Banking and Finance Law Commons^™

The Environmental, Social, Governance (Esg) Debate Emerges From The Soil Of Climate Denial, Lawrence J. Trautman, Neal Newman

Faculty Scholarship

It has been almost six decades since Rachel Carson’s ominous warning of pending environmental disaster. During 2019 the United Nations requested urgent action from world leaders, given that “just over a decade is all that remains to stop irreversible damage from climate change.” With every passing year, damage resulting from destructive climate change causes increased pain, suffering, death and massive property loss. During 2020 and 2021 alone, severe weather events have included: destructive fires in California; record breaking freeze, power outage, and threat to the electrical grid in Texas; continuation of disruptive drought in U.S. Western states; and record-breaking high …

Bargaining In The Shadow Of Investor-State Mediation: How The Threat Of Mediation Will Improve Parties' Conflict Management, Andrea Kupfer Schneider, Nancy A. Welsh

Faculty Scholarship

Issues of access to justice, threats to national sovereignty, and perceptions of inconsistency and arbitrariness have led to a crisis of confidence in the investor-state arbitration system. In response, there has been a successful push for the inclusion of mediation in treaty provisions and arbitration rules, as well as ratification of the Singapore Convention for the expedited enforcement of mediated agreements. Nonetheless, very little mediation is actually occurring on the ground. Efforts to increase the use of mediation have failed to address concerns such as the political costs of settling cases, the lack of coordination between state agencies with different …

The Evolution Of Offshore: From Tax Havens To Ifcs, Andrew P. Morriss, Charlotte Ku

Faculty Scholarship

Over the past 70 years, many smaller jurisdictions have evolved intro international financial centres (IFCs). Although different in their historic origins and in the financial products and services they offer, IFCs share a common development path. Understanding that evolution can shed light on what the next decade is likely to bring.

Innovation Versus Encrustation: Agency Costs In Contract Reproduction, Stephen J. Choi, Mitu Gulati, Robert E. Scott

Faculty Scholarship

This article studies the impact of exogenous legal change on whether and how lawyers across four different deal types revise their contracts’ governing law clauses in order to solve the problem that the legal change created. The governing law clause is present in practically every contract across a wide range of industries and, in particular, it appears in deals as disparate as private equity M&A transactions and sovereign bond issuances. Properly drafted, the clause increases the ex ante economic value of the contract to both parties by reducing uncertainty and litigation risk. We posit that different levels of agency costs …

Regulating Offshore Finance, William J. Moon

Faculty Scholarship

From the Panama Papers to the Paradise Papers, massive document leaks in recent years have exposed trillions of dollars hidden in small offshore jurisdictions. Attracting foreign capital with low tax rates and environments of secrecy, a growing number of offshore jurisdictions have emerged as major financial havens hosting thousands of hedge funds, trusts, banks, and insurance companies.

While the prevailing account has examined offshore financial havens as “tax havens” that facilitate the evasion or avoidance of domestic tax, this Article uncovers how offshore jurisdictions enable corporations to evade domestic regulatory law. Specifically, recent U.S. Supreme Court cases restricting the geographic …

Hls 200: A Latina's Story About The Bicentennial, Margaret E. Montoya

Faculty Scholarship

This essay sketches an arc from my childhood to being an Harvard Law School student to my academic work and professional commitments as a law professor and an alumna of Harvard Law School, working to increase access and success in the legal and medical professions for students and faculty of color. I compare aspects of legal and medical education using demographic data as well as some observations about how diverse faculty have transformed the two professions in their respective approaches to and rationales for diversifying the professions and examine the work being done by diverse faculty in law and health. …

The Price Of Law: The Case Of The Eurozone's Collective Action Clauses, Elena Carletti, Paolo Colla, Mitu Gulati, Steven Ongena

Faculty Scholarship

Do markets value contract protections? And does the quality of a legal system affect such valuations? To answer these questions we exploit a unique experiment whereby, after January 1, 2013, newly issued sovereign bonds of Eurozone countries under domestic law had to include Collective Action Clauses (CACs) specifying the minimum vote needed to modify payment terms. We find that CAC bonds trade at lower yields than otherwise similar no-CAC bonds; and that the quality of the legal system matters for this differential. Hence, markets appear to see CACs as providing protection against the legal risk embedded in domestic-law sovereign bonds.

