclusion of all first-stage (3~-day) investigations. We believe decisions at the
end of a second stage (45-day) investigation should be made at the secretary or
deputy secretary level. We also believe all decisions on foreign-government owned
cases should be made at the secretary or deputy secretary level.
Mandatory Second-Stage 45 Day Investigations
The administration believes that a second-stage, 45-day investigation is necessary
only if a CFIUS member has identified national security concerns that have not
been adequately mitigated during the first-stage investigation or has unresolved
questions regarding national security implications by the end of the first-stage
investigation. A second-stage investigation should not be required absent these
circumstances. It is important that discretion to consider the national security issues
raised by any particular transaction is preserved in the legislation.
Factors for Consideration
The administration believes that CFIUS should maintain the discretion to address
all issues in a manner that takes into account the relevant facts and circumstances
of each case. We support expanding factors for consideration, including, among
others, foreign-government control and critical infrastructure.
Ensuring Congressional Oversight
The administration supports enhanced communication with Congress. CFIUS
regularly provides your committee information on all cases where action has
concluded under Exon-Florio. We have also provided more comprehensive periodic
briefings to congressional committees describing the cases investigated and foreign
investment trends in the United States. We do not believe it is appropriate,
however, to report on the internal deliberations of the Executive Branch, including
any positions taken by individual CFIUS members during CFIUS's consideration of
a transaction.
Extensions of 45-Day Investigations
http://www.treas.gov/press/releases/hp250.htm
3/1/2007
Page 4 of 4
The administration believes that the current timeframes for 30- and 45-day
investigations are sufficient. Extending these periods may discourage foreign
investment or discourage the voluntary filing of notices with CFIUS by generating
uncertainty and delay for the parties to a proposed transaction. In addition, our
current practice of requesting pre-filing notifications provides additional time and
flexibility needed to review transactions.
CFlUS Membership and Deliberations
The President should have the flexibility to determine and adjust CFIUS
membership as circumstances develop. We do not believe legislation should
mandate the designation of Vice Chairs or mandate that CFIUS include members of
the Executive Office of the President (EOP) as statutory members of CFIUS.
Legislation should recognize the President's flexibility to designate members of the
EOP.
The administration is concerned that additional procedural requirements on CFIUS
deliberations, such as roll-call voting, are ill-suited for executive bodies like CFIUS
and are inconsistent with the vesting of executive power in the President. Such
impediments deter the full and open interagency discussions that are required to
consider CFIUS cases properly.
Role of the Intelligence Community
The administration supports the role of the intelligence community as an
independent advisor to CFIUS, and thus opposes giving the ONI a policy role,
rather than an advisory role. Your legislation does not make ONI a member of
CFIUS but would still allow the ONI to trigger a 45-day second-stage investigation,
thereby moving them beyond an advisory role to a policy function. As I stated
previously, the ONI has a formal role in the process - to coordinate and facilitate
the intelligence assessment in each CFIUS investigation. I must also point out that
H.R. 556, as currently drafted, retains a timing conflict that was present in H.R.
5337. Both bills state that the ONI "shall be provided no less than 30 days" to
complete a threat assessment that will inform CFIUS investigations. This may
conflict with the overall structure of the legislation which provides for a first stage
(30-day) investigation. We look forward to working with the Congress to provide for
a sufficient period of time to conduct the threat analysis and to provide sufficient
time for CFIUS to investigate and consider that analysis.
CONCLUSION
The current climate has provoked healthy debate within the investment community,
both international and domestic, within CFIUS itself, and among foreign
governments. We have listened carefully to the views expressed to ensure that we
get CFIUS reform right.
In closing, let me emphasize that the Bush administration is firmly committed to
keeping the U.S. economy open to international investment while at the same time
protecting our national security. Openness at home encourages other nations to
lower their barriers which can help advance prosperity and economic freedom in the
rest of the world. In short, a domestic climate conducive to foreign investment
strengthens national security.
http://www.treas.gov/press/releases/hp250.htm
31112007
Page 1 of2
February 7, 2007
HP-251
Testimony of Treasury Secretary
Henry M. Paulson
before the House Budget Committee
on the President's Fiscal Year 2008 Budget
Chairman Spratt. Ranking Member Ryan, Members of the Committee:
I am pleased to be here today to provide an overview of the President's budget for
fiscal year 2008. As the Secretary of the Treasury, my top priority is keeping
America's economy strong for our workers, our families, and our businesses. And
the President's budget supports that goal.
We start from a position of strength. Our economy appears to be transitioning from
a period of above-trend growth to a more sustainable level of about three percent
growth. More than 7.4 million jobs have been created since August 2003. Our
unemployment rate is low at 4.6 percent. And over the last 12 months, real wages
have increased 1.7 percent. Economic growth is finding its way into workers'
paychecks as a result of low inflation. That means family budgets are going further.
Strong economic growth also benefits the government's fiscal position. In the first
quarter of fiscal year 2007, budget receipts totaled $574 billion. an increase of 8
percent over the same period in fiscal year 2006. As a result of increased revenue
over the last two years, we have brought the federal budget deficit down to 1.8
percent of GDP.
The President has submitted a budget that reflects our strong economy and our
nation's priorities: continued job creation and wage growth, vigorous prosecution of
the war on terror, increased access to affordable health insurance, improved energy
security, and a strong fiscal position from which we can address long-term
challenges such as strengthening Social Security and Medicare for future
generations.
This budget supports a strong economy by maintaining fiscal discipline. It maintains
our current tax POliCY, which has helped our economy rebound from recession to its
current robust health. With a steadily growing economy, tax revenues combined
with fiscal discipline should bring the federal budget into balance in five years. In
fact, we are submitting a budget that includes a surplus in 2012, which is
achievable if we keep our economy growing. While no one has a crystal ball, our
economic assumptions are close to the consensus of professional forecasters.
The President's budget addresses important domestic priorities. Health care is high
on this list. Under current law, the tax subsidy for health insurance purchased
through employers will average more than $300 billion a year for the next ten years.
For that huge expenditure we get a system in which nSlng costs are a burden to
families and businesses, and in which millions of people have no insurance at all.
The President's proposal would make health care more affordable and more
accessible. It would give all taxpayers who buy health insurance, whether on their
own or through their employer, and no matter the cost of the plan. the same
standard tax deduction for health insurance - $15,000 for a family, or $7,500 for an
individual. The President's proposal would help hold down health care costs by
removing the current tax bias that encourages over-spending. Costs would become
clearer, giVing patients more power to make informed choices about their health
http://www.treas.gov/press/releases/hp251.htm
3/1/2007
Page 2 of2
care spending. The proposal would also jumpstart the individual insurance market,
so consumers have more choices than are available today. Health care would
become more consumer-driven, more affordable, and more accessible for millions
of Americans.
Energy security is another concern of the American people, and It is a priority
addressed in the President's budget. President Bush has put forth an ambitious
goal of reducing America's projected gasoline consumption by 20 percent over the
next 10 years. We can achieve this goal by dramatically increasing the supply and
use of alternative fuels, and improving fuel-efficiency by reforming and increasing
CAFE.
The expanded fuels standard will provide entrepreneurs and investors a guaranteed
demand for alternative fuels, which will accelerate private investment and
technological development. Reforming CAFE will allow us to increase the fuel
economy of our automobiles as fast as technology allows. With a more diverse fuel
supply and better fuel efficiency, we can make our economy less vulnerable to
supply disruptions and confront climate change through technologies that reduce
carbon dioxide emissions.
Finally, the President's budget, by emphasizing fiscal discipline and economic
growth, lays the right foundation for dealing with entitlement reform - a challenge
we all have a responsibility to address. Strengthening Social Security and Medicare
is the most important step we can take to ensure the retirement security of our
children and grandchildren, the long-term stability of the federal budget, and the
continued growth of the American economy. I look forward to sitting down with
Democrats and Republicans, without pre-conditions, and finding common ground
on these critical issues.
Mr. Chairman, the President's budget priorities - a strong economy, national
security, fiscal discipline, health care and energy innovation, and laying the
groundwork for entitlement reform - are the right priorities for America and for the
workers, businesses, and investors who drive our economy.
I am confident that, working together, we will keep our economy strong and chart a
course for maintaining our global economic leadership in the years ahead.
Thank you for the opportunity to discuss this today - and I now welcome your
questions.
http://www.treas.gov/press/releases/hp251.htm
3/1/2007
Page 1 0[2
February 8, 2007
HP-252
Testimony of Treasury Secretary
Henry M. Paulson
before the Senate Budget Committee
on the President's Fiscal Year 2008 Budget
Chairman Conrad, Senator Gregg, Members of the Committee
I am pleased to be here today to provide an overview of the President's budget for
fiscal year 2008. As the Secretary of the Treasury, my top priority is keeping
America's economy strong for our workers, our families, and our businesses. And
the President's budget supports that goal.
We start from a position of strength. Our economy appears to be transitionlng from
a period of above-trend growth to a more sustainable level of about three percent
growth. More than 7.4 million jobs have been created since August 2003. Our
unemployment rate is low at 4.6 percent. And over the last 12 months, real wages
have increased 1.7 percent. Economic growth is finding its way into workers'
paychecks as a result of low inflation. That means family budgets are going further.
Strong economic growth also benefits the government's fiscal position. In the first
quarter of fiscal year 2007, budget receipts totaled $574 billion, an increase of 8
percent over the same period in fiscal year 2006. As a result of increased revenue
over the last two years, we have brought the federal budget deficit down to 1.8
percent of GOP.
The President has submitted a budget that reflects our strong economy and our
nation's priorities: continued job creation and wage growth, vigorous prosecution of
the war on terror, increased access to affordable health insurance, improved energy
security, and a strong fiscal position from which we can address long-term
challenges such as strengthening Social Security and Medicare for future
generations
This budget supports a strong economy by maintaining fiscal discipline. It maintains
our current tax policy, which has helped our economy rebound from recession to its
current robust health. With a steadily growing economy, tax revenues combined
with fiscal discipline should bring the federal budget into balance in five years. In
fact, we are submitting a budget that includes a surplus in 2012, which is
achievable if we keep our economy growing. While no one has a crystal ball, our
economic assumptions are close to the consensus of professional forecasters.
The President's budget addresses Important domestic priorities. Health care is high
on this list. Under current law, the tax subsidy for health insurance purchased
through employers Will average more than $300 billion a year for the next ten years.
For that huge expenditure we get a system in which rising costs are a burden to
families and businesses, and in which millions of people have no insurance at all.
The President's proposal would make health care more affordable and more
accessible. It would give all taxpayers who buy health insurance, whether on their
own or through their employer, and no matter the cost of the plan, the same
standard tax deduction for health insurance - $15,000 for a family, or $7,500 for an
individual. The President's proposal would help hold down health care costs by
removing the current tax bias that encourages over-spending. Costs would become
clearer, giving patients more power to make informed choices about their health
http://www.treas.gov/press/releases/hp252.htm
3/1/2007
Page 2 of2
care spending. The proposal would also jumpstart the individual insurance market,
so consumers have more choices than are available today. Health care would
become more consumer-driven, more affordable, and more accessible for millions
of Americans.
Energy security is another concern of the American people, and it is a priority
addressed in the President's budget. President Bush has put forth an ambitious
goal of reducing America's projected gasoline consumption by 20 percent over the
next 10 years. We can achieve this goal by dramatically increasing the supply and
use of alternative fuels, and improving fuel-efficiency by reforming and increasing
CAFE.
The expanded fuels standard will provide entrepreneurs and investors a guaranteed
demand for alternative fuels, which will accelerate private investment and
technological development. Reforming CAFE will allow us to increase the fuel
economy of our automobiles as fast as technology allows. With a more diverse fuel
supply and better fuel efficiency, we can make our economy less vulnerable to
supply disruptions and confront climate change through technologies that reduce
carbon dioxide emissions.
Finally, the President's budget, by emphasizing fiscal discipline and economic
growth, lays the right foundation for dealing with entitlement reform - a challenge
we all have a responsibility to address. Strengthening Social Security and Medicare
is the most important step we can take to ensure the retirement security of our
children and grandchildren, the long-term stability of the federal budget, and the
continued growth of the American economy. I look forward to sitting down with
Democrats and Republicans, without pre-conditions, and finding common ground
on these critical issues.
Mr. Chairman, the President's budget priorities - a strong economy, national
security, fiscal discipline, health care and energy innovation, and laying the
groundwork for entitlement reform - are the right priorities for America and for the
workers, businesses, and investors who drive our economy.
I am confident that, working together, we will keep our economy strong and chart a
course for maintaining our global economic leadership in the years ahead.
Thank you for the opportunity to discuss this today - and I now welcome your
questions.
http://www.treas.gov/press/releases/hp252.htrn
3/1/2007
Page 1 of 1
February 9, 2007
HP-253
Treasury Secretary Paulson to Deliver Speech on Trade
Washington, D.C-Treasury Secretary Henry M. Paulson will deliver a speech
hosted by the Economic Club of Washington next month. He will discuss the
importance of free trade flows to U.S. economic growth.
What Speech on Trade
When 12:45 p.m. (EST) Thursday, March 1
Where Washington, DC (Exact Location TBA)
Further details will be announced at a later date.
http://www.treas.gov/press/releases/hp253.htm
3/1/2007
Page 1 0[2
February 10, 2007
HP-255
Statement by U.S. Treasury Secretary Henry M. Paulson
following the Meeting of the
G7 Finance Ministers and Central Bank Governors Essen, Germany
We had a very good meeting with G-7 Finance Ministers and Central Bank
Governors today, hosted by Minister Steinbruck. I thank Minister Steinbruck for his
gracious hospitality.
We are enjoying one of the strongest and most prolonged global expansions in
memory. The United States is dOing its part. The U.S. economy grew strongly last
year. Although the residential housing market has been cooling, growth is being
supported by good consumption on the back of solid job creation and wage growth.
Net exports are also contributing. Looking ahead, the outlook is very encouraging.
Housing activity appears to have stabilized; labor markets are firm; consumer
confidence is rising; wages are rising; and inflation is easing. We are looking for
solid growth in 2007, in line with potential of near 3%. The federal budget deficit
was 1.9% of GOP last fiscal year and is expected to come down further this year.
The President's budget projects a balanced budget in 2012.
All countries must also do their part to contribute to global adjustment. Europe's
expansion is continuing and Japanese growth is expected to accelerate. But there
is still ample scope in both areas to strengthen measures aimed at creating more
robust domestic demand. Greater flexibility in China's exchange regime is also
needed as part of China's rebalancing of its economy.
Strengthening capital markets, both here in the United States and abroad, is one of
my highest priorities. Competitive capital markets spur growth, create wealth and
improve the quality of our lives. In emerging economies, local capital market
development holds the very same promise. Already, emerging economies are
making considerable progress, but there is much more to be done. At dinner last
night, we discussed local capital market development with our counterparts from
Brazil, China, India, Mexico, Russia and South Africa, and concrete actions that the
G-7 and the International Financial Institutions might take to help strengthen these
important trends.
We also discussed trade with our emerging market colleagues. We agreed that the
Doha Round is one of the most significant things we can do for economic growth
and opportunity for all people, especially those in the poorest countries of the world.
We welcomed the new approach of the trade ministers, focused on sensitivities and
priorities, and the renewed spirit of optimism and new energy behind discussions.
My colleagues and I embraced the role we can play, in working with the trade
ministers and in making the case for trade.
Hedge funds were another topic of discussion. I am firmly convinced that hedge
funds provide considerable benefits to financial markets and our economies, but
they also can present potential challenges and risks. It is in the U.S. interest to
promote a thriving, competitive global hedge fund industry that facilitates price
discovery and promotes liquidity in financial markets, while maintaining investor
protection and promoting financial stability. Market discipline, focusing on the risk
management of regulated counterparties, is the most effective way to address
potential systemic risk concerns. In the U.S., the President's Working Group on
Financial Markets - comprised of the Treasury Secretary and the Chairmen of the
Federal Reserve Board, the SEC and the CFTC - continues to assess
developments in markets, disclosure and counterparty risk management.
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As leading shareholders of the international financial institutions, we discussed the
need to reform the IMF to make it as modern as the world economy in which we
live. I emphasized that the Fund governance structure lags well behind today's
global realities and I emphasized the need for boldness in reforming the Fund. In
particular, I look forward to an agreement later this year on changes In the IMF's
quota formula to better capture members' true weights in the world economy and on
steps to protect the voice of the poorer countries through an increase in basic
votes. I urge other industrial countries to follow the U.S lead and forgo an increase
in their voting shares in the next stage of reforms. I look forward to the Managing
Director's leadership on this issue, and also welcome the strong consensus in the
group in support of the proposals to update the IMF's 30-year old rules on
exchange rate surveillance.
The G-7 reaffirmed its commitment today to the critical fight to protect the
international financial system from illicit activity, including terrorist financing, the
proliferation of weapons of mass destruction, and money laundering. I emphasized
that, to be effective, Finance Ministries must develop legal authorities and Invest
resources to apply targeted economic and financial measures against a broad
range of international threats. These efforts should include national implementation
of the economic sanctions called for in United Nations Security Council Resolutions
1718 and 1737 against weapons of mass destruction proliferation support networks
in North Korea and Iran. We called upon the Financial Action Task Force to join
these efforts and address the threat of weapons of mass destruction proliferation
finance and the vulnerabilities associated with jurisdictions that have failed to
recognize international standards.
Energy efficiency was also on the agenda and I emphasized the importance of
improving energy security through increased use of alternative fuels, better fuel
effiCiency, and policies to accelerate those trends. Finally, we touched on good
financial governance in Africa. The international community has done a good job in
developing ways to measure and track public financial management and I called for
stronger linkages between international development assistance and individual
country budget performance.
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February 10, 2007
HP-256
Statement by G-7 Finance Ministers and Central Bank Governors
Essen, Germany
February 10, 2007
We, Finance Ministers and Central Bank Governors, met today to evaluate the
global economic outlook. Global growth is more balanced. In our economies,
performance remains favorable. The U.S. economy is experiencing solid activity,
while adjusting to a more sustainable growth path. Canada and the UK remain on a
strong and balanced growth path. The euro area is experiencing an increasingly
broad-based upswing. Japan's recovery is on track and is expected to continue. We
are confident that the implications of these developments will be recognized by
market participants and will be incorporated in their assessments of risks.
Amid lower energy prices and moderating inflationary pressures risks have abated,
but we will remain vigilant. We will continue to pursue sound policies to foster
sustained and balanced growth and support the orderly adjustment of global
imbalances. In this respect. we welcome China's commitment to rebalance growth.
We remain committed to resisting protectionist sentiment and fully support the relaunch of the Doha trade negotiations announced in Geneva. We firmly believe that
all participants have the responsibility to ensure a successful outcome of the Doha
round as it will enhance global growth and contribute to poverty reduction. All of us
accept our responsibility for ensuring that Aid for Trade will help secure the full
benefits of trade for developing countries. To further liberalize cross-border capital
markets, we agreed to explore within the G7 free trade in securities based on
mutual recognition of regulatory regimes. We support enhanced cooperation to
enforce intellectual property rights and combat counterfeiting which are crucial to
our knowledge economy.
We reaffirm that exchange rates should reflect economic fundamentals. Excess
volatility and disorderly movements in exchange rates are undesirable for economic
growth. We continue to monitor exchange markets closely, and cooperate as
appropriate. In emerging economies with large and growing current account
surpluses, especially China, it is desirable that their effective exchange rates move
so that necessary adjustments will occur.
We also met with Ministers of Finance from a number of key emerging market
economies to discuss the role of local bond markets in fostering growth and
financial stability. In this context developing local currency bond markets deserves
higher priOrity to reduce emerging countries' vulnerability to external shocks and
financial crises and to promote growth. We look forward to the results of the high
level conference on May 9-10 in Frankfurt on market experience, which will help to
identify concrete recommendations and sustain the momentum of reform.
We discussed recent developments in global financial markets, including hedge
funds, which along with the emergence of advanced financial techniques including
credit derivatives, have contributed significantly to the efficiency of the financial
system. Nevertheless the assessment of potential systemic and operational risks
associated with these activities has become more complex and challenging. Given
the strong growth of the hedge fund industry and the instruments they trade, we
need to be vigilant. We therefore agreed to further pursue the issue. We will
exchange views with the private sector and ask the Financial Stability Forum to
update its 2000 Report on Highly Leveraged Institutions.
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We reaffirm our strong belief that fundamental reform is necessary for the IMF to
maintain its credibility and effectiveness in the changing global economy. We
remain committed to making IMF quota shares more aligned with members' relative
weight and role in the world economy, and to enhance the participation and vOice of
low-income countries. We also stress the importance of improving IMF surveillance.
To be more effective surveillance must be applied equally and even-handedly,
focused on external stability, and subject to a clear accountability framework,
without creating new obligations. In this context, we welcome the Managing
Director's proposals to update the 1977 Decision on Surveillance over Exchange
Rate Policies and for a remit and look forward to moving these forward as a priority.
We take note of the Report on the Sustainable Long-Term Financing of the IMF that
provides a good basis for further discussion. We support the recently-launched
reform of the governance of the World Bank.
We discussed the complementary role of Good Financial Governance in Africa in
channelling resources to their most productive use and in helping to achieve the
Millennium Development Goals. We agreed to develop - together with African
partners - an action plan that includes a joint reform strategy to promote effective
and transparent budget processes, a vigorous implementation of existing initiatives
to increase transparency such as the Extractive Industries Transparency Initiative
(EITI) and its potential extension to other sectors, and the enhancement of reforms
and capacity building efforts In the area of tax systems, stabilisation fund, public
expenditure management, and debt management. In turn, it is imperative that
creditors and donors take account of debt sustainability issues in their lending
practices. To this end the development of a charter of responsible lending would
represent an important step. Finally, we will explore measures to support financial
sector development in Africa.
We welcome the February 9, 2007 launch in Rome of the pilot Advance Market
Commitments (AMC) for pneumococcus, an innovative financing mechanism
designed to mobilize private Investment in research and development of life-saving
vaccines benefiting poor countries. We discussed the importance of making
progress on education, including In science and technology in the poorest countries
and look forward to the forthcoming International Conference on Education.
We consider energy efficiency and the promotion of energy diversification, notably
through renewable energies, to become an increasingly important issue for our
economies as well as emerging market economies in view of energy security, high
and volatile energy prices and climate change. We agree that market based policy
measures, which could include taxes and emission trading, should be effectively
designed to meet specific conditions in each country. At the same time, we remain
committed to a transparent and forward looking dialogue with energy-producing
countries.
We are committed to fight money laundering, terrorist financing and other illicit
financing involving similar risks to the stability and integrity of financial markets. We
are committed to the effective and timely implementation of UN Resolutions 1540,
1718, 1737. To this end, we ask the Financial Action Task Force to examine the
risks involved in weapons of mass destruction proliferation finance and to review its
mandate. We urge the FATF to collaborate intensely with jurisdictions that have
failed to recognise the international standards. We call on the IMF and the World
Bank to closely cooperate with the FATF.
We welcomed the successful outcome of the Paris conference on Lebanon and we
discussed economic prospects in the West Bank and Gaza strip. We agreed to
keep this under review.
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February 11, 2007
HP-257
Prepared Remarks of Deputy Secretary
Robert M. Kimmitt
International Terrorism and Asymmetric
Warfare
Munich Security Conference
Munich, GERMANY - Excellencies, ladies and gentlemen, as the last speaker in
the conference, I know I will be graded as much on brevity as on substance. So, I
plan to stay well within the green of the Teltschik traffic light.
Thank you, Horst Teltschik, for inviting a representative of a Finance Ministry to this
security conference.
This invitation is indicative of the evolution of this conference, and even the concept
of "security policy", from when I first attended Wehrkunde in 1982. It also reflects
the evolution of the U.S Treasury Department and Finance Ministries worldwide, in
an era where terrorism has become a strategic threat to our individual and mutual
interests.
British Chancellor Gordon Brown gave a landmark speech one year ago this week,
in which he said that Finance Ministries are now important security ministries, and
no responsibility is more important than our common efforts to stop the flow of illicit
finance to terrorists and proliferators I was thus very pleased that our colleague
from India put such emphasis on terrorist financing.
Before turning to that specific point, let me also note that, with the exception of the
United States Treasury, all major Finance Ministries are also budget directors. So,
Horst, given the frequent references during the conference to the need to devote
increased resources to difficult common tasks such as Afghanistan, it might be
good next year to invite selected Finance Ministers, along with their Foreign and
Defense Ministry colleagues, to hear directly the multilateral context in which
defense and development budget decisions need to be made.
Returning to the subject of terrorist financing, let me again reference Chancellor
Gordon Brown's speech in which he said, and I quote: "There is a paradox about
globalization: the very opportunities it offers - the free movement of money, people,
goods, and information - creates a global threat for which there is no real
precedent."
And no group is more adept at exploiting these opportunities for dangerous
purposes than International terrorists. While individual terrorist acts are relatively
inexpensive and can be executed on a cash basis using informal networks such as
hawalas in the Middle East, running terrorist networks and planning major terrOrist
operations requires access to the world's financial system to move significant funds
across borders. And it is when terrorists and their supporters come into the global
financial system that we have the best chance to detect, disrupt, and dismantle their
dangerous activities and networks.
There is much that countries can do Within their own borders to disrupt terrorist
financing. In the United States. with strong bipartisan support from the
congressional leaders here today, we have established an extensive legal and
regulatory regime that empowers the Treasury to keep our banking system not only
safe and sound but also secure from abuse by terrorists and their financial
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supporters. We have similar strong authorities to act against proliferators, narcotics
traffickers, and organized criminal networks. These authorities bridge the divide
between diplomacy and the use of force by giving us a concrete way to target illiCit
actors and strike at the financial heart of their operations.
A recent example is the deciSion we took to ensure that the Iranian state-owned
Bank Saderat could not access the U.S banking system because of its central role
in the financing of terrorist activities of Hamas and Hezbollah, Including via
Saderat's branch in London.
Mentioning London makes clear that we are all part of a global banking system,
and, as our colleague from India made clear, effective action against terrorist
financing requires coordinated multilateral efforts. The terrorists and their financial
supporters are smart, sophisticated abusers of the world's financial system, and
they concentrate their efforts on the softest spots they can find in the system. We
have, for example, seen recently growing use by terrorist financiers of charities,
insurance transactions, and money service businesses.
The issue of countering terrorist financing is now on the agenda of every major
international organization, including the United Nations, NATO, and the European
Union, and every major international financial and economic forum, including the G8, APEC, and the G-20, a new and increasingly influential financial group that
includes, in addition to the G-8, important countries like China, India, Australia,
Brazil, Turkey, Saudi Arabia, South Africa, and Mexico.
In addition, an organization that is becoming increasingly active is the Financial
Action Task Force, where finance ministries, central banks, and regulators meet
regularly, including in regional forums, to share information and best practices.
As an example of the new attention to this important challenge, Just yesterday, in its
communique after meeting in Essen, the G-7 Finance Ministers and Central Bank
Governors said "We are committed to fight money laundering, terrorist financing,
and other illicit financing involving similar risks to the stability and integrity of
financial markets." It was not too many years ago this issue would not even have
been on the agenda of the G-7.
Perhaps the most important recent development in the fight against terrorist
financing is the impressive degree to which the private sector has taken action to
protect their business activities from abuse by terrorists. Of course, part of this
response is based on their need to comply with U.S. and other laws. But,
increasingly, banking leaders understand that avoiding any possible contact with
terrorist financing activities is an integral part of their normal risk-reward business
analysis, leading many major banks to eliminate or reduce significantly their
activities in countries like Iran, Syria and other state sponsors of terror.
Let me end my remarks with two POints: first, a slight but related diversion; and
second, a link to previous speakers' comments on Afghanistan.
First, although this panel focuses on terrorism, the fight against terrorist financing is
closely linked to the fight against proliferation financing Again using domestic
authorities, the United States Government has taken action against Banco Delta
Asia in Macau based on its engagement in illicit finance for North Korea and against
Iranian state-owned Bank Sepah because of its role in financing Iranian proliferation
activities, including through its branch in Rome. We have now been Joined in this
effort by the world community, which in UN Security Council Resolutions 1695 and
1718 on North Korea and 1737 on Iran has made clear that all UN member states
must ensure their banks do not support the nuclear ambitions of these two
countries. The European Union, under the German Presidency, has been
particularly strong in this support of effective implementation - including
establishing a firm basis for legal action by member states against illicit financing.
My second closing point regards Afghanistan, a subject frequently mentioned in
earlier panels. At the suggestion of American Ambassador to NATO Nuland and at
the Invitation of Secretary General de Hoop Scheffer, I spoke in November to
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NATO's Permanent Representatives to discuss the connection between the
international terrorist financing network and the increase in the frequency and
scope of Taliban activities in Afghanistan, especially in the southern part of the
country. The amounts of illicit finanCing flowing to the Taliban gives them the ability
to attack NATO forces in asymmetric ways, with car bombs and other terrorist
methods mentioned yesterday by Senator McCain. But the financ ing has also made
possible more symmetric, larger combat unit attacks against NATO forces .
While many countries are contributing forces to counter the increasing activity of the
Taliban and other insurgency elements in Afghanistan, countries should also
enhance their intelligence and military capabilities to specifically target Taliban
financial support networks. In fact , NATO leadership has acknowledged the
importance of targeting terrorist financing in Afghanistan as a means of weakening
the overall capabil ities of the Taliban.
To meet this goal, finance m'inistries can and should playa key role in using their
authorities against Taliban support nodes and associated financial flows . By
proactively identifying Taliban support networks and designating them under UN
Security Council Resolution 1267, we can collectively weaken the Taliban by
disrupting its financial infrastructure.
In sum , the fight against terrorist financing has moved directly to the core of our
common security policy. Each of our countries , and each of our private sector
banks, must be part of securing our financial systems. I appreCiate the opportunity
to make this point on behalf of finance ministries worldwide before this important
security policy conference and audience .
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February 12, 2007
HP-258
Remarks of Deputy Secretary Robert M. Kimmitt
Before the American Chamber of Commerce
On Open Investment:
The Foundation of the German-American
Economic Relationship
Frankfurt, GERMANY - Vielen Dank, Herr Dombret, fUr Ihre freundllche wenn
auch vielleicht etwas ubertriebene Vorstellung'
Es freut mlch sehr, wieder in Frankfurt zu sein und ich bedanke mich bei Ihnen,
Fred Irwin, dar.. Sie so eine hoch geachtete Gruppe heute Abend
zusammengebracht haben.
[Thank you, Mr. Dombret, for the friendly Introduction, even though it was a bit
exaggerated! I am pleased to be in Frankfurt again, and would like to thank you,
Fred Irwin, for bringing together such an illustrious group this evening.]
Ladies and gentlemen, it is a pleasure to join so many distinguished guests,
including Ambassador Timken, Minister Genscher, and President Weber this
evening. And sincere thanks to the American Chamber of Commerce in Germany
for your continued outstanding contribution to the German-American relationship.
Your membership and engagement represent the core element of our transatlantic
economic relationship: German companies and entrepreneurs investing in America
and U.S. companies and entrepreneurs investing in Germany. Even when the
German-American relationship experiences Its periodic political difficulties, as
happened earlier in this decade, we know we can count on a strong commercial
and cultural foundation to keep us close.
As I speak to you this evening, I am reminded of the counsel I received before
coming to Germany as Ambassador in 1991. My predecessor, Vernon Walters,
passed along to me only one bit of advice: "Never forget that speeches are very
important to Germans They like to give speeches, listen to speeches, and analyze
speeches far more than is the case in the United States." He once spoke for 40
minutes to a distinguished group like this evening's, and when he sat down - rather
pleased with his performance - he was surprised to hear his host say, "Mr.
Ambassador, thank you so much for your remarks. If you ever have time for a real
speech, please come see us again!" Well, if 40 minutes is where a "real speech"
starts, you will receive from me only "remarks," since I would like to leave time for
your questions at the end of my presentation.
In discussing the economic relationship between Germany and the United States
this evening, I would like to highlight some of the economic challenges each country
faces, both Internally and externally; our shared interests in an open system of
global trade and investment; and the significant new initiative recently proposed by
Chancellor Merkel to deepen our transatlantic economic ties.
The 2007 Economic Outlook
Let us begin with the economic outlook, which I am happy to say is positive in each
country and serves as a sound basis for enhanced cooperation. As Secretary
Paulson noted after the G-7 Ministerial this past weekend, we are enjoying one of
the strongest and most prolonged global expansions in memory, and the United
States is doing Its part. The US. economy grew strongly last year. Although the
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residential housing market has been cooling, growth is being supported by good
consumption on the back of solid job creation and wage growth. Net exports are
also contributing. Looking ahead, the outlook IS very encouraging. Housing activity
appears to have stabilized: labor markets are firm; consumer confidence is rising:
wages are rising: and inflation is easing. We are looking for solid growth in 2007, in
line with potential of near 3 percent
The role of the United States as an engine of global growth is well-established.
Still, the global economy clearly benefits from multiple strong engines running.
Germany is the key to Europe being one of these engines. Put simply, Germany
must grow for Europe to grow.
After a first half of this decade that saw slow growth, the near-term economic
outlook in Germany is now also positive. The German Institute for Economics
recently raised its growth forecast for the year - up from 1.4 to 1.7 percent. In the
wake of estimated 2.5 percent real GOP growth in 2006 -- the fastest growth since
2000 - unemployment recently reached its lowest rate since April 2002 at 9.5
percent. Strong investment growth and exports have driven the economic
rebound. While initial fourth quarter GOP figures will not be available until
tomorrow, investment through the first three quarters of 2006 was up approximately
7.4 percent on an annualized basis, and 2006 exports rose 14 percent over 2005,
creating a trade surplus of Just over 7 percent of GOP. Germany is regaining its
place as Europe's economic engine.
However, despite sharing robust short-term outlooks, Germany and the United
States both face Significant long-term economic challenges, which must be
addressed to ensure continued prosperity more broadly. When both the U.S. and
German economies are growing, this creates additional opportunities for deepening
the transatlantic relationship that serves as a fundamental source of global stability.
Before I address these transatlantic opportunities, please allow me first to outline
what I see as the some of the top economic policy challenges in both countries.
The German-American Economic Relationship
In the United States, sound fiscal policy remains a top PriOrity, and we will continue
to work to cut our fiscal deficit. The good news is that we have made substantial
progress. The deficit has been cut in half three years ahead of President Bush's
2009 goal: it was 1.9 percent of GOP in 2006 and is expected to come down further
this year. The President's 2008 budget released last Monday envisions further
declines in the deficit over the next five years to produce a balanced budget by
2012. In addition to raising public savings, we also must also address low national
savings by providing better incentives for private saving.
But the recent progress on the budget deficit and efforts to boost private savings
will have a limited impact if more is not done to address the long-term growth in
spending on entitlement programs: Social Security, Medicare, and Medicaid.
Without fundamental reform, entitlement spending as a percent of GOP is set to rise
by nearly half from 2010 to 2040, thereby significantly impairing our fiscal
sustainability by crowding out all discretionary spending over the next several
decades Without reform, these programs will also erode our competitiveness by
placing massive obligations on the backs of 21 st century American workers and
their families.
In the United States, our flexible labor market is one of our greatest economic
assets it fosters an innovative and produclive workforce, motivated by healthy
competition and ment-based compensation. It also maximizes employment and
minimizes unemployment, thereby reducing fiscal costs. Data on labor demand in
the United States show that over 2006, hires exceeded separations by the widest
margin since the US. government began tracking this information in 2000. And
data released last week Indicates that the Job openings rate climbed to a six-year
high in December. Our workers continue to lead the international marketplace in
this trend. Job tenure averages 6.6 years for Americans, compared with an
average of 8.2 years for Britons, 10.6 years for Germans, and 11.2 years for the
French. The average American worker now has 10 different employers prior to age
40. As they make these changes, the majority of American workers gain increased
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experience, pay, and responsibility. Labor flexibility in the United States creates
"employment security" not necessarily "job security". Still, to better institutionalize
this labor market dynamism, we need to develop a system of health, pension, and
other benefits that is equally flexible. This is the principle behind the
Administration's push to expand the use of health savings accounts and use tax
incentives to increase access to health insurance that can be purchased in the
private market.
In Germany, recent progress on fiscal, labor, and penSion reforms has played an
important role in the economic rebound, but more needs to be done. The weak link
in the German recovery remains private consumption, which would benefit from
more flexible and efficient labor and capital markets. In the context of a rapidly
aging population, structural rigidities lead to an excessive level of precautionary
savings and have helped limit potential growth to under two percent. If left
unchanged, the IMF expects potential growth to decline to 1.1 percent by 2020
before recuperating.
Germany, like most of the developed world, is also facing a demographic shift that
represents a critical challenge to long-term fiscal sustainability and economic
prosperity. According to the IMF, Germany's dependency ratio - the ratio of the
population over the age of 65 to the population between the ages of 15 and 64 will increase to nearly 42 percent by 2050, from approximately 33 percent
currently. Only Japan and Italy face more severe demographic challenges. As a
result, the IMF estimates that age-related, annual public spending will incrementally
increase 4 percentage points of GOP by 2050 creating a 30 percent of GOP
cumulative short-fall. Recent pension reforms have reduced the future financial
short-fall, but Germany's long-term fiscal sustainability is not yet assured. Just as
in the United States, additional entitlement reform is critical. When Bismarck
designed the country's entitlement programs, even a visionary like he could not
have predicted that a German girl born this year would have a life expectancy of 90
years.
Reforming entitlement programs will also help lower non-wage labor costs and
stimulate employment and investment. The Hartz IV reforms have increased labor
flexibility by expanding part-time employment. This has helped reduce
unemployment, limit wage inflation, and increase external competitiveness.
However, barriers to job creation remain high, stifling employment growth and
sending German Jobs abroad. For example, the cost of dismissing redundant
workers is 60 weeks of wages, double the average for the OEeD, and the share of
foreign inputs in German value-added exports expanded from 31 to 42 percent
between 1995 and 2005.
In addition to labor market reform, financial sector consolidation and market
deepening in Germany would improve allocation of capital and reduce financing
costs. The German banking sector is large and sound but also segmented,
resulting in one of the least profitable sectors in Europe. The after-tax return on
average German banking assets is approximately one-fifth of the return on banking
assets in the United States. Despite the cancellation of state guarantees in 2005,
consolidation across and within banking pillars has not been realized. Beyond the
banking sector, both German equity and corporate bond markets are small by
international standards, restraining commercial access to financing. The United
States' equity market capitalization is nearly 14 times larger than Germany's and
2.5 times larger as a percentage of GOP.
As Secretary Paulson has made clear, we at the Treasury Department see financial
market
competitiveness as critical to the economic vitality of the United States. We, too,
know we must act to be more competitive in an increasingly interwoven global
marketplace. We are organizing a one-day conference to take place this spring that
will bring together some of the best minds in the private and public financial sectors
to address financial sector constraints in regulatory and accounting structures, and
to discuss legal and enforcement challenges. While the focus will be on U.S.
financial markets, I am certain the discussion will be relevant to a wider audience in
Europe and Germany.
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Importance of Open Investment in the German-American Economic
Relationship
As two of the biggest beneficiaries of the unfettered flow of goods and capital in a
global market, our countries must also face the growing threat of investment
protectionism. Our combined weight in the global economy and our common
interests make Germany and the United States natural partners in ensuring the
fundamental principles of free and fair trade; flexible exchange rates; and the free
flow of capital across borders. In Davos, Chancellor Merkel and I heard from
members of the Transatlantic Business Dialogue that they are in particular
concerned that insufficient attention is being paid to cross-border capital flows and
maintaining open investment policies. TAB D's pOint was well-taken. As investment
flows are many times larger than trade flows, openness to investment is and must
remain the sound foundation of our economic partnership.
The unique history of the German-American economic partnership exemplifies the
benefits of cross-border investment. In 1989, the stock of U.S. foreign direct
investment in Germany was around $23 billion. By 2005, it had grown to more than
$86 billion. And even more impressive is the growth in the stock of German foreign
direct investment in the United States, which increased from around $28 billion in
1989 to $184 billion in 2005. The employment benefits of this economic
relationship are striking. Altogether, German-American bilateral investment and
trade provide over 1.2 million direct jobs in our two countries, and sizably more
indirect jobs. Today, there are more than 3,000 German companies in the United
States, with almost 670,000 employees; over 1,450 American companies in
Germany provide over 600,000 jobs.
Looking back to my time as Ambassador, as American soldiers withdrew from
Germany as the Cold War ended -an ending in which Hans-Dietrich Genscher
played such a pivotal role - these soldiers were replaced by an almost equal
number of new jobs in American firms operating in Germany. Literally, swords were
beaten into plowshares. Foreign investment in all its forms - including foreign
direct investment and portfolio investment -is a growth engine that must run
smoothly for our countries to continue to prosper. We must tackle the growing
perception that the United States and Europe are becoming less open to
investment. In the United States, over five million Americans work for companies
headquartered overseas. Although these jobs comprise only 4 percent of our
workforce, they account for 10 percent of our capital investment, 15 percent of
annual research and development (R&D), and 20 percent of our exports. And over
30 percent of these FDI jobs are in manufacturing, while only 10 percent of our
overall workforce is in this sector.
In spite of these statistics, the past year has seen headlines on both sides of the
Atlantic about restrictions on foreign investment. In Europe, some countries have
attempted to thwart takeovers of perceived "national champions," while other
countries have continued to raise concerns about the free movement of labor and
capital within the European Union. In the United States, critical attention has been
focused on the review process undertaken by the Treasury-chaired Committee on
Foreign Investment in the United States, or CFIUS. These developments have
raised questions in the minds of global investors about whether the doors to foreign
investment remain open both in Europe and in the United States.
We must come together to act and make clear on both sides of the Atlantic that we
are open to investment and trade, and actively reject the rise of protectionism
across the Atlantic or elsewhere in the world. For our part, the United States is
keenly focused on balancing open investment with national security concerns by
ensuring that proposed changes to the process for reviewing foreign investments
do not create unnecessary and counterproductive barriers to participation in the
U.S. market. I want to make clear that the vast majority of foreign investments
reviewed by CFIUS continue to be processed expeditiously and without controversy
within the initial 30-day review period. Let me make my message crystal clear: the
United States is open to investment from abroad, especially from countries like
Germany that are similarly open to investment from the United States.
An Emerging Challenge to Open Investment One important way to encourage
http://www.treas.gov/press/releases/hp258.htm
3/1/2007
Page 5 of6
political support for the free flow of capital across borders is to ensure that
terrorists, proliferators, counterfeiters, drugs syndicates, and organized criminal
elements cannot use the efficiency of the global financial system to facilitate their
illegal activities. To counter these threats, the U.S has developed and applied
vanous measures designed to protect our banks and financial institutions but in an
increasingly interdependent global financial marketplace, we must work ~ore
closely together to secure the global financial system from those who threaten its
integrity.
But it is not sufficient for only government agencies to increase their vigilance. It is
also incumbent on the private sector - and III particular financial institutions - to
work proactively to protect the international financial system from abuse. We have
learned that a robust public-private sector dialogue is critical to this effort.
Governments, with all of their resources, are uniquely placed to inform the financial
community about the risks posed by illicit actors.
Recently, the Department of the Treasury has stepped up our efforts to do Just that
- share information with key financial institutions around the world about the
potential risks of doing business with those who misuse the financial system.
Specifically, this endeavor to educate the fillancial community has involved
i' '')rming banks of the deceptive financial practices Iran employs to conceal its
pursuit of a nuclear program and its support of terrorism. Our experience has
shown that banks and financial institutions are willing partners in this effort and are
appreciative of the information. They want to identify and avoid dangerous
customers who could harm their reputations and business. Cooperation is in banks'
self IIlterests: banks need to manage risk, and knowing their customers is one of
the most critical components of risk management.
Revitalizing the Transatlantic Economic Relationship In Chancellor Merkel's
remarks in Davos last month at the annual meeting of the World Economic Forum,
she discussed the importance of working together to confront challenges across the
world. I was struck by the African proverb she quoted: "If you want to go fast. go
alone. If you want to go far, go together." It was in this spirit, and in Germany's
current capacity as President of the European Union, that the Chancellor recently
put forward her IImely, outstanding proposal for "A New Transatlantic Economic
Partnership."
We strongly support the Chancellor's initiative and look forward to working together
with Germany and the European Commission to make this initiative a success.
This proposal has an Important political dimension -when any European Union
Presidency, but especially Germany's Presidency, makes a transatlantic initiative a
central element in its program, it signals a strong political as well as economic
impulse, something very important at this time of transatlantic challenge.
On the economic and financial aspects of the initiative, it is important to make clear
this is not a proposal for a Free Trade Agreement between Europe and the United
States. The priority in the trade arena remains success in the Doha Round, to which
both the United States and Germany are engaged and committed. Instead, the
Merkel Initiative focuses on improved cooperation to address non-tariff barriers and
regulatory cooperation to expand economic activity between Europe and the United
States.
We are discussing a number of promising areas where we can redouble our efforts
to foster an Improved transatlantic economic relationship. These include: extending
regulatory cooperation in a range of sectors; advancing cooperation on
enforcement of intellectual property rights; encouraging progress on the work-plan
aimed at promoting consistent application of IFRS and US GAAP; integrating our
efforts on energy security and addressing climate change; and advancing work on
biofuels, energy efficiency, and clean coal. Many of these topics are already part of
the transatlantic dialogue, including in the U.S.-EU Economic Initiative, but we now
have the opportunity because of Chancellor Merkel·s leadership to engage
governments at the political level and to commit to improved regulatory - and,
importantly, deregulatory - cooperation based on shared principles. The progress
we make both during the German Presidency but also beyond will further
strengthen the foundation of our deep economic relationship and provide greater
http://www.treas.gov/press/releases/hp258.htm
3/1/2007
Page 6 of6
stability for the global economy.
Conclusion
As our nations face challenges in the years ahead, let us never forget the personal
dimension of our ties - polil1cal, security, and economic. Germany remains the
world's largest goods exporter, and the United States is a respectable second. I
stand before you today as an example of German-American export prowess. My
parents met and married in March 1947 In Berlin, and I was born exactly nine
months later in the United States. So, like President Kennedy, I am proud to say
"Ich bin Berliner," and, in my case, "Made in Germanyl"
I am certain that each of you also shares a personal perspective about the GermanAmerican economic relationship. You playa vital role in the link between our
economies through your efforts to promote commercial growth and cultural
awareness. Just as important, you can help demonstrate the importance of open
investment. For those of you with major investments in the United States, I urge you
to visit Washington to meet with members of the Administration. And, accompanied
by your American plant managers, also calion the Senators and Representallves
from those states where German capital has created American jobs, and invite the
legislators to visit your U.S. plant operations to see Americans at work based on
investment decisions made here in Germany. This personal contact Will drive home
the important economic - and political - point that foreign investment creates
American jobs.
Thank you again for your very personal, very significant contributions to our
common goal of a stronger German-Amencan relationship at the core of stronger
ties between Europe and the United States. I would now be pleased to take your
questions. Thank you for your attendance and attention.
http://www.treas.gov/press/releases/hp258.htm
3/1/2007
Page 1 of 1
February 12, 2007
HP-259
Treasury Department Names
Mina Nguyen as
Deputy Assistant Secretary for Business
Affairs and Public Liaison
The Treasury Department announced that Mina Nguyen has been appointed as
Deputy Assistant Secretary for Business Affairs and Public Liaison.
In this position, Nguyen will manage the Treasury Department's outreach to the
business, advocacy, and financial community. She will advise Treasury Secretary
Henry M. Paulson and the agency's leadership on economic and international
issues. She will solicit information, analysis, and opinions from public and private
organizations representing business and consumer interests, and will communicate
Treasury and the Bush administration views to these organizations.
Immediately pnor to this appointment, Nguyen served as Director of Government
Affairs of the Republican National Committee, where she was responsible for
coordinating legislative plans and messaging with the United States Congress and
managing key activities with business and trade organizations.
Previously, Nguyen served as the National Business and the Northeast Regional
Coalitions Director for the Bush-Cheney 2004 campaign, and before that the
Director of Public Liaison and Special Assistant to Labor Secretary Elaine L. Chao.
She also worked as a Management Consultant in Accenture's Strategy practice.
Nguyen earned her degree in business administration from University of California,
Berkley.
http://www.treas.gov/press/releases/hp259.htm
3/1/2007
Page 1 of 1
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
February 13, 2007
HP-260
Treasury Department Names
Alan F. Holmer as
Special Envoy for China and the Strategic
Economic Dialogue
Today, US Treasury Secretary Henry M. Paulson announced he has appointed
Ambassador Alan F. Holmer as Special Envoy for China and the Strategic
Economic Dialogue. In that role, Ambassador Holmer will lead a strong
Administration team managing the bilateral economic relationship with China.
Ambassador Holmer was Deputy U.S. Trade Representative under President
Ronald Reagan, ran the anti-dumping and anti-subsidy programs at the Commerce
Department, chaired the international trade practice at a major international law
firm, and most recently was President and CEO of the Pharmaceutical Research
and Manufacturers of America (PhRMA), where, among other responsibilities, he
led efforts to improve intellectual property protection around the world, including in
China. He has co-authored three books on international trade law.
"Alan brings a wealth of international and leadership experience that will allow him
to hit the ground running, and lead successful efforts to help the Chinese
government move toward a balanced, growing economy that is not reliant on large
external surpluses," said Paulson.
President Bush and President Hu established the Strategic Economic Dialogue to
manage our bilateral economic relationship effectively. The first meeting of the
Dialogue was held in Beijing last December. After frank conversations on a range of
cross-cutting economic issues, we agreed on work plans for services, investment,
transparency, health care, and energy and the environment. Work has begun in
each of these areas since the December meeting.
The second meeting will take place in Washington, DC, May 23 and 24. "I believe
that the Strategic Dialogue, where we speak with one voice with the highest levels
of the Chinese government, is the most effective way to make progress on
Immediate issues and on the longer term issues that we face with China," said
Paulson.
REPORTS
http://www .treas.gov /press/releases/hp260 .htrn
1/1/2007
ALAN F. HOLMER
EMPLOYMENT
2005-07
Current Professional Activities
Independent Director and strategic adviser of life science companies,
disease foundations, and presidential commissions. For example:
Director, Inspire Pharmaceuticals (Durham, NC)
Director, Nanolnk, Inc. (Skokie, IL)
Co-Chair, Presidential Advisory Council on HIV/AIDS
Director, Cystic Fibrosis Foundation (DC Chapter)
1996-2005
Pharmaceutical Research and Manufacturers of America (PhRMA)
President and Chief Executive Officer
Principal architect of transformation of PhRMA into one of nation's premier
public policy advocacy organizations. Rated as most effective health care
advocacy organization in country. Helped enact Medicare drug benefit.
Led efforts to improve intellectual property protection around the world
including in China.
1989-1996
Sidley & Austin
Partner
Co-chair of international trade practice in Chicago-based law firm,
practicing out of the Washington, D.C. office.
1987-1989
Office of the U.S. Trade Representative
Deputy U.S. Trade Representative (with rank of Ambassador)
Led Reagan Administration efforts on the 1988 omnibus trade bill, U.S.Canada Free Trade Agreement implementing bill, selected bilateral trade
negotiations and trade policy issues. Frequent witness before
congressional committees (principally the Senate Finance and House
Ways and Means Committees). Managed (with Ambassadors Yeutter and
Smith) staff of 170.
1985-1987
Office of the U.S. Trade Representative
General Counsel
Chief legal officer of the United States on international trade. Primary
substantive responsibilities within the Office of the USTR included:
legislative proposals; international dispute settlement issues; Section 301
investigations; and litigation in which the agency was involved. Frequent
witness before congressional committees.
1983-1985
Commerce Department
Deputy Assistant Secretary for Import Administration
Senior Commerce Department official (title since inflated to Assistant
Secretary) responsible for administering U.S. antidumping and antisubsidy duty laws, voluntary restraint agreements on steel imports, and
foreign trade zones. Represented the United States in international
negotiations and the Department of Commerce before congressional
committees, interagency groups and private interests.
1981-1983
The White House
Deputy Assistant to the President for Intergovernmental Affairs
1978-1981
Steptoe & Johnson
Associate (Tax)
1972-1978
Senator Bob Packwood
Administrative Assistant (Chief of Staff)
EDUCATION
J.D. 1978
Georgetown University Law Center
A.B. 1971
Princeton University (cum laude)
PROFESSIONAL ACTIVITIES
• U.S. Ambassador to the Bonn Economic Conference. At request of Sec. James
Baker, led U.S. delegation to the 34-nation conference as part of the Conference on
Security and Cooperation in Europe. The result was a widely-acclaimed agreement
on market economic principles for eastern Europe countries. Spring, 1990.
•
Co-Chair, Presidential Advisory Council on HIV/AIDS, 2005-present.
•
Member, District of Columbia, Oregon and American Bar Associations.
•
Member, Council on Foreign Relations, 1999-present.
•
Co-author or editor of three books on international trade
2
Page I of 3
February 12, 2007
HP-261
Prepared Remarks of Patrick M. O'Brien
Assistant Secretary Terrorist Financing and Financial Crimes
Before the Florida International Bankers Association
February 12,2007
Good afternoon and thank you for inviting me to speak today about our ongoing
efforts to combat illicit finance. It is an honor and a pleasure to be here in Miami as
part of the Florida International Bankers Association's (FIBA) 2007 annual
conference. Thank you, Fernando, for the overview and introduction. Your home
country of Ecuador has recently assumed an important leadership role as the
preSident of GAFISUD and has taken important steps with the recent establishment
of a Financial Intelligence Unit (FlU). These are very important developments.
The FIBA annual conference is an important and mUCh-anticipated event that
provides timely and practical knowledge to bankers from around the world. It also
provides a useful forum for the public and private sector to come together to
discuss our common goal of combating illicit finance. I thank you for the opportunity
to share our perspective with you today.
My remarks will focus today on the importance of continued cooperation between
the public and private sectors in efforts to stem transnational threats such as drug
trafficking, money laundering, terrorist financing, and proliferation. I will specifically
address the U.S. Treasury Department's role in combating illicit finance, multilateral
efforts to disrupt illicit activity in the Caribbean and Latin America, and the
upcoming U.S.-Latin American Private Sector Dialogue. My hope is to give you a
clearer picture of our efforts and to invite your Involvement as we strive to further
advance efforts to combat threats to the international financial system.
At the US. Treasury Department, we recognize the importance of a healthy global
financial system. Our engagement in that system IS founded on three main
principles: the promotion of free trade, the free movement of capital, and flexible
exchange rates. The free movement of capital is critical in that equation, and
depends on our collective ability to foster open investment and liberal financial
markets. None of this is possible without mechanisms to protect the international
financial system from abuse.
In 2004, the U.S. Treasury Department, in an effort to address its increasing role as
a central part of the security fabric, established the Office of Terrorism and
Financial Intelligence (TFI). Through this office, the Treasury Department marshals
its policy, enforcement, regulatory, and intelligence functions with the twin aims of
safeguarding the financial system against illicit use and combating terrorist
facilitators, proliferators, money launderers, drug kingpins, and other national
security threats. TFI is comprised of five offices: the Office of Foreign Assets
Control (OFAC), the Financial Crimes Enforcement Network (FInCEN), the Office of
Terrorist Financing and Financial Crime (TFFC), the Office of Intelligence and
Analysis (OIA), and the Treasury Executive Office of Asset Forfeiture (TEOAF).
Treasury's creation of OIA marks the first time that a finance ministry has organized
an internal intelligence analysis office that brings the knowledge of the intelligence
community to bear on the financial aspects of national security threats. Through its
unique position, OIA supports elements across Treasury and the U.S. Government,
including the Office of Terrorist Financing and Financial Crimes (TFFC) that I
oversee.
http://www.treas.gov/press/releases/hp261.htm
3/1/2007
Page 2 of3
TFFC is charged with recommending and aiding in the implementation of U.S.
policy to combat illicit finance both domestically and internationally. To meet our
mandate, my office is divided into two parts. The Office of Strategic Policy is
comprised of professionals who specialize in specific substantive areas such as
regulatory matters or emerging payment systems. The other component IS the
Office of Global Affairs, which is comprised of policy advisors who are experts in
various geographic regions and in the authorities and other assets that Treasury
can bring to bear on particular vulnerabilities or threats. These advisors also serve
as our representatives to FATF Style Regional Bodies (FSRBs) throughout the
world and are in contact with both the public and private sectors in each country.
With me today is Theo VanLingen who serves as our representative to both
GAFISUD and CFATF. I encourage you to meet Theo during this conference and
use him as a resource in the future when you have suggestions, questions or
issues where Treasury can assist.
The collective efforts of the United States Government and regional partners to
identify and combat Illicit finance have seen impressive results allover the world but most relevant to this group, we have seen important successes in Latin
America. For example, Gilberto and Miguel Rodriguez OreJuela recently plead guilty
and were sentenced to 30 years in prison and ordered to forfeit $2.1 billion in
assets from their once-powerful narcotics empire. These Colombian drug kingpins
revolutionized the global cocaine trade and worked to launder their financial
proceeds. At one time, they controlled an estimated 80 percent of Colombian
cocaine exports to the United States. Through sustained cooperation among the
Department of Justice, including the Drug Enforcement Agency, OFAC, and their
Colombian counterparts, this network has been dismantled. Financial measures
played a Significant complementary role with criminal prosecutions to achieve this
victory. This action is a clear example of the effectiveness of financial tools to
combat security threats as well as the benefits that result from strong regional
cooperation.
The development of robust anti-money laundering and counter-terrorist financing
(AMLlCFT) regimes ultimately requires collaboration not only across regions, but
also across the public and private sectors. Government-to-government engagement
on illicit financing has been a central pillar of Treasury's policy for many years. That
ongoing conversation has been beneficial and has set the stage for increased
coordination in our public sectors. However, it is our private sectors that serve on
the front lines, protecting in the first instance our financial systems from the threats
we face. ThiS conference IS a testament to your critical role in the fight against
money laundering and other illicit financial threats. Our financial sectors must work
together to make our respective efforts as effective as possible.
Recognizing the importance of this government/private partnership, the Treasury
Department has engaged in a number of efforts to provide outreach to the private
sector. Some of these efforts are formal, like the Bank Secrecy Act AdVisory Group
(BSAAG) chaired by FinCEN, which brings together regulators, law enforcement
officials and private sector representatives to discuss issues related to the
administration of the BSA. We also participate in informal outreach, like speaking at
events such as this one, where Treasury representatives from OFAC, FinCEN, and
other offices can exchange views and get feedback from practitioners in the field.
In fact, we recently launched a new effort to conduct a series of International
Private Sector Outreach (IPSO) initiatives. I am pleased to announce that the first
U.S.-Latin America Private Sector Dialogue (US-LA PSD) is scheduled for April 1820 in Cartagena, Colombia. This event will bring together members of the U.S. and
Latin American financial sectors to discuss unique issues related to sound
implementation of AMLlCFT measures
The goal of the inaugural US-LA PSD IS to encourage direct dialogue between the
financial sectors in the United States and Latin America in order to:
o raise awareness of money laundering risks and terrorist financing:
o facilitate a better understanding of effective practices and
programs to combat such risks:
http://www.treas.goy/press/releases/hp261.htm
3/1/2007
Page 3 of3
o strengthen implementation of effective AMLlCFT controls; and
o exchange information and improve understanding of business
cultures and norms.
Treasury last summer hosted an initial roundtable event for private sector
representatives and senior U.S regulatory officials and their counterparts from Latin
America. Roundtable participants spent the day discussing private sector
perspectives on AMLlCFT implementation. The roundtable Identified a number of
issues for further work and discussion and participants agreed to cooperatively plan
conferences and seminars dedicated to addressing core areas of mutual Interest
and concern.
With the leadership and support of private sector leaders such as the Florida
International Bankers Association, the American Bankers' Association, Feleban,
Asobancaria Febraban, as well as government entities such as the Argentina
Central Bank, we can look forward to the upcoming event in Cartagena. It should be
a productive event and we Invite your participation.
I would like to close by saying that I look forward to visiting with you further and
taking what we learn from this conference and applying it to future efforts, such as
our Private Sector Dialogue initiative. Conferences like this are important as we
strive to always stay one step ahead of the threat, and I would again like to thank
the organizers. for assembling such a diverse group of professionals from across
multiple sectors. It is only through our collaborative efforts that we can create highly
effective AMLlCFT regimes, and all efforts that enhance our communication across
these sectors help us achieve our collective goals.
Thank you.
http://www.treas.goy/press/releases/hp261.htm
31112007
Page 1 of2
February 13, 2007
2007 -2-13-13-55-28-4516
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 $64.950 million as of the end of that week. compared to $64,961 million as of the end of the prior week.
I. Official U.S. Reserve Assets (in US millions)
E
February 2, 2007
February 9, 2007
64,961
64,950
TOTAL
Foceign Cuneney ReseNes
Euro
1
Securities
I
12,312
I
Of which, issuer headquartered in the US.
Yen
I
TOTAL
II
Euro
10,514
I
22,826
I
12,353
II
0
II
II
II
17,401
II
II
II
II
Yen
II
II
10,469
II
II
5,099
II
TOTAL
I
II
II
22,822
I
I
0
b. Total deposits with:
I
I
I
b.i. Other central banks and BIS
b.ii. Banks headquartered in the US.
b.ii. Of which, banks located abroad
12,278
II
II
5,123
0
I
12,329
0
b.iii. Banks headquartered outside the US.
0
17,428
0
I
I
0
0
b.iii. Of which, banks located in the U.S.
I
II
0
II
II
0
2. IMF Reserve Position 2
II
I
I
I
4,874
I
II
4,861
II
II
I~Special Drawing Rights (SDRs) 2
. Gold Stock 3
5 Other Reserve Assets
I
8,820
11,041
8,798
I
11,041
I
0
0
II. Predetermined Short-Term Drains on Foreign Currency Assets
I
February 2, 2007
II
I
I
1. Foreign currency loans and securities
2. Aggregate short and long positions
[2a. Short positions
In
Euro
I
Yen
II
II
I
I
February 9, 2007
TOTAL
Euro
Yen
0
TOTAL
I
0
I
II
II
II
0
I
I
forwards and futures in foreign currencies vis-a-vis the U.S. dollar:
12.b. Long positions
II
II
[3 Other
I
0
II
II
II
II
II
II
0
0
II
II
II
II
II
II
0
0
I
TOTAL
I
III. Contingent Short-Term Net Drains on Foreign Currency Assets
[
II
I
I
I
February 2, 2007
I
Euro
II
II
http://www.treas.gov/press/releases/20072131355284516.htm
Yen
I
I
TOTAL
February 9, 2007
Euro
I
I
Yen
II
II
I
I
3/1/2007
Page 2 of2
1. Contingent liabilities in foreign currency
11.a. Collateral guarantees on debt due within 1
Iyear
1. b. Other contingent liabilities
2. Foreign currency securities with embedded
options
13
Undrawn, unconditional credit lines
13.a. With other central banks
3.b. With banks and other finanCIal institulions
I
I
II
I
1\
I
I
0
I"
I
I
0
I
I
II
"
I
1\
II
II
II
II
II
I
Headquartered in the U. S.
I
0
0
"
I"
1\
/I
I
I
I
I"
I
0
0
"
3.c. With banks and other financial institutions
Headquartered outside the U. S.
4. Aggregate short and long positions of options
in foreign
I
Icurrencles vis-a-vis the U.S. dollar
14.a Short positions
14.a.1 Bought puts
14.a.2 Written calls
0
/I
"II
I
I
/I
/I
"
I
"II
"
I
0
4.b. Long positIOns
I
4.b.1. Bought calls
14b2 . Written puts
I
I
II
II
Notes:
11 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 may be subject to revision. Foreign Currency
Reserves for the pnor week are final.
21 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 SDRldollar exchange rate for the reporting date. The entries for the latest week reflect any
necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month end.
31 Gold stock is valued monthly at $42.2222 per fine troy ounce.
http://www.treas.gov/press/releases/200 72131355284516.htm
3/1/2007
Page 1 of 1
February 14, 2007
HP-262
Treasury Working with Congress to Relieve
Liberia's Debt Burden
secretary Paulson today announced he will work with Congress to provide debt
reduction for Liberia:
"I had the honor of meeting with Liberian President Johnson-Sirleaf this week to
diSCUSS her strong efforts to rebuild Liberia after its devastating civil war. Since her
election in January 2006, President Johnson-Sirleaf's government has focused on
Liberia's reconstruction while demonstrating its commitment to economic and
political reforms. I applaud these reform efforts and we will work with the
international community to find ways to eliminate Liberia's debt burden, which will
allow Liberia to normalize its relations with the multilateral donor community, gain
greater access to desperately needed development assistance, and put its finances
on a more sound footing. We calion other countries to make similar commitments."
Secretary Paulson today requested that Congress authorize the use of up to $35
million in debt reduction funds provided for in legislation now under consideration by
Congress to help fund the costs of forgiving Liberia's debt to the international
financial institutions.
At this time, the Administration is prepared to:
•
•
•
Forgive our $391 million in claims on Liberia under the Heavily Indebted
Poor Country (HIPC) framework. We requested funding in the FY08 budget
to cover the start of that process.
Set aside $15 million to contribute to forgiving Liberia's debt to the African
Development Bank.
Redirect more than $150 million in funds held by the IMF as a contribution
to forgiving Liberia's debt to the IMF, in consultation with Congress.
Previously, the United States has given generously to the Liberian government's
efforts to provide basic services to its people such as restoring electric power and
running water, and building roads, schools, and health clinics:
•
•
The U.S. has provided more than $500 million of development assistance to
Liberia over the past three years, accounting for more than half of total
bilateral development assistance received by Liberia during that time.
In the FY07 and FY08 budgets, we have requested more than $200 million
for Liberia.
Background
Liberia's debt equals $3.7 billion. More than $1.5 billion of that debt is in arrears to
the international financial institutions (World Bank, IMF, and the African
Development Bank). The vast majority of the arrears can be eliminated using
internal resources at these institutions, but some additional funding will be needed
from donors.
http://www.treas.gov/press/releases/hp262.htm
3/1/2007
u.s. TREASURY DEPARTMENT OFFICE OF PUBLIC AFFAIRS
EMBARGOED UNTIL 9 a.m. (EST) February 15,2007
CONTACT Brookly McLaughlin (202) 622-2920
TREASURY INTERNATIONAL CAPITAL DATA FOR DECEMBER
Treasury International Capital (TIC) data for December are released today and posted on the U.S.
Treasury web site (www.treas.gov/tic).Thenextrelease.whichwillreportondataforJanuary.is
scheduled for March 15,2007.
Net foreign purchases of long-term securities were $15.6 billion.
•
Net foreign purchases oflong-term U.S. securities were $63.0 billion. Of this, net purchases
by foreign official institutions were $24.0 billion, and net purchases by private foreign
investors were $39.0 billion.
•
U.S. residents purchased a net $47.4 billion in long-term foreign securities.
Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have
been $2.5 billion.
Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and
other custody liabilities increased $6.5 billion. Foreign holdings of Treasury bills decreased $4.9
billion.
Banks' own net dollar-denominated liabilities to foreign residents decreased $20.0 billion.
Monthly net TIC flows were minus $11.0 billion. Of this, net foreign private flows were minus
$42.5 billion and net foreign official flows were positive $31.5 billion.
TIC Monthly Reports on Cross-Border Financial Flows
(Billions of dollars, not seasonally adjusted)
2004
2005
2006 Se -06
Oct-06
Nov-06
Dec·06
Foreigners' Acquisitions of Long-term Securities
2
4
5
6
7
8
9
10
II
12
13
14
15
16
17
18
Gross Purchases of Domestic U.S. Securities
Gross Sales of Domestic U.S. Securities
Domestic Securities Purchased, net (line I less Ime 2) 1\
15178.9 17157.5
14262.4 16145.9
21100.8
19958.7
1750.4
16499
1875.2
1766.6
1928.1
1805.9
1850.4
1787.4
916.5
1011.5
1142.1
100.5
108.6
\22.2
63.0
Private, net /2
Treasury Bonds & Notes. net
Gov't Agency Bonds. net
Corporate Bonds. net
Equities, net
680.9
150.9
205.7
298.0
26.2
891.1
956,5
83.7
83.3
115.7
39.0
269.4
187.6
353.1
81.0
136.0
202.0
474.4
144.1
-6.1
17.3
57.1
15.3
6.2
10.9
38.8
27.4
33.1
11.8
61.8
9.1
4.5
12.5
33.1
·11.1
Official, net /3
Treasury Bonds & Notes, net
Gov't Agency Bonds, net
Corporate Bonds. net
Equities. net
235.6
120.4
185.6
6.5
24.0
68.7
31.6
19.1
1.0
62.5
88.8
28.5
5.8
\6.7
7.7
7.9
1.8
·0.7
25.3
201. I
20.8
11.5
2.2
185
5.3
2.0
-0.4
1.0
4.0
·2.1
6.1
15.5
2.9
·05
3123.1
3276.0
5568.4
5814.5
427.1
449.9
509.2
524.2
533.5
570.9
-152.8
3700.0
3872.4
-172.4
-246.0
-22.8
-\5.0
-37,4
521.3
568.7
-47.4
-67.9
·85.0
-45.1
-127.3
-139.7
-106.3
·13.6
-9.2
-6.7
-8.4
-17.6
-19.8
·28.5
-18.9
Gross Purchases of Foreign Securities from U.s. Residents
Gross Sales of Foreign Securities to U.S. Residents
Foreign Securities Purchased, net (line 14 less line 15) /4
Foreign Bonds Purchased, net
Foreign Equities Purchased, net
3.6
19
Net Long-Term Securities Transactions (line 3 plus line 16):
763.6
839.1
896.1
77.7
93.5
84.9
15,6
20
Other Acquisitions of Long-term Securities, net/5
-38,8
-140.0
-\65.7
-\ 1.9
-10.4
-32,6
-13.1
724.8
699.1
730.4
65.7
83.1
52.2
2.5
\90.1
-47.6
-58.9
-15.6
-43.3
125,7
-9.0
-\0.3
-14.5
-3.9
0.6
4.\
5.0
-0.9
17.0
6.5
60.0
26.8
33.2
9.5
1.8
7.7
-4.9
130.1
11.4
134.7
4.1
10.6
0.8
154.5
-19.8
5.9
-1.7
-3.4
7.4
-10.8
7.5
77.4
52.8
9.3
-1.8
11.5
4.7
6.7
63.9
16.4
-28.2
13,6
-7.5
1.2
-20.0
978.9
667,9
827.9
69.1
76.3
70.5
-11.0
637.2
341.6
580.6
87.3
699.3
128.7
57.1
11.9
83.2
61.1
9.4
-42.5
31.5
21
Net Foreign Acquisition of Long-Term Securities
(lines 19 and 20):
27
28
Increase in Foreign Holdings of Dollar-denominated Short-term
U.S. Securities and Other Custody Liabilities: /6
U.S. Treasury Bills
Private. net
Official, net
Other Negotiable Instruments
and Selected Other Liabilities: 17
Private, net
Official, net
29
Change in Banks' Own Net Dollar-Denominated Liabilities
22
23
24
25
26
30 Monthly Net TIC Flows (lines 21.22,29) /8
of which
Private, net
31
OffiCial, net
32
/1
/2
/3
/4
16.0
-25.0
-10.6
-6.9
Net foreign purchases of U.S. securnies (+)
Includes international and regional organizations
The reported division of net purchases of long·term securities between net purchases by foreign official institutions and net purchases
of other foreign investors is subject to a "transaction bias" described in Frequently Asked Questions 7 and 10.a.4 on the TIC web site.
Net transactions in foreign securities by U.S. residents. Foreign purchases of foreign securities ~ US. sales of foreign securities to foreigners.
Thus negative entries indicate net U.S. purchases of foreign securities, or an outflow of capital from the United States; positive entries
/5
indicate net U.S. sales of foreign securities.
Minus estimated unrecorded principal repayments to foreigners on domestic corporate and agency asset-backed securities +
/6
estimated foreign acquisitions of U.S. equities through stock swaps estimated U.S. acquisitions of foreign equities through stock swaps +
increase in nonmarketable Treasury Bonds and Notes Issued to Official Institutions and Other Residents of Foreign Countnes.
These are primarily data on monthly changes in banks' and broker/dealers' custody liabilities. Data on custody claims are collected
17
/8
4.4
·9.3
quarterly and published in the Treasury BulietlO and on the TIC web site.
"Selected Other Liabilities" are primarily the foreign liabilities of U.S. customers that are managed by U.S. banks or broker/dealers.
TIC data cover most components of internatIOnal finanCial flows, but do not include data on direct investment flows, which are collected
and published by the Department of Commerce's Bureau of Economic Analysis. In addition to the monthly data summarized here, the
TIC collects quarterly data on some banking and nonbanking assets and liabilities. Frequently Asked Question I on the TIC web
site describes the scope of TIC data collection.
2
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February 15, 2007
HP-264
Treasury, IRS Issue Guidance Helping Employees
Transition To HSAs
WASHINGTON. DC --U.S. Treasury and Internal Revenue Service today issued
guidance regarding how employers can rollover their health Flexible Spending
Arrangements (health FSAs) and Health Reimbursement Arrangements (HRAs) to
Health Savings Accounts (HSAs) for their employees.
The Tax Relief and Health Care Act of 2006, Pub. L. No.1 09-432, enacted
December 20,2006, allowed employers to amend their health FSAs or HRAs, with
balances on September 21,2006, for a one-time rollover to an HSAs by 2012. The
guidance clarifies the requirements for making these rollovers, which must be made
directly to the custodian or trustee of the HSA.
Under the guidance, a health FSA with a grace period or HRA must be amended
and a rollover selected by an employee before year end. The balance amount must
be transferred to the HSA by March 15 of the following year. The ability to make
these transfers will facilitate the transition to an HSA-eligible health plan when
employees are covered by an HRA or FSA.
In addition, the guidance provides a special transition rule for transfers for 2006.
Under the transition rule, the amendment, election and transfer must take place by
March 15,2007.
REPORTS
•
The text of the guidance
http://www.treas.goy/press/releases/hp264.htm
31112007
Part III - Administrative, Procedural, and Miscellaneous
Health Savings Accounts
Notice 2007-22
This notice provides guidance on rollovers from health Flexible Spending Arrangements
(health FSAs) and Health Reimbursement Arrangements (HRAs) to Health Savings
Accounts (HSAs) under amendments to the Internal Revenue Code by section 302 of
the Health Opportunity Patient Empowerment Act of 2006 (the Act) included in the Tax
Relief and Health Care Act of 2006, enacted December 20, 2006, Pub. L. No.1 09-432.
The guidance also provides special transition relief for rollovers completed before March
15, 2007. It is anticipated that additional guidance will be published later under this
provision.
As discussed in detail below, the new rules provide, in limited circumstances, for certain
amounts in a health FSA or HRA to be rolled over into an HSA and for the rollover to
receive favorable tax treatment. Generally, under the new rules, all of the following
conditions must be satisfied in order to receive the favorable tax treatment:
•
•
By plan year end-• The plan must be amended
• The employee must elect the rollover
• The year-end balance must be frozen
The funds must be transferred by the employer within two and a half months after
the end of the plan year and result in a zero balance in the health FSA or HRA.
Under special transition relief provided in this notice for amounts remaining at the end of
2006, however:
•
•
There is no requirement to freeze the year-end balance in the health FSA or
HRA, and
The amendment, election, and transfer must be completed by March 15,2007.
BACKGROUND
Eligible individuals, as defined in § 223(c)(1) of the Code, may contribute to HSAs. In
general, these are individuals who, as of the first day of the month, are covered by a
high deductible health plan (HDHP) and by no other health plan that is not an HDHP
(with the exception of certain disregarded coverage, including permitted insurance). An
individual covered by a general purpose health FSA or general purpose HRA is not
eligible to contribute to an HSA. See Rev. Rul. 2004-45, 2004-1 C.B. 971. If a general
purpose health FSA allows reimbursements for expenses incurred during a grace period
following the end of the plan year, an otherwise eligible individual participating in the
health FSA is generally not eligible to make contributions to an HSA until the first day of
the first month following the end of the grace period. The maximum duration of a grace
1
period is until the fifteenth day of the third month following the end of a plan year. See
Notice 2005-42,2005-1 C.B. 1204. Prior to the Act, this rule applied even if the
individual's health FSA had no unused benefits as of the end of the prior year (Le., the
balance in the health FSA was zero as of the last day of the plan year). Notice 2005-86,
2005-2 C.B. 1075. However, coverage by an HSA-compatible health FSA or HRA .
(limited-purpose health FSA or HRA, post-deductible health FSA or HRA, retirement
HRA, or suspended HRA), does not affect an employee's eligibility to contribute to an
HSA, including coverage during a health FSA grace period. See Rev. Rul. 2004-45.
HEALTH OPPORTUNITY PATIENT EMPOWERMENT ACT OF 2006 - GENERAL
RULES
Section 302(a) of the Act provides for "qualified HSA distributions" before January 1,
2012. A qualified HSA distribution is a direct distribution of an amount from a health
FSA or HRA to an HSA. The distribution (rollover to an HSA) must not exceed the
lesser of the balance in the health FSA or HRA (1) on September 21,2006, or (2) as of
the date of the distribution. Thus, an individual who was not covered by a health FSA or
HRA on September 21,2006 may not elect a qualified HSA distribution. Similarly, an
individual who participated in a health FSA with one employer on September 21, 2006,
and participates in a health FSA with a second employer after that date, may not elect a
qualified HSA distribution with respect to the second employer's health FSA.
A qualified HSA distribution must be contributed directly to the HSA trustee by the
employer. Qualified HSA distributions may be made from general purpose health FSAs
and HRAs, as well as from HSA-compatible health FSAs and HRAs. Only one qualified
HSA distribution is allowed with respect to each health FSA or HRA of an individual.
Qualified HSA distributions are not taken into account in applying the annual limit for
HSA contributions. Qualified HSA distributions are treated as roll overs and thus, are
not deductible.
If the individual fails to remain HSA-eligible during the testing period following the
distribution, the amount of the rollover is included in gross income and is subject to an
additional 10 percent tax. For this purpose, the testing period is defined as the period
beginning with the month in which the qualified HSA distribution is contributed to the
HSA and ending on the last day of the 12th month following that month. It is not
required that an employee be an eligible individual with HDHP coverage in order to
have a qualified HSA distribution made on the employee's behalf. However, if an
employee is not an eligible individual immediately following the qualified HSA
distribution, the amount of the distribution is included in the employee's income and
subject to an additional 10 percent tax.
Section 302(b) of the Act provides that only certain health FSA coverage during a grace
period is treated as disregarded coverage for the purpose of determining an individual's
eligibility to contribute to an HSA. Under new § 223(c)(1 )(B)(iii) of the Code, coverage
during a grace period by a general purpose health FSA is disregarded if (1) the balance
in the health FSA at the end of the prior plan year is zero or (2) the individual makes a
2
qualified HSA distribution of any balance remaining at the end of the plan year to an
HSA.
Section 302(b) of the Act only applies to health FSA coverage during a grace period
following a plan year. Thus, health FSA coverage during the plan year is not
disregarded, regardless of whether the health FSA balance is reduced to zero during
the plan year by a qualified HSA distribution or otherwise.
QUALIFIED HSA DISTRIBUTIONS
If an employer wants to provide qualified HSA distributions, the employer must amend
the health FSA or HRA written plan. In order to comply with the comparability rules in §
4980G of the Code, the amended plan must offer qualified HSA distributions to any
otherwise eligible individual covered by the employer's HDHP. See new § 106(e)(5)(B)
of the Code. However, there is no requirement that the health FSA or HRA be
terminated in order to provide a qualified HSA distribution. Health FSAs and HRAs
must satisfy the nondiscrimination reqUirements in § 105(h) of the Code.
A qualified HSA distribution may be made at any time prior to January 1,2012.
However, even if the qualified HSA distribution reduces the balance of an FSA or HRA
to zero, the health FSA or HRA coverage does not end. If the FSA or HRA is not HSAcompatible, employees can become eligible individuals only after transfers at the end of
the plan year of the FSA or HRA that result in either disregarded coverage under 302(b)
of the Act, or the termination of the HRA coverage at the end of the plan year.
Consequently, qualified HSA distributions from health FSAs or HRAs that are not HSAcompatible and that take place at any time other than the end of a plan year, generally
result in the inclusion of the distribution in income and the imposition of an additional 10
percent tax.
The amendments in the Act do not change the requirement that unused amounts
remaining at the end of a health FSA's plan year must be forfeited in the absence of a
grace period. Notice 2005-42. Thus, if a health FSA does not have a grace period,
unused amounts remaining at the end of the plan year are forfeited and generally
cannot be transferred through a qualified HSA distribution to an HSA after the end of the
plan year. Although the unused amounts can be distributed to an HSA before the end
of the plan year, because the health FSA coverage continues until the end of the plan
year, an individual covered by the health FSA is not an eligible individual immediately
after the qualified HSA distribution, and thus any such qualified HSA distribution is
included in income and subject to an additional 10 percent tax. Similarly, an individual
without HDHP coverage after a distribution is not an eligible individual after the
distribution and thus the qualified HSA distribution is included in income and subject to
an additional 10 percent tax. Unless a participant has a change in status as provided in
Treas. Reg. § 1.125-4(a), health FSA elections may not be changed during a plan
year. Prop. Treas. Reg. § 1.125-1, Q & A-15.
BALANCES DETERMINED ON CASH BASIS
3
For all purposes, balances are determined on a cash basis. Cash basis means the
balance as of any date, without taking into account expenses incurred that have not
been reimbursed as of that date. Thus, pending claims, claims submitted, claims
received or claims under review that have not been paid as of a date are not taken into
account for purposes of determining the account balance as of that date. In addition,
the balance as of any date of a health FSA is determined by applying the uniform
coverage rule (i.e., maximum reimbursement available for the plan year reduced for
prior reimbursements paid as of the date for the same plan year). See Prop. Treas.
Reg. § 1.125-2, Q&A-7(b)(2).
HDHP COVERAGE BEGINNING AFTER 1ST DAY OF THE MONTH
An employee who begins HDHP coverage after the first day of the month is not an
eligible individual until the first day of the next month. If a qualified HSA distribution is
made on behalf of such an employee before the first day of the next month, the
employee is not an eligible individual as of the date of the qualified HSA distribution and
the amount of the distribution is included in the employee's income and subject to an
additional 10 percent tax. Thus, if an employee begins HDHP coverage after the first
day of the month, any qualified HSA distribution on behalf of the individual made on or
after the first day of the next month avoids immediate inclusion in income.
CONSEQUENCES OF FAILING TO ROLL OVER ENTIRE BALANCE OF GENERAL
PURPOSE HEALTH FSA OR GENERAL PURPOSE HRA
An employee with a balance in a health FSA with a grace period or HRA at the end of a
plan year is not treated as an eligible individual for HSA purposes on the first day of the
immediately following plan year if a qualified HSA distribution does not result in a zero
balance in the health FSA or HRA. Because the employee is covered under a health
plan that is not an HDHP during the testing period, the amount of the qualified HSA
distribution is included in the employee's gross income in the year of the distribution and
is subject to a 10 percent additional tax. However, an employee with a balance in an
HSA-compatible health FSA or HRA at the end of a plan year remains an eligible
individual, if otherwise eligible, regardless of whether a qualified HSA distribution is
made.
ADDITIONAL TAX FOR FAILURE TO REMAIN AN ELIGIBLE INDIVIDUAL
If an individual ceases to be an eligible individual during the testing period, the amount
of the qualified HSA distribution is included in the gross income of the individual and
subject to an additional 10 percent tax. Failing to remain an eligible individual does not
require the withdrawal of the qualified HSA distribution, and the amount is not an excess
contribution. However, any HSA withdrawal not used for qualified medical expenses is
included in income and subject to an additional 10 percent tax (with certain exceptions),
regardless of whether the HSA received a qualified HSA distribution that was previously
4
included in the account beneficiary's income and subject to the additional tax. See §
223(f)(4 )(B).
PERMANENT RULE -- INDIVIDUALS WITH A ZERO BALANCE IN GENERAL
PURPOSE HEALTH FSA ON THE LAST DAY OF PLAN YEAR
Under the Act, if an individual has a zero balance in a general purpose health FSA, as
determined on a cash basis, on the last day of the health FSA plan year, the individual
does not fail to be an eligible individual as of the first day of the immediately following
health FSA plan year because of coverage during a health FSA grace period.
PERMANENT RULE -- INDIVIDUALS WITH A ZERO BALANCE IN GENERAL
PURPOSE HRA ON THE LAST DAY OF PLAN YEAR
An individual with a zero balance in a general purpose HRA, determined on a cash
basis, on the last day of the HRA plan year, does not fail to be an eligible individual on
the first day of the immediately following HRA plan year, so long as (1) effective on the
first day of the immediately following HRA plan year, the employee elects to waive
participation in the HRA, or (2) effective on or before the first day of the following HRA
plan year, the employer terminates the general purpose HRA with respect to all
employees, or (3) effective on or before the first day of the following HRA plan year, with
respect to all employees, the employer converts the general purpose HRA to an HSAcompatible HRA, as described in Rev. Rul. 2004-45.
PERMANENT RULE -- PLAN-YEAR-END ROLLOVERS FROM GENERAL PURPOSE
HEALTH FSA OR GENERAL PURPOSE HRA TO HSA
An employee with a balance in a general purpose health FSA with a grace period or
general purpose HRA at the end of a health FSA or HRA plan year (plan year) is treated
as an eligible individual for HSA purposes as of the first day of the first month in the
immediately following plan year that the individual has HDHP coverage on the first day
of the month if:
(1) the employer amends the health FSA or HRA written plan effective by the last day of
the plan year to allow a qualified HSA distribution,
(2) a qualified HSA distribution from the health FSA or HRA has not been previously
made on behalf of the employee with respect to that particular health FSA or HRA,
(3) the employee has HDHP coverage as of the first day of the month during which the
qualified HSA distribution occurs, and is otherwise an eligible individual,
(4) the employee elects by the last day of the plan year to have the employer make a
qualified HSA distribution from the health FSA or HRA to the HSA of the employee,
5
(5) the health FSA or HRA makes no reimbursements to the employee after the last day
of the plan year,
(6) the employer makes the qualified HSA distribution directly to the HSA trustee by the
fifteenth day of the third calendar month following the end of the immediately preceding
plan year, but after the employee becomes HSA-eligible,
(7) the qualified HSA distribution from the health FSA or HRA does not exceed the
lesser of the balance of the health FSA or HRA on (a) September 21, 2006, or (b) the
date of the distribution, and
(8)(a) after the qualified HSA distribution there is a zero balance in the health FSA or
HRA, and the employee is no longer a participant in any non-HSA compatible health
plan or (b) effective on or before the date of the first qualified HSA distribution the
general purpose health FSA or general purpose HRA written plan is converted to an
HSA-compatible health FSA or HRA, as described in Rev. Rul. 2004-45, for all
participants.
TRANSITION RULE -- QUALIFIED HSA DISTRIBUTIONS FROM GENERAL
PURPOSE HEALTH FSA AND GENERAL PURPOSE HRA BEFORE MARCH 15,2007
An employee with a balance in a general purpose health FSA or general purpose HRA
after December 31,2006 is treated as an eligible individual for HSA purposes as of the
first day of the first month in 2007 that the employee has HDHP coverage on the first
day of the month if:
(1) the employer amends the health FSA or HRA written plan effective on or before
March 15,2007, to allow a qualified HSA distribution,
(2) a qualified HSA distribution from the health FSA or HRA has not been previously
made on behalf of the employee with respect to that particular health FSA or HRA,
(3) the employee has HDHP coverage as of the first day of the month during which the
qualified HSA distribution occurs, and is otherwise an eligible individual,
(4) the employee elects on or before March 15, 2007, to have the employer make a
qualified HSA distribution from the health FSA or HRA to the HSA of the employee,
(5) the qualified HSA distribution from the health FSA or HRA does not exceed the
lesser of the balance of the respective health FSA or HRA on (a) September 21,2006,
or (b) the date of the distribution,
(6) the employer makes the qualified HSA distribution directly to the HSA trustee by
March 15, 2007, but after the employee becomes HSA-eligible, and
6
(7)(a) after the qualified HSA distribution there is a zero balance in the health FSA or
HRA, and the employee is no longer a participant in any non-HSA compatible health
plan or (b) effective on or before the date of the first qualified HSA distribution, the
general purpose health FSA or general purpose HRA written plan is converted to an
HSA-compatible health FSA or HRA, as described in Rev. Rul. 2004-45, for all
participants.
EXAMPLES
The following examples illustrate these rules. All references to balances in the following
examples are determined on a cash basis. All grace periods satisfy the requirements of
Notice 2005-42. It is assumed in the examples that, for purposes of § 106(e)(3)(B) and
§ 223(f)(4)(B), no employees are disabled.
Permanent Rule Examples
Example 1. For 2007, Employer Z has a calendar year general purpose health FSA
with a grace period ending March 15, 2008. For 2007, Employee A timely elects salary
reduction of $500 for the general purpose health FSA. Employer Z offers employees
the option of electing HDHP coverage for the plan year beginning January 1,2008. On
or before December 31,2007, A elects HDHP coverage beginning January 1,2008. On
December 31,2007, A has a zero balance in the health FSA. A is otherwise an eligible
individual on January 1, 2008.
A does not fail to be an eligible individual on January 1, 2008 merely because of the
health FSA grace period.
Example 2. For 2007, Employer Y has a calendar year general purpose health FSA
with a grace period ending on March 15, 2008. Employer Y offers employees the option
of electing HDHP coverage for the plan year beginning January 1, 2008.
Before January 1, 2008, Employer Y amends the health FSA to allow for qualified HSA
distributions. The amended plan allows an employee electing HDHP coverage to also
elect to have any health FSA balance at year-end, determined on a cash basis,
contributed directly to an HSA trustee for the employee. For this purpose, the year-end
balance is the balance of the health FSA without regard to any expenses incurred but
not paid. Under the amendment, if an employee elects the qualified HSA distribution,
the employee cannot submit any additional claims after December 31, 2007, regardless
of when the underlying expense was incurred nor are any claims paid after December
31,2007 even if submitted prior to December 31,2007.
Employee B has a balance of $950 in the health FSA on September 21,2006, and a
balance of $700 on December 31, 2007. On or before December 31, 2007, B elects
HDHP coverage beginning January 1, 2008. B also elects to have a qualified HSA
distribution of the $700 remaining in the health FSA on December 31,2007. Employer
7
Y contributes $700 to an HSA on behalf of B on or before March 15, 2008. B is
otherwise an eligible individual as of January 1, 2008.
Employee C has a balance of $850 on December 31,2007. On or before December 31,
2007, C elects HDHP coverage for 2008. C does not elect to have a qualified HSA
distribution of the $850 remaining in the health FSA on December 31, 2007. C is
otherwise an eligible individual.
B does not fail to be an eligible individual as of January 1, 2008 because after the
qualified HSA distribution B has a zero balance in the health FSA. C is an eligible
individual on April 1, 2008.
Example 3. For 2007, Employer W has a calendar year general purpose HRA.
Employer W offers employees the option of electing HDHP coverage for the plan year
beginning January 1, 2008.
Before January 1, 2008, Employer W amends the HRA to allow for qualified HSA
distributions. The amended HRA allows an employee electing HDHP coverage for the
plan year to also elect to have the lesser of the balance in the HRA on September 21,
2006 or the HRA balance at year-end, determined on a cash basis, contributed directly
to an HSA trustee for the employee. For this purpose, the year-end balance is the
balance of the HRA without regard to any expenses incurred but not paid. Under the
amendment, if an employee elects the qualified HSA distribution, the employee cannot
submit any additional claims after December 31, 2007, regardless of when the
underlying expense was incurred, nor will the HRA reimburse any claim submitted but
unpaid as of December 31,2007. The amendment also provides that an employee who
elects a qualified HSA distribution may also elect to waive participation in the HRA.
Employee D has a balance of $300 in the HRA on September 21,2006, and a balance
of $175 on December 31,2007. On or before December 31,2007, D elects HDHP
coverage for 2008. D also elects to have a qualified HSA distribution of the $175
remaining in the HRA on December 31,2007, and to waive participation in the HRA
effective after December 31,2007. Employer W contributes $175 to an HSA on behalf
of D on or before March 15, 2008. D is otherwise an eligible individual as of January 1,
2008.
Employee E has a balance of $300 in the HRA on September 21,2006, and a balance
of $550 on December 31,2007. On or before December 31,2007, E elects HDHP
coverage for 2008. E also elects to have a qualified HSA distribution of the $300 that
was in the HRA on September 21, 2006. Employer W contributes $300 to an HSA on
behalf of E on March 15, 2008. E is otherwise an eligible individual as of January 1,
2008.
Employee F has a balance of $400 in the HRA on September 21, 2006. On or before
December 31,2007, F elects HDHP coverage for 2008. On June 15, 2008, F has a
balance of $275 in the HRA, and elects to have a qualified HSA distribution of the $275.
8
Employer W contributes $275 to an HSA on behalf of F on August 20, 2008. F is
otherwise an eligible individual as of January 1, 2008.
D does not fail to be an eligible individual as of January 1, 2008 because after the
qualified HSA distribution D has a zero balance in the HRA and does not participate in
any non-HSA compatible HRA. E fails to be an eligible individual after the qualified
HSA distribution, because E has a balance exceeding zero in the HRA after the
distribution. E must include $300 in gross income in 2008, as well as pay an additional
10 percent tax. F fails to be an eligible individual after the qualified HSA distribution,
because F remains a participant in an HRA that is not HSA-compatible until the end of
the HRA plan year. The result is the same regardless of whether F waived participation
in the HRA after June 15, 2008. Thus, F must include $275 in gross income in 2008, as
well as pay an additional 10 percent tax.
Example 4. The same facts as Example 3, except Employer W converted the general
purpose HRA to an HSA-compatible retirement HRA for all employees effective January
1,2008.
Employee G has a balance of $275 in the HRA on September 21 , 2006, and a balance
of $700 on December 31,2007. On or before December 31,2007, G elects HDHP
coverage beginning January 1, 2008. G is otherwise an eligible individual as of January
1, 2008. G also elects to have a qualified HSA distribution of the $275 that was in the
HRA on September 21, 2006. Employer W contributes $275 to an HSA on behalf of G
on or before March 15, 2008. G has a balance of $425 in a retirement HRA and
remains an active employee.
G is an eligible individual as of January 1, 2008, because the HRA G participates in is
HSA-compatible.
Example 5. Employer V has a fiscal year general purpose health FSA with a grace
period. The fiscal year of the health FSA is October 1 - September 30. The grace
period ends on December 15. For the plan year beginning October 1,2007, Employer
V offers employees the option of electing HDHP coverage.
In December 2006, Employer V amends the health FSA to allow for qualified HSA
distributions. The amended plan allows an employee electing HDHP coverage for the
plan year to also elect to have any health FSA balance at the end of the plan year,
determined on a cash basis, contributed directly to an HSA trustee for the employee.
For this purpose, the plan-year-end balance is the balance of the health FSA without
regard to any expenses incurred but not paid. If an employee elects the qualified HSA
distribution, the employee cannot submit any additional claims after September 30,
2007, regardless of when the underlying expense was incurred. The health FSA does
not reimburse claims submitted but unpaid as of September 30,2007.
Employee H has a balance of $600 in the health FSA on September 21, 2006, and a
balance of $500 on September 30,2007. On or before September 30,2007, H elects
9
HDHP coverage for the plan year beginning October 1,2007. H also elects to have a
qualified HSA distribution of the $500 remaining in the health FSA on September 30,
2007. Employer V contributes $500 to an HSA on behalf of H on or before December
15,2007. H is otherwise an eligible individual as of October 1,2007.
H does not fail to be an eligible individual as of October 1, 2007 because after the
qualified HSA distribution H has a zero balance in the health FSA.
Example 6. The same facts as Example 5, except Employer V has a limited purpose
health FSA.
Employee I has a balance of $2,000 in the limited purpose health FSA on September 21,
2006, and a balance of $3,000 on September 30,2007. On or before September 30,
2007, I elects HDHP coverage for the plan year beginning October 1,2007. I also
elects to have a qualified HSA distribution of $2,000 that was in the health FSA on
September 21, 2006. Employer V contributes $2,000 to an HSA on behalf of I on or
before December 15, 2007. I has a balance of $1,000 in a limited purpose health FSA.
I is otherwise an eligible individual as of October 1,2007.
I does not fail to be an eligible individual because I participates in an HSA-compatible
health FSA.
Example 7. For 2007, Employer U has a calendar year general purpose health FSA
with a grace period ending on March 15, 2008. Employer U has a fiscal year health
plan that begins July 1,2007. For the plan year beginning July 1, 2007, Employer U
offers employees the option of electing HDHP coverage.
