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Business at Berkeley Law



EU to Create Tax Blacklist Following Panama Paper Leaks

In the wake of the Panama Paper leaks, European Union tax commissioner Pierre Moscovici urged states to draft a blacklist of countries that serve as tax havens to thousands of companies. EU states agreed to this move on April 22, 2016, and plan to complete the list by the end of the summer. Finance ministers have also agreed to automatically exchange information on certain beneficial company owners.

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Rise of Institutional Investors Raises Questions of Collusion

In recent years, institutional investors like BlackRock have grown to own 70% of the public stock market. This growth is particularly noticed in horizontal shareholdings in concentrated product market, like airlines, causing them to compete less vigorously with each other. For instance, 7 institutional shareholders who controlled 60% of United Airlines also controlled major rivals such as Delta Airlines (27.5%) and Southwest Airlines (22.3%).

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Complying with Dodd-Frank: Complexities Arising from MetLife, Inc. v. FSOC

The Financial Stability Oversight Council(FSOC) was established in the wake of the 2008 financial crisis in order to mitigate the risks and proffer stability to the U.S. financial system, but a U.S. District Court Judge’s ruling in MetLife, Inc. v. FSOC on March 30, 2016, is bound to complicate the FSOC’s ability to fulfill its mandate.

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Halliburton-Baker Hughes Merger Hits Antitrust Roadblock

On April 6, 2016, the United States Justice Department announced the filing of an antitrust suit in the U.S. District Court for the District of Delaware to block the proposed merger between Halliburton and Baker Hughes—citing its potential to “eliminate vital competition, skew energy markets and harm American consumers.” Originally brokered in 2014, the $35 billion deal would bring together the second and third largest oil field service firms in the world. Attorney General Loretta Lynch has voiced concerns that this merger of two of the top three firms would serve to create “non-competitive duopolies” in twenty-three separate markets throughout the United States.

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Panama Papers Revelations: How Far Can Lawyers Go in Abetting Financial Wrongdoing?

In the context of any financial scandal, questions are asked about the scope of lawyers’ involvement in the financial misconduct. With respect to the 1980-90s savings and loan crisis, the Panama Papers shed light on the role of lawyers in aiding wealthy individuals, including public officials, in setting up offshore bank accounts and shell corporations to keep their assets from the public eye. The International Consortium of Investigative Journalists (ICIJ) published these 11 million plus confidential documents dating back to the 1980s that are reportedly connected to the Panamanian law firm Mossack Fonseca.

Ramón Fonseca, a founder of the firm, told The New York Times that Mossack Fonseca’s lawyers did not engage in any wrongdoing in helping their clients set up shell corporations. Fonseca explained, “We are like a car factory who sells its car to a dealer (a lawyer for example), and he sells it to a lady that hits someone. The factory is not responsible for what is done with the car.”

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The Risks of Insolvency in Venture Capital

The venture capital industry has one goal: making startups incredibly lucrative and, thus, maximizing returns to venture capital investors. For the venture capital investor these outstanding returns are generally materialized 5 or 6 years after the Series A investment round, when the investor makes an exit and the startup either performs an initial public offering of its shares (IPO) or is sold to a strategic acquirer or a private equity fund.

However, in a business inherently risky as venture capital, there are also many examples of failures, where venture capital backed startups go insolvent or bankrupt. This happened recently with online retailor and Montreal-based Beyond the Rack, which had previously raised over U$90 million in venture capital investments and other financings. When the company was entering into insolvency, it pursued a sale with a potential buyer, but negotiations fell through, forcing it to file for creditor protection on March 23.

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Fintech Driving Regulatory Changes in the Financial Sphere

Disruptive technology is taking over the financial services industry, much like technology has reshaped the retail, hotel, music, and taxi industries in recent years. While investment in the Fintech market has been growing rapidly and substantially—from $514.5 million in 2010 to $7.6 billion in 2015—the regulatory framework is still immature, and we should expect to see substantial development in the near future. Fintech innovations bring major benefits to the economy and consumers, but they also raise concerns in relation to data privacy, security, and equality of access. For example, mobile payments create a parallel system outside the banking system, which central banks do not have the authority to oversee. Bank regulators worry that consumer data can be breached by, or through, third parties that gain access to data in the course of processing transactions, performing marketing roles, and offering shared or co-branded products or other services. Target’s major security breach in 2013 was initiated through its air-conditioning vendor.

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North Carolina’s Anti-LGBTQ Law Provokes Business Reprisals

“These laws are bad for people, bad for business and bad for job growth,” declared Brad Smith, Microsoft’s president and chief legal officer, in the wake of Anti-LGBTQ laws being enacted across the country. On March 23, 2016, Governor Pat McCrory signed House Bill 2 (HB2) into law. This bill destroyed all existing anti-discrimination protections for LGBTQ people throughout the state of North Carolina.

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Five Major U.S. Banks’ Living Wills Fail to Pass Regulatory Muster

On April 13, 2016, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) jointly announced that five major banks – JPMorgan Chase, Bank of America, State Street, Wells Fargo and Bank of New York Mellow – failed to fulfill an important regulatory requirement of the Dodd-Frank Act, the major piece of legislation introduced in 2010 by Congress following the 2008 debacle. The “living wills” provision of the Dodd-Frank Act demands that big banks provide regulators with carefully drafted plans for how they would deal with a potential bankruptcy. This ambitious section seeks to make it easier for bank regulators to oversee potential bankruptcies by providing an orderly method to avoid the kind of chaos that followed the Lehman Brothers’ bankruptcy. The current process requires banks to submit updated living wills every year. Whether living wills pass muster critically hinges on whether they are “credible.”

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Boston Bitcoin Startup Gains Crucial U.K. Toehold

Circle, a Boston-based Bitcoin start-up, was recently awarded the U.K.’s very first Electronic Money License. This award is a tangible sign of the English government’s commitment to promoting the development of financial technology. Furthermore Circle was not only selected for a license, it was also placed into the British “Innovation Hub,” which offers support to innovators in financial technology. The license allows Circle to help its customers transfer money via a mobile app in the U.K. This license also enables Circle to build a business relationship with Barclays, a major British bank that has tremendous interest in financial technology.

Circle, founded in 2013, is a start-up that allows its customers to use virtual currency in order to transfer money cheaply and quickly. It is backed by giant investors, such as Goldman Sachs and IDG Capital Partners. Traditional Bitcoin companies act as trading companies and focus their business on helping their customers buy and sell Bitcoins. Circle still possesses this traditional function, but their innovative emphasis is on facilitating the transfer of money between different national currencies. Customers can use dollars to buy Bitcoin and hold it for a short period of time before transferring the Bitcoin into pounds. By using Bitcoin as a medium, Circle allows people to exchange dollars and pounds instantly, with no cost. Circle customers will also be able to transfer money for euros in the near future, since its license is valid in the European Union as well.

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