Cross-border Financial Transactions Research Articles

Who watches the watchdogs? Central bank board members and banking supervisors in Switzerland (1907–2008)

ABSTRACT The Swiss financial center developed spectacularly during the 20th century, becoming one of the main hubs for cross-border financial transactions. The regulatory environment that enabled this growth is still poorly understood. This contribution examines the government appointees who controlled the banking supervisory institutions (Swiss National Bank and Federal Banking Commission). The focus is on the individuals who supervised those two institutions and analyzes the evolution of their board members from their creation, in 1907 and 1935 respectively, to 2008. This prosopographical study – using indicators such as gender, age, education, career paths and political affiliation – seeks to determine: a) their typical socio-professional profile, b) their closeness to the banking industry and c) their representativeness of society, politics, and business. My findings highlight both significant changes in the last decade of the century, with an increase in the level of education and a drop in political affiliation, and a long-term stability of the socio-professional profile of the board members: middle-aged to elderly men, with a PhD in law or economics, considerable experience in the banking or business world, and often an affiliation with the governing political parties. Both institutions were supervised by individuals with close connections to the financial industry. They became arenas for elite networking, simultaneously failing to represent large segments of society.

The role of European banking legislation for financial stability

In recent decades, financial institutions, including banks, insurers, pension funds and investment firms, have faced increasing regulatory changes, particularly within the European Union. Recent global events have further modified the financial regulatory framework of the European Union, and some changes also bring risks, requiring new supervisory tools. This article provides an overview of the changes, focusing on European banking and financial law, which is at the heart of three main economic topics: the financial market, financial-banking institutions and cross-border financial transactions. The dynamic nature of these regulations underlines the need for continuous adaptation in the industry. This article serves as an introduction to current developments for understanding the wider context of European financial law and its implications for stakeholders.

An analysis of transnational transfer of wealth through cross-border financial transactions

An analysis of transnational transfer of wealth through cross-border financial transactions

INTERNATIONAL FINANCIAL CENTERS IN THE GLOBAL ECONOMY

The article discusses the preconditions for the emergence and role of international financial centers (IFCs) as key institutions of the global financial market, which at the end of the 20th century acquired the most important function in the accumulation and circulation of international capital, which is closely connected with the globalization of the world economy. It traces the history of the emergence of IFC and analyzes the main trends in their development in the context of economic globalization, in particular their numerical growth, development and enlargement of regional IFCs, strengthening their influence on the development of the base country and the world economy. On the basis of new global trends and challenges of the 21st century, the analysis covers the prospects of IFCs’ development in the emerging information society and, in particular, the use of new financial technologies (fintech), rapidly spreading throughout the world. The study is based on empirical data provided by the renowned Global Financial Center Index (GFCI), which has been published annually since 2007. The article reveals the changing landscape of IFCs, which is determined primarily by the rapid development of new financial centers in East Asia and other regions of the world. The author concludes that international financial centers are playing an increasingly important role in the world economy and its financial sector. They perform their functions primarily through the management of cash and resource flows, cross-border financial transactions involving investors from different countries, structuring financial flows, providing various financial services, and also have a growing influence both on the management decisions of companies and on the management of national economies. In this role, IFCs are taking on the role of a geoeconomic instrument.

Redistribution of Wealth Through Cross Border Financial Transactions: A Closer Look

Contrary to existing literature, here we consider the foreign exchange reserve balance of a particular country as an indicator of how much goods, services and/or physical asset the country has transferred to the rest of the world in exchange of some fiat foreign currencies. On the other hand, the reserve balances of the rest of the world denominated in the currency of that particular country can be considered as the amount of goods, services and/or physical assets that the particular country has received from the rest of the world in exchange of its own fiat currencies. Hence, if we subtract the second quantity from the first one, we get an estimate of the extent of net non-monetary wealth that the particular country has transferred so far to the rest of the world in exchange of some fiat foreign money. We calculate the amount of net non-monetary wealth (thus defined) transferred to and from some major economies stemming from cross border financial transactions and analyze their long term and short term dynamics using VECM. The main objective of this study is to give a new perspective to what we conventionally mean by foreign exchange reserve of a country: Instead of assuming the reserve balance of a country as an asset we consider it as a measure of gross wealth (i.e., goods, services and physical asset) the country has transferred so far to other countries around the globe in exchange of some paper currencies with no intrinsic value.