Before January 1, 2008, Employer U amends the health FSA to allow for qualified HSA
distributions. The amended plan allows an employee electing HDHP coverage to also
elect to have any health FSA balance at year-end, determined on a cash basis,
contributed directly to an HSA trustee for the employee. For this purpose, the year-end
balance is the balance of the health FSA without regard to any expenses incurred but
not paid. Under the amendment, if an employee elects the qualified HSA distribution,
the employee cannot submit any additional claims after December 31, 2007, regardless
of when the underlying expense was incurred. The health FSA does not pay claims
submitted but unpaid as of December 31,2007.
Employee J has a balance of $500 in the health FSA on September 21,2006, and a
balance of $400 on June 30,2007. On or before June 30, 2007, J elects HDHP
coverage for the immediately following health plan year. J also elects to have a
qualified HSA distribution of $400 that was in the health FSA on June 30, 2007.
Employer U contributes $400 to an HSA on behalf of J on or before September 15,
2007. J is an otherwise eligible individual as of July 1,2007.
J fails to be an eligible individual after the distribution because J's participation in a
health FSA is not disregarded coverage until January 1, 2008, even though the qualified
10
HSA distribution reduces the balance of the health FSA to zero. J must include $400 in
his gross income for 2007, and pay an additional 10 percent tax. J is an eligible
individual on January 1, 2008.
Example 8. For 2007, Employer T has a calendar year general purpose health FSA
with a grace period ending on March 15, 2008. Employer T offers employees the
option of electing HDHP coverage for the plan year beginning January 15, 2008.
Before January 1, 2008, Employer T amends the health FSA to allow for qualified HSA
distributions. The amended plan allows an employee electing HDHP coverage to also
elect to have any health FSA balance at year-end, determined on a cash basis,
contributed directly to an HSA trustee for the employee. For this purpose, the year-end
balance is the balance of the health FSA without regard to any expenses incurred but
not paid. Under the amendment, if an employee elects the qualified HSA distribution,
the employee cannot submit any additional claims after December 31,2007, regardless
of when the underlying expense was incurred. The health FSA does not pay claims
submitted but unpaid as of December 31,2007.
Employee K has a balance of $1 ,000 in the health FSA on September 21,2006, and a
balance of $700 on December 31,2007. On or before December 31,2007, K elects
HDHP coverage for the plan year beginning January 15, 2008. K also elects to have a
qualified HSA distribution of the $700 remaining in the health FSA on December 31,
2007. Employer T contributes $700 to an HSA on behalf of K after February 1,2008,
but before March 15, 2008. K is otherwise an eligible individual as of January 15, 2008.
Employee L has a balance of $175 in the health FSA on September 21, 2006, and a
balance of $150 on December 31 , 2007. On or before December 31, 2007, L elects
HDHP coverage for the plan year beginning January 15, 2008. L also elects to have a
qualified HSA distribution of the $150 remaining in the health FSA on December 31,
2007. Employer T contributes $150 to an HSA on behalf of L on January 25, 2008.
K does not fail to be an eligible individual because K has a zero balance in the health
FSA after the qualified HSA distribution. K is eligible to contribute to the HSA as of
February 1,2008. L is not an eligible individual at the time of the distribution because L
does not have HDHP coverage on the first day of January. L must include $150 in
gross income in 2008, and pay an additional 10 percent tax. As of February 1, 2008, L
is an eligible individual because L has HDHP coverage and no other health plan
coverage that is not an HDHP, is not enrolled in Medicare, and cannot be claimed as a
dependent on another person's tax return.
Transition Rule Examples
Example 9. For 2006, Employer S has a calendar year general purpose health FSA
with a grace period ending on March 15, 2007. Employer S offers employees the option
of electing HDHP coverage for the plan year beginning January 1,2007.
11
Employer S amends the health FSA to allow for qualified HSA distributions. The
amended plan allows an employee electing HDHP coverage to also elect to have any
health FSA balance at year-end, determined on a cash basis, contributed directly to an
HSA trustee for the employee. For this purpose, the year-end balance is the balance of
the health FSA without regard to any expenses incurred but not paid. During the period
from January 1,2007 to March 15, 2007, an employee electing HDHP coverage for
2007 may elect a qualified HSA distribution of the health FSA balance. The amount of
the qualified HSA distribution is determined on a cash basis on the date of the
distribution.
Employee M has a balance of $850 on December 31,2006. On or before December 31,
2006, M elects HDHP coverage beginning January 1, 2007. M does not elect to have a
qualified HSA distribution of the $850 remaining in the health FSA on December 31,
2006. M incurred $850 of § 213(d) expenses after January 1 and the health FSA
reimbursed M for that amount. M's health FSA balance is zero on January 22, 2007. M
is otherwise an eligible individual as of January 1, 2007.
Employee N has a balance of $800 in the health FSA on September 21,2006, and a
balance of $200 on December 31,2006. On or before December 31,2006, N elects
HDHP coverage beginning January 1,2007. During January 2007, the health FSA
reimburses N for $50 in § 213(d) medical expenses. On February 12, 2007, N elects to
have a qualified HSA distribution of the remaining health FSA balance of $150.
Employer S contributes $150 to an HSA on behalf of N on or before March 15, 2007. N
is otherwise an eligible individual as of January 1, 2007.
Employee 0 has a balance of $300 in the health FSA on September 21,2006, and a
balance of $175 on December 31,2006. On or before December 31,2006, 0 elects
HDHP coverage for 2007. On or before March 15, 2007, 0 also elects to have a
qualified HSA distribution of the $175 remaining in the health FSA on December 31,
2006. Employer S contributes $175 to an HSA on behalf of 0 on or before March 15,
2007. 0 is otherwise an eligible individual as of January 1,2007.
M has disqualifying coverage by the health FSA until April 1, 2007 because M neither
had a zero balance in the FSA on December 31,2006 nor did M have a zero balance
following a qualified HSA distribution on or before March 15,2007. N is an eligible
individual as of January 1, 2007 because after the qualified HSA distribution N has a
zero balance in a health FSA. 0 is an eligible individual as of January 1,2007, because
after the qualified HSA distribution 0 has a zero balance in a health FSA.
Example 10. The same facts as Example 9, except M and N incurred their respective
$850 and $50 in § 213(d) medical expenses in December 2006. M and N submitted the
expenses and were reimbursed from the health FSA for the expenses after January 1,
2007 and before February 1, 2007. On February 12, 2007, N elects to have a qualified
HSA distribution of the remaining health FSA balance of $150. Employer S contributes
$150 to an HSA on behalf of N on or before March 15,2007. N is otherwise an eligible
individual as of January 1, 2007.
12
M has disqualifying coverage by the health FSA until April 1, 2007, because M neither
has a zero balance in the FSA on December 31,2006 nor did M have a zero balance
following a qualified HSA distribution on or before March 15,2007. N is an eligible
individual as of January 1, 2007 because after the qualified HSA distribution N has a
zero balance in a health FSA.
Examples of Additional 10 Percent Tax
Example 11. Employee P, who is 32 years old, has HDHP coverage as of January 1,
2008. P elects to have a qualified HSA distribution on or before December 31,2007.
On or before March 15, 2008, P's employer contributes $250 from a general purpose
health FSA to an HSA on behalf of P in a qualified HSA distribution meeting the
requirements of section 302 of the Act and this Notice. Following the qualified HSA
distribution, P has a balance of zero in the general purpose health FSA.
In July 2008, P terminates employment with Employer R, and begins employment with
Employer Q. Employer Q does not offer an HDHP. P obtains health coverage under a
low deductible health plan, and ceases to be an eligible individual for HSA purposes. P
must include the $250 qualified HSA distribution in his gross income for 2008, and pay
an additional 10 percent tax under § 106(e)(3) of the Code. P does not have to
withdraw the $250 from his HSA, and the amounts in the HSA may grow tax-free.
Example 12. The same facts as Example 11, except in February 2009, P uses $200
from his HSA for a nonqualified medical expense. The $200 is included in P's gross
income for 2009 and is subject to an additional 10 percent tax under § 223(f)(4) of the
Code.
Example 13. The same facts as Example 12, except P uses $200 from his HSA for a
qualified medical expense. The $200 is not included in P's gross income, and there is
no additional tax.
NO EFFECT ON HSA ESTABLISHMENT DATE
Qualified medical expenses for HSA purposes are only expenses incurred after the HSA
is established. Notice 2004-2, 2004-1 C.B. 269, Q&A-26. While this notice provides
that certain individuals are treated as eligible individuals as of the first day of the plan
year, those rules do not treat an HSA as established before the actual establishment of
the HSA.
State trust law determines when an HSA is established. Most state trust laws require
that for a trust to exist, an asset must be held in trust; thus, most state trust laws require
that a trust must be funded to be established.
REPORTING
13
Amounts transferred through a qualified HSA distribution are not reported in box 12 of
Form W-2. Employers are not responsible for reporting whether an employee receiving
a qualified HSA distribution remains an eligible individual during the testing period.
However, employers must report qualified HSA distributions as rollover contributions to
the HSA trustee, and the HSA trustee must report the qualified HSA distribution as a
rollover contribution on Form 5498-SA.
EFFECTIVE DATE
The provision in the Act allowing qualified HSA distributions from health FSAs and
HRAs is effective on or after December 20, 2006, and before January 1, 2012.
EFFECT ON OTHER DOCUMENTS
Published guidance under § 105(b) states that if any person has the right to receive
cash or any other taxable or nontaxable benefit under a health FSA or HRA, other than
the reimbursement of § 213(d) medical expenses of the employee, employee's spouse
or employee's dependents, then all distributions made from the arrangement are
included in the employee's gross income, even amounts paid to reimburse medical care.
See Rev. Rul. 2006-36, 2006-36 I.R.B. 353; Rev. Rul. 2005-24, 2005-1 C.B. 892; Rev.
Rul. 2003-102, 2003-2 C.B. 559; Notice 2002-45, 2002-2 C.B. 93; Rev. Rul. 2002-41,
2002-2 C.B. 75; Rev. Rul. 69-141,1969-1 C.B. 48. New § 106(e) provides that a health
FSA or HRA will not fail to satisfy the requirements of §§ 105 or 106 merely because the
plan provides for a qualified HSA distribution. Amounts rolled into an HSA may be used
for purposes other than reimbursing the § 213(d) medical expenses of the employee,
spouse or dependents. Accordingly, Rev. Rul. 2006-36, Rev. Rul. 2005-24, Rev. Rul.
2003-102, Notice 2002-45, Rev. Rul. 2002-41, and Rev. Rul. 69-141 are modified with
respect to qualified HSA distributions described in § 106(e). In addition, Notice 2005-86,
2005-2 C.B. 1075, is modified effective as of December 20, 2006.
DRAFTING INFORMATION
The principal author of this notice is Leslie R. Paul of the Office of Division
Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For further
information regarding this notice contact Ms. Paul at (202) 622-6080 (not a toll-free call).
14
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February 15, 2007
HP-265
Steel Statement on GAO Basel II Report
Treasury Under Secretary for Domestic Finance Robert K. Steel released the
following statement today regarding the release of the Government Accountability
Office's (GAO) report on the Basel" Accord.
"Treasury is pleased that the GAO report supports the banking regulators moving
forward to finalize the Basel" rules. The time has come to act; we urge the
regulators to reach a consensus quickly."
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February 16, 2007
HP-266
Remarks of Treasury Under Secretary for
International Affairs Timothy D. Adams
before the Asia Society Houston Center
Annual Conference:
U.S.-Indian Relations: Doing Business Opportunities and Challenges
Houston, Texas - I would like to thank the Asia Society for welcoming me back to
Houston. I last spoke to this group less than a year ago, not long after a two-week
visit to Asia. My comments focused largely on China and its importance to the
global economy. It's fitting that I should return to discuss another great economic
"success story" in Asia. Large emerging markets like China and India are
becoming increasingly important engines of global growth. At the same time, they
bear an increasing responsibility to take actions that enhance growth and stability.
Before I begin my specific comments on India, I'd like to set a framework by
spending a few minutes on the state of the global economy. The global economy
grew by about five percent last year, marking four consecutive years of solid
growth. The world has not witnessed such balanced and consistent growth in
decades. And, the global economic outlook for 2007 remains broadly positive.
Much of the global economy's success is due to the positive effects of
globalization. One key has been a removal of barriers to international trade and
investment, which has helped global trade and investment surge by over 60 percent
since 2000 Opening markets to competition helps raise economic performance in
a number of ways. It encourages workers and firms to invest in productivity, and it
encourages policymakers to take pro-market measures that promote their
economies' competitiveness.
India is playing a growing role in global trade and investment, and the U.S.-India
economic relationship has become deeper. Annual U.S. exports to India have more
than doubled since 2000, while annual imports from India are up by 75 percent.
The value of U.S direct investment in India has more than tripled over the last five
years from $2.4 billion in 2000 to $8.5 billion at the end of 2005.
Enhanced bilateral trade and investment have benefited both India and the United
States. I have made several trips to India in the past five years and have witnessed
the country's dramatic economic transformation. India's annual GDP growth now
exceeds nine percent, putting it second behind China as a major emerging market,
and Indian growth has been over eight percent for the past three years. The
country's economic performance has reduced the poverty rate from almost 40
percent to under 30 percent in a decade. Adult literacy rates and primary school
completion rates have also increased, and technology has become more widely
available. Cell phone usage increased 14-fold in the last four years and almost
doubled in the last year alone, while internet use has Increased by a factor of ten
since the year 2000. India's commitment to growth is reaping huge social dividends
for its people.
India's strong growth could not have occurred without government policies to open
the country to competition. India's efforts at economic liberalization began in the
early-1990s when current Prime Minister Singh was the Finance Minister. The
government reduced trade tariffs, with the peak rate on nonagricultural goods falling
from 150 percent in 1991 to about 13 percent today. India also eased non-tariff
barriers, eliminating licensing restrictions on raw materials and intermediate and
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capital goods. The rewards of these policies have been clear: since 1990, India's
total trade has grown from less than 15 percent to nearly 40 percent of GOP.
Ir.ldia has also taken steps to relax controls on foreign investment and borrowing In
the 1990s, India began to permit greater foreign investor participation in the stock
market while expanding the number of sectors open to foreign direct investment.
The government also allowed Indian firms to borrow money abroad with fewer
restrictions. Reduction of these barriers to capital flows has lowered the cost of
capital and helped Indian businesses benefit from the transfer of skills and
technology.
India's reforms have brought it success in the global economy, but globalization
also presents new challenges. To modernize and compete effectively in a changing
global economy, India needs to focus on three things: (1) further reducing barriers
to trade and investment, (2) liberalizing and modernizing its financial sector; and (3)
improving its business climate. These are three themes that I have emphasized in
our official dialogues with Indian policymakers.
Regarding trade and investment, India has made progress but stili has a long way
to go. Despite its size, India still accounts for less than two percent of world trade,
which is just one-third of China's role. India's stock of foreign direct investment is
less than half the size of FDI in China, Russia, or Brazil when measured as a share
of GOP.
The Doha round of trade talks provides India and other major economies with an
opportunity to further reduce trade barriers and enjoy substantial economic
benefits. For Doha to be a success, all major trading countries need to make
strong market access commitments in agriculture, manufacturing, and services,
including financial services. Large developing countries such as India, Brazil, and
China bear a special responsibility as major players in the world economy. They
need to contribute by substantially cutting their applied tariffs on agricultural and
manufactured goods. Despite reductions to date, India's tariff rates remain well
above those In other advanced developing countries. Substantial progress on
services must also be integral part of a successful Doha round.
On the investment side, India is making progress in reducing barriers to foreign
direct investment. India now permits full foreign investment in a range of industries
including many manufacturing sectors and urban infrastructure, but it retains
significant barrrers in others, including retail trade and the financial sector.
In the financial sector, India has taken some steps to open the banking, securities
and mutual funds industries to foreign participation. However, compared to other
emerging markets, India IS still quite restrictive, and government ownership of the
financial sector remains high. These restrictions need to be lifted If India is to build
the world-class financial center it needs to sustain future growth.
India would gain tremendously from an open and competitive financial sector that
expanded access to financial services for both individuals and firms. Today, more
than 70 percent of India's population has no access to banking or financial serVices,
and only three percent has insurance coverage. India's banking sector would also
benefit from the transfer of skills. India needs insurance and pension firms to
provide capital for its equity and bond markets, as they do in the United States. A
recent report by the McKinsey Institute concluded that financial sector reforms in
India could free up $48 billion of capital per year. India needs those funds to build
its infrastructure, invest in its people's education, and reduce poverty
To promote growth and reduce poverty, India also needs to strengthen its business
and regulatory environment, which will support domestic and foreign investment
and foster private sector activity. In this respect, India currently ranks quite low.
The World Bank in its annual report on bUSiness climate conditions rates India as
#134 of 175 economies. Key steps that India can take Include: improVing Investor
protection, creating more transparent regulatory and tax regimes, enforCing
commercial contracts, and creating a more flexible labor market. Capital is a
coward. It flees from abuse and goes to where It is treated well.
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Page 3 of3
The same policy steps that will benefit Indian growth will also help American
businesses, increase trade, and create jobs in both of our two economies. With
that fact in mind, the U.S. government's engagement with India IS arguably at an alltime high. The President traveled to India last March and advanced the strategic
partnership between our two nations by improving cooperation on energy and the
environment, security, and technology The President and Prime Minister Singh
gave great priority to economic issues and outlined an ambitious vision for further
trade and investment links.
We help to advance that vision through a U.S.-India Economic Dialogue, under
which U.S. and Indian agencies promote necessary reforms with a goal of doubling
bilateral trade within three years. Private sector participants from the United States
and India have been critical contributors to the Dialogue. In late 2005, a U.S.-India
CEO Forum was launched, comprised of ten prominent CEOs from each country,
led by Ratan Tata of the Tata Group and Bill Harrison of JP Morgan. The CEO
Forum recommended a number of policy reforms to President Bush and Prime
Minister Singh last year in areas ranging from infrastructure development to energy
security to human resource development to technology exchange.
Senior policymakers from both countries, including Treasury Secretary Paulson,
met with the CEOs in October to discuss the recommendations and assess the
progress we've made thus far. For example, the Indian government has set up new
institutions to promote infrastructure development On the U.S. side, the State
Department has eliminated the backlog of visa applications from India, and the
Commerce Department has removed impediments to trade in strategic areas. In
December, President Bush signed an historic civil nuclear agreement which will
enable India to access clean energy while JOining the global effort to stop the
spread of nuclear weapons.
Treasury plays an active role in the Economic Dialogue and chairs a "Financial and
Economic Forum" with our Indian counterparts. Our engagement includes
regulators as well as policymakers and tries to address some of the tough technical
issues that impede effective trade and investment on the ground.
Overall, we are enthusiastic about our engagement with India. India's outlook for
growth is quite promising. A recent Goldman Sachs study estimates that the size of
India's economy could surpass our own by 2042. To achieve this potential, India
needs to continue to address the risks to its growth and stability and maintain
competitiveness in a global environment. In particular, it needs to overcome the
protectionist pressures that affect every economy and further improve its
investment climate. If India succeeds, the future will be bright. We believe India's
leaders are committed to strong economic performance, and we look forward to our
future engagement with this dynamic country.
I am looking forward to hearing your views on opportunities and challenges In U.SIndian business relations.
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February 16,2007
HP-267
Treasury Targets Iranian Companies for
Supporting WMD Proliferation
The U.S. Department of the Treasury today designated three Iranian companies
supporting Iran's proliferation of weapons of mass destruction, Kalaye Electric
Company, Kavoshyar Company, and Pioneer Energy Industries Company. This
action was taken pursuant to Executive Order 13382, which is aimed at exposing
and financially isolating proliferators of WMD and their supporters.
"Treasury is taking this action to deny Iran access to the materials and services that
support its nuclear ambitions," said Stuart Levey, Under Secretary for Terrorism
and Financial Intelligence (TFI). "This designation is consistent with our
International obligations under UN Security Council Resolution 1737."
Designations under E.O 13382 prohibit all transactions between the designees and
any U.S person and freeze any assets the designees may have under U.S.
jurisdiction.
The entities designated today are either owned or controlled by the Atomic Energy
Organization of Iran (AEOI) or acting for or on its behalf. President George W. Bush
designated the AEOI in the Annex to Executive Order 13382, effective June 29,
2005. The AEOI manages Iran's overall nuclear program and reports directly to the
Iranian President. The AEOI is the main Iranian institute for research and
development activities in the field of nuclear technology, Including Iran's centrifuge
enrichment program and experimental laser enrichment of uranium program.
Kalaye Electric Company has been linked to Iran's centrifuge research and
development efforts. Kalaye is also listed in the Annex to UN Security Council
Resolution 1737 because of its involvement in Iran's nuclear program. Kavoshyar
Company's sole shareholder is AEOI. Pioneer Energy Industries Company
provides services to AEOI, including technological support.
Background on E,Q, 13382
Today's action builds on President Bush's issuance of E.O. 13382, effective June
29, 2005. Recognizing the need for additional tools to combat the proliferation of
WMD, the President signed the E.O. authorizing the imposition of strong financial
sanctions against not only WMD proliferators, but also entities and individuals
providing support or services to them.
In the Annex to E.O. 13382, the President identified eight entities operating in North
Korea, Iran, and Syria for their support of WMD proliferation. E.O. 13382 authorizes
the Secretary of the Treasury, in consultation with the Secretary of State, the
Attorney General, and other relevant agencies, to designate additional entities and
individuals providing support or services to the entities identified in the Annex to the
Order.
In addition to the entities Identified In the Annex to E.O 13382, the Treasury
Department has designated twenty three entitles and two individuals as proliferators
of WMD, specifically:
•
•
Eight North Korean entities on October 21, 2005;
Two Iranian entities on January 4, 2006:
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•
•
•
•
•
•
One Swiss individual and one Swiss entity tied to North Korean proliferation
activity on March 30, 2006;
Four Chinese entities and one U.S. entity tied to Iranian proliferation activity
on June 8, 2006;
Two Iranian entities on July 18, 2006;
Three Syrian entities on January 4, 2007;
One Iranian entity, one British entity, and one Individual tied to Iranian
missile proliferation on January 9, 2007; and
Three Iranian entities on February 16, 2007.
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February 16, 2007
HP-268
Statement of licensing Policy for Two
Specially
Designated Entities in Colombia
The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC)
adopted a policy to consider the issuance of specific licenses, on a case-by-case
basis, authorizing US. suppliers to engage in certain transactions with two
Colombian Government-controlled entities previously named as Specially
Designated Narcotics Traffickers (SDNTs) .
•
•
G.L.G. SA (NIT # 800023807-8)
Ramal SA (NIT # 800142109-5)
Both G.L.G. SA and Ramal SA manage certain aspects of the SDNT Casa
Estrella department store, a Colombian department store chain located in Bogota
and Call, Colombia.
Designated by OFAC in 2005 as part of the North Valle drug cartel's financial
network, the Government of Colombia took control of these companies in August
2006. By establishing this licensing policy, OFAC is enabling these entities continue
to operate legitimately under the control of the Colombian government. OFAC
continues to work closely with Colombian officials to monitor the situation.
U.S. suppliers seeking a license to sell products to these companies should submit
a written license application in accordance with 31 CFR § 501.801 (b) to the Office
of Foreign Assets Control, Licensing Division, U.S. Department of the Treasury,
1500 Pennsylvania Avenue, NW - Annex, Washington, DC 20220.
In addition to the information required by 31 CFR § 501.801 (b)(3), the application
must include a detailed description of the proposed transactions and a purchase
request from either of the aforementioned companies, signed by the appropriate
Government of Colombia official, that specifies the types of products to be
purchased and the account(s) from which payment will be made. licensees under
the policy will be required to submit detailed reports regarding the transactions
authorized by the license. Questions regarding this poliCy should be directed to
OFAC's Licensing Division at (202) 622-2480.
A copy of the licensing policy may be accessed here:
http /!wwwtredsIJlY ljl)v'ClIIll:I:,,','llf()ru?rlll:1l1/0IdC Ilr(JUlilrllS!lFlrC(),~,dll Ire: pol iJ21fj07 pdf
For more information on similar licensing policies issued by OFAC, please visit the
following links.
I1ltp.i:wwW trezlS uov/pre;c~/rcll;;I:-'cs Js2h.fi3.fltrn (July 2005)
http /Iwww tlf:ilSCjovfprcc",'rc,Ic;;I:;r;:"',J:-,211J2htm (Nov 2004)
http://www.treas.gov/press/releases/hp268.htm
3/1/2007
Page 1 of 1
February 20, 2007
HP-269
Treasury, Education to Host Summit on Improving
U,S. Students' Financial Literacy
The U.S. Treasury and Education Departments will team up this week for a two-day
summit to discuss the challenges and possible solutions to Improving youth
financial literacy. The summit, which will address financial education for
Kindergarten through postsecondary students, will be held at the Department of
Education on day one and at the Treasury the second day.
The U.S. Treasurer Anna Escobedo Cabral and Education Deputy Secretary
Raymond Simon will jOin other Treasury and Education officials as featured
speakers at the event. Summit participants will discuss challenges such as finding
room for financial education in America's schools.
The meeting is open to the media. Media without Treasury press credentials
should contact Frances Anderson in advance for entrance to the Treasury
Department at (202)622-2960, or il,llKes iJllcierson(rlido treas.gov with the following
information: name, Social Security number, and date of birth.
Who
Education Deputy Secretary Raymond Simon
U.S. Treasurer Anna Escobedo Cabral
Treasury Deputy Assistant Secretary Dan lannicola, Jr.
Education Assistant Deputy Secretary Morgan Brown
Emil W. Henry, Jr., Assistant Secretary for Financial Institutions
What
Two-Day Summit on K- Postsecondary Financial Education
When
Wednesday, February 21,10:00 a.m.
Where
Department of Education
400 Maryland Ave, SW
Washington, DC
Thursday
February 22,9:00 a.m.
Treasury Department
Cash Room
1500 Pennsylvania Avenue
Washington, DC
http://www .treas.gov /press/releases/hp269 .htrn
3/1/2007
Page 1 of 1
February 20, 2007
HP-270
U.S., Bulgaria To Sign Tax Treaty, Strengthen Economic Relationship
Deputy Secretary of the Treasury Robert M. Kimmitt and Bulgarian Finance Minister
Pia men Orescharski will sign an Income tax treaty and protocol. The treaty will
strengthen economic relations between the United States and Bulgaria by generally
reducing the rates of taxation on cross-border dividend, interest and royalty
payments, and providing for better exchange of information between the two
countries, including bank information.
The meeting is open to the media. Media without Treasury press credentials
should contact Frances Anderson in advance for entrance to the Treasury
Department at (202) 622-2960, or Ir;lIlccs illlcierSOll(!£lcJo.treils <]0\1 with the
following information: name, Social Security number and date of birth.
Who:
Treasury Deputy Secretary Robert M. Kimmitt
Plamen Orescharski, Minister of Finance of the Republic of Bulgaria
H.E. Elena Poptodorova, Bulgarian Ambassador to the United States
What:
Tax Treaty and Protocol Signing
Where:
U.S. Department of the Treasury
Diplomatic Reception Room (3311)
1500 Pennsylvania Ave.
Washington, D.C. 20220
When:
Friday, February 23, 2:00 p.m.
http://www.treas.gov/press/releases/hp270.htm
3/112007
Page 1 of 2
February 20, 2007
HP-271
Treasury Designates Hizballah's Construction Arm
The U.S Department of the Treasury today designated Jihad al-Bina, a Lebanonbased construction company formed and operated by Hizballah. Jihad al-Bina
receives direct funding from Iran, is run by Hizballah members, and is overseen by
Hizballah's Shura Council, at the head of which sits Hizballah Secretary General
Hassan Nasrallah.
"Hizballah operates Jihad al-Bina for its own construction needs as well as to attract
popular support through the provision of civilian construction services," said Stuart
Levey, Treasury's Under Secretary for Terrorism and Financial Intelligence (TFI).
"We will take action against all facets of this deadly terror group."
Jihad al-Bina has used deceptive means to seek funding for projects from
international development organizations. In cases when Intended solicitation
targets were thought to Object to the group's relationship with Hizballah and the
Iranian government, the organization employed deceptive practices, applying in the
name of proxies not publicly linked to Hizballah. Following the summer 2006
conflict with Israel, Hizballah used Jihad al-Bina to raise funds for the terrorist
organization and to bolster the group's standing by providing construction services
in Southern Lebanon.
"At the same time that we are targeting Hizballah's construction company, the U.S.
Government is also working to ensure that legitimate reconstruction efforts, led by
the Lebanese Government, succeed," Levey continued.
In addition to the $230 million in humanitarian reconstruction and security
assistance pledged by President Bush in August 2006, Secretary of State
Condoleezza Rice announced an additional $770 million in aid to Lebanon at the
January 25, 2007 Lebanon Donors' Conference in Paris, France. The aim of this
assistance is to help all the Lebanese people rebuild their lives and country, while
strengthening Lebanon's sovereign, democratic government and helping to ensure
lasting peace.
Today's action prohibits transactions between U.S persons and the deSignated
entities and also freezes any assets those entities may have under U.S jurisdiction.
Identifying Information
Jihad al-Bina
AKAs: Jihad al-Binaa'
Jihadu-I-Binaa
Construction for the sake of the holy struggle
Construction Jihad
Struggle for Reconstruction
Jihad Construction Institution
Jihad Construction Foundation
Jihad al Binaa Association
Holy Construction Foundation
Jihad Construction
Location:
Beirut, Lebanon
Bekaa Valley, Lebanon
Southern Lebanon
Background on Hizballah
http://www.treas.goy/press/releases/hp271.htm
3/1/2007
Page 2 of2
Hizballah is a Lebanon-based terrorist group, which, until September 11, 2001, was
responsible for more American deaths than any other terrorist organization.
Hizballah is closely allied with Iran and often acts at its behest, but it also can and
does act independently. Though Hlzballah does not share the Syrian regime's
secular orientation, the group has been a strong ally In helping Syria advance its
political objectives in the region
Iran and Syria provide significant support to Hlzballah, giving money, weapons and
training to the terrorist organization. In turn, Hizballah is closely allied with and has
an allegiance to these states. Iran is Hizballah's main source of weapons and uses
its Islamic Revolutionary Guards Corps to train Hizballah operatives in Lebanon and
Iran. Iran provides hundreds of millions of dollars per year to Hizballah.
The MaJlis al-Shura, or Consultative Council, is the group's highest governing body
and has been led by Secretary General Hasan Nasrallah since 1992. Hizballah is
known or suspected to have been involved in numerous terrorist attacks throughout
the world, including the suicide truck bombings of the U.S. Embassy and U.S.
Marine Corps barracks in Beirut in 1983 and the U.S. Embassy annex in Beirut in
September 1984. Hizballah also perpetrated the 1985 hijacking of TWA Flight 847
en route from Athens to Rome, and has been implicated in the attacks on the Israeli
Embassy in Argentina in 1992 and a Jewish cultural center in Buenos Aires in 1994.
The U.S. Government has indicted a member of Hizballah for his partiCipation in the
June 1996 truck bomb attack of the U.S. Air Force dormitory at Khobar Towers in
Saudi Arabia. Most recently, in July 2006 Hizballah terrorists kidnapped two Israeli
soldiers, triggering a violent conflict that resulted in hundreds of civilian casualties in
Lebanon and Israel.
On January 25, 1995, the Annex to the Executive Order 12947 listed Hizballah as a
Specially Designated Terrorist (SDT). The Department of State deSignated
Hizballah as a Foreign Terrorist Organization (FTO) In 1997. Additionally, on
October 31,2001, Hizballah was designated as a Specially Designated Global
Terrorist under Executive Order 13224.
Please visit the following links for more information on the Treasury's efforts
to stem the flow of support to Hizballah.
Treasury Targets Hizballah Fundraising Network in the Triple Frontier of
Argentina, Brazil, and Paraguay (December 2006)
Illlp !!www Irc~lsury.(Jov'plcss'rcl(?;]scs·llpl(J() 111m
Treasury Cuts Iran's Bank Saderat Off From U.S. Financial System
(September 2006)
1111)) !/www II ras (]()vil Ir(~ss· r'~I(;,IC;Cs.llpi.17 111111
Treasury Designation Targets Hizballah's Bank (September 2006)
I1llp .'WWW IrC'dS CJ()'j!plc:,s!l'~I";lses'ilp83 111m
Treasury Designates Key Hizballah Fundraising Organization (August 2006)
Ilttp./'www Ir(;~l:,.(Juv ·prcs:,.r,'I'·cI<"'('CI 'Ilp/:l
http://www.treas.gov/press/releases/hp271.htm
111111
3/1/2007
Page I of2
February 21, 2007
2007 -2-21-11-25-35-21503
U.S. International Reserve Position
The Treasury Department today released US reserve assets data for the latest week. As indicated in this table, U.S. reserve assets
totaled $65,604 million as of the end of that week, compared to $64,950 million as of the end of the prior week.
I. Official U.S. Reserve Assets (in US millions)
February 9, 2007
February 16, 2007
64,950
65,604
TOTAL
11~ Foreign Currency Reserves 1
I
Euro
la. Securities
I
I
12,353
I
12,329
Of which. issuer headquartered in the US.
I
I
Yen
I
TOTAL
Euro
I
Yen
TOTAL
II
10,469
I
22,822
12,488
I
10,672
23,160
II
0
I
II
17,428
I
0
I
I
I
II
"I
I
I
I
0
b. Total deposits with:
b.i. Other central banks and BIS
5,099
II
b.ii. Banks headquartered in the US.
12,467
17,667
5,200
0
b.ii. Of which, banks located abroad
0
0
b.iii. Banks headquartered outside the US.
0
0
b.iii. Of which, banks located in the U.S.
0
0
2. IMF Reserve Position 2
4.861
4,889
13. Special Drawing Rights (SDRs) 2
8,798
8,847
4. Gold Stock 3
11.041
11,041
0
0
15. Other Reserve Assets
I
II
II
II. Predetermined Short-Term Drains on Foreign Currency Assets
I
February 9, 2007
I'I
I
Euro
II
Yen
1. Foreign currency loans and securities
II
TOTAL
II
I
0
I
I
February 16, 2007
Euro
I
I
Yen
TOTAL
0
2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the U.S. dollar:
12.a. Short positions
II
II
2.b. Long positions
II
0
II
I
0
II
0
II
3. Other
I
I
0
0
0
III. Contingent Short-Term Net Drains on Foreign Currency Assets
1
I
II
Feb,"a", 9, 2007
Euro
II
tp:llwww.treas.gov!press!reJeasesJ200722 I 11253521503.htm
Yen
I
II
TOTAL
I
Feb,"a", 16,2007
Euro
Yen
TOTAL
II
3/1/2007
Page 2 of2
I
1. Contingent liabilities in foreign currency
0
/I
1.a. Collateral guarantees on debt due within 1
year
I
1.b. Other contingent liabilities
2. Foreign currency securities with embedded
options
r
II
II
13 . Undrawn, unconditional credit lines
0
0
"I
I
'ifdQUarle,ed in the US
II
I
II
II
I
Wdh othe' cent'al banks
b. With banks and other financial institutions
II
II
II
II
II
II
II
II
"II
II
II
II
I
0
I
I
0
I
0
I
I
I
I
II
II
II
c. With banks and other financial institutions
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
I
II
I
I
II
I
II
II
II
I
I
II
0
0
II
II
I
4.a.1. Bought puts
4.a.2. Written calls
4.b. Long positions
14.b.1. Bought calls
14.b.2. Written puts
I
I
II
II
I
I
Notes:
11 Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
(f.OMA), 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 may be subject to revision. Foreign Currency
Reserves for the prior week are final.
21 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 SDRldollar exchange rate for the reporting date. The entries for the latest week reflect any
necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month end.
31 Gold stock is valued monthly at $42.2222 per fine troy ounce.
http://www.treas.gov/press/releases/200722111253521503.htm
3/1/2007
Page 1 of2
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
February 22. 2007
HP-272
Common Approach to Private Pools of Capital
Guidance on hedge fund issues
focuses on systemic risk, investor protection
Washington, DC- The President's Working Group on Financial Markets (PWG)
released a set of principles and guidelines today that will guide US. financial
regulators as they address public policy issues associated with the rapid growth of
private pools of capital, including hedge funds. The agreement among the PWG
and U.S. agency principals, which will serve as a framework for evaluating market
developments, specifically concentrates on investor protection and systemic risk
concerns.
"The President's Working Group believes that public policy toward private pools of
capital should be governed by consistent principles that set out a uniform approach
to specific policy objectives," said Secretary Henry M. Paulson, chair of the group.
"These prrnciples demonstrate that U.S. regulators and policymakers have a unified
perspective and are committed to providing forward-leaning guidance for the
industry and its partiCipants. These guidelines should serve as a foundation to
enhance vigilance and market discipline further, which will strengthen investor
protection and guard against systemic risk. We will continue to monitor
developments in this ever-evolving market with these principles in mind."
The group has designed the prinCiples to endure as financial markets continue to
evolve. They provide a clear but flexible principles-based approach to address the
issues presented by the growth and dynamism of these investment vehicles.
The principles are intended to reinforce the significant progress that has been made
since the PWG last issued a report on hedge funds in 1999 and to encourage
continued efforts along those same lines:
•
Private Pools of Capital: maintain and enhance information, valuation, and
risk management systems to provide market participants with accurate,
sufficient, and timely information.
• Investors: conSider the suitability of investments In a private pool in light of
investment objectives, risk tolerances, and the prinCiple of portfolio
diversification.
• Counterparties and Creditors: commit sufficient resources to maintain and
enhance risk management practices.
• Regulators and Supervisors: work together to communicate and use
authority to ensure that supervisory expectations regarding counterparty risk
management practices and market integrity are met.
The PWG, chaired by the Treasury Secretary and composed of the chairmen of the
Federal Reserve Board, the Securities and Exchange Commission, and the
Commodity Futures Trading Commission, was formed in 1988 to further the goals
of enhancing the integrity, efficiency. orderliness, and competitiveness of financial
markets and maintaining investor confidence. The PWG worked with the Federal
Reserve Bank of New York and the Office of the Comptroller of the Currency in
developing the guidance.
Click 110le for 1110 ,tCJlcelllClll dlllUI)(j
http://www.treas.gov/press/releases/hp272.htm
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3/1/2007
Page 2 of2
ttp:llwww.treas.gmdpre ss/relea s e s /hp272.htm
3/112007
AGREEMENT AMONG PWG AND
U.S. AGENCY PRINCIPALS ON
PRINCIPLES AND GUIDELINES REGARDING PRIVATE POOLS OF CAPITAL
PREAMBLE
The President's Working Group on Financial Markets, in the course of our ongoing review of
market practices and events, has set forth the following fundamental principles that will inform
our approach to private pools of capital. Since we last made a statement on these issues in 1999,
the market has matured and expanded considerably, and these fundamental principles have
increasingly been reflected in best practices. The current regulatory structure, which is also
based on these principles, is working well. As we noted in 1999, "[i]n our market-based
economy, market discipline of risk-taking is the rule and government regulation is the
exception. We look forward to further progress as these principles continue to inform our
actions and strengthen our vibrant capital markets.
II
OVERARCHING PRINCIPLES
1. Private pools of capital bring significant benefits to the financial markets.
However, these pools of capital also present challenges for market
participants and policymakers. Investors, creditors, counterparties, pool
managers, and supervisors must be aware of these challenges, including
those related to some over-the-counter derivatives, and work to address
them. Public policies that support market discipline, participant
awareness of risk, and prudent risk management are the best means of
protecting investors and limiting systemic risk.
2. The vitality, stability and integrity of our capital markets are a shared
responsibility between the private and public sectors. Market discipline
most effectively addresses systemic risks posed by private pools of capital.
Supervisors should use their existing authorities with respect to creditors,
counterparties, investors, and fiduciaries to foster market discipline on
private pools of capital. Investor protection concerns can be addressed
most effectively through a combination of market discipline and regulatory
policies that limit direct investment in such pools to more sophisticated
investors.
INVESTOR PROTECTION PRINCIPLES
3. Private pools of capital can be an appropriate investment vehicle for more
sophisticated investors. Because these pools can involve complex, illiquid
or opaque investments and investment strategies that are not fully
disclosed, the risks associated with direct investment in these pools are
most appropriately borne by investors with the sophistication to identify,
analyze and bear these risks.
3.1
Investors should understand their investments and the corresponding risks, and should not
expose themselves to risk levels they cannot tolerate.
3.2
Sophisticated investors that determine to invest in a private pool of capital should ensure
that the size of their investment is consistent with their investment objectives and the principle of
portfolio diversification.
4. Investors in private pools of capital should obtain accurate and timely
historical and ongoing material information necessary to perform due
diligence regarding the pool's strategies, terms, conditions, and risk
management, thereby enabling such investors to make informed
investment decisions.
4.1
As with all investment products and vehicles, clear and meaningful disclosure is essential
for investors to evaluate properly their investment decisions.
4.2
Investors should evaluate the investment objectives, strategies, risks, fees, liquidity,
performance history, and other relevant characteristics of a private pool.
4.3
Investors should evaluate the pool's managers and personnel, including background,
experience, and disciplinary history. Investors also should assess the pool's service providers
and evaluate their independence from the pool's managers.
4.4
Investors should consider the private pool's manager's conflicts-of-interest and whether
the manager has appropriate controls in place to manage those conflicts.
4.5
Investors should conduct an appropriate analysis regarding the valuation methodology
and performance calculation processes and business and operational risk management systems
employed by a private pool, including the extent of independent audit evaluation of such
processes and systems.
5. Concerns that less sophisticated investors are exposed indirectly to private
pools through holdings of pension funds, fund-of-funds, or other similar
pooled investment vehicles can best be addressed through sound practices
on the part of the fiduciaries that manage such vehicles. These fiduciaries
have a duty under applicable law to act in the best interest of the
beneficiaries. They have an ongoing responsibility to perform due
diligence to ensure that their investment decisions are prudent and
conform to sound practices for fiduciaries. Such pooled investment
vehicles should address any special issues relating to investment in private
2
pools of capital, including the availability of relevant, accurate, and timely
historical and ongoing material information.
5.1
Fiduciaries should consider the suitability of an investment in a private pool within the
context of the overall portfolio and in light of the investment objectives and risk tolerances.
Fiduciary evaluation should include the investment objectives, strategies, risks, fees, liquidity,
performance history, and other relevant characteristics of a private pool.
5.2
Fiduciaries should evaluate the pool's manager and personnel, including background,
experience, and disciplinary history. Fiduciaries also should assess the pool's service providers
and evaluate their independence from the pool's managers. Fiduciaries should consider the
private pool's manager's conflicts-of-interest and whether the manager has appropriate controls
in place to manage those conflicts.
5.3
Fiduciaries should conduct the appropriate due diligence regarding valuation
methodology and performance calculation processes and business and operational risk
management systems employed by a private pool, including the extent of independent audit
evaluation of such processes and systems.
5.4
Fiduciaries that determine to invest in a private pool of capital should ensure that the size
of their investment is consistent with their investment objectives and the principle of portfolio
diversification.
SYSTEMIC RISK PRINCIPLES
6. Market discipline by creditors, counterparties, and investors is the most
effective mechanism for limiting systemic risk from private pools of capital,
which is the possibility that losses at one or more entities could threaten the
stability of the broader financial system.
6.1
Creditors and counterparties of private pools of capital are generally large, sophisticated
financial firms that have the incentives and the expertise to provide effective market discipline.
As institutional investors have become an increasingly important source of capital to private
pools, the potential for market discipline from investors has increased.
6.2
By limiting their own exposures to losses from a default by a private pool, creditors and
counterparties can better protect their own solvency from losses at a private pool. Moreover, the
financing terms provided by creditors and counterparties can be an important constraint on
leverage employed by private pools of capital.
7. Key creditors and counterparties must commit resources and maintain
appropriate policies, procedures, and protocols to define, implement, and
continually enhance best risk management practices. Those policies,
procedures, and protocols should address how the quality of information
3
from a private pool of capital should affect margin, collateral, and other
credit terms and other aspects of counterparty risk management.
7.1
Creditors and counterparties should undertake appropriate and effective due diligence
before extending credit to a private pool of capital and on an ongoing basis thereafter. Due
diligence should include a review of the counterparty's ability to measure and manage its
exposures to market, credit, liquidity, and operational risks. Due diligence should establish the
information flows that will occur during the course of the credit relationship.
7.2
Creditors and counterparties should measure their credit exposures to a private pool of
capital frequently, taking into account the availability of collateral to mitigate both current and
potential future exposures, and should assess the range of uncertainty around their exposure
estimates. Rigorous stress testing should be used to quantify the impact of adverse market
events, both at the level of an individual counterparty and aggregated across counterparties.
Stress tests should take into account potential adverse market liquidity events in which multiple
market participants seek to unwind trades simultaneously.
7.3
The amount of credit exposure to a private pool of capital that creditors or counterparties
assume should reflect the level quantity and quality of available information about the pool, the
extent to which exposures to the pool can be mitigated through margin and other credit terms,
and the amount of capital that the creditors or counterparties have allocated to support the
exposure.
7.4
Information that creditors and counterparties should seek to obtain from a private pool
includes both quantitative and qualitative indicators of a private pool's net asset value,
performance, market and credit risk exposure, and liquidity. The level of detail expected should
respect the legitimate interest of the private pool in protecting its proprietary trading strategies.
Where sufficient information is not forthcoming from a particular private pool, creditors and
counterparties should tighten margin, collateral, and other credit terms.
7.5
Creditors and counterparties should implement and comply with industry sound practices
to strengthen processing, clearing, and settlement arrangements for credit derivatives and other
over-the-counter derivatives. These practices include protocols for issuing and completing trade
confirmations, obtaining prior written consent for assignments, and using cash-settlement
procedures for over-the-counter credit derivatives following a credit event.
7.6
Large exposures to private pools of capital are among the risks that should be reported to
senior management periodically. Senior management should ensure that its firm's aggregate
exposure to such pools is consistent with approved risk tolerance for bearing losses in adverse
markets.
8. Investors in a private pool of capital should carefully evaluate the
strategies and risk management capabilities of the private pool to ensure
that the pool's risk profile is compatible with their own appetites for risk.
4
8.1
Such investors should undertake appropriate and effective due diligence before investing
in a private pool of capital and on an ongoing basis. Due diligence should include a review of
the counterparty's ability to manage its exposures to market, credit, liquidity, and operational
risks. Due diligence should establish the information flows that will occur during the course of
the relationship.
8.2
Such investors should seek assurances that the private pool in which they invest complies
with industry sound practices, including practices for risk management, reporting, and internal
controls.
8.3
Such investors should evaluate the extent to which similarities in strategies pursued by
multiple private pools in which they invest undermine efforts to limit their risks through
diversi fication.
9. Managers of private pools of capital should have information, valuation,
and risk management systems that meet sound industry practices and
enable them to provide accurate information to creditors, counterparties,
and investors with appropriate frequency, breadth, and detail.
9.1
Managers must devote sufficient resources to the creation and maintenance of
information, valuation, and risk management systems to ensure that high quality, material
information can be delivered to creditors, counterparties, and investors in a timely fashion.
9.2
Risk management and valuation policies employed by private pools of capital should
comply with the industry sound practices. Such pools also should implement and comply with
industry sound practices to strengthen processing, clearing, and settlement arrangements for
credit derivatives and other over-the-counter derivatives. These practices include protocols for
issuing and completing trade confirmations, obtaining prior written consent for assignments, and
using cash-settlement procedures for over-the-counter credit derivatives following a credit event.
9.3
The information provided by managers of private pools to their creditors, counterparties,
and investors should adhere to the sound practices articulated in industry guidance. Managers of
private pools of capital should provide information frequently enough and with sufficient detail
that creditors, counterparties, and investors stay informed of strategies, the amount of risk being
taken by the pool, and any material changes.
10. Supervisors should clearly communicate their expectations regarding
prudent management of counterparty credit exposures, including those to
private pools of capital and other leveraged counterparties, who are
increasingly utilizing complex instruments, including certain over-thecounter derivatives and structured securities, such as collateralized debt
obligations. Because key creditors and counterparties to pools are
organized in various jurisdictions, international policy collaboration and
coordination are essential.
5
10.1
Supervisors' expectations with respect to prudent risk management practices should take
into account developments in financial markets and advances in best practices for counterparty
credit risk management. Supervisors should actively monitor such developments and revise their
policies and associated guidance as appropriate in a timely manner. In tum, supervisors should
actively monitor and assess whether policies and procedures measure up to regulatory guidance
and industry efforts to identify best practices.
10.2 Supervisors should take full advantage of both formal and informal channels of
coordination and cooperation across financial industry sectors and international borders when
carrying out their responsibilities related to internationally active financial institutions'
management of exposures to private pools and leveraged counterparties.
6
Page 1 of 1
February 22, 2007
HP-273
Updated
Treasury Secretary Paulson to Deliver
Speech on Trade
Washington, D.C. --Treasury Secretary Henry M. Paulson, Jr. will deliver a speech
hosted by the Economic Club of Washington next month. He will discuss the
importance of free trade flows to U.S. economic growth.
What
Speech on Trade
When
12:00 p.m. (EST) Thursday, March 1,2007
Where
Renaissance Mayflower Hotel
Grand Ballroom
1127 Connecticut Avenue, N .W.
Washington, DC
Note: Media should contact Judi Irastorza, Economic Club of Washington at
pCOln2(,lju)x rlf?t or 703-765-6881 with questions.
http://www.treas.goy/press/releases/hp273.htm
3/1/2007
Page 1 of 1
February 22, 2007
HP-274
Statement by Adam J, Szubin, OFAC Director
On Charges Against Individuals for Fraudulently Violating
Cuba Sanctions
Miami, FLORIDA - Adam J Szubin, Director of the US. Treasury Department's
Office of Foreign Assets Control (OFAC), made the followmg statement today in
response to the unsealing of a criminal complaint charging defendants Victor
Vazquez and David Margolis with conspiracy to violate restrictions on travel to
Cuba. Defendant Vazquez is additionally charged with the making materially false
statements in applications to obtam religious travel licenses to Cuba.
The criminal complaint unsealed today marks an important step in stopping fraud
involved in facilitating violations of restrictions on travel to Cuba.
OFAC issues hundreds of licenses each year to individuals and groups seeking to
engage in legitimate religious activities and programs in Cuba. Those who
fraudulently obtain or traffic in such licenses not only commit a crime, but also
undermine the good works of legitimate religious groups traveling to Cuba.
The Cuban Sanctions Enforcement Task Force, headed by the U.S. Attorney for the
Southern District of Florida, is moving aggressively to stop such violations, pursuing
criminal investigations against those Involved in unlicensed dealings with Cuba,
whether travel, remittances, or other prohibited activities. I commend the Task
Force's efforts to halt this abuse and OFAC will continue to support its activities.
OFAC investigators played a key role in uncovering the activity that is being
exposed today. OFAC has detected abuse among religious license applicants and
the travel providers who service them, including fabricated religious organizations,
ministers, and programs of religious activity.
As today's action demonstrates, OFAC takes the integrity of U.S. sanctions
programs very seriously and will continue to work to safeguard these sanctions
programs against abuse. Those who seek to evade sanctions laws face serious
penalties, both civil and criminal.
For more information on today's action, please visit the website of the United States
Attorney's Office for the Southern District of Florida: /It/{)iWWW usc/oJ (j( iv/usC/o,tls.
For more information on the Cuban Assets Control Regulations, please visit the
following link:
11/111
/WWW/II'.I',II(/'),ll (1(1,1 " , "iI/IIIIJ'III'.I1/IIf,Wlj)I()')I.IIIIS·I'III),1 CII/XI ,',II/mi.
http://www.treas.gov/press/releases/hp274.htm
3/1/2007
Page 1 of 1
February 23, 2007
HP-275
Treasury, Education Host Summit About
Teaching Students Better Money
Management
Washington, D.C.- The U.S. Treasury Department yesterday wrapped up the
national summit to discuss ways to teach America's children about money matters
during their busy school days. Officials from the Treasury and Department of
Education teamed up to host the two-day summit, which focused on Kindergarten
through postsecondary students.
"Research has shown that the earlier kids learn good money habits, the more likely
they'll be to continue those habits as they get older," said US. Treasuer Anna
Escobedo Cabral, yesterday's keynote speaker. "Students in schools across the
country have benefited from the integration of financial education into core
curricula. We must continue to build on this success and give young people the
tools they need to make financially sound choices in the future."
Treasury's panel discussions included state legislators, academics, non-profit and
private sector financial education practitioners. Participants throughout the day
examined state legislative models for implementing financial education programs
into schools and effective methods to tram teachers and to evaluate financial
literacy programs. Challenges included learning how to integrate financial education
into the school day and identifying effective materials and curricula.
But recognizing that financial education is not offered just in schools, panelists also
looked at non-traditional venues that complement classroom activities, such as after
school youth programs. and ways to bridge the traditional education and financial
education communities.
Discussions followed up on Tuesday's panel discussions at the Education
Department. High school and college students, researchers, program coordinators
and teachers from across the country who have participated in financial education
programs shared their perspectives on money management
The summit was part of the 20-agency Financial literacy and Education
Commission's national strategy for improving financial education, called Taking
Ownership of the Future: The National Strategy for Financial Literacy and available
at INWW.lllyrnIJlI';y (jlJv. The summit's findings will be compiled and made available
to educators, policymakers, and the public at large.
http://www.treas.goy/press/releases/hp275.htm
3/1/2007
Page 1 of 1
February 23, 2007
HP-276
Steel to Deliver Speech on PWG Agreement, Hedge Funds
Treasury Under Secretary for Domestic Finance Robert K. Steel will deliver remarks
on Tuesday, February 27 at the Treasury Department The Under Secretary will
discuss the agreement among the President's Working Group on Financial Markets
and U.S. agencies regarding private pools of capital, including hedge funds.
Who
Treasury Under Secretary Robert K. Steel
What
Remarks on the PWG Agreement on Private Pools of Capital
When
Tuesday, February 27 11 :00 a.m. (EST)
Where
Treasury Department
Cash Room
1500 Pennsylvania Avenue, NW
Washington, D.C.
NOTE Media without Treasury press credentials interested in attending the event
should contact Frances Anderson for clearance at (202) 622-2960 or
flcJr1cescll1cJerSOIl((Ildotredc, (JClV with the following information: name, Social
Security number, and date of birth.
http://www.treas.gov/press/releases/hp276.htm
3/1/2007
Page 1 of 1
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
February 23. 2007
HP-277
U.S., Bulgaria Sign Income Tax Treaty,
Strengthen Economic Relationship
Washington, DC -Treasury Oeputy Secretary Robert M. Kimmitt and Bulgarian
Finance Minister Pia men Oresharski signed an income tax treaty and protocol
today, strengthening the two countries' economic relationship.
"This treaty is the first of its kind between the United States and Bulgaria," said
Oeputy Secretary Kimmitt. "It is designed to provide for a better exchange of
information. to foster the continued growth of American businesses, and to
encourage investment in the emerging Bulgarian marketplace."
The treaty is consistent with the U.S model income tax treaty and with treaties that
the United States has with other countries. The treaty generally reduces, but does
not eliminate, the rates of taxation on cross-border dividend, Interest and royalty
payments. However, the treaty generally eliminates withholding when cross-border
dividends are paid to pension funds, and when cross-border interest is paid to the
government of the other country or a financial institution resident in the other
country.
In addition, the treaty contains provisions preventing so-called treaty shopping,
which is the inappropriate use of a tax treaty by third-country residents. The treaty
also contains provisions for the exchange of information between the two countries,
including bank information.
REPORTS
•
•
U.S., Bulgarian Income Tax Treay
U.S.,Bulgarian Income Tax Protocol
http://www.treas.goy/press/releases/hp277.htm
3/1/2007
Protocol
At the signing of the Convention concluded today between the Government of the
United States of America and the Government of the Republic of Bulgaria for the Avoidance of
Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income
(hereinafter referred to as the "the Convention"), the undersigned have agreed upon the
following additional provisions which shall form an integral part of the Convention.
1.
With respect to paragraph 4 of Article 1 (General Scope)
The term "long-term resident" as used in subparagraph b) shall mean any individual
who is a lawful permanent resident of the United States in eight or more taxable years during
the preceding 15 taxable years. In determining whether the threshold in the preceding sentence
is met, there shall not count any year in which the individual is treated as a resident of Bulgaria
under this Convention, or as a resident of any country other than the United States under the
provisions of any other tax treaty of the United States, and, in either case, the individual does
not waive the benefits of such treaty applicable to residents of the other country.
2.
With respect to paragraph 3 of Article 2 (Taxes Covered)
The personal income tax and corporate income tax referred to in subparagraph a) i) and
ii) include the patent tax.
3.
With respect to paragraph 1 of Article 3 (General Definitions)
The term "any other body of persons" as used in subparagraph d) includes an estate,
trust, and partnership.
4.
With respect to Article 4 (Resident)
A company that is or would be a resident of a Contracting State pursuant to that State's
domestic law wi II not be treated as a resident of that State for purposes of the Convention if it is
treated as a resident of a third state pursuant to an income tax convention between that State
2
and the third state.
A person who is liable to tax in respect only of profits attributable to a permanent
establishment in a Contracting State is not liable to tax therein by reason of domicile, residence,
citizenship, place of management, place of incorporation or a criterion of a similar nature.
5.
With respect to Article 7 (Business Profits)
For this purpose, the business profits to be attributed to the permanent establishment
shall include only the business profits derived from the assets used, risks assumed and activities
performed by the permanent establishment.
The principles of the OECD Transfer Pricing Guidelines will apply for purposes of
determining the profits attributable to a permanent establishment, taking into account the
different economic and legal circumstances ofa single entity. Accordingly, any of the methods
described therein as acceptable methods for determining an arm's length result may be used to
determine the income of a permanent establishment so long as those methods are applied in
accordance with the Guidelines. [n determining the amount of business profits attributable to a
permanent establishment, the permanent establishment shall be treated 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. [n the case of an insurance company, there shall be attributed to a
permanent establishment not only premiums earned through the permanent establishment, but
that portion of the insurance company's overall investment income from reserves and surplus
that supports the risks assumed by the permanent establishment.
[n applying Article 7, paragraph 4 of Article 6 (Income from Immovable Property (Real
Property», paragraph 6 of Article 10 (Dividends), paragraph 5 of Article II (Interest),
paragraph 4 of Article 12 (Royalties), paragraph 3 of Article 13 (Capital Gains) and paragraph
2 of Article 20 (Other Income), any income or gain attributable to a permanent establishment
3
during its existence is taxable in the Contracting State where such permanent establishment is
situated even if the payments are deferred until such permanent establishment has ceased to
exist.
6.
With respect to Article 8 (International Traffic)
Profits derived by an enterprise from the transport of tangible 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.
7.
With respect to Articles 11 (Interest) and 12 (Royalties)
The Convention permits positive rates of taxation on interest and royalties. With
respect to interest and royalties deemed to arise in Bulgaria where the beneficial owner of the
income is a resident of the United States under the Convention, the Contracting States agree to
reconsider the provisions of Articles II and 12 at an appropriate time, consistent with the
conclusion of the transition period applicable to interest and royalties deemed to arise in
Bulgaria that are beneficially owned by a resident of the European Union pursuant to Council
Directive 2003/49/EC of3 June 2003 on a common system of taxation applicable to interest
and royalty payments made between associated companies of different Member States.
8.
With respect to paragraph 3 of Article 11 (Interest)
The term "back to back loan" as used in subparagraph c) means a loan structured to
obtain the benefits of subparagraph c) in which the loan is made to a financial institution that in
turn lends the funds directly to the intended borrower.
9.
With respect to paragraph 2 c) and paragraph 6 of Article 13 (Capital Gains)
The term "established securities market" means a national securities exchange which is
officially recognized, sanctioned, or supervised by a governmental authority as well as an over
the counter market. An over the counter market is any market reflected by the existence of an
interdealer quotation system. An interdealer quotation system is any system of general
4
circulation to brokers and dealers which regularly disseminates quotations of stocks and
securities by identified brokers or dealers, other than by quotation sheets which are prepared
and distributed by a broker or dealer in the regular course of business and which contain only
quotations of such broker or dealer.
10.
With respect to paragraph 2 of Article 24 (Mutual Agreement Procedure)
An agreement reached would not affect any court proceedings or any final court
decisions or final tax assessment acts, unless, in the case of final court decisions or final tax
assessment acts, the requirements under Bulgarian law for revision or repeal of final acts are
fulfilled.
If an examination is completed and closed (and is not a matter pending before a court or
for which a settlement or court decision has been reached) in a Contracting State, that
Contracting State's competent authority may nonetheless accept a request for assistance if an
adjustment causing double taxation is made in the other Contracting State.
11.
With respect to Article 27 (Entry into Force)
The provisions of Article 25 (Exchange of Information and Administrative Assistance)
shall have effect from the date of entry into force of the Convention without regard to the
taxable period to which the matter relates.
IN WITNESS WHEREOF, the undersigned, being duly authorized thereto by their
respective Governments, have signed this Protocol.
DONE at Washington in duplicate, in the English and Bulgarian languages, both texts
being equally authentic, this twenty-third day of February, 2007.
FOR THE GOVERNMENT OF
FOR THE GOVERNMENT OF
THE UNITED STATES OF AMERICA:
THE REPUBLIC OF BULGARIA
CONVENTION BETWEEN
THE GOVERNMENT OF THE UNITED STATES OF AMERICA
AND THE GOVERNMENT OF THE REPUBLIC OF BULGARIA
FOR THE A VOIDANCE OF DOUBLE T AX~ TION AND THE
PREVENTION OF FISCAL EVASION
WITH RESPECT TO TAXES ON INCOME
The Government of the United States of America and the Government of the Republic
of Bulgaria, desiring to conclude a Convention for the avoidance of double taxation and the
prevention of fiscal evasion with respect to taxes on income, have agreed as follows:
2
CHAPTER I
SCOPE OF THE CONVENTION
Article 1
GENERAL SCOPE
I.
This Convention shall apply only to persons who are residents of one or both of the
Contracting States, except as otherwise provided in this Convention.
2.
This Convention shall not restrict in any manner any benefit now or hereafter accorded:
a)
by the laws of either Contracting State; or
b)
by any other agreement to which the Contracting States are party.
a)
Notwithstanding the provisions of subparagraph b) of paragraph 2 of this
3.
Article:
i)
for purposes of paragraph 3 of Article XXII (Consultation) of the General
Agreement on Trade in Services, the Contracting States agree that any
question arising as to the interpretation or application of this Convention
and, in particular, whether a taxation measure is within the scope of this
Convention, shall be determined exclusively in accordance with the
provisions of Article 24 (Mutual Agreement Procedure) of this
Convention; and
ii)
the provisions of Article XVII (National Treatment) of the General
Agreement on Trade in Services shall not apply to a taxation measure
unless the competent authorities agree that the measure is not within the
scope of Article 23 (Non-Discrimination) of this Convention.
b)
For the purposes of this paragraph, a "taxation measure" is a law, regulation,
rule, procedure, decision, administrative action, or any similar provision or action,
relating to taxation.
4.
a)
Notwithstanding any provision of this Convention except paragraph 5 of this
Article, a Contracting State may tax its residents (as determined under Article 4
3
(Resident)), and by reason of citizenship may tax its citizens, as if this Convention had not
come into effect.
b)
Notwithstanding the other provisions of this Convention, a former citizen or
long-term 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. This
paragraph shall apply only in respect of income from sources within the United States
(including income deemed under the domestic law of the United States to arise from
such sources).
5.
The provisions of paragraph 4 shall not affect:
a)
the benefits conferred by a Contracting State under paragraph 2 of Article 9
(Associated Enterprises), paragraphs 1 and 2 of Article 17 (Pensions, Social Security
Payments, Annuities, Alimony, and Child Support), and Articles 22 (Relief From
Double Taxation), 23 (Non-Discrimination), and 24 (Mutual Agreement Procedure);
and
b)
the benefits conferred by a Contracting State under Articles 18 (Government
Service), 19 (Students, Trainees, Teachers and Researchers), and 26 (Members of
Diplomatic Missions and Consular Posts), upon individuals who are neither citizens of,
nor have been admitted for permanent residence in, that State.
6.
An item of income derived through an entity that is fiscally transparent under the laws
of either Contracting State shall be considered to be derived by a resident of a Contracting State
to the extent that the item is treated for purposes of the taxation law of such Contracting State
as the income of a resident.
Article 2
TAXES COVERED
This Convention shall apply to taxes on income imposed on behalf of a Contracting
State irrespective of the manner in which they are levied.
2.
There shall be regarded as taxes on income all taxes on total income, or on elements of
4
income, including taxes on gains from the alienation of movable or immovable property, but
excluding social security taxes.
3.
The existing taxes to which this Convention shall apply are:
a)
b)
in the case of Bulgaria:
i)
the personal income tax; and
ii)
the corporate income tax.
in the case of the United States: the Federal income taxes imposed by the Internal
Revenue Code (but excluding social security taxes), and the Federal taxes imposed on the
investment income of foreign private foundations.
4.
This Convention shall apply also to any substantially similar taxes that are imposed after the
date of signature of this Convention in addition to, or in place of, the existing taxes. The competent
authorities of the Contracting States shall notify each other of any changes that have been made in
their respective taxation or other laws that significantly affect their obligations under this
Convention.
CHAPTER II
DEFINITIONS
Article 3
GENERAL DEFINITIONS
I.
For the purposes of this Convention, unless the context otherwise requires:
a)
the term "Bulgaria" means the Republic of Bulgaria and, when used in a
geographical sense, means the territory and the territorial sea over which it exercises its
State sovereignty, as well as the continental shelf and the exclusive economic zone over
which it exercises sovereign rights and jurisdiction in conformity with international law;
b)
the term "United States" means the United States of America, and includes the
states thereof and the District of Columbia; such term also includes the territorial sea
thereof and the sea bed and subsoi I of the submarine areas adjacent to that territorial sea,
over which the United States exercises sovereign rights in accordance with international
5
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 Bulgaria
or the United States, as the context requires;
d)
the term "person" includes an individual, a company, and any other body of
persons;
e)
the term "company" means any body corporate or any entity that is treated as a
body corporate for tax purposes according to the laws of the state in which it is
organized;
f)
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;
g)
the term "enterprise" applies to the carrying on of any business;
h)
the term "business" includes the performance of professional services and of
other activities of an independent character;
i)
the term "business profits" also includes income from the performance of
professional services and of other activities of an independent character;
j)
the term "international traffic" means any transport by a ship or aircraft, except
when such transport is solely between places in a Contracting State;
k)
I)
the term "competent authority" means:
i)
in Bulgaria: the Minister of Finance or an authorized representative; and
ii)
in the United States: the Secretary of the Treasury or his delegate;
the term "national" of a Contracting State means:
i)
any individual possessing the citizenship of that State; and
ii)
any legal person, partnership or association deriving its status as such
from the laws in force in that State;
m)
the term "pension fund" means any person established in a Contracting State that
6
is:
i)
generally exempt from income taxation in that State; and
ii)
operated principally to administer or provide pension or retirement
benefits or to earn income for the benefit of one or more such arrangements.
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 to a common meaning pursuant to the provisions of Article 24 (Mutual
Agreement Procedure), have the meaning which it has at that time under the law of that
State for the purposes of the taxes to which this Convention applies, any meaning under the
applicable tax laws of that State prevailing over a meaning given to the term under other laws
of that State.
Article 4
RESIDENT
I.
For the purposes of this Convention, the term "resident of a Contracting State" means any
person who, under the laws of that State, is liable to tax therein by reason of his domicile,
residence, citizenship, place of management, place of incorporation, or any other criterion of a
similar nature, and also includes that State and any political subdivision or local authority
thereof. This term, however, does not include any person who is liable to tax in that State in
respect only of income from sources in that State.
2.
The term "resident of a Contracting State" includes:
a)
a pension fund established in that State; and
b)
an organization that is established and maintained in that State exclusively for
religious, charitable, scientific, artistic, cultural, or educational purposes,
notwithstanding that all or part of its income or gains may be exempt from tax under the
domestic law of that State.
3.
Where, by reason of the provisions of paragraph I, an individual is a resident of both
Contracting States, then his status shall be determined as follows:
7
a)
he shall be deemed to be a resident only of the State in which he has a permanent
home available to him; if he has a permanent home available to him in both States, he
shall be deemed to be a resident only of the State with which his personal and economic
relations are closer (center of vital interests);
b)
if the State in which he has his center of vital interests cannot be determined, or
if he does not have a permaf1ent home available to him in either State, he shall be
deemed to be a resident only of the State in which he has an habitual abode;
c)
if he has an habitual abode in both States or in neither of them, he shall be
deemed to be a resident only of the State of which he is a national;
d)
ifhe is a national of both States or of neither of them, the competent authorities
of the Contracting States shall endeavor to settle the question by mutual agreement.
4.
Where by reason of the provisions of paragraphs I and 2 of this Article a person other
than an individual is a resident of both Contracting States, the competent authorities of the
Contracting States shall by mutual agreement endeavor to determine the mode of application of
this Convention to that person. 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 this Convention.
Article 5
PERMANENT ESTABLISHMENT
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
8
t)
a mine, an oil or gas well, a quarry, or any other place of extraction of natural
resources.
3.
A building site or construction or installation project, or an installation used for the explora-
tion of natural resources, constitutes a permanent establishment only if it lasts or the activity
continues for more than six 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;
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 auxi liary character;
t)
the maintenance of a fixed place of business solely for any combination of the
activities mentioned in subparagraphs a) through e), provided that the overall activity of
the fixed place of business resulting from this combination is of a preparatory or
auxi liary character.
5.
Notwithstanding the provisions of paragraphs I and 2, where a person -- other than an agent
of an independent status to whom paragraph 6 applies -- is acting in a Contracting State on behalf
of a enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent
establishment in the first-mentioned Contracting State in respect of any activities which that person
undertakes for the enterprise, if such a person:
a)
has and habitually exercises in that State an authority to conclude contracts in the
name of the enterprise, unless the activities of such person are limited to those mentioned
9
in paragraph 4 which, if exercised through a fixed place of business, would not make this
fixed place of business a permanent establ ishment under the provisions of that paragraph;
or
b)
has no such authority, but habitually maintains in the first-mentioned State a stock of
goods or merchandise belonging to the enterprise from which such person regularly fills
orders or makes deliveries on behalf of the enterprise, and additional activities conducted
in that State on behalf ofthe enterprise have contributed to the conclusion of the sale of such
goods or merchandise.
6.
An enterprise shall not be deemed to have a permanent establishment in a Contracting
State merely because it carries on business in that 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 as independent agents.
7.
The fact that a company that is a resident of a Contracting State controls or is controlled
by a company that is a resident of the other Contracting State, or that carries on business in that
other State (whether through a permanent establishment or otherwise), shall not constitute either
company a permanent establishment of the other.
8.
Subject to the provisions of paragraph 4, where an enterprise of a Contracting State
provides services in the other Contracting State, if that enterprise is found not to have a
permanent establishment in that other Contracting State by virtue of the preceding paragraphs
of this Article, that enterprise shall be deemed to provide those services through a permanent
establishment in that other State ifand only if:
a)
those services are performed in that other State by an individual who is present
in that other State for a period or periods aggregating 183 days or more in any twelve
month period, and, during that period or periods, more than 50 percent of the gross
active business revenues of the enterprise consists of income derived from the services
performed in that State by the individual; or
b)
the services are provided in that other State for an aggregate of 183 days or more
in any twelve month period with respect to the same or connected project for customers
10
who are either residents of that other State or who maintain a permanent establishment
in that other State with respect to which the services are provided.
CHAPTER III
TAXATON OF INCOME
Article 6
INCOME FROM IMMOVABLE PROPERTY (REAL PROPERTY)
I.
Income derived by a resident of a Contracting State from immovable property (real
property), including income from agriculture or forestry, situated in the other Contracting State may
be taxed in that other State.
2.
The term "immovable property (real property)" shall have the meaning which it has under
the law of the Contracting State in which the property in question is situated. The term shall in any
case include property accessory to immovable property (real property), including livestock and
equipment used in agriculture and forestry, rights to which the provisions of general law respecting
landed property apply, usufruct of immovable property (real property) and rights to variable or
fixed payments as consideration for the working of, or the right to work, mineral deposits, sources
and other natural resources. Ships and aircraft shall not be regarded as immovable property (real
property).
3.
The provisions of paragraph I shall apply to income derived from the direct use, letting,
or use in any other form of immovable property (real property).
4.
The provisions of paragraphs I and 3 shall also apply to the income from immovable
property (real property) of an enterprise. However, the provisions of paragraphs I and 3 shall
not apply if the beneficial owner of the income referred to in paragraph I or 3, being a resident
of a Contracting State, carries on a business in the other Contracting State through a permanent
establishment situated therein and the immovable property (real 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.
II
5.
However, as long as a resident of the United States is not entitled under Bulgarian law
to make an election to compute the tax on income from immovable property (real property)
situated in Bulgaria on a net basis as ifsuch income were business profits attributable to a
permanent establishment in Bulgaria, the Bulgarian tax permitted to be charged under
paragraph I shall not exceed 10 percent of the gross amount of the income.
Article 7
BUSINESS PROFITS
I.
The business profits of an enterprise of a Contracting State shall be taxable only in that
State unless the enterprise carries on business in the other Contracting State through a permanent
establishment situated therein. If the enterprise carries on business as aforesaid, the business
profits of the enterprise may be taxed in the other State but only so much of them as are attributable
to that 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
business profits that it might be expected to make if it were a distinct and independent
enterprise engaged in the same or similar activities under the same or similar conditions.
3.
In the determination of the profits of a permanent establishment, there shall be allowed as
deductions expenses which are incurred for the purposes of the business of the permanent
establishment, including executive and general administrative expenses so incurred, whether in the
State in which the permanent establishment is situated or elsewhere.
4.
No business 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.
5.
For the purposes of the preceding paragraphs, the business 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.
12
6.
Where business profits include items of income that 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
INTERNATIONAL TRAFFIC
I.
Profits of an enterprise of a Contracting State from the operation of ships or aircraft in
international traffic shall be taxable only in that State.
2.
For purposes of this Article, profits from the operation of ships or aircraft include, but
are not limited to:
a)
profits from the rental of ships or aircraft on a full (time or voyage) basis; and
b)
profits from the rental on a bareboat basis of ships or aircraft if the rental income is
incidental to profits from the operation of ships or aircraft in international traffic.
3.
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)
used for the transport of goods or merchandise shall be taxable only in that Contracting State,
except insofar as those containers or trailers and related equipment are used for transport solely
between places within the other Contracting State.
4.
The provisions of paragraphs 1 and 3 shall also apply to profits from participation in a
pool, a joint business, or an international operating agency.
Article 9
ASSOCIA TED ENTERPRISES
I.
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
13
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 that differ from those that would be made between
independent enterprises, then any profits that, but for those conditions, would 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.
2.
Where a Contracting State includes in the profits of an enterprise of that State, and taxes
accordingly, profits on which an enterprise of the other Contracting State has been charged to
tax in that other State, and the other Contracting State agrees that the profits so included are
profits that would have accrued to the enterprise of the first-mentioned State if the conditions
made between the two enterprises had been those that would have been made between
independent enterprises, then that other State shall make an appropriate adjustment to the
amount of the tax charged therein on those profits.
[n
determining such adjustment, due regard
shall be had to the other provisions of this Convention and the competent authorities of the
Contracting States shall if necessary consult each other.
Article 10
DIVIDENDS
I.
Dividends paid by a company that is a resident of a Contracting State to a resident of the
other Contracting State may be taxed in that other State.
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 State, but if the
dividends are beneficially owned by a resident of the other Contracting State, except as
otherwise provided, the tax so charged shall not exceed:
14
a)
5 percent of the gross amount of the dividends if the beneficial owner is a
company that owns directly 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.
a)
Subparagraph a) of paragraph 2 shall not apply in the case of dividends paid by a
U.S. Regulated Investment Company (RIC) or a U.S. Real Estate Investment Trust
(REIT). In the case of dividends paid by a RIC, subparagraph b) of paragraph 2 and
paragraph 4 shall apply. In the case of dividends paid by a RElT, subparagraph b) of
paragraph 2 and paragraph 4 shall apply only if:
i)
the beneficial owner of the dividends is an individual or a pension fund,
in either case, holding an interest of not more than 10 percent in the REIT;
ii)
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 REIT's stock; or
iii)
the beneficial owner of the dividends is a person holding an interest of
not more than 10 percent in the REIT and the REIT is diversified.
b)
The rules of subparagraph a) shall also apply to dividends paid by companies
resident in Bulgaria that are similar to the U.S. companies referred to in this
paragraph. Whether companies that are residents of Bulgaria are similar to the U.S.
companies referred to in this paragraph will be determined by mutual agreement of
the competent authorities.
c)
For purposes of this paragraph, a REIT or similar company referred to in
paragraph 3 b) shall be "diversified" if the value of no single interest in real property
exceeds 10 percent of its total interests in real property. For the purposes of this rule,
foreclosure property shall not be considered an interest in real property. Where a RElT
or such similar company holds an interest in a partnership, it shall be treated as owning
15
directly a proportion of the partnership's interests in real property corresponding to its
interest in the partnership.
4.
Notwithstanding paragraph 2, dividends shall not be taxed in the Contracting State of
which the company paying the dividends is a resident if:
a)
the beneficial owner of the dividends is a pension fund that is a resident of the
other Contracting State; and
b)
such di vidends are not derived from the carrying on of a trade or business by
such pension fund nor from an associated enterprise other than a person referred to in
subparagraph a).
5.
For purposes of this Article, the term "dividends" means income from shares or other
rights, not being debt-claims, participating in profits, as well as income that is subjected to the
same taxation treatment as income from shares under the laws of the State of which the payer is
a resident.
6.
The provisions of paragraphs 1 through 4 shall not apply if the beneficial owner of the
dividends, being a resident of a Contracting State, carries on business in the other Contracting
State, of which the payer 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 (Business Profits) shall
apply.
7.
A Contracting State may not impose any tax on dividends paid by a resident of the other
State, except insofar as the dividends are paid to a resident of the first-mentioned State or the
dividends are attributable to a permanent establishment in the first-mentioned State, nor may it
impose tax on a corporation's undistributed profits, except as provided in paragraph 8, even if
the dividends paid or the undistributed profits consist wholly or partly of profits or income
arising in that other State.
8.
a)
A company that is a resident of one of the States and that has a permanent
establishment in the other State or that is subject to tax in the other State on a net basis
on its income that may be taxed in the other State under Article 6 (Income from
16
Immovable Property (Real Property» or under paragraph 1 of Article 13 (Capital Gains)
may be subject in that other State to a tax in addition to the tax allowable under the
other provisions of this Convention.
b)
Such tax, however, may be imposed:
i)
on only the portion of the business profits of the company attributable to
the permanent establishment and the portion of the income referred to in the
preceding sentence that is subject to tax under Article 6 (Immovable Property
(Real Property» or under paragraph I of Article 13 (Capital Gains) that, in the
case of the United States, represents the dividend equivalent amount of such
profits or income and, in the case of Bulgaria, is an amount that is analogous to
the dividend equivalent amount; and
ii)
at a rate not in excess of 5 percent.
Article 11
INTEREST
I.
Interest arising in a Contracting State and paid to a resident of the other Contracting State
may be taxed in that other State.
2.
However, such interest may also be taxed in the Contracting State in which it arises and
according to the laws of that State, but if the beneficial owner of the interest is a resident of the
other Contracting State, the tax so charged shall not exceed 5 per cent 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 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
17
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 Contracting State;
c)
the interest is beneficially owned by a resident of the other Contracting State that
is a financial institution (including, for example, a bank or an insurance company),
unless the interest is paid as a part of a back-to-back loan or an arrangement that is
economically similar to and has the effect ofa back-to-back loan; or
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.
4.
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 or 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 taxation law of the Contracting State in which the income arises.
Income dealt with in Article 10 (Dividends) and penalty charges for late payment shall not be
regarded as interest for the purposes of this Convention.
5.
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
debt-claim in respect of which the interest is paid is effectively connected with such permanent
establishment. In such case the provisions of Article 7 (Business Profits) shall apply.
6.
Interest shall be deemed to arise in a Contracting State when the payer is a resident of that
State. Where, however, the person paying the interest, whether a resident of a Contracting State or
not, has in a Contracting State 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 such interest shall be deemed to arise in the State in which the permanent
18
establishment is situated.
7.
Where, by reason of a special relationship between the payer 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
payer 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 payments
shall remain taxable according to the laws of each State, due regard being had to the other
provisions of this Convention.
8.
Notwithstanding the provisions of paragraph I:
a)
interest arising in the United States that is contingent interest of a type that does
not qualify as portfolio interest under United States law may be taxed by the United
States but, if the beneficial owner of the interest is a resident of Bulgaria, the interest
may be taxed at a rate not exceeding 10% of the gross amount of the interest;
b)
interest arising in Bulgaria that is determined with reference to receipts, sales,
income, profits or other cash flow of the debtor or a related person, to any change in the
value of any property of the debtor or a related person or to any dividend, partnership
distribution or similar payment made by the debtor or a related person may be taxed in
Bulgaria, and according to the laws of Bulgaria, but if the beneficial owner is a resident
of the United States, the interest may be taxed at a rate not exceeding 10% of the gross
amount of the interest; and
c)
Interest that is an excess inclusion with respect to a residual interest in a real
estate mortgage investment conduit may be taxed by each State in accordance with its
domestic law.
9.
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 (Immovable Property
19
(Real Property)) or paragraph I of Article 13 (Capital Gains);
and that interest expense exceeds the interest paid by that permanent establishment or paid with
respect to the debt secured by immovable property (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 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.
Article 12
ROYALTIES
I.
Royalties arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other State.
2.
However, such royalties may also be taxed in the Contracting State in which they arise
and according to the laws of that State, but if the beneficial owner of the royalties is a resident
of the other Contracting State, the tax so charged shall not exceed 5 per cent of the gross
amount of the royalties.
3.
The term "royalties" as used in this Article means:
a)
payments of any kind received as a consideration for the use of, or the right to
use, any copyright of literary, artistic, scientific or other work (including
cinematographic films and films, tapes or other means of image or sound reproduction
for radio or television broadcasting), any patent, trademark, design or model, plan,
secret formula or process, Qr for information concerning industrial, commercial or
scientific experience; and
b)
gain derived from the alienation of any property described in subparagraph a), to
the extent that such gain is contingent on the productivity, use, or disposition of the
property.
20
4.
The provisions of paragraphs I and 2 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 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 (Business Profits) shall apply.
5.
Royalties shall be deemed to arise in a Contracting State when the payer is a resident of
that State. Where, however, the person paying the royalties, whether he is a resident of a
Contracting State or not, has in a Contracting State a permanent establishment with which the
right or property in respect of which the royalties are paid is effectively connected, and such
royalties are borne by such permanent establishment, then such royalties shall be deemed to arise
in the State in which the permanent establishment is situated. Where the person paying the
royalties is not a resident of either Contracting State, and the royalties are not borne by a
permanent establishment in either Contracting State, but the royalties relate to the use of, or the
right to use, in one of the Contracting States, any property or right described in paragraph 3, the
royalties shall be deemed to arise in that State.
6.
Where, by reason of a special relationship between the payer 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 would have been
agreed upon by the payer 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 payments shall remain taxable according to the laws of each Contracting
State, due regard being had to the other provisions of this Convention.
Article 13
CAPITAL GAINS
I.
Gains derived by a resident of a Contracting State that are attributable to the alienation
of immovable property (real property) situated in the other Contracting State may be taxed in
that other State.
21
2.
For the purposes of this Article the term "immovable property (real property) situated in
the other Contracting State" shall include:
a)
immovable property (real property) referred to in Article 6 (Income from
Immovable Property (Real Property»;
b)
where that other State is the United States, a United States real property interest
as defined under U.S. law; and
c)
where that other State is Bulgaria,
i)
shares, including rights to acquire shares, other than shares regularly traded
on an established securities market, deriving more than 50 percent of their value
directly or indirectly from immovable property (real property) referred to in
subparagraph a) of this paragraph situated in Bulgaria; and
ii)
an interest in a partnership or trust to the extent that the assets of the
partnership or trust consist of immovable property (real property) situated in
Bulgaria, or of shares referred to in clause i) of this subparagraph.
3.
Gains from the alienation of movable 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 State.
4.
Gains derived by an enterprise of a Contracting State from the alienation of ships or
aircraft operated or used in international traffic or movable property (personal property)
pertaining to the operation or use of such ships or aircraft shall be taxable only in that State.
5.
Gains derived by an enterprise of a Contracting State from the alienation of containers
(including trailers and related equipment for the transport of containers) used for the transport
of goods or merchandise shall be taxable only in that State, unless those containers or trailers
and related equipment are used for transport solely between places within the other Contracting
State.
6.
Gains derived by a resident of a Contracting State from the alienation of shares of a
company that is a resident of the other Contacting State may be taxed in that other State if the
22
alienation of such shares occurs within 12 months of the date that such shares are acquired and
if the recipient of the gain, at any time during the 12-month period preceding such alienation,
had a participation, directly or indirectly, of at least 25 percent in the capital of that company.
This paragraph, however, shall not apply with respect to the alienation of shares of stock of
public companies, traded on an established securities market.
7.
Gains described in paragraph 3 of Article 12 (Royalties) shall be taxable only in
accordance with the provisions of Article 12 (Royalties).
8.
Gains from the alienation of any property other than property referred to in paragraphs I
through 7 shall be taxable only in the Contracting State of which the alienator is a resident.
Article 14
INCOME FROM EMPLOYMENT
I.
Subject to the provisions of Articles 15 (Directors' Fees), 17 (Pensions, Social Security
Payments, Annuities, Alimony, and Child Support) and 18 (Government Service), salaries,
wages, and other remuneration derived by a resident of a Contracting State in respect of an
employment shall be taxable only in that 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 State.
2.
Notwithstanding the provisions of paragraph I, 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 State if:
a)
the recipient is present in the other 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
the other State; and
c)
the remuneration is not borne by a permanent establishment which the employer
has in the other State.
23
3.
Notwithstanding the preceding provisions of this Article, remuneration described in
paragraph I that is derived by a resident of a Contracting State in respect of an employment as a
member of the crew of a ship or aircraft, or as other personnel regularly employed to serve
aboard a ship or aircraft operated in international traffic shall be taxable only in that State.
Article 15
DIRECTORS' FEES
Directors' fees and other compensation derived by a resident of a Contracting State for
services rendered in his capacity as a member of the board of directors (including the managing
board or supervisory board or a functionally similar body) of a company that is a resident of the
other Contracting State may be taxed in that other Contracting State.
Article 16
ENTERTAINERS AND SPORTSMEN
I.
Income derived by 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 (Business Profits) or
Article 14 (Income from Employment) may be taxed in that other 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 fifteen thousand
United States dollars ($15,000) or its equivalent in Bulgarian currency for the taxable year
concerned.
2.
Where income in respect of personal activities exercised by an entertainer or a
sportsman in his capacity as such accrues not to the entertainer or sportsman himself but to
another person, that income may, notwithstanding the provisions of Articles 7 (Business
Profits) and Article 14 (Income from Employment), be taxed in the Contracting State in which
the activities of the entertainer or sportsman are exercised, but only in cases in which the
24
contract pursuant to which the personal activities are performed
a)
designates (by name or description) the entertainer or sportsman; or
b)
allows the other party to the contract (or a person other than the entertainer,
sportsman or the person to whom the income accrues) to designate the individual who is
to perform the personal activities.
Article 17
PENSIONS, SOCIAL SECURITY PAYMENTS, ANNUITIES,
ALIMONY, AND CHILD SUPPORT
I.
Pensions and other similar remuneration beneficially owned by a resident of a
Contracting State shall be taxable only in that State.
2.
Notwithstanding paragraph I, payments made by a Contracting State under provisions
of the social security or similar legislation of that State to a resident of the other Contracting
State or to a citizen of the United States shall be taxable only in the first-mentioned State.
3.
Annuities derived and beneficially owned by an individual resident of a Contracting
State shall be taxable only in that State. The term "annuities" as used in this paragraph means a
stated sum paid periodically at stated times during a specified number of years, or for life, under
an obligation to make the payments in return for adequate and full consideration (other than
services rendered).
4.
Alimony and 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 Contracting State of which he is a resident. The term
"alimony" as used in this Article means periodic payments, made pursuant to a written
separation agreement or a decree of divorce, separate maintenance, or compulsory support.
5.
Where an individual who is a resident of one of the States is a member or beneficiary of,
or participant in, a pension fund that is a resident of the other State, income earned by the
25
pension fund may be taxed as income of that individual only when, and, subject to the
provisions of paragraphs 1 and 2 of this Article, to the extent that, it is paid to, or for the benefit
of, that individual from the pension fund (and not transferred to another pension fund in that
other State).
Article 18
GOVERNMENT SERVICE
1.
Notwithstanding the provisions of Articles 14 (Income from Employment), 15
(Directors' Fees) and 16 (Entertainers and Sportsmen):
a)
Salaries, wages and other remuneration, other than a pension, paid to an
individual in respect of services rendered to a Contracting State or a political
subdivision or local authority thereof shall, subject to the provisions of subparagraph b),
be taxable only in that State;
b)
such remuneration, however, shall be taxable only in the other Contracting State
if the services are rendered in that State and the individual is a resident of that State
who:
i)
is a national of that State; or
ii)
did not become a resident of that State solely for the purpose of rendering
the services.
2.
Notwithstanding the provisions of paragraph 1 of Article 17 (Pensions, Social Security
Payments, Annuities, Alimony, and Child Support):
a)
any pension paid by, or out of funds created by, a Contracting State or a political
subdivision or a local authority thereof to an individual in respect of services rendered
to that State or subdivision or authority (other than a payment to which paragraph 2 of
Article 17 applies) shall, subject to the provisions of subparagraph b), be taxable only in
that State;
b)
such pension, however, shall be taxable only in the other Contracting State if the
individual is a resident of, and a national of, that State.
26
3.
The provisions of Articles 14 (Income from Employment), 15 (Directors' Fees), 16
(Entertainers and Sportsmen) and 17 (Pensions, Social Security Payments, Annuities, Alimony,
and Child Support) shall apply to salaries, wages and other remuneration, and to pensions, in
respect of services rendered in connection with a business carried on by a Contracting State or a
political subdivision or a local authority thereof.
Article 19
STUDENTS, TRAINEES, TEACHERS AND RESEARCHERS
1.
a)
Payments, other than compensation for personal services, received by a student
or business trainee 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 State
for the purpose of his full-time education at a college, university or other recognized
educational institution of a similar nature, or for his full-time training, shall not be taxed
in that State, provided that such payments arise outside that State, and are for the
purpose of his maintenance, education or training. The exemption from tax provided by
this paragraph shall apply to a business trainee only for a period of time not exceeding
two years from the date the business trainee first arrives in the first-mentioned
Contracting State for the purpose of training.
b)
A student or business trainee within the meaning of subparagraph a) shall be
exempt from tax by the Contracting State in which the student or trainee is temporarily
present with respect to income from personal services in an aggregate amount equal to
$9,000 or its equivalent in Bulgarian currency annually. The competent authorities shall,
every five years, adjust the amount provided in this subparagraph.
c)
For purposes of this paragraph, a business trainee is an individual:
i)
who is temporarily in a Contracting State for the purpose of securing
training required to qualify the individual to practice a profession or professional
specialty; or
ii)
who is temporarily in a Contracting State as an employee of, or under
27
contract with, a resident of the other Contracting State, for the primary purpose of
acquiring technical, professional, or business experience from a person other than
2.
A}
that resident of the other Contracting State, and
B)
a person related to such resident of the other Contracting State.
An individual who is a resident of a Contracting State at the beginning of his visit to the
other Contracting State and who is temporarily present in the other Contracting State for the
purpose of teaching or carrying on research at a school, college, university or other recognized
educational or research institution shall be exempt from tax in the other Contracting State, for a
period not exceeding two years from the date of the individual's arrival in that other State. This
paragraph shall not apply to income from research if such research is undertaken not in the
public interest but primarily for the private benefit of a specific person or persons.
Article 20
OTHER INCOME
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 shall be taxable only in that
State.
2.
The provisions of paragraph 1 shall not apply to income, other than income from
immovable property (real property) as defined in paragraph 2 of Article 6 (Income from
Immovable Property (Real Property», if the beneficial owner of the income, being a resident of
a Contracting State, carries on business in the other Contracting State through a permanent
establishment situated therein and the income is attributable to such permanent establishment. In
such case the provisions of Article 7 (Business Profits) shall apply.
28
CHAPTER IV
LIMITATION ON BENEFITS
Article 21
LIMIT ATlON ON BENEFITS
I.
Except as otherwise provided in this Article, a resident of a Contracting State that
derives income from the other Contracting State shall not be entitled to the benefits of this
Convention otherwise accorded to residents of a Contracting State unless such resident is a
"qualified person" as defined in paragraph 2.
2.
A resident of a Contracting State shall be a qualified person for a taxable year if the
resident is:
a)
an individual;
b)
a Contracting State, or a political subdivision or local authority thereof;
c)
a company, if:
i)
the principal class of its shares (and any disproportionate class of shares)
is regularly traded on one or more recognized stock exchanges, and either
A)
its principal class of shares is primarily traded on one or more
recognized stock exchanges located in the Contracting State of which the
company is a resident; or
B)
the company's primary place of management and control is in the
Contracting State of which it is a resident; or
ii)
at least 50 percent of the aggregate vote and value of the shares (and at
least 50 percent of any disproportionate class of shares) in the company is owned
directly or indirectly by five or fewer companies entitled to benefits under clause
i) of this subparagraph, provided that, in the case of indirect ownership, each
intermediate owner is a resident of either Contracting State;
d)
a person described in paragraph 2 of Article 4 of this Convention, provided that,
in the case of a person described in subparagraph a) of that paragraph, more than 50
percent of the person's beneficiaries, members or participants are individuals resident in
29
either Contracting State; or
e)
a person other than an individual, if:
i)
on at least half the days of the taxable year, persons who are residents of
that Contracting State and that are entitled to the benefits of this Convention
under subparagraphs a), b), c) i) or d) own, directly or indirectly, shares or other
beneficial interests representing at least 50 percent of the aggregate voting power
and value (and at least 50 percent of any disproportionate class of shares) of the
person, provided that, in the case of indirect ownership, each intermediate owner
is a resident of that Contracting State, and
ii)
less than 50 percent of the person's gross income for the taxable year, as
determined in that person's State of residence, is paid or accrued, directly or
indirectly, to persons who are not residents of either Contracting State entitled to
the benefits of this Convention under subparagraph a), subparagraph b), clause
i), of subparagraph c), or subparagraph d) of this paragraph in the form of
payments that are deductible for purposes of the taxes covered by this
Convention in the person's State of residence (but not including arm's length
payments in the ordinary course of business for services or tangible property).
3.
A company that is a resident of a Contracting State shall also be entitled to the benefits
of the Convention if:
a)
at least 95 percent of the aggregate voting power and value of its shares (and at
least 50 percent of any disproportionate class of shares) is owned, directly or indirectly,
by seven or fewer persons that are equivalent beneficiaries; and
b)
less than 50 percent of the company's gross income, as determined in the
company's State of residence, for the taxable year is paid or accrued, directly or
indirectly, to persons who are not equivalent beneficiaries, in the form of payments (but
not including arm's length payments in the ordinary course of business for services or
tangible property), that are deductible for the purposes of the taxes covered by this
Convention in the company's State of residence.
30
4.
a)
A resident of a Contracting State will be entitled to benefits of the Convention
with respect to an item of income derived from the other State, regardless of whether the
resident is a qualified person, if the resident is engaged in the active conduct of a trade
or business in the first-mentioned State (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 bank, insurance company or registered
securities dealer), and the income derived from the other Contracting State is derived in
connection with, or is incidental to, that trade or business.
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 related person, the conditions described in
subparagraph a) shall be considered to be satisfied with respect to such item only if 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.
c)
In determining whether a person is "engaged in the active conduct ofa trade or
business" in a Contracting State under subparagraph a) of this paragraph, activities
conducted by persons connected to such person shall be deemed to be conducted by
such person. For the purposes of this subparagraph, 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 of the beneficial equity interest in the company) or 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 or of the beneficial equity interest in the company) in each person. In any case,
for the purposes of this subparagraph, a person shall be considered to be connected to
31
another if, based on all the relevant facts and circumstances, one has control of the other
or both are under the control of the same person or persons.
5.