Differing Perceptions? Market Practice And The Evolution Of Foreign Sovereign Immunity, W. Mark C. Weidemaier, Mitu Gulati

Faculty Scholarship

The 20th century witnessed a transformative, “tectonic” shift in international law, from “absolute” to “restrictive” theories of sovereign immunity. As conventionally understood, however, this dramatic transformation represented only a shift in the default rule. Under absolute immunity, national courts could not hear lawsuits and enforce judgments against a foreign sovereign without its consent. Under restrictive immunity, foreign sovereigns were presumptively not immune when they engaged in commercial acts. We demonstrate that market practices undermine this conventional understanding. Using an extensive, two-century data set of contracts between foreign governments and private creditors, we show that contracting parties have long treated absolute …

Sovereign Debt And The “Contracts Matter” Hypothesis, W. Mark C. Weidemaier, Mitu Gulati

Faculty Scholarship

The academic literature on sovereign debt largely assumes that law has little role to play. Indeed, the primary question addressed by the literature is why sovereigns repay at all given the irrelevance of legal enforcement. But if law, and specifically contract law, does not matter, how to explain the fact that sovereign loans involve detailed contracts, expensive lawyers, and frequent litigation? This Essay makes the case that contract design matters even in a world where sovereign borrowers are hard (but not impossible) to sue. We identify a number of gaps in the research that warrant further investigation.

A Model-Law Approach To Sovereign Debt Restructuring, Steven L. Schwarcz

Faculty Scholarship

Unresolved sovereign debt problems are hurting debtor nations, their citizens and their creditors, and also can pose serious systemic threats to the international financial system. The existing contractual restructuring approach is insufficient to make sovereign debt sustainable. Although a more systematic legal resolution framework is needed, a formal multilateral approach, such as a treaty, is not currently politically viable.

An informal model-law approach should be legally, politically and economically feasible. Individual countries could enact the proposed model law as their domestic law. Because most sovereign debt contracts are governed by either New York or English law, it would be especially …

From Territorial To Monetary Sovereignty, Katharina Pistor

Faculty Scholarship

State sovereignty is closely intertwined with, but not limited to, control over territory and people. It has long been recognized that control over monetary affairs is a critical part of genuine sovereignty. In this Article, I go a step further and argue that the relevance and importance of territorial versus monetary sovereignty has shifted in favor of the latter. This shift goes hand in hand with the rise of credit-based financial systems. Such systems depend, in the last instance, on backstopping by an entity with control over its own money supply and no binding survival constraints. Only states with monetary …

Understanding The Global In Global Finance And Regulation, Lawrence G. Baxter

Faculty Scholarship

No abstract provided.

25 Years, Where Are We Now? Global Trade & Sovereign Debt, Steven L. Schwarcz

Faculty Scholarship

No abstract provided.

The Relevance Of Law To Sovereign Debt, W. Mark C. Weidemaier, Mitu Gulati

Faculty Scholarship

The literature on sovereign debt treats law as of marginal significance, largely because the doctrine of sovereign immunity leaves creditors few potent legal remedies against sovereign borrowers. Although sovereign debts can indeed by hard to enforce, the goal of this Essay is to demonstrate that law plays a central, and constantly evolving, role in structuring sovereign debt markets. To list just a few examples, legal rules and institutions (i) decide when a borrower is sovereign, (ii) define the consequences of sovereignty by drawing (or refusing to draw) artificial boundaries between the sovereign and other legal entities, (iii) play some role …

Bank Resolution In The European Banking Union: A Transatlantic Perspective On What It Would Take, Jeffrey N. Gordon, Wolf-Georg Ringe

Faculty Scholarship

The project of creating a Banking Union is designed to overcome the fatal link between sovereigns and their banks in the Eurozone. As part of this project, political agreement for a common supervision framework and a common resolution scheme has been reached with difficulty. However, the resolution framework is weak, underfunded and exhibits some serious flaws. Further, Member States' disagreements appear to rule out a federalized deposit insurance scheme, commonly regarded as the necessary third pillar of a successful Banking Union. This paper argues for an organizational and capital structure substitute for these two shortcomings that can minimize the systemic …

A National Mineral Policy As An International Investment Law Stratagem: The Case Of Tajikistan's Gold Reserves, Nadia B. Ahmad

Faculty Scholarship

No abstract provided.

Comments On The September 29, 2014 Fsb Consultative Document, ‘Cross-Border Recognition Of Resolution Action’, Steven L. Schwarcz, Mark Jewett, Bruce Leonard, Catherine Walsh, David Kempthorne

Faculty Scholarship

This CIGI Paper No. 51 was released on December 3, 2014 by the Centre for International Governance Innovation (CIGI) as a response to the Financial Stability Board’s (FSB) Consultative Document, “Cross-Border Recognition of Resolution Action.” Principally authored by CIGI Senior Fellow Steven L. Schwarcz (who works with the think tank’s International Law Research Program), the Paper comments on the policy measures proposed by the FSB, an international body that monitors and makes recommendations about the global financial system, to address the cross-border legal uncertainties of troubled systemically important financial firms. In that context, the Paper explains why a statutory approach …

