The Public Company Accounting Oversight Board (PCAOB) has announced rule changes that could bar audit firms based outside the United States from auditing U.S. companies.

Under the new rules promulgated on October 7, 2010, foreign audit firms applying to the PCAOB for registration will be required to state their understanding of whether a PCAOB inspection of the firm would currently be allowed by local law or local authorities. If the applicant indicates that PCAOB inspections would not be allowed, the a Notice of Hearing will be issued by the PCAOB to determine whether approval of the application would run counter to the Sarbanes-Oxley Act of 2002.

Under the Sarbanes-Oxley Act of 2002, audit firms are required to register with the PCAOB and submit to regular inspections by the Board if the firm audits financial statements filed by issuers with the Securities and Exchange Commission. In recent years, however, the PCAOB has been frustrated by foreign audit firms blocking Board inspections because of asserted legal restrictions or objections of local authorities.

PCAOB Acting Chairman Daniel Goelzer stated:

Since 2004, the Board has approved registration applications of non-U.S. firms with the expectation that any potential obstacles to inspections would be resolved through cooperative efforts with foreign regulators. … Although we are still pursuing those efforts, the continuing obstacles to inspections in some jurisdictions have forced us to re-evaluate that approach to registration.

Earlier this year, the PCAOB published a list of PCAOB-registered auditors which the Board currently cannot inspect because of asserted non-U.S. legal obstacles. The list includes numerous subsidiaries and affiliates of firms such as Deloitte Touche, Ernst & Young, PricewaterhouseCoopers, KPMG and Grant Thornton. (http://pcaobus.org/International/Inspections/Documents/issuer_audit_clients_of_certain_non-US_firms_by_jurisdiction.pdf) The listed firms audit over 400 non-U.S. companies whose securities trade in U.S. markets.

Regulators in countries throughout Europe and Asia deny the PCAOB access to inspect non-US applicants, arguing that these firms should be inspected by local authorities. They further believe that any information shared by these firms with the PCAOB should be transmitted under the auspices of an equivalence arrangement rather than the non U.S. firm directly being inspected by the Board.

However, in its statement on the new rules and citing the Sarbanes-Oxley Act, the Board countered:

These inspections are fundamental to the Board’s ability to carry out its oversight responsibilities “in order to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports.” Obstacles to those inspections frustrate the oversight system put in place by the Act and, in turn, threaten the public interest by impeding the Board’s ability to detect conduct that violates U.S. law and professional standards.

These new rules will have a substantial effect on how U.S .companies and their foreign subsidiaries are audited. U.S. companies will be deterred from engaging unregistered auditors in jurisdictions where PCAOB inspections would be denied. For their part, unregistered global audit firms will have a much harder time pursing cross-border business with U.S. companies. While PCAOB staffers deny that the rules are an attempt to strong-arm foreign audit firms into inspections, they are optimistic that the pace of negotiations on PCAOB’s foreign inspections will greatly increase as a result of the tactic.

In its October 8, 2010 meeting, the AICPA’s Blue Ribbon Panel on Private Company Standard Setting reported that it plans to recommend that the Financial Accounting Foundation (FAF) adopt a new standard-setting model that follows Generally Accepted Accounting Practices (GAAP) with exceptions for private companies. The Panel also recommended that these accounting standards should be set by a separate board under the watchful eye of the FAF and not FASB, the FAF’s parent organization.

The impetus for the separate board arose from a desire to install a system of checks and balances to ensure that issues unique to private companies are being addressed while maintaining a reference to FASB’s standards. The underlying battle over differentiated accounting standards, i.e., whether there should be alternative, simplified accounting standards that meet the needs of users of private company financial statements, has been brewing for years.

The Blue Ribbon Panel was established through the cooperation of the AICPA, the FAF and the National Association of State Boards of Accountancy (NASBA). It is comprised of 18 members representing the spectrum of financial reporting companies: auditors, regulators, investors and company owners. Most Panel members seemed to embrace the private board plan. AICPA President Barry Melancon stated:

I’m pleased the majority of the panel members supported the bold step of a new, separate private accounting standards board under the FAF’s oversight. … An important benefit of having a new board is to help ensure the needs of the private company sector are appropriately addressed in the standard-setting process.