A resident ofa Contracting State that is neither a qualified person pursuant to the
provisions of paragraph 2 nor entitled to benefits under paragraph 3 or, with respect to an item
of income, under paragraph 4 of this Article shall, nevertheless, be granted benefits of the
Convention if the competent authority of the other Contracting State determines that the
establishment, acquisition or maintenance of such person and the conduct of its operations did
not have as one of its principal purposes the obtaining of benefits under the Convention.
6.
For purposes of this Article:
a)
the term "recognized stock exchange" means:
i)
the NASDAQ System owned by the National Association of Securities
Dealers, Inc. and any stock exchange registered with the U.S. Securities and
Exchange Commission as a national securities exchange under the U.S. Securities Exchange Act of 1934;
ii)
the Bulgarian Stock Exchange - Sofia, and any other stock exchange
licensed to trade securities and financial instruments under the Bulgarian law;
iii)
b)
any other stock exchange agreed upon by the competent authorities;
the term "principal class of shares" means the ordinary or common shares of the
company, provided that such class of shares represents the majority of the voting power
and value of the company. If no single class of ordinary or common shares represents
the majority of the aggregate voting power and value of the company, the "principal
class of shares" are those classes that in the aggregate represent a majority of the
aggregate voting power and value of the company;
c)
the term "disproportionate class of shares" means any class of shares of a
company resident in one of the Contracting States that entitles the shareholder to
disproportionately higher participation, through dividends, redemption payments or
otherwise, in the earnings generated in the other State by particular assets or activities of
the company;
32
d)
a company's "primary place of management and control" will be in the
Contracting State of which it is a resident only if executive officers and senior
management employees exercise day-to-day responsibility for more of the strategic,
financial and operational policy decision making for the company (including its direct
and indirect subsidiaries) in that State than in any other state and the staff of such
persons conducts more of the day-to-day activities necessary for preparing and making
those decisions in that State than in any other state;
e)
an "equivalent beneficiary" is a resident ofa member state of the European
Union or of a European Economic Area State or of a party to the North American Free
Trade Agreement but only if that resident:
i)
A)
would be entitled to all the benefits of a comprehensive
convention for the avoidance of double taxation between any member
state of the European Union or European Economic Area State or any
party to the North American Free Trade Agreement and the State from
which benefits of this Convention are claimed under provisions
analogous to subparagraph a), b), clause i) of subparagraph c) or
subparagraph d) of paragraph 2 of this Article, provided that ifsuch
convention does not contain a comprehensive limitation on benefits
article, the person would be a qualified person under subparagraph a), b),
clause i) of subparagraph c) or subparagraph d) of paragraph 2 of this
Article ifsuch person were a resident of one of the states under Article 4
(Resident) of this Convention;
B)
with respect to income referred to in Article 10 (Dividends), 11
(Interest), or 12 (Royalties) of this Convention, would be entitled under
such convention to a rate of tax with respect to the particular class of
income for which benefits are being claimed under this Convention that
is at least as low as the rate applicable under this Convention; or
33
ii)
is a resident of one of the Contracting States and is a qualified person by
reason of subparagraph a), b), clause i) of subparagraph c) or subparagraph d) of
paragraph 2 of this Article;
f)
with respect to dividends, interest or royalties arising in Bulgaria and
beneficially owned by a company that is a resident of the United States, a company that
is a resident of a member state of the European Union will be treated as satisfying the
requirements of subparagraph e) i) B) of this paragraph for purposes of determining
whether such United States resident is entitled to benefits under this paragraph if a
payment of dividends, interest or royalties arising in Bulgaria and paid directly to such
resident of a member state of the European Union would have been exempt from tax
pursuant to any directive of the European Union, notwithstanding that the income tax
convention between Bulgaria and that other member state of the European Union would
provide for a higher rate of tax with respect to such payment then the rate of tax
applicable to such United States company under Article 10 (Dividends), II (Interest), or
12 (Royalties) of this Convention;
g)
with respect to paragraph 2, 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 twelve months ending on the day before the beginning of that taxable year is
at least six percent of the average number of shares outstanding in that class during the
twelve-month period.
CHAPTER V
RELIEF FROM DOUBLE TAXATION
Article 22
RELIEF FROM DOUBLE TAXATION
I.
In the case of Bulgaria, double taxation will be relieved as follows:
a)
where a resident of Bulgaria derives income which in accordance with the
34
provisions of this Convention may be taxed in the United States, Bulgaria shall, subject to
the provisions of subparagraphs (b) and (c) of this paragraph, exempt such income from
tax;
b)
where a resident of Bulgaria derives dividends, interest or royalties which in
accordance with the provisions of Articles \0 (Dividends), 11 (Interest) or 12 (Royalties) of
this Convention may be taxed in the United States, Bulgaria shall allow as a deduction from
the tax on the dividends, interest or royalties of that resident an amount equal to the tax paid
in the United States. Such deduction shall not, however, exceed that part of the tax, as
computed before the deduction is given, which is attributable to such dividends, interest or
royalties derived from the United States;
c)
where in accordance with any provision of this Convention income derived by a
resident of Bulgaria is exempt from tax in Bulgaria, Bulgaria may nevertheless, in
calculating the amount of the tax on the remaining income of such resident, take into
account the exempted income.
2.
In accordance with the provisions and subject to the limitations of the law 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 income tax paid or accrued to Bulgaria by or on behalf of such resident or
citizen; and
b)
in the case ofa United States company owning at least 10 percent of the voting
stock of a company that is a resident of Bulgaria and from which the United States
company receives dividends, the income tax paid or accrued to Bulgaria by or on behalf
of the payer with respect to the profits out of which the dividends are paid.
For the purposes of this paragraph, the taxes referred to in paragraphs 3 a) i) and ii) and 4 of
Article 2 (Taxes Covered) shall be considered income taxes.
3.
For the purposes of applying paragraph 2 of this Article, an item of gross income, as
determined under the laws of the United States, derived by a resident of the United States that,
35
under this Convention, may be taxed in Bulgaria shall be deemed to be income from sources in
Bulgaria.
4.
For the purposes of applying the preceding paragraphs of this Article, where the United
States taxes, in accordance with paragraph 4 of Article I (General Scope), a citizen, or a former
citizen or long-term resident, of the United States who is a resident of Bulgaria:
a)
Bulgaria shall take into account for the purposes of computing the credit to be
allowed under paragraph I only the amount of tax, if any, that the United States may
impose on income under the provisions of this Convention that is derived by a resident
of Bulgaria who is neither a citizen, nor a former citizen nor long-term resident, of the
United States;
b)
for 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 Bulgarian 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
Bulgarian 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
Bulgaria to the extent necessary to allow the United States to grant the credit provided
for in subparagraph b).
CHAPTER VI
SPECIAL PROVISIONS
Article 23
NON-DISCRIMINA TION
I.
Nationals of a Contracting State shall not be subjected in the other Contracting State to
any taxation or any requirement connected therewith that is more burdensome than the taxation
and connected requirements to which nationals of that other State in the same circumstances, in
particular with respect to residence, are or may be subjected. This provision shall also apply to
36
persons who are not residents of one or both of the Contracting States. However, for the
purposes of United States taxation, United States nationals who are subject to tax on a
worldwide basis are not in the same circumstances as nationals of Bulgaria who are not
residents of the United States.
2.
The taxation on a permanent establishment that an enterprise of a Contracting State has
in the other Contracting State shall not be less favorably levied in that other State than the
taxation levied on enterprises of that other State carrying on the same activities.
3.
The provisions of paragraphs I and 2 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 that it
grants to its own residents.
4.
Except where the provisions of paragraph I of Article 9 (Associated Enterprises), paragraph
7 of Article II (Interest), or paragraph 6 of Article 12 (Royalties) 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 purpose 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
State. Similarly, any debts of a resident of a Contracting State to a resident of the other Contracting
State shall, for the purpose of determining the taxable capital of the first-mentioned resident, be
deductible under the same conditions as if they had been contracted to a resident of the firstmentioned State.
S.
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 State to any taxation or any requirement connected therewith
that is more burdensome than the taxation and connected requirements to which other similar
enterprises of the first-mentioned State are or may be subjected.
6.
Nothing in this Article shall be construed as preventing either Contracting State from
imposing a tax as described in paragraph 8 of Article 10 (Dividends) or paragraph 9 of Article
II (Interest).
37
7.
The provisions of this Article shall, notwithstanding the provisions of Article 2 (Taxes
Covered), apply to taxes of every kind and description imposed by a Contracting State or a
political subdivision or local authority thereof.
Article 24
MUTUAL AGREEMENT PROCEDURE
I.
Where a person considers that the actions of one or both of the Contracting States result
or will result for such person in taxation not in accordance with the provisions of this
Convention, it may, irrespective of the remedies provided by the domestic law of those States,
and the time limits prescribed in such laws for presenting claims for refund, present its case to
the competent authority of either Contracting State.
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 Convention. Any agreement reached shall be
implemented notwithstanding any time limits or other procedural limitations in the domestic
law of the Contracting States.
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 the
Convention. They also may consult together for the elimination of double taxation in cases not
provided for in the Convention. In particular the competent authorities of the Contracting
States may agree:
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 same characterization of particular items of income;
38
d)
to the same characterization of persons;
e)
to the same application of source rules with respect to particular items of
income;
4.
f)
to a common meaning of a term; and
g)
to advance pricing arrangements.
The competent authorities also may agree to increases in any specific dollar amounts
referred to in the Convention to reflect economic or monetary developments.
5.
The competent authorities of the Contracting States may communicate with each other
directly for the purpose of reaching an agreement in the sense of the preceding paragraphs.
Article 25
EXCHANGE OF INFORMA nON AND ADMINISTRATIVE ASSISTANCE
I.
The competent authorities of the Contracting States shall exchange such information as
may be relevant for carrying out the provisions of this Convention or of the domestic laws of
the Contracting States concerning taxes of every kind imposed by a Contracting State insofar as
the taxation thereunder is not contrary to the Convention, including information relating to the
assessment or collection of, the enforcement or prosecution in respect of, or the determination
of appeals in relation to, the taxes covered by the Convention. The exchange of information is
not restricted by paragraph I of Article I (General Scope) or Article 2 (Taxes Covered).
2.
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 depositions of witnesses and authenticated copies of unedited original documents
(including books, papers, statements, records, accounts, and writings).
3.
Any information received under this Article by a Contracting State shall be treated as
secret in the same manner as information obtained under the domestic laws of that 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 above, or the
39
oversight of the above. Such persons or authorities shall use the information only for such
purposes. They may disclose the information in public court proceedings or in judicial
decisions.
4.
In no case shall the provisions of the preceding paragraphs 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 that is not obtainable under the laws or in the normal
course of the administration of that or of the other Contracting State;
c)
to supply information that 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).
5.
If information is requested by a Contracting State in accordance with this Article, the
other Contracting State shall use its information gathering measures to obtain the requested
information, even though that other State may not need such information for its own purposes.
The obligation contained in the preceding sentence is subject to the limitations of paragraph 4
but in no case shall such limitation be construed to permit a Contracting State to decline to
supply information because it has no domestic interest in such information.
6.
In no case shall the provisions of paragraph 4 be construed to permit a Contracting State
to decline to supply information because the information is held by a bank, other financial
institution, nominee or person acting in an agency or fiduciary capacity or because it relates to
ownership interests in a person.
Article 26
MEMBERS OF DIPLOMATIC MISSIONS AND CONSULAR POSTS
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.
40
CHAPTER VII
FINAL PROVISIONS
Article 27
ENTRY INTO FORCE
I.
The Contracting States shall notify each other, through diplomatic channels, when their
respective requirements for the entry into force of this Convention have been satisfied. This
Convention shall enter into force on the date of receipt of the later of these notifications.
2.
The provisions of the Convention shall have effect in both Contracting States:
a)
in respect of taxes withheld at source, on income paid or credited on or after the
first day of January in the calendar year next following the year in which this Convention
enters into force;
b)
in respect of other taxes on income, for any taxable period beginning on or after the
first day of January in the calendar year next following the year in which this Convention
enters into force.
Article 28
TERM INA nON
1.
This Convention shall remain in force indefinitely but either ofthe Contracting States may
terminate the Convention through the diplomatic channel, by giving to the other Contracting State
th
written notice of termination not later than June 30 of any calendar year.
2.
In· such event the Convention shall cease to have effect in both Contracting States:
a)
in respect of taxes withheld at source, on income paid or credited on or after the
first day of January in the calendar year next following the year in which the notice
has been given;
41
b)
in respect of other taxes on income, for any taxable period beginning on or after the
first day of January in the calendar year next following the year in which the notice
has been given.
IN WITNESS WHEREOF, the undersigned, being duly authorized thereto by their
respective Governments, have signed this Convention.
DONE at Washington in duplicate, in the English and Bulgarian languages, both texts
being equally authentic, this twenty-third day of February, 2007.
FOR THE GOVERNMENT OF
FOR THE GOVERNMENT OF
THE UNITED STATES OF AMERICA:
THE REPUBLIC OF BULGARIA:
Page 1 of 1
February 26, 2007
HP-278
Treasurer Cabral to Deliver Remarks
On Financial Education
U.S. Treasurer Anna Escobedo Cabral will deliver remarks tomorrow on financial
education before the Credit Union National Association's Government Affairs
Conference. The U.S. Treasurer, whose name appears on U.S. currency, serves
as an adviser to the Secretary on matters of currency design and production.
Who
Treasurer Anna Escobedo Cabral
What
Keynote Remarks on Financial Education
When
Tuesday, February 27
1030a.m. EST
Where
Hilton Washington Hotel
International Ballroom
1919 Connecticut Avenue, N.W.
Washington, DC
http://www.treas.gov/press/releases/hp278.htm
31112007
Page 1 of 1
February 26, 2007
HP-279
Treasury to Host Capital Markets Competitiveness Conference
Treasury Secretary Henry M. Paulson, Jr. will host a conference to examine issues
affecting U.S capital markets competitiveness on Tuesday, March 13 in
Washington, D.C. Participants in the day-long forum will discuss how the United
States can ensure Its competitive advantage in a rapidly changing global economy.
Discussion topics include corporate governance, the regulatory structure for the
U.S. financial industry and the accounting profession and its role in our capital
markets.
Additional information regarding participants and panel discussions will be
announced at a later time.
Who
Treasury Secretary Henry M. Paulson, Jr.
Treasury Under Secretary Robert K. Steel
Additional Participants TBD
What
Capital Markets Competitiveness Conference
When
Tuesday, March 13 8:00 a.m.-5:30 p.m. (EST)
Where
Georgetown University
37th and 0 Streets, NW
Washington, DC
Building Locations TBD
NOTE
All media interested in attending the event should contact Andrea Sarubbi for
clearance at 202-687 -4328 or ,l(,;.,:i4(ctUf,or']ctowll CeJll.
http://www.treas.gov/press/releases/hp279.ptrrl
3/1/2007
Page 1 of 10
February 27,2007
HP-280
Remarks of Under Secretary for Domestic Finance
Robert K. Steel
On Private Pools of Capital
Treasury Department Cash Room
Washington, DC- Welcome. I appreciate your being here today.
Last week, the President's Working Group on Financial Markets unanimously
moved to enhance hedge fund oversight within our current regulatory system by
releasing Principles and Guidelines on Private Pools of Capital. Secretary Paulson,
in his capacity as Chairman of the President's Working Group, led this effort.
Today, the focus is to provide additional insight into the motivation for releaSing the
principles and guidelines and to explain the responsibilities we believe they place
on all market participants in this industry, including regulators, investors,
counterparties and the hedge funds themselves.
United States capital markets are the envy of the world. Our markets are deep,
efficient and transparent. Creativity, innovation and entrepreneurship have long
been the hallmark of U.S. markets, and their benefits to our economy are clear.
Private pools of capital - which include venture capital, private equity, and hedge
funds - have helped make us the world's leading financial innovator. As Secretary
Paulson noted in a speech last November, private pools of capital are an essential
part of what keeps our capital markets the most competitive In the world.
We must be committed to maintaining that competitive edge, and in doing so,
continually assess current conditions and areas for change. One sector of our
capital markets that has experienced particularly dramatic change in recent years
has been the tremendous growth of private pools of capital. This growth has come
from two areas: strong performance and the new capital that has been attracted.
Over the years, as the financial marketplace has evolved, public policy views have
also adapted. In fact, the genesis of the President's Working Group can be traced
back to a market event, when President Reagan formed the Group to study and
issue recommendations regarding the events of October 19, 1987. Since then, the
Working Group - chaired by the Secretary of the Treasury and composed of the
chairmen of three independent financial regulators (the Federal Reserve Board, the
Securities and Exchange Commission and the Commodity Futures Trading
Commission) - has continued to convene under an overarching, non-partisan
mission of maintaining investor confidence and enhancing the integrity, efficiency,
orderliness and competitiveness of U.S. financial markets.
The group has periodically provided their perspective on Important issues, ranging
from over-the-counter derivatives to, most recently, terrorism insurance as
specifically requested by the Congress. Almost eight years ago, the Working Group
chaired by Treasury Secretary Robert Rubin released a report entitled "Hedge
Funds, Leverage, and the Lessons of Long-Term Capital Management." That wellreceived report contained a series of recommendations. Those proposals
successfully served to provide a foundation for many of the practices of today.
However, much has changed in the intervening period and the President's Working
Group strongly believes that now is an opportune time to reinforce the positions of
1999 and provide further guidance.
I will begin by offering some perspective on how the financial markets in the U.S
have evolved, then provide additional context to the recently-released principles
http://www.treas.gov/press/releases/hp2~O_Ptrrl
3/1/2007
Page 2 of 10
and guidelines. It is the strong view of the President's Working Group that two
issues, systemic risk and investor protection, are the key areas where policymakers
should and must focus their attention. I will conclude with my most important
observation: We expect that all four groups of stakeholders, led by the regulators,
will adopt and use these principles and guidelines.
Let me also articulate what the principles and guidelines are not. They are not an
endorsement of the status quo. Instead, they represent a uniform view from the
Treasury Department and the group of key independent regulators that heightened
vigilance is necessary and desired to address market developments.
Evolution and Change in the Financial Markets
Markets should connect those in need of capital with those willing to lend or invest.
Our modern financial marketplace IS vibrant and efficient in matching providers of
capital and users of capital. The asset management industry collects capital on
behalf of others and seeks to put that capital to work for investors. And today, these
investors have a great menu of opportunities to choose from so as to best match
their investment objectives.
Our investor base is growing and becoming increaSingly diversified. Today's
investors have a global perspective, and include both individuals and institutional
investors. They include insurance companies, pension funds, endowments, and
foundations. It is Important to recognize that in many cases, these "institutional"
investors represent a collection of individual beneficiaries. While these individuals
themselves may not be sophisticated investors, their agents or fiduciaries may
expose them indirectly to the benefits and risks associated with complex investment
strategies.
The opportunities available to investors are also increasingly varied. Today, they
may select from a wide array of investments, ranging from large to small cap
equities, value to growth stocks, government to corporate bonds, and high yield to
convertibles. The universe of asset classes also includes international securities,
currencies, commodities, private equity, venture capital, and real estate, in addition
to more conventional stocks and bonds.
As the asset management industry in the U.S. has grown and changed, it has
mirrored the interests of the Increasingly broad range of investors and all their
myriad investment objectives. The largest asset management firms are growing at a
dramatic rate. Just five years ago, the average top-ten firm controlled about $500
billion in assets and today that figure is over $1 trillion. Yet other firms remain
purposely quite small, so as to engage in niche investment strategies. Some
managers are public, others are private; some are broadly diversified while others
have expertise in a specific asset class.
The universe of financial instruments that asset managers utilize is similarly diverse
and changing. No longer do asset managers simply buy and hold stocks and
bonds, but their toolbox includes currencies, forwards, futures, options, swaps, and
exchange-traded and over-the-counter (OTC) derivatives Likewise, the range of
the vehicles or structures utilized to implement investment strategies is equally
diverse and includes mutual funds, closed-end funds, exchange-traded-funds
(ETFs) and limited partnerships.
The pOint I am trying to illustrate is that our capital markets are quite diverse and
evolve at a rapid rate. This diversity of investing and savings alternatives has been
good for the American public, the financial marketplace, the U.S. economy, and
global stability.
The Changing Nature of Hedge Funds
Private pools of capital, which broadly encompass pooled investment vehicles that
are privately organized, administered by a professional manager and generally not
available to the public, have experienced tremendous growth and dramatic change
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Page 3 of 10
in recent years. Many of these changes have been well documented:
•
•
•
•
•
•
•
•
In the last five years. the number of hedge funds has more than doubled,
growing to over 9,000 funds today.
Since 1999, hedge fund assets under management have grown by more
than 400%, totaling approximately $1.4 trillion.
Last year, the 100 largest hedge fund firms had combined assets of
representing about 65% of the industry total.
Hedge funds are also generating an increasing share of trading volume.
Some experts estimate they may represent up to 50% of trading in certain
circumstances.
The number and nature of investment strategies that hedge fund managers
deploy have also continued to grow. There are now over 20 categories of
investment strategies.
Some credit rating agencies have begun to issue public ratings on hedge
funds.
Their clientele, originally wealthy individuals, also has shifted to become one
that is comprised much more of institutional investors. According to a study
by McKinsey & Company, 2007 will be the first year in which institutional
investors account for more than half, 52%, of the flows into hedge funds.
And the business model has developed an impressively global presence
with over 35% of assets managed outside of the United States, and other
managers within the U.S. operating funds offshore.
The historical boundary between hedge fund managers and traditional asset
managers is now beginning to blur. The distinction between private equity investors
and hedge fund investors is also becoming less well-defined, as more hedge fund
managers seek to earn the premium associated with less-liquid capital and accept
features such as lock-ups and side pockets.
In short, we continue to witness the evolution and increasing importance of private
pools of capital specifically and the asset management industry more generally.
Significant growth has generated new opportunities and new challenges for
investment managers, investors, counterparties, creditors and regulators. This is
the context in which the President's Working Group chose to speak out.
Background and Motivation
Before discussing the prinCiples and gUidelines more specifically, let me provide a
bit more insight into the motivation for their development, and outline their
underlying philosophy.
Managers of private pools of capital are currently regulated both directly and
indirectly. Enforcement agencies, like the SEC and the CFTC, have broad, existing
regulatory authority on matters such as fraud, manipulation, civil liability and other
aspects of market behavior. No manager is exempt from those provisions and none
should be.
Many managers conduct much of their business with creditors and counterparties,
such as prime brokers and other lenders who provide the managers with additional
capital and services. This may help provide flexibility to their investment strategies
and facilitate the use of leverage. These corresponding counterparties are explicitly
monitored and supervised by a regulator armed with sophisticated riskmanagement procedures It was in recognition of this business model that the
President's Working Group in 1999 formed its view on the importance of
counterparty risk management.
Given the substantial growth in size and importance of private pools of capital since
1999, the President's Working Group believes it appropriate to broaden and update
its position. Recently, the Treasury Department conducted a series of educational
meetings with stakeholders representing the entire spectrum of the hedge fund
marketplace. Representatives from the pension and investment management
communities, the accounting, auditing and legal professions, asset consulling firms,
fund administrators, commercial banks and investment banks were interviewed in
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order to review current practices. As a result of these efforts, along with those
conducted by and within the agencies comprising the President's Working Group,
we decided to offer some fresh perspective and to create a forward-looking,
principle-based framework that recognizes the evolving financial landscape and the
challenges presented.
As a result, the principles put forth are comprehensive yet flexible. The framework
is consistent with the mission of the President's Working Group, and is focused on
two key goals: mitigating the potential for systemic risk in financial markets and
protecting investors.
The philosophy underlying these principles and guidelines is to encourage and
improve transparency and disclosure by pools and managers to counterparties,
creditors, fiduciaries and investors, as well as continued encouragement by
supervisors to strengthen market and counterparty discipline. However, the
President's Working Group recognizes that this transparency, disclosure and
supervisory vigilance should not discourage innovation. There are certain strategies
and positions which are sensitive proprietary information that managers should not
be expected to disclose.
The Working Group's principles and associated guidelines apply to all each
category of industry participants: (1) Private pools of capital and their managers; (2)
Counterparties and creditors: (3) Fiduciaries and investors; and (4) Regulators or
supervisors. Each participant should look to these principles to justify further
enhancement of their current practices.
Addressing New Challenges: Systemic Risk
One of the primary areas of responsibility of the President's Working Group is the
stability and soundness of the financial market system. Therefore, mitigating
potential systemic risk posed by private pools of capital was a key motivation
behind the development of these principles.
First, let me be clear on the meaning of systemic risk in this context: it is the
potential for financial distress in a particular firm or group of firms to trigger broad
spillover effects in a financial market or system. SystemiC risk is the potential that a
single event, such as a financial institution's loss or failure, may trigger broad
dislocation or a series of defaults that affect the financial system so significantly that
the real economy is adversely affected.
Concerns of systemic risk are more than just theoretical, and we must remain open
to the possibility that losses by a highly leveraged institution could threaten the
stability of the broader financial system and our economy. These principles and
guidelines highlight how thiS potential risk is best mitigated within the current
regulatory framework by market discipline that is developed and applied by
creditors, counterparties and investors.
Creditors and counterparties to private pools of capital are generally large and well
capitalized. And furthermore, sophisticated financial firms have both the direct
financial incentives and expertise to provide for effective market discipline. By
ensuring credit terms are appropriate given the risks posed, these institutions limit
not only their own potential exposure to losses from default, but also help constralll
overall borrowing, thereby decreasing the potential for systemic risk.
We believe that the collective decisions of self-interested and informed
counterparties, reviewed by regulators, provide the very best protection against
systemic risk.
The principles and guidelines recommend that key counterparties and lenders
commit resources and maintain appropriate policies and protocols to define,
implement, and continually enhance sound risk-management practices. The
guidelines hold that those policies should address how the quality of Information
from private pools of capital should affect credit terms and other aspects of
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counterparty risk management. These are not static responsibilities; they are
Important, capital-intensive, ongoing obligations.
Thus, this is not a green light to go forward with business as usual. A market as
dynamic as this one requires concerted updating and review of processes and
procedures. Firms should also be willing to make the necessary investment to meet
the goals of these principles and guidelines Knowing these principles have the
support of each member of the regulatory community should help facilitate these
changes.
In establishing these terms, it IS critical that creditors and counterparties undertake
effective due diligence before extending credit to a private pool of capital. Once the
initial credit is approved and extended, the same diligence should be regularly
applied The initial and ongoing due diligence process should clearly include a
review of the counterparty's ability to measure and manage its exposure to market,
credit, liquidity, and operational risks. This process should also establish the
breadth, detail and frequency of information sharing that will occur during the
course of the credit relationship.
The guidelines encourage lenders to private pools of capital to frequently measure
their exposures, taking into account collateral to mitigate both current and potential
future exposures. The liquidity of the counterparty's positions should be a factor in
exposure measurement, since concentrated or illiquid positions can lead to
unexpected exposures In the event of a counterparty default or market volatility.
Credit exposures, in addition to being measured frequently, should also be subject
to rigorous stress testing, not just at the level of an individual counterparty, but also
aggregated across counterparties and should consider scenarios of adverse
liquidity conditions.
On a regular basis, counterparties and creditors should seek to obtain from the pool
both quantitative data and qualitative information on the private pool's net asset
value, performance, market and credit risk exposure, and liquidity. In developing
disclosure requirements, the level of detail expected by the creditors should
recognize the very legitimate Interest of a private pool in protecting its proprietary
trading strategies.
These guidelines do not require the disclosure of every position, but reinforce the
precept that for market discipline to be truly effective, counterparties and creditors
should adjust credit terms where sufficient information is not forthcoming from a
particular private pool, which is consistent with a market-based approach
Federal Reserve Chairman Bernanke, in a speech last year, questioned the
usefulness of various proposals for regulatory authorities to create and maintain
registration databases containing detailed information about the positions of hedge
funds. The Chairman said, "I understand the concerns that motivate these
proposals but, at this point, remain skeptical about their utility in practice." He went
on to add, "Continued focus on counterparty risk management is likely the best
course for addressing systemic concerns related to hedge funds."
The President's Working Group also believes that the executive management of
financial services firms with large exposures to private pools of capital have certain
responsibilities. Management should institute protocols so they are kept informed of
large exposures. They must appreciate the implications of these exposures and
possess a commitment to ensure that sound risk management practices are
developed and implemented. In doing so, a firm's senior management would seek
to ensure that a firm's aggregate exposure to such pools is consistent with its
tolerance for bearing losses in adverse markets.
Now let us turn to the investor. One of the more encouraging developments, as it
relates to mitigating systemic risk, IS the development of better practices as a result
of the increasing market discipline brought on by investors, both individual and in
particular institutional investors. As institutional investors have become an
increasingly important source of capital to private pools, market discipline from
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investors has increased. Today, institutional investors represent 60% of assets
under management in these strategies and the number continues to climb.
Institutional investors in private pools of capital have a responsibility to prudently
evaluate the strategies and risk management capabilities of private pools of capital
and ensure that pools' risk profiles are compatible with their own appetites for risk.
In doing so, they should undertake effective due diligence before investing in a
private pool of capital and on an ongoing basis. Due diligence should include a
review of the manager's ability to manage its exposure to market, credit, liquidity,
and operational risks. These investors can complement the market discipline
created by counterparty risk management practices by carrying out effective and
robust due diligence, and seeking assurances that the private pool in which they
invest complies at a minimum with established industry sound practices, including
practices for risk management, reporting, and internal controls. In doing so, they
can influence better disclosure and stronger institutional standards and practices
within the asset management community.
If counterparties, creditors, and investors are to define and create effective market
discipline, they must have access to reliable information. Much of the information
can only be disclosed by the managers of the private pools of capital.
As a result, the principles and guidelines encourage managers of private pools of
capital to have information and risk management systems that enable them to
provide accurate disclosure to counterparties, creditors, and investors with
appropriate frequency, breadth, and detail.
This information should be disclosed frequently enough and with sufficient detail
that counterparties, creditors, and Investors stay informed of strategies and the
amount of risk being taken by the pools, and any material changes. The guidance
being given to investors is that a lack of information should affect your investment
decisions. If you are not obtaining the type of information you seek, you Should act
accordingly.
Complementing the efforts and responsibilities of the counterparties and creditors,
the benefits contributed by investors, and the disclosure provided by the managers,
is the role of supervisors.
Here too, our principles are clear and unambiguous. The guidelines encourage
supervisors to continue to clearly communicate their expectations regarding prudent
management of counterparty credit exposures to private pools of capital, and
ensure counterparties take into account new developments in financial markets and
advances in credit risk management best practices. In order to do so, supervisors
should actively monitor such developments and revise their policies and associated
guidance as appropriate in a timely manner. In turn, supervisors should actively
monitor and enforce compliance with established policies and guidance regarding
counterparty credit risk management with respect to leveraged counterparties. Let
me again remind you that all regulators have signed on to this principles-based
framework. Regulated entities should recognize that, although their competition
might have a different regulator, they should expect consistent treatment for these
broad issues.
Our capital markets continue to become ever more interconnected with other capital
markets around the world. No group of investors is more adept at moving capital
globally to where it offers the best risk-adjusted return than managers of private
pools of capital.
The principles and guidelines were developed recognizing the global marketplace.
Since key counterparties and creditors to pools are organized in various
jurisdictions, the principles encourage policy collaboration and coordination
amongst global supervisors.
The principles encourage supervisors to take full advantage of both formal and
informal channels of coordination and cooperation across financial industry sectors
and international borders when conducting supervisory activities that address
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internationally active financial institutions' management of exposures to private
pools and leveraged counterparties
By directly addressing the challenges associated with the activities of private pools
of capital, one can see that the principles, if adopted and applied, are designed to
serve as a strong and effective check on the potential of systemic risk.
Addressing New Challenges: Investor Protection
In addition to systemic risk, for the first time, the President's Working Group
addresses the difficult issue of investor protection. At the outset, we need to
recognize that we are talking about investments that are not offered to Just any
investor. These are private investment options offered only to certain approved
investors.
It is true that many of these strategies and vehicles are by their very nature
potentially more opaque, illiquid, and complex than other products. But these facts
alone should not by definition suggest that private pools of capital are either
appropriate or inappropriate. Private pools of capital can be a suitable investment
vehicle in which more sophisticated Investors devote an appropriate amount of their
assets. Given certain characteristics of these investments, it is prudent for public
policy to limit direct investment in private pools of capital by unsophisticated
investors, and we applaud the Security and Exchange Commission's recent
proposals to raise the investor accreditation standard.
While investors should be neither encouraged nor discouraged from allocating an
appropriate amount of their investable assets to private pools, they should certainly
be encouraged to understand their investments and the corresponding risks and
should not expose themselves to intolerable risk levels.
In addition to individuals, concerns exist about the possibility of a retiree having his
or her pension reduced or eliminated as a result of losses from a poorly performing
hedge fund investment.
Let's be clear here - hedge funds are not immune to challenges. In fact, we should
assume that not all hedge fund strategies are successful at anyone time. With as
many different strategies as exist today, it should not be news or a surprise when a
particular strategy is unsuccessful. Just because a strategy is not working, does not
mean more regulation is necessary. Regulation is not designed to ensure the
successful performance of investment strategies or prevent losses to investors, and
we should be concerned when any regulatory proposal conveys this false
impression.
What does matter is that managers disclose risks to investors and investors assess
and understand the risks associated with their investments. We therefore need to
also ensure the governance and management of the pension plans are as robust as
possible. Fiduciaries are the first and most important line of defense for Investors
who are indirectly participating in private pools of capital. No one should suggest
that plan sponsors will not invest in risky assets - in fact they must take risks in
order to generate the desired return, but given their fiduciary responsibility, how do
we ensure they know what is necessary to fulfill their obligation given the
characteristics of many of these strategies?
All investment fiduciaries have a duty to perform due diligence to ensure that their
Investment decisions on behalf of their beneficiaries and clients are prudent and
conform to established sound practices consistent with their responsibilities.
When investing in private pools on behalf of clients and beneficiaries, fiduciaries
should consider the suitability of those pools for their clients and beneficiaries within
the context of the overall portfolio. As with all investment products and vehicles,
clear and meaningful disclosure is essential for investors to evaluate properly their
investment decisions Fiduciaries should therefore assure themselves that the pool
and its managers have provided adequate and accurate disclosure prior to
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investment.
As part of an appropriate due diligence effort, fiduciaries should review and
understand the manager's valuation methodologies. A decade ago, they simply
relied on having actively-traded securities priced off of independent pricing feeds.
That IS no longer the case. Many of these strategies today contain illiquid
investments - with assets often priced by complex quantitative models ... in many
instances bUilt by the managers themselves.
Performance calculation processes and business and operational risk management
systems employed by a private pool should all be part of the review by investors. In
addition, expectations and terms regarding client reporting should be clearly defined
in advance of any investment.
Investors are encouraged to evaluate the investment objective, strategy, risks, fees,
liquidity, performance history and other relevant characteristics of a private pool.
They should evaluate the manager and personnel, and assess the service
providers and their independence from the manager. And finally, accurate and
timely access to this information should govern investment decisions.
Outcome and Goals of these Principles
As mentioned previously, private pools of capital provide many benefits to their
investors, the financial system and the economy. Their unique characteristics give
them the flexibility to pursue investment strategies that make financial markets
more efficient and the economy more resilient. However, to ensure that we continue
to realize these benefits and, at the same time, mitigate potential systemiC risks and
protect investors, there are responsibilities that all industry participants must accept,
and these principles and guidelines highlight the responsibilities for each of these
four groups of industry participants:
•
Regulators and Supervisors: The first group of participants - regulators
and supervisors - is expected to communicate their expectations regarding
counterparty risk management practices and use their authority to enforce
these expectations. Regulators and supervisors should continually refine
and augment their policies to reflect market developments, and use antifraud and anti-manipulation authority to preserve and enhance the integrity
of our capital markets.
• Counterparties and Creditors: The next group - counterparties and
creditors - should commit sufficient resources and maintain appropriate
policies to implement and enhance sound risk management practices,
including appropriate and effective due diligence, frequent measurement of
credit exposures, stress testing, and prudentially established credit terms.
• Private Pools of Capital: Third, private pools of capital should themselves
create and maintain information, valuation, and risk management systems
that provide counterparties, creditors, and investors with accurate, sufficient,
and timely information.
• Pool Investors and Fiduciaries: The fourth group - investors and
fiduciaries - should always consider the suitability of investments in private
pools of capital in light of their investment objectives, risk tolerances and the
principle of portfolio diversification. There are special obligations for
investors with fiduciary responsibilities who are investing on behalf of
others. Their standard of diligence should be an especially high one.
These principles and guidelines encourage transparency and disclosure by pools
and managers to counterparties, lenders, creditors, fiduciaries, and investors, as
well as continued encouragement by supervisors to strengthen market and
counterparty discipline.
Conclusion
Over the past several months, the President's Working Group - both at the principal
and staff levels - has been carefully assessing these issues. Our efforts
encompassed not just the four agencies of the President's Working Group
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(Treasury, Federal Reserve Board, the SEC and the CFTC), but also the Federal
Reserve Bank of New York and the Office of the Comptroller of the Currency.
Treasury would be remiss in not acknowledging the substantial contributions of all
our colleagues who worked to develop these principles and guidelines.
We evaluated both the benefits and challenges these pools pose to investors, our
capital markets, creditors and counterparties, and regulators. While seeking to
address these challenges, we explicitly developed the principles to preserve the
many benefits these Investment strategies contribute to our capital markets but also
to provide a fresh perspective.
Today's capital markets are global and competition is fierce. The two largest and
most important markets, the U.S. and the U.K., share a similar regulatory
philosophy. The goals put forth by these prinCiples align with the approach used by
the Financial Services Authority in the UK So we are endorSing a principle-based
approach that IS consistent with a global perspective.
Private pools of capital play an important part In our economic system and bring
many benefits to our markets. They provide a vital role by materially enhancing
market liquidity. Also, by bringing information to markets, they enhance market
efficiency and are a crucial ingredient in the price discovery process. Private pools
help to segment and disperse risk and also help foster innovation in developing new
risk-management tools and techniques. They generate substantial transaction
volumes and introduce significant leverage into the system. Furthermore, these
pools are also beneficial to investors, as they potentially offer diversification benefits
and attractive Sharpe ratios. And, as a result of these innovative investment
vehicles, new businesses begin, existing businesses expand, and new Jobs and
opportunities are created.
The growth of private pools of capital has promoted efficiency, liquidity and risk
dispersion in capital markets. Yet. whenever something is growing quickly, it bears
periodic review. With the many benefits brought by the growth of this Industry also
come some new challenges. The Working Group's recently released prinCiples and
guidelines highlight how risks posed by private pools of capital are best addressed
through market discipline, disclosure and transparency, not through new laws,
regulations or registration.
So far, these principles and guidelines have been extremely well received by
policymakers, regulators, industry leaders and the general public, both in the U.S.
and abroad. Yet, a vocal few have criticized our recommendations, calling them
"vague" and "unenforceable," and sought increased authority for federal regulators.
Some had a similar reaction to the 1999 President's Working Group report. Then as
now, we reject calling for more regulation just for regulation's sake. That being said,
the Working Group does believe there is work to be done. However, altering the
current regulatory structure is not the remedy.
The President's Working Group did not view this issue through an anti-regulatory
lens. In fact, if the Group believed that our regulators needed more authority to
address these issues, Secretary Paulson would have led the charge in asking for it.
However, as I hoped to convey in these remarks today, the issues and challenges
presented are complex and, unfortunately, will not be solved with a one-time
regulatory fix. After serious and open-minded debate, we came to the conclusion
that the principles and guidelines released last week provide the best answer.
Given the rapid changes in market strategies and instruments, the President's
Working Group believed the public will be best served with a flexible, principlesbased approach that applies to more than just a snapshot in time.
These principles emphasize that the stability and integrity of our capital markets are
a shared responsibility between the private and public sectors. Concerns regarding
systemic risk and investor protection posed by private pools of capital can be
addressed most effectively through market discipline and a balanced regulatory
approach, with supervisors utilizing their existing authority.
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Private pools of capital were born here in the U.S., and this country remains their
largest home. This industry exemplifies the competitiveness and innovation that
make our capital markets the strongest in the world. A thriving, competitive hedge
fund industry brings many benefits to the U.S economy, and our aim is to continue
providing a welcome environment for these investment vehicles.
We envision these principles and guidelines serving a constructive purpose, and my
colleagues and I will continually monitor and assess their effectiveness and the
market response.
Thank you. I now have a few minutes to answer two or three questions.
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February 27,2007
HP-281
Remarks of Anna Escobedo Cabral
U.S. Treasurer
U.S. Department of the Treasury
Before the Credit Union National Association's
Government Affairs Conference
Washington, DC- Good morning. Thank you, Paul, for that Introduction. It's a
pleasure to be here, and I want to thank Dan Mica and CUNA for once again putting
together a great conference.
CUNA works extremely hard in communities across our country to deliver financial
services to Americans. These efforts make a positive difference to the quality of life
individuals and families enjoy. We often talk about the benefits of our strong
economy - from the low 4.6 percent unemployment rate to the more than 7 million
jobs that have been added to our economy over 41 straight months.
This is all good news. It means that our economy is moving in the right direction,
that there are lots of opportunities, and that people understand how to take
advantage of this wonderful place that we all enjoy. But we also need to make sure
people understand that today increasing levels of education are required to be
competitive - not only in the traditional sense, but also in terms of being able to
understand how to manage our resources well. That's why financial education is so
Important
When we talk about financial education, we're talking about improving lives and
helping all Americans feel the positive benefits of the strong numbers I mentioned
earlier. This is an issue that President Bush and Secretary Paulson are extremely
committed to. But I've been in Washington long enough to know that if we want to
make real change, we cannot do it alone. There's always strength in numbers.
That's why we appreciate the dedication of CUNA and so many credit unions
across the country. You playa critical role in reaching your communities, and you
are making a real difference.
This conference is about coming together to share ideas, to listen to each other and
to share experiences so that we can continue making progress.
I understand our partners from the National Endowment for Financial Education as
well as the Jumpstart Coalition are here. Organizations like these play an important
part in serving our communities.
I know my friend, Chairman JoAnn Johnson is here. She is, of course, doing great
work at the National Credit Union Administration. Some of you may have heard
from one of my Treasury colleagues, Dan lannicola, Deputy Assistant Secretary for
Financial Education who leads the Office of Financial Education. He participated on
panel yesterday and talked a little bit about what we're working on at Treasury to
improve financial literacy throughout our country.
For example, as a result of the FACT Act, Treasury now leads the Financial
Literacy and Education Commission The Commission brings together
representatives from 20 agencies across the federal government to exchange ideas
and work together in ongoing financial education efforts.
Last year, the Financial Literacy and Education CommiSSion released Taking
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Ownership of the Future.' The National Strategy for FinancIal LIteracy. The
Commission has also developed a financial education web site and toll-free hotline,
in English and Spanish - w\Vw ~,lyl\l(}IH'y Cj')V and 1-888-MyMoney The Strategy
that I Just mentioned can be downloaded from this web site.
Just last week, Treasury partnered with the Department of Education to host a twoday Kindergarten through Postsecondary Financial Education Summit. The purpose
of the Summit was to discuss the challenges involved in teaching young people
about money, It also encouraged a meaningful national dialogue about an
increasingly significant challenge.
The challenges included learning how to integrate financial education into the
sChool day and how to identify effective materials and curricula. Many credit unions
lead successful programs that bring volunteers into the classroom, These
volunteers often offer a new perspective and can be extremely effective in
reenergizing the classroom and reaching students. We appreciated hearing from
some of these credit union representatives about their experiences.
As described in one of the several Calls to Action listed in the National Strategy, the
Summit's findings will be compiled and made available to educators, policymakers,
and the public at large,
Now many of you probably know that as U,S, Treasurer, I also deal with issues
relating to coin and currency, I want to share some important efforts led by the
United States Mint to promote youth financial literacy. Most of you have seen the
Fifty State Quarters, and some of you might even collect them, The Mint has drawn
on the popularity of the coins by incorporating currency lessons with lessons on
social studies, math and a variety of subjects, Lesson plans from the Mint's Fifty
State Quarters Program have been downloaded over 3,4 million times,
Now, they have created a Similar program with the new Presidential $1 Coins, I
don't know if anyone has seen them yet, but the new one dollar coin was released
last week. Four new coins with a new President will be released every year for the
next ten years, Lesson plans similar to those in the Quarters Program can be
downloaded at no charge from the U,S, Mint website at www lISI1ll11t qov/klUS, This
is a great opportunity to teach students about currency,
Last week's financial education summit was a chance to highlight programs like
these and to find out what others are doing throughout the country to strengthen
financial literacy, We know financial education is a continued process that is most
successful when started at an early age, The consequences of not understanding
the basics of money and credit management can be overwhelming. For example,
college students these days are signing up for every credit card offer they receive in
the mail without really understanding how to manage them, They're maxing out
each one, and before they know it they're in over their heads in debt Young people
between the ages of 20 and 29 are filing for bankruptcy, That's no way to begin a
professional career,
One of the panelists at the Summit called financial illiteracy a "silent bandit"
because it unknoWingly robs people of wealth, of opportunities, and quality of life,
Our dynamic economy was designed so that people, regardless of where they start,
can have the opportunity to climb the economic ladder to success. But this can only
happen through education,
For example, one of the issues we often talk about with respect to financial literacy
is the "unbanked," Now I know Credit Unions don't particularly like this term but the
idea behind it IS really that these are people who have not established a relationship
with any kind of banking institution - whether it's a credit union or a bank. An
estimated 10 million households fall into this category,
These individuals operate outside of the financial mainstream. As a result, their
lives are more complicated and much more difficult These individuals often don't
realize the resources that are available to help them gain better economic footing,
and it's very common that this lack of information is costing them more money.
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I've been quoted several times over saying: It costs more to be poor I speak from
experience when I say that. I grew up in a home where we didn't have very much In
terms of resources. There are many families, unfortunately, who find themselves in
similar circumstances. But when they have no relationship with a banking institution
or credit union, that cost increases. For example, they're paying additional fees for
the privilege of having a check cashed, or perhaps they're paying with money
orders, or they're paying their bills by standing in line and that has opportunity
costs. Not to mention, they're subjected to greater levels of crime and theft because
they're walking around with cash.
When they finally do have enough set aside - because they're very good savers
and know how to manage cash - they're set behind a couple of years because they
can't get a mortgage approved and they don't have the credit history to help them.
They're not going to be in a position of understanding how to prepare for retirement,
how to invest, or how to participate in their 401 (K).
We have seen that unbanked individuals don't just lack information or education they also lack trust in traditional financial institutions. In this case, we need an
effective messenger along with a strong message if we are going to reach the
people who need it most. That's where you come in.
Credit Unions have a real opportunity to bridge this gap by partnering with trusted
community organizations. For example, the IRS partners with local community
organizations such as the United Way to offer free tax preparation services to lowincome individuals. This helps ensure they claim all the benefits they're entitled to.
Credit Unions can be tremendously successful in creating similar partnerships.
Credit Unions and Financial Institutions can also reach unbanked individuals by
offering low-cost services - such as remittance services or low minimum balance
savings or checking accounts. All of these efforts help bring individuals into the
finanCial mainstream and improve quality of life.
Financial education has a place in all of our lives as we look at what is we need to
do to ensure that each of us has the tools necessary to make the most of our lives
and to pave the way for a better future. Because if we are well-informed individually,
then our communities are better off, the economy moves in the right direction, and
we all keep pace with each other.
Again, I want to thank you for your ongoing partnership and dedication to serving
the financial needs of families and individualS in communities throughout our
country.
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February 27, 2007
HP-282
Treasury Targets Destabilizing Belarus ian Officials
Washington, DC - The U.S. Department of the Treasury today designated six
Belarusian Government officials who have played important roles in the oppressive
regime of Alexander Lukashenka. Several of these designees were active in the
crackdown on civil society and democratic opposition to the March 2006
Presidential elections in Belarus, which violated international electoral standards.
"Those who commit human rights abuses and political repression have no place in
civil society," said Adam J. Szubin, Director of the Office of Foreign Assets Control
(OFAC). "We will continue to target Belarusian officials who abuse their positions
to steal from their people and to suppress democracy and freedom."
This action was taken pursuant to Executive Order 13405, which targets individuals
and entities either undermining the democratic processes or institutions or are
responsible for human rights violations related to political repression in Belarus.
The designation freezes any assets the individuals may have that are in the
possession of U.S. persons and prohibits U.S. persons from transacting or doing
business with them.
The actions and policies of these individuals undermine Belarus' democratic
processes and institutions, manifested most recently in the fundamentally
undemocratic March 2006 elections.
•
•
•
•
•
•
Petr Petrovich Miklashevich, Prosecutor General
Yuri Nikolaevich Podobed, Lieutenant Colonel of the Special Riot Police in
Minsk
Aleksandr Mikhailovich Radkov, Minister of Education
Vladimir Vasilyevich Rusakevich, Minister of Information
Yury Sivakov, former Minister of the Interior; former Minister of Sport and
Tourism
Oleg Leonidovlch Slizhevsky, Head of the Public Associations Department
The Europen Union has also taken measures against these individuals, imposing a
travel ban and assets freeze against them for "play[ing) a role in the violations of
international electoral standards and the crackdown on civil society and democratic
opposition in the context of the 19 March 2006 Presidential elections."
With today's action, Treasury has now taken action against sixteen senior
Belaruslan officials pursuant to E.O. 13405.
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February 28, 2007
HP-283
Treasury Secretary Paulson, IRS Commissioner Everson, Ways and Means
Chairman Rangel, Congressman McCrery, Congressman Lewis,
To Visit Local Tax Assistance Center
U.S. Treasury Secretary Henry M. Paulson, Jr, IRS Commissioner Mark W.
Everson, Ways and Means Chairman Charles B. Rangel, Congressman Jim
McCrery, and Congressman John LewIs will visit a local tax assistance center
tomorrow to discuss the earned Income tax credit (EITC), which has brought
millions of low-income working Americans out of poverty, and to thank the
volunteers for assisting the taxpayers.
Who
U. S. Treasury Secretary Henry M. Paulson, Jr.
IRS Commissioner Mark W. Everson
Ways and Means Chairman Charles B. Rangel
Congressman Jim McCrery
Congressman John Lewis
What
Site Visit to Local Tax Assistance Center
When
Thursday, March 1, 2007, 4:30pm EST
Where
Martin Luther King, Jr. Memorial Library
901 G Street, NW
Washington, DC
Note Please call Brittnl Aldridge 202-622-2591 with questions on media logistics.
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March 1, 2007
HP-284
Deputy Secretary Kimmitt to Deliver
Remarks in Berlin
Treasury Deputy Secl'etary Robert M. Klmmltt will Join German Chancellor Angela
Merkel In dellverrng keynote remarks at the Globalization and the 21 51 Century
World Orcier Conference this month in Berlin. The conference will focus on new
perspectives on the transatlantic partnership and challenges In the areas of trade
and economics.
What
Keynote Remarks
When
1000 am. (CET) Monday. March 19, 2007
Where
Paul-Lobe-Haus of the Germany Bundestag
Paul-Lobe-Haus, Adenauerstr
1.10557
Berlin, Germany
Note
Media should contact Verena Herkenhoff, Press Office. CDU/CSU- Parliamentary
Group in the German Bundestag,
at +49 030/2 27- 5 53 75 for registration.
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March 1, 2007
HP-285
Remarks by Treasury Secretary
Henry M. Paulson, Jr.
before the Economic Club of Washington
Washington, DC--Thank you very much, Vernon. Thank you all.
I'd like to start with a brief comment on the economic numbers released yesterday.
For a number of months now I have believed that the U.S economy is successfully
transitioning to a moderate and sustainable rate of growth, and yesterday's data
supports that view. The economy grew at a 3.3% pace last year, with GOP growth
of 2.2% in the fourth quarter This IS up from 2% growth in the third quarter. Recent
data suggest that economic activity slowed in December and January, particularly
in manufacturing.
It is important to take a broad view of the economy and not to rely on a single
number or even data for a month or two in forming a Judgment. I am watching
developments carefully, and I believe that the U.S economy IS healthy. Labor
markets are firm: unemployment IS low; consumer confidence IS rising: Inflation is
easll1g: exports are growing and they contributed about one percentage point to the
fourth-quarter GOP number: and of particular importance to me, working families
are now benefiting from this expansion, with real wages up 2.1 % over the last year.
When I came to Washlllgton in July, I noted that in certain respects our economy
resembled the economy of the mid-1990s, and that with high productivity growth,
moderate inflation, and a tightening labor market, workers' wages would rise. I'm
pleased that In the months since those comments. we've seen exactly that.
America's impressive productiVity growth is enhancing the long-term strength and
competitiveness of the U.S economy and Improving the economic well-being of
Americans
In my prevIous Job In the Investment banking IIldustry I spent a great deal of time
working With corporate clients, governments, and in financial markets around the
world. It was very clear to me that a major lesson of the last three decades is that
those nations that open themselves up to competition - in trade, finance, and
Investment - have benefited while the rest have been left behind. This personal
experience - here and abroad - has made me greatly appreciate the openness of
our nation, which has been one of the most important factors in the great economic
success of the United States. Openness to trade and competition fuels economic
dynamism and Innovation, as well as the deployment of new technologies that raise
productivity and ultimately our standard of liVing.
Despite our healthy economy and rising living standards, more and more
Americans seem to doubt that trade brings greater benefits than costs. Some
politiCians from both parties. reflecting what they are hearing from their constituents,
are moving further toward embraclllg protectionism This is a wOrrisome trend. And
it IS a trend we must resIst. Free trade IS one of the cornerstones of our economic
success as a nation. We must redouble our efforts to demonstrate the benefits of
trade to our standard of liVing - and make clear that retreating to economic
Isolationism would mean fewer Jobs, lower Incomes, and lower standards of living in
the United States and for hundreds of millions of people around the world.
I understand that our dynamiC economy, while generating wealth and opportunities
for advancement and increaSing our nation's standard of living, does create
dislocations and anxiety. Change can be difficult, and our economy seems to be
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changing ever more rapidly. As one of the sources of economiC dynamism,
expanding trade does result in some Job losses and contributes to this sense of
anxiety. But making trade a scapegoat only breeds support for protectionist policies
that will make us worse off. Trade and openness to competition have produced and
will continue to produce benefits for our economy, our buslJlesses, our workers, and
our consumers - benefits lilat greatly outweigh the costs. Proven economic
prinCiples have not changed.
We must make it a priority to help workers succeed In our rapidly changing and
increaslJlgly global economy, while malJltainlng our commitment to open markets
and the benefits that come with them. The global economy IS here to stay. To keep
growing and leading the world in innovation and opportunity, we must trade freely,
openly, and according to the prinCiples of the global marketplace
Today I'll lay out the major benefits trade and openness bring to our economy, then
address some of the concerns raised about trade, and close With a discussion of
how we can help more Americans tap into the potential of our dynamic economy
More than 57 million Americans are employed by businesses that engage in
internalional trade, and the benefits reach every state IJl our nation. Exports alone
account for nearly 22% of manufacturing Jobs in South Carolina In the state of
Washington, that number is nearly 37%. And agricultural exports support nearly
400,000 jobs in the US farm sector.
Globally engaged US. multinationals on average pay their employees about 20%
above the national average. I have worked with many of these companies and
observed how competition has spurred them to Innovate to stay IJl the lead, These
companies accounted for more than half of US. produclivity growth between 1977
and 2000, and 83% of corporate IJlvestment in R&D. The resulting technological
innovalions make workers more productive, over time raising wages and Improving
living standards, while keeping inflation in check and giving rise to new products,
new industries, and new high-paying Jobs.
Today's consumers enjoy more chOices and lower prices on everything from food to
cars to household goods. Products once considered luxuries have become
commonplace In 1954 It took the average American nearly three weeks of work to
earn enough money to purchase a dishwasher. Last year, it took less than three
days. Twenty years ago, most families could not afford a computer. Today, many
families wonder how they ever lived without one. And a long distance telephone call
that once cost 50 cents or more a minute can today be made almost for free, either
over the Internet or on a mobile phone that fits In your pocket.
Did trade alone create these modern conveniences? No. Trade fosters the
environment of competition, innovalion, research, and investment that leads to
better goods and services at lower prices. Some people speak about trade as if its
benefits come only from exports, ignoring the positive contribution of imports. Data
show that internationally traded products tend to experience lower inflation rates even real price declines - while non-traded goods tend to rise in price. Thus trade
helps Americans provide for their farnllies. When special interests seek protection in
the name of low-wage workers, we should acknowledge that limitations on imports
do not benefit the vast majority of Americans. They deny people the freedom to
choose from a broader array of goods and services, and impose a cruel tax on
people who rely on low prices to stretch their family budgets. The cost of
protectionism falls most heavily on those who are least able to afford it - the poor
and the elderly.
Imports also stoke the fire of competition for American businesses and workers,
and allow American manufacturers to acquire Inputs at lower prices. In a global
market, many American companies use imported components to make themselves
more productive and more competltive--and this productivity leads to higher wages
for workers and stronger growth and job creation for our entire economy
America's openness and our embrace of Change has made ours the most vibrant
and dynamic economy in the world. At the same time, change does produce job
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losses alld other temporary dislocations in particular companies, Industries, and
even I'egions - Just as it creates new opportunities In others. Job losses, wherever
they occur, are painful - to families and communities. We should recognize the
hardslllpS and work to alleviate them, while keeping In Sight the higher living
standards and new opportunities Americans enJoy as a result of economic
dynamism.
American manufacturing IS a good case study In change. Not unlike the revolution
In agriculture Americans lived througll In the 19th century, we have been living
through a revolution In manufacturing. Today we have about 14 million
manufacturing jobs in ttlis country - roughly the same number we had In 1950
Then manufactUring represented about 30% of the workforce. Today it represents
just 10°1<, Some see thiS as a decline in US. manufacturing. On the contrary,
America is the world's number one manufacturer, accounting for more than 20% of
worldwide manufacturing value-added - that's more than Japan, tWice as much as
Germany, and more than 2.6 times as much as China We manufacture more today
than we ever have in our history - seven times as much real output as In 1950, With
about the same number of workers. And a greater share of manufactUring jobs than
evel' before are high-skilled and hlgh-paYlllg What's happened? Competition has
pushed bUSinesses to invest in technological Improvements that allow workers to be
more productive and earn higher wages.
I began my investment banking career in 1974 in Chicago working With Midwestern
clients, many of them Industrral companies and manufacturers. I have watched thiS
transformation over three decades and it has been a radical one led by technology
and automation. In the 1970s, as I walked through factory floors or assembly lines,
workers were everywhere. Today, you are struck by the degree and sophistication
of the automation. The increases In productivity are startling.
As manufacturing has become more productive, our robust economy has created
more jobs in service industries, which account for 80% of employment In America.
know tile term "service industry" can have a negative connotation - but despite
what you hear from critiCS, our ten highest paying industries are allrn the service
sector - including computer systems design, management and technical consulting,
and architectural and engineering services. Far from being the menial, low-wage
jobs that trade opponents portray them to be, these service Jobs are cutting-edge,
high-paying, and skillS-Intensive. The evidence doesn't support the assertion that
our workers are being pushed out of high-paYing manufacturrng jobs and into
inferior service Jobs. Our flexible and dynamic labor markets ensure that as the
demand for services grows, our workforce grows in these high-skilled, high-paying
fields.
Technologically sophisticated and specialized services are a competitive advantage
for America. In fact, the United States runs a trade surplus in services - especially
high-skilled services, which often represent the highest-paying jobs. Consider that
one area in which we've had a multilateral free trade agreement since the founding
of the World Trade Organization - information technology - is a field the United
States dominates.
Critics often ask If trade is so good for America, why do we run a trade deficit?
These critics might be Interested to know that the last time we ran a trade surplus
our economy was in recession. We should not delude ourselves that the trade
deficit comes about mainly because of other countries' trade bamers or unfair
practices. We run a trade defiCit because our Vibrant and growing economy creates
a strong demand for imports, Including Imports of manufacturing inputs and capital
goods as well as consumer goods - while our major trading partners do not have
the same growth and/or have economies with relatively low levels of consumption.
Moreover, the U.S. has strong investment opportunities, but Amerrcans do not save
enough to finance all the worthwhile projects rn our country. Foreign capital helps
increase our capital stock and Improve labor productivity, resulting In higher wages
for our workers. Other countries save far more than they invest and the excess
liqUidity comes to the United States because our strong economy offers attractive
opportunities. The trade deficit and the associated capital flows are fundamentally a
reflection of our own and other countnes' economic choices.
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Narrowing the trade deficit without hannlng our economy requires a reversal in the
underlying causes: The United States has to save more and be able to fund our
own investment, and olller countnes have to grow faster and rely to a greater extent
on domestic demand. Two of our biggest trading partners, Japan and Europe, have
positive recent growth, and it is in our mutual Interest that they continue to pursue
pro-growth economic and labor reforms
Our largest trade deficit is with China. China is growing at a 10% rate, but its
developing economy has structural issues which are the major cause of Its trade
surplus with the United States. That surplus totaled approximately $233 billion in
2006, or 28% of our total trade deficit This gross number is misleading In that much
of China's exports to the United States are low value-added products for which
China IS the last stop In the assembly process and the Importer of record, but
materials and components are first imported into China from other countries In Asia
and througllout the world. Our exports to China, for the most part high value-added
manufacturing products and agricultural products, totaled $55 billion in 2006,
growing at a rate of 32% last year, and 360% over ten years, making China one of
our fastest growing markets for U.S exports
We are dissatisfied with the speed with which China is appreciating its currency, the
value of which is not market determined, and with China's intellectual property
protections. We are addreSSing these issues In our Strategic Economic Dialogue
with China, along with China's need to accelerate the process of opening ItS
economy to US. products and services. And in my jUdgment, the greatest risk to
the economic well-being of our two nations is not that China will move too quickly,
but that they will move too slowly in reforming their economy.
We expect that as China moves forward with Its economic reforms, increasingly
opening Its economy to competition. this will benefit both of our nations. Stronger
growth in all of our trading partners will sustain our own growth and contribute to a
narrower trade deficit
Trade, of course, means more than trade in goods. Capital flows across borders
more quickly than ever. The back and forth movement of financial assets is 100
times greater than trade in goods. The McKinsey Global Institute estimates that
since 1990, cross-border capital flows have risen nearly 11 % a year, well above the
35% annual growth in world GOP and the 5.8% annual growth in foreign trade. In
my previous Job I didn't need a study to tell me about the increasing velocity and the
magnitude of global capital flows. It is clear to me that these are functions of high
levels of global liquidity and the imbalances created by significant differences in
savings rates, economic growth rates, and the structure of different economies
around the world.
The tremendous growth of capital flows benefits the United States. We excel at
putting capital to its most productive uses. Foreigners don't Just put their money Into
U.S assets; they put It into American hands to invest on their behalf, both here and
abroad. The United States has a comparative advantage in financial services. In my
judgment it benefits our nation tremendously to have a number of global leaders in
financial services headquartered in this country. One clear benefit is our financial
services trade surplus of nearly $28 billion Growth in global capital flows creates
great opportunity for American companies and American workers. Employment in
the financial services industry has increased by about a million jobs, or
approximately 20%, over the last 10 years.
A great deal of foreign capital - nearly $800 billion last year on net - flows into the
United States. These capital flows are a mirror image of our trade deficits: capital
comes to the United States because the US is the best economy in the world. In
order to make that investment, they give us their goods In return. We have deep
and liquid capital markets and a growing economy that provides opportunities for
foreign investors to earn an attractive return on their capital. In turn, foreign
investment benefits the United States by fostering economiC growth and job
creation. Investment has been a vital component of our economic growth,
accounting for 20% of our growth since the middle of 2003.
Foreign investment in the United States comes from a diverse group of countries
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and finds its way into a diverse range of assets. Last year, foreigners purchased
nearly $100 billion in US equities and $500 billion of private sector bonds, and
took ownership stakes of $180 billion III American compailies. These capitalillflows
help keep US interest rates lower than they would be otherwise, which in turn
means that government borrowing costs are lower and companies can Illvest more
and create more jobs. Capital Inflows also contribute to the U.S economy when
foreign companies buy and operate existing companies or when they build new
facilities here. These businesses employ more than five million Americans, and
these jobs pay nearly 30% more than the U.S average.
To be sure, we need to increase national saving by addressing our long-term fiscal
situation and by removing disincentives for American families to save. As this
happens, and as our trading partners increase their domestic consumption and
further open their markets. our exports will Increase and world capital flows will
rebalance. This will take tllne. For thiS rebalancing to take place smoothly, it is
essential that we maintain our strong economy and make sure the United States
I'emalns an open and attractive destination for investment.
We are engaged in a wide range of bilateral and multilateral efforts to bring down
barriers to US. exports - both by reducing tariffs and by urging our trading partners
to undertake structural reforms Under President Bush's leadership, we have
negotiated 10 new free trade agreements with 15 countries - and our exports to
FT A partners are growing tWice as fast as our exports to the rest of the world. We
are also working to make sure that existing trade agreements are honored and that
intellectual property rights are respected. Thanks to Increased openness both here
and abroad, our global exports are at an all-time high. The trade deficit will take
some time to correct itself, but for the last four quarters, America's exports have
grown at a faster rate than our Imports.
The lesson IS clear: If we want to Improve our balance of trade, the answer does not
Involve more barriers, the answer involves more trade - with open markets here at
home and more open markets abroad for our exports. My job is to fight for open
markets and structural reforms that will benefit American manufacturers, farmers,
and service providers. Along With my Cabinet colleagues, I am pursuing that
vigorously.
As a global economic leader. the United States also has a special role to play in
expanding opportunity and prosperity around the world. This is both a moral issue
and a pracllcallssue. Countries that are more open economically and work
cooperatively with the global community contribute to stability, security, and peace
And as nations grow wealthier, they are more likely to adopt stricter environmental
and labor standards that bring them In line With developed economies.
The best way to alleviate poverty and raise liVing standards IS through greater
openness, so more people can benefit from the expanding global economy. The
share of the world population living in poverty fell from 20% In 1970 to only 7% in
2000 And the most important driver was the rapid growth of developing countries
that opened to trade, China and India In particular. Closer to home, Mexico's
poverty rate fell by more than 20% and its rate of extreme poverty fell by more than
30% between 1994 and 2005 - the years following the passage of NAFT A.
Mexico has much more to do, particularly in their efforts to make social and
economic Changes that nurture their middle class. But Mexico IS on the right path and other nations In Latin America are poised to take similar steps. Right now, free
trade agreements with Peru and Colombia are waiting for Congressional approval.
And the Andean Trade Preference Act, which established duty-free benefits for
Colombia, Peru, Ecuador, and Bolivia that will expire in June, is up for renewal. For
the benefit of our workers and businesses, for the economic progress of our
neighbors to the South, and to advance our goal of reduced global poverty and
enhanced stability in our region and around the world, Congress needs to approve
these measures.
I understand the case for trade is not clear-cut for most Americans. They worry
about Job losses and dislocations that occur as our economy evolves and adapts,
and much of their concern IS focused on trade. A recent Pew study indicates that
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only a third of Americans think free trade agreements benefit our economy. Close to
half believe they have a negative effect on jobs and wages People understand that
trade produces benefits, but they believe the benefits are not shared equally, either
among countries or among people within our country
We have only recently reached the POlilt in the bUSiness cycle when benefits from
our expanding economy are reaching middle-class families. And we've seen the
income distribution In the U.S Widen for three decades. Far from feellllg like
essential drivers of the world's best and most powerful economy - which they are many American workers fear they won't be able to compete. And this fear is
breathlllg life IIlto anti-trade and anti-globalization elements. Protectionists use the
trade deficit as a shorthand criticism of free trade poliCy. They try to convince
workers and families that we're getling a raw deal when it comes to trade. At best.
that's bad economics: at worst, It'S demagoguery.
Policymakers must address the dislocations that arise from our dynamic economy.
But not by trying to turn back the clock and hurting America and American workers.
We Will be sorry Indeed if we try to eliminate dislocation by lashing out at trade.
There is a Solid consensus that the rapid pace of technological change has been a
major driver in the decades-long widening of the income gap in the United States.
And my personal experience working 32 years in the private sector with many
companies in many economies has convinced me that the experts are right when
they conclude that technology is a much bigger driver of that process than global
integration or trade in goods.
There is no question that technology has made many jobs obsolete, even as it has
brought efficiency and convenience to our daily lives. But we don't hear many
voices calling for an end to the Internet. It would be no more beneficial to try to turn
back the clock on global integration than it would be to turn back the clock on
technological advancement. And In my Judgment, it would be no more realistic.
Trade is essential to the future strength and dynamism of the American economy to creating more and better job opportunities for American workers.
Trade is an especially important Issue this year. The PreSident's Trade Promotion
Authority IS set to expire thiS summer, and there is still a great deal of negotiating to
be done on the Doha Round of global trade negotiations. Susan Schwab, our US
Trade Representative, IS working hard to make progress toward a meaningful
agreement, and we have made serious proposals aimed at reachlllg an accord.
One of the key objectives of the Doha Round is opening up economies to trade in
services. Because of our advantage In providing high-end services, we have the
potential to realize sizable increases in exports. Estimates suggest that if postUruguay Round trade barriers were removed - particularly the barriers to trade in
services - the US economy could eventually see as much as $500 billion in
additional income each year. Without renewed TPA, the odds of reaching a
successful conclusion on Doha will be greatly diminished - and an important
opportunity to increase our exports in services, manufacturing, and agriculture will
slip away.
To leave benefits on the bargaining table when we are so close to achieving them
would do a terrible disserVice to working families and would clearly leave our
economy worse off.
We need to continue pushing forward on the trade agenda to keep our economy
growing and to keep it competitive. At the same time, we must take action to help
people thrive in a changing economy.
Increased income inequality is a fact we must confront. The way to confront it is to
help average wages grow, and help people who are at the bottom of the Income
ladder move up. That starts with a competitive, strong, and growing economy that
produces new and better opportunities for Americans.
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As our economy grows, market forces work to provide the greatest rewards to those
with the needed skills In growth areas. Workers with less education and fewer skills
will realize fewer rewards and have fewer opportunities to advance. We should help
people of all ages pursue first-rate education and retraining opportunities, so they
can acquire skills to advance III a competitive worldwide environment. As Federal
Reserve Chairman Ben Bernanke recently stated, "Substantial economic benefits
may result from any form of training that helps individuals acquire economically and
socially useful skills, includilig. on-the-job training, coursework at community
colleges and vocational schools, extension courses, online education, and training
in financial literacy." In fact, community colleges are a unique strength of the
American educational system, offering workers an opportunity to retrain at a
relatively mlnlillal cost after they enter the workforce. President Bush is a strong
advocate for working with community colleges and local businesses to tailor training
to skills that are in demand
The PreSident has proposed a number of Ideas to help workers succeed in today's
economy by Illaking benefits mOl'e portable and training more accessible. Today,
lOSing a job means more than losing Income. It often means lOSing health care and
other benefits, which could leave a family in real jeopardy. Even though millions of
Americans do move to better jobs each year, some workers feel stuck in a bad job
because they can't take their benefits With them. In a rapidly growing and changing
economy, the Idea of obtaining all your benefits through your employer increasingly
seems like an anachronism
Through proposals to expand Health Savlllgs Accounts and give all Americans, no
matter where they work, a standard tax deduction for health insurance, the
President IS shifting the public policy focus of health care from the employer to the
employee The President also wants to expand opportunities for workers to save for
their retirement.
Trade Adjustment ASSistance IS another program that could use fresh thinking.
There seems to be a growing consensus among Democrats and Republicans that
Trade Adjustment Assistance, the way it is structured today, does not serve people
as well as it could and does not provide the right Incentives. These resources can
be better used in a program that has more flexibility, more options for training, and
more personal ownership. The President has called on Congress to reauthorize
T AA - and to Improve It. And I look forward to continuing diSCUSSions toward an
effective solution.
The case for trade is clear and compelling. And if we want more people to support
it, we need to ease anXieties and help more people realize the benefits of trade.
The alternative - raising protectionist barriers and isolating ourselves from the gains
of trade - would hurt our economy. The long-term cost of protectionism - for us and
for the rest of the world - is lost jobs and lost opportunity. And for some of the
poorest nations, perhaps more IIlstabillty. We must not heed the siren song of
protectionism, trying to reduce the losses of the present by sacrificing the
opportunities of the future.
For more than 60 years, the United States has been the world's leader in
advocating greater openness and increased trade. Leaders of both political parties
have recognized that greater engagement with the world is essential to our growth.
Backing away from our commitment to openness would send a terrible signal to the
rest of the world, America's message at home and abroad must be clear: The
United States believes in open markets. We welcome foreign investment. And we
seek partners to JOIll us In advanCing a global agenda that will help more people
realize the benefits of international trade and competition.
Thank you very much
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HP-286
Testimony of Kimberly A. Reed, Director
Community Development Financial Institutions Fund
U.S. Department of the Treasury
Before the House Appropriations Committee,
Subcommittee on Financial Services
Chairman Serrano, Ranking Member Regula. and dlstillguisiled Members of the
Subcommittee, I appreCiate the opportunity to testify before you today on behalf of
the Community Development Fillancial Institutions Fund (CDFI Fund), which IS
within the U.S Department of the Treasury, on the CDFI Fund's important work to
expand the capacity of finanCial institutions to provide financial services to lowIIlCOllle and disadvantaged communities, as well as on the President's fiscal year
2008 budget proposal
I am Kimberly Reed, the new Director of the CDFI Fund. Treasury Secretary
Paulson announced my apPointment on January 18,2007, and I began as Director
on February 1. exactly one montll ago today. JOining me today are the CDFI
Fund's Deputy Director fOI' Policy and Programs, Linda Davenport, and Deputy
Director for Mallagement and Chief Information Officer, Terry Keyfauver.
Secretary Paulson's top rmority is keeping America's economy strong for our
workers, our families, and our bUSinesses. The CDFI Fund helps fulfill thiS priOrity
by encouraglllg more Jobs and opportunity In America's neediest communities. The
mission of tile CDFI Fund is to expand the capacity of finarlClal Institutions to
provide credit. capital, and frnancial services to underserved populations and
commllnl1ies in the United States. Through its various programs, the CDFI Fund
makes Investments that strengthen and sustain a network of financial institutions
that we call Community Development Financial Institutions and Comillunity
Development Entities
Growing up in rural West Virginia, I appreciate the importance of and impact that
programs such as those of the CDFI Fund Celrl make to improve the lives In and
economic conditions of America's neediest communltres.
CDFI FUND'S MISSION of expanding the capacity of financial institutions to
provide financial services to disadvantaged communities
I am pleased to tell you that the CDFI Fund IS devoted to supporting financial
Institutions working In lOW-Income and disadvantaged communities. Given the focus
of today's hear'ing on the need for unique frnanclal services for those reSiding in
disadvantaged communities, I want to highlight the activities of some of our
Community Developmp.nt Financial Institutions (CDFls) Many CDFls offer an
alternative to what are conSidered "predatory lending practices"
What is a GOFf?
Generally, CDFls are community-based speCialized finanCial institutions that serve
lOW-Income people or work in economically distressed communities. often working
in market niches that may be underserved by traditional finanCial Institutions.
CDFls include regulated instltutlOilS such as community development banks and
credit unions. These institutions, In particular, prOVide consumer finanCial services
that are deSigned to bring underserved persons rnto the financial mainstream,
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building wealth on affordable terms. COFls also Include loan funds. many of which
offer home mortgage products to consumers not reaclled by conventional mortgage
lenders or at terms not generally available to low-income communities
COFls respond to gaps in local markets that traditional financial Institutions are not
able to adequately sel-ve. They provide a Wide range of financial products and
services. While the types of products offered by COFls may be similar to those
provided by larger mainstream finanCial Institutions (such as checking and savings
accounts. mortgage fillanclng for low-Income and first-time homebuyers. small
business lending. and lending for community faCilities). COFls generally lend to and
make equity Investments In markets not served by these traditional financial
Institutions. The size of transactions and the risk profiles of transactions or
customel-s make it difficult for traditional financial institutions to focus on these
customers. COFls often offer rates and terms that are more flexible than those
provided by traditional financial institutions. COFls that are certified by the COFI
Fund also are required to provide services that will help ensure that credit IS used
effectively, such as technical assistance to small businesses and credit counseling
to consumers
COFls are a segment of the financial services industry that is just beginning to
grow Data reported by more than 500 COFls to the CDFI Data Project indicate
that their total assets doubled In Just four years. from $9 billion In 2001 to more than
$18 billion In 2004 Wllile commendable. this growth results in Institutions that are
still a fraction of the size of most regional or national banks. The average CDFI
bank has $152 million In assets as compared to $1.3 billion In assets for the
average commercial banks. The average CDFI credit union has $17 million In
assets as compared to the $78 million of the average federally-insured credit union.
In 2006, national commercial banks and savings institutions held nearly $10 trillion
In assets and federally Insured credit unions held $679 billion. The COFI Fund plays
an imf-lortant role In supporting tile growth and Increasing the capacity of COFls to
reach markets those other financial Institutions may not.
COFf Fund's COFf Program
The COFI Fund, through Its CDFI Program, uses federal resources to invest in and
build the capacity of cerilfred CDFls to serve low-income people and communities
lacking adequate access to affordable finanCial products and services. Specifically.
the CDFI Program prOVides FinanCial ASSistance awards to CDFls and Technical
ASSistance grants to CDFls and entrtles proposing to become COFls. The CDFI
Fund selects FinanCial Assistance and Technical Assistance awardees annually
through a competitive selection process.
COFf Certification
Only finanCial Institutions certified by the CDFI Fund can receive FinanCial
ASSistance awards through the CDFI Program Certification requires a
determination that the Institution has a miSSion of serving low-income communities.
is a financing entity. and commits 60 percent or more of ItS lending or Investing
resources to low-illcome communities together with the provIsion of technical
assistance or counseling services to ItS customers. among other requirements
CDFls are located in both rural and urban communities, as well as on Tribal lands,
as follows:
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82% are located In urban areas. and
18% are located in rural areas.
The above statistics include 39 Native CDFls. 6 of which are located in urban areas
and 32 in rural areas.
As of January 31,2007, ttle CDFI Fund has certified 778 COFls
•
517 (67%) are Loan FundS
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•
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•
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152 (19%) are Credit Unions
62 (8%) are Banks and Thrifts
27 (3%) are Venture Capital Funds
20 (3(;0) are Depository Illstitution Holding Companies
In the coming year, the CDFI Fund will begin a multi-year re-englneerlng of the
CDFI certlficatioll processes uSing data obtained from an evaluation of the CDFI
Program and the certification Criteria, resulting In the creation of a web-based tool
ThiS effort will ease the burden on our customers, making the application process
more effiCient, as well as speeding the COFI Fund's review and approval process.
CDFI Program Financial Assistance Awards
The CDFI Fund provides Financial Assistance awards in the form of equity
investments, loans, deposits, or grants, depending on applicant needs, and must be
matched dollar-for-dollar by the applicallt with funds of the same type from nonfederal sources. There are two applicant categories for Financial Assistance
awal-ds (1) Core, for larger COFls, and (2) SECA (Small and/or Emerging CDFI
Assistance), which is available for applicants that are smaller and/or have a shorter
operating history
These awards enable COFls to leverage private capital to respond to demand for
affordable financial products and services In economically distressed markets and
by low-illcome families. CDFls respond to thiS demand through the prOVision of
loans, investments, training, tecrlnical aSSistance, and basic finanCial services, such
as checking or savings accounts. Based on data supplied by CDFls required to
report to the CDFI Fund, it is estimated that, for the past two years, CDFls leverage
their Financial Assistance awards with nonfederal dollars by up to an average of
271
During FY 2006, the CDFI Fund received 127 applications requesting $146.7 million
In FinanCial Assistance awards. rncludlng 41 SECA applicants requesting S 18.2
million The CDFI Fund awarded a total of S2447 million to 52 organizations,
including 39 Core awards In 24 states and 13 SECA awards in 12 states.
CDFI Program Technical Assistance Awards
The CDFI Fund prOVides Technical Assistance grants to build the capacity of startup and existing CDFls by acqulrrng prescribed types of products or services
including technology (usually efficiency enhancing technology, such as computers
and loan management software), staff training, consulting services to acquire
needed skills or services (such as a market analysis or lending poliCies and
procedures), or staff support to conduct discrete, capacity-building actiVities (such
as website development).
More established CDFls also use Technical Assistance grants to bUild their
capacity to provide new products, serve current markets in new ways, or enhance
the efficiency of their operations: examples include upgrading computer hardware
and software.
In FY 2006, the CDFI Fund received 53 applications requesting $3.4 million in
Technical Assistance gr-ants The COFI Fund awarded $1.91 million to 21
organlzaliolls, of which 27 percent were funded to increase ttle effiCiency and
capacity of their organizations through the addition or expansion of technology.
CDFI Program Impact
CDFI Program awardees are havrng Significant Impact In the communities they
serve As a steward of taxpayer dollars, making this impact is of the utmost
importance to me. In FY 2005. the most recent year for which data IS available, 1R6
CDFI Program awardees reported leveraging their awards With $1.4 billion in
private and non-CDFI Fund dollars These CDFls reported that their finanCing
helped to
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•
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create or maintain nearly 14,000 full-time equivalent (FTE) jobs, and
develop or rehabilitate nenrly 27,000 affordable hOUSing urlltS.
In addition, these COFls reported that they provided:
•
•
•
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horne purchase mortgages to 2,000 Individuals,
checking or savings accollnts to nearly 14,000 pleviously unbanked
individuals,
Individual Oevelorment Accounts to 2,500 low-income Individuals, and
finanCial literacy or other training to 148,000 Individuals and organizations.
These new jobs, along with the increase in residential housing and commercial real
estate, result in an IIlcrease In tax revenue (consisting of federal, state and local
Illcorlle taxes, and SOCial security taxes), reduce the amount of state unemployment
benefits paid out, and increase the amount of local property taxes.
CDFls Provide Financial Services to Disadvantaged Communities
COFls prOVide many services to disadvantaged communities. Accordlllg to COFI
Fund data from 2005, more than half (59%) of COFls receiVing COFI Program
awards report that they are proViding financial education services and 42 percent
are providing homeownership counseling to first-time homebuyers. These
education and counseling services Increase consumer awareness and help
Individuals make informed deCISions about available financing products. Among
bank and credit union COFls, half offer alternatives to payday loans and nearly 40
percent prOVide check cashing services to people who don't have accounts with
these Institutions. COFls also help Individuals bUild wealth, another factor that can
help them avoid the need for an emergency payday loan to cover an unexpected
illness or other expense Twenty-nine COFls, Including 22 unregulated COFls in
par1nership with regulated COFls, provide their eligible lOW-Income clients the
opportunity to open an Individual Development Accounts.
The following are examples of how the COFI Fund supports such COFls to provide
finanCial services to disadvantaged communities:
1) The National Community Investment Fund, a certified COFI in Chicago,
Illinois, that Invests equity and debt In banks, thrifts, and credit unions with a
primary mission of community development, received a COFI Program FlllanCial
Assistance award of $1 ,315,000 III 2003 to support ItS Retail Financial Services
Initiative. This initiative is helping 12 institutions implement financial products that
provide affordable retail financial serVices, and the four COFls mentioned below are
among the partiCipants.
Bethex Federal Credit Union In Bronx, New York, and scheduled to
appear on the next panel at this hearing, has built a partnership With a
check cashlllg outlet to educate and market strategies which help the check
cashing customer move rnlo the finanCial marnstream. This effort to
encourage consumers to utilize finanCial services is conducive to long term
wealth creation Bethex has received six COFI Program awards totaling
$812,954.
• North Side Community Federal Credit Union in Chicago, Illinois, offers
a Payday Alternative Loan (PAL) program. Founded in 1974, North Side IS a
non-profit federally chartered community development credit union and
certified COFI With more than $7.2 million in assets and IS owned and
controlled by its more than 3,100 members. In 2002, North Side began a
short-term PAL program to offer low-cost alternatives to payday lenders, as
well as banking services to individuals who had been turned down by
traditional lenders. ThiS very successful lending program has resulted in
over 4,200 loans, as of December 2006, to people facing emergency cash
needs. The program has more favorable terms than payday lenders offer
and requires borrowers to partiCipate in finanCial educatloll courses North
Side has received two COFI Program awards totaling $239,500.
• Alternatives Federal Credit Union In Ithaca, New York, offers financial
services and financial education and economic development programs to ItS
•
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members. residents of Tompkins County (Central New York). since it was
chartered In 1979. A full-serVice credit union with over 7.113 members.
Alternatives FCU plays a key role In asslstillg its lOW-income members to
build wealth and acculTlulate assets Alternatives has received five CDFI
Fund awards totaling $4.331.715 to help support ItS capacity and expansion
of programs and finanCial services
Since 2002. Alternatives FCU tlas been managing a free tax-preparallon service by
running an IRS Volunteer IncolTle Tax ASSistance (VITA) program as a "newaccounts strategy" to encourage IndiViduals to come Into the flrlancial services
mainstream As an Incentive to I,ave IndiViduals open accounts. Alternatives
waives the $10 membership fee and suspends the $5 minimum balance until the
tax refund is depOSited.
•
Legacy Bank In Milwaukee, Wisconsin, IS a state-chartered commercial
bank founded by three African American women. Legacy opened In 1999
and already is a $160 million asset financial institution. The bank focLises on
financial edLJcation and affordable lending products that encourage the use
of a bank rather than payday lendels More than a third of ItS low-income
customers have had some type of negative experience with payday lenders
and rapid tax refund loans Its primary product to combat thiS Issue was the
Financial liberty First Accounts product that tlas now evolved Into the
liberty Checking/SaVings Accoullt products
To support the Liberty Checkmg/Savlngs Account products. finanCial education
classes are taught off site through partnerships With more than 30 organizations that
serve lOW-Income populations. The bank also holds monthly classes on
site. Successful completion of the classes results in the participant being able to
open an account even If they have had prior credit or checking accoullt issues.
The bank focuses on tUrrllrlg these account customers into loan customers who buy
homes and start-up businesses. Many of them have learned how to save for their
own or their children's education. emergency expenses (to avoid payday lenders).
and other financial goals. Several thousand people have taken advantage of these
programs and products· bringing them into the mainstream of banking rather than
the downward cycle of payday lendillg. Legacy has received five CDFI Fund
awards. total1ll9 nearly $4.5 million
2) ASI Federal Credit Union In New Orleans, Louisiana. IS a low-income
deSignated credit union that serves approximately 77.000 members in New Orleans
and southeast LOUISiana. ASI's miSSion IS to serve the underserved. promote
economic empowerment. and prOVide affordable finanCial products and services to
those with little or no credit. Over 60 percent of ASI's members fall below the
poverty level. and It IS estimated that ten percent of ItS members were unbanked
pnor to Joining the credit union ASI's mission became more cntlcal follOWing the
devastation of Hurricane Katrina. Most members served by ASI experienced
substantial personal losses. Includlllg homes. automobiles. and employment
opportunities
In ItS history of serving the underserved, ASI has pioneered a number of products
and services catered specifically to those of modest means. The five main products
offered are the Stretch Plan. the Credit Enhancement Plan. the Asset Builder Loan.
the Yours-to-Own Loan. and the Payday Lender ReBulider Loan. All of these
products provide a much-needed outlet for the credit union's lOW-Income members
who frequently fall Victim to the debt trap. ASI received a CDFI Financial Assistance
award in the amount of $585.000 In 2006.
Additional CDFI Fund Efforts to Assist with Financial Services in Distressed
Communities
As the new Director of the CDFI Fund. I plan to work Will, our CDFI Advisory Board
on the important issues that we are discussing here today. The Community
Development Advisory Board was established III the Community Development
Banking and Financial Institutions Act of 1994 to advise the Director of the Fund on
policies regarding the activities of the CDFI Fund The Board IS composed of publiC
representatives from the Departments of Agriculture. Commerce, HOUSing and
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Urban Development. Interior, Treasury, and the Small Business Admirllstration, as
well as nine private citizens with a vanety of backgrounds relevant to the CDFI
Fund's mission. The current Chem IS Bill Bynum, PreSident and CEO of the
Enterprise Corporation of tIle Delta. I !10pe to invite a number of CDFls to attend a
Community Developmerlt Aovlsory Board meeting for a discussion of ways In which
the CDFI Fund can Improve and expand Its support of CDFls doing this Important
work.
Additionally, the CDFI Fund will contlllU8 to cultivate its close working relationship
with the Treasury Department's Office of Financial Educatlorl, the Internal Revenue
Service. ann oUler Treasury and federal agencies In Important financial education
work. For example, CDFI Fund staff will JOin oHler Treasury officials In its
partnership with the Amencan Bankers Association Education Foundation for the
11th allnual "Teach Children to Save Day" initiative on Apn124, 2007. ThiS is
Treasury's fourth year participating in thiS program where thousands of bankers
and Department offiCials connect With students In classrooms and after-school
programs to share "real life" lessons about money. The CDFI Fund recognizes that
such outreach IS Important to help the youth in disadvantaged commurlities better
understand the advantages of or pOSSible pitfalls associated With various finanCial
services
PRESIDENT'S FY 2008 BUDGET REQUEST
The PreSident's budget for fiscal year 2008 requests a $286 million appropriation
fm the CDFI Fund Specifically. the CDFI Fund's budget request includes $24.4
million for the CDFI Progralll and $4.1 million for the admlllistration of the New
Markets Tax Credit (NMTC) Program This request is $21 million above the
President's FY 2007 budget request, as fundlllg was not requested in FY 2007 for
the CDFI Fund's gl-ant programs, other than for support of the management of the
eXisting portfoliOS. Because the NMTC Program provides tax credit allocations
instead of grants or loans, all costs are administrative in nature.
As in FY 2006 and 2007, the FY 2008 budget does not request (urldlng for the Bank
Enterpnse Award (BEA) Program Through the BEA Program, the CDFI Fund
provides monetary awards to FDIC insured depository institutions as incentives to
increase their lending and investments In economically distressed communities
The awards are made on the baSIS of past actJvity, which is, In our View, a
fundamental program flClw alld the reason. among others. funding IS not requested
for FY 2008.
Additionally, because no separate autilorization exists for the CDFI Fund's Native
Initiatives, no separate set-aSide for thiS program IS being requested In FY 2008
However. the CDFI Fund will continue to provide economic and community
development to Native Amencan. Alaskan Native, and Native Hawaiian
communities through our eXisting CDFI Program
Since it began its awards programs ill 1996, the CDFI Fund has awarded more than
$820 million through ItS programs. In addition. the CDFI Fund has allocated $12.1
billion III tax credit authority to CDEs through the NMTC Program.
By directing our efforts to Increase the capacity of CDFls, and administering the
NMTC Program, the President's FY 2008 budget request allows us to focus our
programs to promote economic reVitalization and commuility development through
investments in and assistance to CDFls and CDEs through four key ways:
Make Awards Through the CDFI Program
The CDFI Program prOVides flnallCial assistance awards and technical assistance
awards to carry out the FUlld's Illission of expanding the capacity of finanCial
institutions to provide credit. capital and financial services to underserved
populations and communities ill the United States.
Issue Allocations of Tax Credits Through the NMTC Program
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The NMTC Program attracts private s8ctor capital Into low-income communities
through Community [Jevelopmellt Entities (COEs) COEs raise funds by providing
tax credits to private Investors In exchange for equity Investments, which are then
Invested In low-income communities. COEs apply for allocations of NMTCs through
annual, competitive Clilocatiorl munds.
Manage the Existing Portfolio of Awards
Certain activities pertainlrlg to the existing portfolio of awards are requlled These
activities consist of finalizing the terms of Clsslstance agreements With recent
awardees, making disbursements of awards, and monitoring awardee compliance
with the terms of their lwo and !tllee-year award assistance agreements This later
step Includes revlewlllg anllllal repol-Is proVided by awardees to ensure that their
performance meets the goals as outlined in the assistance agreements.
Evaluate Program Design, Effectiveness, and Impact and Provide Training
It is of great importance to me not only to ensure that our awards create lasting
impact on our nation's distressed communities, but also that the organizations that
utilize our programs find that they are efficient and effective. The Fund's COFI
Program IS now over ten years old. To ensure that they are meeting the needs of
today's COFls, the COFI FUlld has retained an outside research and consulting firm
to conduct an evaluation of thiS program, as well as of the Fund's COFI certification
process and past COFI training efforts
In addition, the COFI Fund is revieWing proposals for independent research to be
conducted on the role and Impact of COFls in Increasing the proVISion of needed
fmancial services and pmducts to low-income communities. The results of these
evaluations will set the stage for improvements to existing programs and provide
input to the re-englneerrng of processes that encourage more organizations to seek
certification as a COFI
Similarly, the COFI Fund has retained Urban Institute to analyze the effectiveness
of the NMTC Program Lastly the COFI Fund IS supporting Native COFls through
three current contracts supporting the creation of Native COFls, and financial
education in Native communities.
CDFI Fund's management and operations
Internal Financial and Management Controls
The COFI Fund has Implemented effective financial and management controls, as
verified by its independent auditors (KPMG Peat Marwick, LLP) I am pleased to
share that FY 2006 marks the nintil consecutive year in whicll !tle Fund received an
unqualified opinion on its fmanclal statements and in which no material weaknesses
were Identified ThiS serves as a confirmation that the COFI Fund has good Internal
controls and that our accounting and administrative systems are operating
effectively, something that IS Important to me and this Administration.
Compliance and Portfolio Monitoring
The COFI Fund has Implemented a variety of new Initiatives to monitor and conduct
compliance reviews of ItS growing por1follo of awardees and allocatees The COFI
Fund's NMTC compliance system has been Significantly upgraded and now
prOVides us With a fully automatic system that reflects each allocatee's compliance
status Wltll the various terms and conditions found In its allocation agreement The
Internal Revenue Service has access to the COFI Fund's system to assure
compliance with the tax code by NMTC investors. Our increased effort In monltonng
our awardees has also extended to exploring ways in which all compliance
reporting can be fully automated ThiS would allow the Fund to pull Information from
various COFI Fund systems, Including the Community Investment Impact System.
and would automatically determille an ClwClrdee's compliance status with the
requirements set forth In each assistance agreement
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In addition to tile above systems. our compliance office also conducts post-award
site visits to verify the inforll1alloll submitted by awardees and allocatees ailli plans
to substantially Increase these VISits In the near future. Tile COFI Fund also
panlclpates In several outreacll sessions at varrous industry conferences eacll year
to better inform Clwardees Clnd allocatees of tile reporting requirements and to
answer any IIldlvlduai compllclilce qlJestiollS
Measuring Community Development Investment Impact
The Community Investment Impact System (CIIS) developed by the COFI Fund IS
ttle nation's first system to collect standardizerilnstitution and transaction level data
frolll COFI ProurClI1l awardees and NMTC Program allocatees. The CIIS database
currently contains data from several hundred organizations
Fully implemented In FY 2004, CIIS collects data such as awardee and allocatee
financial pOSition, number of staff. and number of development services clients. It
also collects transaction level data prOViding details on each loan or Investment
marie, such as the purpose of the loan or Investment, borrower socio-economlc
cllaracterlstlcs, loan and IllVestment terms, repayment status, and community
development Impacts. These dati1 allow the COFI Fund to measure impact at the
cellSus tract level and to map COFI and COE actiVity in specific geographiC
locations. ThiS Innovative system has been recognized by both former Federal
Reserve Board Chairman Alan Greenspan anri current Chairman Ben Bernanke,
who stated that these "results can help IIlform funding deCisions. develop programs,
establish performance benchmarks. and communicate societal benefits attributable
to speCifiC policy."
CDFI Fund's Customer Service
The COFI Fund makes every effort to be citizen-centered and responsive to tile
commuilities that we serve. In all effon to reacll out to organizations and areas that
ilave not traditionally had access to our pmgrams, the CDF I Fund traveled to 18
states In 2006 to conduct applicatloll workshops for the FY 2007 programs. This
effort was an atternpt to reach out to rural areas and areas that have not
traditionally applied to our programs. Illcluding such states as Montana, Florida,
Iowa, Maryland, South Carolina, and Alabama. The COFI Fund also hosted three
satellite broadcasts of its workstlopS using HUO's satellite teleVision network, which
were then down Irnked to every HUO Field Office across tile country - over 80
ThiS effort helps ellsure tilat Citizens across the country have access to this
valuable trailling.
Plans for the Remainder of FY 2007
The COFI Fund IS In the process of acimlnlsterrng Its entire cycle of FY 2007
program actiVities. Tile COFI Fund's goal IS to conduct each award program rn
keeping With Its planned schedule for FY 2007, while undertaking plannrng for those
activities that Will be reqUired by Implementation of the PreSident's FY 2008
budget.