Whose Trojan Horse? The Dynamics Of Resistance Against Ifrs, Martin Gelter, Zehra Kavame Eroglu

Faculty Scholarship

The introduction of International Financial Reporting Standards (“IFRS”) has been debated in the United States since at least the accounting scandals of the early 2000s. While publicly traded firms around the world are increasingly switching to IFRS, often because they are required to do so by law or by their stock exchange, the Securities Exchange Com-mission (“SEC”) seems to have become more reticent in recent years. Only foreign issuers have been permitted to use IFRS in the United States since 2007. By contrast, the EU has mandated the use of IFRS in the consolidated financial statements of publicly traded firms …

Extraterritorial Financial Regulation: Why E.T. Can't Come Home, John C. Coffee Jr.

Faculty Scholarship

This Essay begins with a deliberately off-putting title: extraterritorial financial regulation. Old-time "conflict of laws" scholars would call this an oxymoron, pointing to recent Supreme Court decisions – most notably, Morrison v. National Australia Bank Ltd. and Kiobel v. Royal Dutch Petroleum Co. – that have applied a strong presumption against extraterritoriality to curb the reach of U.S. law. Even those international law scholars who are sympathetic to the regulation of multinational financial institutions might prefer to avoid this term and talk instead of "global financial regulation" because they conceptualize international financial regulation as implemented through networks of cooperating multinational …

Rwanda -- Cutting-Edge Vat Compliance, Richard Thompson Ainsworth, Goran Todorov

Faculty Scholarship

On August 26, 2013 the Ministerial Order on Modalities of Use of Certified Electronic Billing Machine, No. 002/23/10TC of 31/07/2013, was published in the Official Gazette of Rwanda. This Order has set loose a technology revolution in VAT compliance that promises business efficiencies, and revenue enhancements that are only imagined in more developed countries. To open the door to technology Rwanda has taken the traditional digital invoice security model, and connected it to a central security portal at the Rwanda Revenue Authority (RRA). Rwanda will now be able to securely monitor transactions in close to real-time (oversight is on-demand).

American Vat – The Carousel Fraud Threat: Will The Eu Show The Us The 'Way Forward', Richard Thompson Ainsworth

Faculty Scholarship

On Thursday, March 29, 2007 the European Commission, Directorate-General for Taxation and Customs Union, will host a one-day Conference on Fiscal Fraud – Tackling VAT Fraud: Possible Ways Forward. The conference is based on the Communication of May 31, 2006 explaining the need to develop a coordinated strategy to improve the fight against fiscal fraud. This paper indicates that the EU examination of carousel fraud points the way forward for advocates of a US VAT as well.

About 40% of EU VAT fraud appears to be 'missing trader intra-community' (MTIC) or carousel fraud. The best estimates of EU losses to …

Tackling Vat Fraud: Thirteen Ways Forward, Richard Thompson Ainsworth

Faculty Scholarship

In a May 31, 2006 Communication to the Council, the European Parliament, and the European Economic and Social Committee, the European Commission indicated a need to develop a coordinated strategy to improve the fight against fiscal fraud [COM (2006) 254 final]. Although the Communication considers fiscal fraud broadly (VAT, excise duties and direct taxes) the most pressing need seems to be for a VAT strategy that will effectively deal with carousel fraud.

This paper considers thirteen proposals that deal with missing trader intra-community fraud (MTIC):

(1) Common VAT (origin system) (2) Vanistendael’s foreign tax offices proposal (3) CVAT (Compensating VAT) …

Vogtländische Straβen-,Tief- Und Rohrleitungsbau Gmbh Rodewisch (Vstr) V. Finanzamt Plauen – Vat Triangulation V. Drop Shipments, Richard Thompson Ainsworth

Faculty Scholarship

In ECJ Case 587/10 (Vogtländische Straβen-,Tief- und Rohrleitungsbau GmbH Rodewisch (VSTR) v. Finanzamt Plauen) an American firm, Atlantic International Trading Company (AIT) is a middleman in an otherwise all-European VAT triangulation. AIT appears to have approached its compliance obligations as if it was a middleman in an American drop shipment.

However, drop shipments are treated very differently from VAT triangulations.

Commercially these transactions are very similar. They are composed of two back-to-back sales, A/B followed by B/C, with a single delivery from A directly to C. This article compares the tax treatment of drop shipments under the RST with triangulation …

Stopping Mtic -- With A 3rd Invoicing Directive, Richard Thompson Ainsworth

Faculty Scholarship

A Third Invoicing Directive for the EU VAT seems to be a foregone conclusion. Corrections are needed in the Second Invoicing Directive. The hallmark of the next Directive will be its application of digital invoice technology. The Commission’s proposals will include adoption of tax-technology advances in invoice-control that are currently in use outside the EU. The next Invoicing Directive will require comprehensive e-invoicing, invoices that are digitally signed, and invoices that are fed into a system of relational databases that match transaction data across the Single Market. There will be real-time EU sales/purchases lists, and remote/real-time audit functionality.