Yet a minority of Panel members opposes this idea. NASBA Chairman Billy Atkinson stated that a single board is necessary to ensure that all strata of businesses are represented “at the same table” when standards are being discussed and established. Atkinson commented, “The FAF and its processes for the oversight of standard setting are sound. … The real challenges ahead are the important public policy issues associated with the debate.” Other Panel members feared that a separate set of standalone GAAP standards for private companies would take too long to put in place.

It is widely recognized that many private companies in the United States do not following GAAP in their financial reporting. Yet while the shortcomings of this lack of adherence to GAAP may be obvious, a recent WebCPA poll (http://www.webcpa.com/polls/?poll_id=22&page=1) found that a majority of readers did not favor a separate set of accounting standards for private companies.

Despite these differing opinions, virtually the entire Panel agreed that FASB needs more private company representation and that a recent expansion of the board from five to seven members did not go far enough to ensure that private companies are adequately represented.

The next step is for the Panel’s staff to develop a list of specific recommendations in anticipation of the Panel’s next meeting on December 10, 2010. It is believed that the Panel’s final recommendations will be made in a report to the FAF in January 2011. The recommendations will be made public at that time, after which the FAF is expected to solicit comments fro constituents and the public.

Several of the largest telecommunications companies in the United States including AT&T, Verizon, and Nokia are urging the US government to ease regulations which currently prevent them from operating in Cuba. The regulations stem from the 47 year old trade embargo the US has enforced against Cuba due to the oppressive Castro regime. AT&T and Verizon are seeking a loosening of regulations to make it easier for telecommunications companies to directly connect calls to and from Cuba, while Nokia, the world’s largest mobile-phone manufacturer, is urging Washington to ease the embargo so it can export mobile-phone accessories from its US locations.

Under current rules, the Federal Communications Commission (“FCC”) has established a rate cap on the fee telecoms can pay the Cuban government for direct calls to Cuba which hampers the telecommunications industry’s ability to do business in Cuba. Currently, US providers are only allowed to pay the Cuban government a fee no higher than 19 cents per call, however, Cuba demands 84 cents a call.

In June, Verizon wrote the FCC asking it to grant requests by others in the telecom industry for the FCC to waive its maximum rate cap rules. A copy of Verizon’s comments can be read at: Verizon’s reply to the FCC.

US telecoms are also interested in establishing roaming services on the island for US customers who visit the island as a first step to expanding cell phone services. Analysts believe that the mobile phone market in Cuba has the potential to be profitable given the island’s population, 11.4 million, and the relative few between, 10 and 20 percent, who currently use mobile phone services.

The telecoms’ requests for greater access to Cuba come several months after the idea was first presented by the Obama administration. On April 13, 2009, President Obama issued a memorandum to the Secretaries of State, Treasury, and Commerce entitled “Promoting Democracy and Human Rights in Cuba” in which the President said that increased contacts between Cuba and the outside world would reduce Cubans’ dependency on the Castro regime. President Obama directed his Secretaries to take such actions as necessary to authorize US telecommunications providers to enter into agreements to establish fiber-optic cable and satellite telecommunications facilities linking the US and Cuba and to license US telecom service providers to enter into and operate roaming services agreements with Cuba’s telecommunications service providers. The President’s full memorandum can be read at: White House Memo on Promoting Democracy and Human Rights in Cuba.

However, while an easing of telecommunications regulations may be in the near future, US companies looking to do business in Cuba still risk violating sanctions still in place, such as the Cuban Democracy Act of 1992 that prohibits investment in Cuba’s telecommunications network.

For guidance on how your import/export business, or related business, can take advantage of the surging trade economy while maintaining strong regulatory compliance, contact Fuerst Ittleman at 305-350-5690 or contact@fuerstlaw.com.