The COFI Fund continues to support Investment rn lOW-Income communities
through the COFI Program and NMTC Program, and supports the Administratloll In
ItS efforts to foclis our programs in building the capacity of COFIs and COEs to
serve lOW-Income commuilities.
CLOSING
The COFI Fund's Vision IS an America In which all people have access to affordable
credit, capital, and finanCial services - a viSion, I believe, ttlat all Interested In the
tOpIC of this hearing would support I thank you for the opporturllty to present my
testimony on the COFI Fund's IllISSlon of expanding the capacity of financial
Institutions to provide finanCial services to disadvantaged communities through the
programs administered by the COFI Fund, as well as In sLippon of the PreSident's
FY 2008 budget request I stand ready to answer any questions that you may have.
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Malcll 1. 2007
HP-287
Statement by Treasury
Deputy Secretary Kimmitt
Welcoming the British Government's New
Strategy to Fight the Financing of Terrorism
Tile Tn3ilslIry [}ep:lrtilwill wclconws Ihe British Govellllllent's IclUI1CIl yesterday of
"Tile Flili,I1Clili CllilllE!ncW to CrIl1H: ,md Terrorlslll." a stratecJlc approacll to
comhiltlnCI ll10rley lalillclcrlllCI ~lI1rJ the finilllclllg of terrOrism We elpplalrcJ this
Illlportclilt anrlOlHlU:Il1Cnt hy lil!'; ECOIiOiTllC Secret"ry to the Treasury. Ed Bellis. "neJ
Home Office Minister. TOllY McNulty
As Brrtlsil Cil;111cellor GorcJorl Browil noted III il lallCimark speech on Fehruelry 13.
200G. ol1e of tile most Illlporlimt lesponSlbllltlcs of Fillailce Ministries worldwide IS
to detect, cilsrupt. <lillJ dlslTlalltlc the dangerolls activities of telrorlsts alld their
suppmtel's III tilC glob,,1 flllilllCICII system
We applaud tillS actloll by th!'; Brltlsll Governmellt alld look fmward to working
together to acJvilllce ollr cOlllmon Interests. IIlclucJlrlg at tile United Natlolls alld
tilrouClil tllP FlnilllClill Action Task Force. whose PreSidency tile UK will assume In
June 2007
LINKS
•
Click here to read Chancellor Brown's Feb. 13 speech.
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Speech: CHX 130206
Page 1 of 12
HM TREASURY
Chancellor of the Exchequer speeches
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11/0()
13 February 200()
'Securing Our Future'
Speech by the Rt. Han. Gordon Brown MP, Chancellor of the
Exchequer, at the Royal United Services Institute (RUSI), London
On July 7th and aftel' the British people stood as one, our emergency services, our police, our
security serVices, our arilleci forces, the prl(ie of our coulltry.
With Brltaill led by London stalldrng firm alld steadfast ill the face of violence, our very
calmness reverberatecJ around the world
Though tralllS and tluses wele cJestroye(J, our Ilatlonal resolve - the spirit of Britain - was
indestructible Alld thouC]h lives were ended, our belief III our common destirlY shone through
As Br'IUsh-born sUlclcJe bombers Illalilled arld killed fellow Brrtish Citizens all our own streets,
the worst of Britain was put to shame by the best of Britain
To quote George Orwell, wrltlllg In the thirties. at democracy's darkest hour in Europe, when
the thr'eat was faSCism, "the tlllllC] that I saw In your face no power call dlslnherrt, no bomb that
ever bmst shatters the crystal spirit"
As July 7th solenlilly allcJ stClrkly reminds us, the first respollslbillty of a government IS to
protect ItS citizens. keep people safe ami ensure their security.
And as Chancellor I have found that elil Increaslllgly Important part of the role of a Finance
Minister IS to adciress Issues of International terrorism For as I have seen Since September
11 th and Illore recently ,lfter July 7th dssumptlolls we took for granted have been turned on
their head
III effect the Treasury itself had to become a department for security. For as Chancellor I have
found myself Immersed in measur'es desiglled to cut off the sources of terrorrst frnallce. And I
have discovered that this Will requlrp all Irlternatlollal operation USlnQ moderll methods of
forenSIC accoulltlllg as Imagillative and pilthilreaklllg in ollr' times as the achievement of the
enrgma codebreakers at Blctchley PClrk more tilan half a century ago.
Alld I have found the,t it IS IlOt Just the Treasur'y thClt IS a department of security
almost every other' ciepartrm,IlI
So too IS
We used to thillk natrollal security WClS (1hout Home Offrce POliCY, International securrty about
defence poliCy and foreign affairs. Now we fillei that Ilational allcl rnternatronal action for
security is inextricably linked ilild security Issues ciollllnClte deCISions In transport, energy,
immigration and extend to social security Clm! health. and of course In the Treasury so that
coordlnatrng the way we address IntCnlatlClncll terrorism Will be a centrClI feature of the cOllllnlJ
spending review
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The reason IS clear Addresslrlg the reality, causes ami roots of international terrorism IS one
of the greatest new challenge of our times.
Of course all tile great challenges of globalisatlon arp. important, but upon meetlrlg and
overcollling the challel1ge of global terrorism all else we value depends
So it is right to begin a series of speeches I mClke about how the Britain of the future will meet
alld master the global challenges ahead by addressing thiS question: pre-eminent to our
foreign, defence and law and order poliCies, at the core of the very security and safety of our
country: and vital to the prosperrty and future of our country
I want a Britain now and In the future that, fully aware of the increased threats the world faces,
plays ItS full part In the defeat of global terrorist violence I want to see a Britain that. because
of both Its International actions and Its domestic vigilance, IS more secure, more safe, more
strong.
So I want to speak today about a Brrtaln ever stronger in ItS security, finding even greater
strength In our shared resolve as a nation to defeat terrorist violence and to Isolate extremism
wherever we confront it and whatever its source
And I am deterlllineci that by agreeing a long view in our present public expenditure review we
ensure first, a robust security response which protects both the safety and liberties of our
citizens: second, a determination to tackle terrorism Intemationally and nationally: and third, to
tackle not Just terrorism but the roots of terrorism - the extremisill which seeks to justify it and
the grievances that fuel It, fund It and give It cause - by ensuring that legitimate political
concerns, such as the futurp. of the Middle East. are addressed politically and Without resort to
violence - an Integrated approach that will require the strength and resolution to make difficult
long term choices and follow them through to ensure the police, armed forces and security
services have the necessary support to address the demands of a changing world.
For nine years as Chancellor my aim has been a Britain strong In our stability. In the years
ahead I want a Britain both strong in stability and strong In securrty, so that it can be said not
just that our national stability is safe in our hands, but that our national security is safe In our
hands.
While we stood as one on and after July 7th there IS a danger that In the aftermath of a terrorrst
incident as time passes, people's sense of the scale of the threat dims, that people's guard
starts to drop, their Vigilance lessens and their commitment to the tough and necessary
security measures - all too clear on the morning after - weakens.
And there is also a danger that we fail to stand back and reflect and to make the long-term cool
headed assessment we need to have about the likely repetition of such events and to decide
what, for the long term, needs to be done to strengthen our securrty
Of course, we do not yet have the advantage of great historical distance from the events of
September 11 th or July 7th - and the fresh inSights that can come from this - yet I believe that
our duty looking forward is obvious for all to see
After July 7th we asked anew whether we had in place sufficient security - national and
international - to prevent future InCidents. We asked why young British citizens had decided to
bomb and maim their fellow British citizens.
We asked anew whether we had done enough to encourage and support the integration of
people of different ethnicities and faiths into our country and suddenly dry debates about
citizenship and Britishness had both a meaning and urgency for our times and for our
generation I want us today to remember why we thought it so important after July 7th to
address these Issues, and not only address but resolve these Issues for the long term.
July 7th brought home to us that we are addreSSing both a global phenomenon and a national
one. I want to remind the country that the terronst threat has not dlmlllished and Will not
diminish until we defeat it.
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And I want to suggest today that global terrorism must be fought both nationally and globally so we will have to work to root out terrOrism and Its causes globally and we will have to do so in
circumstances where the Instruments of terror operate locally, nationally and globally, and
make use of continually evolving technology
Just as we must enhance the global response to terrorist violence, so too we must enhance the
domestic response to threats to national security,
While we share one world - and we must act together globally - so much Illore we share one
country, and IllUst act together natlondlly,
There is a British way of achieving this best, seeking and building a unified national consensus
around a framework that is tough in ensuring security but also by being tough in ensuring
proper accountability as we sustalll public support for the action that must be taken
The changed global context
I start with how July 7th has brought home to us how the nature of t~le threat to our security
has changed - and in three dramatic ways.
First, the global threat of terrorism. While the last thirty years have seen Britain havlllg to cope
with terrorism in Northern Ireland, recent terrorist plots are of a different scale: global
conspiracies driven by extremist ideology to cause mass casualties with no warning - often
involving suicide bombings and with the potential threat of chemical biological radiological and
nuclear weapons. These are good reasons for defining AI Oaeda as the first truly global
terrorist threat. Let us be clear: we face enemies that not only have a hatred of the policies we
pursue, but a hatred of our very existence. And between justice and evil, humanity and
barbartsm, no one should be impartial neutral or disengaged but engaged resolute and solid for
Justice
Second, the canvas on which terror operates does indeed cross continents. In recent years AI
Qaeda and groups Inspired by them have attacked over 25 countries, killed thousands of
people - many of them Muslims - and have networks across almost all countries through which
they seek to seduce thousands of fellow travellers.
As the security service puts it, "many of these networks are loose-knit, operating without a
conventional structure and with connections across the world, bound by shared extremist views
or experiences. Whilst some of these networks are centrally guided by AI Oaeda, others are
autonomous, but both work to carry out terrorist attacks, and are influenced by radical
propaganda shared over the interne!."
There is a paradox about globalisatlon the very opportunities it offers - the free movement of
money, people, goods and information - are harnessed by terrorists and organised criminals,
so that we have a situation where today "money IS raised In one country, used for training in
the second, for procurement in a third and terrorist acts in a fourth", a global threat for which
there IS no real precedent - enemies Ihal do not rleed great armies to pullives at risk, enemies
without even a formal chain of COlllmand but can inspire Imitators in the heart of our
communities.
And while the July 7th attacks showed young British citizens may also resort to violence with
little or no warning, a threat all the more serious because It has been the least Visible, let us be
in no doubt that three attack plans threalcnlllg Britain have been thwartcd since July 21 st and it
is now known that North African exile groups inspired by AI Qaeda were responsible for the
Madrid attack
A third reason why the nature of the threat IS different IS in technology itself, that terrorists no
longer need to expose themselves by meeting together or be associated with a particular
community. We know that internet and mobile telephony will be enhanced over the next few
years when communications providers will transmit voices over the internet. And when suiCide
bombers have connecllons with othcr countries and can, in theory, use the Internet or be
instructed through mobile phones, we know that defeating Violent extremists will require a
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unique combination of methods - from security measures founded on real time Intelligence to
argument and debate - and cannot be achieved through action in one country alone or even
one continent, but only globally
July 7th has rightly led to the moderate majority in the Muslim community standing up to
terrorists and supporters of terrorism who advocate violence and murder. And recent studies
show the pathway to violence often starts with contact with extreme material or extremist
clerics - through the internet or videotapes from abroad - paving the way for later direct contact
with - and sometimes visits to - with terrorist organisations and camps.
So we must take steps to isolate extremists from the moderate majority. To root out terrorism
we are rightly Investing III Incr-eased military alld security forces, and policing. And after
yesterday's photographs let us remember It IS incumbent upon all of us to ensure discipline at
all times and to root out indiscipline
But. from 1945, the Cold War was fought with not only weapons that were military or
Intelligence based: It was fought through newspapers, Journals, culture, the arts, literature. It
was fought not just through governments but through foundations, trusts. civil society and Civic
organisations. Indeed we talked of a cultural Cold War - a Cold War of ideas and values - and
one which the best Ideas and values eventually triumphed.
And it is by power of argument. by debate and by dialogue that we will, in the long term,
expose and defeat this extremist threat and we will have to argue not just against terrorism and
terrorists but openly argue against the violent perversion of a peaceful religious faith.
Indeed, the very existence of the Internet and the exchange of ideas across it means that
instead of relYing on old methods of censorship It is not only right now but necessary to take
these ideas head on - a global battle for hearts and minds. and that will mean debate,
discussion and dialogue through media. culture. arts. and literature. And not so much through
governments. as through civil society and civic culture - In partnership With moderate Muslims
and moderates everywhere - as globally we seek to isolate extremists from moderates.
We should also work with our allies and international organisations for reform and democracy:
encourage interfaith cooperation such as the conferences we are involved in with Muslim
thinkers: and in particular link young people here with young people In other countries.
Alongside Tony Blair and Jack Straw I have to underpin the Middle East political road map with
an economic road map and will continue to visit the region to push it forward. And, as we all
tackle injustices that breed resentment, we must show by the empowerment of poor countnes
through debt relief. aid, and support for education healthcare and economic development that
globalisation comes to be seen not as a cause of Injustice and poverty but a force for social
justice on a global scale.
Security
While our long-term aim must be to prevent the indoctrination of future generations of terrorists,
our immediate priority is how to protect our ciltzens against the threat we face now. Since
September 11th, many of AI Qaeda's leaders have been killed or captured, and its bases
closed down. Afghanistan has been delivered from Taleban rule, Iraq from Saddam Hussein with democratic elections now held in both countries And more than ever we now know the
names. the faces, the methods, the operational strategies of violent extremists as we seek to
ensure there is no place on earth which will remain hidden, dark or distant enough to be their
hiding place for ever.
But to take the right security and poliCing measures it is important to understand in specific
detail how different these conspiracies and networks are from the past - like the investigation
into the ricin chemical plot In Britain its significance is that It had to span 26 countries and that
the 12 indicted had, between them, 120 assumed identities. And the scale of July 7th
investigations has been such that 50 phYSical sites have had to be searched - it took two
weeks before one bomb facility could be entered, 11,000 statements have been taken and
24,000 physical exhibits logged - all amounting to some 12,000 leads to follow-up.
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What do we conclude from the scale and complexity of all this?
Resources
First, the starting point IS a stronC] frOllt line of domestic defence, fully trained and equipped
troops and forces, to build on the world-class capacity of the Met, the police and the security
and intelligence agencies, enhancing our front line forces - police fire emergency and medical
services with equipment and training i1nd also exercises to prepare for the worst - the very
things which helped in equipping the emergency services for the heroic efforts we saw III July.
I can confirm that. since Septembel 11 th, as part of the overall increase in police numbers and
funding - nearly 16,000 more officers nationally and 6,000 more in the Met - dedicated antiterrorist resources Will have doubled.
I can tell you that, by 2008, a further £75 million will be added to the Met's counter-terrorism
capability and a further £ 135 million for regional intelligence and Investigation - in total
investing £230 million more nationwide.
By 2008 the size of the security service will have nearly doubled. In total we will invest £2
billion a year on counter-terrorism and resilience - twice what we did before September 11th.
And we need to contillue to build on the strategy for our armed forces set out in July 2004 to
develop our military capabilities in the fight against terrorism with the ability to mount
operations across the world and our capacity to prevent failed states and stabilise lawless
areas and support nation building - a strategy eVident in our current operations in Afghanistan,
where we are working together with America, and witll NATO and the un to build a new
democratic government.
A priority for the Spending Review will be to examine our future security needs for intelligence
gathering and policing. We will review the strategiC allocation of resources to meet changing
requirements - for example, detecting explosives In crowded places: and, building on strong
existing structures, we will examine the case for a single security budget, assessing also how
in this new world we secure the best coordination in delivery and accountability - including the
appointment of the relevant cOlllmittees and their investigative power: at all pOints building trust
In a tough security regime through necessary accountability.
Terrorist financing
Second, we need not only to deny a safe haven to terrorists, but ensure there is no hiding
place for those who finance terrorism.
Money underpins international terrorism. Let me give the example of UK members of AI
Oaeda-linked Libyan Islamic fighting group, a group whose assets we froze last week. Our
information is that documents and money were transferred from Britain to support training and
attacks in Afghanistan and elsewhere through a sophisticated network including a chanty and
four UK property companies. And this was a network which under further investigation included
an individual found guilty in Morocco of involvement in a suicide attack which killed 41 peoplc.
Once again showing ttle global nature of the terrorist threat.
In total I can statc that, since 2001, we have frozen assets of terrorists of nearly £80 million including for over 100 organisations with links to AI Oaeda.
In 2005 under the British presidency the EU brought In new agreements on international
money laundering controls. 2005 also established the Lander review into the system of
suspicious activity reports, to be completed in March. I have just returned from the G8 Finance
Ministers meeting in Moscow whel'e we reaffirmed that the international commullity will
continue to be vigilant in the future too.
And today I am announcing, for Britain, new measures.
First. preventing terrorist financlllg, where we will consult on protecting wire transfers and
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charities from being abused - In the sallle way that we dcted to freeze the bank account at
Finsbury Park mosque and prevont Abu Hamza abusing the mosque's legitimate status as a
charity And to ensure contmued action illtemationally, I can confirm that at tomorrow's summit
In Cape Town, Britain will formally seek the chair of the worldwide Financial Action Task Force
Next, identifYing suspicious transactions - where I want to work even more closely with the
finanCial sector. So I alll today agreeing new gUidance to give clearer strategic advice to
banks on what to target, so they can fulfil their responsibilities; and am setting up a new forum
with them to discuss how we can achieve more tugether to Identify, root out, and prevent the
use of financial networks to advance terrorrsm
And then. disrupting terrorist activity - where With new multilateral arrangements to better joillup enforcement we will strengthen our pre-emptive asset freezing regime. And we will review
again in a year's time whether wo need to go still further either with new legislation or a single
asset freeZing office.
Borders
Next, we need the best and strongest border controls and resilience to attack - enhancing
protective security around our critlr:alilational infrastructure and our citizens as they go about
their daily lives. This means constantly reviewing how we best safeguard our buildings and our
national infrastructure - roads, railways, tunnels, bridges, water systems and utilities.
The commitment we have made to extra spending means we now have 50 per cent more
border guards and security officers than in 2000. And now, rightly, many are based not in
Britain, but abroad - every year we successfully stop more than 40,000 suspicious people
before they even board a boat, plane or train.
But we must match our investment In people, with the laws and technology needed to respond
to the new threats.
Last year Project Semaphore electronically checked the details of SIX million passengers helping our border and security staff to build a picture of SUSpICIOUS activity and leading to the
arrest of 140 suspects
The next step is to electronically and blometrically screen all passengers as they check in - so
terrorist suspects can be identified and stopped before they board planes, trains and boats to
Britain
There are already biometrics in visas from high-risk countrres, now being extended to all
countries where we require visas The next step is the introduction of biometrics into the new
generation of passports.
Both the UN and G8 Ilave called for biometriCs to be introduced to travel documoots to help in
the fight against terrorism. We have come to see that a common theme to the planning and
execution of global terrorist attacks is the bypassing of border controls by using multiple
identities This was a central lesson from the findings of the independent 9/11 Commission In
America, who have since introduced of biometrics at us borders. The UN has Issued a
blueprint for the worldwide integration of biometriCs into travel documents Forty countries
around the world intend to introduce biometriC passports by the end of the year.
The UK will move towards an integrated electronic border security system, linking biometric
passports and visas with electronic checks on entry and exit - helping us track and intercept
terrorrsts and Criminals, seeking to prevent them, stop illegal Immigration and iIlcreaslng the
safety of all legitimate travellers. But at the same time - by providing one secure method of
proving your Identity - making the necessary security checks easier for all of us as we travel
abroad for our work and leisure.
And as part of the Spending Review we will take any further steps necessary to ensure
Britain's borders are secure.
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Identity
Fourth, the requirements for security In identity There is CI common thread running through the
new security challenges - and that IS the ~Jrowing Importance, and the obvIous vulnerability, of
Identity. The risk to me and you CIS Indlvlr1uals is that our identities are stolen for terrorist or
other reasons and used against us and what we stand for. The risk is also that, using false
Identities or without proper Investigation of who they are, people enter and abuse our country.
This matters in Britain when we know that as many as one In four criminals use false Identities
and that as many as one in five companies could be hit by Identity fraud.
The economic and social cost of identity fraud is Into the billions of pounds and growing, with a
new estimate from the Home Office of £ 1.7 billion.
Just as we have been facing new threats and evolving new responses in national and
International seclJrity, analogous developments in the private sector - in banking and finance to ensure the protection of consumers Identities show both the need for and the opportunity to
change.
Already we have moved on from signatures to requiring, as from tomorrow. a PIN for all debit
and credit card transactions And by 2010, according to the forecasts of Bill Gates, people will,
through biometriCs, access their phone, email, computer, and bank - through a fingerprint touch
of a screen anywhere in the world.
Already one million people have bought nnd use an IBM laptop which uses fingerprint
recognition to control access - and for the future, manufacturers are looking at the S3me
fingerpint recognition technology to make mobile phones and MP3 players worthless if stolen.
Today Californian supermarket shoppers are paying With a finger-scan at the checkout: new
schemes mean people can pay for their goods Just by placing their finger on a scanner and
without haVing to carry a card: and Japanese cash machines are asking for a finger-scan
rather than a PIN
The reason IS Simple they are more secure agalrlst fraud and theft. And across the world in
very different cultures most people seem happy to use biometric schemes when they see direct
value III greater security, greater convenience, and lower cost.
So it IS likely in future that a supermarket or bank may hold your biometrics, but at the moment
those charged with the protection of your security - indeed the people who can actually protect
your security - do not As a customer you would, under the private sector initiatives being
developed, have biometrics stored, but as citizen you would not.
So the Issue is not whether advances In biometrics are being put to use - identity information
about us to protect our security is being given voluntarily to credit card and computer
companies to safeguard access to finance and computers and now being used also for
employment and employee recognition For example, biometriCs am increaslllgly being used
to control access to buildings with parlicular needs for security. And with passports now
reqUiring biometrics, a necessity people understand, 80 per cent of the adult population will
have to register their biometrics to ensure our borders are secure and so they can travel freely
across the world. In each case safeguards must be built In to protect misuse of Information.
So the question is whether we move to the next stage - to extend thiS system from the private
sector and the borders to a national biometric scheme includlllg an Identity card
And would most people not agrpe that if there are acceptable safeguards to protect civil
liberties in these areas, there are advantages in a national identity scheme that could not just
help us disrupt terrOrists and Criminals travelling on forged or stolen identities - but, more
fundamentally. protect each citizen's Identity and prevent it being forged or stolen?
The advantages are clear. An identity scheme Will not Just make the necessary security
checks easier for all of us as we travel abroad for our work and leisure, but prevent people
already in the country explOiting your identity or rntne, and using multiple Identities for terrortst,
Criminal or other purposes. One of the central features of terrOrists' activity IS their use of
multiple identities to avoid laylllg tracks or patterns for us to spot. One September 11 th
hijacker used 30 false Identities to obtain credit cards and one quarter of a million dollars of
debt. Since then, the problem has worsened over the last few years, the major terrorist
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suspects arrested typically had up to 50 identities each
If people cannot so easily operate under multiple identities we can potentially disrupt the
modus operandi of terrorists or criminals that rely on multiple or false identities. The key point
IS that, If someone IS In our country and IS travelling on multiple Identities or running bank
accounts In multiple names, we should be In a position to pick this up early. The front line
experience of both Sir Ian Blew, Chief of the Metropolitan Police, and Eliza Manningham-Buller,
the head of the Security Service, have led them to say that a national biometric scheme would
help them do their Job and make reliance on multiple identtties very difficult.
But the key point IS that we should do all In our power to prevent you or I haVing our Identity
stolen or abused, and to ensure that. for each of us, our identity is secure and protected. Some
have suggested the use of biometrics in Identity cards In Britain is a fundamental and
unacceptable "change of relationship between state and Individual." In the past securing your
Identity rested on you belllg given a National Insurance number, on being reqUIred to have a
birth certificate, being reqUired to fill in the census, and, for travel abroad, belllg obliged to hold
a passport. So the question is not whether we have a national register identtty - we have had
so for years - but whether we are prepared to consider the most up to date and the most
secure means to protect our Identity from being stolen.
I believe it is possible in thiS new world of terrorist threats to build a national consensus around
our proposals by showing that there are proper safeguards and proper accountability. In
addition to the Data Protection Act an Independent Commissioner should have oversight of the
database and how it is used - testing it against data protection laws, ensuring individuals will
have the right to see the information held on them and with, in the British way, proper
accountability to Parliament, including reports published and laid before Parliament. And it
may be right also to consider for the future whether the Commissioner should report to
Parliament, taking an overarching look across both the public and private uses of biometriCs,
so ensuring the proper safeguards
The legislation coming before the Commons today already builds in important safeguards.
Private companies will not be able to see the national database, nor will government
departments In their routine business - only for the prevention of crime or the protection of
national security. Only If they are accredited and If they have the person's consent will
government departments and private companies be entitled to ask to check that person's
Identity against the database.
And the British way IS to write In not just safeguards for the individual but to ensure
accountability to Parliament, with the limits to use of the data enshrined in Parliamentary
legislation - and a requirement that there can be no additions to the information held or
extensions to how the database IS used without returning to Parliament for approval. As
Charles Clarke has said, any decision on moving from a voluntary to compulsory scheme will
require explicit approval of Parliament through primary legislation.
Mechanics matter too Building a national scheme will take years, but that is hardly a good
argument for not starting now. It will be important to build upon our current proposals in two
ways. First, I believe that a joint private public partnership In investigatlllg the next stage Involving banks, financial Institutions, computer companies, employers generally - can both
contribute to the general security efforts of all and release substantial savings in a potential
scheme. So I propose a forum of private and public sectors to examine for not Just fraud but
security a joint project to release the best technology and value for money. On this basis we
will report regularly to Parliament on costs as well as benefits.
Second, as part of our public expenditure review, we should take the measures necessary now
to bridge the gap before a complete national scheme is in place including improving the quality
of our databases together with their transparency and accountability - making it easier to
intercept terrorists and criminals and to spot fraud while also ensuring people have trust in how
the necessary information is protected
Opponents of the identity scheme like to suggest that its motivation is to enhance the power of
the state. In fact It starts from the rights of the IndiVidual, the right to have your identity
protected and secure and to achieve that. the right to have the most modern and secure way of
doing so and - as I suggest - the right to have this done so With safeguards for individuals and
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the accountability of the state
Police and court powers
Fifth. the powers available to the police and the courts. When terrorists seek to launch attacks
designed to CCluse illass casualties with no warning, and when they operate In networks
spanning the globe. it is clear that the challenge of global and technologically sophisticated
terrorism cannot easily be met by the policing methods of the 1990s.
As my earlier examples - from the ricin case and July 7th - show. tackling the threat we face is
increasingly complex. Terrorist investigations will span many countries and different
jurisdictions With different rules of engagement This calls for better coordination between
police and justice systems around the world - including on extradition.
Remember our concern when. after July, It was thought that one of the suspects who fled to
Italy might not be returned quickly for investigation and trial In the end this was resolved - and
yet if the situation had been reversed, it would probably have taken a year for someone to be
returned from BI'itain to Italy in similar circumstances. The fact that Rashid Ramda, wanted for
the Paris metro bombings in 1993. was able to exploit our Judicial system to delay extradition
for ten years is completely unacceptable. Again, this case has finally been resolved - and we
are considering setting a maximum time limit for all future extradition cases involving terrorism.
I myself first came across the scale and cOlllplexity of investigations required when I was as a
Treasury Minister addreSSing the Issuing of banning order for financial transactions of
terrOrists. But the police investigation - as the July 7th investigation shows - of potential terrorist
activity is even more complex than that.
When a site cannot be entered for days or weeks. when a series of computer encryptions takes
weeks to decipher, when a multiplicity of Internet e-mail and telephone contacts needs to be
investigate across national borders. when thousands of feet of video footage have to be
viewed, and all of these across dozens of countries and often all continents involving all the
new technologies, it is obvious to me that police Investigations need more time.
But, of course, there is another aspect of the new terrorism which I have also had to consider:
the need to act early to prevent possible terrorist incidents and what that means for arrests and
charging.
It is obvious that where there is a threat of mass casualties in circumstances where there is no
attempt at a warning the police have an extra duty to take preventive action and to intervene
early. They cannot walt for the details of a conspiracy to come to fruition.
Obviously, early intervention carries with it serious Implications: there is less accumulation of
evidence at the point of arrest than In the days when police could more reasonably wait for the
near-to-flnal details of a conspiracy to materialise. It is then a race against the clock to confirm
that the threat was real, and then to gain enough evidence to convict - rather than have to
release people about whom there are still grave concerns back into the community
Otherwise we Will continue to face the unacceptable risk that, as the independent terrorism
reviewer Lord Carlile puts it "I alll satisfied beyond doubt that there have been situations In
which significant conspiracies to commit terrorist acts have gone unprosecuted as a result of
the time limitations placed on the control authorities following arrest."
In other words: not only were terrorists not brought to justice - more importantly they had to be
released and so remain a threat.
Very few cases currently run to 14 days and we would expect an even smaller proportion to run
beyond that. We are rightly proud of civil liberties. No one should be held arbitrarily without
safeguards and the longer the detention the more concerns there may be about arbitrary
treatment.
But the safeguards lie not in measures that make it impossible for police to complete an
investigation Into terrorist actiVIties - something which would in the end harm all our ciVil
liberties - but in ensuring that the CIVil liberties of a person detained are protected by our
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Page 10 of 12
tradition of impartial judicial oversight.
And I believe that the right balance between the obvious and ctlanged requirements for the
national security of our country and our people and the civil liberlies of the individual is to give
the power to hold people beyond 14 days, but to require that the extension be with the explicit
approval of a senior Judge.
I believe that this is at the heart of how we bellarlce for the modern world the needs of security
with an affirmation of individual liberties. We do so by measures which ensure accountability
and by proper oversight.
The current legislation makes it clear that the judQe can agree any extension only If he is
satisfied that continued detention is necessary and that the investigation is being carried out as
quickly as possible Those detained must also be able to make written representations to the
judge to contest their continued detention. If the judge IS not satisfied at any stage of the
process, the person must be released.
Indeed it may be possible that in subsequent legislation Parliament may be prepared to
consider going beyond 28 days in circumstances where oversight is proven to work. And it may
be at that time that to ensure even greater elccountability we might consider not just that a
senior Judge approve continued detention every seven days and that there be a right of appeal
to high court, but also we could give the Independent Reviewer the power to look at and to
report on any case which goes beyond 28 days without charges.
I believe that it IS strong oversight of the process that should ensure that no one is detained
any longer than absolutely necessary - and of course the Independent ReViewer of our
terrorism legislation has the overall capacity to monitor the use of this power and report any
concerns.
It is difficult for opponents to suggest that the terrorist threat has not changed. It is difficult also
for them to say that this change is not serious enough to justify change III our laws. The
question is how in making our changes to accommodate new times, we ensure proper
oversight and accountability, and so get the balance right between the civil liberties of the
individual and the security needs of all indiViduals.
By preserving the primacy of the courts backed up by rights of appeal and thus proper
overSight and, in the end, Parliamentary accountability we can achieve a settlement that
ensures the right balance between our liberties and our security - properly fulfilling our
traditions of civil liberties while acting deciSively in the security interests of the country.
Glorification
Let me turn to the way we deal With people and organisations that encourage or glOrify
terrorism. The UN recognised the importance of this issue in a unanimous Security Council
resolution last September - drawing attention to the problem of groups or individuals glorifying
terrorism. Of course anyone who calls for speCific actions leading to murder can and should
be prosecuted under existing law - as Abu Hamza was - but we need look no further than the
incidents in London with posters glorifying terrorism - which shocked the country - to see that
the authorities might benefit from a clearer framework to intervene quickly when boundaries
a re crossed.
I think most people would agree that no one should be able to publicly celebrate and glorify
what happened in London in July and walk away from the consequences, nor should they be
able to form organisations to celebrate and glorify atrocities only to escape censure simply by
adding a disclaimer that from the act of glorification It should not be assumed that anyone will
emulate them. Indeed, if we withdraw glorification from the definition of indirect incitement or
from the grounds for proscribing organisations this would send a signal that we could not reach
a consensus on how serious this issue IS.
None of this threatens our unshakeable commitment to freedom of speech; nor IS it in any way
whatever awned at the decent law-abiding Muslim community of Britain - mdeed I want to pay
tribute to the way many organisations within the Muslim community condemned the protests.
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Page 11 of 12
Integration
We have had a great deal of success - especially since July - forging CI common front against
terrorism. And we should build on thiS - so we tackle together not Just terrorism, tJut the roots
of terrorism - the extremism which seeks to Justify It, and the grievances that give It an
audience.
In parlicular we must ensure that young Muslims have a voice in this debate and all the
deciSions that affect them.
It is a problem for the whole of society that Bntlsh Muslims are twice as likely to be jobless,
twice as likely to be on low incomes, tWice as likely to live in a deprived area. I have called for
a greater focus on tackling these inequalities driving up the educational attainment of pupils
from ethnic minorities and a more comprehensive new deal effort - including confronting the
fact that language can be a barrier to economic opportunity as well as social integration
But the partnership we need is not only to tackle social and economic inequalities but also to
expose the extremism which condones or encourages violence in place of dialogue and
debate
We should work to involve all parts of the British Muslim faith in ensuring that young Muslims
have access to authoritative Interpreters of Islam of their own generation and outlook. But the
challenge of integration IS one which if we are to succeed must draw in the whole of society.
Britishness
I have suggested that we do more to value the ideals of Britishness - our commitment to
liberty, responsibility and fairness - and its symbols and institutions and in particular I suggest
today we recognise and show we value the contribution of our police, emergency and secunty
services, our military and our armed forces and the contribution of all those who fought in the
great wars of the last century.
Far from failing to teach history on these great times of conflict and courage we must do more
to remember them so thelt they will never be forgotten.
In Arrlllstice Day and Remembrance Sunday "we remember the fallen" - and It is right and
fitting to honour them.
So, after approval from Her Majesty the Queen I can announce that the Treasury will allocate
£1.5 million from the proceeds from the coin celebrating the 200th anniversary of the Battle of
Trafalgar to help fund the memorial in Staffordshire for the men and women In our armed
forces who have given their lives.
The national Veterans' Day IS deSigned to thank today's generation of ex-servicemen and
women for their service to our country. I propose ceremonies in every constituency and locality
of the country to mark national Veterans' Day - where we present veterans with veterans
medals at local ceremonies and we Will consult with veterans' groups in taking this forward.
Today the Defence Secretary is announcing that we will extend veterans badges to all those
who served until 1960 IIlcludlng all who did national service.
And to involve young people more in celebrating the contribution of our armed forces - he and I
would like to pilot an expansion of our cadet forces, especially in state schools. So we have
asked Ian Russell to fundraise with the private sector, with funding matched by the
government.
And we should ask young people to playa leading role in future Veterans' Day celebrations - in
particular volunteering to tape and Video the memories of veterans for a veterans archive - led
by a prominent national figure and supported by government and hopefully lottery funding - so
that we have a local and national record of pride and achievement that measures up to the
contribution our armed forces have made.
I started by saying that on July 7th the British people stood as one. The victims of that day will
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never be forgotten. Accordingly the Treasury stands ready to playa part in funding a memonal
that victims families may consider fitting.
Conclusion
The global terrorist threat IS such that we cannot ()fford not to be vigilant at all limes.
I have suggested how this global terrorist problem must be fought globally - with all the means
at our disposal: military, security, intelligence, economic and culture.
We will not Yield, relax. rest, become complacent or lower our guard but will use every means,
every necessary resource - all methods of diplomacy, RII means of intelligence, all tools of law,
policing ane! our security and military forces
At no pOint should any serious deCision-maker be soft or posture on security matters and
refuse to acknowledge the new world we are in. Instead we must be tough-minded, longtermist and solid in our resolution. We should remember July 7th and July 21 st, September
11 th, the Bali bombings, the Spanish atrocities and terrorist acts killing Innocent people across
every continent.
Because July 7th reminded us that we must find strength not Just In shared vigilance, but in the
strength of an indomitable common purpose, It is right to re-emphasise and strengthen the
responsibilities each and all of us owe our country as British citizens. By being tough on
security, With strengthened resources anci powers, and tough on accountability, with
safeguards for individuals and oversight through Parliament, we can make Britain safer and
more secure while affirming our very British commitment to the liberties of the individual and
shOWing we will never sacrifice the very values terrorism wishes to destroy.
And around this I believe it s our responsibility to build a strong unified national consensus
which reflects a modern patriotic purpose that - every day and without fail, we will do what is
right to protect the security and liberties of our Citizens and country, and in the face of global
terrorism we will prevail
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Page 1 of 1
March 1, 2007
HP-288
Paulson Appoints Carfine as Fiscal Assistant Secretary
Washington, D.C-- Treasury Secretary Henry M. Paulson, Jr. today announced the
appOIlltment of Kenneth E Carflne to serve as Treasury Fiscal Assistant Secretary
"Ken Carfine has served the Treasury With distinction for more than 30 years," said
Secretary Paulson. "He has been a truly dedicated public servant, nSlng through
the ranks of tillS Department and prOVlllg that he possesses the experience and
talent to take up the imporiallt responsibilities of this cntlcal position"
Carflne has served as Treasury Deputy Assistant Secretary for Fiscal Operations
and Policy since April 2003. He began his Treasury career at the Financial
Management Service in 1973, holdlllg positrons With increasing responsibility in
banklllg, cash management, payments, check claims. and government-wide
accounting
The Fiscal ASSistant Secretary, who reports to the Under Secretary for Domestic
Finance, manages the Office of the Fiscal ASSistant Secretary. The office develops
policy on payments, collections, debt financing operations, electronic commerce,
government Wide accountlllg, and government investment fund management. The
Office also manages the government's daily cash position and produces the cash
and debt forecasts used to determine the size and tirTling of the government's
financing operations.
The Fiscal Assistant Secretary oversees the FinanCial Management Service and
the Bureau of the Public Debt. These Treasury bureaus operate the financial
InfrastnJcture of the Federal government, Including payments, collections, cash
management. financing, central accounting, Issuance of Treasury securities, and
delinquent debt collection.
Secretary Paulson Will swear
http://www.treas.gov/pressfreleaseS/hp288.htm
III
Carfine on Thursday, March 15
4/6/2007
Page I of I
10 view or pnnt tne f-JUr content on this page. CiownloaCi tne tree llCiQtJe<s,> AcrOtJatcs)K~9q~~.
Marcil 1, 2()1l7
HP-2mJ
Paulson Statement on Assistant
Secretary Henry Resignation
Washington, D,C - TIC;ClSUIY S(;cl'elary Henry M Pelliison made the following
stZltel11CIII toclZlY JE;(JilrcllrlC] til(; l'cslCFlatloll of Assistant SecretZiry Emil W Henry. JI
"Emil has been an olitstall(jlllC) 1ll(;IllI)er of my senior team and a superb public
sel'vanl I Zlppreclate his cOllllsel. inSllJllts and expertise As Assistant Secretary for
Fillancial Irlstllullons. Emil was Ilitegral to Illany important TreClsury Initiatives.
IllClucilrlg IncleasllllJ our caplldl markets competitiveness, reform of the government
spollsoreci ellterpl'lses (GSEs) redUCing tile regulatory burden on our nation's
flnallclal Instltutlorls. Zlnd spearileddllig our efforts for prepal'atlon In the event of a
flnallclal criSIS
"Not long after Ile arrived dt TI'easliry. Emil was asked to take on tile additional
ciutles of tllC ASSlst,1nt Secretdry for FinanCial Markets. where he successfully
gUleieei the reilltroeluction of the J[)-year-I)ond. led our efforts to mOllitor the growth
of hedge funcJs ,1IIel clelwatlves, and worked closely Wltll the Preslclent's Working
Group 011 Flnclilcial Markets Orw Job IS a hamJlul. two an unprecedentecl
commltmellt. He l11arldged both Jobs Wltfl excellence,
"Emil IS a corlSUrlIlllate teZllll player He has always put the Departmerlt and hiS
duties as a pllbllC servant before himself I appreciate that he has offered to stay at
Treasul'y until IllS successol IS cOllflrmed to erlsure a seamless transition
"Tile Department will miss Ilis creative thlnkillg. energy and tremendous leadel'shlp
I respect hiS (leCISloll to return to plwate life, I know tilat commuting betweerl
Wasilingtoll elml New York has i)eerl difficult for EI1111 arid a burden on hiS family,
Wlttl great appreclCltloll. I Wish hlill cOlltlnlled success In hiS career and personal
life"
REPORTS
•
Resignation Letter
http://www treas.gov/pressfreleaseS/hp289.htll1
4/6/2007
DEPARTMENT OF THE TREASURY
WASHINGTON. D.C.
ASSISTANT SECRETARY
March 1, 2007
The Honorable George W. Bush
President
The White House
Washington, D.C. 20500
Dear Mr. President:
It has been the honor of my lifetime to serve in your administration as Assistant Secretary of the
Treasury. However, for the past year and a half, I have been living away from my wife and three
teenage children in New York. It is now time for me to reengage with my family and return to
private life.
So, with some sadness, I tender my resignation. I will stay flexible as to my departure date to be
helpful in a smooth transition for my successor, and to ensure that current initiatives receive their
proper attention. Therefore, I propose my resignation be effective this spring.
Thank you for your confidence in me. But even more importantly, thank you for providing me
the opportunity to experience the noble calling of public service. It is true that public service
requires great sacrifice. The rewards of such service, however, far exceed the cost.
I am grateful to have had the opportunity to serve you and both Secretaries Paulson and Snow.
The Treasury is a remarkable institution filled with extraordinary individuals. I am proud to
havc worked with such a group and thank you for giving me the opportunity to work on so many
important initiatives including enhancing the competitiveness of our capital markets, working
closely with the President's Working Group on Financial Markets, establishing comprehensive
procedures and protocols to protect our financial institutions and markets in the event of a crisis,
reviewing the explosive growth of hedge funds and derivatives, reintroducing the 30-year bond,
launching the National Strategy for Financial Literacy, working to improve and reform the
Terrorism Risk Insurance Act and the GSEs.
I will leave my government service confident in the superb financial stewardship of our nation
by those I leave behind and recognizing your personal dedication to the key drivers of growth
and economic opportunity: individuals, the marketplace, innovation, and entrepreneurship.
Respectfully yours,
~\~\Emil W. Henry, Jr.
Page I of I
March 1, 2007
HP-290
Paulson Statement on President's Intent to Nominate Nason for Assistant
Secretary
Washington, D.C.--Treasul-y Secretary Henry M. Paulson released the following
statement today regarding the President's Intent to nominate David G. Nason for
the position of Assistant Secretary for Financial Institutions.
"I am truly pleased with the President's intention to nominate David Nason to
succeed Assistant Secretary Emil Henry David has already stlOwn great
commitment to the President's economic agenda and to the Treasury Depal1ment
as a Deputy Assistant Secretary for Financial Institutions.
"Since arrrving at Treasury, David has been a key member of the domestic finance
teall) He has demonstrated sound jUdgment, leadership, and technical
sophistication with his work to Improve the government sponsored enterprrses'
regulatory structures and to reform the Terrorism Risk Insurance Act.
"David has also been critical In shaping Treasury's policy on entlanclng the
competitiveness of the U.S capital markets and helping the Department to fulfill the
Imporiant duties of the PreSident's Working Group on Financial Markets. His prior
service at the Securities and Exchange CommiSSion has complimented his work at
Treasury quite well.
"From the moment I arrived at the Department. I was impressed with DaVid's
expertise, dedication, and professionalism and I could see that he was greatly
respected by his colleagues. I have the utmost confidence in hiS abilities and look
forward to working With the Senate to see David confirmed."
http://www.treas.gov/pressfreleases/hp290.htm
4/612007
Page 1 of 1
March 1. 2007
IIp-291
Media Advisory:
Treasury Secretary Paulson to Visit Tokyo, Seoul, Beijing and Deliver Speech
in Shanghai Next Week
Treasury Secretary Henry M. Paulson, Jr. will travel to Tokyo Seoul, Beijing, and
Shanghai next week to meet With government officials and local business leaders.
The Secretary will deliver a speech In Shanghai on March 8 at the Shanghai
Futures Exchange.
The Secretary will be In Tokyo on March 5-6 to hold bilateral rneetings with Prime
Minister Abe, Finance Minister Oml. Bank of Japan Governor Fukui, Minister for
Economic and Fiscal Policy Ota. and Financial Services Minister Yamamoto,
arnong others. He will travel to Seoul on March 6, where he will hold bilateral
meetings wiHl PreSident Roh. Deputy Pmne Minister and Minister of Finance and
Economy Kwon, and Trade Minister' Kim. He will meet with Vice Premier Wu Yi in
Beijing on March 7 before going on to Shanghai While in Shanghai, Secretary
Paulson will meet with financial sector leaders and local government officials. and
deliver a speech on Chinese finanCial markets reform on March 8
The follOWing event is open to credentialed media:
Who
What
When
U S. Treasury Secretary Henry M. Paulson. Jr.
Speech on Financial Markets Reform In China
Thursday, March 8, 930 a.m. Local Time
Where
Shanghai Futures Exchange
Shanghai
-30-
•
http://www.treas.gov/pressfreleases/ hp291.htm
4/6/2007
Page) of I
March 5, 2007
HP-292
secretary Paulson Names James H. Freis, Jr. as the New Director of FinCEN
U.S. Treasul'y Secretary Henry M. Paulsoll, Jr. tOday named James H. Freis, Jr. as
the new Director of ttle Financial Crimes Enforcement Network (FinCEN), a bureau
of the US. Treasury Department Freis currently serves as Deputy Assistant
General Counsel for Enforcement & Intelligence
"Jim brings ieCldershlp, flllClrlClal expertise and Intema\lonai expenence that Will
serve our nation well as Director of FlllCEN. I am pleased that he Will take over and
lead FinCEN's critical efforts to safeguard the financial sector from illicit activity.
Over the past two years at Treasury, Jim has contributed greatly to Treasury's
efforts to protect the country against terrorist flllanCiers, money launderers, and
other crlmillais WllO abuse the financial system." said Paulson
As Deputy Assistant General Counsel, Freis provides legal support to Treasury's
Office of TerrOrism and FinanCial Intelligence. including supervIsing the legal
counsel to FinCEN, the Office of Foreign Assets Control, and the Treasury
Executive Office for Asset Forfeiture. He is also responsible for developing
international financial measures against rogue states.
Before coming to Treasury. Freis served as Senior Counsel in the Legal Service of
the Bank for International Settlements In Basel. Switzerland, where he supported
the banking ane! risk cOl1trol departments In providing finanCial services to central
banks and Internatiollal organizations for management of monetary reserves He
also had regular interactloll with the Basel-based committees of experts selling
international finallcidl standards He preViously served In the Federal Reserve Bank
of New York's legal department. where he adVised on payment and settlement
systems Issues at wholesale and retail levels. administration of foreign government
and central bank accounts, and legislative and regulatory reform He was part of the
successful defense of the Bank before the Irem-U.S Claims Tnbunalln The Hague
with respect to the management of Iranian funds during the hostage crisis. Freis
also spent one year working in the fmancial sector In Germany.
Freis earned IllS JUriS Doctorate from Harvard Law School and his bachelors
degree from Georgetown University, graduatmg With honors from each institution.
He IS an attorney-at-law and a Chartererl Financial Analyst (CFA) chanerholder.
Freis currently reSides In Washington, DC with his wife and two children.
The FinanCial Crimes Enforcement Network is a bureau wlthm the Treasury
Department charged with safeguarding the financial system from money laundenng
dnd other illicit fillanoal actiVity through the administration of the Bank Secrecy Act.
FlnCEN supports the law enforcement and intelligence communities, as well as the
regulatory agencies, through the sharing and analysis of financial intelligence
Freis replaces Robert Werner, who departed FinCEN in December 2006 to pursue
a career III the private sector.
-30-
http://www.treas.gov/pressfreleases/~92.htm
4/6/2007
Page 1 of 1
March 5. 2007
hp-293
Media Advisory:
Ryan to Visit Conn. to Discuss Hedge Funds
us Treasury Assistant Secretary for FinanCial Markets Anthony Ryan will travel to
Greenwich. Conn. tomorrow to deliver remarks on hedge funds at the World Hedge
Fund Forum.
Who
us
What
Remarks on Hedge Funds
When
Tuesday. March 6. 1220 p.m. (EST)
Where
Connecticut Hedge Fund Association World Hedge Fund Forum
Hyatt Regency Greenwich
1800 East Putnam Avenue
Olel Greenwich. Conn
Treasury Assistant Secretary for Financial Markets Anthony Ryan
-30-
http://www.treas.gov/pressfreleases/bp293. htm
4/6/2007
Page I of 1
March 5, 2007
hp-294
US Treasury to Award NYC Organization For Excellence in Financial
Education
US Treasury Deputy Assistant Secretary for FinanCial Education Dan lannicola,
Jr. will recognize New York City non-profit Working In Support of Education (WISE)
as a leader in finanCial education tomorrow at the High School of Economics and
Finance. lannlcola will JOin New York City Department of Consumer Affairs
CommiSSioner JonaUlan Mintz to present the John Sherman Award.
The Treasury's Office of Financial Education presents Sherman Awards to raise
awareness of the urgent need for finanCial education and the effective pracllces to
help meet that need. The Office of Financial Education has presented such awards
to 15 organizations since its creation in 2003.
WISE IS a non-profit organization that prOVides Innovative programs focused on
financial education and literacy, bUSiness and social entrepreneurship and
preparation for college and the workplace. Treasury chose this program because it
partners with schools that agree to teach 12th grade students a 6-8 week unit on
personal finance as part of an Economics course required by the state of New York.
WISE's Financial Literacy Certification Program encourages teachers to teach
personal fmance and measures the students' performance after the unit IS taught.
Tilrough tillS program, WISE has reached thousands of high school students
throughout New York City
Who US Treasury Deputy ASSistant Secretary for Fillancial Education Dan
lannlcola, Jr.
What SherrTlc:lll Award Presentation
When Tuesday, March 6, 1200 p.rTl. (EST)
Where High School of Economics and Finance
10th Floor/Library
100 Trinity Place
New York, NY
-30-
http://www.treas.gov/pressfreleases/hp294.htm
4/6/2007
Page 1 of2
Malch 5, 2007
2007 -3-5-16-27 -45-3252
U.S, International Reserve Position
The Treasury Department today released US reserve assets data for the latest week As Indicated in this table, U S. reserve assets
totaled $66,126 million as of tile end of that week, compared to $65,403 million as of the end of the pnor week.
I. Official U.S, Reserve Assets (m US millions)
I
February 23, 2007
I
TOTAL
11 Foreign Currency Reserves
65,403
Euro
1
I a Securities
II
12,521
Of which, issuer headquartered
In
II
the US
Yen
10,506
II
II
March 2, 2007
II
66,126
II
TOTAL
II
Euro
II
Yen
II
TOTAL
II
23.027
II
12,570
II
10,892
II
23,462
/I
0
/I
0
II
17.834
II
0
I
II
0
I
I
0
I
II
0
I
I
4,874
II
II
lb. Total depOSits with:
Ibi Other central banks and BIS
I bll Banks headquartered
117
II
the US
Ib.11 Of WhiCh, banks located abroad
12.501
II
17,621
5,120
I
0
I
0
b.lil. Banks headquiJrtered outside the US
II
I
0
12 IMF Reserve Position 2
I
4,881
13
I
8,833
Special Drawing Rights (SDRs) '2
4. Gold Stock 3
I
II
II
II
II
I
I,
0
5,308
II
II
11,041
5. Other Reserve Assets
II
/I
0
Iblii Of WhiCh, banks located In the US
12,526
8,915
II
II
II
,
11,041
I
0
I
II. Predetermined Short-Term Drains on Foreign Currency Assets
February 23, 2007
I
I
Euro
I
II
Yen
TOTAL
II
March 2, 2007
II
Euro
II
Yen
II
0
1 Foreign currency loans and securities
II
II
II
II
II
2. Aggregate short and long positions In forwards and futures In foreign currencies vis-a-vis the US dollar:
12.a. Short posllions
12. b.
Lonq POSitions
,13. Other
II
II
0
II
0
/I
II
II
0
II
II
II
I
I
I
I
I
II
TOTAL
II
0
I
II
0
I
I
0
I
0
I
I
I
III. Contingent Short-Term Net Drains on Foreign Currency Assets
[
I
I
11~===M;r==ar=c=h=2~,2=0=0'li'7=====91
Feb,".,y 23, 2007
Eu ro
'11== = = = = = = = 9 1IF= =
http://www.treas.gov/pressfreleaseS/ 12007351627453252.htm
Yen
II
II
TOT AL
11F==E=ur=o=~IFI==Ye=n==jllpT=o=T=A=L=ll
1/
II
II
4/6/2007
Page 2 of2
1 Contingent liabilities in foreign currency
1.a. Collateral guarantees 011 debt due witlllrl 1
year
11.b. Other contingent liabilities
2. Foreign currency securities with embedded
options
13
Undrawn. unconditional credit lines
13 J With other central banks
3. b Wilh banks and other f//lanCial instillltl(lf)s
IHeadquartered III the US
3. c. With iJanks and other
flflc1l1C/al
I
II
I
I
I
II
I
II
I
I
II
II
I
II
II
II
II
I
I
II
II
II
\I
//lsl/lut/ons
0
I
0
I
II
II
II
II
II
II
I
II
II
II
II
II
II
1/
II
IHearirlualtered outsnie the US
0
I
II
II
II
II
\I
\I
II
I
1Currencies vis-a-vis the U.S dollar
I
14a 1. Bought puts
14a2 Written calls
0
0
0
14 /) Long posil!ol7s
14 b 1 Bought calls
I
I
14 b 2 Written puts
I
1
II
II
I
I
I
I
I
I
I
I
I
I
I
I
I
I
\I
4. Aggregate short and long positions of options
in foreign
14.a. Short positions
II
0
I
0
I
I
I
II
I
\I
1
II
II
II
II
I
I
I
I
I
II
Notes:
11 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 may be subject to reviSion. Foreign Currency
Reserves for the prior week are llIlal.
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 entnes lor the latest week reflect any
necessary adjustments, including revaluation, by the US Treasury to IMF data for the prior month end
31 Gold stock is valued monthly at $42.2222 per fllle troy ounce.
http://www.treas.gov/pressfreleases/2.00.7351627453252.htm
4/6/2007
Page I of I
10 view or pont tne /-'Ur content on tnls page, eJownioaeJ tne free AeJODe® AcroDat® KeaeJerCSJ.
M;Jrcll :1. 2007
HP·2CJ:J
Media Advisory:
Treasury, IRS, Stakeholders To Discuss Ways To Improve Taxpayer
Compliance
TICilSlll'Y ASSlstdllt SccrcLlrY fUI Tax Policy Eric Suloillon amJ IRS COIIHllISSlor18r
MiliK W Evcrsoll will lw ITluclf;ratlllfj d roull(Jt~lblc eilscllsslon wltll reprcsentatlves of
tile bUSllleSS COITli1lLlrllty. tax cxpelts, arld currcnt arld forrner ~Jovernillent offiCials
on ways to Improvc C0ll1pllZ1I1CC and recluce tile tax gap
WHO
Treasury Assistant SCCrl?tilry for Tax Policy EIIC Solomon
IRS COIl1ITlISSIOIWI r,lark W Eversorl
Panelists
Pamela Olson. American Bar Association
Lawrellce Glbl)s, Former IRS Commissioner
Thomas Suilivall. U S Small Business Administration
Nina Olson. Natlollal Taxpayer Advocate
Scott Hodge, Tile Tax F OLllldatlon
Eric Toder, Tile Url)all Institute
Macey DavIs, National Fccieratlon of Indeperldellt BUSiness
GlovcHllll COl atolo. U S Cllall1i)er of Commerce
Jeffrey Hoops Amcrlcan Institute of Certlflecl Pul)IIC Accountants
Robert McDcJIloLJgl1, Polcllold Corporatloll
WHAT
A Roundtable DISCUSSIOIl on Ways to Improve Tax Compliance
WHEN
Friday, March 9, 2007930 a rn EST
WHERE
IRS Audltollum
ill Floor
Intelnal Revenue Service BUilding
1111 Constitution Ave., NW
Waslllrlgton. DC
Note: For clei1rance Into tllf; IRS BIIII(IIIlI], please call IRS ~,1edla Relations at
(202) 6224000
-30REPORTS
•
•
Remarks from Jeffrey Hoops, American Institute of Certified Public
Accountants
Remarks from Macey Davis, National Federation of Independent Business
http://wwwtreas.gov/pressfreleaseS/hp.J95.htm
4/6/2007
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
STATEMENT PRESENTED TO
DEPARTMENT OF THE TREASURY
AND THE INTERNAL REVENUE SERVICE
ROUNDTABLE DISCUSSION ON THE TAX GAP
March 9, 2007
The American Institute of Certified Public Accountants thanks the Department of Treasury and
the Intemal Revenue Service for the opportunity to appear before you today. I am Jeffrey R.
Hoops, Chair of the AICPA's Tax Executive Committee; and a tax partner with Emst & Young,
LLP, New York, New York.
The AICPA is the national, professional organization of certified public accountants comprised
of approximately 350,000 members. Our members advise clients on federal, state, and
intemational tax matters and prepare income and other tax retums for millions of Americans.
They provide services to individuals, not-for-profit organizations, small and medium-sized
businesses, as well as America's largest businesses. It is from this broad perspective that we
offer our comments today on the tax gap and improving compliance with the nation's tax laws.
GENERAL COMMENTS
The AICPA commends Treasury for the September 2006 release of its report entitled, A
Comprehensive Strategy for Reducing the Tax Gap.
We strongly support Treasury's
comprehensive multi-year strategy to reduce the tax gap which consists of seven integrated
components: (I) reducing opportunities for evasion; (2) making a multi-year commitment to
research; (3) continuing improvements in information technology; (4) improving compliance
activities; (5) enhancing taxpayer service; (6) reforming and simplifying the tax law; and (7)
coordinating with partners and stakeholders. We have organized our written statement around
these seven strategies, including reiteration of our long-standing support for a fully funded IRS
budget.
Closing the tax gap is consistent with the AICPA Tax Division's Mission Statement which
i
places a major emphasis on promoting the interests of the public.
Similarly, our current
strategic plan states that:
As representatives of CPAs in tax practice, the Tax Section best serves the public interest
by assisting members to hone their professional skills, regulating unacceptable
The Tax Section serves the public interest by assisting AICPA members to be the preeminent professional
providers of tax services, and by advocating sound tax policy and effective tax administration.
professional conduct, and
simultaneously - demonstrating our commitment to
promoting and developing an efficient and effective system of taxation.
The AICPA is committed to this common effort of mitigating the tax gap and fostering fair and
efficient tax administration. In this context, the AICPA plans to survey our Tax Section
members at the close of the 2007 filing season to assess the perspective of CPAs on ways to
address the tax gap.
CLOSING THE TAX GAP CALLS FOR A FULLY FUNDED IRS BUDGET
A central component of any tax gap strategy is ensuring a fully funded IRS budget. For this
reason, we strongly support full funding of the Internal Revenue Service's fiscal year 2008
budget. We have long advocated funding levels which would allow the IRS to efficiently and
effectively administer the tax laws and collect taxes. Giving the IRS the resources necessary to
properly process tax returns and enforce the tax laws is vital to maintaining our voluntary
compliance system.
We agree with the IRS Oversight Board that "just applying additional resources to do more of
what is being done today" is not sufficient, and any plan to address the tax gap must be more
comprehensive? Treasury's September 2006 report aptly adopts a comprehensive view by
including an IRS commitment to customer service, a greater emphasis on research to spot major
areas of non-compliance, and a major focus on IRS enforcement activities. However, none of
these objectives can be seriously accomplished without addressing a realistically funded IRS
budget for fiscal year 2008.
Commissioner Everson recognizes that "[a] critical element in [the Service's] ability to make a
serious dent in the tax gap is to have the necessary resources available to fund [the IRS's]
service, enforcement, and information technology programs.,,3 We agree. The AICPA
encourages this type of balanced approach and stands ready to work with the Treasury and the
Service to ensure that the tax gap dilemma is properly addressed and the needs of America's
taxpayers are fulfilled. As we have stated in the past, all taxpayers must have access to resources
that enable them to fulfill their responsibilities, and budgetary funding must be provided to
ensure this access.
A balanced approach to customer service and enforcement is critical. At the same time,
reductions in IRS funding requests that focus too much on cuts in customer service only serve to
undcrcut tax compliance over the longer term, with the nation's taxpayers suffering as a direct
result.
IRS Oversight Board 2006 Annual Report, January 2007, page 36.
IRS Commissioner Mark Everson. Statement on "Deconstructing thc Tax Code: Uncollected Taxes ami the
Issue of Transparency," before thc Senate Homeland Security and Governmental Affairs Committee,
Subcommittee on Federal Financial Management, Government Information and International Security,
September 26, 2006.
2
1. REDUCE OPPORTUNITIES FOR EVASION
The AICPA supports Treasury and IRS's efforts to develop constructive legislative and
administrative policies designed to reduce opportunities for evasion. We commend Treasury for
recognizing that the issuance of regulations and administrative guidance is a critical component
4
of responding to the tax gap problem.
In this context, we appreciate Treasury and IRS's
periodic publication and updating of the "Priority Guidance Plan," providing a comprehensive
list of guidance the government has scheduled for completion during the fiscal year. The AICPA
annually provides comments to the Administration regarding our suggestions for new guidance
projects; and we look forward to providing our updated guidance recommendations in the next
few months.
The Administration's proposed fiscal year 2008 budget includes a number of tax administration
proposals that target the tax gap. These proposals include (among others) expansion of
information reporting, basis reporting on securities sales, expanded electronic filing for certain
large organizations, and increases in the scope of tax penalties. We are currently reviewing the
broad range of tax administration proposals contained in the 2008 budget, and we hope to
provide comments on a number of these proposals in the coming weeks. At this time, we offer
some important observations on tax penalties and basis reporting on securities sales.
Tax Penalties and the Tax Gap
A number of legislative proposals involving tax penalties have been raised under the guise of
closing the tax gap. As a general principle, the A ICPA supports carefully crafted penalties that
promote tax compliance and result in a meaningful reduction in the tax gap. However, we are
concerned that many of these civil penalty proposals are being raised by Congress and the
Administration in a narrow, rifle-shot perspective. Instead, we believe greater levels of tax
compliance could be achieved among the public if Congress established a legislative oversight
process similar to that which was used in the drafting of the Improved Penalty Administration
and Compliance Tax Act, which ultimately became law as part of the Omnibus Budget and
Reconciliation Act of J 989.
In our opinion, establishing a broad legislative oversight (penalty) review process would not only
achieve higher levels of tax compliance, but should also result in greater numbers of taxpayers
believing that tax fairness has been achieved. This is consistent with a 2006 statement by J.
Russell George, Treasury Inspector General for Tax Administration (TIGTA), that "" .it is often
difficult to ascertain whether a taxpayer has intentionally evaded taxes, or whether there was an
honest misunderstanding. Therefore, the IRS use of punitive penalties must be tempered to
ensure taxpayers are not penalized for honest misunderstandings. ,,5
Treasury Report entitled, A Strategyfor Reducing the Tax Gap, September 2006. See report section III;
subsection I, Reduce Opportunities for Evasion.
Statement of the Honorable 1. Russell George, Treasury Inspector General for Tax Administration, on "A
Closer Look at the Size and Sources of the Tax Gap," before the Senate Finance Committee, Subcommittee on
Taxation and IRS Oversight, July 26, 2006; see document section entitled "Reduce the Complexity of the
Code."
3
Prior to the 1989 reforms, taxpayers and tax professionals saw penalties as: (1) an IRS tool for
punishing taxpayers and a bargaining chip in audit cxaminations; and (2) a means of raising
revenues for the U.S. Treasury. Before 1989, penalties were viewed as being applied unevenly
in differing regions of the country, as well as lacking in coordination and overlapping in
6
application. Representativc J.1. Pickle, one of the main proponents of penalty reform at the
time, viewed the 1989 reform measures as more fair and less complex than the prior penalty
regime, and an inherent extension of tax reform and simplification. 7 The fundamental purpose of
the 1989 penalty reform was to overcome the piecemeal approach to legislative penalty changes.
Basis Reporting on Securities Sales
The AICPA conceptually supports the Administration's proposal requiring brokers to report to
the IRS a customer's adjusted basis in publicly-traded securities sold during the preceding
taxable year. While we believe that this proposal could significantly increase tax compliance
with respect to the reporting of capital gains and loss transactions over the longer term, we stress
that the technical problems associated with implementation of this proposal in the short-term
should not be underestimated.
We believe that the technical problems involved with the proposal can be addressed and
overcome, but the pace with respect to implementation of a capital gains basis reporting initiative
should not get ahead of the ability of the IRS to utilize such basis information for examination
purposes. Otherwise, taxpayers would be subjected to additional reporting burdens without a
commensurate ability within the Service to utilize the basis information for enforcement
purposes. In particular, we take note of the June 2006 Government Accountability Office (GAO)
reportS acknowledging the challenges relating to: (1) the Service's computer system capacity to
store and use additional data and (2) the potential that the Service will be unable to process and
match capital gains and loss transaction data reported on Form 1040, Schedule D.
The proposal would presumably require brokers to furnish customers with information
statements showing the same basis information that the brokers provide the IRS. Assuming the
information is provided by brokers to taxpayers in an understandable form, we believe this is a
positive requirement. We would encourage brokers to provide this basis information involving
capital gains and loss transactions to taxpayers in a format that would enable taxpayers and tax
preparers to download the basis information directly into their tax return preparation software.
This would enable a taxpayer to provide the IRS with details of each capital gain and loss
transaction on a separate line on Form 1040, Schedule D and D-l. Absent the availability of
such software, we urge the IRS to maintain its current policy of permitting individual taxpayers
to provide summary totals for security transactions on Schedule D and 0-1, coupled with the
attachment of brokerage statements to the Fornl 1040.
"Tax Politics and a New Substantial Understatement Penalty," by Dennis 1. Ventry, Jr., Tax Notes Today,
October 3,2006.
Ibid.
8
General Accountability Office Report Oil Capital Cains Tax Cap. Requiring Brokers to Report Sccurities Cost
Basis Would Improve Compliance if Related Challcnges Are Addressed, June 2006, page 28.
4
The proposal includes rules for reporting basis when the reporting broker executed the sale, but
not the original purchase. We suppol1 the requirement that, when securities are transferred from
one broker to another, the transferring broker must furnish the transferee broker with sufficient
detail relating to the basis of the securities being transferred. However, we are concerned about
the compliance burdens placed on taxpayers who receive securities by gift, inheritance, or
through a direct purchase from the issuing company, and who later transfer the securities into a
brokerage account. In these cases, the proposal contemplates the promulgation of regulations
requiring taxpayers to furnish the basis information to the transferee broker. We urge caution in
providing for the routine assessment of a civil penalty against taxpayers for a failure to furnish
correct basis information due to the rigorous recordkeeping burdens that may be associated with
retaining such information.
Taxpayers will have difficulty in tracking the basis of securities involved with corporate spinoffs, recapitalizations, and mergers. Moreover, there will be circumstances when brokerage
houses may inaccurately report basis amounts to customers, such as when: (I) a taxpayer sells
securities involving a wash sale under Internal Revenue Code section 1091 and (2) a corporation
or regulated investment company (RIC) makes a distribution determined to be a return of capital.
Reporting basis inforn1ation to customers may also prove problematic in cases in which
taxpayers have chosen the specific idcntification method of calculating the basis and holding
period of a stock sale. As part of any reporting requirements in this area, brokers should be
required to provide straightforward mechanisms by which taxpayers can electronically notify the
broker of a specific lot that should be sold. These situations need to be carefully reviewed before
implementing a broad capital gains and loss basis reporting rule.
2. MAKE A MULTI-YEAR COMMITMENT TO RESEARCH
The AICPA supports Treasury's call for a multi-year commitment to research as part of its
comprehensive strategy for mitigating the tax gap. In this context, we support the IRS's
development and implementation of the National Research Program (NRP), the Service's
primary research program involving compliance data. We believe the NRP is a positive
foundation for meeting the IRS's needs for data and analysis of the tax gap. When the Service
rolled out NRP a few years ago with a focus on individual tax returns, the taxpayer and
practitioner communities were deeply concerned that the program would prove extremely
burdensome to the public, much like the NRP's unpopular predecessor - the Taxpayer
Compliance Measurement Program (TCMP).
The Service's outreach and discussions with stakcholders about the NRP's objectives, prior to
the program's actual rollout, did much to lessen the public's concerns about the NRP's initial
focus on 46,000 individual tax returns from tax year 2001. The Service has now turned the focus
of the NRP to business returns, and it is starting the planning process for further individual return
research. With this in mind, we reiterate our call for the IRS to maintain a high level of outreach
and dialogue with the stakeholder community to ensure positive implementation and minimal
taxpayer burdens, both critical ingredients for the program's success.
5
As the IRS increasingly relies on the
activities, we stress the ongoing need to
of the overall tax gap and identification
the growth in the tax gap "numbers."
components of the tax gap.
NRP to better target its examination and compliance
continuously refine the tax gap data, including the level
of the types of industries and taxpayers contributing to
This recommendation involvcs further analysis of the
3. CONTINUE IMPROVEMENTS IN INFORMATION TECHNOLOGY
The fiscal year 2008 budget submission recommends a $282.1 million direct appropriation for
Business Systems Modernization (BSM). Although we are not in a position to evaluate what
constitutes an appropriate funding level, we are pleased that the Administration is requesting a
significant increase in BSM appropriation funds over the prior fiscal year.9
The AICPA appreciates Treasury's view that "[sJuccessful BSM program delivery during the
past two years demonstrates that the IRS has established a foundation of disciplined project
delivery and accomplishment.,,10 We support IRS's intent to continue to focus on four key tax
administration systems: (I) Customer Account Data Engine (CADE), (2) Account Management
Services (AMS), (3) Modernized e-File (MeF), and (4) Filing and Payment Compliance (F&PC).
BSM must remain a central feature of the Service's strategic plan; and we believe systems like
CADE (designed to replace the Service's ancient Master File System) should ultimately yield
benefits to both taxpayers and IRS employees through reduced burden and faster account
resolution.
4. IlVIPROVE COMPLIANCE ACTIVITIES
We support Treasury's tax gap strategy involving improving compliance activities. This strategy
is generally consistent with the AICPA's September 2005 study entitled, Understanding Tax
Reform: A Guide to 21" Century Alternatives. The report highlights increases in IRS
examinations, information reporting, and withholding as approaches to reducing the tax gap. I I
While not endorsing any specific recommendations for closing the tax gap, the AICPA report
does emphasize that using any of these approaches would impose additional burdens on
taxpayers, and "the cost of these new burdens should not overwhelm the benefit of more
effective tax administration." 12
IRS and Treasury acknowledge that any proposal to close the tax gap must be balanced against
imposing unacceptable burdens on enforcement resources and on the vast majority of America's
Department of Treasury-Budget in Brief Fiscal Year 2008, February 2006, page 63.
II)
Ibid, pages 66-67.
II
AICPA Report entitled, Understanding Tax Reform: A Guide to 21" Celllllry A/temati)'e, Chapter 4, subsection
D entitled, Closing the 'Tax Gap, September 2005.
12
Ibid.
6
taxpaying public who are otherwise compliant with the tax laws. We believe that this is the right
approach and appreciate IRS and Treasury's quest to balance the need for closing the tax gap
with imposing unacceptable burdens on compliant taxpayers.
Modernized E-File
The AICPA appreciates the benefits electronic filing offers to both tax administration and
taxpayers, particularly as it may help to mitigate the tax gap. Therefore, we support the
Service's continued development of electronic filing, as well as further improvements in the
CPAs recognize the administrative efficiencies and
modernized e-file (MeF) platform.
budgetary savings electronic tax administration achieves for the IRS, and the customer service
benefits that accrue to taxpayers from an effective electronic filing (e-fiIe) program. The
administrative benefits of e-filing include faster tax processing, reduced cycle time, quicker
identification of emerging audit trends, and the potential for more current resolution of taxpayer
uncertainties.
We applaud the success the IRS had with the e-filing program during the 2006 filing season. In
part, we believe the e-file program was successful because of the unprecedented effort the IRS
made to gain the input and involvement of affected parties. The AICPA is proud of the proactive
role it played in surfacing issues and solutions that ultimately contributed to the success of e-file;
and we will continue to work closely with the Service to meet its expectations for the e-file
program for the 2007 filing season. In this context, the AICPA is closely consulting with the
Service on implementing the mandatory e-file programs for large corporations, exempt
organizations and pal1nerships during the current filing season.
We support the IRS's web-based "e-services" for tax professionals and taxpayers. Through eservices, practitioners and taxpayers have access to a suite of online products, including the
Preparer Tax Identification Number (PTIN) Application; the Online e-file Application;
Electronic Account Resolution (EAR); submission of Form 2848, Power of Attorney and
Declaration of Representative; and the Service's Transcript Delivery System (TDS).
When the program was launched in 2004, e-services were available to tax professionals who efiled 100 or more individual returns. The IRS lowered the threshold in 2005 by making the eservices suite available to tax professionals who e-file 5 or more individual and business income
tax returns. The AICPA supports further expansion of e-services. We see the program as an
excellent way of addressing the tax gap, creating a process whereby the IRS's interaction with
tax professionals is more efficient and generates significant cost savings to the Service.
Enforcement Initiatives
Like other stakeholders, the AICPA is concerned about the extent of the gross and net tax gap,
estimated at $345 billion and $290 billion respectively. On a gross tax gap basis, the IRS
estimates that individual (including Schedule C) taxpayers are responsible for an underreporting
of $285 billion in income taxes; and cmployment taxes and corporate income taxes are
underreported by $54 billion and $30 billion respectively.
7
These numbers reveal that a significant portion of the tax gap involves the small business and
self-employed communities. Although we are not in a position to recommend a specific funding
level, we do support increasing the budgetary resources provided to the Small Business/SelfEmployed Division for enforcement purposes. By increasing the number of SB/SE examination
and collections personnel, the AICPA believes the IRS can make a reasonable dent in the tax
gap.
As a general principle, we believe the recruitment, development, and retention of a quality
workforce is essential for the IRS, whether we are talking about SB/SE personnel or the
workforce of another IRS division or function. Unfortunately, the IRS is experiencing a higher
than normal attrition rate among its mid-level and rank-and-file employees, primarily through
retirements. Replacing these retirees and the resulting loss of "institutional memory" is a major
challenge for the IRS. The AICPA stands ready to support the IRS in achieving its goals for
staffing over the coming years. In this context, we have found there are a number of CPAs in
mid-level positions and recent accounting graduates who are interested in government and public
service.
To further enhance the Service's enforcement effectiveness, Congress must also allocate
sufficient resources for employee training. The AICPA can be of immense help to the IRS in
this area. First, we suggest that the Service seek prior input from key stakeholders on the details
and development of training programs, including suggestions from the AICPA and other
stakeholders regarding training materials for new initiatives. Second, we recommend that the
Service utilize CPAs and other stakeholders in teaching IRS personnel. By including outside tax
professionals in the training process, we believe IRS employees become more sensitized to the
burdens that taxpayers face due to complicated tax laws and regulations. Private sector
involvement in the training process helps IRS employees conduct new tax administration
programs effectively, while minimizing intrusion and taxpayer burdens.
Private Debt Collection Efforts
The IRS has launched the private debt collection program authorized by the American Jobs
Creation Act of 2004. We appreciate how private debt collection agencies could help the IRS
address the tax gap through resolution of a portion of its collection inventory, and that the
program has the potential of enabling the Service to focus the energies of its employees on the
more difficult or complex collection cases. The Service has announced that private debt
collection agencies will be held to the "same standards of service and protection of taxpayer
rights" as required of IRS employees.
We believe that this program is a critical test program for the Service, especiaIly in terms of
enabling the IRS to leverage private sector involvement with a reallocation of vital resources
towards critical needs. Nevertheless, because collections is a program which has historically
been an area of chronic taxpayer complaints and alleged taxpayer rights abuses, we strongly urge
Treasury and the IRS to: (l) closely monitor implementation of the private debt collection
program and (2) establish positive and realistic performance measures for the private debt
collection firms.
8
5. ENHANCE TAXPAYER SERVICE
The AICPA commends Treasury for making enhancement of taxpayer service a central strategy
for closing the tax gap. We believe this strategy is critical to helping taxpayers be aware of their
legal rights and obligations under the tax law, as well as avoid inadvertent errors. Our discussion
of taxpayer service focuses on: (I) the Taxpayer Assistance Blueprint, (2) the pre-filing phase
and taxpayer education, and (3) the National Taxpayer Advocate.
Taxpayer Assistance Blueprint
The AICPA supports the Taxpayer Assistance Blueprint (TAB) - a congressionally mandated
initiative calling for development of a comprehensive taxpayer service program for the IRS.
TAB involves a collaborative effort by the IRS, the IRS Oversight Board, and the National
Taxpayer Advocate. Phase I of the Blueprint, delivered to Congress in April 2006, identified
five strategic themes for improving customer service: (1) improve and expand education and
awareness activities; (2) optimize the use and support of partner services; (3) enhance selfservice options for taxpayers; (4) improve and expand training and support services; and (5)
develop short-term performance and long-term outcome goals and metrics.
We understand that Phase 2 of the Blueprint will be delivered to Congress in the near future. As
the IRS develops programs to implement the TAB recommendations, we continue to stress the
need for the Service to maintain the appropriate balance between customer service and
enforcement - a balance that the government, Congress, and stakeholders recognize and support
on a conceptual basis.
In his February 16, 2007 testimony before Congress, Commissioner Everson referred to projects
that the IRS envisions implementing as part of TAB, including enhancements to the Service's
telephone service and www.IRS.gov, as well as multi-year research studies designed to promote
13
an understanding of optimal service delivery and the effect of service on compliance.
The
AICPA views these projects as laudable, and we stand ready to provide input for TAB
throughout the implementation process.
Pre-Filing Phase and Taxpayer Education
As the IRS rolls out projects to implement TAB, the AICPA continues to stress the importance
of continuing the Service's commitment to the pre-filing phase within all four operating
divisions. We believe this is one of the most critical areas for ensuring an effective customer
service philosophy.
Excellent examples of IRS efforts in the pre-filing phase
Partnership, Education and Communications Office (SPEC)
Division (W&l); and (2) the Communications, Government
(CGL&D) in the Small Business/Self-Employed Division, and
13
include: (I) the Stakeholder,
in the Wage and Investment
Liaison and Disclosure Office
SB/SE's broad commitment to
IRS Commissioner Everson, Statement on the Internal Revenue Service's FY 2008 Budget, before the House
Committee on the Budget, February 16,2007, page 2.
9
improving communications through websites, conferences, and newsletters. Another critical
component is taxpayer education about recordkeeping responsibilities and major areas of
noncompliance.
Although SPEC and the predecessor organization to CGL&D were downsized in 2005, with the
personnel reassigned to enforcement, the customer service provided during 2006 by these two
organizations remained generally very positive. Thc AICPA and the stakeholder community will
continue to monitor these changes and will share any further observations that may develop with
the Treasury and IRS with respect to these very important customer service oriented offices
within the Service.
National Taxpayer Advocate
We find the two yearly reports issucd by the National Taxpayer Advocate to be excellent
compendiums of systemic problems and evolving trends within the tax administration and tax
14
policy implementation arenas.
In addition to a significant discussion of the tax gap, the major
areas of focus within these reports include taxpayer rights proposals, the alternative minimum
tax, the Service's Private Debt Collection (PDC) initiative, small business outreach, and
collection issues facing low income taxpayers and others.
In addition to systemic advocacy, the Taxpayer Advocate's office performs a vital function of
providing taxpayers with an independent channel for resolving individual tax problems. The
Advocate assists taxpayers by reviewing requests for assistance with respect to enforcement
related cases involving "significant hardship;" and where appropriate, helps craft solutions to
relieve such hardship.
6. REFORM AND SIMPLIFY THE TAX LAW
Simplifying the tax laws is a high priority of the AICPA. We fully concur with Treasury's
identification of tax simplification as an important element for reducing the tax gap.
Commissioner Everson shared similar views when he publicly stated that "the complexity of our
current tax system is a significant reason for the tax gap and that fundamental reform and
simplification of the tax law is necessary in order to achieve significant reductions."ls
A significant source of complexity is the almost yearly changes in tax law through new
legislation. These constant changes not only make it difficult for tax professionals to keep up
technically, but the changes also cause tax software developers to struggle with the production of
software updates for taxpayers and tax professionals during the filing season.
14
See "The National Taxpayer Advocate's Fiscal Year 2007 Objectives Report to Congress," June 30, 2006; and
the "National Taxpayer Advocate, 2006 Annual Report to Congress," December 31,2006.
15
IRS Commissioner Everson, Statement on the Internal Revenue Service's FY 2008 Budget, before the House
Committee on the Budget, February 16,2007, page 13.
10
We have worked closely with the American Bar Association and the Tax Executives Institute in
recent years to jointly identify specific proposals for simplification. Moreover, our 2005 report,
Understanding Tax Reform: A Guide to 21" eel/lUi)! Alternatives, discusses how many of the
goals of tax reform can be achieved by modifying the current income tax system through
significant simplification.
The AICPA's 2005 report states that many goals of tax refornl can be achieved through "bottomup reform," which the report refers to as significant simplification of the current income tax
system. The report makes a number of simplification recommendations, including: (I) repealing
the individual and corporate alternative minimum taxes; (2) consolidating education and
retirement savings incentives; (3) simplifying the earned income tax credit; and (4) eliminating
phase-outs and temporary provisions when drafting tax legislation. 16
IRS statistics estimate the net tax gap to be about $290 billion. We believe tax simplification can
playa significant role in helping to reduce the overall tax gap, as simplification would: (I) result
in fewer errors on tax returns; and (2) reduce taxpayer susceptibility to the marketing of abusive
tax shelters.
7. COORDINATE WITH PARTNERS AND STAKEHOLDERS
The AICPA supports Treasury's call for the federal government to coordinate with partners and
stakeholders to address the tax gap. We believe this coordination should involve a positive focus
on: (J) professional responsibility; (2) a continuing commitment to continuing professional
education; and (3) pro bono tax assistance.
Tax Practitioners and Professional Responsibility
We support a strong emphasis on personal integrity and professional responsibility for
counteracting the tax gap. In this context, we applaud Commissioner Everson's commitment to
high standards for tax professionals and his efforts to upgrade the Office of Professional
Responsibility.
The AICPA has a long-standing track record of establishing high professional standards for our
CPA members, including the AICPA Code of Professional Conduct and enforceable Statements
on Standards for Tax Services (SSTSs). These standards provide meaningful guidance to CPA
members in meeting their professional responsibilities.
The AICPA actively communicates with our membership and state CPA societies about the
personal integrity of tax professionals, particularly through discussions about our SSTSs and
Circular 230. For example, we have strongly promoted the 2005 Circular 230 (final) provisions
governing "best practices" for tax advisors and tax shelter, i.e., "covered" opinion standards. We
agree with the preamble to the final regulations that: "Tax advisors playa critical role in the
16
Understanding Tax Reform: A Guide to 2!'{ Cel/tun' Alternatives, American Institute of Certified Public
Accountants, September 2005. See Chapter 4 of the report entitled, 'Bottom-Up' Reform of the Currel/I
System.
11
Federal tax system, which is founded on principles of compliance and voluntary self-assessment.
The tax system is best served \vhen the public has confidence in the honesty and integrity of the
professionals providing tax advice.,,17
With respect to abusive transactions, thc AICPA has a clear position - we unequivocally support
their eradication.
We have consistently supported protection of the puhlic interest and
prohibitions against misuse of the tax system, as exemplified by our enforceable SSTSs. We
continue to be actively engaged in proposing and evaluating legislativc and regulatory measures
designed to identify and prevent taxpayers from undertaking, and tax advisers from rendering
advice on, transactions having no purpose other than the reduction of federal income taxes in an
abusive manner.
We also support initiatives focused on ethics training for Service employees. We helieve that
IRS examination and collections employees must be able to "step into the shoes" of tax
professionals and vicc versa. Government workers and professional tax practitioners must be
able to understand each other to ensure greater strides in tax compliance.
The AICPA needs to point out that our ethical rules do place limits on our members with respect
to their professional relationships with clients and what our members can disclose to taxing
authorities. For example, under SSTS \10. 7, if a CPA is representing a taxpayer in an
administrative proceeding with respect to a return, and the professional then becomes aware of
an error on the return, the CPA should recommend to the taxpayer the corrective measures to be
taken to address the error. However, under our ethical rules, the CPA is not allowed to inform
the taxing authority without the taxpayer's permission, except where required by law. The
SSTSs also state that: (1) it is the taxpayer's responsibility to decide whether to correct the error
and; (2) if the client does not correct the error, the CPA should consider resigning as the
taxpayer's representati ve.
Commitment to Continuing Professional Education (ePE)
Consistent with our strong support for high professional standards, we stress that practitioner
continuing professional education programs are an important means for mitigating the tax gap.
We firmly believe that this commitment helps ensure positive technical competency, values, and
ethics among CPAs.
In general, the state boards of accountancy mandate CPE under the purview of protecting the
public, particularly given the complexity of the field of accountancy in general, and the scope of
the tax law in particular. Moreover, almost all state boards require CPAs to take a professional
ethics course. Due to the dynamics of the tax profession, continuing education helps CPAs to
maintain and learn the skills necessary to perform in the business world. In this context, the
AICPA and the state CPA societies work closely to develop appropriate continuing professional
education programs for CPAs that address the technical competencies and standards of
professional conduct demanded by the marketplace.
17
Internal Revenue Service Bulletin, 2005-4, January 25, 2005, on T.D. 9165. Regulations Governing Practice
Before the Internal Revenue Service, see sectlOn entitled ""Explanation of Provisions."
12
Similarly, the IRS has developed a series of yearly National Tax Forums designed to address the
knowlcdge and ethics base of mainstream tax professionals. We support the IRS's National Tax
Forum program, and, as we did last year, we look forward to participating in the Service's tax
forums being planned for 2007. Clearly, a strong commitment to continuing professional
education is one of the best ways of promoting strategies for reducing the tax gap.
Pro Bono Tax Assistance and the Tax Gap
The AICPA supports the Service's efforts to partner with professional organizations in the area
of pro bono tax assistance. We believe this pro bono tax assistance is a critical element of any
strategy to address the tax gap, enabling the IRS to both leverage scarce resources and increase
customer service.
Our members are active in their local communities through pro bono activities. They serve at
Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) sites,
community and academic-based low-income tax clinics, and other non-profit organizations.
We view pro bono activities by CPAs and other practitioners as an important way for the Service
to promote customer service and in cnsuring the proper and timely filing of tax returns and
payment of taxes, critical components of closing the tax gap. This is particularly true in light of
the joint efforts of the IRS, AICPA, and several state CPA societies in response to the
devastation caused by Hurricane Katrina and other natural disasters during the Fall 2005 and
throughout the 2006 filing season. We joined forces with the Service in programs designed to
utilize CPA volunteers: (I) at disaster relicf sites in various states and (2) in preparing tax returns
for low and moderate income persons affected by the devastating hurricanes. In addition, the
IRS has asked CPAs within our state societies to tcach local tax practitioner courses and small
business tax workshops that IRS staff may have otherwise taught in the past.
13
IRS ROUNDTABLE ON THE TAX GAP
Statement by Macey Davis, Tax Counsel with NFIB
March 9, 2006
Thank you, Commissioner Everson and Assistant Secretary Solomon, for
giving me the opportunity to speak at this roundtable on behalf of the
National Federation of Independent Business (NFIB). I am glad to be here
to talk about this very important issue to our members and to small
businesses in general.
Roughly 80 percent of our members have less than 15 employees. They
already think the tax code is complex and burdensome, and there is no doubt
that some of the recent tax gap proposals will add to that burden.
Just to give you an idea as to how bad things are now, according to NFIB's
national polls roughly 55% of small businesses have to hire an employee or
outside firm to keep track of their paperwork. This is costing them an
average of more than seventy-five dollars ($75) an hour. Another eightyeight (88) percent say they are using a paid tax preparer or accountant to
prepare their tax retum.
Not only is the burden a heavy one, but it is disproportional as well. Tax
compliance regulations are costing small firms 67 percent more per
employee than large firms.
What does this data tell us? It tells us that we have crafted a tax system that
is so complex and burdensome that small businesses are spending valuable
time and financial resources on record-keeping and outside help to ensure
compliance instead of using these resources to invest and grow their
business.
Small Business Can't Afford More Burdens
And now, we want to talk about piling on more burdens that they simply
can't afford. At least two proposals from the bluebook will make their
burden much worse: the first is requiring information retums on payments
made to corporations and the second is requiring TIN verification and
optional withholding.
The burden of expanding information reporting on corporations is not just
from issuing additional 1099-MISC forms. Additional record-keeping and
postage costs may be necessary. Even with an outside person to handle the
paperwork or the returns, it's extra time and money that the compliant smallbusiness can't afford.
And what happens when the IRS receives these forms? Are they prepared to
match them? Can they handle the volume? Do they need more funds to
improve the current system or prepare for new ones?
Consider the burden by requiring businesses to verify the contractor's TIN.
Unless the business has easy access to a real-time verification system that is
not riddled with errors, there could be delays in performing and paying for
the contractor's service. This can harm the daily operations of a business,
and it could disrupt the contractor's cash flow.
Another part to this proposal allows the contractor the option to require the
business to withhold. Imagine the administrative nightmare for businesses
that have to withhold from some contractors and report information returns
on others. Also, consider the complexity involved if each contractor
requests a different rate, not to mention that the rates recommended may be
unreasonably high.
Who are we after and is the data sufficient to craft targeted proposals?
If we are truly serious about closing the tax gap, then we need to have a
better understanding of who the non-compliant taxpayers are and what we
know about them. If we're after the underreported business income of a sole
proprietor, why are we considering proposals to report information on
corporations when that data is from the 1980s?
Even with the more recent data on sole proprietors, there is still so much we
don't know. Should we be more focused on business-to-business
transactions or consumer-to-business transactions? If it's the latter,
requiring information reporting on corporations isn't going to solve that
problem.
Further , should we be focused on established businesses or individuals who
don't know that their hobby is a business? Ifit's the latter, it is unlikely that
this individual is incorporated. He won't be getting infornlation returns
from his consumer clients, unless Congress is prepared to require consumers
to file information returns. Are we prepared to go there?
2
Finally, should we be focused on credit card transactions or cash
transactions? If it's the latter, then how will reporting of payment card
transactions solve the problem? Are we prepared to eliminate cash
transactions as a method of payment?
How Far Are We Willing to Go?
I can sit here and recommend modifications to these proposals that might
help to alleviate the burden on our members. However, I think we should be
redirecting our focus to tax simplification and educational outreach. Maybe
we should be holding seminars through a public/private partnership to
educate first-time filers of the Schedule C return. Maybe we need to be
looking at how to simplify the Schedule C itself in a way that helps the IRS
improve matching. Maybe we should revisit efforts to clarify and preserve
the independent contractor status.
Unfortunately, we are not headed down this path, and this is leaving a bad
impression on the very business community that is providing roughly twothirds of net new jobs. We praise them as the backbone of our nation's
economy, we reward them with much-needed tax relief to help them boost
the economy, and yet we simultaneously blame them for draining the
economy and causing the so-called "tax gap." We recommend more
burdens and more record-keeping requirements, and we nullify the very tax
relief measures that help them stay in business. We are biting the hands that
feed us. These are compliant taxpayers who already pay for the illegal
behaviors of the non-compliant.
The bottom line is that if we intend to place more burdens on small
businesses, we need better data to craft more targeted solutions. Then we
need to consider how far we are willing to go with those.
Thank you for your time.
3
Page 1 of 5
March 6, 2007
HP-296
Remarks of Assistant Secretary for Financial Markets
Anthony Ryan
On Hedge Funds
World Hedge Fund Forum
Greenwich, Conn. - Good afternoon. Thank you for Inviting me to speak today. It's
an honor to be here. Today, we are discussing hedge funds, their contributions and
Impact on our capital markets I plall to Introduce a framework to Illustrate how, as
federal pollcymakers, we look at some Issues In addressing hedge funds.
Last November, In a speed) to tlie Economic Clul) of New York, Secretary Paulson
said, "Capital markets are the lifeblood of our economy'" The vibrancy of American
capital markets IS an IIltegral part of our ability to compete globally, and so, III
reviewing the agenda for the day I am pleased to see such a global perspective
represented After twenty years of working in the global capital markets, I know
firsthand that few groups are more adept at identifYing opportunities and moving
capital around the world than those managlllg hedge funds
In the United States, we have the strongest, deepest and most diverse capital
markets in the world, and we are not taking our leadership for granted, One week
from today, Secretary Paulson Will convene a conference on capital markets
competitiveness: we will hear from various market participants and experts in the
regulatory, accounting cmd legal profeSsions on how to ensure that our capital
markets continue to enhance economic growth and bring benefits to all Americans
As pollcymakers, we do not view hedge funds as an asset class or as an Industry
Rather, a hedge fund IS a busilless model that asset managers have adopted to
manage capital. The objective of the busilless model IS to attract and grow capital,
generating superior returns through a defilled IIlvestment strategy. It is too
simplistiC to measure success for a hedge fund by uSing a Single metric. But If we
were to do so, we might measure the greatest absolute return for a given amount of
risk as measured by volatility.
If IIldeed maxlllllzing return to risk IS what a hedge fund manager is trying to do,
how does or)e go about dOing so? Wrlile there are many variations, successful
hedge fund managers often have four elements in common: vested stakeholders, a
well-defined philosophy, a well-executed process, and a commitment to ongoing
evaluatioll
First are "vested" stakeholders. In addition to Investors, who are obViously
Impacted by the hedge fund'S return, the bUSiness model IS explicitly geared to vest
the manager's success to that of hiS or hpr clients So, the stakeholders also
include the fund's analysts, portfoliO managers, traders and operations
profeSSionals.
Second IS a well-defined philosophy Successful hedge fund managers have
clearly established beliefs on how capital markets operate and how their strategies
can generate superior returns, They also possess clear poliCies thelt define how
they'll communicate and Interact With their Irlvestors and counterpartles, and how
they'll address potential conflicts of Irlterests
Third IS a well-executed process. Successful managers have a framework. Their
approach Illay be fleXible, but it IS based on sound pnnCIples gUidelines and rules
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4/6/2007
Page 2 of 5
enabling the manager to respond to dynamic market conditions in a disciplined
fashion.
Fourth is a commitment to ongoing evaluation The most successful mallagers
prove to be ttlOse who contlflually erl11ance their capabilities, systems and
resources.
Each of these four elements is essential to obtalfllng success In an ever changing
environment.
The objectives and framework I Just outlined for defining successful hedge fund
managers also serves as ;:-m Interesting analogy to the broader Issue of how the
policymakers and regulators, compriSing the President's Working Group on
Finarlcial Markets (PWG), define and evaluate our objectives regarding hedge fund
poliCY· The PWG is chaired by Secretary Paulson and also includes tile Chairmen
of the Federal Reserve Board, the Secul"ities and Exchange Commission, and the
Commodity Futures Tradlflg Commission. Since 1988, the PWG's overarching
miSSion has been to malfltalll Investor confidence and enhance the integrrty,
effiCiency, orderlilless, and competitiveness of U S finanCial markets.
The Comparative Assessment
Let me return to the framework of the successful hedge fund manager and apply It
to the PWG. Broadly speaking, the objective is the same for both the hedge fund
manager and the PWG It comes down to enhancing rewards and mitigating risks
For the hedge fund manager, It IS about having the highest return relative to risk: for
the PWG, the highest benefit relative to cost.
Let's take a mme In depth look at each of the four elements of thiS framewmk as It
relates to poJrcymaking.
The first element is vested stakeholders. Here, the PWG thinks about the market
and all of the partiCipants. In approaching the area of hedge funds, the PWG
recognizes the Interests and rrsks of the other vested stakeholders. These include
Investors, hedge fund managers, and creditors and counterparties Each group is
vested In the ultimate policy and structure, and like the hedge fund business model,
it works best when there IS an alignment of Interests among the vanous
stakeholders.
Regulators must constantly be aware of potential risks, make a determination as to
whether they warrant direct attention, and then determine how best to address
those risks. Regulators deSire policies that encourage capital markets to be
competitive, sound, and operate with Integrity. These kinds of markets attract
capital and have a broad array of participants--each with different objectives and
time hOrizons. These capital markets also foster an environment conducive to
innovation. All of these features serve to Improve liqUidity and faCilitate the
dispersion of risk. In turn, capital markets With these characteristics ultimately
strengthen the economics they serve.