This will …

Collective Action Clauses For The Eurozone, Michael Bradley, Mitu Gulati

Faculty Scholarship

One of the primary policy initiatives instituted in response to the Eurozone sovereign debt crisis is a requirement that all Eurozone sovereign bonds issued after January 1 2013 include provisions referred to as Collective Action Clauses or CACs. These CACs allow for a super-majority of creditors to impose restructuring terms on minority holdouts. This article assesses the likely effect of this proposal on the borrowing costs of sovereign debtors. Contrary to much of the literature, we find that the presence of CACs leads to a lower cost of capital, especially for below-investment grade bonds

Revisiting Sovereign Bankruptcy, Lee C. Buchheit, Anna Gelpern, Mitu Gulati, Ugo Panizza, Beatrice Weder Di Mauro, Jeromin Zettelmeyer

Faculty Scholarship

Sovereign debt crises occur regularly and often violently. Yet there is no legally and politically recognized procedure for restructuring the debt of bankrupt sovereigns. Procedures of this type have been periodically debated, but so far been rejected, for two main reasons. First, countries have been reluctant to give up power to supranational rules or institutions, and creditors and debtors have felt that there were sufficient instruments for addressing debt crises at hoc. Second, fears that making debt easier to restructure would raise the costs and reduce the amounts of sovereign borrowing in many countries. This was perceived to be against …

Real-Time Collection Of The Value-Added Tax: Some Business And Legal Implications, Richard Thompson Ainsworth, Boryana Madzharova

Faculty Scholarship

Recent estimates of the level of VAT fraud in the EU are commensurate with the EU budget. With the Green paper on the future of VAT, the European Commission stressed the urgency and necessity of comprehensive VAT reforms. This paper analyses the business and legal implications of the recently proposed split-payment mechanism, which, if implemented, would move VAT’s method of collection to real-time. The discussion is positioned in the context of two increasingly visible trends in the EU – the general shift towards greater reliance on indirect taxation and the growing popularity of electronic payment instruments. The potential implementation of …

Vat Fraud In The Customer Chain - The German Perfect Storm Cases, Richard Thompson Ainsworth

Faculty Scholarship

German civil and criminal courts have not always agreed over whether to allow a taxpayer to zero-rate intra-Community supplies when the taxpayer making the supply knew (or should have known) that his buyer in the other Member State intended to fraudulently evade VAT as a missing trader. This is no longer the case. Zero-rating of intra-community supplies is now being denied in German civil and criminal courts.

This paper considers how far Germany appears to be extending the law in this area. In 2011 six cases were heard by the Bundesfinanzhof (German Supreme Tax Court) that demonstrate both (a) the …

Mahagében Kft & Péter Dávid: Re-Directing The Eu Vat's Perfect Storm, Richard Thompson Ainsworth

Faculty Scholarship

On June 21, 2012 the Court of Justice of the European Union (CJEU) rendered judgment on two Hungarian references, Mahagében kft v. Nemzeti Adó-és Vámhivatal Dél-dunántúli Regionális Adó Fölgazgatósága and Péter Dávid v. Nemzeti Adó-és Vámhivatal Dél-dunántúli Regionális Adó Fölgazgatósága (Mahagében/Dávid). The Mahagében/Dávid decisions clarify the CJEU’s earlier holdings in the joined cases of Alex Kittel v. Belgium and Belgium v. Recolta Recycling SPRL (Kittel/Recolta).

Kittel/Recolta is a critically important decision. It is central to the EU’s anti-fraud effort. It is one of three legal imperatives that earlier this year appeared to be coalescing into a Perfect (enforcement) Storm.

After …

Refund Fraud? - Real-Time Solution! Digital Security Borrowed From The Vat (Brazil, Quebec, & Belgium), Richard Thompson Ainsworth

Faculty Scholarship

This article provides support for a proposal to eliminate refund fraud in the U.S. by turning Forms W-2, and 1099 into self-certified/ self-authenticated tax documents. The proposal suggests that a “digital signature” of these documents should be taken after they are completed. The signature should then be made part of the final document.

This proposal was initially advanced in Refund Fraud? Real-Time Solution! The underlying premise of that article was that the US could dramatically reduce, if not eliminate, refund fraud if it borrowing digital security techniques from the VAT. The article did not however, explain or expand upon these …