On August 20, 2010, U.S. District Court Judge Julie Robinson for the District of Kansas granted the United States Department of Justice’s motion to dismiss the charges against former Westar executives David Wittig and Douglas Lake. The charges were dismissed without prejudice, meaning they could be filed again.

Wittig and Lake were charged with conspiracy and circumvention of internal controls. The former executives were accused of manipulating a proposed merger for personal benefit and using Westar’s legal counsel to remove other directors who challenged their actions. Authorities also alleged that Wittig and Lake submitted false reports to the Securities and Exchange Commission (“SEC”) about their personal use of corporate aircraft. The SEC requires such reports if the added cost to the corporation for air travel exceeds $50,000. Prosecutors alleged that Wittig and Lake conspired to inflate their compensation from the company and took steps to hide their actions.

This case was the third attempt by the U.S. Department of Justice to try Wittig and Lake. The first case ended in a hung jury in December 2004. The government retried the case in early 2005 and in that second trial a jury found Wittig and Lake guilty of wire fraud, money laundering, circumvention of internal controls and conspiracy. The court also ordered millions of dollars in restitution. However, the U.S. Court of Appeals for the 10th Circuit reversed the convictions in January of 2007. The 10th Circuit threw out the money laundering and wire fraud convictions because of a lack of evidence and found that jury instructions for the circumvention and conspiracy charges were flawed.

After the 10th Circuit had ruled, prosecutors announced they would seek a third trial for the charges of conspiracy and circumvention. However, prior to trial, the Supreme Court announced its decision in Skilling v United States. Defense attorneys believe that the dismissal of this most recent case is byproduct of the recent Supreme Court decision that changed the landscape of the “honest services” fraud statute.

The decision of prosecutors to drop the charges comes less than two months after the Supreme Court’s landmark decision in Skilling v United States. In Skilling, the Court severely narrowed the scope of the “theft of honest services” fraud statue, 18 U.S.C. Sec. 3146, by ruling that it is unconstitutionally vague except in cases involving bribery and kickback schemes. The Court ruled that federal prosecutors can no longer rely on the “theft of honest services” charge in cases involving private sector employees charged with self-dealing or undisclosed conflicts of interest without a bribery or kickback scheme. As a result of the Skilling decision, a once flexible tool in the arsenal of the federal prosecutor’s office has been sharply limited.

For information about Fuerst Ittleman’s experience litigating white collar criminal cases please contact us at contact@fuerstlaw.com.

Bio-Nucleonics, Inc., a leading Florida company specializing in radiopharmaceuticals, medical devices and imaging agents, gave a hearty “Thanks” to Fuerst Ittleman in its most recent issue of BioBulletin, the company’s newsletter.

Fuerst Ittleman recently assisted Bio-Nucleonics with gaining FDA approval for the company’s new Doral, Florida product manufacturing facility. The FDA’s approval certifies that Bio-Nucleonics uses “current Good Manufacturing Practice” (cGMP) in all its production at this state-of-the art facility.

The FDA also gave approval to Bio-Nucleonics for its proposed release criteria and timeframes for specific lot release tests to be completed prior to shipment of finished drug products. The importance of this ruling is that no material is lost to radioactive decay and each dose can be shipped immediately to the customer.

FHI assisted Bio-Nucleonics with both of these efforts. We found it such a pleasure to work with clients who were as knowledgeable, dedicated, and thorough as the team at Bio-Nucleonics, and we’re glad that they liked working with us, too. To see the entire BioBulletin newsletter, click here.