The Interests of IllVestors, hedge fund marlagers, arld cOlJllterparties and creditors
all benefit from policies that promote sound, competitive. and innovative capital
markets
The second element that IS necessary for success is a well-defined philosophy.
Just two weeks ago. the PWG released an agreement outlining ItS views on private
pools of capital. This diverse group of regulators and policy makers spoke with one
voice and reiterated ItS well-defined position that there are two main public policy
challenges With private pools of capital. systemic risk and Investor protection. They
further stated their collective belief that the most effective mechanism to mitigate
the potential for systemic risk IS market discipline. and that a combination of market
diSCipline and regulatory poliCies IS the best way to protect Investors.
The third element of the framework is a well-executed process. Here, the PWG put
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forth a comprehensive framework based on sound principles and guidelines
The PWG agreement provides a foundation for 110W stakeholders should enhance
tilelr practices and fulfill tileir respective responsibilities The agn"ement articulates
principles and guidelines for eelch of the four stakeholders Regulators. Investors.
Managers. and Counterpartles and Creditors. Let's take a look at the Issues
surrounding tllese staketlolders alld the poliCY the PWG articulated for each of
these groups
First. the PWG asserted that regulators should use their existing autilorltles With
respect to creditors. counterparties. investors and fidUCiaries to enhance market
discipline The regulators' clear cOlllrTlunicalion of expectations regardlllg prudent
management of counterparty credit exposures to hedge funds IS critical. ThiS is
especially so given 1I1at many managers utilize leverage and complex instruments.
Including OTC derivatives and structured securities. such as collateralized debt
obligations Derivatives are very useful tools and bring many advantages to our
capltell markets. but regulators must continue to monitor market developments
given the tremendous growth In OTC derivatives and revise their policies and
associated gUidance. as appropriate
Recognizing that key creditors and counterparties are organized in various
Jurrsdlctlons. policy collaboration and coordination among regulators are essential.
We must also recognize the other important role
the enforcement mechanisms of our laws. They
abiding by the rules. So, rn addition to providing
regulators must vigorously deter and investigate
misconduct.
that regulators play. They prOVide
ensure that every participant is
guidance. the appropriate
fraud. manipulation. and other
Second. the PWG stated that. for more sophisticated rnvestors. private pools of
capital can be an appropriate Investment vehicle Hedge funds offer potential
benefits to investors. rncludrng the opportunity to diversify their portfolios as some
hedge fund strategies have oilly modest correlations to traditional asset classes In
addition to diversification. these vehicles may offer investors the opportunity for
potentially higher returns.
Like any investment. these strategies also Introduce rrsks. These rrsks range
beyond volatility to opacity and complicated valuation and performance
calculations. Investors need to evaluate the appropriateness of such Investments.
The risks associated With direct Investment in these funds are most appropriately
borne by Investors with the SOphistication to Identify. analyze and bear these risks
As with allillvestillent products. clear and meaningful disclosure is essential for
investors to properly evaluate their investment deciSions.
Historically. those WtlO invested III hedge funds were high net worth IIldividuals.
ThiS has changed over the past five years and today the majority of assets In hedge
funds belong to Institutional Investors, Including endowments and pension plans
The PWG established that concerns about Indirect exposure of less sophisticated
Investors to hedge funds through holdings of pension funds. fund-of-funds. or other
Similar investment vehicles can best be addressed through sound practices on the
part of the fiduciaries who oversee such vehicles. FidUCiaries have an ongOing
responsibility to perform due diligence. They must continually ensure that their
investment deciSions are prudent and conform to sound practices. Including
diversification
The PWG was also speCifiC In preSCribing gUidelines for hedge fund managers
Hedge funds as a group have grown substantially over the past five years. They
have doubled III number and have had a Significant influence globally. and even
locally. These deployers of capital eXist In large flllanClal services companies and
in small boutiques; some are diverSified across multiple strategies. others manage
concentrated portfoliOS.
Their growth III number IS a testament to the potential rewards that eXIst. The
model creates the opportunity for managers to Implement their best Investment
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ideas. It also encourages and Incentlvlzes managers to do so, often with few
constraints They have more flexibility across Clsset classes and sectors and are
not held to an arbitrary benchmark This flexibility enables managers to focus and
take risks based on their specific skill. And If that were not enough, the financial
rewards for success arc great. Compensation of "2 and 20" can generate a lot of
income on even a modest aillount of assets under management But, agoml there
are risks. Besirles the challenges associated With Investmg, including liquldily risk,
credit risk and trading nsk--lhere are others, Includlrlg operational risk, valuation
risk, reputation risk, and regulatory risk.
In response to these challenges, managers sflOuld deploy suffiCient resources to
create and maintain Information, valuation. and risk management systems that
meet sound industry practices. In doing so, managers should provide accurate and
material Information to creditors, counterparties, alld Investors with appropriate
frequency, breadth, and detail. Managers should also continue to strengthen and
enllance their processlllg, clearing, and settlement arrangements, particularly for
OTC derivatives.
Let's turn now to counterparties and creditors For the most part. this is a group of
investment banks that have large prime brokerage operations and commercial
banks that act as derivatives counterpClrties and repo lenders to hedge funds.
Collectively, they playa very critical role. While relatively few in number, these
entitles fClcllltate the implementation of many of the hedge fund managers'
strateglcs and provide the capital that enable managers to leverage their
exposures Hedge funds now represent a large and growing portion of their client
bClse and bottom line. Hedge fund managers implement strategies that generate
significant trading volume. and they provide these banks With the opportuility to
create and customize more complex transactions. All of this adds up to not only the
possibility for greater flnarlclal rewards, but also potential risks.
Chief among these risks is counterparty risk. As a result, these mstitutions must
understand the risks inherent in tllelr clients' tnvestment strategies and operations.
They must determine appropriate credit terms. In dOing so, they must assess
liquidity risk and operational risk. And they also need to be disciplined and
independent In quantifying valuations. Importantly, they need to guard against the
risks to their reputation. They should expect that their prudential regulators will
closely monitor their management of these risks and assess whether their
perforrllance is in line wiHl expectations set out In supervisory gUidance.
To deal With these challenges, counterparties and crcditors should maintain
appropriate poliCies, procedures, and protocols They should clearly define,
Implement and continually enhance best risk management practices These
practices must address how the quality of information from a client affects margin,
collateral, alld other credit terms and aspects of counterparty risk management.
Like the managers, counterpartles and creditors must also contillue to strengthen
and enhance the processing, clearing, and settlement arrangements for OTe
derivatives
The PWG prinCiples and guideltnes address all market participants. Our focus IS on
entlancing market diSCipline since it is a combination of efforts that will most
effectively address systemic risk Here it makes sense to emphasize that, for
ftnanCial stability purposes, the Interests of poliCy makers and key counterparties
are closely correlated. Thus, when these counterparties make appropnate selfinterested assessments and deCISions, these decisions help to make our system
more stable and resilient.
The combmation of market dlscipltne and existing regulatory authOrities are well
positioned to protect Investors. The SEC continues to provide strong leadership on
this issue. They have proposed raiSing the accredited Investor standard, and
already possess broad anti-fraud and anti-manipulation authOrity to Investigate any
manager--whether registered or not. I should add that the SEC IS proposing an
additional anlt-fraud prOVision under its existtng auttlOrity with respect to defrauding
current or prospective investors.
Tackling these issues IS complicated
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No group has a greater Interest, has spent
4/6/2007
Page 5 of 5
more time evaluating all of the potential options, or IS more concerned with
addressing the challenges most effeclively, than Hie PWG. If the solution were as
simple as grcHltJrlg adeiltlonal recJulatory authority, reglJlators would have cenaJrlly
asked for II. The fact of the Cllatter Is--at tillS tlnle, no regulator feels that It needs
additional regulatory authonty to acllieve Its goals of protecting Investors or
IllltlgatJrlg systemic risk
Although progress Ilas OCCll1 red In tile past several years, there IS much more to do
and every stakellolder has a role to play. The PWG has clearly articulated
gUidance to eacl! group of stakeholders and believes everyone of them, ourselves
included, must step lip their efforts Diligence breeds excellence. Complacency
breeds mediocrity.
The PWG IS also comlllitted to ongOing evaluatlon--the fourth and final element of
the framework. The prinCiples ilild gUidelines released two weeks ago are Simply
another step In the PWG's response to the continually evolVing marketplace The
fact that the PWG carne together on thiS tOPIC, and spoke with a unified voice for
ttle first time since 1999. is Cl signific:ant statement. It was not done in response to
a problem or the failure of a large hedge fund or a study requested by Congress It
was a result of Secretary Paulson's and the PWG's leadership It reflects our deSire
to be proactive and put forth Cl practlcClI and forward looking pnnclples-based
framework.
ConclUSion
While the challenges are real, we believe that implementing a coherent set of best
practices IS the best way to address them. All stakeholders must be accountable to
ensure the Integnty of our capital markets. Successful capital markets generate
Illvestor confidence.
Investors, because they entrust their capital. deserve protection from fraud and
manipulation They expect nothing more, and should accept nothing less. Potential
systemic risks must be Identified and mitigated. High-quality standards of
excellence must be established. implemented and cOlltinually enhanced by all
market participants. Transparency matters and timely disclosure of information IS
CrItical. Compelitlon is benefleiClI In fact, we seek to encourage competltlon--but
we Will not tolerate anyone seeking to gain an unfair advantage by compromiSing
the trust and integrity of the market
It IS a priVilege to work to ensure the vitality of our capital markets. With such a
privilege comes responsibility. To achieve our goals we need to recognize that the
responsibility is borne by both the private and public sectors. Building upon the
efforts to date, all stakeholders must conlinue to do more. Collecllvely, we can
strengthen the stability and Integrity of our capital markets. The system works
when all stakeholders recognize the benefits, mitigate the risks, and choose to be
diligent. I urge YOll to do so.
Thank you for the opporturlity to speak here today
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Page 1 of 4
March 7, 2007
HP-297
Prepared Remarks of Stuart Levey
Under Secretary for Terrorism and Financial Intelligence
Before the 5th Annual Conference
on Trade, Treasury and Cash Management in the Middle East
Dubai, UNITED ARAB EMIRATES - I have been traveling across the Middle East
this week discussing a wide range of Issues. In Jordan I met with ttle Finance
Minister and the Central Bank Governor, In Israel I met with the Prime Minister and
Foreign Minister, and here in tile UAE I met with the Minister of Foreign Affairs and
the Central Bank Governor, and hope to meet with the Prime Minster today.
Tonight I head to Riyadh for additional meetings with my counterparts in the
Kingdom. One thing that has emerged from my discussions IS that there IS
ullanlnllty on one particular issue across the region· Iran's nuclear program and
support for terrorism poses a great threat to our safety and security
Throughout these discussion on global risk with governments and the private
sector, I have stressed that although there are times when we caution companies
about the risks of Investing In a given country, the United States believes In
encouraging the free flow of goods alld capital, and we believe that fl'ee trade is a
mechanism for enhanCing economic and SOCial ties between the United States and
the Middle East.
Tllat said, Iran ullder its current regime is an example of a country where there are
heightened risks to investing The regime's dogged pursuit of a nuclear program in
defiance of UN Security Resolutions and ItS insistence on arming and suppolting
terrorist groups like Hizballah are threatening the stability of the region and the
international community. These policies have implications for your businesses espeCially when that business deals with government enterprises. I am sure you
would agree that your companies want to take every precaution to avoid being
Involved With terrorism or other dangerous activities. Today, I would like the
opportuility to discuss some of the risks ttlat private business should consider with
respect to Iran. I will also explain a bit about steps governments are takingIncluding targeted financial measures - to combat the threat.
I understand that a session was planned yesterday to examine the case for doing
business In Iran, but that it was cancelled. ThiS IS a good Indication of the prevailing
view in the bUSiness community. It is clear that many t)usinesses are taking it upon
themselves to scale back At first glance, this may appear to present a tempting
business opportunity for other corporations to step In. However, there is a reason
that these other companies are pulling back they have decided that the risks of
business With Iran outweigh any potential gain.
The world is well aware of Iran's defiance of the international community In pursuirlg
ItS nuclear program and its sponsorship of terrorist organizCltions that maim and
murder innocent Civilians. Iran disgUises its activities through an array of deceptive
techniques speCifically deSigned to evade the controls of responsible financial
institutions and aVOid SUSPIClorl For example, we have seen Iranian banks request
that other financial institutions take their names off of transactions when procesSing
them In the International financial system
Iran also works to make ItS procurement efforts for its nuclear program appear to be
unrelated and innocent commerCial activities Iranian entities form front companies
In other countries for the sole purpose of exporting dual-use Items to Iran that can
be used in illicit nuclear and miSSile programs These front companies enable the
regime to obtain materials that the country of origin would typically prohibit from
being exported to Iran
http://www.treas.gov/pressfreleases/hP97.htm
4/6/2007
Page 2 of 4
In addition, I want to tell you about another area of concern about how Iran does
business. Iran's RevolutlonClry GilcHd Corps, or IRGC, is used by the regime to
provide a 'traln and equip program' for terrmlst orgallLzallons like Hlzbaliah, as well
as 10 pursue other military objectives of the regime. Tile I RGC's control and
Influence in the Iranian economy IS growing exponentially under the regime of
Ahmadlnejad More and more IRGC-associated companies are being awarded
Important government contracts An IRGC company, for example, took over
management of the airrort and runways In Tellran, while another company won the
contract to build the Tehran metro When corporations do bUSiness with IRGC
compailles, they are dOing busilless with orgallizations that are providing direct
support to terrorism
As the evidence of Iran's deceptive practices has mounted, financial Institutions and
other companies worldwide have begun to reevaluate thell business relationships
with Iran Many leadlllg finanCial institutions have either scaled back dramatically or
even terminated tilelr Iran-related busilless entirely Tiley have done so of their own
accord, many concluding that they did not wish to be the banker for a regime that
deliberately conceals the nature of Its busilless - too often the busilless of funding
terrorism, and defying the UN Security Council In pursuing a nuclear program.
The bank UBS, last year, anllounced that it was cutting off all dealings with Iran.
HSBC, Standard Chartered, Commerzbank, and many other global fillancial
Institutions have also Indicated that they have limited their exposure to Iranian
business. Accordlllg to the banks, these were business deCISions, pure and Simple
- handling Iran's accounts was no longer good for bUSiness. As further evidence of
tile change In tide, a number of foreign banks are refuslllg to issue new letters of
credit to Iranian businesses. And in early 2006, the OEeD raised the rtsk ratlllg of
Iran, reflecting this shift in perceptions and sending a message to those institutions
that have not yet reconsidered their stance.
Additionally, many non-financlallnstltullons have scaled back on their Investments
or projects In Iran, concluding that the risks of expanding operations in the country
are too great Multinational corporations have held back investing In Iran, includlllg
limiting investment in Iran's oil field development These companies have done their
IIsk analyses - tiley do not know what lies ahead in terms of Iran's economic
stability. They do not want to risk coming under regulatory actions that impact their
ability to do bUSiness. They are responSible corporate Citizens, and, qUite frankly,
they do not want to risk the reputation of their corporations
Let me briefly expand on these last two points. Iran sends hundreds of millions of
dollars each year to terrOrtst groups like Hlzballah and other organizations. When a
country has a Illne-cllgit line item in ItS t)udget for support to terrorist organizations
and is actively seeking a WMD program, there IS no way to know how the regime
will use its revenues. Corporations are In the process of reconsidering their
investments in Iran because thE:y do not want revenue generated from their projects
diverted towards threatening and destabiliZing policies such as illicit weapons
proliferation and terrollsm.
Since most multinational institutions want to protect their corporate reputations by
avoiding IIsky relationsillps, the United States and other nations are reaching out to
better inform the private sector about the nature of some of those risks - particularly
as they relate to Iran. We believe that by being eqUipped with information about
Iran's deceptive practices, bUSinesses such as yours will be better pOised to
evaluate the risk of given venlures
When people think of sanctions, what often comes to mind is a modern-day
blockade an attempt to stop tradE: or IIlvestment altogether in order to weaken the
economy of an entire nation. This kind of program is sometimes required. Perhaps
one of the best contemporary examples is South Afllca under apartheid, a Situation
where broad, International sallctlollS made a deCisive Impact Oil the course of that
nation's history.
Governments are working to hamper the efforts of the Iranian regime by ImpOSing
targeted finanCial measures directed speCifically at IndiViduals, key regime
members, front companies, and finanCial tnstltutlons. Targeted financial measures
http://www.treas.gov/pressfreleases/hp297.htm
4/612007
Page 3 of 4
are aimed at "conduct" not a "country" Some of these targeted measures require
financial instltutiolls to fleeze flillds and close tile accounts of designated actors _
effectively denYing these actors access to tlle traditional financial system At times.
tile action includes bans Oil travel or arms transfers. which furtiler confine and
isolate the target. To maXimize the effect, we try to apply these measures In concert
with othors. For example, whenever possible. we act with a partner or a group of
countries. and III some cases we can deSignate a target at the United Nations.
These kinds of measures have several advantages over broad-based sanctions
programs. First. by singling out those responSible for engaging In the IlliCit activity -rattler ttlan targetmg an entire country ~ tlley are more apt to be accepted by a
wider number of international actors and governments. Second. targeted financial
measures warn Innocent people not to deal with the designated target. And third,
these measures serve as a deterrent. Those who are tempted to deal with targeted
high risk actors are put on notice if ttley continue thiS relationship, they may be
next.
The United States has taken some recent targeted measures to combat Iran's
pursuit of a nuclear weapons program and to confront ItS support for terrorism In
September 2006, we cut off one of the largest Iranian state-owned banks, Bank
Saderat, from any access to the U.S finanCial system We did this because Bank
Saderat, which has over 3400 branch offices. IS used by the Government of Iran to
transfer money to terrorist organizations Iran uses Saderat to transfer money to
Hizballah as well as to terrorist groups deSignated by the European Union such as
Hamas, PFLP-GC, and the Paiestillian Islamic Jihad. For example, since 2001, a
Hlzballah-controlled organization received $50 million directly from Iran through
Saderat.
Recognizlllg the need for additional tools to combat the proliferation of weapons of
mass destruction, Presicient Bush Signed Executive Order 13382 In June of 2005.
ThiS executive order authOrizes the imposition of strong financial sanctions agalilst
not only WMD proliferators, but also against entities and Individuals that provide
support or services to them A designation under this EO. cuts the target off from
access to the US financial and commercial systems, and puts tile intemational
community on notice about a particular threat. Since 2005. we have used this
authority against a total of 36 entitles and indiViduals, 19 of which are connected to
Iran's WMD proliferation efforts
One recent and very Significant designation under E .0. 13382 was the January 9.
2007 designation of Bank Sepah. the fifth largest Iranian state-owned bank and a
supporter of WMD proliferation. In particular, Sepah prOVides direct and extensive
flnClnClal services to Iranian entities responsible for developlllg missiles capable of
carrying weapons of Illass destruction like other Iranian banks and entities, Bank
Sepah engages in a range of deceptive practices III an effort to avoid detection,
including requesting that other financial institutions take ItS name off of transactions
gOing to other banks.
The United Nations has also taken a strong stand agalilst Iran's contillued defiance
of the internalional community. On December 23.2006, the Security COlmctl
unanimously passed United Nations Security COLillcil Resolution 1737, which
imposes targeted sanctions against the regime under Chapter VII of the United
Nalions Charter for Iran's contillued "threat to international peace and security."
This set of sanctions requires countries to take a number of actions to deny Iran
access to the rnaterlals and services that suppor1 ItS nuclear arld ballistiC miSSile
capabilities. They target equipment. tralillng, and technology ~ Inciudlllg dual-use
equipment - as well as specifiC IndiViduals, like General Safavl, commander of the
IRGC and listed in the resolution for hiS involvement ill Iran's nuclear and ballistiC
missile programs
Among other things, the resolution requires all states to deny Iran any financial
assistance. or the transfer of any finanCial resources or serVices, related to the
supply, sale. transfer, manufacture. or use of prohibited items assOCiated With Iran's
nuclear and missile programs It also contalils an annex ~ available for all to see ~
listing entities and IndiViduals responsible for these programs. The resolulion
reqUires states to freeze their assets and those of entities owned or controlled by
http://www.treas.gov/pressfreleases/hp297.htm
4/612007
Page 4 of 4
them.
The United Nations Security Council IS also considering additional measures
against Iran. Just two weeks ago, the International AtOllllC Energy AlJency
confirmed that not only had IrC'li) had Ignored tile UNSCR 1737 requirement to
suspend uranlUIll enrichment wlthlll GO days of the resolutloll, but also that It had
actually expanded Its program As a result, the Security Council IS considering
adopting a second resolutioll
In the Iranian regime led by President AhmildlnejacJ, the wOI-lci faces the threatening
combination of a country deeilcated to developlllg nuclear weapons and to
materially supporting terrOrists The regime not only has an Ideologically extreme
vision of the future, but also IS intent on developing the weapons It believes will help
obtain thiS viSion. It IS clear why tile world should not tolerate a nuclear-armed Iran
The United States, the European Union, and the United Nations have embarked
upon an effort to convince the Iranian leadership to change its course.
It IS our goal to convince Iran that It can no longer afford to head down ItS
destabilizing path The ImpOSition of governlllent-II11posed finanCial measures,
coupled with the private sector's own initiative to reevaluate business With Iran, has
already sparked a debate Inside Iran about the Wisdom of Ahmadlnejad's policies It
is our hope that Iran Will realize that the only way to return to the international fold and protect its economy - IS to reverse its self-Isolatlflg behavior
The Iranian people deserve better than a govemment willlflg to sacrifice their
economic well-being to pursue weapons they don't need and policies that reslJlt in
the deaths of innocent Civilians. They deserve better than a regime that allows
unemployment and poverty to rise and their basic rights to be tossed aside. And
this region deserves to be free from the pressure of an increaSingly hoslile and
antagonistiC Iran that IS promoting sectaflan Violence and heightening Sunnl and
Shla tenSions.
As you make your business deciSions, I urge you to consider whether it IS wise for
your company to focus its efforts on doing business with Iran I recognize that It
may be tempting to step Into tile VOid that is bCIIlQ created by other companies
pulling back their bUSiness In Irall, but they are pulling back for a reason. The
world's top financial Institutions and corporations are re-evaluatlng their business
with Iran because they are worned about the risk and their reputations. You should
worry too and be esrecially cautloLis when it comes to dotng bUSiness With Iran
Tllis IS a situation where governments and the private sector share the same goal
Caution by the private sector IS putttng pressure on Iran. By haVing governments
partner With the private sector, IIlcludlng by sharing IIlformatlon and concerns with
the private sector, we are seeing more of an Impact on our collective efforts, and It
is thiS impact that, I believe, can help bring about a change In course for Iran
http://www.treas.gov/pressfreleases/hp297.htm
4/6/2007
Page 1 of 1
March 7. 2007
HP-29S
Treasury Assistant Secretary Swagel to Hold Monthly Economic Briefing
u.s.
Treasury Assistant Secretal-y for Economic Policy Phillip Swagel will hold a
media briefing to review economic Indicators from the last month as well as discuss
the state of the U S Economy The event IS open to credentialed media
Who
U. S. Treasury Assistant Secretary Phillip Swagel
What
Economic Media Briefing
When
Friday, March 9,2007,1030 a.m. (EST)
Where
Treasury Department
Media Room (Room 4121)
1500 Pennsylvania Ave. NW
Washington, DC
Note
Media without Treasury press credentials should contact Frances Anderson at
(202) 622-2960. or '
with the follOWing information:
name, Social Security number and date of birth
http://www.treas.gov/pressfreleases/hp298.htm
4/6/2007
Page I of4
/0 view or pont tne /-'Ur Content on tnlS page, Clown/oaCi tne free AClQpe® Ac;roDat® KeaCler®.
Marcil 7, 2007
ilp·2~JSl
Testimony of Treasury Assistant Secretary for Tax Policy Eric Solomon
before the Subcommittee on Select Revenue Measures of the House
Committee on Ways and Means
WClsillllCjtOl1 DC ·-Mr Chcllrlllclll, RallklllCJ Melllbc)r EIIUIISil, anel (jIStIIlCJUISll8c!
Membels of tlie COlllllllt((~e, tlldllk you fm tlie OpportUlllty to cllSCUSS tile Issue of tlie
Illcllvldual altelrldtlve IlllrlllllUlll tax
The Illdlvldual alternative 1Ill11111llJIll t<lX, or AMT, was Illtended to deal with a
relatively smelll but Impoltcmt Issue Unfortunately tile AMT rlas ueatecl a far largel
Issue tliall tlie urle It was Illtf:rlded to addless
The Adllllilistreltion IS very concerned ell)out the adverse effects of tile AMT It IS
complex alld frustrates the millions of taxpayers who have to calculate their taxes
tWice - CJrlce under the reCJlIlar tilx system and a secorlci time ullder the Afv1T tZlx
system Taxpdyers flnei thZlt heneflts otherwise provided umier the reSJular tax
system are taken away by tlie AMT, or they do the clollble calculations orlly to find
lIlat tlley ale not sui)Ject to tile Afv1T
History of the AMT
The pleclecessor of the Afv1T - the ITllnlmum tax - WelS first enacted ill 1969 to
ensllre that a small gloup of Illgh-lncClllle Imllvlcluals who had mcillageci to avolcl
paying federal Income tClX would pay elt least a ITllnlmUm amount of tax In 1969,
Treasul'y Seel'etary Barr Ilotec! III IllS testimony before the JOint Economic
Committee of COllgress tliat 155 taxpClyers With incomes over S200,OOO paid no tax
III 1966, Evell tllOugh the ITIlnlmUm tax reduced the number of high-Income
taxpayers who otherWise would have pale! no Illcome tax, It Ilas never been
completely successflll In attaining the original goal of ensuring tilat all high-Income
taxpayers pay at least some tClX More tilall 37 years of legislative changes to the
tax code have transformed the original ITllnllllUlll tax mto tile current AMT
Structure of the AMT
The AMT IS a second Ilicome tZlx that opelates parallel to the regular Income tax
The AMT has ItS own tax base, exemption amounts, tax rates. and usable tax
credits A taxpayer's AMT liability IS essentially the excess of tile liability calculated
under tile AI'v1T tax system over tile liability calcLJICIteei under the regular Income tax
Tile AMT tax base stalts from taxable Illcome as defmed uncler the regular Income
tax. but the base IS broilciened by acidln~l back cel'taln tax preferences
PI'eferences Illclude, for eXClmple
• tile Itemized deduction for Stelte allci local taxes,
• tile Itemized deduction for certain Illiscellaneous expellses exceecllng two percellt
of adjusted gross Illcome (AGI),
• tile Itemized deduction for- meellcal expellses to tile extent It represents medical
expenses of less thall 10 percent of AGI,
• tile stClllcJal'ci cJeciuctloll, anci
• personal eXem[)tlolls
A Ilumber of other Items are treated as AMT [)refel'ellces totally, or to the extellt
they are AMT preferences, must lJe calculateei cllfferelltly for AMT purposes TheSE?
http://wwwtreas.gov/pressfreleaseS/hp299.htm
4/6/2007
Page 2 of4
include items such as incentive stock options, the net operatll1Q loss deduction, and
II1vestment Interest expenses The largest AMT preference Items are ttle regular
tax State and local tax deduction and personal exemptiollS
The AMT tax base is reduced by an AMT exemption which varies by filing status
but 110t by family size. From 1984 through 1992. the AMT exemption was $40.000
for married taxpayers and $30,000 for unmarried taxpayers In 1993, It was
Increased to $45,000 for mamed taxpayers and $33,750 for unmarried taxpayers
Beginning With the Economic Growth and Tax Relief RecollClliatlon Act of 2001
(EGTRRA). Congress has included provisions In each of the major tax relief bills to
Increase the AMT exemption ternporarlly. thus preventll1g a large increase in the
number of AMT taxpayers. For 2006. the AMT exemption levels were $62,550 for
Illarrled taxpayers filing jOillt returns and $42,500 for unmarned IndiViduals.
The AMT exemption begins to be phased out at $150,000 of AMT income for
married taxpayers filing Joint returns. at $112.500 for unmarried Indivlciuals, and at
$75,000 for married filing separately returns. The exemption is reduced by 25
percent of AMT Income above those thresholds until they are completely phased
out.
Since 1993. the first $H5,000 of taxable income for AMT purposes IS taxed at a 26
percent rate. and amounts above 5175.000 are taxed at a 28 percent rate.
However, capital gall1s and qualified diVidends are taxed under the AMT at the
lower tax rates that apply under the regular income tax Because the AMT
exemption is phased out, It results In four effective AMT marginal tax rates of 26
percent. 32.5 percent (for taxpayers phased out of the 26-percent AMT tax bracket).
28 percent. and 35 percent (for those phased out of the 28-percent AMT tax
bracket) Consequently, because of the phase-out of the exemption, some
taxpayers face a marginal effective AMT tax rate of 35 percent.
Generally. the AMT can prevent some tax credits from being claimed against ttle
regular tax because credits are disallowed if they reduce regular tax below the
tentative amoLint of the AMT tax. Sillce 1998. Congress has repeatedly extended
temporary legislation that has permitted most personal tax credits to reduce the
otherwise applicable AMT. However, general bUSiness credits (most importantly
the low-income housing credit) can be limited by the AMT.
The temporary extensions of the higher AMT exemptions and allowance of the full
use of most personal tax credits (wtlich have come to be known as the "AMT
patch") expired at the end of 2006. The President's fiscal year 2008 Budget
Includes a proposal to extend the AMT patch through 2007, With tile AMT
exemptions Increased for 2007 to $65,350 for marrred taxpayers filing JOint returns
and $43.900 for unmarrred Individuals. The Budget proposal is deSigned to hold
the number of taxpayers affected by the AMT constant at approximately 4 million
Does AMT Eliminate Nontaxable High Income Returns?
In spite of the AMT, each year a very small percentage of high-income tax returns
are filed reporting no Income tax liability. The reasons for high-income returns
reporting no Income tax liability are varied. Certain Itemized deductions and
exclusions from Income could cause thiS result. High-Income returns With no
Income tax liability often result from a combination of factors. none of which, by
itself. would completely eliminate income tax liability. Some Items that singly or In
combination may eliminate regular Income tax liability cannot eliminate AMT liability
because these Items give rise to adJLJstmenls or preferences for AMT purposes
However. due to the AMT exemption and the fact that the starting pOint for
alternative minimum taxable Income IS taxable Income for regular tax purposes.
which could be negative, a retum could report 110 regular Income tax and no AMT
even though It Included some Items that produced AMT adjustments or
preferences.
Tax-exempt bond Interest, iteml7ed deductions for interest expense miscellaneous
Itemized deductions not subject to the two-percent-of-AGI floor, casualty or theft
losses, and medical expenses (exceeding 10 percent of AGI) COUld. by themselves,
completely eliminate inr:ome tax liability because theydo not generate AMT
adjustments or preferences. More tYPically, combinations of these Items together
with deductions for charitable contributions completely eliminate tax liability Without
http://www.treas.gov/pressfreleases/hp299.htm
4/612007
Page 3 of 4
generating AMT liability
Complexity of the AMT
The complexity and burden of the AMT result from the necessity that taxpayers
understand and comply with two parallel tax systems. Moreover. because lllarlY
taxpayers become subject to the AMT for reasons that are not the result of taxmotivated plannln~. many taxpayers are not aware tilat Ihey will be affected by the
AMT until they complete tllelr lax returns. Even then. some taxpayers who
complete tilelr returns manually may not be aware that they are required to do the
calculations for !tIe AMT, creatllig a compliance proolern
The Growing Ranks of AMT Payers
Unlike ttte regular tax. tile AMT tax system IS not Indexed for inflation. The AMT
exemptlOll, the exemf-ltlon phase-out, and the boundary between ttle two AMT lax
rates are all fixed In nOllllllal terms. Consequently, with the passage of time, the
effects of Inflation Will steadily Increase the number of taxpayers subject to AMT
and the amount of revenue from the AMT When relatively few taxpayers were
affected, the AMT arguC'lbly was achieving its poliCY objective. However, serious tax
policy issues arise when the AMT affects millions of taxpayers who were never
intended to be the target of thiS separate tax.
The AMT exemption III effect through 2006 has generally kept the vast majority of
taxpayers from being subject to the AMI. If the AMT exemption had oeen indexed
to inflation beginnlllg in 1984 when the regular Income tax brackets were Indexed.
the exemption In 2007 would be about $81.000 fm married taxpayers fillllg jOllltly
and $61.000 for unmarried IIldlvlduals. With these Indexed exemption amounts.
only about 2 million taxpayers would be affected by the AMT In 2007.
Growth of the AMT
If the AMT patch is riot extended or tile AMT IS not otherWise addressed, the
number of taxpayers prOjected to be affected by the AMT Will rise sharply. from 4
milllorl In 2006 to 25 million In 2007 (Chart 1). If no further changes are made to the
AMT. the number of taxpayers affected by the AMT IS expected to grow to over 56
million by 2017. By 2017. almost one-half of all taxpayers With Income tax are
prOjected to be affected by the AMT.
The AMT Will Irlcreaslflgly affect middle-Iflcome taxpayers unless action IS taken If
tlle Admlfllstration's proposed extension and expansion of the AMT patch IS
enacted for 2007. aboul 7 percent of taxpayers With Incomes between $100,000
and $200,000 Will be subject to the AMT for 2007. However. if the AMT patch is not
extended beyond Its current expiration In 2006. when taxpayers file their tax returns
In the spring of 2008 for tax year 2007. over 80 percent of taxpayers With income
between $100,000 and $200,000 will be subject to the AMT.
To put this Into perspective, consider how the AI\1T would affect a hypothetical JOint
filer With two children In tax year 2007 If the Congress does not extend the AMT
patch as proposed in tlle Administration's 2008 Budget (see Chart 2) The
taxpayer calculates tax IIClbility under bolh the regular tax and the AMT and pays
whichever IS larger The illustration shows that In 2007 the hypothetical taxpayer
becomes subject to the AMT when IllS Income exceeds $66,114. The AMT IS no
longer a tax that applies only or predomlilantly to hlgll-Incorne taxpayers.
The AMT also increasingly affects families with children because it does not allow
deductions for personal exemptions Moreover. tile AMT exemptlorl Includes a
marriage penalty. which can worsen the effect of the AMT on married couples.
AssuiIllng no AMT patch extension for 2007 or oltter acllor1 With respect to AMT.
the Increase In the number of AMT taxpayers over the next decade will be
accompanied by a dramatic Increase Ifl tax revenues from the AMT. AMT revenue
Will increase frOlll $22 billion III fiscal year 2006 to $67 billion 111 fiscal year 2007 and
to $250 billion In 2017 (roughly 12 percent of total Ifldlvidual Income tax revenue)
AMT revenue Will become so large that by 2013 the cost of repeallllg the AMT
would exceed Hie cost of repealing the regular tax (Chart 3)
http://www.treas.gov/pressfreleases/hp299.htm
4/6/2007
Page 4 of4
Addressing the AMT Issue
In many respects. the AMT 1IIIIslrdtes IlOw a good-fJi1l1 Jttcmpt 10 address an Issue
III 1Ile Income tax system can have erlOrmOllS ullintenued 311d undeSirable
conseql181lces Today 1118 AMT IS 1I11pOSIlig burdens 011 militolls of taxpayers who
were not ItS Intended targets BecclUse the AMT parameters are not IIldexed
whereas the rllalll parameters of the regular 1I1CUille tax are Indexed annually for
the effects of IIlflallon. over time the AMT Itself has I)ecorne a Significant issue.
Tile Adrnlntstratlon shares Hle concerns of taxpayers and Con~lress about the
Increasing scope of the Afv11 A permanent solution IS essential for the contillued
functioning of uur Inejlvluual 1I1come tax system
We look forward to working with thiS Committee and others In tile Conqrcss on 3
permanent SolutlOIl to thiS difficult and Important Issue. However. urltil a 1011g-term
solution has been enacted. it IS essential to prevent an ever-larger share of
taxpayers from being affected by the AMT. We are committed to helping ensure
that middle-Income taxpayers are not affected by the AMT this year or In the future.
In the past, generally tile AMT has been dealt With on a year-by-year baSIS, and the
Administration's proposal In the President's fiscal year 2008 Budget for a one-year
AMT patch reflects that experience
Tilank YOll again. Mr. Chairman. Ranking Member English. and Members of the
Committee for the opportunity to appear before you today. I would be pleased to
answer allY questions YOll might have.
REPORTS
•
http://www.treas.gov/pressfreleases/hp99.htm
4/6/2007
Chart 1:
Number of AMT Taxpayers
AMT Taxpayers (millions)
60
50
40
30
20
10 '
o
I
L ___ _
2004
2005
2006
2007
2008
2009
2010
2011
2012 2013
2014 2015
2016
2017
Calendar Year
Note Assurres EGTRPA and JGTRRA tax relief IS rrade perrrnnent and the ten-porary AMT provIsions are allowed to expire after 2006
Source US C€partrrent of the Treasury Office of Tax AnalYSIS
$ Tax liability
Chart 2:
How Does the MIJT Work?
AA illustration for a joint filer with tvIIo children in 2007
12,000
10,000
8,000
At what income does
the taxpayer become
subject to the AMT?
$66,114
Regular tax
before credits
exceeds
tentative AMT,
so taxpayer is
NOT subject
to theAMT
Tentati-..e M1T exceeds regular
tax before credits, so M1T
taxpayer is subJect to M1T
$9,100
:0
~
c
~
6,000
5"
$7,573
4,000
2,000
$4,573
$3,900 }
()
0
~
--t
[l)
~
$5,491
X
g-
--t
<1l
~
2l.
",'
<1l
~
--t
0'
ro
0
~
=-'
(/I
o
Taxpayer w rth $60,000
of AGI in 2007
Taxpayer w rth $66,114 of AGI
In 2007
Taxpayer w rth $80,000 of
AGlin 2007
Assumptions AM T patch IS no t e"tended fa r 2007 Taxpayer IS married. files 10 Intly \'V1th 1\MJ children, has wage Income only. and uses the standard
deduction The taxpayer also qualifies for $2,000 In child taxcredl\s
Source" US Department of the Treasury. Office of Tax AnalYSIs
-2-
Chart 3:
Cost of Repealing Regular Income Tax Versus Cost of Repealing AMT
Billions of Dollars
300
250
200
Cost of Repealing the
Regular Tax
150
100
Cost of Repealing
the AMT
50
I
0
[2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Fiscal Year
Note: Assumes EGTRRA and JGTRRA tax relief is made permanent and the temporary AMT proviSions are allowed
to expire after 2006.
Source: U.S. Department of the Treasury. Office of Tax Analysis
Page I of I
March 7, 2007
HP-300
Treasury Designates Two U.S. Companies Acting as Fronts for Colombia's
North Valle Drug Cartel
The U,S Department ot the Treasury's Office of Foreign Assets Control (OFAC)
today added two US companies to Its list of Specially Designated Narcotics
Traffickers (SDNTs) for their (Ies to Colombia's North Valle drug carte\.
"This IS the latest In a series of OFAC actions targeted at the finallCial underbelly of
the North Valle cartel," saicj Adam Szubln, Director of the Office of Foreign Assets
Control "We have designated the cartel's companies in Colombia. the Caribbean.
and elsewhere, and today we (lave frozen the assets of two front companies here In
the United States,"
These U S companies are owned by IndiViduals who act as front persons for North
Valle drug cartel leaders Raul Alberto GraJales Lemos (Raul GraJales) and Carlos
Alberto Renteria Mantilla (Beto Renteria) ThiS action is the seventh designation
agaillst the finanCial network of Raul Grajales and Beto Renteria, who have both
been indicted on narcotics trafficking charges In the United States,
Today's action named two Florida partnerships, C,W, Salman Partners and Salman
Coral Way Partners, as SDNTs, These two partnerships, which were created to
hold real estate and other assets In the United States, are owned by prevlouslynamed SDNT Individuals, Abdala Saleh Jasslr, Moises Abdal Saleh Muvdi, and
Carlos Ernesto Saieh JamlS Each of ttlese Colombian Individuals has been a front
person for Raul GraJales and Beto Renteria for over ten years, MOlses Abdal Saleh
Muvdl and Carlos Ernesto Saleh Jamls are In the custody of Colombian authorities
on money laundering charges
ThiS action is part of an ongoing Interagency effort to implement Executive Order
12978, Signed on October 21, 1995, which applies economic sanctions against
Colombia's drug cartels, ThiS effort Includes the Departments of the Treasury,
Justice, State and Homeland Security, This action freezes any assets the
designees may have under U S, JUrisdiction and prohibits all transactions between
US persons and the designated companies
A total of 1,365 bUSiness and IndiViduals In Aruba, Barbados, Colombia, Costa
Rica, Ecuador, Panama, Peru, Spain, Vanuatu, Venezuela, /fIe Bahamas, the
Brrtish Virgin Islands, tile Cayman Islands and the United States have been
deSignated as SDNTs pursuant to E.O. 12978. The 529 SDNT busirlesses Include
agrrcultural, aViation, consulting, construction. distribution, financial, Investment,
manufacturing, mining, offshore, pharmaceutical, publishing, real estate, retail,
service and telecommUllicatloll firms. The SDNT list includes 21 kingpins from the
Call, North Valle and North Coast drug cartels in Colombia
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March 7. 2007
HP-301
Prepared Remarks by Treasury Secretary Henry M. Paulson, Jr.
on the Growth and Future of China's Financial Markets
Shanghai, China - Thank you very much. I am very happy to be l\ere in Silanghal.
and I appreciate your warm welcome In December. I was In Beijing for the first
meeting of the US-China Strategic Economic Dialogue After that meetmg. I
decided \llat I should return to Shanghai to speak about the growth and the future of
Chllla's financial mClrkets.
In my travels here over the last 15 years. I have seen this City grow to be a
cosmopolitan center of fmance and culture. Shanghai has in many ways come to
symbolize the economic dynamism of China. It is an example of Chma's
emergence as an Important partiCipant In the global economy So it is only fitting
that I am making this visit against the backdrop of a global economy. which over the
last several years has been as strong as any I have seen during my business
lifetime - an economy that has been characterized by strong growth. low inflation,
and high levels of liquidity.
As China has grown, the relationship between the United States and China has
become more important than ever before. We welcome Chma's growth and
mtegration into the world econolllY - it benefits the Chinese people. and the people
of the world. Today. China IS transltioning from a planned economy to a markete!riven economy and there IS no doubt that thiS process Will continue for a number of
years But because of its size Clild lis role in world markets. China IS already a
global economic leader ane! deserves to be recognizee! as a leader. And With
leadership comes responsibility. DeCisions about the pace and shape of your
economic reforms, as well as poliCies relating to energy and the environment. affect
nations around the world
Since the economic relationship between our two countries is an Important part of
the overall relationship, I have focused intensely on China from the day I became
Treasury Secretary. To manage the economic relationship between our two nations
on a long-term basis. President Bush and PreSident Hu established the Strategic
Economic Dialogue. We were very pleased with our first meeting In Beijing In
December. and will meet again In WaShington in May. Because the US and China
share many strategic economic IIlterests. I am confident the SED will help us make
progress on fundamental long-term structural economiC issues. as well as on very
pressing short-telm Issues
The economic relations between our two nations are Vital to the future of the global
economy. Alld I believe we share many of the same goals - the poliCies of
openness and market principles that the United States advocates are Similar to
those that China's leaders have embraced to brrng balanced. harmonious growth to
your nation. As I have said many times. our poliCy disagreements are not about the
direction of change. but about the pace of change. It IS worth notlllg that over the
last five years, the US. and Chlrla accounted for over 50 percent of global growth.
Make no mistake about it, China's continued economic success IS not only Vitally
Important to the people of China. but also to the rest of the world
I want to take the time today to layout why I believe Increasing the pace of reform
in your finallclal services markets is in Hle best interest of China's future - to spread
prosperity to all the people of your nation. to promote greater stability here and
abroad, and to demonstrate leadership in accordance with your global economic
presence.
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I. Overarching Importance of Financial Markets
I am a strong believer in the power of financial markets to support growth and
development. and help a society fulfill Its aspirations <'lIlel /leeds. TI1rougil more than
30 years of work in the Global fil1allcial sector - including many visits to China _ I
have witnessed the extraordinal'y glohi11 growth In financial services. And I have
seen how deep. liquid. and efficient capital markets pave the way for prosperity.
opportunity. ami ecunomlC dynamism. while minimiZing and divel'slfYlnCj risks.
Many years of hands-Oil experrence working in my own country and in nations and
markets around the worldllas convinced me that open. competitive. world-class
financial markets are the backbone of stable and balanced growth
EffiCient and competitive financial sectors help allocate scarce resources to their
most productive llses and generate significant multiplier effects for economic
growth. Markets connect money with Ideas and ambition - WhlCll are the lifeblood of
illnovatlon and dynamism. They offer a diverse array of financing channels.
prOViding for l!lore innovatlol1 and a lower cost of fmance. They allow new finanCial
products to enter the markets ancl ilelp people. young and Old. acquire consumer
goods alld make the Investments they need to meet their finanCial goals. provide
retirement security. and Insure their families against rrsk. Deep and liqUid capital
markets also increase stability allCl reduce volatility.
The burldrng blocks for strong capital markets buttress the broader development of
a prosperous economy StrOflV capital markets require strong property rights; a
robust supervIsory regime with clear. transparent rules whicll strike the appropriate
balance to ensure market Integrity while promoting the entrepreneurial spirit and
innovation: sound accounting standalds; strong corporate governance; strong
financial Institutions obJective. Independent finanCial Information. an<llysis. and
research; a meaningful disclosure regime: and independent credit rating agencieseach of which stl'engthens development in other sectors of the economy.
EffiCient financial sectors are. in a sense. the central nervous system of modern
economies. makil1g countless decisions all the time to keep the body in good
worklllg order.
II. Role of Capital Markets for China
Well-developed financial markets are a necessary precondition for China's
development as well - Illoving tilis nation toward its goals of more balanced.
harmonious. innovation-based. and environmentally sustainable growth. EffiCient.
developed capital markets will allocate resources more effectively and efficiently.
allOWing China to continue growing at a healthy pace. while spreading prosperrty
throughout the economy and giving Ctllnese clllzens a better return on their savings
and investments.
China's growth is InCl'easingly imbalanced - among regions, households. and
sectors. TI1ese Imbalances in economic structure and IIlcome IIlcqualltles
dlfferelltlate Chilla's curl'ent development challenges from those of past decades.
Today. China's economy depends heavriy on low-cost manufacturing goods. m31nly
for export. This has produced tremendous growth. But over-reliance on a single part
of your economy has tile potential to cause problems in tile future. Your long-term
economic strength requires a diverse economy. with high-value-added
manufacturing and world-class services. Including finanCial services.
China's illOSt recent five-year plan acknowledges the need to achieve better
balance In ttle economy. by Increasing tile role of ttlC services sector. Increasing
the quality of Inputs - not Just ti1elr quantity - and developing a more Innovative and
technologically sophisticated economy. With a population aging CiS rapidly as that of
any advanced economy. the five-year plan also recognizes the need to provide
health care and retirement security for Chlna's population. The CI1inese people
seek continued growth. With more innovation and harmony. so that the benefits of
growth reach out from the Cities Into the country. from the coasts IIltO the heartland.
and to all the Chinese people
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Financial sector development is the key to China's transition Into an economy that
less reliant on Industrial activity, produces more Illgh value-added products, and
reduces the Intensity of natural resources consumption Your leaders recognize the
power of financial markets to speed your transllion to harmonious growth. Speakmg
at tile National Fmancial Working Group meeting In January, Premier Wen said
"We must push flllallClal ref o I' III arId clevelopment mto a new phase, and promote
ttle complete clevelopillent of Fl sustainable, heFllthy and secure fmance Industry."
IS
With an underdeveloped finanCial sector, investment in China doesn't reach Its
potential in gcneratlll~l returns, personal saving IS not adequately rewarded, and
risk IS not appropriately priced, managed, and diverSified
Inefficient allocation of investment meclllS fewer jobs are created for any given level
of IIlvestment, Inefficient cOlllpanles fail to reform, new comparlles with higher-value
added procluctlon are stifled, and growth remains less balanced.
Inadequate reward to savmgs hurts the Chillese people While China's people work
every bit as hard - If not harder - than people Ifl other economies, they are not yet
as well off Today, Chinese citlLerlS have $2 tnilion - or 16 trillion RMB at today's
eXChange rate - depOSited in banks, earning on average a 25 percent return After
inflatloll and taxes, the real return on bank deposits is probably negative People Ifl
many other parts of the world have more chOices of where and how to save, and
routlflely earn a much better return - often in the higll single digits even in
economies that are not growlllg nearly as fast as China.
If Chlfla's fmarlClal sector were developed and offered a variety of savings and
Investment seCUrities and vehicles, the potential rate of return on a well-managed
pension portfolio of financial assets In a rapidly growing economy like China's could
be much higher, even If China's growth rate moderates over lime Let us assume for
illustrative purposes that rather than earning 2.5 percent, Chinese savers were to
earn 8 percent over 30 years. The difference in the return on thiS 16 trillion RMB in
savlllgs would be truly Significant due to the power of compounding Instead of
having 34 trillion RMB ($4 trillion) at the end of 30 years, Chinese households
would have 160 tlillion RMB ($20 trillion), which amounts to an estimated 124,000
RMB ($16,000) per capita. This IS money that can be dedicated to meeting the
Chlflese people's needs, funding education and health care and securing
retirement.
III. China's Reform of its Financial Markets
You have recognized that a deeper, more sophisticated, and more competitive
finanCial sector Will help you to achieve your aspirations of harmonious growth. And
already you have made slgrllficant strides. I have seen your progress on a firsthand baSIS. China's banklflg, SeCUrities, and Insurance sectors have all made
substantial progress over the last 10 years.
Bankmg
You have recapitalized four of your top five state-owned banks and, even more
importantly. Invited In strateglr: Investors and completed IPOs, which bring with
them the added diSCipline of enhanced corporate governance. external audits, and
new publiC shareholders As someone who in my former Job partiCipated in and
hopefully positively contnblJteri to this process, I was highly Impressed by ttle speed
With which you move to execute a plan once your leaders have made a deCISion.
The IPOs of your banks, like some of your earlier IPOs of state owned enterprises
In other industries, were exer:uteri mur:h more CllJickly than I have witnessed In any
other country
Corporate governanr:e of large banks has improved consl(Jerably, wittl more
qualified senior management and - in many cases - foreign directors. Nonperforming loans are being reduced And WTO commitments mean that foreign
banks can now open 100 percent-owned subSidiaries without geographical
restrictions
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Of particular note is the sepC1ratlon of responsibilities for mOlletary policy and
financial stability. on the one h:md, dlld ttle regulation and supervIsion of banks on
the other. Regulatory transparency IS also ImprOVlIlg Last fall. CBRC consulted
extensively with foreign companies, the U S Treasury. clild other regulators before
Issuing final regulallolls on the operations of forel~ln banks.
Sec un lies Markets
China has also made significanl Improvements in Its securities markets. Including
new accounting standards that were adopted at the beginning of this year. The
proportion of non-tradable shares of listed companies has been reduced. The IPO
market was reopened III I11ld-2006 to allow domestic investors to partiCipate in the
landmark bank sflure sales, as well as a number of otilers FinanCially weak
securities cOlllpanies are being merged With stronger ones Foreign participation In
the equities l11al-ket has IIlcreased, while Chinese investors have been given the
right to Invest III overseas stock amj honll markets through approved funds. The
People's Bank of China has creutcd a vibrant sholi-\erm bonel market. And the
number of mutual funds and asset management firms has Increased slglliflcantly.
Including through Joint ventures With foreign companies
Insurance
The quality of China's Insurance companies IS also improving, as foreign and
domestic Institutions expand Into new regions and offer new products to better
serve Chinese il1dlvlduals and companies seeking to manage their risks
The Benefits of Contll1uecl Reform
ThiS nation IS clearly on the right track, cHld further reforms lie ahead. As you
develop deeper, more liqUid, l)road-based, and transparent markets With greClter
partiCipation of sophisticated Institutional Investors - markets which are more
representative und reflective of your strong underlYing economic fundamentals you Will benefit from less VOlatility, better dispersion of risk, and greater stability. To
achieve your goals of balanced allCl harmonious growth, there IS much slill to do III
the development of open, competitive capital markets. Ano the experiences of
Ilatlons around the world offer helpful adVice In charting your own course.
IV. Structural Challenges Facing China
China's financial markets face four Important structural challenges
•
•
•
•
Your capital markets remalfl underdeveloped.
For all practical purposes, China has no institutional market:
The banking system IS also underdeveloped.
And Chinu lacks a predictable, transparent regulatory structure that fosters
Innovation
Addressing these challenges IS vital to China's 1011g-1erm economic growth
Capital Markets
As I said eurlier, strong capital markets require strong property rights: robust
superviSion: sound accollntlng standards and corporate governance: strong
fillancial institutions: objective finanCial analysis: a meaningful disclosure regime,
and independent credit rating agencies
The extent to which Chma's capital markets stili need to develop becomes clear in
comparison Wltll other countrres A McKinsey study found that In 2005, equity
market capitalization, excluding non-tradable, state-owned shares. was 17 percent
of GOP ThiS is the smallest miirket cap ratio In emerging ASia, where the ratio
averages 70 percent. Corporate bond Issues by non-finanCial companies amounted
to between 2 and 3 percent of GOP, compared With a tYPical 50 percent in other
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emerging Asian markets. Access to your malkets is limited, restricting potential
buyers, and bid-offer spreads are wide, indicating a lack of competition and liqUidity.
Ollila's capital markets lack a dlvelslty of products And the quality of iII cliket
partiCipants varies widely.
Moreover, the Chinese private sector currently produces ovel' half of tile country's
GDP and In SOTlle regions 75 percent of new 101)S, yet state owned enterprrses get
three-quarters of the bank lII1al1cIII9 and account lor most of the corporate
Issuancesin tile stock and bond markets. Few 01 your best companies are Issuing
securities III China. And for ttle most part, state-owned enterprrses, With rrsing
profits, don't pay dividends As a rp.sult. most corporate Investment is financed
through retained ealilings or the informal sector ThiS leads to less efficient
investmellt because there IS not a rrgorous arms-length vetting process of a
project's Viability, and It leads to a lI10re volatile Investment cycle as companies
tend to over-invest dUring good times when they ar-e flush With cash.
To develop stronger capital markets, Cilina needs a larger and more accessible
government bond market. a more liqulri and transparent corporate bond market,
and a legal construct In which private equity can Iiourlsil
Experience around the world shows that government bond markets are the first part
of the bond market to develop China's govemment bOlld Illarket offers a very
narrow range of products with only limited secondary market tradrng. By
establishing a deeper governmellt bond market with open access and competition,
as well as more issues throughout the maturity structure, China can create a longer,
more representative Yield curve. And tilis will facilitate development of the corporate
bond market by prOViding a reliable benchmark for pricing.
In audition to the difficulties caused by the Immature government bond market,
China's corporate bond market IS underdeveloped in large part because of
excessive regulation. Trading is segmented betweell an over-the-counter market
and the listed bonds tilat trade on stock exchanges. These barriers should be
removed
Chilla would also benefit by moving to a "disclosure-based" system in which
regulators focus on ensuring that listed corporations provide the market With
adequate information and investors decide who should get finanCing arld on what
terms. In thiS regard, we applaud recent announcements from the National
Financial Working Conference that bond market development will be a high prrorrty
A "disclosure-based" system also relies on good credit rating agencies, which lIeed
to be Independent from the government and evaluate risk In an objective and
systematic fashion
Eliminating interest rate controls and requirements that long-term bonds receive
guarantees from state-owned banks will racilitate the proper pncing of risk.
And a legal construct that allows for limited liability companies will help cultivate
private equity and venture capital. Private equity and venture capital investors will
channel resources to start-up companies, Including those in the high-tech area, wllo
might not yet be ready for market listing or for whom bank loans may be too
expensive ThiS will move C!llna toward Its goal of becoming an Innovative and
knowledge-based economy. As President Hu said in January of last year, "The
basic role of the market will be given a full play in the allocation of sCientifiC and
lechnologlcal resources." P,wate equity and venture capital have a demonstrated
record of directing resources to new, promising technologies.
Institutional Market and Asset Management
The cornerstone of developed capital markets throughout the world is the
institutional market, and the mutual fund and asset managers who populate it
Institutional IIlVestors are the most rlgorolls in their analYSIS, and innovative III
developlllg new securities and investment strategies. Yet Chrna's markets lack
these important elements.
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Page 60f9
Without a meaningful instilutionai investor base, the market relies too mucll on retail
investors. The result can be a more speculatrve environment and a more volatile
equity market. Private pensloll funds. mutual fllnds, and Insurance companies are
critical in proViding lon<j-term flnallce and Improving corporate governance A
Ixoader base of institutional Investors ami asset managers wrll lead to a Wider array
of market strategies, redUCing volatility and the risk of ';herd mentalities".
'
The development of a broad-based Iflstltutlonal investmg market IS belllg Inhibited
by a number of policies. Including the fact IIlat some Important Institutional
investors, such as Insurance companies. are highly restrlctec! In the types of
Investments they can OWI1. Big Investors, such as Insurance companies anei
pension plans, with large pools of carltal. should drive the development of an
institutional market when an appropriate tax and regulatory regime is in place.
Permitting plofesslonals to ellter the asset management bUSiness would strengthen
the fidUCiary role, protect Investors. and develop trust in the Industry A SWitch to
risk-based capitalization requirements In the asset management industry from a
fixed minimum capital reqlllremellt would also be beneficial.
Banking
China's third challenge IS a banklnC) system which. while making progress, IS stili
transltlonlng to a modern, effiCient, market-driven system With proper controls.
manClgement, and profeSSional staff. Some risk-averse credit officers may still
believe It IS safer to lend to state-owned enterprises backed by what they see as
ImpliCit government guarantees, rather than to dynamic small, medium-sized, and
private businesses In addition. corporate control of a massive and geographically
dispersed branch network remains a challenge, and branch lendrng deCisions are
still often rnfluenced by local pressures And the lack of consolidated data reporting
in Chinese hanks rrleallS that the true extent of China's non-performing loans IS
unclear and provISioning IS InsuffiCient.
There IS Widespread recognition of what I)Aeds to be done to reform China's
banking sector - better risk management. a more developed and accessible credit
bureau: more consumer frnance products: greater scope to set interest rates to
reward depOSitors and price risk. consolidated superviSion and reporting: greater
competition. Including of electronic payment systems: and opportunities for new
banks to expand branch networks far more qUickly. The rnsurance sector would
also benefit from greater opportunities to expand branches In China
Regulatory Regln7e
The final challenge China faces is a regulatol-Y n"glme that lTlay be Inhibiting
IIlnovatron and development of a modern finanCial market. As China tranSitions
from a centrally adllllnistered economy to a market-based economy. its regulatory
regime must adapt. Today. central authonties contlnlJe to be too IllVolved In
rnvestment deCISions that are more efflclenlly made by the market. For example. to
get approval to Issue bOllds. no fewer than three government bodies must approve
the details of a company's fundralsing and IIlvestment plan - a construct unlikely to
ensure that funds are directed to their most efficient usc. The result IS that It can
take more than a year to Issue a bond in China, compared to one or two months In
Pakistan or the PhiliPPines and less than a month in other Southeast ASian
countnes. Markets would better channel funds to the most dynamiC sectors and
bUSinesses In the economy The appl'Opnate role for government is to set the rules
for the market as a whole and enforce them - rather than to make indiVidual
Investment deCisions
Government has a responsibility to set corporate governance rules and enforce
them But today. these rules are unclear and adherence to them IS weak. In
addition. Chinese accounting stanc!arc!s - altllOugh moving toward international
standards - are in continuous flux. creating more uncertainty and weakeiling
finanCial disclosure.
The contlrlued large role of non-market factors that Influence bOttl state-owned
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enterprises and private enterprises - Including financial services compailies _
stifles the dynalllisill of econOllllC declsloll-makillg and tile strcnCjth of regulatory
integrity. Increasing the pace of privatization of state-owned enterpnses would be
beneficial. And state-owned entel-prises should pay Illeaningful dividends If the cost
of capital IS to become;] more Illeanlngflil cOllcept in the Cilinese econoilly.
It is clearly the government's resf,lonslbility to maintain a macroeconollllC
ellVlronment that supports harmonious glowth Right now. the combination of a rrgid
RMB exchange rate regime and large external surpluses means that ttlere IS a flood
of liquidity Into the banking system Tile authontles mop up as mucll liqUidity as
possible Twelve percent 01 assets III the big four banks are now sterrllzatlon bonds.
Sterilized Intervention hurts banks' incoille through higller reserve requirements or
by fmcil1g banks to buy PBOC bonds at low rates. which harely cover the banks'
cost of funds.
liquidity which cannot be absorbed IS available to the banks for lendrng, running the
risk of excess lellCiillg and futul-e non-performing loans. Admrnistrative controls to
clamp down on lending are less effective III the larger, more Illarket-orrellted and
globally Integrated economy CI1rna has become. A more effective Illonetary policy one less absmbed by rnanaglng the exchange rate - could assist efforts to reform
the banking system. making It more Illarket driven as well as help assure more
stable growth
V. Fostering Openness to Competition
China can make progress toward financial sector reforlll simply by making these
domestic changes. But allowing much more foreign partiCipation in China's financial
markets would speed reform. as well as the stability and prosperity it will bnng_ I
don't know 01 a single cOllntry In the world With a successful and sustainable wellbalanced economy that doesn't 11ave a strong capitalillarket In place. And I cannot
think of any such country that isn't open to competition - both domestically and
from abroad.
In hiS National FinanCial Working Group speech, Premier Wen established a goal of
- quote - "Openrng up the lillancial sector wider to foreign financial help. and
introducing advanced foreign management experience, technology, and personnel
to accelerate the pace of IIlnOvatlon in Chln~ finanCial system to improve
effiCiency and competitiveness"
Openrng your capital markets to global competition and participation would brrng
many benefits: World-class finanCial Institutions can Introduce new technology and
products to China, enhance trainl11g and the transfer of skills, improve Illarket
practices and infrastructure, and enhance finanCial stability.
AllOWing Chinese ballks to sell controlling stakes to foreign Investors - currently
capped at 25 percent - can proillote China's efforts to strengthen risk management
and internal controls In small and medium sized banks. Chinese banks would
benefit from stronger credit analySIS skills that enhance their ability to make sound
loan decisions And the banking sector as a whole would become more competitive
as the capital markets develop and alternate sources of finanCing become
aVClilable
Opening to international competition does not mean compromising your own rules
or Identity II China opens ItS Illarkets to foreign partiCipants. those partiCipants Will
be subject to Chinese regulation and superVision. While undoubtedly international
cOlllpanies will have sOllle foreign managers, the bulk of the people employed In
Chllla's financial services industry Will be Chinese and the benefits generated will
largely stay in China Consider the large foreign investment banks Irl Japan, which
are overwhelmingly cOlllpnsed of and Illanaged by Japanese profeSSionals. As a
matter 01 fact. they are almost as Japanese as some of the hlstorrcally Japanese
Institutions. The wealth that IS generated III Japan stays In Japan.
Foreign headquartered financial enterprrses operatlllg In China would prOVide
trernerldous resources for- domestic skill development. arld for training those who
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4/6/2007
Page 8 of9
will become the leaders of Chllla's financial Industry, as well as future Chinese
entrepreneurs
China currently Illalntains tight CilpS on foreign partlciratlon In Its capital market.
Foreign secuntles companies can only own up to 33 percent of a Joint venture and
foreign asset Illana~emellt firms up to 49 percent of a jOint venture These
limitations are alTlong the most I-estrlctlve In large pl1lerglng markets
Experrence demonstrates that the JOint venture model doesn't work in the securities
sector, because Investment banks are difficult to manage and control The model of
minorrty foreign stakes has flOt produced world-class Investment banking
Institutions, China would benefit by eliminating Its ownership caps In the securrtles
industry as have almost all maJor developing countries, including BraZil, India, and
RUSSia, ThiS might not [lappen overnight, but the sooner the better,
To understand why thiS IS true, let me briefly diSCUSS an area I know something
about - managing an Investment bank An important role of an Investment bank IS
to serve as all Intermedlal-y between users and prOViders of capital To do this well,
these Institutions must combine adVisory, sales, rrsk management, market-making,
and Investing Skills, Premier world-class Institutions must comiJine the full ranqe of
these functions globally wilh capabilities In various domestic markets delivered by
locals staffs trained and executing to illtematlonal standards,
ThiS bUSiness model IS difficult to execute and It comes down to people - hiring and
training the rrght people, and Instilling In them proper values, Much of the training
needs to be done on the job in both the commercial and the control Side of the
business, The marlagement and control of these enterprises is very difficult even
when there is 100 percent ownership hy orgclllizations with strong cultures and long
Institutional memory_
China also maintains tight controls over how much funding foreign companies can
bring Into the "A" share market through the Oualifled Foreign Institutional Investor
scheme Despite the sharp rise in stock market capitalization and foreign exchange
reserves, the quotas for OFlls have barely budged. This slows development of the
equities market, giVing foreign Investors access to less than two percent of the
market capitalization of local exchanges, which deprives Chinese markets of buyers
and expertise Increasing OFII quotas will speed Crllna's financial market
development. Foreign securrtles companies are leaders III derrvatlves, yet only
banks are allowed to trade them in China. Since all markets have perrods of
VOlatility, well-developed, sophisticated financial markets give investors the tools to
manage volatility ttlrough a vanety of finanCial Instruments and techniques,
including futures. and the ability to offset positions by borrOWing and selling
securrtles. The availability of these instruments also increases market liquidity and
reduces volatility.
The Oualifled Domestic Institutional Investor scheme is a good start In allowing
Chinese institutions to Invest overseas. Granting more 0011 licenses to asset
management firms to lilvest in overseas equities would open up new avenues for
Chinese Investors to diverSify their finanCial assets and eam higher risk-adJusted
returns
Most natlollS recognize that large, well-managed securities Clnd asset management
flrills which brrng with them Irlternatlonal best practices are crrtlcal to strong
dOlllestlc capital Illarkets NatlollS that want robust, sustainable. harmonious growth
do not Impose caps China IS a large and powerful COLllltry, and you should not limit
your own potential by restricting your access to world-class finanCial expelilse that
can ellilance your capital lTlarkets.
VI. Conclusion
Tlllle is of the essence. China's underdeveloped finanCial markets place the nation
a challenging position, trYlllg to balance between a centrally administered and Cl
market-driven economy. One lesson I have learned over ttle years IS that although
perhaps not as easy politically, It IS bettel- to implement reforms durrng perrods of
III
http://www.treas.gov/pressfreleasesljf>3ill.htm
4/6/2007
Page 9 of9
economic strength. The risks for China are ~Ireater in moving too slowly than In
moving too qUickly toward transpC1rellt, liquid, stable capital markets. The longer
China walts, the more difficult It Will be to create robust capital markets and reach
your goal of more l)alcH1ced, hcHinonlous, and innovation-bAsed growth. Some
Industries that m<ly seek protection from competition Will grow more politically
powerful as they 91'OW more economically powerful That Will make it more difficult
to withdraw protection, to t~le detrtment of a nation and Its r:ltlzens WllO are deprivecl
of world-class performance
It's I)eell Send that everyone is In favor of competition, unless It IS competition for
themselves. Hlstorrcally speakillg, eXisting fil13nclal services companies tend to
oppose Ilberalizatioll and reform that brings new compettllon, even if it brings new
opportunities and produces benefits for society overall ThiS has certailily been true
of 111aJor financial sectol reform In tile United States and the United Kingdom, where
market participants have almost always resisted Change which increased
competrtlon In their sectors change which ultimately proved to be beneficial to
society as a whole and to tile frnanClal sector, which continued to grow and flOUrish
Witil greater competition, efflr:lencles, And Increases In employment.
To be sure, financial markets need to stnke the right balance between supervISion
and regulatiol', and dynamism and effiCiency. ThiS is not an easy challenge to
master. Yet the reality of the situation IS that an open, competitive, and liberalized
finanCial market can effeclively allocate scarce resources rn a manner that
promotes stability and prosperity far better than governmental Intervention.
RebalanCing your economy and welcomrng International competition in the financial
services sector is a Will-win propOSition. China and ItS major tradrng partners will
benefit from Increased prosperity that will strengthen other parts of your economy.
China's emergence as a global economic leader presents an important
responsibility. All world leaders, including China and the United States, must
malrltaln a transparent system of regulation and rule of law that gives international
and domestic Investors confidence In our markets.
I look forward to continued cooperation With Chinese leaders, particularly in the
context of our Strategic Economic Dialogue, which is an Important forum for
discussrng and managing our economic relationship. We received a very warm
welcome in Beijing In December for our Inaugural discussions, and I look forward to
welcoming Madame Wu YI and ttle Chinese delegation to Washrngton rn May
China has come a long way In developing Its capital markets, but the Journey is not
complete. At the end of thiS road lie benefits for all the Chinese people With
Visionary leadership and steady progress, these benefits ale wlthrn reach We wish
you continued success as you work to attain them. Thallk you very much
- 30 -
http://www.treas.gov/pressfreleasesljf>301.htm
4/6/2007
Page 1 of 1
March 7. 2007
HP-302
Statement Following Meeting of EU
Commissioner McCreevy and Deputy
Secretary Kimmitt
EU Commissioner for Internal Malket and Services Charlie McCreevy and US.
Treasury Deputy Secretary Robert Klmmltt met todi1Y to review the progress made
under the US -EU FlnarlClal Market Regulatory Dialogue and to diSCUSS ItS forwardlooking agenda.
They underscored the importance of the Dialogue's focus on promoting strong US.
and EU cooperation 011 fillanclal markets. fosterrng convergence. and anchoring
financial systems In best global practices. They also agreed to continue their efforts
to combat money launderrng and tile frnClncing of terrorism.
Deputy Secretary Klmlllitt observed that the EU Ilad made great progress In putting
III place the framework for an Integrated EU wholesale market, i1nd took note of the
similar efforts being made on the retail side. Mr. McCreevy thanked Treasury for its
leadership of the Dialogue, commended the Unitee! States for working closely with
the Directorate General for Internal Market and Services in addressing many issues
of European concern. and welcomed the prinCiples and gUidelines regarding private
pools of capital recently Issued by the Presldellt's Working Group on Financial
Markets.
They welcomed Chancellor Merkel's proposal to launch a Transatlantic EconomiC
Partilersilip at the U.S.-EU Summit and pledged to contlllLle workrng toward that
goal through the InfmillClI Clild cooperative structure of the Dialogue
http://www.treas.gov/pressfreleasesljf>02.htm
4/6/2007
Page 1 of 1
10 view or print tne I-'U~ content
on tnlS page, Oown/oaO tne free
AC1obeCS! AcrobatCS! HeaC1erCS!.
Marcil 9, 2007
HP-303
Treasury Economic Update 3.09.07
"Labor Illclrkets are flllll, uIH;llIploymf:llt IS low: consumer confidence IS Ilslng:
Inflatlol1 IS eClslrlg, exports Clle CJroWIIlg amJ they contributed about aile rercentage
POlllt to the fourth-quell'ter GOP Illliliber, ancJ of particular Importance to me,
workll1CJ fCll11llles dre IIOW belHcfltlflq frolll thiS exparlslol" with l'cCiI wagcs up 2 1 '1"
over ttle last yeal "
REPORTS
•
Treasury Economic Update 309,07
http://wwwtreas.gov/pressfreleaseS/hpJ03.htm
4/6/2007
TREASURY ECONOMIC UPDATE 3.09.07
"Labor markets are firm; unemployment is low; consumer confidence is
rising; inflation is easing; exports are growing and they contributed about
one percentage pOint to the fourth-quarter GDP number; and of particular
importance to me, working families are now benefiting from this expansion,
with real wages up 2.1% over the last year."
Job Creation Continues:
Job Growth: 97,000 new jobs created in February. In addition, employment estimates for December
and January were revised up, adding 55,000 jobs. 2.0 million new jobs have been created over the past
12 months. Since August 2003, nearly 7.6 million jobs have been created - more jobs than all the other
major industrialized countries combined. Our economy has added jobs for 42 straight months.
Employment has increased in 46 states within the past year. (Last updated: March 9, 2007)
Low Unemployment: 4.5% unemployment rate - close to a 5-1/2 year low. Unemployment rates
have decreased or held steady in 36 states over the past year. (Last updated: March 9, 2007)
The U.S. Economy Remains Strong and Continues to Grow:
Economic Growth: 2.2% GDP growth in the 4th quarter. Our economy has grown a solid 3.1 % over the
past 4 quarters. (Last updated: February 28, 2007)
Business Investment: Capital investment increased a strong 6.2% over the 4 quarters of 2006. (Last
updated: February 28, 2007)
Tax Revenues: Tax receipts up 11.8% in fiscal year 2006 (FY06) on top of FY05's 14.6% increase.
Receipts have grown another nearly 10% percent so far in FY07. (Last updated February 12, 2007)
Steady Productivity: Labor productivity has grown at an annual rate of 2.8% over the past five years.
(Last updated: March 6, 2007)
Americans are Keeping More of Their Hard-Earned Money:
Real Wages Increased 2.2% Over the Past 12 Months (ending in January). This translates into
an additional $725 above inflation for the average full-time production worker.
Real After-Tax Income Per Person has Risen 10.0% - an extra $2,950 per person - since the
President took office.
Pro-Growth Policies will Enhance Long-Term U.S. Economic Strength:
The Administration proposed a budget that reaches a small surplus in 2012. Economic
growth has generated increased tax receipts and dramatically improved the budget outlook. The budget
holds the line on spending. The budget reduces the deficit as a percentage of GDP-the most meaningful
measure of its size-every year through 2012. The time has come for both political parties to work together
on comprehensive earmark reform that produces greater transparency and accountability to the
congressional budget process, including full disclosure for each earmark and cutting the number and cost
of all earmarks by half.
www.treas.gov/economic-plan
Page 1 of2
MillCll 9, 2007
HP-30'+
Schedule for Treasury
Conference on US Capital Markets
Competitiveness
Treasury Secretary Henry M PcWISOll, Jr, wlllllOSt a corlference to examine Issues
affectlllg U S caplt,ll mznkets cOlllpetltlvelless on Tuesclay, Mench 13 In
Waslllllgton, 0 C Following IS a schedule of events
8:45 a.m.
SecretalY Pallisoll
Opeiling Remarks
Healy Hall AlIdltollulll
Georgetowil Uiliversity
37til and
Stl'eets, NW
WashlllCJtoll, DC
NOTE Broadcast Inedld should arrive stai'tlllg at 630 '-1 III alld must arrive no later
tilall 730 a III Aililleciia must RSVP with Andrea Sarubl)1 at 202-687-4328 or
aes54@georgetown,edu prior to the evellt for credelltlals
°
8:55 a.m.
Panel I
FIClrnlll~l tile Issues Markets Perspectives
Moderators, Secretary Paulson
SEC Cilalrillan Cilrrstopher Cox
Panelists: Warren E Buffett. Cllclll'lllan and CEO, Berkshire Hathaway Inc
James Dllllon, Chairman ami CEO, JPMorgan Chase & Co
Jeffrey R Illlmelt, Cilallillan and CEO, Generill Electllc Company
Cilalles R Schwab, Founder, Chi-llllllan, and CEO, Cilaries Schwab
Corporation
Joiln A, Thalll, CEO, NYSE Group
Ann Yerger, Executive Director, COlJllCr! of Institutional Ilwestol's
Gaston Hall
3rci Floor, Healy Hall
Georgetown Unlvelslty
37th and
Streets, NW
Wasilingtoll, DC
NOTE Broacicast mecila IllUSt arrive no later than 730 a III All media must RSVP
with AmJreCl SarutJl)1 at 202-()87-,-Ll2S or aes54@georgetown,edu prior to tile event
fOI cleclentlals
°
Panel II
FrallllnCJ the Issues Public PoliCY Perspectives
Moderators Secretary Paulsoll
Chairman Cox
Pallellsts, The HonoratJle Mlcilael R Bloomberg, Mayor, New York City
The HonorAble Dr Alan Greenspan, Greellspall ASSOCiates, alld Former
Chalrmall of the Board of GOVerilOlS, Federal Reserve System
Tile Honorable ArtilUr LeVitt, Jr, Sell lor AdVISor, Tile Carlyle Group
ami Former Chalmlall, SeCLJI'ltles imel Exchange COlllmlSSIOll
Tile HOllOrable Robert E Rublll, Director allci Chalrmall of tile Executive
Comlllittee, CltlgroliP Inc, clilci F oriller SecletalY of tile Treasury
The HOllorable Paul A, Volcker, Former ChCllrmall of tilE? Board of
Governors, Federal Reserve Systelll
http://wwwtreas.gov/pressfreleaseS/hp3Q4.htm
4/6/2007
Page 2 of2
Gaston Hall
3rcl Floor, Heilly Hilll
Geor~Jf~towll UIllvcrslty
37th al1(j 0 Streets, NW
WaShllle]ton, DC
NOTE BI();1(icast I1H:<lr;1 11lLISi ;mrv(; r)() 1,lt(;r 1I1,lrl 7 3(] a III All Illf;cirCl must RSVP
wrlll Amlrn,l S;lIlilJllr ilt 2()2-li87-·n:;(j 01 aes54@georgetown,erJu ri"IClr to IIw event
for crerJelltrals
5:15 p.m.
Ul1(ler Seel eLJry Rollel t K Stf;e\
Pen and Pad BrrefrllC)
Pl1rlodelllre Room
2nd Floor. Heilly Hilll
Georgetowil Urlrversrty
37tl1 and 0 Str·eets. NW
Wasl1rllC)ton. DC
NOTE No cameras wrll be 3cimritecl to the brrefrll<] All mecira must RSVP wrth
Andrea Sclrubtlr at 202-()87 -4:328 or c1es54@Cjeorgetowrl eelLi prror to the everlt for
crederltrals
http://www.treas.gov/pressfreleases/hp104.htm
4/6/2007
Page I of I
MellCll ~), 2()07
HP-]()5
Steel to Hold Briefing on Capital Markets Conference
US Treaswy Uncler S(,cr(;(;lIY 1m DOlllestlc FIIl,mcc=, Robert K Steel will host a
pell clilei PilcJ bmJflllC) elt tile Trc;lsllry DqJartmcllt on MOllciay, March 12 ilt 1200
P III to cilSCUSS tlw lIpCOIllI11~J Treilsury COllfcrcllce 011 U S Capital Markets
Competitiveness
Who
US Tl'easlll'y Umicr Secret;lry fm Domestic Firlance Robert K Steel
What
Pen ami Pael
BrIl~flllg
011 Upcoming U S Capitol Markets Conferellce
When
MOllCiay March 12, 1200 P Il" (EDT)
Where
Treasury Departmcnt
Meclla Room 4121
1500 Pennsylvania Ave, NW
Wasillllgtoll, DC
NOTE: No CCllneras Will he odlllltteel to tilC briefing Meellel Illtel'csteeiln attell(llrlg
tiw cvent at tfle Tle,Jsury Departl11Cl11 must ilovc Trcasury pless ueelclltlals 01
SilOulei contact Frcmccs Allelersoll for clearance at (202) 622-2960 or
Frances,Anderson@elo,treas,gov With tile follOWing Informatioll name, Social
Security number, ;mel elate of Imtll,
p:llwww.treas.go¥/J}ress/release~/hp3-05.htm
4/6/2007
Page lof2
March 12. 2007
2007 -3-12-12-25-40-31 n
u.s.
International Reserve Position
The Treasury Depilrtlllellt today IClCi1scci U S rleS(;rV(~ ZlSS(,tS data for 1Ile ICltest week As Indicated In this table. US reS(;I-ve 3ssets
totalecl S65.81 CJ 1111111011 as of 1118 encJ of tilat we(;k cOlllparf;d to S66.126 million as of the end of the pI-lor week
I. Official U.S. Reserve Assets (if) US rwl/rolls)
March 2, 2007
I
TOTAL.I
I
11 Foreign Curlellcy Reselves 1
II
II
I
la Securities
Of wllich. Issuer hfJACirlUd/1erecilll
Ib
tilP
U S
II
II
66,126
Euro
12.570
Yen
II
II
II
10.892
I
5,308
II
II
II
TOTAL
II
II
17,834
II
II
II
23.462
0
Euro
March 9, 2007
I
65,819
I
II
II
II
12.508
10,777
II TOTAL
II 23.285
0
II
5,249
I
Yen
Total depOSits with
I) I Other cfJlltrallJc1llks elnei BIS
1).11.
12,526
Banks IleaciqucJi1emcl/ll the U S
0
I
b II Of WI1ICh, bClllks locateci abroZ]ci
()
h.lll. Banks IWiJcfC/udr1uwc! ()utsICil) the US
0
bill Of which. iJallks located III lile U S
0
12 IMF Reserve Position ..
II
II
II
II
12.474
17,723
0
0
I
0
I
II
0
4,874
II
4.867
13 Special DraWing Rights (SDRs) 2
II
II
8.915
II
I
8,902
14 Gold Stock
II
II
II
II
11.041
II
II
II
II
11.041
15 01l1er Reserve Assets
0
0
II. Predetermined Short-Term Drains on Foreign Currency Assets
March 2, 2007
I
I
1 Foreign currency loans ami securrtles
Euro
I
II
Yen
II
II
II
II
TOTAL
0
March 9, 2007
II
II
II
Euro
II
II
Yen
II
II
TOTAL
II
II
II
0
0
I
I
I
2 Aggregate short and long positions In forwzmls ami futures III forelCJll currencies Vis-a-VIs the U S dollar
12.a Shon POSltlOllS
12.IJ LOllg posltiollS
13 Other
II
II
II
II
II
II
II
II
II
0
0
0
II
II
II
II
II
II
I
I
I
0
0
III. Contingent Short-Term Net Drains on Foreign Currency Assets
rI
---------------~II
.
1
Ip
Maceh 2, 2007
Euro
I
p:llwww.treas.gov/press!releases/20073121225403122.htm
Yen
TOTAL
II
===M;r=a=r=c=h=9=,2=0=0,-;=7=====l1
Euro
Yen
TOTAL
I
416/2007
Page2of2
1 Contlrll)ellt Ilahllltles In forellJn curr(~ncy
1a Coll,ltcr,]1 C]Lliliantees Oil
year
ci(~llt
due wltl11ll 1
1 b Other cOlltln~Jel1t liabilities
2 Forelun currency securities Wlttl cllllJcddL;d
options
3 Undrawn, L1I1concilt1011,11 credit IlIle'S
3d Wltil ntilel (:(Jlltld/IJdll/(s
3.1) WltlllJdllkS <i1l(1 Iltl](:r fllldll(,ld/lllstltlltl<lIlS
IHudc/(/udrturc(!
J
C
III
tilL; US
Wltil IJdllks dllil oth.:r fllldllCld/lllstltUtl()IIS
Headquarlerc(1 outslcle tiJP US
4 Aggregate sllOrt anci long positions of OptiOI1S
In forelgl1
Currencies VIS-;'J-VIS tl18 U S dollar
143
Silort POSltlOIiS
14 a 1 Bought puts
4a2 Wrrtten calls
1
141J LOllY POSltlOIlS
14b 1 Bought calls
1
4b2 Wrrtten puts
I
I
I
I
II
II
()
I
//
/I
II
I
/I
"II
II"
()
I
I
I
/
"/I
I
"I
()
II
()
/
/
I
1/
"
"
"
"
"
"
1/
I
I
1/
I
"II
I
1/
I
1/
1/
"
1/
"
"
1/
"I
1/
"I
I
"II
"
1/
I
II
"
"
"/I
II
"
"
"
II"
II
I
"
"I
1/
1/
0
I
II
II"
II
II"
"
1/
II
"1/
1/
1/
1/
1/
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
0
"
II
"
"
0
()
1/
/
"II
"
"II
1/
1/
Notes:
1/ Includes holcJlngs of tile Treasury's Excilal1ljP StaiJlllzatlon Fund (ESF) ar1d the Federal Reserve's System Open Market Account
(SOMA), valueci at current market exchange rates FOIClgil currency holdings listed as securrtles reflect marked-to-market values, and
depOSits reflect call'ylng values. Foreign Currellcy Reserves for the latest week Illay be subject to revIsion Foreign Currency
Reserves for the prror week are fill a I
21 The Itellls, "2 iMF Reserve Position" and "3 SpeCial DrawII1g Rights (SDRs)," are based on data prOVided by the IMF and are
valued in dollar tel'lllS at tile offiCial SDR/dollar eXClli1lllJe rate for the reporting date. Tile entrres for the latest week reflect any
necessary adjustments, Inclucimg revaluation, by tile US Tleasury to IMF data for the prror month end
31 Gold stock IS vCllued monthly at S422222 per fille troy OUllCe.
p:llwww.treas.govi press!releases/20073121225403122.htm
4/6/2007
Page I of 3
M~lIcil
1:l. 20ll?
HP<lOG
Opening Remarks by Treasury Secretary Henry M. Paulson, Jr.
at Treasury's Capital Markets Competitiveness Conference
Georgetown University
Washington, DC -- Tilililk you very ITlllch. Preslejellt D",Glola We are pleased to
I)e hele at Geol~Jetowll Uilivelsity GeorCJetowll IS a world-class IIlStltUtlOIl tilat
traills leaders In a numb(,r of ilreas. ;:Hld we are especially pleased to be jOllled In
ollr diScussions by facLilty ami studellts from GeorCJetowll'S McDollough School of
BLlslness
Tile participants III toelily's COllfcrellce are a dlstillguished group of leaders In U S
capital mclrkets. and I welcome you alld tilClllk you all for belllg here. You have
many ilreClS of expel11se ami YOIJ brlllCJ il variety of perspectives years of valuable
experlellce III acaelemla, Cjovernillen!. Hle IJUSIIless world. Welll Street. or as
Irlvestor advocates All of youl views dre welcome alleJ appreCiated ThiS IS a very
kllowleelgeable group of people alld I alll looking forward to all ellgaglllg
dlSCUSSIOl1
As tile Treasury SecretdlY, my goal IS to promote the cOllditi011S for American
prospellty amJ eCOllomlC Cjrowth - alld maliltallllllg the competitiveness of our
capital markets IS celltr,ll to tilat Cjoal Capital Illalkets are the lifeblood of our
ecollOmy They help elltreprelleurs lillplemelit Ilew Ideas alld bUSinesses expallCl
ope rat lOllS creatlllCj Ilew jot)S TrICY Cjlve our citizens the cOllfldellce to IIlves!. eam
higher returr1s 011 their savlrlcjs. alld reduce the cost of borroWing
US capital Il1,Hkets arE..; the deepest. lTlost effiCient. alld most transparent III the
world We al'e the worlel's leadel ami Inllovator III merCjers amJ acqulsltlolls adVice.
venturF~ capital. private eqlJlty. hcdcJC funcJs. dCI'lVatives. securitization skills, alld
Excll~1nge TI'clcJeci Fllllcis Wltll HilS expertise. our major flllCinClal Institutions have
cOlltrlbuted C]leatly to economic success throuCjllout the world
One of the great strenCjths of our markets IS Hlelr dYllalTllsm They cilange Wlttl the
times to serve the needs of Investol'S and t)USlllesses. Yel, mn markets are Ilot
Imillune to challenges After years of economic expansion alld tile excesses and
exuberance of the late 1990s. the tecllllology and telecom bubble burst allCl a wave
of corpolate scamjals IJlldermlllCcl Investor cOllfldence We weClthereeJ the storm
Tile Preslcient. both pClltles In Congress. Clnd regulCitors Illoved qUickly to address
the busilless scancials. which helped to restore Investor confidence
We respomieci to tile corpmcltf? sC:lmJ;:Jls With the SarbClnes-Oxley Act of 2002. new
Ilstln~] rules for pui)IIC COl1lpJnlf?s. ilmJ reglJliltory and enfmcemellt actions to alter
certalll 1)IISllleSS PlilCtlCPS These challges Ilave beell extellSlve clild slCjnlflcant. so
It IS qUite Ililturally tClklllCJ tlille for cornpClnlcs to IJllcterstand. process. and
Implemerlt the Ilew rules amJ requlrel1lellts But the prillcipies bellilld them have
beell positive. as have many of ttle results
As US-listed companies ilre adaptlllCJ to ttlese rules. Cjlobal capital markets around
the world arc evoIVI11~] Clnd cleveloplllc]. Intro(Juclllg Ilew competltloll for our markets.
At the sallie tlille. we IliNe wltllesseeJ extl'amcilnary Cjrowth In private pools of
capital. IIlCludlllg lledge funcis E,lCll of tilese chzlIlges pl'esellts ItS OWII set of
iJelleflts and cllallenCjes Tile quest 1011 we have to cons"jer IS tile IndiVidual allci
cUlmllatlve Impact of these chanc]es 011 US pliI)IIC compailies
http://wwwtreas.gov/pressfreleaseS/hp3D6.htm
4/6/2007
Page 2 of 3
Our markets are, Illdccd, tile bpst III tile world Yet we must he vlgllclllt, allCJ we
IllUSt do everything Wl~ Cdll to ensUIC tlley stay that way We at Tl'easury Ilave
some Ideas alld our fellow rC(julatexs drc working Oil tlH]sc Issues ;]s well There
are sOllle OllVIOLIS ZlcJlustllll~lltS, SUCll dS tlw reccnt ~l(llllllllstrCltlve actions recJarcilllCj
Sect 1011 404 Wilich sl10ulej Illltlg<lt(~ d Illajor problem related to Sarbcliles-Oxley
IlllplelTlelltatlon But tilcse dlC cOlllplex, Illterrelated ISSLles ami I alll cCJIlflclent 1I1at
we call benefit greatly frolll the VIPWS of tllO people In tillS roolll
III particular, we Will focus on three Issues our regulatory structLJI'e: the accountln~J
Industry: ,111(1 OUI Ipq,ll ilild corporat() Cjovemallce environment
Our re~llIl,ltory systelTl has s()rved LIS very well over the cOLirse of OLir hlstolY It IS
pal'! of the foullliatioll for our prosperity alld growtll Alld, robust ami balanced
regulatloll IS critical to ensuring tllat we COlltlllue to have the strongest capital
IllCll'kets III the future Yet, tile acJdltlon of Ilew regulators over many yeals, and the
tendellcy of these regulators to dddlJt to IIle challglllg Illarket I)y expanding, as
opposecl to fOCUSlllg on the broClcier ()bjectlve of l'egLllatolY efficlellcy, IS a trend we
should eXClmlne. We shoLild ~ISSE~SS how the cllrrent systelll works and where It can
be Improved, With a particular eye tOWClICJ more rigorous cost-belleflt allalysls of
new I'eglilatioll And we should also conSider whelller It woulcJ be practically
pOSSible alld belwflclcll to Illove toward a morc PllrlClples-based reglilatory system,
as we sec wOlklllCj III other PilitS of tile world
Because many of Ule corporilte sczlIldals of the late 90s were, for tile most part,
accountlllCj scalldals, It IS 110t surprising that much of the reform focused on the
accOLlIltlllg professloll TillS reform has Ilelped to restore Investor confldellce TillS
IS key because capital markets rely on trust, which IS based on financial Information
presumed to be accurate anci to reflect economic reality But the cumulative Illlpact
of all tile challge has SlglllflCCllltly affected the accoLlntlrlg Industry, fundamentally
altel'lrlq tile IllteriKtlollS between auditors alld corporate mallagelTlellt allcl boards
III a Ilumber of WClyS, some of Wilich might not be constructive. Also, we have seen
great concelltratlon amollg the majol' accountlrlg firms and there are legitimate
questlolls arJout the sLJstalflablllty of the accountlflg professloll'S l)uslness model
We SllOUld also COllslder wfleUler our system IS produclllg the high-quality audits
Clnd Clttractlflg tile tCllented cWrJltorS we need, whether there IS cUI-relltly ellough
cOlllpetltloll in the accollntlflg profeSSion, alld the deSirability of moving toward
1ll00e prillcipies-I)ased accoulltlng stalldards.
The baSIC prillcipies that underpill Cl robust corporate governance system are
accoulltal)lllty, tlallsparellcy. ami tile need to Iclentlfy and IllClnage conflicts of
Illterest As a result of Salbillws-Oxley and other regulatol'y challges, corporate
directors are Illore Ifldeperldellt, more aware of real and perceived COllfiICtS, more
diligent about Ulelr fidUCiary respollslbilities. Of course, directors IllUSt now spend
much more time engagecl In complli1llce processes and flfldlflg the rlqilt lJalance on
ttle use of director tlille IS CIItlcally Important But good corporate governance IS a
llleallS to all elld, not all ellCl III Itself OUI goal should be better mallaged, Illore
cOlllpetltlve corporatlolls tilelt (;arn Illvestor conflcJence til rough sound leadership,
thouglltful governance, alleJ oLitstallCilllg performallce. III my jucJgmellt, we must rise
above a rliles-based mlnciset that asks, "Is thiS legal?" anci adopt a more prlnclplesbased approClch that asks, "Is tillS right?" And we should cOllslder whether our legal
system appropllately protects Investors or CJlves too Illuch latitude to unscrupulous
lawyels
Throughout tile clay, the fLlIlCJ,llllelltal questloll we must Clsk IS Have we struck the
right balance between Investor protect 1011 Clild market competitiveness - a balance
that assures IIlvestors Ule system IS sound and trustworthy, and also gives
compailies the fleXibility to compete, IflilOvate, and respond to challges III the global
economy?
At today's cOllference there arc no pre-determlfled answels We are looklflg fOI a
real diSCUSSion, With rigorous questlonlllg i1llcJ candid allcJ collegial debate
At the end of ttle day, I hope eacll of us Will hilve hilCI one of om opinions
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ctlallenged, or been glverl nle oppmtllility to view arl ISSLIe from a new pel-spectlve
Given ttle cUrllulatlvt? WISrlOlll drHJ f,Xperl(?IICC III this roo III , I am confident the day
Will be ttlOuCJllt-provoklllCJ dllli prOlilJctlvc
At TI-easllIY, we Will ClIcflrlly (:(1IISleJI" ttw VICWS we hilVe Iwzlr(j today alolllJ With
the leCOI11lllE?llcidtlullS of iI 11111111)(:1 of utl)!;r uroups which Ililvc StUcil(;cJ thiS suhJect
Togettlcr tllCY wllllllfollll us ,IS Wi: cievelop specIfic follow lip steps III the cOI11lng
months to keep US cilpltal rllilrk(;ts the strclIlqcst ilild Illost Irlilovative III tllC wmlcl
There Will be thlll<]S we elt Tre,lsury W()(KIIIU wltil tllO reglilatolY aCJellcles, Will cio III
the 11Cill telm ,llld SOllll: otilel ilCtlllllS l)Vcr a 10ll~Jer tlillC frame to adelress thesc
c!l;lllcllUCS to ollr cOlllpntltlvcllCSS TillS IS a hlljtl priority for me
My qre;lt thclilks cleJLllll to tile studcnts, faclilty, awf adlllillistriltors of Georgetowil
for hosting us And tliClI1K you to illl of our conferencc p;lrtlclpallts for taking the time
to lend your vOices to thiS plocess Given the Importallce of om capital mal-kets to
our 1011~1-terlll eCOllOl1llC growttl ami competitiveness, It IS essential to have our best
minds ellg3ged Oil thiS mattcr.
Now, let's ~Jet startecl Please wclcome to tllC stage our fllSt pallel palilclpants.