Ownership Registration of Different Types of Legal Structures From an International Comparative Perspective. State of Play of Beneficial Ownership - Update 2020

This paper comparatively examines the registration and disclosure requirements of the ownership of legal entities (such as companies) and arrangements (such as trusts) across 133 jurisdictions, including all OECD and EU member states as of April 2020. Beneficial ownership transparency is widely considered to be a key policy for tackling illicit financial flows that encompass cross-border financial transactions for money laundering, tax evasion, corruption and the financing of terrorism. By identifying, registering and disclosing the identities of natural persons who ultimately own or control legal vehicles, the abuse of corporate secrecy can be prevented. Yet, for the verification of beneficial ownership data in cross-border settings, and for successfully tackling investment and hedge fund opacity, it is increasingly acknowledged that beneficial ownership information alone is not enough. Rather, registration of all legal owners is a prerequisite for the integrity of ownership data. Furthermore, ownership registration is arguably a crucial prerequisite for a straightforward functioning of the automatic exchange of information under the Common Reporting Standard, especially for Ultra High Net Worth Individuals. This paper provides the most comprehensive and in-depth analysis of the current state of play of both legal and beneficial ownership registration across the planet.

Developing Cross-Border Blockchain Financial Transactions under the Belt and Road Initiative

Abstract This article sets out a regulatory framework that facilitates blockchain cross-border financial transactions and examines how this framework can be implemented in the context of the Belt and Road Initiative (BRI). With increasing globalization and international trade, cross-border financial transactions are set to grow rapidly, especially across the Eurasian region.1 There are currently many challenges facing such transactions, from slow payment systems and different technical standards to varying legal and compliance systems.2 These challenges may be redressed by blockchain, which offers an efficient solution to the current mechanisms adopted in cross-border financial transactions. Currently, there are many experimental initiatives that seek to implement this technology to multiple fields, including remittances, clearance, and settlements.3 However, few researchers have considered in detail how this technology should be regulated in the BRI context. This article will be one of the first in-depth analyses of how laws and regulations can be applied to facilitate cross-border blockchain payments in the BRI context.

The Determination and Assessment of the Appropriateness of Interest Rates in the Case of Cross-Border Financial Transactions between Related Parties – A Case Study

Assessing the appropriateness of interest rates for loan relationships in multinational groups or corporate groups may be the subject of controversial discussions in tax audits. On the basis of a two-stage concept, the case study is intended to provide the practical determination of the interest rates for such transactions. This gradually developed case study serves as a fruitful instruction for consulting practice, administration and jurisdiction, while realizing an appropriate arms’ length interest rate.

Beneficial Ownership Transparency in Africa: The State of Play in 2020

Leak after leak has confirmed what African citizens have long suspected: the elite hide their actions and identities to loot state resources and reduce taxes owed. African countries are taking action to domestically address financial secrecy, including requiring the beneficial owners of companies, partnerships, foundations and trusts to register. In 2015, the High Level Panel on Illicit Financial Flows from Africa, established under the direction of the African Union and United Nations Economic Commission for Africa Conference of African Ministers of Finance, Planning and Economic Development, articulated the entrenched social and economic inequalities which blight many African countries. The High Level Panel was emphatic that the year-on-year hemorrhaging of government revenues was a fundamental obstacle to achieving sustained human development, the fulfillment of basic human rights and the ending of poverty. Identifying, registering and disclosing the people who ultimately own or control legal vehicles is a key policy for promoting and protecting domestic revenue mobilization that may otherwise be eroded by illicit cross-border financial transactions including money laundering, tax evasion and avoidance, corruption and terrorist financing. Ending anonymous ownership of companies and other legal entities through beneficial ownership disclosure was a key recommendation made by the High Level Panel. This report examines the state of beneficial ownership transparency in Africa today. It comparatively assesses the registration and disclosure requirements for the ownership of legal vehicles, including companies, partnerships, trusts and private foundations, across 17 African countries as of April 2020, drawing on the data of the 2020 edition of the Tax Justice Network’s Financial Secrecy Index and supplementary research of beneficial ownership legislation introduced after the publication of the index in February 2020. African countries are making progress towards ending the abuse of corporate secrecy and this paper discusses the state of play and possible next steps of action. Laws requiring beneficial ownership to be registered with a government authority have been enacted in seven of the African countries assessed during this study. However, no country in Africa, or indeed the world, yet achieves the ideal level of beneficial ownership registration for every type of legal vehicle. Beneficial ownership transparency can be more effective on the continent by improving legislation and implementation in the following ways: - Beneficial ownership provisions should apply to all legal vehicles in all sectors, including companies, partnerships, trusts and foundations. - All bearer shares should be prohibited or at least immobilized by a government authority. - The definition of beneficial owner should not have a minimum threshold, ie, it should apply to every shareholder holding at least one share. - Legal and beneficial ownership information provided should be comprehensive, accurate and up to date and for the full ownership chain. - Beneficial ownership registration information should be verified and non-compliance should be met with sanctions. - Registries housing legal and beneficial ownership information should be made publicly available.