Let Fuerst Ittleman help guide your company to its next success. For more information, contact us today at 305.350.5690 or contact@fuerstlaw.com

Original Article: Mitchell S. Fuerst: Foreign Bank Accounts and the IRS [pdf]

Voluntary Disclosure Guidelines Give Taxpayers Until September 23rd to Reveal Offshore Assets

According to a statement on Offshore Income given by IRS Commissioner Doug Shulman, U.S. Taxpayers and entities that are currently hiding assets in offshore accounts have a limited voluntary disclosure period until September 23rd , of 2009 to reveal those accounts before the IRS takes the offensive. After the voluntary disclosure period, the IRS plans to aggressively pursue both civil and criminal penalties for taxpayers that fail to take advantage of the voluntary disclosure initiative. Furthermore, the IRS revealed that they are actively tracking entities and individuals attempting to clean up their act through “quiet disclosures,” the practice of Taxpayers declaring a prior increase of income through amended tax returns.

The IRS stated, “Those taxpayers making ‘quiet’ disclosures should be aware of the risk of being examined and potentially criminally prosecuted for all applicable years.”

It seems that the IRS has decided to take an aggressive position here. In a statement given by the IRS regarding the penalties for the 52,000 holders of undeclared UBS bank accounts, the IRS only mentioned a “reduction of penalties,” for those that took advantage of the voluntary disclosure practice.

Under the new IRS guidance, the quiet disclosure practice is no longer a safe measure to make amends to the IRS. President Obama recently mentioned the appointment of congressional authority to hire an additional 800 IRS agents assigned to track down and pursue illegal tax evasion and the use of undeclared offshore accounts. Though it is legal for Americans to have offshore accounts, the U.S. Treasury Department requires any account containing more than $10,000 to report the existence of the account, and taxes paid on the income as well.

Four primary orthopedic implant companies that have been accused of violations to the federal anti-kickback laws are no longer the subject of the U.S. Attorney’s office’s federal oversight and have also been dismissed from criminal allegations that surgeons had received enormous sums of money as incentives to use their devices.

To avoid prosecution, the companies had agreed to accepting rigorous regulatory compliance procedures and a monitoring program by the federal government. Those agreements drew a great deal of criticism to U.S. Attorney Christopher Christie, when it was revealed that the former Attorney General, John Ashcroft, was appointed by Christie to a monitoring program contract estimated to be worth up to $52 million. Christie, the Republican gubernatorial nominee hopeful, faced some tough questions about his relationship to, and the appointment of federal monitoring program supervisor – former federal Judge Herbert J. Stern. Judge Stern and his law firm were responsible for contributions of more than $20,000 to Christie’s campaign fund.

When asked about the current relationship in light of the circumstances, Christie simply dismissed the matter as, “typical political stuff …”

After federal prosecutors discovered incidents where orthopedic surgeons had received consultation fees upwards of $200,000 a year for the promotion of products from orthopedic implant companies, the U.S. Attorney’s office pursued formal criminal charges alleging the actions were a violation of federal anti-kickback laws that govern Medicare provisioned hospitals and healthcare professionals.

According to the federal prosecutors, the medical device companies were using the consulting agreements as a cover-up for payoffs to use specific implant products for artificial hip or knee replacement operations. Furthermore, the U.S. Attorney’s office claim that these payments and fees are commonplace in the industry and may also be accompanied by luxurious gifts, and extravagant trips.

The investigators found evidence that the physicians had actually performed very little to no consulting work whatsoever and had received funds from the orthopedic companies solely for the use of their products, and failed to keep accurate reports disclosing their relationship with the medical device companies to the patients that received the surgery or the hospitals where the surgeries were performed.

Biomet Orthopedics Inc., Zimmer Inc., Smith & Nephew Inc., and DePuy Orthopeadics Inc., agreed to paying $311 million in a civil settlement agreement and accepted a deferred prosecution agreement which would expire should the companies agree to an extended monitoring program and implement stringent reforms.

The appointee to the monitoring of Zimmer Inc., was John Ashcroft. Zimmer Inc., was not willing to disclose the amount that was paid to Ashcroft’s law firm. However, according to the firm’s spokesperson, the payments were around $6 to $9 million dollars a quarter.

Madoff Ponzi Scheme Victims may be able to receive tax relief and refunds by the new IRS guidelines.

Douglas Shulman, Commissioner of the IRS, announced to Congress that the relief is intended for those who incurred losses by Ponzi Schemes such as the one at issue in the Madoff Ponzi Scandal.