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Milrch 1:3 20U7
HP-307
Visit by German Finance Minister Peer Steinbruck
Washington, DC--Secretiliy F)ZlLJlson will welcome Gerl1lan Flrlzmce Mllllster Peer
Stelnbruck to tile U S DCpdrtlliellt of Tleasury 011 Wedrlesday, Marcil 14. 2007
They Will dlSCLISS tile C:;emlim proposill for a New Trc1llsatlc1lltlc Econol1llc
Partnership In acivcHlce of till? U S -EU SUlTlmlt at the end of Apl'li and
lllacroecollOllllC condltlollS III ElIl'Ope clIlci the United States Adciltlonally, tlley Will
discuss the global econolllY. filldilcial sector Issues. ami tile G-7/8 ilgellda
-30-
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Mi1rcll 13. 2007
HP-308
Statement of Curtis S. Chin
Nominee For United States Executive
Director For the
Asian Development Bank
Before the Committee on Foreign
Relations
Til;:lIlk you Mr Cilillrmill,. R:lIlklll~ Mpmher Helgel elnd Members of tile
Comrllittep I elill ilorlored to he illJlc to cOllle before 1I1lS esteemed COn1l11lttee to be
considered fOI conflrlnzltlon as the US Executive Dlrectol of the ASian
Developmellt Bank (ADB) I elrn. of course, also extremely hOllmed to have been
nomillated by PI'esldellt Bush to serve our natloll at the ADB, allU I welcome tillS
cilance to answcr clilY qucStiOI1S YOLi Ilclve
Before proceedln~. ond with tile Chalrrnall's permission, I wanted to take a brief
Illomellt to thallk the many family members and frrends who have provided me
suppmt alld gUidance thlou~Jh my years In both the public allCi prlvote sectors
Sorne of them are Ilere today In paltlcular, Mr. Chairman, with your Indul~ence,
wanted to reco~Jlllze some of my family presellt First. illy parents. my father, Moy
- a retlled carecr U S Army officer orlgillally from tile state of Washington, now
WorklllCJ III healtil Ci1re - and my motiler, Ethel, orrglnally from Mi1rylami, a retll'ed
nurse and of course longtime militilry Wife and Mom WllO, With my Dad, helped
l1li1nage our ever-Illovln~ household frolll California to ArIZOni1 to Virginia ami
overseas US pOStlll~S III Talweln, Thailand alld Korea Also here are my slstel'
Lisa and Iler hliSbillld, rny biotiler-Ill-Iaw, Sam Of particular note, Sam, a US
Army soldlel, arrived 1,1St Wedllesday from Iraq where he IS deployed With the 19 111
EIlgll18er Battalloll, Headquclrters Support COmpi111Y I would particularly like to
tilallk Salll for JOlnIIH] liS thiS ilfternoon amJ ~Ivln~ up a ciay of hiS 110 doubt wellealilcd leave befole returlllllg Ilext week to Iraq Not here In person but offerlllg
suppmt from i1far IS Illy brother Mark, olso cal'eel' U S Army, who recently retired
as Deputy COmmi111cJer for Aclmlnlstratlon of Evalls US Army Community Hospital
III Fort COI'son, Colorado. All of tt18m In their OWIl way hi1ve set an example of
service to our COmlTlUllltles and our COUll try
If cOllflrmed for the position of U S Executive Director to the ADB, I look forward to
COlltlllLling that traciltloll of service Over the many years tllat I have lived and
workecl In ASia, I Si1W firsthand tile challellges posed by the tremendous poverty
that continues to persist In the region I also Si1W - as today's headlines from
Afghanistan, Illdla, IIlCJoneslil, Paklstall ilild elsewhere continue to show - how
what happells III ASia can have tl'emelldous consequences across tile PaCifiC here
In the Uilited States StlOllg, continued ellga~ement and IllVolvemellt III ASia by the
United States IS Vital and underscores tile Importance of i1 re~Jloll that willie growing
ancJ cJynallllc IS stili tlOme to tile vast mOJorlty of tile worlel's poor and stili continues
to face cli1untlllg challen~es al18acJ
Tile ADB's core IlllSSl0ll IS stralCjhtfolwarcl prornote sLJst;lrnalJle eCOI10nliC growtll
and ercldlcate povelty III the legloll It IllUSt do IIllS throu~h eCOllOllllC programs
IIlat acivallce 11UlTliln clevelopmelll private sector growth, ~Jood govemance,
transparency and tile ellVlrolllllellt
Blit tile Impi1ct of tile ADB cxtencls far beyond ItS baSIC miSSion of alleViating
poverty allCl prolllotlllCj eCOI10liliC developrnellt The Bank has playecl a slgillficallt
I'Ole In prolllotlll~ elllCi fillancing eCOllOilliC levltallzatlon alld Illstitutiollal
cJeveloplllellt In Af~hailistilil Willi U S support, It tlas been InstrlllTWlltClI III
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respondillg to Ikltural ciIS<lStUIS. sc;rVlllCJ not oilly ,IS filldilcler IJut as reCjlollal
coordlll,ltor of lecovery (?fforts frorn slicil (j()V<lStiltIIKJ evellts these last two years ,IS
tile tsunallli III ASia Clilli ,I III ell or e,lItllquilKe III F'ilklstdll III I)Otil cases. ADB efforts
to rebullcl alld I-estore 10C<11 ()c(111011lIC acllvlty II,lVc beell vlt,,1 to ICCOllstructloll
efforts AciciltIOll;llly. till; A[)H 11,15 pIOVld()cJ ZlSSIStclllCC Oil alltl-1110llCY IclUllderlllg
pr,lctlccS ,mel wilys to COllllfr)1 tlH~ flll;1I1CIIHj of t(:lrorISIll Ami. tile ADS IIClS [)()CII
wOlkllllj to COl1lil;lt 11lJIlI;-1Il tl;lffICkIIHI. eSI)(:CI;llly of WClITlf:1l ;lI1ri clilirirell
If COllflrllled. I Will illllHI til(; llrc;Jc1tll ,lIlil depth of my rCCjlOllill kllowlecicJe and
mallageillelit skills to SUppOlt dlill driV,IIlCU thc ~joals of ttw Unlteci States at thiS
Il11portclllt re~JlollZlI flllZ1I1Cidi Illstitlilion TllUSC cJodls Inclucle ellsurlng tilat the ADB
IS lesults-orlellted - ilchlevlllCj mr:aslIr<ltJle, responsible development outcolllesClS well as 111Cl"f:dslnCl trallspillcllCY elllcl accountability Irl the ADB's operatlolls
Mr Cilalrilldil. thi1llk you for tlw privlleCje of ClppearlllCj before tillS Comrllittee toclay
I would be pleased to clilswer ilny questlolls you or the memiJels of the Committee
hewe
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March 13, 2007
HP-309
Statement of Eli Whitney Debevoise, II
Nominee for United States Executive
Director of the
International Bank for Reconstruction
and Development
Before the Committee on Foreign
Relations
United States Senate
Mr. Chairman and Members of the Committee, I am grateful for the opportunity to
appear before you today.
I am honored to have been nominated to serve as US. Executive Director at the
International Bank for Reconstruction and Development. If confirmed, I will have
the great privilege and the responsibility to represent tile United States at the World
Bank Group institutions I look forward to the opportunity to work with Secretary
Paulson, the Treasury Department and other Executive Branch agencies
represented in and workllllJ througtl the Office of the US Executive Director.
The World Bank Group IS a global leader in economic development and poverty
reduction, bolll through ItS loans, credits, grants, guarantees and Investment
Insurance and through Its development know-how and policy advice. If confirmed, I
Intend to strive to hold the Bank to high standards and to help the Bank develop a
strong institutional framework and ethos to make those high standards sustainable.
In my profeSSional life I have grappled With the challenges of economiC
development, whether through the lens of sovereign finance, international trade,
cross-border lending and investment. debt-reduction operations, infrastructure
fmance. hOUSing fillance, development of domestic capital markets or Investor-state
disputes I have also WOI ked to combat corruption For my successful, global
efforts to recover the ill-gotten gains of corruption, I was awarded a Brazilian medal,
tile Order of RIO Branco. Finally, I have experience With the International Centre for
the Settlement of Investment Disputes, an Important forum for the resolution of
IIlvestor-state disputes. If confirmed, I will apply the lessons learned from these
expenences at the World Bank institutions.
At a time when United States leadership In multilateral Instrtutions is as important as
ever, I look forward to the opportunity to represent the Bank's largest shareholder. I
also look fOlward to buildlllg a strong working relationship with this Committee as I
commit my energy and experience to the misSion of economic development and
poverty reduction In all corners of the globe
Thank you, Mr. Chairman. I would be pleased to answer the Commltlee's
questions
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Marctl 13. 2007
HP-310
Statement Of Margrethe Lundsager
Nominee For United States Executive
Director,
International Monetary Fund
Before the Senate Foreign Relations Committee
Chairman Menendez, Ranking Member Hagel, and members of the Committee,
thank you for the opportunity to appear before you tOday. I am honored that
President Bush has nominated me to serve as the United States Executive Director
elt tile International Monetary Fund, and If confirmed. I pledge to work with this
committee. the full COllgress, Secretary Paulson and the rest of the Administration
In funhenng U.S foreign economic poliCY goals
After Illany years at tI'18 Treasury Department, I am now servtng as the Alternate
US. Executive Director at the IMF. In this capacity, I have sought to achieve U.S.
objectives alld if confirmed. Will continue to pursue the reforms that are a priority to
the United States
As you know, the miSSion of the IMF IS to promote international monetary
cooperation and to facilitate the growth of trade In order to generate high levels of
employment and income In its member nations. Towards thiS end. the IMF has an
important role in encouraging Increased transparency In publiC policy. supponing
market-based reforms to generate sustained growth and development, and
advanCing sound fiscal and monetary poliCies to strengthen government accounts
and reduce the risk of CriSIS. With ItS near global membership, the IMF is in a
position to promote best practices In these areas. A good deal has been
accomplished, A strong IMF with a firm US voice is imponant to continuing this
work.
At the present time, the IMF is also undergoing fundamental change as it looks to
revise ItS own tools for assessing a country's economic and monetary poliCies,
Including a country's exchange rate POliCY, The United States strongly suppons thiS
effon and. if confirmed. I look forward to working with my colleagues to realize
these Important reforms.
Mr, Chairman. throughout my Treasury career I have had the opportunity to see first
hand the dedication of Administration offiCials and Congressional leaders to
strengthening tile U.S ecollOrny. through OUI' own domestic policies and our global
effons to foster growth and flrlanclal stability in other countries. There IS much we
call stili do to strengtllen the global economy. and If confirmed. I will seek to do my
part at the IMF to aclllf:;ve furtiler reforms In IMF poliCies and practices. I would be
pleased to answer your questions Thank you
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Macch 13. 2007
HP-311
Closing Remarks by Treasury Secretary Henry M. Paulson, Jr.
at Treasury's Capital Markets Competitiveness Conference
Georgetown University
Washington, DC--Thank you very mucll. Thanks to all of you for participating in
today's Conference and making It a great success
Throughout the day we've heard a range of opinions and viewpoints. all aimed at
keeping Amencan markets the most competitive in tile wocld We have had a good
dialogue, with plenty of back-and-forth, and I believe we've made progress.
The competitiveness of our capital markets has a very significant Impact on the
health and growth of our economy, and we benefited today from haVing the nation's
best minds engaged on thiS subject
I have paid close attention throughout the day, ClS have my cOlleagues from
Treasury And I know we have benefited from fresh thinking and new perspectives.
We have covered a lot of ground on t11ese complex issues and we need to digest
what we've heard As I said earlier. we will soon issue a plan fOl' moving forward on
Ulese issues, With the goal of making significant progress thiS year on generating
concrete proposals ThiS IS Cl high "monty for me.
Again. many thanks again to tile faculty, students, and administration of
Georgetown UniverSity for being gracIous and engaged hosts. We have
appreciated your help organiZing the Conference and we are certainly grateful for
your participation III It.
Ttlank you all very much.
-30-
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Marcil 14,2007
HP-312
Senior Treasury Officials to Hold a Press
Conference on Banco Delta Asia
Stuart Levey, Uncler Sccret~lry for Terrorism amJ FIIlal1clai II1telllrJer1ce, and Daniel
Glilser, Deputy ASSIS!;lllt S(~crf;tilly for Telrrmst FinancillrJ dllCI Financial Crllnes,
will IllZlke cln ,111llouncCIllCl1t 011 ,1 fillal regulatloll COllcernlll<] BZlIlco Delta ASia as a
primary mOL ley 1,1LlIlcJcrlll~J cOl1cern' Lilleler Section 311of tile USA PATRIOT Act
Tile following evellt IS opell to crerJelltialed media
Who
Stuart Levey, Undel Secletary for Telrorlsm al1d Flnallclal IntelllCJence
Daniel Glaser, Deputy ASsistclnt Secretary for Terrorist Fillancing and Flnar1clcll
Crimes
What
Press Conferellce Oil Banco Delta ASia
When
TODAY - Wedllesday, Mal'cf] 14 ilt 100 PM
Where
US Departmellt of tile Treasury
Media Room - 4121
1500 Pellnsylvanla Ave, NW
Waslllllgton, DC
Note
Media wltilout TieasulY press crecJelltiills must contact Frances Andel'son at (202)
528-9086 or fl'ances,anderson@do,treas,90v wltil tile following Information for
clearance IIltO tile bUlldlllC) full Ilcllne, Social Security number and date of blrtil
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Mcl1C1114,2007
HP-313
Deputy Secretary Kimmitt To Attend UN
Meetings For International Compact for
Iraq, Meets with Iraq Vice President Adil
Abd al-Mahdi
Washington--Deputy Secretary Robert M Klmmitt Illet ttllS moriling with Iraqi Vice
President Adtl Abd al-Mailell allci Planning Mllllster All Baban to discuss tile
Internatiollal Compact wlHl Iraq rllf;etlng In New York tillS Frrday at tile Unltecl
Nations Tile Deputy Secretary rf?ltelatecl tile Admlilistration's support for tillS
Important Illltlatlve. Tile GoVert1fllent of Iraq Ilas outlined a compreilerlslve
package of economiC reforills III excllarlge for cOlllmitments from tile Internatlollal
COlllllllJlllty All parties aurt:ed orl tile Impor1ance of a Ministerial meetlllg In ttle
near future to formally Slgll tile Compact
Additionally, Deputy Secretary Kllllmltt congratulated tile Vice PreSident and
Plarliling Mllllster for recent progr'ess on economic reform.
"I congratlilate Vice PreSident Maildl alld Minister Baban for Iraq's r'ecent progress
on economic reform I look forward to JOining them at tile United Nations as
Secretary General Ban KI-MoOll alld Vice PreSident Maildl present tile Intematlonal
Compact Wlttl Iraq, an ambltloliS framework for transformation of tile Iraqi economy.
ThiS Initiative IS deSigned to ilelp acilleve witilill five years Iraq's viSion of a stable
alld prosperous nation underplllIled by a self-sListalnlrlg economy"
For adciltlorlallnformatlon, please Visit ilttp:llwww.iraqcompacLorg
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March 14. 2007
HP-314
Prepared Remarks of Stuart Levey
Under Secretary for Terrorism and Financial Intelligence
The Treasury Department today IS flllallzing the rule under Section 311 of the
Patriot Act agalilst Banco Delta ASia SARL (BOA). When it takes effect In 30 days.
this action will prohibit all US financial Institutions from maintaliling correspondent
accounts for BOA and prevents BOA from accessing the U S. financial system,
either directly or indirectly Today's regulatory action is targeted at BOA as an
Institution, not Macau as a Jurisdiclion The Treasury Department is charged With
safeguardlrlg the US. and international financial systems from abuse, and today's
action IS an Important stejJ In the discharge of that responsibility.
In September 2005, we found BC:lIlco Delta ASia to be of ' primary money laundering
concern' We outlinecl the reasons BOA posed such a concern and proposed a rule
that, if finalized, would require U S financial institutions to terminate all
correspondent accounts With BOA. With today's announcement, we are finalizing
this rule We are taklrlg this step because of the systemic failures by Banco Delta
ASia to apply appropriate standards and due diligence. as well as the gamut of IlliCit
activities the bank has facilitated on bellalf of North Korean-related entities.
Over the past year and a half. under Deputy Assistant Secretary Danny Glaser's
capable leaderstllp, we [lave beerl engaged In an in-depth. rigorous investigation of
Banco Delta ASia With the cooperation of Macanese authorities. The purpose of that
investigation was to validate our concerns and determine whether to finalize the
rule. The information gleaned from that Investigation did in fact confirm the findings
we put forth in SeptellltJer 2005. It also revealed additional illiCit finanCial conduct at
BOA beyond that spelled out In our designation - including activity related to
entitles facilitating weapons of mass destruction proliferation. Many North Korean
account holdel's at BOA had connections to entities involved in North Korea's trade
In counterfeit U.S. currency, counterfeit cigarettes. and narcotics, Including several
front companies suspected of laundering hundreds of millions of dollars in cash
through Banco Delta ASia As described III the final rule, BOA did not conduct due
diligence to attempt to verify the source of these unusually large currency deposits
BOA allowed its North Korean clients to use the bank to faCilitate Illicit conduct and
engage In deceptive finar1Clai practices. Indeed. in excharlge for a fee, the bank
provided those clients access to the banking system With little oversight or control
The deceptive financial practices and grossly-inadequate controls Within BOA have
run too deep for us to Ignore. BOA's bUSiness practices pose a real threat to banks
worldWide. and BOA has no bUSiness accessing the U.S. finanCial system Though
the Macanese authorities have made significant strides In strengthening Macau's
anti-money laundering regime and managed the bank responsibly since September
2005, the bank Will not remain in receivership indefinitely, and BOA's historical
deficiencies were therefore cerltral to our decision-making
Additionally, after we designated BOA, the Macanese authOrities moved to freeze
upwards of $25 million held In the bank by clients associated with North Korea. We
have worked closely with the Macanese on our Investigalion Into BOA, and this
week we are transmitting our findings 10 the Macanese authOrities.
The Treasury Department notes With appreciation the strong cooperation of the
relevant Macanese authorities With respect to BOA. Macau's positive developments
are not limited to actions relating speCifically to BOA, such as freeZing suspect
accounts and responsibly m311aglng the bank. Over the past year, Macau has taken
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Page 2 of 2
significant steps to reform its anti-money laundering regime. consistent with
international standards. Macau has enacted new laws and promulgated new
regulations 10 safeguClrd Itself from finanCial crime. Moreover, Macau has created
Its first-ever Fiflancial Intelligence Unit - allOWing It to share information with
counterpart Institutions around the world - and developed a specialized money
laundering unit Wltllifl Its police force. While tilese systemic developments Will need
to tJ8 tested through rigorous and effective implementation across Macau's entire
financial system. they cel1alllly represent Important progress and a sign of
commitment
Deputy ASSistant Secretary Glaser has met with the North Koreans three times over
the past year - twice III a forum known as the Bilateral Financial Working Group to discuss the broad and fundamental concerns of the International financial
cOlllmufllty Indeed. flflancial institutions around the world have made Independerlt
determinations that dOing business With North KoreCln-related entltlcs presents an
unacceptably high risk of being tainted by illiCit conduct. North Korea IS responSible
for ItS own isolation from the International financial community. Only by halting ItS
illiCit conduct can North Korea reverse that Isolation and persuade financial
institutions and othcrs to reestablish relationships with It. We are prepared to
continue the Bilateral Fillancial Working Group in order to diSCUSS With North Korea
the steps It could take If It truly Wishes to alleViate its Isolation from the international
financial community
http://www.treas.gov/pressfreleases/hp314.htm
4/612007
Page 1 of2
/ (l
view e)1 iJunl 11l[' tJUI- COlifulll Oil
fl)f~
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Marcil 14,2007
HP-315
Treasury Finalizes Rule Against Banco Delta
Asia
BOA Cut Off From U.S. Financial System
The US. Department of tile Treasury today finalized its rule against Banco Delta
Asia SARL (BOA) under Section 311 of the USA PATRIOT Act. When the final rule
takes effect In 30 days, US flnanclallnstitullons will be prohibited from opening or
malntalf1lng correspondent accounts for or on behalf of BOA ThiS action bars BOA
from accessing the U S fillanclal system, either directly or indirectly
"Our Investigation of BOA confirmed the bank's willingness to turn a blind eye to
illicit activity, notably by its North Korean-related clients," said Stuart Levey,
Treasury's Under Secretary for TerrOrism and Financial Intelligence (TFI). "In fact,
In exchange for a fee, the bank provided its North Korean clients access to the
banking system with little oversight or contro/."
The Treasury's Financial Crimes Enforcement Network (FinCEN) In September
2005 found BOA to be of "primary money laundering concern" under Section 311
and issued its proposed rule, Citlllg the bank's systemic failures to safeguard
against money laundennq and other financial cnmes
The U.S Treasury has since been engaged In an ongoing investlqatlon of BOA with
the cooperation of Macanese authorities. The information derived from that
investigation and the failure of the bank to address adequately the full scope of
concerns descnbed in the proposed rule has laid the groundwork for today's action
Over the past 18 months, the Macanese authorities have taken substantial steps to
strengthen Macau's anti-money laundering and counter-terrorist financing regime.
notably by passing a new law to strengthen these controls and standing up the
junsdlction's first-ever FinanCial Intelligence Unit (FlU). Today's regulatory action IS
targeted at BOA as an illstilutlon, not Macau as a Jurisdiction
"We are pleased that Macau has made Important progress in strengthening Its antlmoney laundering controls and safeguarding the Macanese finanCial system
However, Banco Delta Asia's grossly inadequate due diligence and systematic
facilitation of deceptive flnallcial practices have run too deep for the bank to be
allowed access to the U.S. finanCial system," said Levey
The Treasury would review and, if appropriate, rescind tile rule If the concerns laid
out in it are adequately addressed, Including if BOA were to be brought under the
long-term control of responsible management and ownership_
Abuses at the bank InCluded the facilitation of financial transactions related to illiCit
activities, Including North Korea's trade in counterfeit US. currency, counterfeit
cigarettes, and narcotiCs. In addition, several front companies may have laundered
hundreds of millions of dollars in cash through the bank. The final rule highlights the
bank's grossly Inadequate due diligence, which facilitated deceptive finanCial
practices by these clients Including
•
Suppressing the identity and location of originators of tri.lrlSactlollS and
http://www.treas.gov/pressfreleases/hp31S.htm
4/612007
Page 2 of2
•
•
ilrrtlllglllg for flillCis tr,lllsfers VIZl tlmn PZlItIPS.
Rcpedted b;lI1k tr;ll)sll~rS uf 1,]fc)C. roIJlld-fICJllrf~ SllillS bon) to ,mrJ frolll
dCCOUlltS 11ClcJ ,It utlll;r Ildllks Illill IldVt; 110 ,1PPilrCllt liCit pllrposc: ,1Iln
Tilc rolltllH~ IISt~ of cdsil COlIIIClS to movc lill(jC alllolHils of CIJrrCIICY. Ilslially
US noll,lrs. III tilt; ,iI)SI>I)CC~ of ,IllY credlille expl;lllilllOll of tire orlqlll 01
purpose for Ilw cisil Ir,lnsdctlclilS
Background on Section 311
Title III of tile USA PATRIOT Act ZlillPI1Ci(~d Ilw alltl-money lalillci(;rlng PlOvlslons of
tile Balik SI;CIl;CY Aci (11SI\) III PIOlll()ll~ tile prCVClltlClil. df;lcctlOIl ,md PlosccutlOl1
of Illtcrlldtloll,JI IllOllCY lilllllt!crlll~l illlt! tile fllliH1ClrlCj of tCI rUliSIll Sect 1011 311
ZllltilOlIZCS tlw Secrct;1rY of tile Tlcdsury - In COllsultatloll With tire Depclltrnents of
JUStlCC c111d Stdte; ,mel zlpprUpll,ltc Fe;clcrdl flllZlnclClI rC~JlIlatols - to filld tllat
Icasollallic grourl(is eXist fex c()llcllIdlrlCj tllat il foreign JUrlsdlctlorl. IrlStltutlOIl. class
of trallsactlollS or type of Z]CCOIII)t IS of "pllillary Illolley lalmdel'lng concern" iHlcJ to
lequire U S fmalKIZ]1 111Stituti011S to take cel'taln "special measures" dgalilst tllose
IlIIISciICtIOI1S. 111Stltllt1011S. ilCCOlilltS or trZlIlSi]ctlons
Tilese speCial Illei1SllrCS ral)~Jc flOIll ellhanceei record keeping or reportlllg
ol)llgatlolls to ;] rcqLJlrClllellt to tr;rrnlnatc correspondent banklllg relatlollsllips With
the deslCjnZltecJ EJlltlty The mC~ISLIres are meant to pmvlde Treasury With a range of
OptiClI1S to 1JIII1g aeldltlClll,ll [lrfCssure Oil InstltutlollS tilat pose speCifiC Illolley
lalJllderlllg threats
The Treasury Departmellt ilas previously IssLied fill a I rules agaillst the following
fllli:mcial InstltutlorlS limier SectlClll 311. prohibiting U.S fillancial Institutions frolll
opelling or Illilintilliling correspondellt accounts for or on tileir I)ehalf
•
•
•
•
VEF Banka (LatVia)
COlTlllierclal B,lllk of Syria (Syrra) and SYrian LelJallese Commercial Bank
(LelJallOn)
Myanillar Mayflower Bank (Burma)
ASia Wealtll Bilnk (Bulllla)
A C(lpy o( the (IIJi)1 rule lJ)ay flO ilcc;esse(i at tile (O/lOWIIl!] IIIJ".
http://www.fincen,gov/bda_tina/Ju/e,pdf.
http://wwwtreas.gov/pressfreleaseS/hp31S.htm
4/6/2007
Page I of2
Malch 14,2007
HP-316
Treasury Secretary Paulson to Visit Guatemala and Peru Next Week
Treasury Secretary Henry M Paulson, Jr. Will travel to Latin Amerrca next week to
discuss economiC progress In the region as well as the region's efforts to brrng new
opportunities, continued poverty I'eductlon and an expanded middle class to its
people. Latin America has been a long-time Interest for Secretary Paulson and IS a
key prrority for 111m as Treasury Secretary
Paulson wrll arrrve In Guatemala City Monday for the annual meeting of the InterAmerican Development Bank (I DB) There he wrll hold meetings With finance
Illlnisters and heads of state where he will stress the US stake In the economic
success of Latin America and the Caribbean
"In recent years, many governments have strengthened their poliCies, shored up
publiC fmances, reduced debt vulnerability, and opened markets creating stronger
economic growth," said Secretary Paulson. "My goal is to work with leaders In the
region to ensure that more people share in the benefits created by economic growth
and trade Opportuilities "
Additionally, he Will dlSCLISS tile lOB's Initiative to provide debt relief to five of the
region's poorest countrres BoliVia, Guyana, Haiti, Honduras and Nicaragua. At the
Summit of the Americas in 2005 President Bush called on the Treasury Department
to work with the lOB to provide debt relief for the region's poorest countries in order
to lift the burden of poverty and promote opportunity in the region The Treasury
Department worked closely With the lOB over the past year to develop a proposal
that would both provide debt reduction and sustain the financial Viability of the lOB
for future lending (Click here for more Information on the debt relief Initiative
I,
.)
While in Guatemala Secretary Paulson Will also meet with busmess school students
for a COlwersatlon on economic developments in the reglol1
Secretary Paulson will tllen travel to Lima to Illeet Witll government officials, local
business leaders, and students to discuss, aillong other topics, President Garcia's
and Finance Minister Carranza's pro-market policies, With their focus on growth,
poverty reduction, and sound publiC fmances, Secretary Paulson Will underscore
the Importance the United States attaches to PreSident Garcia's economic success
In translaling growth Into poverty reduction
The visits to Guatemala and Peru Will be the Secretary's first in those countries as
Treasury Secretary. Paulson's first Illternational trip after becoming Secretary was
to Latrn America to attend the Inauguration of Colombian PreSident Urrbe In August
of 2006.
The follOWing events are open to media
Who
Assistant Secretary for International Affairs Clay Lowery
What
Pre-Trip Pen and Pad Briefing
When
Friday, March 16, 330 P m (EDT)
Where
http://www.treas.gov/pressfreleases/hp116.htm
4/612007
Page 2 of2
Depill-tillellt of tile Tre,lSLIIY
1500 Pel1l1sylvillll,1 Aw . NW
West C";i'lllics ROOlli . 5·n2
WZlsI11IlC]tOI1. DC
Note
No GlillerilS wIIIllC ,Iclllllt\(~d to tilt' Imeflncl M(~cllZ1 wltllolJl Tn;ilsllry press
creocllllills SllOlJlcI COlildel FldIIC(,S AllcjprsClfl wltll fiJ11 fl,lIllP. Soc:r:1I Secullty
Illllllilel. <llid dille of IlIftil ill Frances.Alldersoll@do.treas_g·ov or 202-ti22-2CJ()()
Who
Sccretdry HefllY M fJdLJls()ll. Jr
ASSIStdllt Sr,crelillY fOI IlllellliltlOlldl Aff:ms Clay LowelY
What
fJress COIlfciCI1CC
When
MOllriay. M,lICI1 1D. EX,lCI Tlille TBA
Where
IntelColltlllelltal Hotel
14 Calle 2-51
ZOlla 10. GlIillelllilld City
http://wwwtreas.gov/pressfreleaseS/hp316.htm
4/6/2007
·
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u.s. TREASURY DEPARTMENT OFFICE OF PUBLIC AFFAIRS
9 a.m. (EDT), March 15,2007
CONTACT Brookly McLaughlin, (202) 622-2920
EMBARGOED UNTIL
TREASl:RY INTERNATIONAL CAPITAL DATA FOR JANUARY
Washington, DC -Treasury International Capital (TIC) data for January are released today and
posted on the U.S. Treasury web site (wvv'\V.trcas.gov/tic). The next release, which will report on
data for February, is scheduled for April 16,2007.
Net foreign purchases of long-term securities were $97.4 billion.
•
Net foreign purchases of long-term U.S. securities were $115.0 billion. Of this, net
purchases by foreign official institutions were $12.3 billion, and net purchases by private
foreign investors were $102.7 billion.
•
U.S. residents purchased a net $17.6 billion in long-term foreign securities.
Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have
been $84.0 billion.
Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and
other custody liabilities increased $23.4 billion. Foreign holdings of Treasury bills increased $1.2
billion.
Banks' own net dollar-denominated liabilities to foreign residents decreased $32.8 billion.
Monthly net TIC flows were $74.6 billion. Of this, net foreign private flows were $47.4 billion and
net foreign official flows were $27.2 billion.
TIC Monthly Reports on Cross-Border Financial Flows
(Billiolls ofuollars.,
Illlt
211(J5
Sl:ason·tllv 'llijuslt:u)
lOO(,
12 Month, TI"()LJ~h
Jan-O[,
Jan-[J7 Oct-or,
Nov-Or,
[)ec 0(,
Jan-07
Foreigners' Acquisitions of Long-term S(,:curitil'\
I
Gro~s PurcllJsc~
2
3
(jross Sales of [JomeslIl2 U.S, Securities
Domestic Securities Purchased, net (line I bs line 2)!1
4
5
of Ot)l1le~llC l J S. Sccuri1it.:'s
Private, net /2
Treasury Bonds &
~'otcs,
(,
Gov't Ag.c:ncy Bonds,
7
8
Corporate Bonds, net
Equities, net
9
10
"
12
13
14
15
16
17
18
111..'[
Official, lIet 13
Treasury Bonds & Notes, net
(jov't Agency Bonds, net
Corporate Bonds, net
Equiol2's. Ilet
Gross Purchases of Foreign SecuritIes from U S. ReSI(knl~
Gross Sales of Foreign Securities to L'S Residents
Foreign Securities Purchased. net (line 14 less lille 15) 14
Foreign Bonds Purchased, net
Foreign EqUities Purchased, net
Net Long-Term Securities Transactions (Ilile 3 plus line I(»).
20
Other Acquisitions of Long-term Securities, net IS
22
2J
24
25
26
27
2R
29
J\et Foreign .\cquisition of Long-Term Securities
(lines 19 and 20):
Increase in Foreign Holdings or Dollar-denominated Short-term
U_S. Securities and Other Custody Liabilities: /6
U.S. Treasury Bills
Pri vate, net
Official, nel
Other Negotiable Instruments
and Selected Other Liahilitie" 17
Pri vate, nc:t
Official, net
I
/2
/3
/4
/6
17
/8
I X7h.O
1767. I
108.9
19285
I X06!)
121.6
18504
17876
62.8
I R(J9.6
1694.6
115,0
187.6
353. I
81.0
956.1
135.7
21)2.0
4742
144. I
884.6
239.4
188.8
364.2
99J.O
16UJ
202.0
487.3
1409
83.6
6.5
10.9
38.8
274
115,1
32.5
11.8
(, I 8
9.1
38.8
4.5
12.5
32.9
-II I
102.7
206
20.2
40.8
2I I
120.4
68.7
3 I (,
19 I
1.0
185.6
62.5
88.8
n.5
5.8
124.3
674
343
25.3
18.5
5.3
2.0
-OA
6,5
10
4.0
3.6
-2 I
24.0
6.1
155
2.9
-05
12.3
-5.3
15.8
2.4
2.4
179.2
50.9
95.6
28.5
4.3
3700.0
3872,4
-172,4
5S6!) 5
58 I 5.2
-248.7
3857.3
4037.9
-180.6
5718.5
5969.3
-250.9
507.6
524.2
-16.6
533.5
570.9
-37.4
520.8
569,4
-48.5
552.5
570.0
-17.6
-45 I
-117 3
- I 42 3
-10(1.3
-47,4
-133.2
-143. I
·107.7
-8.2
-8,4
-17.6
-19.8
-29.6
-18.9
-4.8
- I 2.7
839.1
893.0
828.3
919.4
n.4
R4.2
14.3
97.4
-140.0
-165.7
-146.3
-164.3
-10.4
-32.6
-13.1
-13.4
699.1
727.3
682.0
755.2
82.0
51.6
1.2
84.0
-47.6
-58.9
-15.6
-43.3
134.4
-9.0
16.U
-250
-30.7
-41.8
-10.0
-31.8
148.4
-17.2
" .9
-29. I
10.5
4.1
5.0
-0.9
15_5
9.5
L8
7.7
6_9
-4.9
4.4
-9.3
23.4
1.2
-33
4.5
11.4
10.6
0.8
143.4
163.2
-19.8
11.2
10.9
0.3
165.7
181.9
-16.3
6.4
16.9
-10.5
6.0
7. I
-I I
11.8
6.0
5.8
22.2
25.9
-3 7
16,4
-26.1
101.6
-62.2
-2.4
0.9
-22.8
-32,8
667.9
835.6
752.9
841.4
90.1
68.0
-14.7
74.6
580.6
7070
128.6
('('3 (,
697:1
144.2
96.7
-6.6
SgO
10.0
-45.2
30.5
47.4
27.2
n,3
92.2
202
89.3
Net foreign purchases of U.S. securities (+)
Includes internatIOnal and reglOnJI organizations
rhe reported diVISion of net purchases of long-tenn securities between net purchases by foreign artlcl,,1 irbtllutions and net purchases
of other foreign Investors is ,ub)ect to a "transaction bias" described III Fre<juently Asked Questions 7 and IO.,A on the TIC web Site.
Nellransactlons in foreign secunlles hy (J S_ resid~nts Foreign purchasC"~ Orrorelgn secuntles::::: U.S. sales of foreign !:>ecurrties to forcigner~.
Thus neg;Jt!ve entrrr:-s indicate net L'.S. purchases of foreign
indicate net U.S. sales of foreIgn se~uritH':s.
/5
213254
20155. I
1170.3
Change in Banks' Own Net Dollar-Denomillated Liabilities
30 .\Ionthly Net TIC Flow, (lines 21,2229) 18
of which
31
Pnvatc, net
32
OffiCial. net
I
17456.5
1644 i.b
1008.9
891.1
2(,9,4
net
1<)
2I
17157.5 2" 01 ~
I (, I 45') I~%O 3
lUI 1.5
1141.7
SeCUrities,
or an outtlow of capital from the United States: positl\'c entries
MinUS estimated unrecorded prlrlclpi..!1 rcpJyments tu f()rclgller~ on dome.':.tlc corporate Jnd agency asset-backed ~eCUrltlc:- +
eSlHnated foreign acqUisitions ofl.I.S equity through ~tnck sv,,'apsestimated U.S. acquIsitions offorcign equity through stock $\.... aps +
muease in nonmarketable Treasury BOllds and Notes hsued to Officiallnstitulions and Other Re"dcnts of Foreign Countnes
These are primarily data on monthly changes in bank;' and broker/dealers' custody "ahlillies. Data on custody claims are collected
quanerly and published In the Treasury Bullelill and the ·IIC weh Slie
"Selected Other Liabilities" are pnmarily the foreign I,ahlilties ofCS customers that are managed by U S. banks or brokerideakrs.
TIC data cover mo't components of IIlternatlonal tinancial tlO\\5, but do not Include data on direct Investment nows. "h,ch are collected
and published by the Department ofColllmeree's Bureau of EconOllliC Analysis In addition to the Illonthly data summanzed here. the
TIC collects quarterly data on some bankll1g and Ilonbanklllg assets and liabilitres. Frequently Asked QuestIOn I on the TIC web
site descnbes the scope of TIC data collectIOn.
2
-06
Page 1 of 5
March 15. 2007
HP-318
Testimony of Treasury Under Secretary Robert K. Steel
Before the U.S. House Financial Services Committee
on Government Sponsored Enterprise Reform
Washington, DC- Thank you Chairman Frank. Ranking Member Bachus. and
Members of the Committee for Inviting me to appear before you today.
The United States has one of the most successful housing finance systems in the
world. Our nation's housing finance system provides consumers with a wide range
of mortgage finance options that open the door for home ownerShip. In today's
mortgage market. consumers can choose from mortgage products designed to
match their desired payment characteristics. Consumers also have greater flexibility
regarding down payment options, and reductions from the once standard 20
percent down payment have played a Critical role in expanding home ownership
opportunities. In addition, consumers have Increasingly used the mortgage market
to tap illiqUid housing wealth that has accumulated over time with cash out
refinancing or through the use of home equity lending products.
The underlYing structure of our nation's housing finance system is supported by
various types of finanCial Institutions: federally insured depository institutions and
mortgage banks that both origillate, serVice, and Invest in mortgages; private
mortgage Insurers that prOVide insurance on low down payment mortgage loans;
mortgage brokers that assist consumers in obtaining mortgages: investment
banking firms that arrange securitization transactions and Invest In mortgages: and,
of course, the housing government sponsored enterprises (GSEs) - Fannie Mae,
Freddie Mac and the Federal Home Loan Banks (FHLBanks)
Fannie Mae and Freddie Mac operate In the secondal'y mortgage market by
proViding credit guarantees on mortgage-backed securities (MBS) or by directly
investing in mortgages and mortgage-related securities through their retained
mortgage portfOliOS. In the credit guarantee bUSiness. Fannie Mae and Freddie Mac
generally enter into swap agreements With mortgage lenders under which individual
mortgages are transformed into MBS guaranteed by the GSEs. Fannie Mae and
Freddie Mac also have the ability to purchase mortgages and package them into
MBS. Treasury continues to believe that the credit guarantee function provides a
useful mechanism III the operation of an effective secondary market for mortgages
In the mortgage Investment business. Fannie Mae and Freddie Mac issue debt
securities to fund an investment portfoliO of mortgage-related secunties. In
comparison to the credit guarantee bUSiness where credit risk is the main exposure.
the mortgage investment bUSiness involves both credit and interest I'ate risk
Treasury continues to believe that the mortgage investment bUSinesses of Fannie
Mae and Freddie Mac present the greatest potential rrsks. while at the same time
having a much more tenuous connection to their housing miSSion than the credit
guarantee business
Recent accounting/corporate governance problems and regulatory restrictions have
limited the growth of Fannie Mae and Freddie Mac over the last few years
Nonetheless. they are stili a significant presence In our nation's housing finance
system. As of year-end 2006, the retained mortgage portfolios of Fannie Mae and
Freddie Mac totaled $1.4 trillion. which is off slightly from the $1.6 tnilion
outstanding as of year-end 2003. In addition, as of year-end 2006. Fannie Mae and
Freddie Mac prOVided credit guarantees on $29 trrilion of MBS. Together, Fannie
Mae and Freddie Mac have about $4.3 trillion of mortgage credit exposure as of
year-end 2006, which was about 40 percent of total outstanding mortgage debt.
And while It IS difficult to calculate preCisely. given that fixed-rate mortgages make
http://www.treas.gov/pressfreleases/hp318.htm
4/6/2007
Page 2 of 5
up the significant portiOll of the credit guarantees and mortgage assets of Fannie
Mae and Freddie Mac, their share of tile fixed-rate mortgage market would be even
Illgher.
The FHLBanks also Clre significant participants In our nation's housing finance
system. but tlley operate under a different bUSiness model than Fannie Mae and
Freddie Mac. The FHLBanks' pmnary business IS making advances - or secured
loans - to member institutions tllat are Involved in hOUSing finance to various
degrees As of year-end 2006, FHLRclrlk advances were $641 billion. The
FHLBanks are also active mortgage IIIvestors. As of year-end 2006, they directly
held $225 billiorl In mOI·tgage assets - $98 billion as IndiVidual mortgages and $127
billion as MBS At year-end, the FHLBanks also held $144 billion In fed funds and
other investments, and total assets were $1 trillion
Core Objectives of Housing GSE Regulatory Reform
It is Treasury's view, and it appears to be generally recognized, that the regulatory
system for hOUSing GSEs neither has the tools, nor the stature, to deal effectively
With the current size, compleXity. and importance of these enterprises. While some
of these issues have beell rellsed for years, It was the accounting/corporate
governance problems that emerged first at Freddie Mac In 2003 then later at Fannie
Mae in 2004 that brought these Issues to the forefront In addition, the FHLBanks
were not immune to these problems as the regulatory actions associated with
problems at the FHLBank of Chicago and the FHLBank of Seattle Illustrated.
Treasury Ilas been an active participant in the housing GSE regulatory reform
debate. We have continually stated that we have two core objectives: the need for a
sound and resilient finanCial system. and increased homeownershlp opportunities
for less advantaged Americans. In line With our core objectives, our reform
proposals have been designed to minimize risks that the housing GSEs pose to the
broader flllanClal systelll and clearly focus the housing GSEs on their ITllssion. More
speCifically, our reform proposals have Included prOVISions to improve regulatory
overslgllt, enhance mal"ket discipline, and allow for ttle establishment of appropriate
capital requirements for the housing GSEs. If the hOUSing GSEs are gOing to
coritinue to accolllpllSh their mission, It is paramount that the risks undertaken by
the housing GSEs are properly managed and supervised: otherwise there may be a
threat to their solvency, and Illlportantly to the stability of other financial institutions
and tile strength of our economy
It IS Widely recognized that there IS a deficiency In the overSight of the housing
GSEs and Congress has worked to improve the regulation of the housing GSEs.
We at Treasury appreciate this effort and pledge to cOlltmue to work with you to
establish a new regulator that has all the authorities necessary to oversee these
complex and sophisticated IIlstitutlons
Key Elements of Housing GSE Regulatory Reform
Throughout the rJehate on hOUSing GSE regulatory reform, Treasury's focus has
been 011 ensuring the new regulator Ilas all of the powers, authority, and stature
needed to do its Job In thiS regard, a core tenet of our position is that the new
regulator's powers should be comparable in scope and force to those of our nation's
other financial Institution regulators. As I have mentioned the houslllg GSEs have
grown into large and complex fillancial institutions that require strong and effective
overSight In addltlOll, later In my testimony, Iwill deSCribe what makes the housing
GSEs different than a typical finanCial Institution It is Just as Important that the new
regulator have the appropriate auttlorlty to consider the unique characteristiCS of the
GSEs and their houslllg misSions
In terms of comparable powers, we IllUSt ensure that the new hOUSing GSE
regulatory agency is not encuillbered by the current restrictions that are placed on
the Office of Federal HOUSing Enterprise OverSight (OFHEO) Some key elements
of houslllg GSE regulatory reform that have been debated in recent years Include
the following:
http://www.treas.gov/pressfreleases/hp3.18.htm
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•
Capital Requirements - Under current law. the mlnlillum capital
requirements for the houslflg GSEs are fixed In statute. and the fisk-based
capital I'equirement for Fannie Mae and Freddie Mac IS based on a highly
prescnbed stress test lilat IS set fOlih In statute These Ilillitations are
inconsistent with the ability of other financial regulators to bloacily set both
mlnllnum and risk-based capital reqlllrements The new housmg GSE
regulatory agency must have enhanced flexibility to set both minimum and
risk-based capital requirements Sections 111 and 112 of H. R. 1427 largely
accomplish this goal. We would be strongly opposed to changes that
weaken the new re~Juli1tory agency's ability to effectively Implement the
capital plovislOIIS.
• Receivership/Conservatorship - Under current law, OFHEO has the
autllonty to place Fannie Mae or Freddie Mac into conservatorship, but not
into receiverstllp. Should such Circumstances arise, ttle new housing GSE
regulatory agency ll1ust Ilave more than the powers associated with
conservatorship. In particular, the new regulatory agency must have all the
receivership authmity that IS necessary to direct the liquidation of assets
and otherwise to direct an mderly wind down of an enterprise. The new
regulatory a~lency must also be required to take mandatory receivership
actions under certain circumstances. Such receivership authority can be
established ill full recognition that Congress has retained to itself, in the
case of Fannie Mae and Freddie Mac, the power to revoke a charter.
Providllig tile new regulatory agency the ability to complete an orderly wind
dOWll of a troubled regulated entity also encourages greater market
discipline by cianfymg that mvestors may suffer losses. Enhanced market
discipline IS essential to promoting safe and sound operations, whictl is
consistent Witll maintaining ttle GSEs' role In ollr housing finance system
and protecting our broader financial system from problems at a GSE.
Section 144 of H R. 1427 largely accomplishes this goal.
• New ACtiVity Approval and Mission OverSight - Under current law, the
Department of Housing and Urban Development (HUD) is responSible for
approving new programs, setting housing goals, and overall miSSion
overSight. The authority for approving new activities of Fannie Mae and
Freddie Mac and cnsllnng compliance with their miSSion IllUSt be
transferred from HUD alld combined with the other supervisory/enforcement
powers of the new housing GSE regulatory agency. This authOrity IS
consistent with availability of one of the central tools that every effective
financial regulator has--the ability to say "no" to new activities that are
Inconsistent With the chalier of tt1e regulated institutions, with their
prudential operation, or With the public interest. Section 122 and other
pl'Ovlsiorls of HR. 1427 largely accomplish thiS goal.
Other Important aspects of housing GSE regulatory reform that represent a
significant ImprOVelTlent over current law and further provide comparability to other
US finanCial Institution regulators Include enSUring that the new housing GSE
regulatory agency has Independent funding outside of the appropriations process:
Independent litigating authority and other related powers: and the full set of
regulatory and enforcement tools. HR 1427 largely accomplishes these goals
In addition to ensuring that the new hOUSing GSE regulatory agency has powers
and authOrity consistent with that of other US financial institution regulators, the
hOUSing GSEs also have unique characteflstics that must be addressed in
regulatory reform legislation The hOUSing GSEs were created to accomplish a
mission. and they were provided a certain set of statutory benefits to help in the
accomplishment of that miSSion For example, in terms of specific benefits the
Ilousing GSEs are not subject to state or local taxation and they have access to a
Ime of credit with the Treasury Department ($225 billion each for Fannie Mae and
Freddie Mac and $4 billion for the FHLBank System, which pales In companson to
the size of thell debt obligations) The GSEs also greatly benefit frOIll the market's
perceptioll that tile U.S. government guarantees or stands behind GSE obligations,
which results In preferential funding rates being proVided to the GSEs. On behalf of
Treasury, I want to reiterate that the GSEs' debt and other financial obligations are
not backed by the federal government. There are differing views on the precise
amount of thiS benefit, but general agrecment that the benefit exists. It IS this
benefit and a lack of effective market discipline that largely drove the rapid
expansion of the retained mortgage portfolios of Fannie ~lae and Freddie Mac
throughout the 1990s.
http://www.treas.gov/pressfreleases/hp318.htm
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Page 4 of 5
As Treasury has noted previously, the combination of trHee key features of Fannie
Mae's and Freddie Mac's retained mortgage portfoliOS warrant the attention of
pollcymakers: (1) the size of tile I"etaliled mortgage portfoliOS of Fannie Mae and
Freddie Mac - $14 trillion as of year-end 2006: (2) the lack of effective market
diSCipline: awJ (3) the Interconnectlvlty between the GSEs' mortgage Investment
activities and the other key playels In our nation's finanCial system (hoth Insured
depOSitory Institutions and derivative counterparties). The combinalion of these
three factors causes the GSEs to present the potential for systemic risk to our
financial system and the global economy ThiS view has not changed
In addition, given that Fannie Mae and Freddie Mac have a specified housing
miSSion, and thaI the potential for t)roader risks to our finanCial system IS associated
with tileir retained mortgage portfoliOS, a sensltJle approacl1 IS to ensure 1I1at the
mortgage Investment actiVities of these GSEs are necessary to accomplish their
housir1g misSion. To address these Issues, the new hOUSing GSE regulatory agency
must be prOVided specifiC review authority over the retained mortgage portfolios of
Fannie Mae and Freddie Mac. Such authOrity should establish a clear and
transparent process based on direction from Congress on how the new regulatory
agency will evaluate the retained mortgage portfoliOS In terms of risk and
consistency Wlti1 mission. Sedon 113 of H R 1427 largely accomplishes thiS goal
for Fannie Mae and Freddie Mac. While the broader risk issues related to the
FHLBanks are less than tllose thaI are present With Fannie Mae and Freddie Mac,
a review of tile investment portfolios of the FHLBanks for mission consistency
would also be appropriate
In terms of the new regulator's authority or other changes related to the unique
characteristiCS of the hOUSing GSEs, other appropriate elements of housing GSE
regulatory reform should include.
•
•
Government"ApPolllted Directors - Treasury supports clallfication tl1at the
government SllOUld not be involved in the apPointment of directors to the
Boards of Fannie Mae, Freddie Mac, and the FHLBanks. Consistent With
long-standing principles of corporate governance, directors of the hOUSll1g
GSEs have a fidUCiary responSibility to shareholders. The government
aPPOintment of directors does not change thiS fiduciary responSibility, but
does give the Impression 1I1at government may have a say or influence in
the operation of the housillg GSEs. That is not the case, and thiS should be
corrected to Improve corporate governance and to further clarify that the
houslllg GSEs are not backed by the Federal government.
Combining the Regulatory Authollty of the Housing GSEs - Treasury
continues to believe that the FHLBanks should be placed undel tile same
regulator With Fannie Mae and Freddie Mac, and that this new regulatory
regime should be structlJred to take Illto account certain special differences
between the Federal Horne Loan Banks and the other GSEs. ThiS would
enhance the critical mass of financial expertise needed to oversee the
GSEs. At the same time there are many common synergies, such as the
FHLBanks' Investments In mortgages and MBS, and the mortgage
investments of the other hOUSing GSEs. In addition, combining regulatory
authority over all of the housing GSEs under one regulator has the potential
to IIlcrease the stature of the new agency and better enable It to deal with
tilese lal"ge and Influential companies In other words, the potential for
regulatory capture should be reduced. Title II of H R. 1427 largely
accomplishes thiS goal
Conclusion
In conclusion, we at Treasury appreciate the efforts of the Chairman and Members
of the Committee In working towal"rJ acilleving resolution of the hOUSing GSE
regulatory reform Issue H R. 1427 will establish a new regulator With powers t~lat
are comparable to other finanCial IIlstitulion regulators, which Will greatly improve
the oversight of the hOUSing GSEs. We still have strong concerns With certain
aspects of H R. 1427. In particular, If an Affordable HOUSing Fund IS going 10 part of
tl1is legislation, the Fund must be controlled by the Federal government not by
Fannie Mae and Freddie Mac, temporary, and capped III addition, the prOVISion
IIlcreaslllg the conformlllg loan limit III high cost areas IS Inappropriate because
http://www,treas.gov/pressfreleases/hp3 18.htrn
4/6/2007
Page 5 of 5
there do not appear to be probleills In the provIsion of mortgage credit In these
areas. and it COllie! detract from tile affordable housing eff0l1s of Fannie Mae and
Freddie Mac. Nonetheless. TreASury is supportive of tile regulatory enhancements
contained in this legislation as they are a significant improvement over current law
Any efforts to 111111t these powers or weJken the new regulator Will not be viewed
favorably
We look forward to conlirlliing to work With you on this Important issue. Thank you
http://www.treas.gov/pressfreleases/hp318.htm
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Page 1 of 1
10 view or punt me I-'U~ content on tniS page. ClownloaClll1e tree AClOlJel3.J AcrolJatl3.J KeaClerI3.J.
1\1;][cll 12.2007
HP-319
Solomon, Everson, Korb Joint
Statement on Updated Guidance
Priority List
011 AU~Just 15. 2OC)(,). W(~ 1(;lcZ1SCrJ tl18 2006-2007 Priority GUldi1l1Ce Plan IIStlllCj 264
projects for tile pl,lll yl:ilr ilCqllllllllCj JlJly 1,2006 aneJ ClldlllCJ JllilC 3(). 2007 III our
JOlllt StdtCIllCllt tlldt ,ICC()lnpdlll(~cI the rci(;dSe of tile 2006-2007 Priority GUldc1llce
Plal1. we IlldlGltcci thelt wc wUllld upclate tile plan periodically to reflect acJdltlollal
CjlJlcl,lIlcC tilat W(~ IlltClld to publish dUllng the plall year Upelatlllg tile plall also
provides flexillility tilrOIJgllOlit tile plall year to consider comments received from
taxpayel's alld ti']X practltiollf;rs relZltll1g to additional IxoJects amI to respollci to
clevelopmellts arlslrlg durlllg tile plzlIl yeZlr
The attaclled upelZlte sets fortil tile giliciallce on the orlgll1al 2006-2007 Priority
GUldZlllce PIZlll til,lt we hZlve pllbllsheel Althougil tile update may Inolcate that a
pZ1rtlcular Item 011 tile plilll hdS been completeo, It IS possible tilat orle or more
acldltlollal projects Ill,ly be completed III the plan year lelatlllg to that Item The
upci,lte also Illclucies 59 Items of ZlddltlOllcll guicJallce, some of which Ilave already
beell published For Cxclillpie. tile upcJate reflects tile publlcatloll of substalltlal
gUloallce IlllplclllClltll1Cj the Pellsloll Protectloll Act of 2006 tile ar1l10UllCeillent of a
settlelllerlt Initiative for l;mployees of forelCjIl embaSSies, forel~ln cOllsular offices
alld IlltematlCllldl org'1111.c'atlolls III tiw United States, and tile allllOLJI1Cemeilt of a
settieillellt Illltlatlve related to tile exerCise of certalll stock I'Igilts. Sllllllarly. tile
update reflects tile publlCi1tl0Il of gUlclance relating to tOPICS tilat wel'e on tile
orlCjlllal 2006-2007 Priority GUlclilllCC PI~111 sucil as gUlclance relating to a safe
had)Qr far telephone excise tax clalllls: regulCltlons regal'cJlllg the disclosure af
reportal)le tl'ClllsactlollS ,mcJ tile list IllClllltenallce requll'elllellts: all allnOUnCemellt
re~JarcJlrl~J tile lJse of prlvdte collection aCJenCles: gUidance regarolng user fees: and
acldltlonal CjulciallcC? IlllplelllelltlllCJ various provlslollS of tile American Jobs Creation
Act of 2004 and tilC TZ1x Increase PI'eventlon and Reconcillatioll Act of 2005
The pullllshecJ cJUldilnce process can be fully successful only If we have tile belleflt
of tile 111SI~Jht clnd experience of taxpayers and pl'actltloners WllCl llluSt apply the
rules Therefore. we IllVltC tile pllbllc to COlltlllue to provlcle us Wlttl tllelr comments
aml sll~lgestlorls clS we write CjIJlciallCe tl1rOU~Jt1Clut the plclll year
The upciated 2006-20(]7 PmJrlty GUlclallce Plan Will be republished 011 tile IRS
webSite on tile Intemet at
Copies
call also I)e abtclllwci by call1lll) Treasury's Office of PubliC Affairs at (202) 6222960
REPORTS
•
LJpclated 2006-2007 GIJiciance PrlOl'lty List.
Ittp:1Iwww.treas.gov/rr~s ... /rpJ~as.eslhp3J9.htm
4/612007
~
9
DEPl\r~TMFNT OF THE Tf-~EASURY
WAShlNC ION.
DC 20220
March 12, 2007
Department of the Treasury
First Periodic Update of the
2006-2007 Priority Guidance Plan
Joint Statement by:
Eric Solomon
Assistant Secretary (Tax Policy)
U.S. Department of the Treasury
Mark W. Everson
Commissioner
I nternal Revenue Service
Donald L. Korb
Chief Counsel
Internal Revenue Service
Attached is an update of the 2006-2007 Priority Guidance Plan.
On August 15, 2006, we released the 2006-2007 Priority Guidance Plan
listing 264 projects for the plan year beginning July 1, 2006 and ending June 30,
2007. In our Joint Statement that accompanied the release of the 2006-2007
Priority Guidance Plan, we indicated that we would update the plan periodically
to reflect additional guidance that we intend to publish during the plan year.
Updating the plan also provides flexibility throughout the plan year to consider
comments received from taxpayers and tax practitioners relating to additional
projects and to respond to developments arising during the plan year.
The attached update sets forth the guidance on the original 2006-2007
Priority Guidance Plan that we have published. Although the update may
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 59 items of additional guidance, some of which
have already been published. For example, the update reflects the publication of
substantial guidance implementing the Pension Protection Act of 2006; the
announcement of a settlement initiative for employees of foreign embassies,
foreign consular offices and international organizations in the United States; and
the announcement of a settlement initiative related to the exercise of certain
stock rights. Similarly, the update reflects the publication of guidance relating to
topics that were on the original 2006-2007 Priority Guidance Plan such as
guidance relating to a safe harbor for telephone excise tax claims; regulations
regarding the disclosure of reportable transactions and the list maintenance
requirements; an announcement regarding the use of private collection agencies;
guidance regarding user fees; and additional guidance implementing various
provisions of the American Jobs Creation Act of 2004 and the Tax Increase
Prevention and Reconciliation Act of 2005.
The published guidance process can be fully successful only if we have
the benefit of the insight and experience of taxpayers and practitioners who must
apply the rules. Therefore, we invite the public to continue to provide us with
their comments and suggestions as we write guidance throughout the plan year.
The updated 2006-2007 Priority Guidance Plan will be republished on the
IRS website on the Internet at http://www.irs.gov/pub/irs-utl/2006-2007pgp.pdf.
Copies can also be obtained by calling Treasury's Office of Public Affairs at (202)
622-2960.
OFFICE OF TAX POLICY
AND
INTERNAL REVENUE SERVICE
2006-2007 PRIORITY GUIDANCE PLAN
March 12, 2007 UPDATE
CONSOLIDATED RETURNS
Original PGP Projects:
1.
Regulations 1 under section 1502 regarding liquidations under section 332 into
multiple members. Proposed regulations were published on February 22, 2004.
2.
Regulations revising section 1.1502-13(g) regarding transactions involving
obligations of consolidated group members.
3.
Regulations under section 1502 regarding excess loss accounts. Temporary
regulation section 1.1502-19T was published on January 26, 2006.
4.
Regulations revising sections 1.1502-35 and 1.337(d)-2 regarding treatment of
member stock.
• PUBLISHED 1/23/2007 in FR as NPRM REG-157711-02
5.
Regulations regarding the tacking rule for filing life/nonlife consolidated returns.
Temporary regulation section 1.1502-47T was published on April 25,2006.
6.
Regulations regarding agency for a consolidated group where the common parent
is a foreign entity. Temporary regulation section 1.1502-77T was published on
March 14, 2006.
CORPORATIONS AND THEIR SHAREHOLDERS
Original PGP Projects:
1.
Regulations to facilitate electronic filing and reduce taxpayer burden. Temporary
regulations were published on May 30, 2006.
I As used in this document, unless otherwise indicated, the term "regulations" refers to
proposed regulations, temporary regulations or final regulations.
2
2.
Guidance regarding the recovery of basis in redemptions of corporate stock
governed by section 301. A notice was published in the Federal Register on April
19,2006.
3.
Regulations enabling elections for certain transactions under section 336(e).
4.
Regulations revising section 1.355-3 regarding the active trade or business
requirement.
5.
Regulations regarding predecessors and successors under section 355(e).
Proposed regulations were published on November 22, 2004.
6.
Guidance regarding the applicability of section 357(c) to acquisitive reorganizations
under section 368(a)(1 )(0).
• PUBLISHED 2/12/2007 in IRB 2007-7 as REV. RUL. 2007-8
(released 1/16/2007)
7.
Guidance under section 362(e) regarding the importation or duplication of losses.
Notice 2005-70 was published on October 11,2005.
• PUBLISHED 10/23/2006 in FR as NPRM REG-110405-05
• PUBLISHED 1/2312006 in FR as NPRM REG-157711-02
8.
Regulations regarding transactions involving the transfer or receipt of no net equity
value. Proposed regulations were published on March 10, 2005.
9.
Regulations revising section 1.368-2(k) regarding transfers of assets after putative
reorganizations. Proposed regulations were published on August 18, 2004.
10. Revision of Rev. Proc. 81-70 providing guidelines for estimating stock basis in
reorganizations under section 368(a)(1 )(B). Comments regarding these guidelines
were requested in Notice 2004-44.
11. Guidance regarding the scope of section 368(a)(1 )(D).
• PUBLISHED 12/19/2006 in FR as TEMP 9303
• PUBLISHED 3/1/2007 in FR as TEMP 9313
12.
Regulations under section 368(a)(1 )(F). Proposed regulations were published on
August 12, 2004.
13. Guidance under section 382, including regulations regarding built-in items under
section 382(h)(6). Built-in items under section 382(h)(6) were previously
addressed in Notice 2003-65.
14. Guidance regarding the transfer of treasury stock to a corporation controlled by the
transferor. See Rev. Rul. 2006-2, revoking Rev. Rul. 74-503.
3
15.
Revised regulations under section 1561 regarding the allocation of certain tax
benefits among related corporations.
• PUBLISHED 12/22/2006 in FR as TEMP 9304
EMPLOYEE BENEFITS
A.
Retirement Benefits
Original PGP Projects:
1.
Final regulations on transmission of notices to participants through electronic
means with respect to distributions from qualified retirement plans. Proposed
regulations were published on July 14, 2005.
• PUBLISHED 10/20/2006 in FR as TO 9294
2.
Guidance regarding the treatment of incidental health insurance benefits provided
under a profit-sharing or stock bonus plan.
3.
Guidance on benefits not permitted in a defined benefit plan .
• PUBLISHED 2/12/2007 in IRB 2007-7 as NOTICE 2007-14.
(released 1/29/2007)
4.
Modification of Rev. Proc. 2005-66 to reflect special rules regarding determination
letter procedures for governmental and tax-exempt employers.
5.
2006 cumulative list of guidance for determination letter program.
• PUBLISHED 1/8/2007 in IRB 2007-2 as NOTICE 2007-3
(released 12/14/2006)
6.
Modification of Rev. Proc. 2006-27 (EPCRS) to provide fixed fee schedule for
opinion and advisory letter submissions for pre-approved plans filed after January
31, 2006 deadline.
7.
Guidance on notices to employees participating in a section 401 (k) safe harbor
plan.
8.
Final regulations on designated Roth contributions under section 401 (k) plans and
under section 402A. Proposed regulations were published on January 26, 2006.
9.
Guidance regarding prototype Roth IRAs for amendments to accept rollovers from
designated Roth accounts under a section 401 (k) plan.
10.
Final regulations under section 403(b) regarding tax-favored annuities purchased
by section 501(c}(3) organizations or public schools. Proposed regulations were
published on November 16, 2004.
4
11.
Final regulations on designated Roth contributions under section 403(b) plans.
Proposed regulations were published on January 26, 2006.
12.
Final regulations under section 404(k) addressing redemptions of participant stock
and avoidance or evasion of taxation. Proposed regulations were published on
August 25, 2005.
• PUBLISHED 8/30/2006 in FR as TO 9282
13.
Guidance under section 408 on the treatment of wrap fees.
14.
Final regulations on qualified nonbank trustees for deemed IRAs under section
408(q). Temporary regulations were published on July 22, 2004.
15.
Final regulations under section 409(p) with respect to synthetic equity and
additional issues relating to ESOPs. Temporary regulations were published on
December 17, 2004.
• PUBLISHED 12/20/2006 in FR as TO 9302
16.
Guidance under section 411 regarding accrual and vesting of benefits provided
pursuant to qualified retirement plans.
17.
Final regulations regarding the limitations on benefits and contributions under
section 415. Proposed regulations were published on May 31, 2005.
18.
Guidance on the elimination of Schedule P as an attachment to the Form 5500.
Additional PGP Projects:
19.
Notice under section 301 of the Pension Protection Act of 2006 regarding the
determination of the weighted average interest rate.
• PUBLISHED 9/5/2006 in IRB 2006-36 as NOTICE 2006-75
(released 8/18/2006)
20.
Announcement under section 402 of the Pension Protection Act of 2006 regarding
the election of an alternative funding schedule .
• PUBLISHED 10/2/2006 in IRB 2006-40 as ANN. 2006-70
(released 9/14/2006)
21.
Notice under section 906 of the Pension Protection Act of 2006 providing
transitional relief for Indian tribal governmental plans.
• PUBLISHED 10/23/2006 in IRB 2006-43 as NOTICE 2006-89
(released 10/2/2006)
22.
Notice under section 402 of the Pension Protection Act of 2006 providing an
extension of the election of an alternative deficit reduction contribution.
5
•
PUBLISHED 12/11/2006 in IRB 2006-50 as NOTICE 2006-105
(released 11/21/2006)
23.
Proposed revisions to Form 5500 annual information return/report as a result of
the Pension Protection Act of 2006.
• PUBLISHED 12/11/2006 in FR
24.
Notice under sections 507 and 906 of the Pension Protection Act of 2006
regarding diversification requirements for qualified defined contribution plans
holding publicly traded employer securities.
• PUBLISHED 12/18/2006 in IRB 2006-51 as NOTICE 2006-107
(released 11/30/2006)
25.
Notice under sections 701 and 702 of the Pension Protection Act of 2006
regarding cash balance and other hybrid defined benefit pension plans.
• PUBLISHED 1/16/2007 in IRB 2007-3 as NOTICE 2007-6
(released 12/21/2006)
26.
Notice under section 905 of the Pension Protection Act of 2006 regarding inservice benefits permitted to be provided at age 62 by a pension plan.
• PUBLISHED 1/16/2007 in IRB 2007-3 as NOTICE 2007-8
(released 12/22/2006)
27.
Notice under sections 303, 826, 828, 829, 845, 904, 1102, and 1201 (a) of the
Pension Protection Act of 2006 regarding various distribution and other issues.
• PUBLISHED 1/29/2007 in IRB 2007-5 as NOTICE 2007-7
(released 1/10/2007)
28.
Final regulations updating the mortality tables used to determine current liability
under section 412(1). Proposed regulations were published on 12/2/2005.
• PUBLISHED 2/212007 in FR as TO 9310
29.
Notice under sections 801 and 803 of the Pension Protection Act of 2006
regarding changes to the qualified plan deduction limitations.
30.
Proposed regulations on mortality tables under section 430, as added by the
Pension Protection Act of 2006.
31.
Revenue procedure on employer specific mortality.
B.
Executive Compensation, Health Care and Other Benefits, and Employment
Taxes
Original PGP Projects:
1.
Guidance on accountable plans and per diem payments.
6
•
PUBLISHED 11/13/2006 in IRB 2006-46 as REV. RUL. 2006-56
(released 11/9/2006)
2.
Guidance under section 83 on post-grant restrictions.
3.
Revenue ruling on taxable health benefits for beneficiaries.
• PUBLISHED 91512006 in IRB 2006-36 as REV. RUL. 2006-36
(released 8/14/2006)
4.
Proposed regulations on cafeteria plans under section 125 updating regulations for
statutory changes and providing additional guidance.
5.
Guidance under section 132 on debit cards and qualified transportation fringes.
• PUBLISHED 11/20/2006 in IRB 2006-47 as REV. RUL. 2006-57
6.
Guidance addressing the scope of section 162(m) with respect to amounts payable
to covered employees.
7.
Guidance on the wage limitation used in connection with section 199.
• PUBLISHED 11/6/2006 in IRB 2006-45 as REV. PROC. 2006-47
(released 10/17/2006)
8.
Guidance on Health Savings Accounts .
• PUBLISHED 3/5/2007 in IRB 2007-10 as NOTICE 2007-22
(released 2/15/2007)
9.
Guidance on the tax treatment of beneficiaries of nonexempt trusts described in
section 402(b)( 4).
10.
Final Regulations under section 409A.
11.
Guidance regarding the application of section 409A to split dollar life insurance.
12.
Guidance regarding reporting and income tax withholding under section 409A.
• PUBLISHED 12/18/2006 in IRB 2006-51 as NOTICE 2006-100
(released 11/30/2006)
13.
Guidance on deductions for contributions to a welfare benefit fund.
14.
Guidance under section 419A on reserves for post-retirement medical and life
insurance benefits.
15.
Guidance under section 457(f).
16.
Guidance on the application of SECA to Conservation Reserve Program
payments.
7
•
PUBLISHED 12/18/2006 in IRB 2006-51 as NOTICE 2006-108
(released 12/5/2006)
17.
Final regulations under section 3121 regarding the definition of a salary reduction
agreement. Temporary regulations were published on November 16, 2004.
18.
Final regulations under section 3402(f) relating to Form W-4. Temporary
regulations were published on April 14,2005.
19.
Guidance on how to provide electronically filed Form W-2s by deadline when
employer ceases operation.
Additional PGP Projects:
20.
Notice providing additional transition relief under section 409A.
• PUBLISHED 10/23/2006 in IRB 2006-43 as NOTICE 2006-79
(released 10/4/2006)
21.
Final regulations on HIPAA nondiscrimination requirements for group health plans.
• PUBLISHED 12/13/2006 in FR as TO 9298
22.
Final regulations on HIPAA nondiscrimination requirements for certain
grandfathered church plans.
• PUBLISHED 12/13/2006 in FR as TO 9299
23.
Final regulations on HIPAA nondiscrimination requirements for bona fide well ness
programs.
• PUBLISHED 12/13/2006 in FR as TO 9298
24.
Notice providing transition relief with respect to the use of debit cards for medical
expense reimbursements at certain merchants with non-health care related
merchant category codes and at stores with the Drug Stores and Pharmacies
merchant category code.
• PUBLISHED 1/8/2007 in IRB 2007-2 as NOTICE 2007-2
(released 12/14/2006)
25.
Notice on settlement initiative for 2006 income inclusions under section 409A
related to the exercise of certain stock rights.
• PUBLISHED 2/2612007 in IRB 2007-9 as ANN. 2007-18
(released 2/8/2007)
26.
Announcement on Medical Savings Accounts reporting.
• PUBLISHED 3/5/2007 in IRB 2007-10 as ANN. 2007-24
(released 2/22/2007)
8
27.
Proposed regulations under section 4980G on comparable Health Savings
Accounts contributions.
EXCISE TAXES
Original PGP Projects:
1.
Guidance related to the credits and payments allowed by sections 34, 40A, 6426,
and 6427 on whether a diesel fuel produced from biomass by a process that uses
heat, pressure and catalysts is renewable diesel fuel as defined in section 40A(f).
2.
Guidance under sections 4051 and 4071 regarding heavy trucks, trailers, tractors
and tires to update current regulations and to reflect recent statutory changes.
3.
Final regulations under section 4081 regarding the entry into the United States of
taxable fuel. Temporary regulations were published on July 30, 2004.
4.
Proposed regulations on fuel tax proVisions added or affected by the American
Jobs Creation Act of 2004, the Energy Policy Act, and the Safe, Accountable,
Flexible, Efficient Transportation Equity Act, including issues that are related to
kerosene used in aircraft and the Leaking Underground Storage Tank Trust Fund
tax. Many of these issues were discussed in Notices 2005-4 and 2005-80.
5.
Proposed regulations on fuel tax provisions added or affected by the American
Jobs Creation Act of 2004, the Energy Policy Act, and the Safe, Accountable,
Flexible, Efficient Transportation Equity Act that are related to alcohol fuels,
biodiesel, renewable diesel and alternative fuel. Many of these issues were
discussed in Notices 2005-4 and 2005-62.
6.
Final regulations under section 4082 regarding diesel fuel and kerosene that is
dyed by mechanical injection. Temporary regulations were published on April 26,
2005.
7.
Guidance under section 4251 for telephone tax claims for individuals who wish to
request a safe harbor amount instead of their actual amount paid for nontaxable
service. Notice 2006-50 provides that amounts paid for long distance service and
bundled service are not subject to tax (nontaxable service) .
• PUBLISHED 1/29/2007 in IRB 2007-5 as NOTICE 2007-11
8.
Guidance under section 4261 regarding airline tickets that are sold to passengers
through intermediaries.
• PUBLISHED 10/23/2006 in IRB 2006-43 as REV. RUL. 2006-52
9
EXEMPT ORGANIZATIONS
Original PGP Projects:
1.
Guidance on political activities by section 501 (c)(3) organizations.
2.
Revenue procedure updating Rev. Proc. 90-27 on processing exemption
applications.
3.
Regulations under sections 501 (c)(3) and 4958 on revocation standards.
Proposed regulations were published on September 9,2005.
4.
Guidance on advance and definitive rulings for organizations treated as described
in sections 509(a)(2) or 509(a)(1) and 170(b)(1 )(A)(vi).
5.
Guidance under section 509(a)(3) regarding supporting organizations.
• PUBLISHED 12/18/2006 in IRB 2006-51 as NOTICE 2006-109
(released 12/4/2006)
6.
Guidance under section 527(1) with respect to the authority to waive taxes and
amounts imposed on political organizations for failures to comply with notice and
reporting requirements.
7.
Regulations under section 529 regarding qualified tuition programs.
8.
Guidance on section 516 of the Tax Increase Prevention and Reconciliation Act of
2005 regarding the involvement of accommodation parties in tax shelter
transactions .
• PUBLISHED 2/26/2007 in IRB 2007-9 as NOTICE 2007-18
(released 2/7/2007)
Additional PGP Projects:
9.
Guidance under section 1241 (d) of the Pension Protection Act of 2006 regarding
required payout by supporting organizations.
10.
Notice under section 61 04(d), as amended by the Pension Protection Act of 2006,
regarding the disclosure of Form 990-T.
FINANCIAL INSTITUTIONS AND PRODUCTS
Original PGP Projects:
1.
Guidance for RICs and REITs concerning the application of section 1(h) to capital
gain dividends.
10
2.
Guidance on the treatment of fees incurred in credit card transactions.
• PUBLISHED 1/16/2007 in IRB 2007-3 as REV. RUL. 2007-1
3.
Final regulations under section 263(g) on the capitalization of interest and carrying
charges properly allocable to straddles. Proposed regulations were published on
January 18, 2001.
4.
Final regulations on notional principal contracts (NPC) relating to the inclusion in
income or deduction of a contingent non periodic payment and guidance relating to
the character of payments made pursuant to an NPC. Proposed regulations were
published on February 26, 2004.
5.
Guidance addressing the accrual of interest on nonperforming loans.
6.
Final regulations addressing valuation of certain securities and commodities under
section 475. Proposed regulations were published on May 24, 2005.
7.
Final regulations under section 475(e) and (f) for commodities dealers and
securities or commodities traders regarding the election to use the mark-to-market
method of accounting. Proposed regulations were published on January 28, 1999.
8.
Proposed regulations simplifying the reporting to shareholders of regulated
investment companies with respect to the flow through of the foreign tax credit.
• PUBLISHED 9/18/2006 in FR as NPRM REG-105248-04
9.
Guidance on the treatment of foreign currency gains for purposes of the income
and asset tests for real estate investment trusts.
10. Final regulations under section 860G(b) regarding withholding obligations of
partnerships allocating income from REMIC residual interests to foreign persons.
Proposed regulations were published on August 1, 2006.
• PUBLISHED 8/1/2006 in FR as TO 9272
11. Final regulations under section 1221 regarding capital asset exclusion for accounts
and notes receivable. Proposed regulations were published on August 7,2006.
12. Guidance under section 1286(f), as added by the American Jobs Creation Act of
2004, regarding treatment of stripped interests in bond and preferred stock funds.
13. Proposed regulations under section 7872(c)(1 )(E) regarding significant effect loans
and section 7872(g) regarding loans to qualified continuing care facilities.
11
Additional PGP Projects:
14.
Guidance under section 860E relating to excess inclusion income of a real estate
investment trust (REIT) that is a taxable mortgage pool or that has a qualified
REIT subsidiary that is a taxable mortgage pool.
• PUBLISHED 11/13/2006 in IRB 2006-46 as REV. RUL. 2006-58
(released 10/27/2006)
• PUBLISHED 11/13/2006 in IRB 2006-46 as NOTICE 2006-97
(released 10/27/2006)
15.
Revenue ruling regarding whether certain futures exchanges are a "qualified
board or exchange" within the meaning of section 1256(g)(7)(C).
16.
Notice under section 860G requesting public submissions on whether it is
appropriate to amend the REMIC provisions of the income tax regulations to
permit certain modifications to securitized commercial mortgage loans .
• WILL BE PUBLISHED 3/19/2007 in IRB 2007-12 as NOTICE 2007-17
(released 2/28/2007)
GENERAL TAX ISSUES
Original PGP Projects:
1.
Final regulations under section 21 regarding the credit for household and
dependent care expenses. Proposed regulations were published on May 24,
2006.
2.
Guidance under section 30B clarifying Notice 2006-9 regarding the advanced lean
burn and hybrid motor vehicle credit. IRS Fact Sheet 2007-9 was released on
January 4, 2007.
• CLOSED WITHOUT PUBLICATION
3.
Guidance under section 30C regarding the alternative fuel vehicle refueling
property credit.
4.
Proposed regulations under section 41 regarding the exception from the definition
of "qualified research" for internal use software under section 41 (d)(4)(E).
5.
Final regulations under section 41 regarding the computation of the research credit
in a controlled group, and allocation of the group credit among members of the
group. Proposed regulations were published on May 24, 2005.
• PUBLISHED 11/9/2006 in FR as TO 9296
6.
Guidance under section 41 regarding whether the gross receipts component of the
research credit computation for a controlled group under section 41 (f) includes
gross receipts from transactions between group members.
12
7.
Guidance under section 42 regarding applicable utility allowances.
8.
Update of Rev. Proc. 95-28 regarding relief from certain low income housing credit
requirements under section 42 for low-income housing projects affected by major
disasters.
9.
Proposed regulations under section 42(h) regarding the requirements for a
qualified contract.
10.
Guidance under section 45 regarding the credit for electricity produced from
certain renewable resources with respect to biomass.
• PUBLISHED 10/16/2006 in IRB 2006-42 as Notice 2006-88
11. Guidance under section 450 regarding how an entity meets the requirements to be
a qualified active low-income community business for purposes of the new
markets tax credit when its activities involve targeted populations.
12. Guidance under section 45G regarding the credit for maintenance of railroad track.
• PUBLISHED 9/8/2006 in FR as TEMP 9286
13. Guidance under section 45H regarding the certification requirement for complying
with EPA regulations.
14. Regulations under sections 46 and 167 relating to normalization.
15. Additional guidance under sections 48A and 48B regarding the qualifying
advanced coal and qualifying gasification projects credits. Guidance under these
provisions was published as Notice 2006-24 and Notice 2006-25.
16. Notice regarding the tax treatment and information reporting of market gain on
repayments of Commodity Credit Corporation loans.
17. Notice relating to payments made to tobacco producers in termination of tobacco
marketing quotas and related price supports under the American Jobs Creation
Act of 2004.
• CLOSED WITHOUT PUBLICATION
18. Guidance under section 118 regarding whether amounts received by
telecommunications carriers from federal universal service programs constitute
nonshareholder contributions to capital.
19. Regulations under section 302 of the Katrina Emergency Tax Relief Act of 2005
regarding the $500 reduction in taxable income of a taxpayer who provides
housing for an individual displaced by Hurricane Katrina.
• PUBLISHED 12/12/2006 in FR as TEMP 9301
13
20.
Proposed regulations under section 152, as amended by the Working Families Tax
Relief Act of 2004, regarding the release of a claim for exemption for a child of
divorced or separated parents.
21.
Regulations under section 167 regarding the income forecast method.
22.
Final regulations under section 168 relating to like-kind exchanges. Proposed
regulations were published on March 1,2004.
• PUBLISHED 3/112007 in FR as TO 9314
23. Final regulations under section 168 regarding changes in classification of
property. Proposed regulations were published on January 2,2004.
• PUBLISHED 12/28/2006 in FR as TD 9307
24. Final regulations under sections 168 and 1400L regarding the special depreciation
allowance. Proposed regulations were published on September 8, 2003.
• PUBLISHED 8/3112006 in FR as TO 9283
25. Guidance under section 170(f)(11) regarding noncash charitable contributions.
• PUBLISHED 11/13/2006 in IRB 2006-46 as NOTICE 2006-96
(released 10/19/2006)
26. Proposed regulations under section 170(f)(12), as added by the American Jobs
Creation Act of 2004, and related provisions, regarding contributions of qualified
vehicles. Interim guidance was issued as Notice 2005-44.
27. Guidance under section 174 regarding the treatment of inventory property.
28. Temporary regulations under section 179B regarding the deduction for capital
costs incurred by a refiner in complying with EPA regulations.
29. Guidance under section 181 regarding the election to treat the cost of qualified
film and television productions as an expense.
• PUBLISHED 2/9/2007 in FR as TEMP 9312
30. Guidance under section 199, as amended by the Tax Increase Prevention and
Reconciliation Act of 2005, regarding the deduction for income attributable to
domestic production activities.
• PUBLISHED 10/19/2006 in FR as TEMP 9293
31. Final regulations regarding the application of section 199 to computer software.
Proposed regulations were published on June 1, 2006.
32.
Revenue procedure on the use of statistical sampling for purposes of section
199.
14
33.
Proposed regulations under section 274(e), as amended by the American Jobs
Creation Act of 2004, regarding the disallowance of entertainment expenses.
Interim guidance was issued as Notice 2005-45.
34. Guidance regarding which party is subject to the meal expenses deduction
limitation under section 274(n) in employee leaSing and other third-party
arrangements.
35.
Revised regulations under section 468A, as amended by the Energy Policy Act of
2005, regarding special rules for nuclear decommissioning costs.
36.
Guidance under section 1033(e), as amended by the American Jobs Creation Act
of 2004, regarding an extension of the replacement period for livestock sold on
account of drought, flood, or other weather-related conditions.
• PUBLISHED 9/25/2006 in IRB 2006-39 as NOTICE 2006-82
(released 9/8/2006)
• PUBLISHED 10116/2006 in IRB 2006-42 as NOTICE 2006-91
(released 9/28/2006)
37.
Revenue ruling under section 1241 on the cancellation of lease or distributor
agreements.
38.
Regulations under section 1301 (a), as amended by the American Jobs Creation
Act of 2004, regarding income averaging for fishermen.
39.
Final regulations under section 7701 regarding disregarded entities and
employment and excise taxes. Proposed regulations were published on October
18,2005.
40.
Guidance on corporations chartered under Indian tribal law.
Additional PGP Projects:
41.
Notice under section 152 setting forth a "tie-breaking" rule for taxpayers claiming a
qualifying child.
• PUBLISHED 10/10/2006 in IRB 2006-41 as NOTICE 2006-86
(released 9/20/2006)
42.
Revenue procedure under section 170(n) regarding substantiation of expenses of
Native Alaskan whaling captains.
• PUBLISHED 11/20/2006 in IRB 2006-47 as REV. PROC. 2006-50
43.
Notice under section 170 regarding the recordkeeping requirements for charitable
contributions made by payroll deductions.
• PUBLISHED 12/18/2006 in IRB 2006-51 as NOTICE 2006-110
(released 12/1/2006)
IS
44.
Notice under section 170 requesting comments regarding a study of donor
advised funds and supporting organizations, as required by the Pension Protection
Act of 2006.
• PUBLISHED 2/26/2007 in IRB 2007-9 as NOTICE 2007-21
(released 2/6/2007)
45.
Guidance under section 170, as amended by the Pension Protection Act of 2006,
regarding qualified conservation contributions.
46.
Guidance under section 199 on the definition of a qualified film.
47.
Guidance on changes in methods of accounting as a result of the final special
depreciation allowance regulations under sections 168 and 1400L.
• PUBLISHED 11/6/2006 in IRB 2006-45 as Rev. Proc. 2006-43
48.
Revisions to Rev. Proc. 2004-11 regarding accounting method changes for
depreciable or amortizable property after its disposition.
• PUBLISHED 1/22/2007 in IRB 2007-4 as Rev. Proc. 2007-16
49.
Guidance under section 1400N(d) regarding Gulf Opportunity Zone bonus
depreciation.
• PUBLISHED 8/14/2006 in IRS 2006-33 as Notice 2006-67
50.
Guidance under section 30B regarding the credit for new qualified heavy hybrid
vehicles.
51.
Guidance under section 199 regarding certain qualifying in-kind partnerships.
52.
Revenue procedure regarding the inflation adjustment to the foreign earned
income exclusion amount in section 911 (b)(2)(D)(i) for taxable years beginning in
2006, as required by the Tax Increase Prevention and Reconciliation Act of 2005.
• PUBLISHED 11/20/2006 in IRB 2006-47 as REV. PROC. 2006-51
(released 11/3/2006)
53.
Revenue ruling listing previously published rulings and actions on decision (AODs)
that are obsolete.
• WILL BE PUBLISHED 3/19/2007 in IRS 2007-12 as REV. RUL. 2007-14
(released 2/16/2007)
GIFTS, ESTATES AND TRUSTS
Original PGP Projects:
1.
Guidance under section 67 regarding miscellaneous itemized deductions of a trust
or estate.
16
2.
Final regulations pursuant to Notice 2006-30 under section 671 regarding the
reporting requirements for widely-held fixed investment trusts. Final and
temporary regulations were published on August 3,2006.
• PUBLISHED 12/29/2006 in FR as TO 9308
3.
Guidance regarding the consequences under various estate, gift, and generationskipping transfer tax provisions of using a family-owned company as the trustee of
a trust.
4.
Proposed regulations under sections 2036 and 2039 regarding the amount of a
split-interest trust that is includible in a grantor's estate in certain circumstances in
which the grantor retains an annuity or other payment for life.
5.
Guidance under section 2053 regarding the extent to which post-death events may
be considered in determining the value of a taxable estate.
6.
Revenue procedures under sections 2055 and 2522 containing sample charitable
lead trust provisions.
7.
Final regulations under section 2642 regarding the definition of, and procedures for
making, a qualified severance of a trust. Proposed regulations were published on
August 24,2004.
8.
Guidance under section 2704 regarding restrictions on the liquidation of an interest
in a corporation or partnership.
INSURANCE COMPANIES AND PRODUCTS
Original PGP Projects:
1.
Guidance on the taxation of certain annuity contracts under section 72.
• PUBLISHED 10/18/2006 in FR as NPRM REG-141901-05
2.
Guidance on the qualification of certain arrangements as insurance.
3.
Guidance on the taxation of variable contracts as described in section 817(d).
• PUBLISHED 2/12/2007 in IRB 2007-7 as Rev. Rul. 2007-7
4.
Final regulations under section 7702 regarding the attained age of the insured for
purposes of testing the qualification of a contract as a life insurance contract.
Proposed regulations were published on May 24, 2005.
• PUBLISHED 9/13/2006 in FR as TO 9287
17
Additional PGP Projects:
5.
Notice requesting comments from the insurance industry on processing closing
agreements for failures to meet the requirements of sections 101 (f), 817(h), 7702
or 7702A.
• PUBLISHED 2/12/2007 in IRB 2007-7 as NOTICE 2007-15
(released 1/26/2007)
6.
Revenue Procedure amending Rev. Proc. 2001-42 to replace certain indexes with
more readily available sources.
• PUBLISHED 2/12/2007 in IRB 2007-7 as REV. PROC. 2007-19
(released 1/26/2007)
7.
Notice providing rules interpreting the reasonable mortality charge requirement
contained in section 7702(c)(3)(S)(i).
• PUBLISHED 11/6/2006 in IRB 2006-45 as NOT 2006-95
(released 10/12/2006)
8.
Revenue ruling concerning the transfer of a life insurance policy to a grantor trust
of the insured for purposes of section 101.
• PUBLISHED 3/12/2007 in IRB 2007-11 as Rev. Rul. 2007-13
9.
Revenue ruling concerning exchanges of annuity contracts for purposes of section
1035.
INTERNATIONAL ISSUES
A.
Subpart F/Deferral
Original PGP Projects:
1.
Guidance regarding subpart F issues, including guidance related to the American
Jobs Creation Act of 2004 and the Tax Increase Prevention and Reconciliation Act
of 2005, and regulations under section 959 on previously taxed earnings and
profits. Notice 2006-48 regarding active aircraft or vessel leasing rents under
section 954(c)(2)(A) was published on May 22, 2006. Temporary regulations
under section 954(i) regarding active conduct of insurance businesses through
partnerships were published on January 13, 2006 .
• PUBLISHED 1/29/2007 in IRS 2007-5 as NOTICE 2007-9
(released 1/11/2007)
• PUBLISHED 1/29/2007 in IRB 2007-5 as NOTICE 2007-13
(released 1/9/2007)
2.
Final regulations on gain recognition election and PFICICFC overlap rule and other
guidance under section 1297. Final, temporary, and proposed regulations on the
18
gain recognition election and PFIC/CFC overlap regulations were published on
December 8,2005.
B.
Inbound Transactions
Original PGP Projects:
1.
Guidance on lending activities under section 864 and other guidance under section
864.
2.
Regulations on portfolio interest received by partnerships.
3.
Guidance under sections 897, 1445, and 1446. Final, temporary, and proposed
regulations under section 1446 were published on May 18,2005. Notice 2006-46
on the tax treatment of certain restructuring transactions under section 897 was
published on June 12, 2006.
4.
Guidance on securities lending, the treatment of certain financial products, and
other withholding tax guidance.
• PUBLISHED 11/13/2006 in IRB 2006-46 as NOTICE 2006-99
(released 10/27/2006)
5.
Guidance on the tax treatment of cross-licensing arrangements. Notice 2006-34
soliciting comments on the tax treatment of cross-licensing arrangements was
published on April 3, 2006 .
• PUBLISHED 3/5/2007 in IRB 2007-10 as REV. PROC. 2007-23
(released 2/14/2007)
C.
Outbound Transactions
Original PGP Projects:
1.
Regulations and other guidance relating to the carryover of tax attributes in certain
international reorganizations. Final regulations under section 367 were published
on August 8, 2006.
2.
Guidance on mergers involving foreign corporations. Notice 2005-74 regarding
asset reorganizations and gain recognition agreements was published on October
7,2005.
• PUBLISHED 10/10/2006 in IRB 2006-41 as NOTICE 2006-85
(released 9/22/2006)
• PUBLISHED 2/512007 in FR as TEMP 9311
19
3.
Final regulations under sections 367 and 1248. Proposed regulations under
sections 367 and 1248 regarding the attribution of earnings and profits to stock
following certain nonrecognition transactions were published on June 2, 2006.
4.
Regulations under section 367(d) and other guidance on international
restructurings, including guidance to reflect changes made by the American Jobs
Creation Act of 2004. Temporary regulations under section 367(d) were
published on May 16, 1986.
• PUBLISHED 1/22/2007 in IRB 2007-4 as NOTICE 2007-10
5.
Guidance under section 7874, as added by the American Jobs Creation Act of
2004, regarding the treatment of expatriated entities and their foreign parents.
Temporary regulations regarding the determination of ownership under section
7874 were published on December 28,2005, and temporary regulations regarding
the substantial business activities test were published on June 6, 2006.
• PUBLISHED 8/14/2006 in IRB 2006-33 as NOTICE 2006-70
(released 7/28/2006)
D.
Foreign Tax Credits
Original PGP Projects:
1.
Regulations and other guidance under section 901 on the payment of foreign
taxes, including the allocation of foreign taxes in circumstances involving foreign
consolidated regimes and hybrid entities. Proposed regulations relating to the
determination of who is considered to pay a foreign tax for purposes of sections
901 and 903 were published on August 4,2006.
2.
Guidance under the American Jobs Creation Act of 2004 on recharacterization of
overall domestic losses under section 904(g), and related guidance on overall
foreign loss recapture provisions under section 904(f).
3.
Guidance on other foreign tax credit provisions of the American Jobs Creation Act
of 2004, including the reduction in the number of separate categories under
section 904(d), and the credit disallowance rule under section 901 (I), and related
issues under section 901 (k). A notice soliciting comments under section 901 (I)
was published on December 19, 2005.
4.
Guidance on foreign tax redeterminations under section 905(c).
5.
Final regulations related to look-through treatment for 10/50 company dividends
and other foreign tax credit guidance. Temporary regulations on look-through
treatment for 10/50 company dividends were published on April 25, 2006.
20
E.
Transfer Pricing
Original PGP Projects:
1.
Regulations and other guidance on the treatment of cross-border services.
Proposed regulations under section 482 were published on September 10, 2003,'
and temporary and final regulation were published on August 4, 2006.
Announcement 2006-50 providing proposed guidance under section 482 listing
controlled services subject to compensation at costs will be published on August
21,2006.
• PUBLISHED 1/16/2007 in IRB 2007-3 as REV. PROC. 2007-13
(released 12/20/2006)
• PUBLISHED 111612007 in IRB 2007-3 as NOTICE 2007-5
(released 12/20/2006)
2.
Regulations on cost sharing and other guidance under section 482. Proposed
regulations were issued on August 22, 2005.
3.
Regulations and other guidance on global dealing. Proposed regulations under
section 482 were published on March 6, 1998.
4.
Annual Report on the Advance Pricing Agreement Program.
• WILL BE PUBLISHED 3/1912007 in IRB 2007-12 as ANN. 2007-31
(released 2/26/2007)
F.
Sourcing and Expense Allocation
Original PGP Projects:
1.
Guidance on expense apportionment, including on issues relating to partnership
structures.
• PUBLISHED 10/30/2006 in IRS 2006-47 as REV. PROC. 2006-44
(released 10/11/2006)
2.
Guidance on mixed source of income, including rents and royalties, and space,
ocean, and communications income.
• PUBLISHED 12/27/2006 in FR as TD 9305
3.
Regulations and other guidance on interest expense allocable to effectively
connected income. Notice 2005-53 regarding section 1.882-5 was published on
August 8, 2005.
• PUBLISHED 1/08/2007 in IRB 2007-2 as NOTICE 2007-1
(released 12/18/2006)
21
G.
Treaties
Original PGP Projects:
1.
Guidance under section 1(h)(11) on the definition of qualified foreign corporation.
• PUBLISHED 11/20/2006 in IRB 2006-47 as NOTICE 2006-101
(released 10/30/2006)
2.
Modification of Rev. Rul. 2003-109 to update the extent of the North American area
under section 27 4(h )(6) for purposes of deductibility of convention expenses.
3.
Guidance on the treatment of dual consolidated losses and mirror legislation.
• PUBLISHED 11/6/2006 in IRB 2006-46 as ANN. 2006-86
4.
Guidance under treaties, including on the zero percent reduced withholding rate on
certain dividends and publication of certain Competent Authority Agreements.
• PUBLISHED 9/11/2006 in IRB 2006-35 as REV. PROC. 2006-37
(released 8/24/2006)
• PUBLISHED 10/18/2006 in IRB 2006-42 as NOTICE 2006-90
(released 9/28/2006)
• PUBLISHED 3/512007 in IRB 2007-10 as REV. PROC. 2007-22
(released 2/9/2007)
5.
Update of Rev. Proc. 2002-52 providing U.S. Competent Authority procedures.
• PUBLISHED 12/4/2006 in IRB 2006-49 as REV. PROC. 2006-54
(released 11/17/2006)
H.
Other
Original PGP Projects:
1.
Guidance related to shipping and aircraft transportation. Notice 2006-43 regarding
section 1.883-3 was published on May 22, 2006.
2.
Guidance on the exemption of certain investment income of foreign governments
under section 892. Temporary regulations under section 892 were published on
June 24, 1988. Regulations finalizing section 1.892-5 were published on July 31,
2002.
3.
Guidance under section 911, including guidance under the Tax Increase
Prevention and Reconciliation Act of 2005.
• PUBLISHED 10/23/2006 in IRB 2006-43 as NOTICE 2006-87
(released 10/6/2006)
• PUBLISHED 10/10/2006 in IRB 2006-41 as NOTICE 2006-84
(released 9/20/2006)
22
• WILL BE PUBLISHED 3/19/2007 in IRB 2007-12 as NOTICE 2007-25
(released 2/23/2007)
4.
Guidance on the source and effectively connected income, and other aspects
involving possessions. Temporary regulations, including regulations under section
937, were published on April 11, 2005. Final regulations under section 937
providing residency rules were published on January 31, 2006.
5.
Other guidance on possession issues.
• PUBLISHED 9/18/2006 in IRB 2006-38 as NOTICE 2006-76
(released 8/29/2006)
• PUBLISHED 8/28/2006 in IRB 2006-35 as NOTICE 2006-73
(released 8/8/2006)
• PUBLISHED 11114/2006 in FR as TO 9297
• PUBLISHED 3/1212007 in IRB 2007-11 as NOTICE 2007-19
(released 2/21/2007)
6.
Regulations and other guidance concerning the treatment of currency gain or loss.
Proposed regulations under section 987 were published on September 25, 1991,
and Notice 2000-20 was subsequently published. Notice 2005-27 regarding the
dollar approximate separate transaction method under section 985 was published
on March 28, 2005, and proposed regulations under section 985 were published
on July 12, 2006.
• PUBLISHED 9/7/2006 in FR as NPRM REG-208270-86
7.
Regulations and other guidance under section 1503(d). Proposed regulations
were published on May 24, 2005. Notice 2006-13 regarding section 1503(d) relief
for failure to file was published on February 21,2006.
8.
Guidance on cross-border information reporting and filing issues, including
regulations relating to the reporting of bank deposit interest. Proposed regulations
under section 6049 were published on January 17, 2001.
Additional PGP Projects:
9.
Announcement regarding a settlement initiative for employees of foreign
embassies, foreign consular offices, and international organizations in the United
States.
• PUBLISHED 12/11/2006 in IRB 2006-50 as ANN. 2006-95
• PUBLISHED 3/5/2007 in IRB 2007-10 as ANN. 2007-28
23
PARTNERSHIPS
Original PGP Projects:
1.
Regulations under sections 704 and 737 regarding partnership mergers. Interim
guidance was issued as Notice 2005-15.
2.
Final regulations under section 704(b) regarding the allocation of foreign tax
credits. Temporary regulations were published on April 21,2004.
• PUBLISHED 10/19/2006 in FR as TO 9292
3.
Final regulations under section 704(b)(2) regarding whether partnership allocatiom
have substantial economic effect. Proposed regulations were published on
November 18, 2005.
4.
Guidance under section 706(d) regarding the determination of distributive share
when a partner's interest changes.
5.
Final regulations under section 707 regarding disguised sales. Proposed
regulations were published on November 26,2004.
6.
Guidance under section 707(c) regarding guaranteed payments.
7.
Final regulations under sections 721 and 83 for partnership equity issued in
connection with the performance of services. Proposed regulations were
published on May 24, 2005. A notice of a proposed revenue procedure was
issued as Notice 2005-43 on that same date.
8.
Final regulations under section 721 for the tax treatment of noncompensatory
options and convertible instruments issued by a partnership. Proposed
regulations were published on January 22, 2003.
9.
Proposed regulations under section 751 regarding unrealized receivables and
inventory items of a partnership.
10. Final regulations under section 752 where a general partner is a disregarded
entity. Proposed regulations were published on August 12, 2004 .
• PUBLISHED 10/11/2006 in FR as TO 9289
11. Final regulations regarding the application of section 1045 to certain partnership
transactions. Proposed regulations were published on July 15, 2004.
12. Guidance under sections 704, 743, and 755, as amended by the American Jobs
Creation Act of 2004, regarding the disallowance of certain partnership loss
transfers, and no reduction of basis in stock held by a partnership in a corporate
partner. Interim guidance was issued as Notice 2005-32.
24
SUBCHAPTER 5
Original PGP Projects:
1.
Proposed regulations under section 1361 providing guidance for S corporation
banks.
• PUBLISHED 8/24/2006 in FR as NPRM REG-158677-05
2.
Guidance under section 1361 to reflect provisions of the American Jobs Creation
Act of 2004, including the family shareholders provision, and to update obsolete
references.
3.
Guidance under section 1367 regarding adjustments in basis of indebtedness.
TAX ACCOUNTING
Original PGP Projects:
1.
Proposed regulations under sections 162 and 263 regarding the deduction and
capitalization of expenditures for tangible assets.
• PUBLISHED 8/21/2006 in FR as NPRM REG-168745-03
2.
Guidance under section 174 regarding changes in method of accounting from an
impermissible method.
3.
Regulations under sections 195,248 and 709, as amended by the American Jobs
Creation Act of 2004, regarding the elections to amortize start-up and
organizational expenditures.
4.
Proposed regulations under section 263(a) regarding the treatment of capitalized
transaction costs.
5.
Revenue ruling regarding the deduction and capitalization of costs incurred by
utilities to maintain assets used to generate power.
6.
Final regulations under section 263A regarding the definition of property selfproduced on a routine and repetitive basis under the simplified service cost
method provided by section 1.263A-1 (h) and the simplified production method
provided by section 1.263A-2(b). Temporary regulations were published on
August 3,2005.
7.
Guidance under section 263A regarding whether "negative" additional section
263A costs are taken into account under section 1.263A-1 (d)(4).
8.
Regulations under sections 381 (c)(4) and (5) regarding changes in method of
accounting.
25
9.
Revenue procedures updating guidance regarding changes in accounting periods.
• PUBLISHED 11/6/2006 in IRB 2006-45 as REV. PROC. 2006-45
(released 10/19/2006)
• PUBLISHED 11/6/2006 in IRB 2006-45 as REV. PROC. 2006-46
(released 10/19/2006)
10.
Revenue procedure under section 446 regarding changes in method of accounting
for rotable spare parts.
11.
Update of Rev. Proc. 2002-9 regarding automatic changes in methods of
accounting.
12.
Final regulations under section 448 regarding nonaccrual of certain amounts by
service providers.
• PUBLISHED 9/6/2006 in FR as TO 9285
13.
Revenue ruling regarding the application of section 461 to an executory contract.
PUBLISHED 1/22/2007 in IRB 2007-4 as REV. RUL. 2007-3
(released 12/21/2006)
• PUBLISHED 112212007 in IRB 2007-4 as REV. PROC. 2007-14
(released 12/21/2006)
•
14.
Guidance under section 460 on contracts that qualify for the rules for home
construction contracts.
15.
Revenue ruling under section 461 regarding the proper year for the deduction of
payroll taxes on deferred compensation by accrual method taxpayers.
• PUBLISHED 3/1212007 in IRB 2007-11 as REV. RUL. 2007-12
(released 2/15/2007)
16.
Guidance under section 468B regarding the tax treatment of a single-claimant
qualified settlement fund.
17.
Regulations under section 468B regarding escrow accounts and other funds used
in like-kind exchanges. Proposed regulations were published on February 7,
2006.
18.
Guidance under section 470, as added by the American Jobs Creation Act of
2004, regarding the limitation on deductions allowable to property held by
partnerships and other pass-thru entities having as a partner or other owner a taxexempt entity within the meaning of section 168(h)(2).
• PUBLISHED 1/8/2007 in IRB 2007-2 as NOTICE 2007-4
(released 12/13/2006)
19.
Guidance on the tax treatment of vendor allowances.
26
20.
Guidance regarding the permissibility of a moving average cost method for valuing
inventory.
21.
Guidance under section 1.472-8 regarding the inventory price index computation
(IPIC) method.
Additional PGP Projects:
22.
Revenue procedure modifying the procedures in Rev. Proc. 2006-12 for
accounting method changes for intangibles.
• PUBLISHED 9/18/2006 in IRB 2006-38 as REV. PROC. 2006-37
(released 8/31/2006)
23.
Revenue procedure regarding the procedures for accounting method changes
relating to the nonaccrual-experience method.
• PUBLISHED 12/26/2006 in IRB 2006-52 as REV. PROC. 2006-56
(released 12/5/2006)
24.
Announcement regarding the May 2006 revision to the instructions for Form 3115,
Application for Change in Method of Accounting.
• PUBLISHED 8/14/2006 in IRB 2006-33 as ANN. 2006-52
TAX ADMINISTRATION
Original PGP Projects:
1.
Guidance under section 1398 and section 1115 of the Bankruptcy Code, as added
by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,
regarding the income tax and employment tax treatment of post-bankruptcy wages
and self-employment income earned by an individual.
• PUBLISHED 10/2/2006 in IRB 2006-40 as NOTICE 2006-83
2.
Revenue procedure under section 3402 regarding the withholding rules applicable
to poker tournaments.
3.
Guidance regarding information reporting and backup withholding requirements for
payment card transactions made through a Qualified Payment Card Agent.
4.
Final regulations under section 6011 regarding business electronic filing.
Temporary regulations were published on December 19, 2003.
• PUBLISHED 12/8/2006 in FR as TD 9300
5.
Revenue procedure regarding the suspension or termination of enjOined providers
from the e-File Program.
27
6.
Guidance under sections 6011, 6111, and 6112 regarding the application of the
American Jobs Creation Act of 2004 to tax shelters.
• PUBLISHED 11/2/2006 in FR as TEMP 9295
• PUBLISHED 11/2/2006 in FR as NPRM REG-103038-05
• PUBLISHED 11/2/2006 in FR as NPRM REG-103039-05
• PUBLISHED 11/2/2006 in FR as NPRM REG-103043-05
7.
Regulations regarding information reporting for lump sum timber sales.
8.
Guidance under section 6050P regarding the information reporting requirements
relating to the purchase of debt that has been written off as uncollectible. Final
regulations were published on October 25, 2004.
9.
Notice under section 6050S addressing frequently asked questions regarding
information reporting requirements for qualified tuition and related expenses. Final
regulations were published on December 19, 2002.
• PUBLISHED 9/5/2006 in IRS 2006-35 as NOTICE 2006-72
10. Guidance under section 6103 regarding the electronic delivery of tax return
transcripts.
• PUBLISHED 10/16/2006 in IRB 2006-42 as ANN. 2006-74
11. Final regulations under section 6103 regarding disclosures to subcontractors.
Proposed regulations were published on January 12, 2005.
12. Regulations under section 6104 regarding the disclosure of certain administrative
actions that are required to be made available to the public.
13. Revenue procedure regarding procedures for requesting statistical studies under
section 61 08(b).
• PUBLISHED 9/18/2006 in IRB 2006-38 as REV. PROC. 2006-36
14. Proposed regulations under section 6159 regarding user fees for installment
agreements.
• PUBLISHED 8/30/2006 in FR as NPRM REG-148576-05
• PUBLISHED 12/28/2006 in FR as TD 9306
15.
Proposed regulations under section 6159, as amended by the American Jobs
Creation Act of 2004, regarding installment agreements.
• PUBLISHED 3/5/2007 in FR as NPRM REG-100841-97
16.
Proposed regulations under section 6302 regarding payments under the Electronic
Federal Tax Payment System.
17. Announcement under section 6306, as added by the American Jobs Creation Act
of 2004, regarding the use of private collection agencies.
28
•
PUBLISHED 9/11/2006 in IRB 2006-37 as ANN. 2006-63
18. Withdrawal of section 301.6323(b )-1 U) regarding superpriority for passback loans.
19. Final regulations under sections 6320 and 6330 regarding collection due process.
Proposed regulations were published on September 16, 2005.
• PUBLISHED 10/17/2006 in FR as TO 9290
(released 10/16/2006)
• PUBLISHED 10/17/2006 in FR as TO 9291
(released 10/16/2006)
20. Regulations implementing the substitution of value procedures under section 6325.
• PUBLISHED 1/11/2007 in FR as NPRM REG-159444-04
21.
Guidance regarding the limitations on setoff.
22.
Revenue ruling regarding setoff with respect to a taxpayer in bankruptcy.
23. Final regulations under section 6502 regarding the extension of the statute of
limitations on collection. Proposed regulations were published on March 4, 2005.
• PUBLISHED 9/6/2006 in FR as TO 9284
24. Notice under section 6654 regarding waiver of estimated tax penalties in response
to the Tax Increase Prevention and Reconciliation Act of 2005.
• PUBLISHED 2/20/2007 in IRB 2007-8 as NOTICE 2007-16
25.
Final regulations under section 6655 regarding estimated tax payments by
corporations. Proposed regulations were published on December 12, 2005 and a
correction was published on December 15, 2005.
26. Regulations under sections 6662A, 6662 and 6664 regarding accuracy-related
penalties relating to understatements. Interim guidance implementing changes
made by the American Jobs Creation Act of 2004 was issued as Notice 2005-12.
27.
Final regulations under section 6664 amending the definition of qualified amended
return.
• PUBLISHED 1/9/2007 in FR as TO 9309
28. Update of Rev. Proc. 94-69 regarding qualified amended returns filed by CIC
taxpayers. Final and temporary regulations under section 6664 were published on
March 2, 2005, and amended on June 23,2005.
29.
Revenue procedure regarding the procedures taxpayers must follow to request a
rescission of a penalty under sections 6707 and 6707 A.
29
•
PUBLISHED 2/26/2007 in IRB 2007-9 as REV. PROC. 2007-21
(released 2/2/2007)
30.
Regulations under section 6708 regarding the penalty for failure to make a list of
advisees available as required by section 6112. Interim guidance implementing
changes made by the American Jobs Creation Act of 2004 was issued as Notice
2004-80.
31.
Update of Rev. Proc. 2005-12 regarding the prefiling agreement program.
• PUBLISHED 1/22/2007 in IRB 2007-4 as REV. PROC. 2007-17
(released 12/26/2006)
32.
Regulations under section 7122, as amended by the Tax Increase Prevention and
Reconciliation Act of 2005, regarding the partial payment requirement for offers in
compromise.
• PUBLISHED 7/3112006 in IRB 2006-31as NOTICE 2006-68
(released 7/11/2006)
33.
Revenue procedure under section 7123 regarding arbitration procedures for
Appeals.
• PUBLISHED 10/30/2006 in IRB 2006-44 as REV. PROC. 2006-44
(released 10/18/2006)
34. Announcement regarding fast track settlement procedures for SBSE taxpayers.
• PUBLISHED 9/5/2006 in IRS 2006-35 as ANN. 2006-61
(released 8/25/2006)
35.
Guidance necessary to facilitate electronic tax administration. Proposed
regulations were published on December 7, 2005. Notice 2005-93 providing
additional proposed guidance was published on December 19, 2005_
36.
Proposed regulations under section 7425(c) regarding where to send notices of
nonjudicial sale and wrongful levy claims.
37.
Proposed regulations under section 7430 regarding attorney fees to reflect
miscellaneous changes made by the Tax Reform Act of 1997 and the Internal
Revenue Service Restructuring and Reform Act of 1998.
38. Proposed regulations under section 7477 regarding declaratory judgments
relating to gift tax valuations.
39. Revenue ruling under section 7508 regarding the effect of disaster and combat
zone relief on priority and dischargeability of tax obligations in bankruptcy.
30
40. Amendments to the section 7508A regulations regarding the postponement of
certain deadlines by reason of a Presidentially declared disaster or terroristic or
military actions.
41.
Proposed regulations under section 7811 regarding taxpayer assistance orders.
42. Revisions to Circular 230 regarding practice before the IRS. Proposed regulations
regarding various general practice (nonshelter) matters were published on
February 8, 2006. Final regulations regarding matters relating to tax shelters,
including standards for covered opinions and other written advice, were published
on December 20, 2004.
43. Notice regarding the procedures for the imposition of a monetary penalty under
Circular 230, as authorized by the American Jobs Creation Action of 2004.
44. Guidance regarding frivolous arguments used by taxpayers in an attempt to avoid
or evade tax.
45. Guidance regarding user fees for annual enrollment examinations.
• PUBLISHED 8/29/2006 in FR as NPRM REG-145154-05
• PUBLISHED 10/5/2006 in FR as TO 9288
Additional PGP Projects:
46. Guidance under section 6323 regarding the proper procedures for raising a
superpriority claim or objecting to a levy.
• PUBLISHED 8/28/2006 in IRB 2006-35 as REV. RUL. 2006-42
47. Notice regarding information reporting and back-up withholding requirements for
tax-exempt interest under the Tax Increase Prevention and Reconciliation Act of
2005.
• PUBLISHED 10/30/2006 in IRB 2006-44 as NOTICE 2006-93
(released 10/3/2006)
48. Revenue procedure regarding requests for the determination of the tax effects of
Chapter 12 bankruptcy plans.
• PUBLISHED 11127/2006 in IRB 2006-48 as REV. PROC. 2006-52
49. Modification of Rev. Proc. 98-20 regarding the information reporting requirements
under section 6045(e) relating to the sale or exchange of a principal residence.
• PUBLISHED 1/22/2007 in IRB 2007-4 as REV. PROC. 2007-12
50. Announcement regarding the effect of the Emancipation Day holiday in the District
of Columbia on the deadline for filing returns and paying taxes that would normally
be due on April 16, 2007.
• PUBLISHED 2/20/2007 in IRB 2007-8 as ANN. 2007-16
31
51. Announcement regarding procedures relating to cases involving a listed
transaction with respect to which Appeals and the taxpayer are unable to reach a
settlement.
• PUBLISHED 12/18/2006 in IRB 2006-51 as ANN. 2006-100
(released 12/5/2006)
52.
Notice under section 6050V, as added by the Pension Protection Act of 2006,
requesting comments regarding a study of certain insurance contracts in which
applicable exempt organizations have an interest.
• WILL BE PUBLISHED 3/19/2007 in IRB 2007-12 as NOTICE 2007-24
(released 2/23/2007)
53.
Revenue procedure amplifying Rev. Proc. 2005-51 regarding the penalty under
section 6707 A for failure to disclose reportable transactions.
• WILL BE PUBLISHED 3/19/2007 in IRB 2007-12 as Rev. Proc. 2007-25
54. Guidance regarding the contractual protection filter of the reportable transaction
regulations under section 6011.
• PUBLISHED 2/12/2007 in IRB 2007-7 as Rev. Proc. 2007-20
TAX EXEMPT BONDS
Original PGP Projects:
1.
Update of Rev. Proc. 99-35 regarding the procedures for issuers to request an
administrative appeal to the Office of Appeals of a proposed adverse
determination.
• PUBLISHED 10/16/2006 in IRS 2006-42 as REV. PROC. 2006-40
(released 9/27/2006)
2.
Guidance on private business use issues under section 141 stemming from federal
financing of research and application of the Bayh-Dole Act.
3.
Proposed regulations under section 141 regarding allocation and accounting
provisions.
• PUBLISHED 9/26/2006 in FR as NPRM REG-140379-02
4.
Final regulations under section 142 regarding solid waste disposal facilities.
Proposed regulations were published on May 10, 2004
5.
Guidance on arbitrage.
6.
Final regulations under section 1397E regarding qualified zone academy bonds.
Proposed regulations were published on March 26, 2004.
32
7.
Regulations on clean renewable energy bonds. Interim guidance was issued as
Notices 2005-98 and 2006-7.
Additional PGP Projects:
8. Proposed regulations under section 141 modifying the standards for treating
payments in lieu of taxes (PILOTs) as generally applicable taxes for purposes of the
private security or payment test.
• PUBLISHED 10/19/2006 in FR as NPRM REG-136806-06
9. Notice on clean renewable energy bonds soliciting applications for allocation of
increased volume cap as provided in section 202 of the Tax Relief and Health Care
Act of 2006.
33
APPENDIX· Regularly Scheduled Publications
JULY 2006
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.
• PUBLISHED 7/10/2006 in IRB 2006-28 as REV. RUL. 2006-35
(released 6/16/2006)
2.
Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability and to determine the
required contribution for plan years beginning in July 2006.
• PUBLISHED 7/24/2006 in IRB 2006-30 as NOTICE 2006-66
3.
Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores may use in valuing inventories.
• PUBLISHED 8/7/2006 in IRS 2006-32 as REV. RUL. 2006-40
4.
Revenue ruling providing the monthly bond factor amounts to be used by
taxpayers who dispose of qualified low-income buildings or interests therein during
the period July through September 2006.
• PUBLISHED 7/24/2006 in IRB 2006-30 as REV. RUL. 2006-37
AUGUST 2006
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.
• PUBLISHED 8/7/2006 in IRB 2006-32 as REV. RUL. 2006-39
(released 7/17/2006)
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.
• PUBLISHED 9/25/2006 in IRB 2006-39 as REV. PROC. 2006-38
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.
• PUBLISHED 7/17/2006 in IRB 2006-29 as NOTICE 2006-62
4.
Notice providing the applicable percentage to be used in determining percentage
depletion for marginal properties under section 613A for the calendar year.
• PUBLISHED 7/17/2006 in IRB 2006-29 as NOTICE 2006-61
5.
Revenue ruling setting forth the terminal charge and the standard industry fare
level (SIFL) cents-per-mile rates for the second half of 2006 for use in valuing
personal flights on employer-provided aircraft.
34
•
PUBLISHED 9/25/2006 in IRB 2006-39 as REV. RUL. 2006-47
6.
Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability and to determine the
required contribution for plan years beginning in August 2006.
• PUBLISHED 8/28/2006 in IRB 2006-35 as NOTICE 2006-74
(released 8/8/2006)
7.
Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores may use in valuing inventories.
• PUBLISHED 8/28/2006 in IRB 2006-35 as REV. RUL. 2006-41
8.
Revenue ruling providing a final determination under section 809 of the differential
earnings rate for 2005 for use by mutual life insurance companies to compute their
income tax liabilities for 2005.
• CLOSED WITHOUT PUBLICATION
9.
Revenue ruling providing a final determination under section 809 of the
recomputed differential earnings rate for 2004 for use by mutual life insurance
companies to compute their income tax liabilities for 2005.
• PUBLISHED 9/11/2006 in IRB 2006-37 as REV. RUL. 2006-45
SEPTEMBER 2006
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.
• PUBLISHED 9/5/2006 in IRB 2006-36 as REV. RUL. 2006-44
(released 8/22/2006)
2.
Revenue ruling under section 6621 regarding the applicable interest rates for
overpayments and underpayments of tax for the period October through December
2006.
• PUBLISHED 10/2/2006 in IRB 2006-40 as REV. RUL. 2006-49
(released 9/11/2006)
3.
Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability and to determine the
required contribution for plan years beginning in September 2006.
• PUBLISHED 10/2/2006 in IRB 2006-40 as NOTICE 2006-80
(released 9/8/2006)
4.
Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores may use in valuing inventories.
• PUBLISHED 9/25/2006 in IRB 2006-39 as REV. RUL. 2006-48
35
5.
Revenue procedure under section 62 regarding the deduction and deemed
substantiation of federal standard mileage amounts.
• PUBLISHED 11/20/2006 in IRB 2006-47 as REV. PROC. 2006-49
(released 11/1/2006)
6.
Revenue procedure under section 62 regarding the deduction and deemed
substantiation of federal travel per diem amounts.
• PUBLISHED 10/23/2006 in IRB 2006-43 as REV. PROC. 2006-41
(released 9/29/2006)
• PUBLISHED 12/11/2006 in IRB 2006-50 as ANN. 2006-96
(released 11/21/2006)
7.
Update of 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.
• CLOSED WITHOUT PUBLICATION
OCTOBER 2006
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.
• PUBLISHED 10/10/2006 in IRB 2006-41 as REV. RUL. 2006-50
(released 9/19/2006)
2.
Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability and to determine the
required contribution for plan years beginning in October 2006.
• PUBLISHED 10/23/2006 in IRB 2006-43 as NOTICE 2006-94
(released 10/5/2006)
3.
Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores may use in valuing inventories.
• PUBLISHED 10/30/2006 in IRB 2006-44 as REV. RUL. 2006-53
4.
Revenue procedure under section 1 and other sections of the Code regarding the
inflation adjusted items for 2007.
• PUBLISHED 11/27/2006 in IRB 2006-48 as REV. PROC. 2006-53
(released 11/9/2006)
5.
Revenue procedure providing the loss payment patterns and discount factors for
the 2005 accident year to be used for computing unpaid losses under section 846.
• PUBLISHED 1/16/2007 in IRB 2007-3 as REV. PROC. 2007-9
6.
Revenue procedure providing the salvage discount factors for the 2006 accident
year to be used for computing discounted estimated salvage recoverable under
section 832.
36
•
PUBLISHED 1/16/2007 in IRB 2007-3 as REV. PROC. 2007-10
7.
Update of Rev. Proc. 2004-13 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.
8.
Guidance regarding the effect of the Patriots' Day holiday on the deadline for filing
documents and making payments with the Andover Submission Processing
Center that would normally be due by April 15, 2007.
• PUBLISHED 11/20/2006 in IRB 2006-47 as NOTICE 2006-103
9.
Revenue ruling providing the monthly bond factor amounts to be used by
taxpayers who dispose of qualified low-income buildings or interests therein during
the period October through December 2006.
• PUBLISHED 10/10/2006 in IRB 2006-41 as REV. RUL. 2006-51
NOVEMBER 2006
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.
• PUBLISHED 11/6/2006 in IRB 2006-45 as REV. RUL. 2006-55
(released 10/18/2006)
2.
Revenue ruling providing the "base period T-Bill rate" as required by section
995(f)(4 ).
• PUBLISHED 11/6/2006 in IRB 2006-45 as REV. RUL. 2006-54
3.
Revenue ruling setting forth covered compensation tables for the 2007 calendar
year for determining contributions to defined benefit plans and permitted disparity.
• PUBLISHED 11/27/2006 in IRB 2006-48 as REV. RUL. 2006-60
4.
Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability and to determine the
required contribution for plan years beginning in November 2006.
• PUBLISHED 11127/2006 in IRB 2006-48 as NOTICE 2006-104
(released 11/7/2006)
5.
Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores may use in valuing inventories.
• PUBLISHED 11/27/2006 in IRB 2006-48 as REV. RUL. 2006-59
6.
Update of Rev. Proc. 2003-77 regarding adequate disclosure for purposes of the
section 6662 substantial understatement penalty and the section 6694 preparer
penalty.
• PUBLISHED 11/20/2006 in IRB 2006-47 as REV. PROC. 2006-48
37
7.
News release setting forth cost-of living adjustments effective January 1, 2007,
applicable to the dollar limits on benefits under qualified defined benefit pension
plans and other provisions affecting certain plans of deferred compensation.
• PUBLISHED 11/13/2006 in IRB 2006-46 as NOTICE 2006-98
(released 10/18/2006 as IR-2006-162)
DECEMBER 2006
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.
• PUBLISHED 12/11/2006 in IRB 2006-50 as REV. RUL. 2006-61
(released 11/20/2006)
2.
Revenue ruling under section 6621 regarding the applicable interest rates for
overpayments and underpayments of tax for the period January through March
2007.
• PUBLISHED 12/26/2006 in IRB 2006-52 as REV. RUL. 2006-63
(released 12/12/2006)
3.
Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability and to determine the
required contribution for plan years beginning in December 2006.
• PUBLISHED 12/26/2006 in IRB 2006-52 as NOTICE 2006-111
(released 12/6/2006)
4.
Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores may use in valuing inventories.
• PUBLISHED 12/26/2006 in IRB 2006-52 as REV. RUL. 2006-62
5.
Revenue procedure setting forth, pursuant to section 1397E, the maximum face
amount of Qualified Zone Academy Bonds that may be issued for each state
during 2007.
• PUBLISHED 1/29/2007 in IRB 2007-5 as REV. PROC. 2007-18
(released 1/12/2006)
6.
Federal Register notice on Railroad Retirement Tier 2 tax rate.
• PUBLISHED 11/22/2006 in FR as FRNT REG-148892-06
JANUARY 2007
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.
• PUBLISHED 1/2/2007 in IRB 2007-1 as REV. PROC. 2007-1
38
2.
Revenue procedure updating the procedures for furnishing technical advice,
including technical expedited advice, to certain IRS offices, in the areas under the
jurisdiction of the Chief Counsel.
• PUBLISHED 1/2/2007 in IRB 2007-1 as REV. PROC. 2007-2
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.
• PUBLISHED 1/2/2007 in IRB 2007-1 as REV. PROC. 2007-3
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.
• PUBLISHED 1/2/2007 in IRB 2007-1 as REV. PROC. 2007-7
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 Code under the jurisdiction of the Office of the
Commissioner, Tax Exempt and Government Entities Division.
• PUBLISHED 1/2/2007 in IRB 2007-1 as REV. PROC. 2007-4
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.
• PUBLISHED 1/2/2007 in IRB 2007-1 as REV. PROC. 2007-5
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.
• PUBLISHED 1/16/2007 in IRB 2007-3 as REV. RUL. 2007-2
(released 12/19/2006)
8.
Revenue ruling setting forth the prevailing state assumed interest rates provided
for the determination of reserves under section 807 for contracts issued in 2006
and 2007.
• PUBLISHED 3/5/2007 in IRB 2007-10 as REV. RUL. 2007-10
9.
Revenue ruling providing the dollar amounts, increased by the 2006 inflation
adjustment, for section 1274A.
• PUBLISHED 1/22/2007 in IRB 2007-4 as REV. RUL. 2007-4
(released 1/9/2006)
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.
• CLOSED WITHOUT PUBLICATION
39
11.
Revenue procedure providing procedures for limitations on depreciation
deductions for owners of passenger automobiles first placed in service during the
calendar year and amounts to be included in income by lessees of passenger
automobiles first leased during the calendar year.
12. Revenue procedure updating procedures for issuing determination letters on the
qualified status of employee plans under sections 401(a), 403(a), 409, and 4975.
• PUBLISHED 1/2/2007 in IRB 2007-1 as REV. PROC. 2007-6
13. 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.
• PUBLISHED 1/2/2007 in IRB 2007-1 as REV. PROC. 2007-8
14. Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability and to determine the
required contribution for plan years beginning in January 2007.
• PUBLISHED 1/29/2007 in IRB 2007-5 as NOTICE 2007-12
(released 1/9/2007)
15. Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores may use in valuing inventories.
• PUBLISHED 1/29/2007 in IRB 2007-5 as REV. RUL. 2007-6
16. Revenue procedure under section 143 regarding average area purchase price.
17. Revenue procedure providing the maximum allowable value for use of the fleetaverage value and vehicle-cents-per-mile rules to value employer-provided
automobiles first made available to employees for personal use in the calendar
year.
• PUBLISHED 1/8/2007 in IRB 2007-2 as REV. PROC. 2007-11
18. Revenue ruling providing the monthly bond factor amounts to be used by
taxpayers who dispose of qualified low-income buildings or interests therein during
the period January through March 2007.
• PUBLISHED 1/29/2006 in IRB 2007-5 as REV. RUL. 2007-5
FEBRUARY 2007
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.
• PUBLISHED 2/5/2007 in IRB 2007-6 as REV. RUL. 2007-9
(released 1/18/2007)
40
2.
Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores may use in valuing inventories.
• PUBLISHED 2/26/2007 in IRS 2007-9 as REV. RUL. 2007-11
3.
Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability and to determine the
required contribution for plan years beginning in February 2007.
• PUBLISHED 2/26/2007 in IRB 2007-9 as NOTICE 2007-20
(released 2/2/2007)
4.
Notice providing the 2007 calendar year resident population estimates used in
determining the state housing credit ceiling under section 42(h) and the private
activity bond volume cap under section 146.
MARCH 2007
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 6621 regarding the applicable interest rates for
overpayments and underpayments of tax for the period April through June 2007.
• WILL BE PUBLISHED 3/26/2007 in IRB 2007-13 as REV. RUL. 2007-16
3.
Revenue ruling setting forth the terminal charge and the standard industry fare
level (SIFL) cents-per-mile rates for the first haif of 2007 for use in valuing personal
flights on employer-provided aircraft.
4.
Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability and to determine the
required contribution for plan years beginning in March 2007.
• WILL BE PUBLISHED 3/26/2007 in IRB 2007-13 as NOTICE 2007-27
(released 3/7/2007)
5.
Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores may use in valuing inventories.
6.
Notice providing a tentative determination under section 809 of the recomputed
differential earnings rate for 2005 for use by mutual life insurance companies to
compute their income tax liabilities for 2006.
• CLOSED WITHOUT PUBLICATION
APRIL 2007
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.
41
2.
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.
3.
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
who fail to meet the eligibility requirements of section 911 (d)(1) because of
adverse conditions in a foreign country.
4.
Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability and to determine the
required contribution for plan years beginning in April 2007.
5.
Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores may use in valuing inventories.
6.
Revenue ruling providing the monthly bond factor amounts to be used by
taxpayers who dispose of qualified low-income buildings or interests therein during
the period April through June 2007.
7.
Notice providing the calendar year inflation adjustment factor and reference prices
for the renewable electricity production credit under section 45.
MAY 2007
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 and to determine the
required contribution for plan years beginning in May 2007.
3.
Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores may 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 cosUincome ratio under section 143.
JUNE 2007
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.
42
2.
Revenue ruling under section 6621 regarding the applicable interest rates for
overpayments and underpayments of tax for the period July through September
2007.
3.
Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability and to determine the
required contribution for plan years beginning in June 2006.
4.
Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores may use in valuing inventories.
5.
Revenue procedure providing the domestic asset/liability percentages and the
domestic investment yield percentages for taxable years beginning after December
31,2005, for foreign companies conducting insurance business in the U.S.
6.
Revenue ruling providing the average annual effective interest rates charged by
each Farm Credit Bank District.
Page I of I
March 15, 2007
HP-320
Statement By Treasury Secretary
Paulson on Senate Budget Committee
Passage of Budget Resolution
"The budget resolution reported by the Senate Budget Committee today assumes a
significant tax Increase, which is the last thing our economy needs as we work to
extend the current expanSion. I am also disappointed that the resolution doesn't
address entitlement refor'lll. The rrslIlg costs of Social Security and Medicare, if left
unchecked, will ultimately consume the bulk of the federal budget. BalanCing the
bunget IS only one step toward addressing entitlements, which IS the long-term
fiscal challenge. We Illust also keep the economy growing, both to create Jobs and
increase wages for American workers ami to put us In a stronger fiscal position to
deal with the growing entitlement challenges rn the coming years"
http://www.treas.gov/pressfreleaseS/hp320.htm
4/6/2007
Page 1 of 1
/0 view or print me J->UI- content
011
tn,s page. Clown/oaCl tne Tree Aoo/Je'!'.! AcrotJat'!'.! KeaCler'!'J.
Marcil 16. 2ClCl7
HP-321
Treasury Department Commends $3.4 Billion Debt Relief
Initiative for Latin America's Poorest Countries
Washington, D.C. - Tl'eClslIry ASSISt,lIlt Secretary for Internatlollal Affairs Clay
Lowcry today cOlllmcllded tile Illlcr-Amcrlcan Devclopmenl Ballk's fillal approval of
cl ciebt rellcf packa~Jc til,lt will provide S34 billion Irl dcbt reduction for five of Hle
region's poolest COllntrles Bolivia. GlIyana. Haiti. HOlldulas. <'md Nicaragua The
Bzmk's Irlltliltlve to cClllcel 1 ()(J pelcellt of loalls outstandlllg as of Deceml}8r 31.
2(J(J4 will fl'ec liP 1ll01lC~y for IleeeJccJ heClltll carc, education and Illfrastructure
developmellt III tile legloll
"TillS lalldmark agreement follows President Bush's call to address the debt
sustainability of tile poorest coulltrles III Hle region. Irlcludlng through grants and
debt relief. The Trcasury Departnwnt worked closely with the lOB for more than a
yeClr to develop thiS proposal to prOVide debt relief for the poorest countries In the
Westelll Hemisphere - a crltlcill step to I'educlng povel1y and stlillulating economic
glowHl to help COUlltrles create tilE'] opportuilities for upwarci mObility." said
Asslstalll SecretClry Lowery.
Tile Illltlatlve Wil" ,lpprovl;d III ,l vote 1I1at was flnallLecl thiS week deillollstrating
overwilellll111g SUppOlt Wltllill the regloll. and throughout the Bank's membership. for
the agreement Tlw ClDreelll81lt also extemis Hle benefits of concesslollal loans to
five IOW-lllcollle countries (ECUilrJor. EI Salvador. Guatemala, Paraguay, alld
SlJl'lname) that Will galll access to <'lIl additional $1.7 billion of subsidized flrlanclng
when a current lelldlllD prowalll IS extended to at least 2015
In adciltlon to receiving S423 1ll11l1011 of debt relief. the lOB approved HeaVily
Illdebted Poor COLlIltrles (HIPC) status for Haiti In recognltloll of ItS special needs.
Haiti Will also lecelve S50 mlilioll 111 grallts per year florn 20(J7 Hliough 2(J(J9. After
20(J9. Haiti may be eligible to receive a rnlx of qrallts and concesslonal loans. of
Wilich the grallt componellt may he lip to S40 million through 2(J15
REPORTS
•
Click here for more information on lOB Debt Relief.
http://wwwtreas.gov/pressfreleaseS/hp321.htm
4/6/2007
BACKGROUND
White House Fact Sheet - 11105/05
http://www.whitehouse.gov/news/releases/2005J1J/2005JI05-3.html
Inter-American Development Bank (IDB) Reform: The President called for the shareholders of the IDB to
implement measures that will better employ the bank's assets, encourage accountability and performance, and
address the debt sustainability of the poorest countries in the region, including through grants and debt relief
President Bush Discusses Democracy in the Western Hemisphere - 11/06/05
http://www.whitehouse.gov/news/releases12005/11120051106-3.html
" ... The beginning of President Moreno's tenure gives us a great opportunity to modemize the bank by taking
better advantage of global capital markets -- and by tailoring the bank's programs to the real needs of the growing
economies on this continent. The private sector is the engine of growth and job creation in this region. The bank
must greatly strengthen its role in private scctor investment -- especially in small businesses, which arc the
backbone of a healthy and growing economy. I have asked the United States Treasury Secretary John Snow to
work with his counterparts in the hemisphere and at the bank to implement refom1s that will ensure that the bank
better addresses the needs for economic growth and job creation. They will also discuss a range of options,
including giving grants and debt relief for the poorest of nations.
Increasing aid and relieving debt are important parts of our efforts to lift the burden of poverty from places of
suffering -- yet they are not enough. Our goal is to promote opportunity for people throughout the Americas,
whether you live in Minnesota or Brazil. And the best way to do this is by expanding free and fair trade ... "
Statement of U.S. Tr'easury Assistant Secretary Lowery on IDB Debt Relief - 4/2/06
http://www.treas.goy/press/releases/js415].htm
BELO HORIZONTE, BRAZIL--U.S. Treasury Assistant Secretary Clay Lowery, who is leading the U.S.
delegation at the Inter-Development Bank Annual Meetings, issued the following statement:
"Despite good economic progress in the region, some of the poorest countries continue to be plagued with
unsustainable debt burdens that divert their scarce public resources to paying off old loans rather than toward
investments in new schools, hospitals, and roads that are so greatly in need.
liThe U.S. has led efforts to bring debt relief to the poorest countries around the world through a series of
initiatives in recent years. We think the same opportunity should be extended to Latin America's and the
Caribbean's poorest countries and have put forward ideas to do so. We think this can be done in a way that is a
win-win situation for the lOB, all its member countries, and the entire region.
"I am very encouraged by today's decision by lOB's Board ofGovemors to establish a special committee, chaired
by Brazil, to move this idea forward."
President Bush Discusses Western Hemisphere Policy - 3/5/07
http://www.whitehouse.goY/news/releases/2007/03/20070305-6.html
..... One of the most important ways is by helping to relieve the burden of debt. In the past, many nations in this
region piled up debt that they simply cannot repay. Every year their governments have to spend huge amounts of
money just to make interest payments on the debt. So under my administration, we worked with the Group of 8
industrialized nations to reduce the debt of Latin America and Caribbcan nations by $4.8 billion. Members of the
Inter-American Development Bank are close to an agreement on another debt relief initiative, and we look
forward to helping them complete it. This agreement will cancel $3.4 billion owed by some of the poorest
countries in our hemisphere -- Bolivia and Guyana and Haiti and Honduras and Nicaragua. That works out to
about $110 for every man, woman and child in these countries, monies that their government should use to invcst
in the education and health of their citizens ... "
Page 1 of 1
March 19,2007
HP-322
Statement by DAS Glaser on the Disposition of DPRK-Related Funds Frozen
at Banco Delta Asia
BeiJing, CHINA Daniel Glaser, the Treasury Department's Deputy Assistant
Seuetary for Terral'lst Financing and Financial Crimes, made the following
statement today on the disposition of North Korean-related funds frozen at Banco
Delta ASia In Macau
"The United States and North Korean Governments have reached an
understanding on the disposilion of DPRK-related funds frozen at Banco Delta Asia,
"The DPRK has proposed the transfer of the roughly $25 million frozen in BOA Into
an account held by North Korea's Foreign Trade Bank at the Bank of China In
BeiJing,
"North Korea 11as pledged, Within the framework of the Six-Party Talks, that these
funds Will be used solely for the betterment of the North Korean people including
for humanitarian and educational purposes We believe thiS resolves the issue of
the DPRK-related frozen funds,
"The disposition of the frozen assets has always been and remains a decIsion by
Hle Macanese authorities to be taken In accordance with Macanese law, North
Korea will need to work out the legal and technical Intricacies of the arrangement
With the Macanese. The Treasury has communicated to both the Macanese and
Chinese Governments the United States' support of thiS arrangement
"Separately, the final rule against Banco Delta Asia, issued by the Treasury
Department under Section 311 of the USA PATRIOT Act, remains in place The
Treasury will continue to cooperate with the Macanese on thiS and other anti-money
laundering Issues,
"The events of the past 18 months demonstrate our lack of tolerance for illicit
actiVity conducted in the global finanCial system FinanCial Ins!ltutions that facilitate
weapons proliferation, terrOrist fll1ancll1g, narcotiCS trafficking, and other IlliCit
financial activity should be on notice of the significant consequences they face."
-30-
http://www.treas.gov/pressfreleaseS/hp322.htm
4/612007
Page 10f6
March 19, 2007
HP-323
Deputy Secretary Robert M. Kimmitt Makes
Remarks to CDU-CSU Parliamentary Group
Conference
March 19, 2007
{Introduction dellvereci
III
..
I
German]
Madam Chancellor, Mr Kauder. Mr Josefsson.
Excellencies, Members of the Bundestag.
members of the media and the bUSiness
community. Ladles and gentlemen, It IS an honor
to JOin so many distinguished guests here to give
a speech on the close transatlantic cooperation I
_,!....
would like to thank Chairman of the CDU/CSU
Parllament<'lry Group in the Bundestag. Volker
Kauder, for organizing thiS Important event. and In particular Chancellor Merkel.
The fact that Germany added the TransatlantiC Economic Partnership to the
international agerlda is a very Important development that the United States
welcomes. It IS because of your initiative that we are here today.
r
-, .. 'U·,I.I--•.•
'V ... ",fl-:...&I'
It is great to be back In Berlin and it always feels like a homecoming for me. My
parents met and married In Berlin exactly 60 years ago, on March 19. 1947. and I
was born exactly nine months later In the United States. So, like PreSident
Kennedy. I am proud to say "Ich bin eln Berliner," - and, In my case, "Made in
Germanyl"
As I speak to you tOday, I am reminded of the counsel I received before cOining to
Germany as Ambassador In 1991 My predecessor, Vernon Walters, passed along
to me only one bit of adVice "Never forget that speeches are very important to
Germans They like 10 give speeclles, listen to speeches. and analyze speeches
far more than IS the case In the United States" He Orlce spoke for 40 minutes to a
distinguished group like those gathered here today and when he sat down - rather
pleased With his perforlTiallCe - he was surprised 10 hear his host say. "Mr.
Ambassador. thank you so much for your remarks. If you ever have time for a real
speech, please come see us agaln l " Well. If 40 minutes IS where a "real speech"
starts. today you Will receive from me only remarksl
The EU-U.S, Relationship
Much of my life has been spent on Issues related to German-American relations.
and like many of those gathered here today I am a child of the Cold War. From
1960 - 1964 our family i1ved In Germany while my father was stationed here With
the US. Army. While a cadet at our military academy. West POint. I returned to
Europe In the summer of 1967. as an exchange student at the Austrian Military
Academy. and In 1968 I served with the U S. 3rd Infantry DiviSion in Aschaffenburg.
These experiences gave me a personal perspective on the Cold War foundation of
the German-American, and European-American, relalionshlp, a foundation that was
predominantly political and military.
As we entered the post-Cold War era In 1991. I came back to Germany as the first
American Ambassador In over 50 years posted to a united Germany. Like many of
you. I took part In the post-Cold War transformation of the relationship between
http://www.treas.gov/pressfreleases/hp323.htm
4/6/2007
Page 2 of6
Germany and the Urliled Slales. Our conversations stili tnvolved important polltlcalmilitary issues, but tile dialogue began to evolve and expand as we saw new
emphaSIS in alld attention to ollr economic, financial, and cultural relationship.
The Institutions of the Cold Well, such as NATO, were In the midst of fundamental
transformation durrng thiS perrod, but so was the European Union, Includtng
intensive ciellberatlons on the Issues of deepening versus Widening; a common
European currency: arld the European Securrty and Defense Identity. I remember
diSCUSSing these Issues With then-Minister Angela Merkel during long walks In the
Brandellbur'g countrYSide At til;)t time, there was much clebate In tile United States
about whether Europe COlTlIrlg together was good or bad for America. One former
American offiCial even opilled that tile ideal state of affairs would be for Europeans
to always he laboring toward unity but never actually getting tllere.
Fortunately, that debate IS long Over and that American offiCial's opinion did not
prevail, As ttle European Union prepares to celebrate the 50th anniversary of the
Treaty of Rome later this week, let me take thiS opportunity to state our position
clearly and directly the United States strongly supports Europe coming together on
an outward looking baSIS. A stronger, more united Europe - open to and seeking
external ellgagement - is good for Europe, good for the United States, and good for
the rest of the world,
In the econOrTllC and financial spheres flow Europe comes together is just as
Important as the fact of Its coming together, The best way to reap the full benefits
of globalization, alld to respond to Its challenges, is to bUild a competitive, marketled, and IIltegrated Single market economy, With the fleXibility to adapt quickly to
change In the global economy
Fundamentally, Europe and the United States both trust markets to serve as
essential organizing prrnciples of our ecollomies. But our market systems also
have their own ctlaractcristlCs, To enhance our transatlantic economic relationship,
we mLlst reinvigorate common efforts to address and reconcile our systemic
differences and thereby redure obstacles to economic growth That IS why the
United States has warmly greeted and greatly appreciates Chancellor Merkel's
proposal fm a Ilew transatlantiC market initiative, When any European Union
PreSidency - but especially Germany's PreSidency - makes a transatlantic initiative
a central element in ItS agenda, It sends a very strong political signal.
Such an IIlltiatlve recognizes that progress all economic and financial matters can
help improve the overall political relationship between Europe and America, and
can provide a strong foundation upon which to rely during periods of political
turbulence. I would like at thiS point also to recognize the contrit)utions to this
Initiative of Matttlias Wissmann, one of Germany's and Europe's strongest
transatianticists
Before giVing U S. VICWS on the Chancellor's proposal, let me make two brref
observatlolls First, the Transatlantic Market Initiative IS not a proposal for a Free
Trade Agreement between Europe and the United States. Our common highest
prrollty In the trade arena remalllS success in the Doha Round, to which both
Germany and the United States are active and committed. The Chancellor's
initiative focuses instead on Improved cooperation to reduce non-tanff barriers and
regulatory obstacles and thereby expand economic activity between Europe and
the United States However, a successful launch of this Important Initiative not only
will not detract from Doha effolis, it should also help proVide momentum for OLJr
continuing dialogue regarding Doha.
Second, any transCitiantic effort to r·ecluce regulatory burdens can only be as
successful as, and cannot move faster than, Europe's own effolis to establish the
European single market. These are complementary and reinforCing ObJectives. We
cannot reap the tlue benefits of a meaningful transatlantic economic partnership if
we attempt to forge such a partnership between the United States and 27 different
member states, As the European Union increasingly participates in the political
arena as a single actor, it must also do so In the economic arena A more fully
realized srngle market would put Europe In a far better pOSition to effectively
engage the rest of the world.
http://www.treas.gov/pressfreleases/hp323.htm
4/6/2007
Page 3 of6
For this reason, there is much foclls on the European Comrlllssion's process for
assessing the Single market Thrs effort, whrch rncluded an Interim update for the
European COllncrl earlier thrs rnOllth, will rdentlfy successes and shortcomings and
develop policy changes for the future direction of the Single market and could have
major Implications for our transatlantiC relationship As the COrTlnllsSlon's Interrm
report noted, It is time for a Single r1lilrket that has lower - and, I would add. fewerbarriers to entry for new firms, an overarching Intellectual property rights regime
that better promotes Innovation, and greater competition in sectors such as
transport. energy, and infrastructure that determine costs for other businesses
We also welcome President Barroso's and Chancellor Merkel's plans to reduce the
burden of EU regulations by 25 percent Combined With the Implementation of
structural reforms under the re-launched Lisbon Agenda, this will prOVide a more
favorable environment for business creation and growth. We need to be firmly on
the side of reducing the regulatory burden and providlilg more fleXibility for
businesses, both In their transatlantiC activities and within the single market.
A New Transatlantic Market Initiative: Not a Sprint, But a Marathon
Ladles and gentlemen, let me now turn to speCifiC comment on the Chancellor'S
Important Initialive. Today, as we diSCUSS globalization and the transatlantic
economic relationship, It is clear that the nature of our transatlantic relationship has
changed preCisely because of Its and tile world's growing IIIterdependence.
We both face challenges and opportunities related to globalization How do we
compete, cooperate, and succeed in a globaliZing world? As Chancellor Merkel said
111 her recent statement to the Bundestag globalization IJflngs development at what
can seem at times like a breathtaking pace Globalization and its effects will only
accelerate 111 the years ahead, meanillg now is exactly the right time to strengthen
the crrtical economic and financial relationship between the Europe and the United
States We have a unique opportunity with German leadership in the European
Union and G-8 to make progress that will benefit not just the transatlantic economy,
but Will also develop common approaches of benefit to the global economy as a
whole.
Over the past 15 years, EU-U.S. engagement has been marked by a serres of
initiatives that sougllt to strengthen and reinforce economic ties. While U.S. Under
Secretary of State, I was one of the negotiators In Paris In 1990 who prepared the
agreement under which the EU-U.S. Summits IlOW take place Yet w~lile these past
efforts set us on a good patti, they have not created an overarching framework that
IS perceived to prOVide political commitment and accountability. PrOViding that
strategic framework while establishing regularly reviewed benchmarks for
achievement is what makes the Chancellor's Initiative IJoth new and Important Our
goal is straightforward and clear reduce regulatory burden on both sides of the
Atlantic to the greatest extent pOSSible, then converge, harmonize, or mutually
recognize the fewer regulations that remain.
Before deciding what new steps to take and new structures to establish, the three
partners in thiS effort - Germany, the European CommiSSion, and the United States
- are taking stock of the progress we have made undel- prevIous regulatory
cooperative Initiatives. One successful mechanism is the EU-U.S. Financial
Markets Regulatory Dialogue, an informal and cooperative structure In which
Independent US finanCial regulators and their European Commission counterparts
focus on promoting strong cooperation on flnallclal markets, fosterrng convergence
and anchoring finanCial systems in best global practices.
Under the auspices of the Financial Markets Regulatory Dialogue, I recently met
with Commissioner McCreevy In Washington, and we both underscored the
Importance of Chancellol- Merkel's proposal for our common efforts In the fll1anclal
sector. I commended Commissioner McCreevy for the progress the European
Union IS making under Its FinallClal Services Action Plan In puttll1g in place the
framework for an Integrated EU w~lolesale market and building a single European
http://www.treas.gov/pressfreleases/hp123.htm
4/6/2007
Page 4 of6
financial market
We also discussed the release last month by the President's Working Group
on Fmanclal Markets of a set of pllnclples and gUidelines that Will qUlde US.
finanCial regulators as they address public poliCY Issues associated with the rapid
growth of private pools of capltill. Illcluding hedge funds and private equity
COrllll11SSl0ner McCl'eevy 110S expressed support for these principles, and we look
forward to contlnulflg tillS diSCUSSion In the Financial Markets RegUlatory Dialogue.
the G7. and the Financial Stablilly Forum We also aqreed that the Financial
Markets RegUlatory Dialogue structure. wllil ItS Informality and ItS focus on active
dialogue and regulator-ta-regulator contacts. provides a good example to other
sectors considering expanded regulatory cooperation across the Atlantic,
In this context. It IS irnpol1ant to note that In recent months transatlantic bUSiness
and poliCY groups - seizing on the opportunity presented by the German proposal have renewed their calls for a deeper and Illore unified transatlantiC market. For
example. the TransAtlantic BUSiness Dialogue. representing businesses operating
on both Sides of the Atlilntlc. IS pressing for stronger regulatory cooperation to
reduce the costs to bUSinesses of dealing with different regulatory standards and
processes Chancellor Merkel and I. together with European Commissioners
Mandelson and Kroes. hearel thiS message qUite clearly when we met with the
TABD In Davos And the Transatlantic PoliCY Network, which brrngs together
bUSiness and legislative leaders. has called for a more unified market and
regulatory convergence In the most significant global economic relationship
ChcH1celior Merkel's leadersilip prOVides us with new momentum to deepen our
eXisting dialogue and encourage governments to take action to commit to improved
regulatory cooperation based on shared prrnCiples We are discussing a number of
promiSing areas where we can redouble our efforts to foster an improved
transatlantiC economic relatlonstllp HlP. goal is to deliver an initial set of concrete
results by the EU-U S Summit in Washington on April 30.
Olle major achievement tllat IS within our grasp is the recently negotiated EU-U.S.
Air Transport Agreement, set to be approved by the Transport CounCil of the
European Union later this week. Approval of the agreement IS absolutely essential
to demonstrating that Europe and the Urllted States can reach common
understandings on difficult economic and regulatory matters affecting our most
imporiant bUSiness sectors. Other areas under diSCUSSion Include: extendrng
regulatory cooperation III a rallge of sectors: advallclng cooperation on
enforcement of Intellectual propeliy rrghts. thereby spurring Innovation: encouraging
progress on the work-plan aimed at promoting consistent application of IFRS and
US GAAP accounting standards: and integrating our effolis on energy security and
addressing climate change. Including advanCing work on blofuels. energy efficiency.
and clean coal
We were pleased tilat the Cilancellor included both In her EU-US. initiative and the
G8 agenda the Issues of energy security and climate change. Our dependence 011
oil creates economic. environmental. and security vulnerabilities. PreSident Bush
has put forward a bold plan to reduce gasoline consumption in the United Stales by
20 percent in 10 years by rapidly expanding the development and use of alternative
fuels and by Increasing automobile effiCiency. ThiS Illitiative Will transform
America's transportation energy sector and put us on a path to energy security
The European Union has also targeteci this Issue, with the recellt agreement that
Includes a requirement for 10 percent of vehicle fuels to consist of biofuels by
2020 It is essential to energy security and long-term economic growth to have
diverse sources of energy enabled by free. open and competitive energy markets
Just as It IS important to diverSify the types of energy resources we use. it IS also
important to diverSify the sources of supply and the supply routes. a cllallenge of
particular Importance In Europe DiverSification lowers the risks of supply shocks,
wllether due to natural or political causes.
With regard to climate change. I appreciated hearlllg the Challcellor's perspective
today, and I look forward to Mr Josefsson's remarks Although I know the
conventional Wisdom In Europe IS otilerwlse. let me make clear that climate cllange
http://www.treas.gov/pressfreleaseS/hp323.htm
4/612007
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IS an Issue of great importance to the United States The President stated directly
In IllS State of the Union Address in Jalluary that global climate change IS a serious
challenge hath to the United States and to the world. The President's energy plan
has Impol-tant climate benefits by potentially stopping the growth of C02 emissions
from our automobiles by setting al1 alllbltlOuS target for the deployment of blofuels
and Increasing Illalldatory fuel ecorlomy requiremellts
In addition, the Admlnlstrallon Ilas embraced policies that encourage the
development of clean technologies to enable our economy to qrow while protecting
Ihe environment. The United Statcs has devoted nearly $29 billion to cllmaterelated SCience, technology, International assistance, and Incentive programs, and
last year we awarded nearly $1 billion In advanced coal tax credits that will leverage
billions of dollars In prrvate sector Investment to develop clean coal technology.
And the prrvate Investment cOlllmunlty In the United States_ especially in Silicon
Valley, IS respondlnq cnthuslastically
Recognizing again that climate cllange is a qlobal Issue, we have taken a number
of important steps toward Increasing international interaction. We have engaged
With Europe througll a High Level Dialogue that recognizes that our energy security
and air quality goals are acilleved In parallel with our climate change goals We will
continue our efforts to accelerate investment and open markets for cleaner, more
efficient technologies, qoods, and services while fostering sustainable economic
growth and poverty reduction.
However, we all realize that tackling global climate charlge will require global
solutions that illclude fast-growing countries such as India and China. This IS why
we launched the ASia-PaCific Partnership on Clean Development and Climate With
Australia, China, India, Japan, and South Korea - countries that represent 50% of
the world's economy - to speed up the transfer of clean energy technologies. And
Secretary Paulson has made energy and the environment an Important element of
our new Strategic Economic Dialogue With China
Returning to the Merkel Initiative, between now and April 30. we Will work with our
EU and EC counterparts to put forward results that will strengthen the economic
relationsilip between America and Europe. But our goal IS not just a successful
summit in April As Significant as that date IS, we want this important Initiative to be
iudged successful not only on Aprrl 30, 2007, but on April 30, 2008, and each year
beyond. This erfol-t is a longer-term marathon, not merely a short-term sprint to the
next EU-U.S. Summit. The progress we make during the German Presidency and
beyond Will contrrbute to our goal of a more Integrated transatlantic marketplace
that Will also prOVide greater stability for the global economy. But we must also put
In place an endurrll~1 effort that Will produce results beyond the German PreSidency,
and we are diSCUSSing With Germany and the CommiSSion a structure that will make
thiS initiative one of lasting Illlportance and effect.
The United States and the European Union share common ideals and deep
linkages, and the benefits of our relationship are evident. Our reasons for seeking
to strengthen thiS partnership are clear Even two economies as powerful as ours
cannot respond alone to tile gale Winds of qloballzatlon. It IS tlille to join together In
our efforts to energize our eCOIlOllllC growth. Modern economies adapt and grow
based on their ability to harness the forces of globalization to deliver econoillic
growth and Job creation
Together we can provide increased opportunities for our workers to share the
benefits of economic Integration But as Chancellor Merkel has said, "in order to
achieve these goals, we first of all need growth and pronounced growth at that:
qualitative growth, but also, In many areas, quantitative growth. Without growth. it
will not be pOSSible to Illalntarn our level of prosperrty: and so it will also not be
possible to practise solidarity."
The Chancellor's transatlantiC market initiative has the potential to be the
cornerstone of a market-based, growth-oriented, more Integrated transatlantic
economic partnership Success Will require conSiderable effort over a long perloci of
time. Let us today have the courage to accept the challenge and opportunity the
Merkel Initiative presents
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Page 60f6
The Importance of Open Investment and the EU- U.S. Relationship
Ladies and gentlemen, as we work loward this common growth agenda spurred by
the Merkel Initiative, there IS a separate but related topic that must be addressed
growing protectionist sentiment. anci new obstacles to trade and Investment on
bottl sides of the Atlantic. Allow me to say a few brief words on thiS impol-ta;lt tOpiC
before closing my remarks.
DYllamism In our economies can lead to the concern that International business
Interests are a thre3t to Jobs at home In Europe, some countries have attempted to
thwart takeovers of perceived "Ilatlonal Champions," while other countries continue
to raise concerns about the free Illovement of labor and capital within the European
Union. We often diSCUSS this Issue in the context of trade. But since Investment
flows are Illany times larger than trade flows, we must also pay close attention to
cross-border capital flows al1d maintaining open Investment policies Our cOlllmon
Interests make the European Union and the United States natural partners in
ensuring the three fundamental prlllcipies of a healthy world economy: free and fair
trade; fleXible exchange rates, and the free flow of capital across borders.
The United States and the European Union are the two largest benefiCiaries of
foreign direct investment In the United States, recent figures for direct investment
flows In 2006 totaled $184 billion: up from $110 billion in 2005, and more than
double tile figure from a decade earlier. By comparison, Eurozone countries
received $189 billion In direct Investment from outside the Eurozone last year, up
from $112 billion during 2005. Foreign investment III all its forms - including foreign
direct Investment and portfoliO Investment - IS a growth engine that must run
smoothly for our countries 10 continue to prosper. We must come together to make
clear on both Sides of the AtlantiC that we are open to investment and trade, and
actively reject ttle rise of Investment protectionism across the Atlantic or elsewtlere
In tile world.
For our part, the United States IS keenly focused on keeping our
economy open to investment while addressing national security concerns. For that
reason, we are working to ensure that proposed changes to the process for
reviewing foreign Investments do not create unnecessary and counterproductive
barriers to partiCipation in the US. market. Let me make my message crystal clear
Ole United States IS open to Investment from abroad, and we hope Europe will
remalll open to Investment as well
In Ctlancellor Merkel's remarks In Davos earlier this year at the World Economic
Forum, she discussed the importance of working together to confront challenges
across the world. I was struck by the African proverb she quoted "If you want to go
fast, go alone. If you want to go far, go together." I cannot think of a better way to
describe the working relationship between Europe and the United States as we
move forward. Together. we have an opportunity to point the way toward sound,
market-based, growth-oriented economies in Europe, the United States, and
throughout the world.
Madame Chancellor, I would like to tilank you again for your strong leadership,
support, and promotion of a stronger transatlantic economic partnerstlip, as the
foundation of a stronger European-American relationship that serves the vital
Interests of Europe, the United States, and the world at large.
Vielen Dank fUr Ihre Aufmerksarnkeit
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March 19. 2007
HP-324
Remarks by Treasury Secretary Henry M. Paulson, Jr., to the Governors of the
Inter-American Development bank
Guatemala City, Guatemala
Guatemala City, Guatemala - Muy buenas tardes. Thank you. President Moreno,
for your Invltotlon to address the Governors of the lOB - and thank you to the
people and government of Guatemala for hostmg thiS event One of my family's
favorite vacations was to Tlkal - and my daughter has very pleasant memories of
her four months living with a family in Ouetzaltenango where she learned to speak
Spanish
The nations of Latin America and the Caribbean have the capacity to become
engmes of growth, opportunity, and poverty reduction for their own citizens and
throughout the region And the United States IS committed to supporting the people
of this region in achieving these goals President Bush made It clear during his
recent viSit that the United States stands with those who seek greater opportunity
and With those leaders who are delivering It.
In recent years. many governments have enacted pro-growth policies - shored up
publiC fmances. I'educed debt, and opened markets - and your economies are
responding, Yet many people in the region do not feel the benefits of this progress
It is my goal to work With tile lOB and regional leaders to ensure that more people
in the Americas share in the I)enefits created by economic growth and trade
opportunities. to help every nation reduce poverty arld bUild a strong middle class,
Moving the poor into the mlltdle class through a thriving private sector is vital to the
region's success ThiS kind of economic mobility is Olle of the core strengths of the
United States. and It IS both urgently needed and pOSSible to achieve throughout
thiS hemisphere Access to capital IS essential to reducing poverty Whether it's a
loan to start a busmess. grow a bUSiness. or buy a house. access to capital helps
people acquire assets that give them a foothold m the economy - personal wealth
they can leverage into greater prosperity and economic security.
In order to help the lOB meet thiS challenge we support President's Moreno's efforts
to restructure the Bank. Includlllg placmg high-quality professionals In the most
senior levels of management based on a more merit-based system To be
effective. the lOB cannot be all things to all people. It must focus on the people who
need help the most. We see three prlor'itles for the Bank as it undergoes
realignment under PreSident Moreno's leadership: regional integration. Iflcreasing
financlllg for small and medium enterprises. and promotlllg Infrastructure
development
Our first priOrity IS to work together to promote these goals for the region more
opportunity and more prosperity for all people The best ideas will come from the
people who live here and work here
Our second priority is to create an environment that nourishes the growth of small
and medium-Sized buslIlesses. which is Vital to redUCing poverty and Inequality. and
creating Jobs and opportunity Small bus messes are engllles of Job creation in any
econolllY. Yet In thiS regiorl. IllS estimated that only 10 percent of small businesses
have access to firlanclng from the formal fmanCial sector.
As President Bush announced earlier thiS month. the United States is developing
http://wwwtreas.gov/pressfreleaseS/hp324.htm
4/6/2007
Page 2 of2
an initiative to help both local and U.S banks increase their lending to small
businesses in the regioll and to do It on a large scale. We are working through US.
agencies such as the Overseas Private Investmcnt Corporation to share risk with
bclilks willing to lelld to tllcse cirents Ann the start of the second Multilateral
Investment Fund provilies an excellent opportuillty to partrler with the lOB to build
IJanks' capaCity to cio tillS krnd of lel1cllng profitClbly.
Our third prlorrty IS developing tile region's Infrastructure, which wril produce
tangible benefits for the people of Latin Amerrca, whether a farmer looking to
IIlcr8ase sales of his produce or a mol/ler trYing to get her Children to schools and
doctors Greater prrvate sector IllVestmcnt can quicken the pace and expand the
scopc of infrastructure development We are working to catalyze prrvate sector
investment by establrshlllg a fund to reduce the upfront costs of Identifying
attractive projects
These three priOrities - enhanced regional cooperation, more finanCing for small
enterprises. and better infrastructure - are keys to redUCing poverty and expanding
prosperity in Latin Arnerrca We are pleased to work with the lOB to advance these
goals.
We also welcome the lOB's commitment to contribute to the biofuels initiative
launched by PreSident Bush and President Lula. This Initiative will help countnes
reduce their dependence on imported oil, create Jobs, and Improve economic
growth
And we applaud the Governors' agreement to cancel $3.4 billion of outstanding
loans for the five poorest countries in the region and extend the benefits of
concesslonal finance to an additional five low-income countries. ThiS Will free up
substantial resources that can be used to Improve and expand access to health
care and educCltlurl
Finally, we support the addition of China as an lOB member which will strengthen
the lOB and make it more representative and reflective of the global economy.
I look forward to continUing our dialogue in the months ahead. And I am pleased to
extend an inVitation to the Governors and management of the Bank for the Annual
Meeting the U.S Will host next year
In the meantime, let us work togetiler to make progress on the issues I discussed
today - progress that Will help LIS reduce poverty, extend access to capital, spread
opportunity to Illore people In the region, and contribute to the development of a
middle class tilat will lead the way to a prosperous future for Latin America.
Muchas gracias.
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4/6/2007
Page 1 of2
March 20, 2007
2007 -3-20-13-12-9-19918
U.S. International Reserve Position
The Treasury Department today released US reserve assets data for the latest week. As Indicated In this table, US. reserve assets
totaled $66.480 Illillion as of tile end of that week, cornpclred to $65.819 million as of the end of the prior week.
I. Official U.S. Reserve Assets
(In
US mil/Ions)
March 9, 2007
II
I
TOTALi
1. Foreign Currency Reserves 1
65,819
Euro
a. Securities
I
12,508
Of which. Issuer iJeadqual1erecf
In
the U S.
I
II
II
10,777
ib Total depOSits with:
11)/ Other central banks and BIS
II
Ib. Ii Banks headquartered in the US
I
12.474
"
5,249
II
Euro
23,285
12,699
Ib.lii Of WhiCh, banks located In the US
12 IMF Reserve POSition 2
13. SpeCial DraWing Rights (SDRs) 2
Gold Stock 3
15 Other Reserve Assets
II
II"
II
II
II
I
II
II
II
1/
II
"
I
Yen
TOTAL
10,909
II
II
23,608
1/
"
0
II
17.974
I
I
I
I
17,723
II
Ib'ii Banks headquartered ouislcie the US.
II
II
1/
12,663
0
Ib.IL Of WhiCh, banks located abroad
14
TOTAL
0
I
66,480
II
Yen
II
I
March 16, 2007
II
"
0
II
0
0
II
II"
0
II"
5,311
II
0
"
I
1/
II
0
II
1/
1/
4,867
II
II
II
8,902
II
II"
11,041
II
II
II
II
II
0
II
II
II
1/
I
I
I
I
I
0
4,898
8,958
11,041
0
"
II. Predetermined Short-Term Drains on Foreign Currency Assets
March 9, 2007
I
I
Euro
I
1. Foreign currency loans and seCUrities
Yen
II
TOTAL
1/
0
I
II
II
March 16, 2007
II
Euro
1/
II
II
Yen
II
I
TOTAL
1/
II
0
II
0
II
0
II
0
I
I
2. Aggregate short and long positions In forvvards and futures in foreign currencies vis-a-vis the U.S. dollar:
[2.a. Short posillons
[2b Long positions
~.
Other
0
I
II
II"
II
1/
"
I
0
I
I
0
I
I
I
I
I
III. Contingent Short-Term Net Drains on Foreign Currency Assets
[
II
I
II
March 9, 2007
I
Euro
1/
II
tp:llwww.treas.gO\l/presslreleases/20073201312919918.htm
Yen
II
II
March 16, 2007
II
TOTAL
I
I
Euro
Yen
I
I
I
TOTAL
I
I
4/6/2007
Page 2 of2
1. Contingent liabilities in foreign cllrl-ency
1a. Collateral guarantees
year
01)
clebt due within 1
I
I
11.b. Other contingent liabilities
2. Foreign currency SeCllritles with embedded
options
II
II
I
3.1). Wtlh banks and other finanCiAllfIstitutlons
IHeadquartered III the US
3 c. With banks and other {Illallcial Instltulions
IHeadquartered outside the US
4. Aggregate short and long positions of options
in foreign
Short positions
II
I
II
13.a. With other central iJanks
14 a
I
1/
3. Undrawn, unconditional credit lines
ICurrenCies vis-a-vis the U.S
1\
dollar
Jl
0
I
II
II
\4b_ Long pasllions
II
II
"II
II
"II
I
I
1/
II
II
/I
/I
I
I
I
I
II
II
I
/I
/I
14a.2 Written calls
II
I
I
II
I
II
I
I
I
II
/I
I
I
I
II
II
I
"I
/I
14b2 Written puts
0
"I
14 a.1. Bought puts
14b 1. Bought calls
II
II
0
II
II
II
II"
II
I
II
0
II
"II
I
0
I
0
/I
II
I
I
II
II
II
"II
II
0
0
I
I
I
I
II
II
II
I
II
I
II
II
II
I
I
II
Notes:
11 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 reflec! marked-to-market values, and
depOSits reflect carrying values. Foreign Currency Reserves for the latest week may be subject to revision. Foreign Currency
Reserves for the prior week are final
21 The Items, "2 IMF Reserve Position" and "3. SpeCial Drawillg Rights (SDRs)," are based on data provided by the IMF and are
valued Ii1 dollar terills at the offiCial SDRfdoliar exchange rate for the reporting date. The entries for tile latest week reflect any
necessary adjustments, Including revaluation, by the US Treasury to IMF data for the pnor month end.
31 Gold stock
IS
valued monthly at $42.2222 per fille troy ounce.
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4/6/2007
Page 1 of6
March 21, 2007
HP-325
Testimony of Stuart Levey
Under Secretary for Terrorism and Financial
Intelligence
Before the Senate Committee on Banking,
Housing and Urban Affairs
WASHINGTON, DC- Chairman Dodd. Ranking Member Shelby and distinguished
members of the Committee, thank you for the opportunity to speak with you today
about the Treasury Department's role In dealing with the myriad challenges posed
by the radical regime In Iran I welcome this Committee's ongoing focus on the
Iranian threat, and more broadly. your continued support for our efforts to stop illicit
financial flows.
INTRODUCTION
The challenges posed by Iran have become particularly urgent, and the
Administration is employing a multi-faceted strategy to meet them. I know you are
hearing much about that strategy today from my colleague, Under Secretary of
State for Political Affairs Nicholas Gurns. The Depaliment of State's diplomatic
effolis have yielded cntlcal successes, Including a unanimously adopted UN
Security Council resolution last December. Resolution 1737, Imposing Chapter VII
sanctions targeting Iran's nuclear and missile programs As a result of Iran's
noncompliance with that resolution, including ItS expansion rather than suspension,
of uranium enrichment, the Security Council IS now set to pass a follow-on
resolution With expanded sanctions That our international partners now support
pressuring the Iraman regime to comply with its International obligations IS a true
credit to Under Secretary Burns's patient, yet persistent, diplomacy.
The Treasury developed the finanCial component of the Admlllistration's overall Iran
strategy at the direction of Secretary Rice and Secretary Paulson and in close
coordination With other agencies Through our teamwork, we have crafted an
innovative strategy to hlghllgllt the reckless and dangerous conduct of the Iranian
regime, deter Tehran's dangerous actiVities through the use of financial measures,
and prevent the regime's abuse and manipulation of tile International financial
system. As I will dISCLJSS, the Treasury's efforts and the State Department's
intenSive diplomacy at the United Nations are mutually reinforcing.
Over the rast nine mOllths, senior Treasury Department offiCials, including
Secretary Paulson and Deputy Secretary Klmmltt, have met with foreign finance
ministry and central bank counterparts from tens of countries -- in many cases
multiple tlilles -- to diSCUSS the Imperative of ensuring that the IIlternational finanCial
system is not tainted or harmed by Iran's abuse. We have also engaged in
unprecedented outreach to the IIlternatlonal pnvate sector, meeting With morc than
40 ballks aroLind the world to share Illformatioll and discuss the risks of dOlllg
business With Iran. And we have Implemented targeted finanCial measures against
Iranian banks, entities, and indiViduals engaged In IlliCit actiVities, highlighting to the
world their dangerous conduct. preventing US persons from doing any business
With them, and, In some cases, reqUiring that any assets subject to US Jurisdiction
be frozen Those targeted actions have helped pave the way for international
action.
Today, I would like to give you an overview of these Treasury efforts.
IRANIAN THREAT AND DECEPTION
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4/6/2007
Page 2 of6
Mr. Chairman, the Committee IS well aware of the threat posed by Iran's dangerous
activities, so I will just briefly summarize tile problem. Iran poses two threats - an
unrelenting purSUit of Cl nuclear weapons capability, on the one hand, alld the
provIsion of fmancial and material support to terrorist groups, on the other - the
combination of which has 3n extraordinarily lethal potential Under PreSident
Ahmadlnejad, the regime has Ignored calls from the Internalional Atomic Energy
Agency (IAEA) and the UN Security Council to suspend its enrichment-related and
reprocessing actiVities, and to comply With ItS obligations under the NonProliferation Treaty The danger we face IS that Ahmadinejad not only has an
extreme VISion of the future i)ut that he migllt develop the weapons that make Ilim
believe that illS vision C3n be obtamed
Iran's role m SUPPolimg International terrorism IS of serious concern Iran has long
been a state sponsor of terrorism. Tehran arms, funds, and adVises Hlzballah, an
organization that has killed more Americans than any terrorist network except for al
Qaeda It is also Widely reported that Iran proVides extensive support to Palestinian
terrorist organizations, Including the Palestinian IslamiC Jihad (PIJ) and Hamas. In
the case of PIJ, Iran's fmancial support has been contingent upon the terrorist
group carrying out attacks agamst Israel. And we are all familiar with Iran's funding
and equlppmg of elements of the insurgency In Iraq, further destabilizmg that
country and resulting In deaths of Americans, IraqiS and others. Iran needs money
to provide all of thiS support Indeed, tile regime operates as the central banker of
terror, spending hundreds of millions of dollars eacll year to fund terrorism.
Iran also uses its Islamic Revolutionary Guard Corps, or IRGC, to prOVide a train
and equip program' for terronst organizations like Hizballa~l, as well as to pursue
other military objectives of the regime. The head of the IRGC was listed last
December by the UN Secunty Council as supporting Iran's nuclear and missile
programs. The IRGC's control and Influence Ifl the Iranian economy is growlflg
substantially MOI-e arid more IRGC-associated companies are being awarded
Important government contracts. An IRGC company. for example, has taken over
management of the airport and runways In Tehran, while another company has won
the corltract to bUild tile Tellran metro system.
Iran's present integration mto the world financial community allows It to support and
faCilitate its dangerous actiVities. The regime disgUises ItS hand In terrorism and
weapons proliferation through an array of deceptive techniques speCifically
cleslgned to aVOid SUspICion and evade detection from tile law-abldlllg international
community. For example, Tehran uses front companies and Intermediaries to
engage III ostensibly innocent commercial transactions that are actually related to
its WMD programs These front companies and intermediaries enable the regime
to obtain dual-use technology and matenals from countries that would tYPically
prohibit Such exports to Iran.
We have also seell Iranlall bClnks request that other financial institutions take their
names off of U.S. dollar transactions when processing them In the international
financial system This practice IS even used by the Central Bank of Iran. This
practice is speCifically deSigned to evade the corltrols put in place by responSible
financial Institutions and has the effect of threatenlllg to Involve them in tl'clrlsactions
they would never knOWingly choose to settle It can allow Iran's banks to remain
ulldetected as they move money tllrough the 1I1terilatioliai fillancial system to pay
for the Iranian regime's illiCit and terrOrist-related aclJvitles
TREASURY ACTION AGAINST IRAN
Because of the longstanding US concerns about Iran's well-documented Illicit
behaVior, the Treasury Department maintains broad sanctions against Iran.
Although I want to focus today on our new, targeted sanctions -- or "measures" as I
prefer to call them - against IIldlvldual bad actors, It IS Important to remember that
the US Government lias Illaliltaineci these general country sanctions for some
time and that the new measures build upon our overall and long-standing Iran
poliCy.
US commercial and finanCial sanctions against Iran, which are administered by the
Treasury's Office of Foreign Assets Control (OFAC)' prohibit US persons from
http://www.treas.gov/pressfreleases/hp325.htm
4/6/2007
Page 3 of6
engaging in a wide variety of trade and financial transactions with Iran or the
Government of Iran. They prohibit most trade In goods and services between the
United States and Iran. and any post-May 7, 1995 investments by US persons in
Iran. U S persons are also prohibited from facilitating transactions via third-country
persons that they could not engage III themselves
Beyond these general country sanctions, we are relYing more and more on
"targeted" measures directed at speCific IIldlvlduals, key members of the
government, front compailles, and fmanclallnstltutlons These measures are
aimed at speCifiC actors ellcj<:lged III speCific conduct. Some require financial
Institutions to freeze funds and close the accounts of deSignated actors, denying
them access to the traditional financial system. At limes, the action Includes bans
on travel or arms transfers, which further confine and Isolate those engaged in illicit
actiVities. To maXimize the effect, we try to apply tilese measures in concert with
others Whenever pOSSible, we act with a partner or a group of allied countnes. We
helVe done so, for example, In the context of U.N Security Council Resolution 1737,
which I Will diSCUSS shortly
These kinds of measures have several advantages. Because they single out those
responsible for supporting terrorism. proliferation, and other Criminal activities,
rather than apply to an entire country, they are more apt to be accepted by a Wider
number of Internalional actors and governments. Targeted financial measures also
warn people and bUSinesses not to deal with the designated target. And those who
might still be tempted to work With targeted high risk actors get the message loud
and clear if they do so, ttley may be next.
The United States IS uSing various types of targeted measures to combat Iran's
pursuit of nuclear weapons and development of ballistic missiles, as well as its
support for terrorism
First, while under our general Iran country sanctions program Iranian financial
institutions are prohibited from directly accesslflg the US. financial system, they are
permitted to do so mdirectly through a third-country bank for payment 10 anotiler
third-country bank. In September 2006, we cut off one of the largest Iranian stateowned banks. Bank Saderat, from any access, inclurllng this indirect, or "u-turn,"
access to ttle U.S. financial system ThiS bank, which has approximately 3400
branch offices, is userl by the Government of Iran to transfer money to terrorist
organizations. Iran has used Saderat to transfer money to Hizballah. Iran and
Hizballah also use it to transfer money to E.U.-designated terrorist groups, such as
Hamas, the PFLP-GC, and the Paiestilliall Islamic Jihad. Slllce 2001, for example,
a Hlzballah-controlled organization received $50 million rllrectly from Irall through
Saderat
We have also acted agamst 19 entities and mdivlduals supporting Iran's WMD and
miSSile programs, including another Iranian bank, Bank Sepah, using Executive
Order 13382. That Executive Order. signed by PreSident Bush m June of 2005,
authOrizes the Treasury and State Departments to target key nodes of WMD and
miSSile proliferation networks. including their suppliers and finanCiers, In the same
way we target terrorists and their supporters A designation under E.O 13382
effectively cuts the target entity or individual off frolll access to the U.S. financial
and commercial systems and puts the mternatlonal cOlllmunity on notice about the
threat they pose to global security as a result of their activities. Specifically, such a
deSignation freezes any assets that the target may have under US Jurisdiction and
prohibits US. persolls from dOing busilless With it
While most states do not have a Similar national-level designation authOrity as a
tool to stem proliferation, they do now have blndlllg obligations, which are Similar to
those under our Executive Order, under U.N. Security Council Resolution 1737.
That resolution contalils an annex listing entities and IndiViduals responsible for
Iran's Illiciear and missile programs, and reqUires states to freeze their assets and
the assets of entities owned or controlled by them.
Five of the U.S. deSignations against Iranian entities and IndiViduals under E.O.
13382 have been Similarly deSignated under UNSCR 1737 And, where our
designations are not matched by deSignations at the United Nations. I can tell you
http://www.treas.gov/pressfreleases/hp325.htm
4/6/2007
Page 4 of6
that they still receive a great deal of international attention I have traveled allover
the world, sharing our list of Iran-related designations with foreign government
counterparts and private sector representatives, and stressing the importance of
ensuring that these proilferators are not able to access the International fillancial
system OUI list of targeted prollferators IS IIlcorporated IIlto the compliance
systems at major financial Institutions worldWide, who have little appetite for the
bUSiness of proliferation firms and who also need to be mindful of US measures
given their ties to tile U.S financial system
The Troasury's deSignation of Iran's state-owned Bank Sepah under E.O 13382 In
January of thiS year is particularly significant because It makes It more difficult for
the regime to hide behind its banks to support its proliferation activities. Like certain
other Irantan banks and entities. Bank Sepah has engaged In a range of deceptive
practices in an effort to avoid detection. Including requesting that other financial
institutions take its name off of transactions when processing them In the
international financial system
Bank Sepah provides direct and extensive financial services to Iranian entities
responSible for developing missiles capable of carrying weapons of mass
destruction. It has been a key provider of financial services to the Shahid Hemmat
Industries Group (SHIG) and the Shahld Bakerl Industries Group (SBIG), two
Iranian missile Ilrnls listed in the clilnex to UN Resolution 1737 for their direct role In
advanCing Iran's ballistic missile programs Bank Sepah also provides finanCial
services to SHIG's and SBIG's parent entity, Iran's Aerospace Industries
Organization (AIO). which has been deSignated as a prollferator by the United
States for Its role in overseelllg all of Iran's missile industries. AIO's Director is listed
in the annex of Resolution 1737, thereby requiring states to freeze his assets as
well as the assets of entitles under hiS ownership or control.
Since at least 2000, Bank Sepah has provided a variety of critical finanCial services
to Iran's missile industry, arranging financing and processing dozens of multi-million
dollar transactions for AIO and ItS subordinates. The bank has also facilitated
bUSiness betwAen AIO and North Korea's chief ballistiC missile-related exporter,
KOMID. Also previously dAslgnated by the Treasury, KOMID IS known to have
provided Iran with missile technology. The financial relationship between Iran and
North Korea. as reflected In the bUSiness handled by Bank Sepah, IS indeed of
great concern to the United States.
PRIVATE SECTOR RESPONSE
As I mentioned, aSide from these "formal" actions. the Treasury has engaged In
unprecedented. high-level outreach to the International private sector, meeting with
more than 40 banks worldwide to discllss the threat Iran poses to the International
financial system and to their Institutions. Secretary Paulson kicked off this effort
last fall in Singapore, in diSCUSSions during the annuallMF/World Bank meetings,
where he met with the executives from major banks !tlloughout Europe, the Middle
East. and ASia. Secretary Paulson. Deputy Secretary Kimmltt, ASSistant Secretary
for Terronst Financlllg and FinanCial Crimes Patnck O'Brien, and I have continued
to engage with these Institutions abroad, as WAil as in Washington and New York.
Through thiS outreach, we have shared Information about Iran's deceptive finanCial
behavior and raised awarelless about the high finanCial and reputatlonal risk
assOCiated with dOing bUSiness With Iran. Our use of targeted measures has aided
this effort by allOWing us to hlghligllt specific threats. We share common Interests
and objectives with the finanCial community when it comes to clealing with threats.
Financial Institutions want to Identify and aVOid dangerous or risky customers who
could harm their reputations and business And we want to isolate those actors and
prevent them from abUSing the financial system.
By partnering with the private sector, including by sharing Information and concerns
with financial institutions. we are increasingly seeing less of a tendency to work
around sanctions As I have traveled and met With bank offiCials abroad, I have
learned that even those Institutions that are not formally bound to follow U.S law
pay close attention to our targeted actions and often adjust their bUSiness activities
accordingly for two main reasons First. regardless of the underlYing law In any
http://www.treas.gov/pressfreleaseS/hp325.htm
4/612007
Page 5 of6
particular country, most bankers truly want to avoid facilitating proliferation,
terrorism, or crime. These are responsible corporate citizens. Second, avoiding
government-Identified risks IS Simply good business Banks need to manage risk In
order to preserve their corporate reputations Keeping a few customers that we
have identified as ten'onsts or prollferators IS not worth the nsk of faCing publiC
scrutinY or a regulatory action that may impact on tilelr ability to do bUSiness With
the United States or the responsible International finanCial commuility.
As eVidence of Iran's deceptive practices has moullted, flnanciallllstltu\lons and
other companies worldwlcle ilave begun to reevaluate theil' business relationships
With Tehran. Many leading finanCial Institutions have eltller scaled back
dramatically or even terminated their Iran-relatecl business entirely. They have done
so of their OWll accorrl, Illany concluding that they did not wish to be the banker for
a regime that deliberately conceals the nature of ItS dangerous and Illicit business.
Many global financial institutions have indicated that they have limited their
exposure to Iranian bUSiness. A number of them have cut off Iranian business in
dollars, but have not yet done so in other currencies It IS unclear whether thiS IS
lust a first step toward phasing out the business entirely. Regardless of the
currency, the core nsk with Iranian bUSiness - that you Simply canllot be sure that
the party with whom you are dealing is not connected to some form of illiCit actiVity
- remains tile same. Scaling back dollar-bUSiness reduces, but does not eliminate,
the risk.
As further eVidence of the change in tide, a number of foreign banks are refUSing to
Issue new letters of credit to Iranian bUSinesses And In early 2006, the OECD
raised the risk rating of Iran, reflecting thiS shift in perceptions and sending a
message to those institutions that have not yet reconsidered tileir stance.
Additionally, many oilier companies have scaled back on their investments or
projects In Iran. concluding that the rrsks of expanding operations in the country are
too great. Multrnatlonal corporations have Ileld back from investing in Iran, including
lillllting Investment in Iran's 011 field development These companies have done their
risk analyses. and they have realized that the Iranian regime's behavior makes It
impOSSible to know what lies Clilead in terms of Iran's future and stability.
If Tehran chooses to continue on ItS current path, this IS a trend that will continue.
Iran's increasing isolalioll IS the result of its own costly behavior. These are costs
that the regime IS not only Imposing on itself, but also the Iranian people Targeted
frnancial measures, coupled With the private sector's reevaluation of its business
With Iran, have sparked a debate Inside Iran about the Wisdom of the regime's
poliCies. It IS our hope that the Iranian regime will realize that the only way to reJOin
the community of responSible nations IS to change ItS behaVior
CONCLUSION
Mr. ChairmCln, the Treasury Department - working closely With the State
Department and the rest of the Interagency - is playing an integral role in the
Admillistration's Iran strategy. OLir Lise of targeted financial measures, along with
outl'each to the private sector about the risks of doing business With Iran, are
indeed haVing an impact on the Iranian regime's ability to misuse the financial
system to carry out ItS dangerous actiVities To be sure, the threat posed by Iran
remains significant, but It is IlOt Insurmountable We have made important progress
on countenng thiS threat, and we Will continue working diligently to take all prudent
steps to respond expediently to thiS challenge
I look forward to worklllg closely With you, other Members of the COlllmlttee, and
your staff on thiS Important issue Thank you again for the opportunity to testify
today
http://www.treas.gov/pressfreleases/hpJ25.htm
4/6/2007
Page I of I
March 23, 2007
HP-326
Glaser Leads Treasury Delegation to China
WASHINGTON, DC - Daniel Glaser, Deputy Assistant Secretary for Tefl'onst
FinanCing and Financial Cflmes, leads a Treasury delegation to BeiJing, China
Saturday to offer assistance to the Macanese and Chinese In addl'esslng the Issue
of North Korean-related funds frozen at Banco Delta ASia (BOA).
"The policy and diplomatic Issues have been solved - this IS now clown to
Implementation The [I,'1acanese and Chinese Ilave made clear that they want to
ensure Implementation of the agreement is consistent with their own laws and with
their international obligations We are brlllglllg Treasury expertise to help tire
Macanese and Chinese wade through some of these Implementation Issues," said
Glaser.
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4/6/2007
Page 1 of 1
March 26. 2007
HP-327
Treasury to Host Conference on Reaching the Unbanked
The US. Treasury Departrnerlt will host a regional conference In Seattle, Wash
tomorrow to discuss ways to bring the more than 10 million unbanked families Into
the financial mainstream. Deputy Assistant Secretal·y for Financial Education Dan
lannlcola, Jr. will Join offiCidls from the Federal Deposit Insurance Commission. the
National Credit Union Administri'ltlon and the Washington State Department of
Financial Institutions to kick off the day-long meeting.
The regional conference IS the Ihlrd In a series of national diSCUSSions that Will be
held as part of the FinanCial Literacy and Education Commission's National
Strategy for FinanCial Literacy. Proceedings of the conferences will be compiled to
prOVide a report on current and best practices for serving unbanked IndiViduals.
Who:
Deputy ASSistant Secretary for Financial Education Dan lanrlicola, Jr.
What:
FinanCial Literacy and Education Commission
Northwesl Reglondl Conference on Reaching the Unbanked
When:
Tuesday. March 27 900 a.I11.-430 p.m. PDT
Where: Grand Hyatt
721 Pifle Street
Seattle, Wash.
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4/612007
Page 1 of 1
Malerl 27, 2007
HP-328
Statement by Treasury Deputy Secretary Kimmitt on UNSCR 1747
WASHINGTON, DC - Treasury Deputy Secretary Robert M KllIllllltt Issued the
followlnq statement today on Ihe aejoptlon of UNSCR 1747
"The Treasury Department weicoilles the unanimous adoption of UNSCR 1747,
which reaffirms and expands UNSeR 1737 of December 2006. These resolutions
target Iran's nuclear and missile prograills. alld among other reqUirements, obligate
states to freeze Hie assets of named entities and individuals associated with those
programs
"Of particular note is Resolution 1747's deSignation of Iranian state-owned Bank
Separl and Bank Sepal! International, which finance and support Iran's
development of ballistiC missiles. The Treasury Department urges governments and
financial Institutions around the world to swiftly Implement thp-ir obligation to freeze
the assets and economic resources of all listed entities and IIldividuals, but In
particular Bank Separl and Ballk Sepah International In the coming days, we also
urge states and financial Institutions to be particularly vigilant and prevent efforts by
Sepah to move assets, including to other Iranian state-owned Institutions, or
otherwise evade sanctions."
http://www.treas.gov/pressfreleases/hp328.htl11
4/6/2007
Page 1 of 2
March 27, 2007
2007 -3-27 -16-25-19-23973
U,S, International Reserve Position
The Treasury Department today released US reserve assets data for the latest week As indicated In this table, U S reserve assets
totaled $66,328 million as of tile end of that week, compared to $66,480 million as of the end of the pnor week
I. Official U,S, Reserve Assets (m US millions)
March 16, 2007
March 23, 2007
66,480
66,328
TOTALII'
II
11 Foreign Currency Reserves 1
II
I a Securities
Euro
II
12,699
Of Which, Issuer headqual1erecl in the US.
10,909
"II
Ib Total deposits with.
I b I. Other centraJ banks ancl BIS
"
"
12,663
II
II)il Banks headquartered ill the US.
"II
"II
Ibli Of WhiCh, banks located abroad
b.III. Banks headquartered outslcie 1/7e US
Iblli Of WhiCh, banks located In the US
II
5,311
II
23,608
II
0
II
II
0
II
0
II
13 Special DraWing Rights (SDRs) 2
I
II
II
II
12,694
"II
Yen
10,807
"II
12,667
II
II
5,267
"II
"
"II
II
I
II
23,501
I
II
0
II
17,934
II
II
8,958
II
11,041
II
0
II
I
II
II
0
I
II
0
I
II
0
"
II
"II
4,898
II
II
II
1\
II
I
4,897
I
8,956
I
I
11,041
0
"
"
I
TOTAL
0
0
II
15, Other Reserve Assets
Euro
0
II
II
"
"II
17,974
1/
"II
II
II
TOTAL
II
12 IMF Reserve Position ;;'
14 Gold Stock 3
Yen
I
I
"
II. Predetermined Short-Term Drains on Foreign Currency Assets
March 16, 2007
II
I
I
Euro
1 Foreign currency loans and securities
II
2, Aggregate short and long positions In forwards and futures
12 a
Short positions
Yen
II
March 23, 2007
TOTAL
II
0
Euro
"
II
Yen
11
II
1/
foreign currencies Vis-a-VIS the U,S, dollar:
1/
1/
In
1/
1/
1/
[2b Long positions
II
II
II
[3 Other
II
0
0
0
1/
1/
1/
II
II
1/
0
0
II
"
1/
"
"
II
I
TOTAL
0
0
I
I
I
I
I
"
III. Contingent Short-Term Net Drains on Foreign Currency Assets
I
r-' F = = = = = = = = = = = = = = = = tlI
I
I
M,«h 16, 2007
Euro
"
I
http://www.treas.gov/pressfreleaSeS/J99732716251923973.htm
Yen
~
Moech 23, 2007
=E=u=ro=~IFI=Y=e=n==H==TO=T=A=L===l1
l'pT=O=TA=L=':p'
I
I
I
4/612007
Page 2 of 2
1. Contingent liabilities in foreign currency
1.a. Collateral guarantees Oil debt due within 1
year
~ .b. Other contingent liabilities
2 Foreign currency securities with embedded
options
3 Undrawn. unconditional credit lines
~.a With other contral banks
3.b. With banks and other fmanciAllnSlltutlons
IHeadquartered IIJ the u. s
3.c. With banks and other [maneial inslttutions
IHeadquartered outside the u. s
4. Aggregate short and long positions of options
In foreign
I
1/
1/
I
II
I
I
I
II
I
II
I
II
/I
I
II
11
II
II
II
II
II
II
II
II
II
II
II
II
II
1/
II
II
II
II
II
II
II
II
II
II
II
I
I
II
II
II
II
II
I
I
I
II
II
I
II
II
II
II
II
\I
II
II
II
II
I"
I
"
I
I
I
I
/I
II
II
II
II
14.a2. Written calls
/I
1/
14b. Long positions
II
ICurrencies vis-a-vis the U.S
14a. Short postllons
14a 1. Bought puts
dollar
14b.1. Bought calls
14b2. Wrrtten puts
II"
II
"II
0
I
I
0
0
II
I
I
II
0
II
II
II
II
II
II
I
I
II
I
0
I
I
0
I
0
I
I
I
I
I
I
I
I
I
I
I
I
0
Notes:
11 Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Markel Account
(SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-lo-market values. and
depOSits reflect carrying values. Foreign Currency Reserves for the latest week may 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/doliar exchange rate for tile reponing date. The entrres for the latest week reflect any
necessary adjustments. irlcluding revaluation, by tile US Treasury to IMF data for the prior month end.
31 Gold stock is valued monthly at $42.2222 per fine troy ounce.
http://www.treas.gov/pressfreleaseS/20 0 732716251923973.htm
4/612007
Page 1 of6
March 28. 2007
HP-329
Testimony of Treasury Secretary
Henry M. Paulson, Jr.
Before the U.S. House Appropriations
Subcommittee on Financial Services and
General Government
Washington. DC- Chalrmall Senano. Ranking Member Regula. and Members of
the Subcommittee. Thank you for the opportunity to appear before you today to
discuss the Presirlent's Fiscal Year (FY) 2008 Budget for the Department of the
Treasury.
I am pleaseci to be here today to provide an overview of the Presicient's Budget for
Treasury In FY 2008. The Presldent's FY 2008 Budget reflects the Department's
budget priorities and dedication to promoting economic growth and opportunity,
strengthening national security. and exercising fiscal diSCipline.
The $121 billion request focuses resources on key programs necessary to promote
economic growttl. fund the activities of the federal government and effectively fight
the war on terror. The request IS S523 million above the amount provided by the FY
2007 funding level. a 4.5 percent increase By collectillg the revenue due to the
federal governrnent and working to reduce Illicit threats to the finanCial system. the
Department of the Treasury contributes to the firlanClal Integrity of the United
States.