If Madoff investors reported and paid taxes on the earnings from their Madoff investment, they may be due a refund on those taxes because the profits reported were never actually realized.

At a Senate Finance Committee hearing, Shulman stated that the investors in some of the cases were actually entitled to a theft loss deduction which is not subject to limits placed on traditional capital losses.

Mr. Shulman continued to state that theft loss deductions may be taken for the year in which the fraud was discovered, except when the investor may have a “reasonable prospect” in recovering the capital loss.

Shulman went on to say that identifying the actual amounts and times of the losses from Ponzi schemes may be “factually difficult” and could take a considerable amount of time to identify the prospects of the lost money.

Shulman, in his testimony to the Senate, continued:

“Some taxpayers have argued that they should be permitted to amend tax returns for years prior to the discovery of the theft to exclude the phantom income and receive a refund of tax in those years … The new IRS guidelines do not address that argument.”

From the time that the Madoff scandal was made public, roughly $1 billion in assets have been identified for Madoff’s victims. That figure, however, is only a fraction of the $65 billion that Madoff claimed he had possession of. Some have estimated that the Madoff Ponzi Scheme may have cost the IRS as much as $17 billion in lost tax revenues from investors that had earned fictitious profits.

Securities Investor Protection Corp., an organization that backs failed brokerage firms, has already started sending out checks to the victims of the Madoff Ponzi Scheme. Madoff’s victims are eligible for up to $500,000 up until July of 09’ from the SIPC. Furthermore, Mr. Shulman stated that investors should be aware that they need to deduct the amount they receive from the SIPC from their Madoff investment based “theft loss” deduction.

According to Shulman, the financial statements which were provided to Madoff Ponzi Scheme investors, should be sufficient documentation enough to establish losses for filing tax claims.

Do you need to speak with an attorney about IRS tax relief?
Contact us for a consultation about fraud-related tax losses.

On January 12, 2009, the Interagency Working Group on Import Safety published draft guidance for industry entitled “Good Importer Practices.” The working group is comprised of the U. S. Departments of Health and Human Services (Food and Drug Administration), Agriculture, Commerce, Homeland Security, and Transportation and the U.S. Consumer Product Safety Commission, the U.S. Environmental Protection Agency, and the Office of the U.S. Trade Representative.

The Working Group organized the guidance into four broad “guiding principles”:

- establishing a product safety management program;
- knowing the product and applicable U.S. requirements;
- verifying product and firm compliance (throughout supply chain and life cycle); and
- taking corrective and preventive action (when necessary).

These principles give importers a roadmap they can follow to ensure that the products they import, and the processes they use to import those products, comply with myriad U.S. statutes and regulations. While the document is not a “how to” guide – with steps that match up to specific code citations – the guidance is an indispensible tool for management, which they can use to make sure that they are asking the right questions, and establishing the right programs and processes, for regulatory compliance.

The draft guidance encourages importers to focus on the life cycle of an imported product; for example, from growing and harvesting, to processing, packing, transporting, and distributing. At each step, importers should consider how to implement controls to help decrease the risk that the product could cause harm to people, animals, or the environment. In doing so, importers will help ensure overall regulatory compliance.

The guidance is also important for third-parties in the import process, such as consolidators, shippers, brokers and distributors. In the current regulatory environment, in which the government is focusing on everyone’s role in the security and safety of imports (and penalizing those who break the rules), even these third-parties should have processes in place to make sure that the importers with whom they work are complying with government rules and regulations.

Following this guidance laid out by the government is essential for all U.S. importers. If you don’t follow the roadmap, you may soon be lost.

The complete “Draft Guidance for Industry Good Importer Practices” can be found here.

Let Fuerst Ittleman help you with your roadmap for regulatory compliance. Our attorneys have years of experience in designing programs, policies and procedures to help importers stay on the right path and avoid problems with regulators. Contact us at 305-350-5690 or contact@fuerstlaw.com.