Treasury has a primary role as steward of the US economic and financial systems.
Including the role of the US. as an Influential participant in the international
economy. Treasury promotes financial and economic growth at home and abroad.
Treasury also performs a Critical and far-reaciling role In national security. The
Department battles national security threats by coordinating financial intelligence.
targeting and ImpoSing sanctions on supporters of terrorism. narcotics traffickers.
and prollferators of weapons of mass destruction, Improving the safeguards of our
financial systems. and promoting international relationships to combat the financial
underpinnings of terronst and other crirnlnal networks.
Managing these complex tasks reqUires expanded capabilities. Fully fundlllg the
President's FY 2008 Budget request will allow the Treasury Department to continue
and improve Its ability to study. recommend. and support Initiatives that strengthen
the U.S. economy. create more Jobs for Americans. and enllance citizens'
economic security. The Depal·tment will actively work to protect the security of
pensions. reform SOCial Securtty. and Improve the federal income tax system by
providing timely. usable. and comprehenSive analyses that advance the policy
process.
Promoting Economic Growth, Security and Opportunity
The Treasury Department works diligently to fulfill ItS role as the AdministrClllon'S
chief economic advisor We strive to prOVide the PreSident With the best
information available on a broad range of domestic and international economic
issues Treasury's Offices of International Affairs. Tax PoliCy. Economic PoliCY. and
Domestic Finance support thiS role through the provIsion of technical analYSIS.
economic forecasting. and poliCY guidance 011 Issues ranging from federal financing
to responding to IIlternational financial crises The Treasury Department supports
policies that stimulate US economic growth. strengthen and moderlllze entitlement
programs. and minimize regulatory burdens WIllie ensuring tile safety and
http://wwwtreas.gov/pressfreleaseS/hp129.htm
4/6/2007
Page 2 of6
soundness of fillancial Illstitutions
The FY 2008 Bucigetrequest funds Treasury's efforts to promote domestic and
Illternational econOllllC growth through finanCial diplomacy Treasury stimulates
eCOIlOmlC growtll and Job creation by working to open trade and Investment,
encouraglllg growtll in developing countnes, and promoting responsible policies
regardlllgmternational debt, finance, and economiCs. Treasury supports trade
liberalization and budget diSCipline through Its role In negotiating and Illlplementing
International agreements pertaining to export subsidies These agreements open
markets, level the plaYing field for US exporters, and provide effective subSidy
reductions that save the U.S. taxpayer millions of dollars annually. Since 1991,
cumulative budget savlllgs from these arrangements are estimated at over S 10
billion. The growth of these actiVities makes It necessary to enhance policy
coordination and resources through the addition of reglollal experts Treasury's FY
2008 Budget request provides additional staff to support key poliCy dialogues
around the globe. These experts Will enhance policy coordination on international
matters and Will support key policy dialogues With priority countries like China.
Treasury also rernalns committed to protecting the homeland from international
investments that may threaten our national security. The Committee on Foreign
Investment in the United States (CFIUS) is an interagency group responsible for
Investigating the national security Implications of the merger or acquIsition of U S
companies by foreign persons. Olle of my key responsibilities as Secretary is to
chall' thiS committee, and to make sure that the tnteragency CFIUS process
performs as effiCiently as pOSSible As foreign investment in the United States has
increased, so has the number of cases reviewed by CFIUS. As a result, the FY
2008 Budget request prOVides additional resources to support Treasury's
investigations of foreign investments.
The PreSident's FY 2008 request for Treasury also includes $28.6 million for the
Community Development FinanCial Institutions (CDFI) Fund. CDFI Fund's mission
is to expand the capacity of financial institutions to provide nedit, capital, and
ftnanclal services to underserved populations and communities In the United
States. In order to ensure that the CDFI progl'am continues to operate In the most
effiCient and effective manner, Treasury IS proposing to phase out the CDFI Bank
Enterprtse Awards (BEA) program in 2008. There is no eVidence that the BEA
program Improves economic development, and we believe that the program's goals
are better served through other CDFI Fund actiVities.
Strengthening National Security
The sponsorship of terrorism and potential acqUisition of weapons of mass
destruction (WMD) by rogue regimes and non-state entities represent grave threats
to U.S. national securtty and the security of all free and open societies. Terrorists.
WMD plollferators and otiler non-state t1lreats reqUire support networks through
which money and material flow. Tile Treasury Department dlaws Oil finanCial and
other all-source Intelligence, and also works to utilize its unique regulatory and law
enforcelTlent authorities, to combat national security threats and safeguard the
finanCial system
The Department's Office of TerrOrism and FinanCial Intelligence (TFI) proVides
finanCial intelligence analYSIS. develops and Implements systems to combat money
laundering and terrorist ftnanctng, adllllnisters the Bank Secrecy Act, and
acJminlsters and enforces the U S Government's economic sanctions programs.
Treasury exercises a full r;:mge of tntelligence, regulatory, policy, and enforcement
tools in tracking and disrupting terrorists' support networks, prollferators of weapons
of mass destruction. rogue regimes. and International narco-trafflckers, both as a
Vital source of rntelligence and as a Illeans of degrading their ability to function.
Treasury's actions include
•
FreeZing the assets of terronsts, prollferators, drug krngplns, and other
crilllinals and shuttlllg down the channels through which they raise and
move money.
http://www treas.gov/pressfreleaseS/hp329.htrn
4/6/2007
Page 3 of6
•
•
•
•
Cutting off corrupt foreign junsdlctlons and finanCial Institutions from the
US financial system:
Developing and enforcmg regulations to reduce terrOrist financing and
money laundering:
TI-aclng and repatriating assets looted by corrupt foreign officials: and
Promoting a meaninqful exchange of Information Wltl1 the private financial
sector to help detect alld address tl1reats to the financial system.
The FY 2008 President's Budget Will enable Treasury to entlance these
capabilities Treasury requests funding for Investments to further the Department's
national security IllISSlon In three critical areas. First, thiS budget. if enacted, Will
enable Treasury to expand Its capacity to Identify potential national security threats
andto enforce U.S poliCies to counter those threats. Next. Treasury Will enhance
the Information technology and phYSical infrastructure of TFI and its component
bureaus and offices to Improve data secuflty, access, and quality. Finally, the
Budget would provide funds to help Integrate TFI's Office of Intelligence Analysis
Into tile broader Intelligence Community
Specifically, tilis request includes an additional $53 million to respond to emerging
national security threats, provide strategic policy coordination in regions key to the
fight against terrOrist financlllg, and to enhance implementation of sanctions aqainst
state sponsors of terrortsrll and VVMD proliferation. The request also Includes $81
million for Infrastructure and Information technology projects to enhance data
access, security, and quality, Including construction of a Sensitive, Companmented
Information Facility (SCIF), stabilization and maintenance of the Treasury Foreign
Intelligence Network, and the Critical Infrastr-ucture Protection program. Finally, $1
million is requested for initiatives to further Treasury's integration Into the broader
intelligence community
nle FinanCial Crimes Enforcement Network (FinCEN) is responsible for
admillistermg the Bank Secrecy Act (BSA) The FY 2008 Budget request provides
funding to strengthen recovery capability for miSSion-critical information technology
systems and emergency operation capabilities: and improve information technology
plannlllg and oversight.
Managing U,S. Government Finances
The Treasury Department manages the nation's finances by collectlllg money due
the United States, making ItS payments, managing its borrowing,lnvestlllg when
appropriate, and performing central accounting functions. Key priorities In
managing the government's finances Include maXimiZing voluntary compliance with
tax laws and regulations, contmually Improvlllg fillancial management processes,
and financing the government at the lowest possible cost over time. The FY 2008
Budget request prOVides the funding necessary to properly administer these
functions
Collecllng Taxes
Collecting taxes in a fair and consistent manner is a core mission of the Treasury
Department. TI-easury's pnol'lties in tax administration are enforcing the nation's tax
laws fairly and effiCiently while balanclilg taxpayer service and education to promote
voluntary compliance and reduce taxpayer burden .. In an effort to maXimize tax
compliance, the FY 2008 Budget Includes $11.1 billion for the IRS, which IS an
Increase of $4:,)8 million above the amount prOVided In the FY 2007 funding levels.
The FY 2008 Budget request prOVides funding to enhance coverage of higil-flsk
compliance areas, as well as to address the tax gap, willch represents the annual
difference between taxes owed and taxes collected, Including a multi-year research
effort that will prOVide continuous feedback on noncompliance Enforcement Will
focus on critical reporting, filing, and payment compliance programs, and highlight
abusive tax avoidance transactions and high 111come Individual examinations
involvmg pass-through entities (e.g., partnerships and trusts) The IRS Will also
continue to recngineer Its examlilatlon and collection procedures to reduce audit
time, increase Yield, and expand coverage As In FY2006 and FY 2007, the
Administration proposes to Include IRS enforcement Iflcreases as a Budget
Enforcement Act program Integrity cap adjustment.
http://wwwtreas.gov/pressfreleaseS/hp329.htm
4/6/2007
Page 4 of6
The ~RS will continue efforts to improve services offered to taxpayers, primarily
fOCUSlllg on those outSide of traditional telephone access For example, the FY
2008 request prOVides funding to expand the Volunteer Income Tax ASSistance
program The IRS will also Implement the Taxpayer ASSistance Blueprint, a five
year strategic plall to deliver taxpayer service; a collaborative effol1 of the IRS, the
IRS OverSight Boarel, and the National Taxpayer Advocate.
Finally, the FY 2008 request will allow the IRS to make critical IT Infrastructure
upgrades IRS will continue to Invest in technology, process Improvements cllld
training to achieve conSistent quality service with reduced costs. The Budget also
rncludes funding for the IRS's BUSiness Systems Modernization program, which IS
deSigned to prOVide IRS employees the tools they need to continue to administer
and Improve both service and enforcement programs.
The PreSident's Budget also Includes a number of legislative proposals Intended to
Improve tax compliance With minimum taxpayer burden Once implemented, It IS
estimated that proposals Will generate $29 billion over ten years These proposals
are presented In detail In the FY 2008 Department of the Treasury Blue Book The
legislative proposals fall into four categories expand Information reporting, Improve
compliance by bUSinesses, strengthen tax administration, and expand penalties.
Treasury's Alcohol and Tobacco Tax and Trade Bureau also collects excise taxes
on alcohol, tobacco, firearms, and ammunition. In FY 2006, the Bureau collected
$14.8 billion in excise taxes, interest, and other revenues on these products and
also regulates the manufacture of alcohol and tobacco products
Ensuring Efficient Fiscal Service Operations
The FY 2008 Budget request proVides the funds necessary for Treasury to meet Its
responSibilities as tile federal government's finanCial manager
Treasllry's management of the federal government's finances Includes making
payments, collecting revenue, pleparlng publiC finanCial statements and collecting
delinquent debt owed to the federal government through the Financial Management
Sel'vice (FMS) Treasury oversees a dally cash flow In excess of $58 billion and
disburses 85 percent of all federal payments. The Department is working to
improve its payments and collections processes by moving toward an ail-electronic
Treasury In FY 2006, Treasury issued 742 million electroniC payments Including
income tax refunds, SOCial Security benefits, and veterans' benefits. Treasury IS
also encouraging SOCial Securrty and Supplemental Security Income reCIpients to
SWitch to Direct Deposit through the Go Direct campaign Direct Deposit represents
a cost savings to the federal government. and consequently to the American
taxpayer, of 80 cents per transaction compared to a check payment
Treasury's Bureau of the PubliC Debt manages all of the public debt, which includes
marketable seCUrities. savings bonds, and other instruments held by state and local
governments, federal ageflcies, foreign governments, corporations, and
Irldlvlduals. To improve debt management and offer better customer serVice,
Treasury offers TreasliryDirect, an electronic, web-based system that electronically
issues securities to retail custoillers and enables IIlvestors to manage their
accounts on-line
The Budget also includes three legislative proposals for FMS that are estimated to
save the federal government over $3 billion over ten years. These proposals will
allow the government to trace and recover federal payments sent electronically to
the wrong account, eliminate the ten-year limitation on the collection of delinquent
non-tax federal debts, and remove the diSincentive for the IRS to refer tax debts to
FMS for collection
Strengthening Financial Institutions
One of the prinCipal objectives of the Treasury Department is to enable commerce
The Depal1m8nt is responsible for the safety and soundness of national banks and
federally-chartered savings associations The Treasury Department also produces
the COins and currency needed for commerce. and guards against counterfeiting
http://wwwtreas.gov/pressfreleaseS/hp329.htm
4/6/2007
Page 5 of6
and other misuse of our money While the Office of the Comptroller of the Currency
(OCC), the Office of Thflft Supervision (OTS), the U,S, Mint (Mint), and the Bureau
of Engraving and Prlntmg (BEP) are funded through direct annual appropriations,
their contribution to Treasury's mission cannot be understated
Treasury, thrDllgh OCC and OTS, maintains the Integrity of tile financial system of
the United States by chartefillg, regulating, and supervIsing national banks and
savings associations, In FY 2006, OCC and OTS oversaw financial assets held by
these flllanClallrlstltutlons totaling $81 trillion
The Mint and BEP arc responsible for producing the nation's cOins and currency,
respecltvely In FY 2006, tile Millt and BEP produced 16,2 billion coins and 8,2
billion paper currency notes, respectively Tile MlIlt Issued five new quarters for the
50 State Quarters program and BEP introduced the new $10 currency note into
Circulation Also, despite Significant increases in the prtce of metals, the Mint was
able to return $750 million to the Treasury General Fund In FY 2006,
Managing Treasury Effectively
Treasury IS committed to uSing the resources provided by taxpayers In the most
efficient manner pOSSible, The Department Will drive Improved results through
deCISion-making that considers performance and cost. The Treasury Department
stnves to serve Its stakeholders In the most effective way while working to leverage
resollrces across the Department and across government.
Fundlllg requested In Treasury's Departmental Offices and Department-Wide
Systems and Capital Investments Program (DSCIP) is sought for building a strong
information technology Infrastructure, ensuring that Treasury remalrls a world-class
orgalll7ation that meets the PreSident's standard of a CltiLen-centered, resultsonented government
The DSCIP account funds technology Investments to modernize bUSiness
processes throughout TreClsllry, helping the Department Improve efficiency, In FY
2008, Treasury requests $18.71 million for ongolrlg modernization and cfltlcal
information technology Infrastructure proJects, and for investment in other new
technologies that will improve effiCiency and service to the American people The
budget request Includes
•
•
•
$6 million to begin work on a Treasury-wide Enterprise Content
Management System The Initial system will meet the business
requirements of the Office of Foreign Assets Control and the Financial
Crimes Enforcement Network:
$2 million for the continued stabilization of the Treasury Secure Data
Network: and
$4 million to Improve Treasury's FISMA performarlce, strengthen the
DepartlTlent's overall security posture, leveraging the President's
Management Agenda, Including the E-Government Initiatives, across the
Department.
ThiS budget request also Includes funding for the Office of the Inspector General
and the Treasury Inspector General for Tax Administration. These offices play
imporiant oversight roles In the overall management of the Department and the fair
administration of the natloll'S tax laws
Conclusion
Mr. Chairman, thank you again for the opporiunlty to come here today to discuss
With you and the Committee the PreSident's FY 2008 Budget request for Treasury
I look forward to working with you Clnd the members of the Committee In ensurlllg
that Treasury maximizes Its resources and funding so that the American people can
be assured that their tax dollars are being used In the most effecltve way pOSSible
I would be more than tlappy to answer any questions
http://www.treas.gov/press/releases/hp329.htm
4/o/?007
Page 1 or 2
III
v",w or 1'111111/)(' put-
CIlII,,"! ')IJ I/)IS pape, C/()wlJ/oaOIf1e free
M3rcll 28, 2007
HP-330
Treasury Takes Action Against Major
Medellin-Based Trafficker and His
Financial Empire
Washington, DC-- The US Depdltment of the Treasury's Office of Foreign Assets
Control (OFAC) tod3y named FabiO Enrique Ochoa Vasco (a k,a "Carlos Mana"), a
major Medellin-based drugtrafflcker, as a prrncipal indiVidual on its list of Specially
Designated Narcotics Traffickers (SDNTs) At the same time, OFAC designated 45
companies and 64 Individuals In OchoCl Vasco's extensive criminal and financial
netwol'k, across Colombia, Belize, Ecuador, Guatemala. Honduras, Jamaica.
Mexico, and Panama
"FabiO Enrique Ochoa Vasco IS the head of one of the most powerful Medellinbased drug trafficking orgalllZatlons today," said OFAC Director Adam J Szubin.
"Our action today strrkes at hiS massive flnallclal empire with the aim of deprrving
him of ttle benefit of IllS crrminal actiVities,"
ThiS action IS part of an ongoing interagency effort to impleillent Executive Order
12978 (October 21, 1995), which applies economic sanctions against Colombia's
drug cartels. This effort includes the Departments of the Treasury, Justice, State
and Homeland Securrty, Today's deSignation action freezes any assets the
deSignees may have subject to US, Jurisdiction, and prohibits all finanCial and
commerCial transactions by any US. person with tile designated compallies and
IndiViduals, TillS IS OFAC's first designation of a significant narcotics trafficker
operatl11g out of Meejellln, Colombia since the Issuance of E,O, 12978 in October
1995,
Fdt)IO Enrique Ochoa Vasco and twelve otiler IndiViduals were charged With
cocaine trafficking In a Septeillber 2004 US federal Indictment III the Middle
District of Flonda, Tampa DIVISion, OFAC has worked closely over the past three
years With Operation Panama Express on the Investigation of FabiO Enrrque Ochoa
Vasco and hiS organization Operation Panama Express is an Organized Crime
Drug Enforcement Task Force (OCDETF) Strike Force investigation conducted by
ICE, DEA, FBI, IRS, Flonda Department of Law Enforcement and tile Pinellas
County Shellff's Office With the U S. Attorney's Office In Tampa, Middle Distrrct of
Florida The investigation was also supported by the ICE Attache - Bogota, DEA
Cartagella, Colombia Residellt Office and DEA Belize Country Office. The US
government IS offering up to S5 million for Information leading to the arrest of FabiO
Enrique Ochoa Vasco.
"ICE IS proud of our IllVestlgatlve partnersilip with other Panama Express member
agencies and our contrrbutlon to this OFAC case." said Julie L Myers, DHS
ASSistant Secretary for U S Immigration and Customs Enforcement "By freeZing
their assets, we wrll continue to shut down the ability of drug kingpins like FabiO
Ennque Ochoa Vasco to conduct ti1eir illegal busillesses"
FabiO Ermque Ochoa Vasco has been Involved In narcotics trafficking actiVities
from Colombia to the United States Since at least 1981. Ochoa Vasco partiCipated
In narcotics trafficking With key figures 111 Colombia'S Medellin Caliel SUCtl as LUIS
Fernando Galeano Berrro, Gerardo "Klke" Moncada, Diego Fernando Munllo
Bejarano (ak.a "Don Berna"), and klllgpin Pablo Escobar Gavlria
http://wwwtreas.gov/pressfreleaseS/hp330.htm
4/6/2007
Page:2 01':2
TIll: Ilctwork of"'(5 OctlC),l V,ISCO iJlISIIH'SSf;S Clf:slqllirterj tOrJilY IrlclmJcs DIII,ltl'X
SA. d Colol11iJldll cdlPl'tllcxllll; UJlli['dlly IO(;,lted 111 fjOCjotd. Colol11lllil. IIIVE'ISI()()I'S
f RC'lll('SI'f)/,Jl:I(Jf)('S S A (lPSA).;1 I(;dll;st,lte filin III Medellili. ColomiJla. Floncld
S,I';("'1 CIIIIJ S A III ItiICIIII. ArllllJqllld. C()IOlniJlil r7ntr:ll.d CdSC(JC/d SA. il 11Ot(;111l
CII,lIclol. COIOlllilld. Y,lIIidl/.1 VC'ldwlIIJ Dlstll/lUlI/()II;S a illilrlll;l III BclfrilllqulllCl.
CololniJld. ,11111;1 Ilc;twOlk of r(;;[1 (;51;11(; flrlllS - IlIverSlone.'; MPS SA PI()Y()C/os Y
:::;1 J/II<'I<lf){'s :::; A. Pm)'1 'It()~ y SI J/I/(;I()I)(.'s Inrnoll/IIiJllii Llcld . ;111(1 GI:It:rJ!:/ii clc
P/()Yf'l:t()S Y :::;Il/III'/<llli \\ Lli/d - IOC<lteri III BOCJota. COIOllliJIZl OFAC illso
cll'SI~JI1;1I(;rI Oll/,rtl;x:::; A frollt cOlnpalllf;s locJted III ECII;l\JOI (Cn/l/('IClil/IZ,)(/nrd
feJ,11 GdVllid SA ;IIHI C()/IIt'f'ild/ILd(/Uld Morr/llr SA). Guatemala (Ovu(spas
Tldl/llill C,l/lI/JdIJV). i1l1(1 MI:XICO (Me OVL'IS("/,'; hi/IIIIlI] CumpdIJY S A cle C V) A
riottlllHJ stlli(~. 1//7y MIIIII/(l Ilitl/rlUI. III GUil{j,clldJClIil. MeXICO WdS also IldfTlecj
The OFAC ,lCIIOIl t.lllj(;tf':ri SfeVCll k(~y flllilllclallllan,lQers fOI FaiJlo Ennque Ochoa
Vasco. 111CludillCl JillllW DliJ Mor S<ldtl. Jor~Je Eillesto CcllcecJo ROJas. Gustavo
Alberto Pdi)Oll Alv;1rddo, SilVIO Yep!'!s Velez. Jholl JallO CilstrlllOll Vasco. Femando
MaldolldcJD Escollilr. i1l1cl Cilbllel AI)(jres Calvo Lomb'lIla. as well as ttm:!e MeXican
flllclllClcll assOcldtC:'. POlflrlo MICjul:1 CilcJellJS VlrC1iTlOlltes. LUIS Pacheco MeJia. and
Glorli-l Elisa Brlsello Mill III aeJciltlon. IlTlportallt crllTllnal associates of FaiJlo
Ellrlque OChOd VilSCO werc nailled. IllclucJlng Johll J(llro Gallego Valellcla. Mlyer
Alherto GarCia BUltra(]o. Victor HuCjo CClStlO Garzon. Carlos Hellerls Varela Serna
and RICiwJO CClstro GelrZorl.
TllC ilssets of ,'I totdl of 1.477 bUSiness elllCllndlvlduals III Aruba. Barbados,
Colomhlil. Costa Rica. Ecucldor. CUi-llE:rl13Ia, Honduras. Jamaica. MeXICO. Panama.
Peru. Spilill. VallLlJtu. Velwzllcla. the BJllellllaS, the Brltlsll Vlrglll Islallds. tile
CaYlll,]ll IslC:lIlds. and the Uilited Stdtes Ilave iJeen deSignated pursuant to E.O
12978 Tile 570 SDNT bUSinesses Illclude aCjrlcultural. aVlatloll. cOllsultlng.
cOllstructloll. dlstrli)lItloll. fillililcial. hotel. IllVestmellt. malllifactunng. maritime.
mllllllCj. offshore. phill rnacelltlccil. reell estate. retail. serVice, sportillg.
teleCOmlTlLlIllcatloll. ami textile flrills. The SDNT list now Illclucies 22 klngpllls from
tile Call. Medellill. North Valle. ilild North Coast drug trafflcklllD organlzatiolls In
Coloillbia
For a ClJrnjl/ete list of tilU IIJC/iv/r/ucl/s elm/ entities c/esignatecitociay. please ViSit.
http://www.treasurygovlafficeslenforcementloraclactionslindex.shlm!.
REPORTS
•
•
Chart of tile Ochoa Vasco Crilllinal Network
Cilart of ttle Ochoa Vasco Financial Network
http://wwwtreas.gov/pressfreleaseS/hp330.htm
OCHOA VASCO Criminal Network
March 2007
U.S. Department of the Treasury
Office of Foreign Assets Control
'-'J-
Specially Designated Narcotics Traffickers
tfi
~"~
~
..tt;.
Lc'"
!/
-
u.s. FEDERAL INDICTMENT
Fabio Enrique OCHOA VASCO
"Carlos Mario"
"Kiko EI Chiquito"
DOB 22 Nov 1960
CC 79281039 (Colombia)
Middle District of Florida
(Sept 2004)
KEY COLOMBIAN ASSOCIATES
rJ IJ
VARELA Companies
TRANSPORTES MICHAEL LTDA.
8arranquilta, Colombia
NIT # 802024118·3
CENTRO DE BELLEZA SHARY VERGARA
BarranquHla, Colombia
Carlos Heneris
VARELA 5ERNA
Jhon lairo
nColitas"
OOB 11 Jan 1956
CC 16632290
COOPERATIVA DE SERVICIO DE TRANSPORTE
DE CARGA DE COLOMBIA LTDA.
(COOTRANSMULTI H.H. LTDA.)
BarranquiUa, Colombia
NIT # 802019665-0
GALLEGO VALENCIA
"Frederico"
OOB 30 Jul 1950
CC 70126377
t]:
l:J
(
"
~.
'-"---
Sergio Rene
DE MARTINI TAMAYO
HODWALKER Companies
"Canoso"
MARTIN HODWALKER M. Y CIA. S. EN C.
Barranq .... illa, Colombia
NIT # 802007314-9
.
OOB 14 Sept 1962
CC 71622812
VERANILLO DIVE CENTER LTDA.
Barranquilla, Colombia
NIT # 802008393-5
1)1
[I
-.,
~--------------------------I
,
p"""m3 1
,
DESARROLLO GEMMA CORPORATION :
Panama City, Panama
I
RUC # 25544701403775
:
Miyer Alberto
GARCIA BUITRAGO
"Chiqui"
DOB 13 lui 1970
CC 10287969
YAMAHA VERANILLO
DISTRIBUIOORES
Martin David
HODWALKER MARTINEZ
Barranquilla, Colombia
"Tilo"
OOB 26 Dec 1968
I
I
~--------------------------,
~'l
CASTRO Companies
CABLES NACIONALES S.A.
8arranquilla, Colombia
NIT # 802005017-7
Ricardo
CASTRO GARZON
"Cayo"
DOB 13 Dec 1960
CC 8715520
[~I
FUDIA LTDA.
CURE SABAGH Y CIA.
Barranquilla, Colombia
Barranquilla, Colombia
NIT # 800230555-4
NIT # 802000463-6
Gustavo
OTERO BORRERO
"Tavo"
OOB 02 Jun 1955
CC B680154
INVERSIONES AGROPECUARIA ARIZONA LTDA.
BarranquW3, Colombia
NIT# 802019694
r~
John Ricardo
~
Javier Arnuifo
PALACIO ADARVE
OOB 03{11{1969
CC 70697538
HOOKER TAYLOR
OOB 19 Feb 1971
CC 18001893
CASTRO CURE Y CIA.
Barranquilia, Colombia
NIT # 802001885-5
>1
HOOKER Company
ROCH FISH IMPORT EXPORT E.U.
San Andres, Colombia
NIT # 827000913-1
CC 8534760
KEY INTERNATIONAL ASSOCIATES
:"HoNDuRAs-AssocIATi--- - --
......,
1"'"00
o_nil"
--
••
Me_ICo
Honduras
Elvert Dowie BODDEN GALE
"TiD Bodden"
OOB 24 Apr 1956
Victor Hugo CASTRO GARZON
"Cabezon"
OOB 10 May 1965
CC 72137257 (Colombia)
-SEUZEASSOCIATES--
---------------------------------------(
D
:
..,
.....
Gareth Bruce WORRELL
"Gareth Morey"
OOB 19 lun 1971
..,
......
Clive Norman HYDE
"Dr. Hyde"
OOB 24 Apr 1956
..,
....
Belize
Elvis Angus LOGAN MOREY
"Burton Burgess"
OOB 28 lui 1963
:
I
I
:JAMAlCA ASSOCIATE
I
I
I
I
I
I
I
I
I
I
,
..,
......
Martin Gregory MARKS
DOB 30 Oct 1958
~::::"i
Jam,hCi\
OCHOA VASCO Financial Network
March 2007
1-.J.
~
QJ
Specially Designated Narcotics Traffickers
U.S. Department of the Treasury
Office of Foreign Assets Control
~~--------/
~\~
u.s. Federati~dictment
'--""
Middle District of Florida
Fabio Enrique OCHOA VASCO
"Carlos Mario"
DOB 22 Nov 1960
CC 79281039 (Colombia)
(Sept 2004)
KEY FINANCIAL ASSOCIATES
'."~-
~
~~
"
.~
...........
Gabriel Andres
CALVO LOMBANA
DOB 20 Aug 1935
CC 2859105
OCHOA Family Assets
ARPET
I
.£),
Jhon Jairo
CASTRILLON VASCO
DOB 30 Mar 1960
CC 71603587
Bogota, Colombia
NIT tI 83008Ul48-0
MOR GAVIRIA Y CIA.. 5
Bogota, Colombia
NIT # 860535567-0
REPRESENlActONES S.A.
(lRSA S.A.),
MAYOR tOMERCIA.LlZADORA lTDA.
Medellin, Calamoi ..
Bogota, Colombia
NIT # 80008288-4
NIT # 811040270-5
Jaime Dib
MORSAAB
DOB 29 Apr 1955
CC 19222380
drd' -..
c.s.,-:·~ -~II
L:
-J
:J
I
KARIAN l TDA.
Bogota, Colombia
NrT # 800231392-5
Bogota, Colombia
NIT It 800166692"1
-
DUAATEX Directors
Max Abilio
LOZANO OSPINA
CC 792448772
,
I
,,..
/4
I'~I
IW~
,
"{AI
5illlio
YEPES VELEZ
DOB 09 Nov 1948
CC 19065009
Gustavo Alberto
PABON ALVARADO
DOB 06 May 1955
CC 79146243
~~;
,~
I
<=>
-""",,-...~
.
I
i
,
Fernando
MALDONADO ESCOBAR
OOB 22 Oct 1962
CC 79266443
INTERNATIONAL NETWORK
KEY INT'L ASSOCIATES
INTERNACIONAl DE PROYECTOS INMOBILIARIA IPI S.A.
Quito, Ecuad()t
RUC # 1791843436001
I"l
GAVlRlA DE MOR
CC 20621292
DURATEX S.A.
Bogota, Colombia
I"l
50rava
MORSAAB
CC 35461535
REAL ESTATE
Medellin, Colombia
NIT # 611046159
I
Liliana
NIT # 800054668,3
COHERCIALIZADORA
MOR GAVIRIA S.A.
Quito, Ecuador
RUe /I. 17918113590()1
COHERCIAUZAOORA
MORDURS.A.
QUito, Ecuador
Rue # 1791315810001
PedlO Enrique
INDA6URU lUENGAS
008 29 Jun 1948
RUC 171901161-9 (£cuador)
PROYECTOS Y SOlUCIONES INMOBIllARlA LTOA.
Jaime
B09ota, Colombia
Bogota,Colombia
NIT "# 800014349-8
MORGAvtRlA
CC 92700929
GA,VIRIA.. MOR Y CIA. L TDA.
Girardot, Colombia
NIT"# 800212771-2
GAVIRIA MEJIA
CC 17163914
.
CC 19074171 (COlOmbia)
------ - - ------- - ---- --- --- - - - ----
.
OVERSEAS TRADING COMPANy
PROYECTOS ¥ SOlUCIONES S.A.
NIT # 800231601-1
FLORIDA SOCCER CLUa S.A.
I ___
-- - ----- - - ----- - ---
:1"';'
.-
•
INVERSIONES MPS S.A.
HOTEL LA (ASCADA S.A.
Girardot, Colombia
NIT # 890601336-8
Jorge Ernesto
CAICEDO ROJAS
DOB 21 Oct 1955
CC 3227987
JJ
TEXTILE
MOR AlFOMBRAS AlFOFlQUE 5.A.
INVERSIONES Y
15~~ 1;,·1
!(::iI
Porlino Miguel
Guatemala City, Guatemala
# 2500971-0. _______ _
CADENA~
VIRAMONTES
DOB 12 Jun 1'95'9
CURP CAUP590612H.1CDRR09
~
GERENClA DE PROYECTQS Y SOLUCIONES LTDA..
Bogota, Colombia
NIT # 800231600-2
Luis Fernando
He OVERSEAS TRADING
COMPANY SA DE CV
Guadalajara, Mexico
.-
ASSOCIATED COMPANIES
AUDITORES ESPECIALIZADOS LTDA.
Bogota, Colombia
NIT # 8300041980-1
ACUIeOLA SANTA CATALINA S."'.
ORIMAR l TOA.
8ogota, Colombia
BDgota, Colombia
HIT # 801076304-7
Nn # 83OOU1809-5
CONSlRUCTORJ. IRAI(A
S."'.
Bogota, Colombia
NIT # 830111113-1
..,
UZZY MUNDO INTERIOR.
Guadalajara, He:arico
nSHING ENTERPRISE
HOLDING. INC.
luis PACHECO MEJIA
D08 18 lUll 1951
RFC PAMl-510618-E07 (Mellico)
INM08ILJUM INVESTMEI'n CORP
P""nama City, Panama
Panama City, Panama
SUPER BOYS GAMES LTOA.
CONSTRUCTORA AMERICA S.A.
C.I. OTlUA flOWERS S,A.
Cajlca, Cundmamarc.a, Colombia
PROHOCIONfS E INVERSIONES LAS PAlM AS S,A.
Bogota, Calombia
8ogota, Colombia
B()Qota, Colombia
NIT " 800207150-5
NrT # 80023602)·5
NIT # 830004047-5
NIT # 831015002-3
I"l
Gl(tria
AQUAMA.RINA ISLAND INTERNATlONA.L CORPORATION
Panama City, Panama
Eh~
cuuy
,'.
8R1SENO I-tAR
Briseno~)
00816 Aug 1965
CURP tf BIMG650816MOGRRl05
Page I ot4
March 28. 2007
HP-331
Remarks of Anna Escobedo Cabral
U.S. Treasurer
U.S. Department of the Treasury
Connected Culture
U.S. Hispanics, Media and Technology
New York- Good aft~rnoon. and special thanks to Yahoo I Telemllildo for inviting
me to this Important Connected Culttne U.S Hispanics. Media and Technology"
research summit event. And thank you Natalie for your killci introduction. It is
always such a pleasure to return to New York. and It is especially gl'eat to Join you
all here today at City University of New York for thiS Important summit
I sincerely do appreciate the opportunity to speak before such a distinguished arld
Innovative group of business leadel's - all of you here today - IIldivlduals who are at
the fOl'efrant of Improving how we use technology to deliver information to so many
households across the country Many of you focus on thiS on a daily basis. striving
to filld new ways to enhance accessibility and delivery of content In a way that can
positively IIllPdCt all people. IIlcludlng the US. Hispanic population Much of this
information IS Informatron people rely on to better manage therr lives and. quite
frankly. help them succeed In every facet of therr life.
You know. one of my favorite parts of being US. Treasurer IS that the position IS
Just so dynamic. Simply by virtue of the high-caliber Individuals I meet with
practically speaking on a daily baSIS. And that IS great because It not only gets me
out of the office a loti Even better. it gets me out of the beltway a loti
I'm sure you all can appreCiate how important that IS to someone in a Job like mine
Because you see. it provides officials In Washlllgton like me with the ability and the
opportunity to meet with a wonderfully diverse group of profeSSionals. Oftentimes.
mllch like today. that includes meeting With small. medium and big bUSiness leaders
- so many IndiViduals like you who are really the dflvlng force hehrnd the Incredible
growth our country has experienced in recent years. despite the many external
challenges we as a people have f<iced. And we have faced some significant
challenges - everything from terrorist attacks on our homeland to natural disasters.
Nonetheless. as a nation we have persevered. overcome challenges. and better
stili. we have managed to grow our country's production level. and grow the number
of available US. Jobs
As I mentioned earlier. our economy IS moving III the right direction and there are
lots of opportunities for Americans. and for many Hispanics liVing In the US In
fact. the US economy has added Jobs for 42 straight months - and more than 7.6
million sillce August of 2003 Those numbers are incredible I
It is of even greater significance when you conSider those numbers within the
context of the results of the Incredible researcil groups like thiS one IS Involved In
The US. HispaniC market IS strong and getting stronger every day Not only has
U S Hispailic unemployment generally decl'eased In recent years. but more
importantly. more U.S Hispanics have become owners of therr own bUSinesses
creating a significant portion of the Job opportunities the economy has created since
2003. And cutting-edge bUSlflesses like the ones preserlt here today have
recognized this. and are responding to the needs and demands of thiS population.
I'm sure everyone is familiar wltll the numbers - for sorne tlille we believed ttlat
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4/6/2007
Page 2 of 4
purchasing power had surged to nearly $ 700 billion and projected to reach S1
tnilion by 2010 - nearly three times the overall national rate However, other
reseal'ch IIldicates Hlat the number may actually be Significantly higher than that.
Add to that the fact that we've also seen recent record breaking lows III the
unemploymellt rate. Right now It'S at a low 4.5 percent These are successes the
HispaniC commuility can be proud of. But the larger question for everyone - not
only HispaniCs - is 110W do we make these numbers count?
That's why all of you are here today - to talk about how you can draw on this
Important market so that everyone benefits. U.S Hispanics are not only purchasing
the goods and services you are promoting - they're also spending money to invest
In bUSinesses, creating wealth and opportunities for others, and putting more fuel
Into our strong econOllllC engille Some great news also revealed by your recent
research IS IIlat Hispanics are tClking advantage of media and technology and the
many available tools - utiliZing them in a way that helps indiViduals to continue
movlIlg forward and attalrling new successes in life.
That is good news from the Treasury's perspective because it proVides us With an
indication that we too III the federal government have began all our education
efforts in the right foot and remain on the right track, panlcularly in terms of
delivering messages on the state of the US economy and provldlllg Imponant
education infolmation regarding a variety of education campaigns and initiatives we
currently work on
THE ECONOMY
For instance, as Treasurer. I also spend a lot of time helping Americans understand
and take advantage of the many resources and benefits our country offers. I also
help my boss, Secretary Paulson, disseminate information about how our economy
is doing.
And quite. frankly, we're doing great! Our economy remains healthy and continues
to grow - 97,000 jobs were created In February alone And as I mentioned earlier,
the U.S. economy in fact has added Jobs for 42 straight months.
Additionally, wages are growing, and Americans are keeping more of their hardearned money thanks In great part to the PreSident's tax cuts. At the same time,
greater economic growttl and lower taxes have actually helped federal revenue
surge as well
The US economy has been reSilient in spite of many challenges But, we've been
successful largely because we've remained flexible In fact. the challenges we've
faced III recent years reflect why it's so imponant to contlllulllg pursuing pro-growth
poliCies that are deSigned to keep our country growing and make our communities
prosperous.
IMPROVING EDUCATION EFFORTS TO FILL THE JOBS OF THE FUTURE
Nonetheless, these economic opponunities may also present us with other types of
challenges. Jobs
today are higher salaried, but they are jobs that demand higher and higher levels of
education The job market has changed from agricultural-based to one that IS
primarily service and knowledge-based
Lack of education in the Latino comrnunity is also a cllallenge for us - we are
currently faclIlg a 50 % drop oul rate In this cOllllllurllly As profeSSionals,
representing all sectors of the economy, we have to remain committed to also
addressing this challenge. Kids won't be successful if ttley don't graduate high
school We need to do more. and all sectors of the economy must work together to
help p~rents and educators keep our kids ,n school and even pursue higher levels .
of education. And we also need to make sure that US HispaniC youth understands
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Page 3 of-+
~he ImpOI-tallce alld tile'. alue of education
The P~JI"SUlt of all c1Clcel'11c alld profess Ollal educa~loll IS Illdeed \'er\ II11pOl1allt
HO\\
el er ' ,,: T reaSur\, \'e
~Iso nailltalll,
'
'h at attalillllq life sKills aild a 'persollal
,
•
n.
tillance educatloll IS also crUCial to securing oile's fl:ture
eCLIcat'on opens nuors I ~no\\ It eld for me
I'm a flrnl believe" that
T~EASUR'y FIN..'..NCIAL EDUCATION EFFORTS
;\s Treasurer, I also klCuS on a pa1IC~I:ar form of educatloll :hat IS Important to all
..'..~1:e~llc~11S _- flil~ncal ecucatloll Toda~ 's fl:1allclal sen Ices marf,et IS IncreaSingly
CL I 'r:.rLatpti alll~ pe,)ple Ileed to understand the baSICS of Illone, manaqe'11ellt and
all of tI'c OptiOI1S al cillai)le to :llel11
'
-
TillS IS I-lartlclilarl) Importel"t especial:. In comlllllnities like t'"le Latillo cOlll1l1unltv, or
other tradltlonall\ Lrrldel ser. ec COrllllunltles, that oftell spelld more money 011 b~SIC
flnalleal SCIYICes 1\ e been qlJoted frequentl\' say Ilig "t costs mOI-e to be poor" ollid It can It costs more If \ OU are -::;e\\ln9 charoed a hlell rate of Interest to casll a
chec~ \\ hen \ OU cOlild clo It fm flee or at a mucl; lo\\er ~ost Just by opeiling a
sal Iflgs aCCOlillt at 3 banK or a Cleel: unlOIl
LUCKII) _ \Olinger ge'lPla:lolls of Latinos are start'ng to reClllze tillS, and are
begl'lnlllg to lise ll'eGllIlllS III-.e the Intemet to open accoLillts, set up savings plans,
allo Illiinage ttlelr blls 011 line \\e are see'ng thiS because younger genpratlolls are
becolllwg more and Illore lechnolo~;ICall\ S31,,\,) , and at the saille tlmc sharlllg that
knowiedge \\Ith Illcmbers of their extended falllilies - \\ltl1 younger and older
generatlollS
That IS \\'h\ at Treasw\ \\e Jre con'llllttec alld focused on ralslllU awareness about
free tools tllat call hel::J opell COOlS for peo::Jie alld enhance their quality of life But.
\\e callilot de tillS alone, and \\'e rei) 011 our ma'l) partners - IIlC udlng our medl3
pal1ne c s III T\ online aild 011 tf'e rZidlO to help us spread tl1ls Important message
J \\allt to sllale \\Ith yOU one of the \\a\s \\e're \\'or"1119 to prol11o:e finanCial
education TmOUgil :Ile FinanCial Llter~K) and Educatloll COlllllllsslon - a IllultlCigelK~ effol-t to e\Cllall~:e ICt'as cll1Cl \\or!.. loget'ler 011111lS Issue - tile federal
901 errlillellt launched a \\ eb site alld tOil-free Ilotllne In Eilgiish and Spalllsil and 1-S88-~.1) UOI18) Tilel-e consumel C3'l fmd Information
about holY to set up a i)udDet a Sa\lllgs plan monltol alld strengtherl their credit
hls~or\, purchase a home, pa" for an education, mlnllll ze the IIsk of becollling an
Identlt\ t'left \'ICtll11 aild more But tillS \\as Just the first step III tile coming yea r _
\\'e pla'n :0 laum:ll a 'lllJlt:llled la PS;:" to Include an online component that will exteno
OL"- reach Ol'on fUI1her In thiS '.\a\ ,\e can draw on tile opportunities ttlat eXisting
and el11el'9"19 tecl'nologles can i'i?I~) Cll1villlCe tile better'llellt of Ollr society
\Ve also \\or'-' on ot'1el- campaigns II~e tile GoDlrect campaign or In Spanish
"DlreclO ,tI. Su Cuellta" to "lUll\ a:e Iro:'e feceral beneflt recipients to sign up for
direr: depOSit \\'e e\'ell Il:3\e a Spalllsl': web slteAnd \\e also tf\ to ecucate folks about tax credits :he" ma) be eligible for like tile
'Eal-ned ,Ilcollie Tax Creolt" for mall\ eilglble 1I1olliiduais WllO eam S38,OOO or less
aild Illee: other qualification leculrements T'1e EITC program IS also featured on
the
\leb site and P'O\ Ides COllsumer II'fOIl'l.3tlon III Spall Ish TlllOlIC]ll
tele\ ISlon and radiO Illter', le,\ S cOll;:Jied \',Itll detailed Infcrmaton \Ia the Inte-net.
U S Hispanics, EI'91:sI1- and Spailish-langliage spea"ers are acce,sslng tile :ools
that can e'11pO\\el tllelll cWl~ In~OI-o\e tllel' Il\es - 3 11d :helr families lives
CONCLuSION
"at I~"
'\' h\ I "1
'Ill. '~Il(' applaud all of \ Oll fo: partlc PCltlllq III :lllS
,n 1 \ " " ,
A ilC so aqall'' t"
lee'"G I"'~'-;l'rs
I,"e so 1l1all\of'\Oll Ir, Oel l COmlllullltlesI and 1'1
researc I1-SUlllllll,t \\'e
"I
Lol,
.'
e\ er\ Industr, YOLI ali C,ln ilelp leac tile \\'CI\ to greate" OPP01l:lllt l es for al
'
' I ' 10 HIC;"'I-,~-;:"'rerrcaIlS
;:""C 01 :l1e same t,ne,
le,a p tl1e
_1-"
L
, ' _,
,~
_, ,
_
A lllel-ICcWS - IIlC L1ell _,
hllC;1'l '><;c; pile of :hillCS Tile J S H:::;f',ll Ie, ll1al "pt Ilcl;-,
benefits 0 f d Olllg so on the , - t : , . '
-
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.f
6 2007
Page 4 of 4
truly become a market force to be reckoned with not only In terms of Its population
numbers or PUI-cllasing power It IS also so. by Its breadth of professional diversity
alld its growing ability to Influence tile political process and business landscape
But I also applaud you for your success in helping to fuel our economy, and also for
fueling the dreams of so lTlallY young professionals and entrepreneurs you serve as
a role model for and tilat you melltor
I learned a long time ClgO when I first arrived in Washington that the federal
government can only do so much alone. We need to calion the expertise and ttle
good efforts of the private sector. non profits organizations, communities. and
IIldivldlials and wOI-k together to make a difference. No matter what differences In
opinions people have. one thing IS almost always true - we all want to enhance
qllrliity of life for future generations I think we're at least head In the right direction
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4/6/2007
Page 1 of6
March 28. 2007
HP-332
Testimony of Treasury Secretary
Henry M. Paulson, Jr.
Before the U.S. Senate Appropriations Subcommittee on
Financial Services and General Government
Washington, DC- Chairman Durbin, Senator Brownback. and Members of the
Subcommittee Thank you for the oppoliunity to appear before you today to discuss
the Presldpnt's Fiscal Year (FY) 2008 Budget for the Department of the Treasury
I am pleased to be here today to provide an overview of the President's Budget for
Treasury In FY 2008. The President's FY 2008 Budget reflects the Department's
budget priorities and dedication to promoting economic growth clild opportunity,
strengthening national security, and exercising fiscal discipline.
The S; 12 1 billion request focLises resources on key programs necessary to promote
economic growth, fund the actiVities of the federal government and effectively fight
the war on terror. The request is $523 million above the amount provided by the FY
2007 funding level. a 4.5 percent increase. By collecting the revenue due to the
federal government and working to reduce illicit threats to the financial system, the
Department of the Treasury contributes to the financial IIltegrity of the United
States
Treasury has a primary role as steward of the US economic and financial systems,
incillding the role of the U.S. as an IIlfluentlal partiCipant in the international
economy. Treasury promotes finanCial and economic growth at home and abroad.
Treasury also performs a critical and far-reaching role in national securrty. The
Department battles national security threats by coordrnatlng financial intelligence,
targeting and Imposing sanctions 011 supporters of terrorrsm, narcotics traffickers,
and prollferators of weapons of mass destruction, Improving the safeguards of our
financial systems, and promoting International relationships to combat the finanCial
underpinnings of terrorist and other criminal networks.
Managing these complex tasks requires expanded capabilities. Fully funding the
PreSident's FY 2008 Budget request will allow the Treasury Department to continue
and Improve its ability to study, recommend. and support initiatives that strengthen
the U S. economy, create more jobs for Amerrcans, and enhance citizens'
economic security. The Depaliment will actively work to protect ttle security of
pensions, reform SOCial Security, and Improve the federal income tax system by
proViding timely, usable, and comprehenSive analyses that advance the poliCY
process.
Promoting Economic Growth, Security and Opportunity
The Treasury Department works diligently to fulfill its role as the Administration's
chief econOllllC adVisor We strive to prOVide the PreSident With the best Information
available Oil a broad range of domestic and Irltematlonal economic issues.
Treasury's Offices of International Affairs. Tax Policy. Economic PoliCY. and
Domestic Finance support thiS role through the prOVISion of technical analYSIS,
econOllllC forecasting, and policy gUidance on issues ranging from federal financing
to respondrng to International finanCial crises. The Treasury Department supports
poliCies IIlat stimulate US economic growth, strengthen and modernize entitlement
programs, and minimize regulatory burdens whlie ensuring ttle safety and
soundness of finanCial institutions
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4/6/2007
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The FY 2008 Budget request funds Treasury's efforts to promote domestic and
International economic growtll through financial diplomacy Treasury stimulates
economic growth and Job cr-toatlon by working to open trade dnd Illvestment
encouraging growth In developing countries, and promoting responsible pol:cles
regardlllgintemational debt, finance, and economiCs. Treasury supports trade
liberalization and budget dlsclpllrle througll Its role in negotiating and Implementing
International agrecments pertalnlllg to export subSidies. Tllese agreements open
markets, level tile playing field for US exporters, and prOVide effective subsidy
reductions 1I1at save tile U.S taxpayer millions of dollars annually. Since 1991,
cumulative budget siwings from these arrangements are estllllateci at over $10
billion The gmwth of these activities makes it necessary to enhance poliCY
coordination and resources tllrougll the addition of regional experts. Treasur"y's FY
2008 Budget requost prOVides adelltlonal staff to support key poliCy dialogues
around the globe These experts Will enhance poliCy coordination on International
mattcrs and will sLlp[.lOrt key poliCY dialogues With Priority countnes like China
Treasury also remains committed to protectlllg the homeland from international
IIlvestments that lTlay threaten our nalional security The Committee on Foreign
Investment In the United States (CFIUS) IS an interagency group responSible for
Investigating the national secunty Implications of the merger or acqUisition of US
companies by foreign persons. One of my key responsibilities as Secretary IS to
chair thiS committee, and to make sure that the mteragency CFIUS process
performs as effiCiently iJS possible As foreign investment in the United States has
increased. so has ttle number of cases reViewed by CFIUS As a result, the FY
2008 Budget request provides additional resources to support Treasury's
investigations of foreign Investments
The PreSident's FY 2008 request for Treasury also Includes $28.6 million for the
Community Development Financial Institutions (CDFI) Fund. CDFI Fund's miSSion
is to expand the capacity of flllancial institutions to provide credit, capital, and
finanCial services to unclerserved populations and communities in the United States.
In order to ensure that the CDFI program continues to operate in the most effiCient
and effective manner, Treasury is proposing to phase out the CDFI Bank Enterprise
Awards (BEA) program In 200El. There IS no evidence that the BEA program
improves economic development, and we believe that the program's goals are
better served through other CDFI Fund actlvltJes.
Strengthening National Security
The sponsorship of terroriSIll and potential acquiSition of weapons of mass
destruction (WMD) by rogue regimes and non-state entities represent grave threats
to U S national security and ttle secunty of all free and open societies. Terrorists,
WMD proliferators and other non-state threats require support networks through
which money and material flow. The Treasury Department elraws on finanCial and
other all-source intelligence, and also works to utilize its unique regulatory and law
enforcement authorilies, to combat national security threats and safeguard the
flflanClal system.
The Department's Office of Terrorism and FinanCial Intelligence (TFI) prOVides
finanCial Ifltelligcnce analysis, develops and implements systems to combat money
laundering and terrorist finanCing, administers the Bank Secrecy Act. and
administers and enfOices the U S Government's economiC sanctions programs.
Treasury exercises a full range of intelligence, regulatory, POliCY, and enforcement
tools in tracklflg and disrupting terronsts' support networks, prollferators of weapons
of mass destruction, rogue regimes, and Internatlonalnarco-trafflckers, both as a
vital source of Iflteiligence and as a means of degrading their ability to function
Treasury's actions include
•
•
•
Freezing the assets of terrorists, prollferators, drug klflgplIlS, and other
criminals and shutting down the channels tllrough which they raise and
move money.
. .
Cutllng off corrupt foreign Jurlsdlc\Jons and finanCial Institutions from the
US fmanclal system,
.
Developlflg and enforclllg regulations to reduce terrorist flllanCI[lg and
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4/6/2007
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money IClulldering,
•
•
Tracmg and repatrlatlllg assets looted by corrupt foreign officials: and
Promoting J meanlflcjful excllange of Information with the private fillancial
sectol to help detect and address threats to Hle finanCial system
Tile FY 2008 Prcsldenrs Budget will enable Treasury to enhance these capabilities
Tleasury requests funding for II1vestments to furHler the Department's national
security miSSion In three Critical areas First, thiS budget, if enacted, Will enable
Treasury to expand ItS capacily to Identify potential national security threats and to
enforce US poliCies to counter those threats, Next, Treasury will enhance the
lrlformatlon technology and physicalillfrastructure of TFI and Its component
bureaus and offices to Improve data security, access, and l1uality. Finally, the
Budget would prOVide funds to help integrate TFI's Office of Intelligence AnalySIS
Into the broader Intelligence Community
Specifically, thiS request Includes an additional $53 million to respond to emerging
national security threats, prOVide strategic policy coordination in regions key to the
fight agamst terrorist finanCing, and to enhance Implementation of sanctions against
state sponsors of terronsm and WMD proliferation. The request also includes $8.1
million for Infrastl'ucture and information technology prOjects to enhance data
access, secunty, and quality, Including construction of a Sensitive, Compartmented
tnformatlon FaCility (SCI F), st3billzatlon and malrltenance of the Treasury Foreign
Intelligence Network, and the Critical Infrastructure Protection program Finally, $1
million IS requested fOI Initiatives to further Treasury's integration Into the broader
intelligence community.
The Firlancial Crimes Enforcement Network (FlnCEN) IS respollslble for
admlrllstering the Bank Secrecy Act (BSA). The FY 2008 Budget request provides
funding to strengthen recovery capability for mission-critical Information technology
systems Clnd emergency operation capabilities; and improve information technology
planrllng and oversight
Managing U.S. Government Finances
The Treasury Department manages the nation's finances by collecting money due
the United States, making ItS payments, managing ItS borrOWing, Investing when
appropnate, and performmg central accountlllg functions. Key priorities Irl managing
the government's finances Include maxlmizlrlg voluntary compliance With tax laws
and regulations, continually Improving flrlanclal management processes, and
flrlancing the government at the lowest pOSSible cost over time. The FY 2008
Budget request prOVides the funding necessary to properly administer these
functions
Co/lectmg Taxes
Collecting taxes in a fair and consistent manner is a core misSion of the Treasury
Department. Treasury's priorities in tax administration are enforclllg the ni'ltion's tax
laws fclJrly and efficiently wllile balancmg taxpayer service and education to promote
voluntary compliance and reduce taxpayer burden, In an effort to maXimize tax
compliance, the FY 2008 Budget Includes $11.1 billion for the IRS, which IS all
increase of $498 million above the amount prOVided In the FY 2007 funding levels
The FY 2008 Budget request provides fundlrlg to enhance coverage of high-risk
compliance areas, as well as to address the tax gap, which represents the annual
difference between taxes owed and taxes collected, Including a multi-year research
effort that will prOVide continuous feedback on noncompliance Enforcement will
focus on critical reporting, fllmg, and payment compliance programs, and highlight
abusive tax avoidance transactions arld high income indiVidual examlrlatlons
Irlvolvlng pass-through entities (e.g., partnerships and trusts). The IRS will also.
continue to reengineer ItS exalllillation and collection procedures to reduce audit
time, Illcrease yield, and expand coverage As III FY 2006 and FY 2007, the
Administration proposes to include IRS enforcement Increases as a Budget
Enforcement Act program Irltegrity cap adjustment.
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4/6/2007
Page 40[6
The IRS will continue efforts to Improve services offered to taxpayers. primanly
focuslllg on those outside of traditional telepilone access For example. the FY
2008 request provides fundlllg to expand the Volunteer Income Tax Assistance
program The IRS Will olso Implement tile Taxpayer Assistance Blueprint, a five
year strategic plan to deliver taxp8yer service: a collaborative effort of the IRS the
IRS OverSight Board. and tile National Taxpayer Advocate
.
Fillally. the FY 2008 request Will allow the IRS to make critical IT Infrastructure
upgrades IRS will continue to Invest In technology, process Improvements, and
tramlllg to achieve conSistent quality service With reduced costs. The Budget 81so
Includes fUllctlllg for the IRS's BUSiness Systems Modernization program. which IS
deSigned to provlcle IRS eillployees the tools they need to continue to administer
and Improve both service and enforcement programs.
The PI-esldent's Budget also includes a number of legislative proposals intended to
Improve tax compliance With minimum taxpayer burden. Once Implemented, It IS
estimated that proposals Will generate $29 billion over ten years. These proposals
are presented In detail In the FY 2008 Department of the Treasury Blue Book. The
legislative proposals felll into four categories: expand information reporting, Improve
compliance by busmesses. strengthen tax administration. and expand penalties.
Treasury's Alcohol arid Tobacco Tax and Trade Bureau also collects excise taxes
on alcollOl, tobacco, firearms. and ammunition. In FY 2006, the Bureau collected
$148 billion in excise taxes, Interest, and other revenues on these products and
also regulates the manufacture of alcohol and tobacco products
Ensurmg Efficient Fiscal Service Operations
The FY 2008 Budget request prOVides the funds necessary for Treasury to meet ItS
responSibilities as the federal government's financial manager
Treasury's management of the federal government's finances includes making
payments, collecting revenue. preparing publiC fmanClal statements and collecting
delmquent debt owed to the federal government through the FinanCial Management
Service (FMS) Treasury oversees a daily cash flow in excess of $58 billion and
disburses 85 percent of all federal payments The Department is working to improve
its payments and collections processes by moving toward an ali-electronic
Treasury In FY 2006. Treasury issued 742 million electronic payments including
income tax refunds, Social Secunty benefits, and veterans' belleflts. Treasury is
also encouraging SOCIal Security and Supplemental Security Income reCipients to
SWitch to Direct DepOSit througll tile Go Direct campaign. Direct DepOSit represents
a cost savlllgs to the federal government, and consequently to the American
taxpayer, of 80 cents per transaction compared to a check payment.
Treasury's Bureau of the PubliC Debt manages all of the public debt. which IIlcludes
marketable seCUrities. savings bonds, and other Instruments held by state and local
governments. federal agencies. lorelgrl governments, corporations, and indiViduals.
To Improve debt management and offer better customer service, Treasury offers
TreasuryDllect, an electronic, web-based system that electronically Issues
securities to retail customers and enables mvestors to manage thell accounts onIme.
The Budget also includes thlee legislative proposals for FI'v1S that are estimated to
save the federal government over $3 billion over ten years These proposals will
allow the government to trace and recover federal payments sent electronically to
the wrong account, elllllinate the ten-year lilllitation 011 the collection of delinquent
non-tax federal debts, and remove the dismcentive for the IRS to refer tax debts to
FMS for collection
Strengthening Financial Institutions
One of the plillclpal objectives of the Treasury Department IS to enable commerce
The Department is responSible for the safety and soundness of national banks and
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4/6/2007
Page 5 of6
federally-chartered savings associations. The Treasury Department also produces
the cOins and clIrr-ency needeu for commerce, and guards against counterfeltlllg
anu other misuse of our mOlley While the Office of the Comptroller of the Currency
(OCC), the Office of Hlrift SupervIsion (OTS), Hie U S Mint (Mill!), and the Bureau
of Engravln~J alld PrrntlllD (BEP) are funded through ellrect annual appropriations,
1I1ell- contll\}utlon to TrcaslIlY's mission cannot be understated
Treasury, through OCC clild OTS, maintains the Ilitegrity of the financial system of
the United States by chartertll~, regUlating, Jnd supervIsing Ili:llional banks and
savings aSSOCiations. In FY 2006, OCC and OTS oversaw financial assets held by
these fillalicial IIlstltutlons totalllig $81 trrilion
The Millt and BEP are responsible for prodUCing the nation's COIilS and currency,
lespectlvely III FY 2006, tile MinI and BEP produced 16.2 billion cOins and 8.2
billion paper currency notes, respectively. The Mint Issued five new quarters for the
50 State Quarters program and BEP IIltroduced the new S10 currency note Into
Circulation Also, despite Significant Increases III the price of metals. the Mint was
able to relum 5750 million to tile Treasury General Fund In FY 2006
Managing Treasury Effectively
Treasury IS committed to uSlllg the resources provided by taxpayers in the most
efficient manner pOSSible The Department Will drive Improved results through
deCision-making that conSiders performance and cost. The Treasury Department
strrves to serve Its stakeholders In the most effective way while working to leverage
resources across tile Depaliment and across government
Funding requested III Treasury's Departmental Offices and Department-Wide
Systems and Capital Investments Program (OSCIP) is sought for building a strong
Information technology Infrastructure, ensurlllg that Treasul-y remains a world-class
organization that meets the PreSident's standard of a cltlzcn-celltered, resultsoriented govel-nmcn!.
The DSCIP account funds technology IllVestments to modernize busilless
processes throughout Treasury, helping the Department improve efficiency. In FY
2008, Treasury requests $18.71 million for ongoing modernization and critical
IIlformatlon technology infrastructure projects. and for Investment III other new
technologies that Will Improve effiCiency and service to the American people. The
budget request Includes
•
•
•
$6 million to begin work on a TI-easury-wide Enterprise Content
[Vlanagement System The IIlltlal system will meet the business
requirements of tile Office of Foreign Assets Control and the Financial
Crimes Enforcement Network:
$2 million for the continued stabilization of the Treasury Secure Data
Network: and
S4 million to Improve Treasury's FISMA performance, strengthen the
Department's overall security posture, leveraging the PreSident's
Maila~elllent Aoenda, Illcluding the E-Government Illitiatives, across the
Department.
TillS budget request also includes funding for tile Office of the Inspector General
and the Treasury Inspector General for Tax Administration These offices play
Important overSight mles In the overall management of the Department and the fair
admlllistration of the nation's tax laws
Conclusion
Mr Chairman, thank you again for the opportunity to corne here today to diSCUSS
With you and the Committee the PreSident's FY 2008 Budget request for Treasury
look forward to working With you and the members of the Committee In ensunng
that Treasury lllaXimlZ~s ItS I-esources and fundmg so that the American people can
be assured that their- tax dollars are being used In the most effcctlve way pOSSible I
http://www.treas.gov/pressfreleaseS/hp132.htm
4/6/2007
Page 6 of6
would be more than happy to answer any questions
http://www.treas.gov/pressfreleaseSlhp332.htm
4/6/2007
Page 1 of 1
March 29, 2007
HP-333
Steel Statement on House Committee Passage of GSE Reform Bill
Washington- Treasury Under SecretClry for Domestic Finance Robert K. Steel
Issued the followed statement todLlY following the passage of H. R 1427 to reform
the regulatory oversight of the housing government sponsoreci enterprises
"The swift action of ttle House FinanCial Services Committee this year has
demonstrated that refornllrlg the overSight of the government sponsored enterprises
IS a pnonty. The legislation pClssed today creates a strengthened GSE regulator
with the necessary tools to ensure that the GSEs operate in a safe and sound
manner and support tlleir houstrlg mission
"We commend Chall-man Frank for leading the Committee toward a well-craned,
blparl1san bill. ThiS bill IS the result of considerable cooperation and the sum of its
parts is a sound step towClrd reform We look forward to continUing to work In a
constructive manner as the bill moves forwClrd "
http://www.treas.gov/pressfreleaseS/hp333.htm
4/012007
Page 1 of2
March 30, 2007
HP-334
Treasury Designates Ten Individuals and
Entities
for Their Contributions to the Conflict in
the
Democratic Republic of Congo
Washington, DC-- Tile U S Department of Treasury announced today that the
Office of Foreign Assets Control (OFAC) has identified seven companies and three
IndiViduals, listed below, as subject to sanctions pursuant to Executive Order (EO)
13413, willch targets, among others, indiViduals and entitles determined to have
supplied cHillS contributlllg to the conflict In the Democratic Republic of the Congo
(DRC) or having provided support to armed militias or the leaders of foreign armed
groups operating in the DRC
"These Individuals and flrills trafficked In plundered gold and arills at the cost of
human lives," said Adam Szubin, Director of the Office of Foreign Assets Control.
"We are taking action In concert With the U.N Security CounCil to disrupt their
actiVities and to stem the Violence In the Democratic RepubliC of the Congo"
Three of \tIe designated firms have been found to be owned or controlled by, or
actlllg for or on behalf of, Viktor Bout, an International arms dealer and war profiteer
who was named in the Annex to EO 13413 on October 27,2006. ThiS deSignation
continues OFACs efforts to disrupt ttle Involvement of the Bout network, olle of the
largest illicit arms-trafflckllig networks in the world, III conflicts in the ORe and
elsewhere. Two of the cOlllpanles deSignated today, Compagnie Aerienne des
Grands Lacs and Great Lakes Buslfless Company, have been Identified by the UN
and other observers as being suppliers of weapons and ammunition to warring
factions III the ORC Another firm, Cargo Freight International. is IIlcluded in this
desigllatlon for ItS role as a holding company for some of Bout's assets in the
region.
The other four firms, along Wltti two of the three deSignated individuals, are
designated for their respective roles III supporting armed groups In the ORCs
eastern provinces dUring the war. Butembo Airlines and Congocom Trading House
are owned or controlled by Karnbale Klsoni, a Congolese gold trader whose
provision of various types of support to these armed groups, In Violation of tile
International arms embargo Imposed on waITIng parties in the ORC conflict, has
been documented and reported by the UN and otlier outSide observers. Another
Congolese gold dealer. DieudolHl8 Ozia MelllO, IS being deSignated for hiS role In
similar activity. Uganda's two IJrgest gold exporting firms, Uganda Commercial
Impex alld Machanga Ltd . are being deSignated for purchasing gold from
designated Congolese gold dealers such as Klsonl ano OZla Ma7io, as well as for
prOViding direct finanCial support to the militias.
Straton Musonl, the fill a I indiVidual deSignated, IS the First Vice-PreSident of the
Forces Democratiques pour la Liberation du Rwanda (FDLR), which IS largely made
up of Hutu extremists who participated In tile 1993 Rwandan genocide. Musonl IS
being named because of hiS role as a leader of the FOLR. WhlC11 has Impeded the
disarmament, repatriatloll, or resettlement of combatants In tile ORC
Today's action freezes any assets of the deSignated persons that are Within U S
Jurisdiction and also prohibits any transactions between U S persons and the
deSignated pel-sons and enlitles
http://www.treas.gov/pressfreleases/hp334.htm
4/6/2007
Page 2 of2
These ten new names bnng the total number of individuals and entities designated
under EO 13413 to 17.
This action IS taken In coordination with yesterday's (March 29 2007) designation
by [tle UN of eight of tile above-named individuals and entities pursuant to various
UN Security Council Resolutions. The UN IS not Ilstll1g Cargo Freight International
elt ttllS time, willie OZIO Mazlo has been previously listed by the UN
4/6/2007
http://www.treas.gov/pressfreleases/rp334.htm
Page I of I
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Marcil :30, 2007
Hp·335
U.S .. Brazil Sign Tax Information
Exchange Agreement
Wi1S11111C]tC)Il, DC .. Tile TICClsllry Depilrtll1ent today anllOunced tilat Clifford M
Sollel. U S AI1111assdcJor to Brdlll, ilrld Jor~Je RacillCJ, Secretary of the Recelta
Federal of Briml, slc]rled d Tdx Illforrnation Exchall~Je Agreement (TIEA) between
the two COLJr1tm;s In BI'dSillCl on Milich 20, A copy of tile SI(j1l8(i TlEA allci joml
clec/d/elll()1l IS iillil('/)(:(I
The agreemerlt establlslws the means by which the tax authorities of the United
States cll1d BraZil may exchdllcle Information for the purpose of facilitating the
aclmlilistratlc)ll of iJoth cOlilltrlPs' t;1X systems
"The Uilited States and Brewl dre very Interested 111 bUlldlllg 011 the progress
eilibodled IJY the TIEA," said Ambdssador Sobel "Both countries ale committed to
worklrlg togethel to try to flneJ ways of reaclllllg our ultimate objective of overcornlllg
the tax poliCy dlfferellcE;s that Ili]Ve preventeel tile cOllcluSlon of a bilateral tax treaty
III the past"
The Governmellts of both COlllltrles hope that the signing of the TIEA Will be the
first step to developlllg a deeper bilateral tax relationship betweell the United States
and BraZil The Treasury Department allel the BraZilian Secretarra da Recelta
Federallilitiated Illforrnal ellscusslons In 2006 to exchange views on a Iluml}er of
aspects of tax \r'eaty POliCY, Including trallsfer pricing, perrnanellt establlshmellt. the
taxatloll of Illcorne from services awl mutual agreernellt procedures
REPORTS
•
•
US, BraZil Tax Infolmatlon Exchange Agreement
US. Bl'azll TIEA JOint Declaration
http://www.treas.gov/pressfreleases/hp!335.htm
46.2007
AGREEMENT BETWEEN THE GOVERNMENT OF THE UNITED STATES OF
AMERICA AND THE GOVERNMENT OF THE FEDERATIVE REPUBLIC OF
BRAZIL FOR THE EXCHANGE or INfORMA T/ON RELATING TO TAXES
Whereas the Government of the United States of America and the Government of the
Federative Republic of Brazil ("the parties") wish to establish the terms and conditions
governing the exchange of information relating to taxes;
Now, therefDre, the parties have agreed as follows:
ARTICLE I
SCOr}E Of THE AGREEMENT
The parties shall provide assistance through exchange of information that may be relevant to
the administration and enforcement oflhe domestic laws orthe parties concerning the taxes
covered by this Agreement, including information that lllay be relevant to the determination,
assessment, enforcement or collection of tax with respect to persons subject to such taxes, or
to the investigation or prosecution of criminal tax matters. The parties shall provide
assistance through exchange of information on request pursuant to Article V and in such
additional forms as may be agreed upon by the competent authorities pursuant to Article X,
in accordance with the terms of this Agreement.
ARTICLE II
JURISDICTION
Information shall be exchanged in accordance with this Agreement by the competent
authority of the requested party without regard to whether the person to whom the
information relates is, or whether the information is held by, a resident or national of a party.
ARTICLE III
TAXES COVERED
I. This Agreement shall apply to the following taxes imposed by the parties:
\a) in the case of the United States of America:
(i)
(ii)
(iii)
(iv)
federal
federal
federal
federal
income taxes;
taxes on self-employment income;
estate and gift taxes; and
excise taxes;
(b) in the case of the Federative Republic of Brazil:
(i)
(ii)
(i i i)
(iv)
(v)
(vi)
( vii)
individual and corporate income tax (IRPF and IRPJ, respectively);
industrialized products tax OPI):
fll1ancial transactions tax (IOF):
rural property tax (ITR);
.
contribution for the program of social integratiOn (PIS);
social contribution for the financing of the social security (COFINS); and
social contribution on net profits (CSLL).
2. This Agreement shall apply also to any identical or substantially similar t~xes i~posed ..
after the date of signature of the Agreement l!1 additIon to or III place?t the eXlstll1~ ~a~esr If
the parties so agree. The competent authority of each party shall notIfy the other of changes
in laws which may affect the obligations of that party pursuant to thiS Agreement.
3. This Agreement shall not apply to the extent that an action or ~roceeding ~once~ning
's Agreement is barred by the reljucstll1g party s statute of limitations.
taxes covered by thl
4. This Agreement shall not apply to
ta~es imposed by states, municipalities or other
political subdivisions, or possessions ot a party.
ARTICLE IV
DEFINITIONS
1. In this Agreement:
"competent authority" means, for the United States of America, the Secretary of the
Treasury or IllS ~e1egate, and for the Federative Republic of Brazil, the MlI1ister of Finance,
the Secretary ot Federal Revenue, or their authorized representatives;
"criminal tax matters" means tax matters involving intentional conduct which is liable to
prosecution under the criminal laws of the requesting party;
"c,riminal laws" means all criminal laws deSignated as such under domestic law, irrespective
of whether contained in the tax law~, the criminal code or other statutes;
"information" means any fact, statement, document or record in whatever form;
"information gathcring measures" means judicial, regulatory, criminal or administrative
procedures enabling a requested party to obtain and provide the information requcsted;
"information subject to legal privilege" means information, which would reveal confidential
communications between a client and an attorney, solicitor or other admitted legal
representative where such communications are produced for the purposes of seeking or
providing legal advice or produccd for the purposes oruse in existing or contemplated legal
proceedings;.
"national" means:
in the case of the United States of Amenca, any lI1dividual who is a citizen or
(a)
national of the United States of America, and a person other than an individual deriving its
status as such from the laws in force in the United Stales of America or any political
subdivision thereof;
in the case of the Federative Republic of Brazil, any individual possessing thc
(b)
Brazilian nationality and any legal entity or any other collective entity deriving its status as
such from the laws in force in the Federative Republic ofI3razil;
"person" means a natural person, a company or any other body or group of persons;
"requested party" means the party to this Agreement which is reljuested to provide Dr has
provided information in response to a request;
"requesting party" means the party to this Agreement submitting a request for or having
received information from the requested party;
"tax" means any tax covered by this Agreement.
2. For purposes of determining the geographical area within which jurisdiction to compel
production of information may be exercised, the term "United States of America" means the
United States of America, including Puerto RICO, the Vlrgm Islands, Guam, and any other
United States possession or territory.
3. Anv term not detined in this Agreemcnt, unless the context otherwise requir~s or the
comp~tent authorities agree to a common meaning pursuant to the prOVIsions of Article X,
shall have the meaning which it has under the laws of the partyapplymg thiS Agreement,
any meaning under the applicable tax laws orthat party prevaJllllg over a mean1l1g given to
the term under uther laws of til at party.
3
ARTICLE V
EXCHANGE OF INFORMATION UPON REQUEST
I. The competent ~uthority o!' the requested party shall provide upon request by the
requestlllg party II1torn13tlon tor the purposes referred to in Article L Such information shall
be exchanged without regard to whether the requested party needs such information for its
own tax purposes or the conduct being investigated would constitute a crime under the laws
of the requested party ifit had occurred in the territory of the requested party, The
competent authority of the requesting party shall only make a requt!st for information
pursuant tll this Article when it is unable to obtain the requested information by other means,
except where recourse to such means would give rist! to disproportionate difficulty.
2, (fthe information in the flossession of the competent authority of the requested party is
not sufficient to enable it to comply with the request for information, the requested party
shall take all relevant information gathering measures to provide the requesting parly with
the information rt!quested, notwithstanding that the requested party may not, at that time,
need such information for ils own tax purposes. Privileges under the laws and practices of
the requesting party shall not apply in the execution of a request by the requested party and
such matters shall be reserved for resolution by the requesting party,
3, If specifically requested by the competent authority of the requesting parly, the
competent authority of the requested party shall, to the extent allowable under its domestic
laws,
(a)
specify the time and place for the taking of testimony or the production of books,
papers, records, and other tangible property;
(b)
place the individual giving testimony or producing books, papers, rt!cords and other
tangible property undt!r oath;
(c)
permit representatives of the requesting party's cOlllpdt!nt authority (i,e" government
officials) to be present in the offices of the requested party's tax administration during the
pertinent part of a tax examination and to verify documents, registers and other relevant data
with respect to such exam ination;
(d)
provide ofticials permitted to be present with an opportunity to qut!stion, through the
executing authority, the individual giving testimony or producing books, papers, records and
other tangible property;
(e)
obtain original and unedited books, papers, and records,_and other tangible property,
including, but not limited to, information held by banks, other h~ancral II1stltutlons, and any
person. including nominees and trustt!es. acting in an agency or fidUCiary capacity;
(0
obtain or produce true and correct copies of original and unedited books, papers and
records;
(g)
determine the authenticity of books, papers" records and other tangiblt! property
produced, and provide authenticated copies of ongillal records;
(h)
examine the individual producing books, papers, records and other tangible property
regarding tht! purpose for which and the manner III which the Item product!d IS or was
maintained;
(i)
permit the competent authority of the requesting party to proVide written questions to
which the individual producing books, papers, rt!cords and otht!r tanglhlt! proper!) IS to
respond regarding the itt!m produced;
0)
obtain information regarding the ownership of companies, partnerships, trusts,
t,ound.atlOns a~d ~th~r persons: ownership information on all such persons in an ownership
<.:I~a.lI1, III the l:asl.: ~t trusts, 1ll10nnation on settlors, trustees and beneficiaries; and in the case
01 tOl~ndatlOns, mlormation on founders, members of the foundation council and
benefiCiaries. Further, tl:is Agreement does not create an obi igation on the partlcs to obtain
or provldeo\Vnerslllp l!ltonnation with respect to publicly traded companies or public
collective Investment lunds or schemes, unless such information can be obtained without
giving rise to disproportionate difficulties;
(k)
perform any other act not in violation of the laws or at variance with the
administrative practice of the requested party;
(I)
certify either that procedures requested by the competent authority of the requesting
party were followed or that the procedures requested could not be followed, with an
explanation of the deviation and the reason therefor.
4. Any request for information made by a party shall be framed with the greatest degree of
specificity possible. In all cases, such requests shall specity in writing the following:
(a) the identity of the taxpayer whose tax or criminal liability is at issue;
(b) the period of time with respect to which the information is requested;
(c) the nature of the information requested and the form in which the requesting party would
prefer to receive it;
(d) the reasons for believing that the information requested may be relevant to tax
administration and enforcement of the requesting party, with respect to the person identified
in subparagraph (a) of this paragraph;
(e) to the extent known, the name and address of any person believed to be in possession or
control of the information requested;
(t) a statement as to whether the requesting party would be able to obtain and provide the
requested information if a similar request were made by the requested party;
(g) a statement that the requesting party has pursued all reasonable means available in its
own territory to obtain the information, except \Vhere that would give rise to
disproportionate difficulty.
ARTICLE V[
TAX INVEST[GATIONS ABROAD
I. By reasonable notice given in advance, a party may request that the other party allow
officials of the requesting party to enter the territory of tile requested party, to the ~xtent
permitted under its domestic laws, to interview Illdividuals and examille records With the
prior written consent of the individuals concerned: Th~ competent authonty of the.
requesting party shall notify the competent authonty 01 the requested party of the time and
place of the intended meeting with the Illdlvlduals concerned.
2. At the request of the competent authority of the r_equesting party, the competent authority
of the requested party may permit representatives of the com~etent authonty 01 the
requesting party to attend a tax examination in the territory ot the requested party.
3. If the request referred to in paragraph 2 is granted, the competent authori,ty of the
t d rt conducting the examination shall, as soon as pOSSIble, notify the competent
reqhues e Pfa hY
t'
party of the time and place of the examination, the official in the
aut ant yo t e reques Illg
_
5
~equested party responsible for can'ying out the examination, and the procedures and
cond~lons ;equlred by t1~e requested party for the conduct of the examination. All decisions
regar Ing t le conduct 01 the examination shall be made by the requcsted partv conductlllg
the eXalllll1atlOn.
ARTICLE VII
POSSIBILITY OF DECLINING A REQUEST
I. The competent authority of the requested party may decline to assist:
(a) where the request is not made in conformity with this Agreement;
(b) where the requesting party has not pursued all means available in its own territorv to
obtain the information, except where recourse to such means would give rise to
•
disproportionate difficulty; or
(cl where the disclosure of the information requested would be contrary to the public policy
ot the requested party.
2. This Agreement shall not impose upon a party any obligation:
(a) to provide information subject to legal privilege, nor any trade, business, industrial,
commercial or professional secret or trade process, provided that information described in
Article V (J)(e) shall not by reason of that fact alone be treated as such a secret or trade
process:
(b) to carry out administrative measures at variance with its laws and administrative
practices; or
(c) to supply information requested by the requesting party to administer or enforce a
provision of the tax law of the requesting party, or any requirement connected therewith,
that would discriminate against a national ofthe requested party. A provision of tax law, or
a connected requirement, shall be considered to be discriminatory against a national of the
requested party if it is different or more burdensome with respect to a national of the
requested party than with respect to a national of the requesting party in the same
circumstances. For purposes of the preceding sentence, a national of the requesting party
who is subject to tax on worldwide income is not in the same circumstances as a national of
the requested party who is not subject to such taxation. The provisions of this subparagraph
shall not be construed to prevent the exchange of information with respect to taxes imposed
by the Government of the United States of America or the Government of the Federative
Republic of Brazil on branch protits or the excess interest of a branch or on the insurance
premium income of foreigners.
3. A request for information shall not be refused on the ground that the tax liability giving
rise to the request is disputed by the taxpayer.
4. The requested party shall not be required to obtain and provide information which the
requesting party would be unable to obtain in similar circumstances under Its own laws for
the purpose of the administration/enforcement of its own tax laws or III response to a valid
request from the requested party under this Agreement.
ARTICLE VIII
CONFIDENTIALITY
I. Any information received by the requesting party under this Agreement shall be treated
as confidential and may be disclosed to persons or authonlJes (lI1cludll1g courts and
6
administrative bodies) in the jurisdiction of the requesting party concerned with the
assessment or collection ol~ the enforcement or prosecution in respect of. or the
determination of appeals in relation to, the taxes covered by this Agreement, or to
superv Isory bodies, and only to the extent necessary for those persons, authorities or
supervisory bodies to perform their respective responsibilities. Such persons or authorities
shan usc such information only for such purposes. They may disclose the information in
public court proceedings or in judicial decisions. The information shall not be disclosed to
any other person or entity or authority or any other jurisdiction without the express written
consent of the requested party.
2. Any liability underthe domestic law of the requesting party arising from the requesting
party's use of information provided under this Agreement shall he solely the responsibility
of the requesting party.
ARTICLE IX
COSTS
Unless the competent authorities of the parties otherwise agree, ordinary costs incurred in
providing assistance shall be borne by the requested party and extraordinary costs incurred
in providing assistance shall be borne by the requesting party.
Article X
MUTUAL AGREEMENT PROCEDURE
I. The competent authorities shall adopt and implement procedures that are necessary to
facilitate the implementatIOn of this Agreement, including such additional forms for the
exchange of information as shall promote the most et1cctive use of the information.
2. Where difficulties or doubts arise between the parties regarding the implementation or
interpretation of this Agreement, the respective competent authorities shall use their best
efforts to resolve the matter by mutual agreement.
Article XI
MUTUAL ASSISTANCE PROCC:DURE
If both competent authorities of the parties consider it appropriate to do so they may agree to
exchange technical know-how, develop new audit techniques, identify new areas of noncompliance, and jointly study non-compliance areas.
Article XII
ENTRY INTO FORCE
This Agreement shall enter into force when each party has notified the other in writing of
the cOI~pletion of its internal procedures necessary for entry into force. Upon entry mto
force, it shall have etlect for requests made on or after the date of entry mto torce, Without
regard to the taxable period to which the matter relates.
7
Article XIII
TERMINATION
I. This Agreement shall remain in force until terminated by either party.
2. Either party may terminate this Agreement by giving notice of termination in writing.
Such termination shall become effective on the first day of the month following the
expiration of a period of three months after the date of receipt of notice of termination by the
other party.
3. I f a party terminates this Agreement, notwithstanding such termination, both parties shall
remain bound by the provision of Article VIII with respect to any information obtained
under this Agreemcnt.
IN WITNESS WHEREOF, the under,igned being duly authorized in that behalfby the
respective parties, have signed the Agreement.
{Srq
DONE at
si 1(0 ,in duplicate, in the English and Portuguese languages, each text
being equally authentic, this
;JO"t!1 day of ~ 2007.
FOR THE GOVERNMENT OF THE /
UNITEIJ STATES OF AMCRICA/
/ 7:f'/' /
...;
__ ~ ~
_ c.-y-;;:"
/c
/,/ ' ,
/ -<'
('-,
.
/"
FOR THE GOVERNMENT OF THE
FEDERATIVE REPUBLIC OF
/
BRAZIL:
'\1
(,.It·d.)t ~)l( ci'
JOINT DECLARATION
BY THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE
GOVERNMENT OF THE FEDERATIVE REPUBLIC OF BRAZIL
ON THE OCCASION OF THE SIGNING ON 20 MARCH 2007
OF THE AGREEMENT FOR THE EXCHANGE OF INFORMATION
RELA TING TO TAXES
BETWEEN BOTH GOVERNMENTS
The United States and Brazil have a strong and important bilateral economic
relationship. The Governments of both countries are committed to finding ways to create
and improve an environment that will allow cross-border investment to prosper and reach
its full potential.
The business community has long expressed its concerns that the statutory
measures to relieve double taxation under the laws of both the United States and Brazil
do not adequately mitigate the tax-related baJTiers to cross-border investment, and that
the conclusion ofa bilateral income tax treaty could contribute to ameliorate these issues.
The United States and Brazil, however, diverge on a number of important areas of tax
treaty policy, making the conclusion of a mutually acceptahle tax treaty difficult.
Nevertheless, the Governments of both countries hope that the signing of this
Agreement for the Exchange of Information Relating to Taxes will be the first step to
developing a deeper bilateral tax relationship between the United States and Brazil. The
U.S. Treasury Department and the Brazilian Secretaria da Receita Federal initiated
infonnal discussions in 2006 to exchange views on a number of aspects of tax treaty
policy, including transfer pricing, permanent establishment, the taxation of income from
services and mutual agreement procedures. Both the Treasury Department and the
Secretaria da Receita Federal are committed to continuing this infornlal dialogue with the
hope that common ground can eventually be found to reconcile the tax policy differences
that have prevented the conclusion of a bilateral tax treaty in the past.
Page I of I
March 29, 2007
HP-336
u.s. -
Netherlands Antilles Tax Information Exchange
Agreement Enters Into Force
Washington, DC - Tile Treasury Department announced today that the United
States and tile Kingdom of the Netherlands exchanged letters March 22, 2007,
bnnglng into force the two countnes' Tax Information Exchange Agreement (TIEA),
The agreement allows for the exchange of IIlformatlon on tax matters between the
United States and tile Netherlands Antilles
The agreement IS the latest of several TIEAs to enter into force, Including the USBntlsh Virgin Islands TIEA, which entered IIlto force on Marcil 10,2006, the U,SCayman Islands TIEA, which entered IIlto force on March 10, 2006: and the USJersey TIEA, which entered IIlto force on June 26, 2006,
http://www.treas.gov/pressfreleases/hp336.htm
4/612007
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Mincll :30. ;Z007
HP-33?
Preliminary Report On
Foreign Holdings Of U.S. Securities
At End-June 2006
Plt311111111Clry ilatd frorn iI survI;y of forelCjn portfolio holrllllljS of US securities at endJUfle 20()G elre re!fcilsed tOildY Oil IIle U S Treilsury web site at
(Illtpflwwwtrcas ~Jov/tlc/fplsJltrnl). A revised table Oil Major Forelljll HolciE!rs of
TrcCisliry Securities. wlwrc estllllcltcs thrOllgh end-Jallllary 200? are based III part
011 survey elilta. IS dlso relf?Clseel at (http://www.treas.Qov/tic/ticsec2.html. 011 line 4)
FI11CiI slIlvey reslilis. which wlllillclucie aciciltlonal detail as well CIS possible reVISions
to tile prelllllinary clat3. wllllJe reponed Oil May 31.2007 The survey was
1I1ldelt3ken JOllllly by the U S Treasury. tile Federal Reserve Bank of New York.
ami the Board of GovelllOl's of tile Federal Reserve System The next survey Will
be for eild-Julle 2007. ,lild preliminary data are expected to be released by
February 29. 2008
Complemelltary Slll'Vf?YS llleilsulIll(j US llOlc1l1lgs of forel(jn seCLllltles Clre also
Cdrrleel out illlllllillly Ddta fro III tlw most recellt survpy. reportlllD on securities held
011 year-elld 2006. ille clIITelltly helllCj plocessed Prcllllllliary results are expected
to t)e reponeci hy Sr;pteillbel 30. 2007
Overall PrellmlllCiI'y Results
The sUI'vey measured foreign Ilolrllngs of U S securities as of June 30. 2006, to IJe
S7.779 billion. with S2.431 iJllllon held III US eC]ultles S4.7:)3 IJlliion In U S longterm nebt seCLllltles1 (of which S9i30 are holdlllgS of asset-backed securities (ABS)
2 Clild $3.753 Cire holrllllljS of non-ABS seculltles). an(1 S615 bllllOIl held III US
sllort-terlll debt seclilities. Tile prevIous silivey. cOllclucted as of June 30. 2005.
measured forelljll holcllllCjS of S2.144 billion In U S equities. S4.11i3 bllllOll In U S
1011~j-teml debt seClllltlcs. imd SGU2 lJilllOll III sl1Ort-terlll U S debt securities (see
Tdt)le 1)
1 Long-term clubt securities have all Ol/c]llId/ternHo-lllaturlty of over olle year
2 Asset-backed securltlf]S ,lie backed by pools of assets. such as pools of
rcsidelliial home rnortljages or credit card receivables. which Ijlve the secullty
owners c:i3l1ns 3g31nst the cash flows generated by the ullderlYlng assets Unlike
1110st other debt securities. tllese securities generally repay bolll prrnclpal allel
Illtel'est all a reDuldr baSIS. reclucI11D the pllilclpal outstanding With each paYlllent
cycle
Table 1. Foreign holdings of U.S. securities, by type of security, as of recent
survey dates
(Billions of (Iollars)
JlIlle 30.2005
JlIlle 30. 2006
Type of Securltv
LOllq terlll Securities
EqUity
http://wwwtreas.gOv/pressfreleaseS/hp337.htm
f5.262
2.144
7.164
2.431
Page':: of'::
Lmlq-tvfIll debt
Assc[ lliwkl!<i
OtiWI
SllOlt-tr~rlll li(:lll S(}CLlrlll(:S
4.118
Tot,11
Of which OfflCIZlI
717
3AIl1
f302
4.733
D80
3.753
615
6.i364
1.938
7.779
2.301
Table 2. Foreign holdings of U.S. securities, by country and type of security,
for the major Investlllg countries into the U.S., as of June 30 2006
(BIIIIOI1S of dollL1rs)
,
COlllliry
01
clleCjory
1 J<1P<111
TolZlI
Equities
1.106
195
2 Cllllld. lllillnlar1d 1
3 UI1lted KI11CJdoi1i
4 Luxellli)ourq
5 C~1VI1li1rl Islands
6 Callzl(ja
7 Belqlulll
8 Netherlal1ds
9 SWitzerland
10 Middle East 011expolters2
11 Ireland
12 Germal1y
13 Berrnucta
14 Fr,lnce
15 Sinqclpore
16 Talwclll
17 South Korea
18 RUSSI,l
19 HOllel KOIlCI
20 Australia
21 MexIco
22 Sweden
23 BI-Itlsh Vlrqlil IslclllcJs
24 Norwav
25 Italv
COLJIltrv UnkilOwI1
Rest of world
Total
01 which Ofllcl<11
Long-term
debt
ABS
Otllel
706
121
122
55G
106
218
69
255
135
142
22
73
42
263
55
58
32
76
11
80
C99
C40
54D
485
382
331
280
262
243
4
300
1D3
178
274
21
158
145
111
232
211
206
164
163
135
124
111
110
10D
98
81
78
75
53
214
639
7,779
2.301
69
73
60
95
101
7
1
36
37
43
14
7
25
4
22
64
15
48
46
43
2D
12
5
2
4
1
12
4
1
58
980
147
180
2,431
215
62
86
83
42
51
100
106
42
65
32
60
28
24
16
18
212
299
3,753
1.634
Shalt-term
debt
85
17
16
32
31
13
4
9
9
41
65
16
20
14
4
3
13
68
11
8
21
1
6
4
2
1
102
615
304
Greater thilll zero but less lilall S500 million
1 Excludes Hong Kong_ Milcau. clild Taiwan, which are reported sepal-ately_
2 Bahralil. Iran, II-aq, Kuwait. 0111il11. Oatar. Saudi Arabld. Urllted Arab El1l1rdtes
REPORTS
•
Preliminary Report On Foreign Holdings 01 U.S. Securities At End-June
2006
http://wwwtreas.gov/pressfreleases /hp337.htm
,/
u.s. TREASURY DEPARTMENT OFFICE OF PUBLIC AFFAIRS
For Immediate Release March 30, 2007
Brookly McLaughlin, (202) 622-2920
CONTACT
PRELIMINARY REPORT ON
FOREIGN HOLDINGS OF U.S. SECURITIES
AT END-JUNE 2006
Preliminary data from a survey of foreign portfolio holdings of U.S. securities at end-June 2006
are released today on the U.S. Treasury web site at (http://www.trcas.gov/tic/fpis.html). A
revised table on Major Foreign Holders of Treasury Securities, where estimates through endJanuary 2007 are based in part on survey data, is also released at
(http://www.treas.gov/tic!ticscc2.html. on line 4). Final survey results, which will include
additional detail as well as possible revisions to the preliminary data, will be reported on May 31
2007. The survey was undertaken jointly by the U.S. Treasury, the Federal Reserve Bank of
New York, and the Board ofGovemors of the Federal Reserve System. The next survey will be
for end-June 2007, and preliminary data are expected to be released by February 29, 2008.
Complementary surveys measuring U.S. holdings of foreign securities are also carried out
annually. Data from the most recent survey, reporting on securities held on year-end 2006, are
currently being processed. Prcliminary results are expected to be reported by September 30,
2007.
Overall Preliminary Results
The survey measured foreign holdings of U.S. securities as of June 30, 2006, to be $7,779
billion, with $2,43 I billion held in U.S. equities, $4,733 billion in U.S. long-term debt securities)
(of which $980 are holdings of asset-backed securities (ABS)2 and $3,753 are holdings of nonABS securities), and $615 billion held in U.S. short-term debt securities. The previous survey,
conducted as of June 30, 2005, measured foreign holdings of$2,144 billion in U.S. equities,
$4, I 18 billion in U.S. long-term debt securities, and $602 billion in sllort-term U.S. debt
securities (see Table I).
1. Long-tenn debt securities h<lve an original tem1-to-maturity of over one year. .
.
2. Asset-backed securities are backed hy pools of assets, such as pools of resldenltal home mortgages or credit card
receivables, which give the security owners claims against the cash t10wsgenerated by the underlying assets.,
Unlike most other debt securities, these securities generally repay both pnnclpal and mterest on a regular baSIS,
reducing the principal outstanding With e:1Ch payment cycle.
Table 1. Foreign holdings of U.S. securities, by type of security, as of recent survey dates
(Billions ofdollarsl
Type of Security
June 30, 2005
Long-term Securities
Equity
Long-term debt
Assct -bac ked
Other
Short-term debt securities
6,262
2,144
4,IIS
Total
Of which: Official
6,864
June 30, 2006
7,164
2,431
4,733
717
3,401
602
980
3,753
615
7,779
1,938
2,301
Table 2. Foreign holdings of U.S. securities, by country and type of security, for the major
investing countries into the U.S., as of June 30, 2006
(Billions of dollars)
Country or catq!:orv
2
3
4
5
6
7
8
9
10
II
12
I3
\4
\5
\6
17
\8
19
20
21
22
23
24
2S
Japan
China, mainland l
United Kingdom
Luxembourg
Cayman Islands
Canada
Belgium
Netherlands
SWitzerland
Middle I::ast oil-exporters'
Ireland
Germany
Bermuda
France
Singapore
Tdlwun
South Korea
RUSSia
Hong Kong
Australia
Mexico
Sweden
British Virgin Islands
Norway
Italy
Country Unknown
Rest of world
Total
Total
Eiluities
!,I 06
195
4
300
193
178
274
21
158
145
699
640
549
485
382
331
280
262
243
232
21 I
206
164
163
135
124
III
69
73
60
95
101
7
\
121
122
106
69
135
22
42
55
32
11
36
37
43
14
7
25
4
*
III
110
109
98
8\
78
75
53
214
639
7,779
2,301
Long-term debt
Other
ABS
22
64
15
4~
46
43
29
*
180
2,431
215
Of which: Official
than zero but less than $500 milliOn.
* Greater
I. Excludes Hong Kong, l\-iacau, and Taiwan, which are reported separately .. ,
2. Rahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates.
12
5
2
4
12
4
I
58
980
147
Short-term
debt
R5
17
16
32
31
13
4
9
9
41
65
16
20
14
4
706
556
218
255
142
73
263
58
76
80
62
86
83
42
51
\00
106
42
65
32
60
28
24
16
18
212
299
102
3,753
615
1,634
304
3
13
68
II
8
21
I
6
4
2
@FedFRASER