A pénzmosás magyarországi jogi szabályozásának vázlata

A penzmosas folyamata soran az elkovetők a torvenytelen uton megszerzett penzt torvenyes forrasbol szarmazo profitkent igyekeznek feltuntetni, celjuk ennek ellenere nem a nyereseg realizalasa, hanem legalis reszcselekmenyek sorozatan keresztul a penz illegalis eredetenek elrejtese, majd a penzugyi rendszerbe tortenő bevezetese. Az elkovetők ennek soran a megszerezhető nyereseg akar jelentősebb hanyadarol is hajlandoak lemondani, mert a penzmosas eredmenyekent fennmarado osszeg meg igy is tetemes. A hatarokon ativelő penzugyi tranzakciok vegrehajtasaban, kivitelezeseben sok esetben offshore cegek, egyeb penzugyi vallalkozasok, befektetői csoportok vesznek reszt. Az egyre szigorodo penzugyi szabalyozas ellenpontjakent a bűnelkovetők uj tipusu elkovetesi modszerek iranyaba fordultak (alternativ penzugyi szolgaltatasok, anonim fold alatti bankrendszer, segelyszervezetek, alapitvanyok igenybevetele, kriptovalutak hasznalata etc.). A kaotikus, attekinthetetlen szervezeti strukturak, gyanus penzmozgasok vegső soron mind egy iranyba mutatnak: a tisztesseges piac műkodeset, a demokratikus jogallam penzugyi stabilitasat teszik kockara.

East Asia–Regional or Global Financial Integration?

The article considers the main directions of further financial integration of East Asian countries, developing deep and stable connections within the framework of global and regional economy. Currently, among the investment flows that lay ground for financial integration with other regions, the leading place is taken by funds from and to the countries of North America and Western Europe. At the same time, the growth in intraregional investment, especially in terms of assets, significantly exceeds growth from the group of developed countries, the share of participation of the latter in interregional relations is gradually decreasing. Through the development of regional integration at various levels of economic interaction, Asian countries are seeking ways to reduce vulnerability and contagion from the processes of financial globalization. While the trends in regional financial integration have certain advantages, they also involve some risks. On the one hand, the Asian region can benefit from greater financial diversification and reduce the concentration and dependence from western economies. On the other hand, this process can bring imported volatility from other countries of the region and reduce the regulatory counteraction from various types of shocks that arise in the economies of these countries and beyond. The intensity of further convergence of the financial markets and institutional arrangements of Asian countries will be largely determined by the scenarios of development of the world economy, as its slowdown and, consequently, decrease of activity in the global capital market clearly leads to strengthening of regional integration processes. The expansion of intraregional cross-border financial transactions requires a significant expansion of the regulatory framework for cooperation, the conclusion of two-and multilateral banking and investment agreements, as they directly determine the process of capital flows liberalization. As regional financial cooperation in Asia has not yet developed as in Western Europe and North America, it is important to pay attention to such essential elements as economic and financial supervision, normative harmonization of banking and securities market, strengthening of regional financial security system and maintenance of development of various segment of financial market, first of all bonds in local currency. In the process of work the basic methods of economic analysis were applied, namely basic system and statistical methods. The use of the system approach allowed to consider the movement of capital flows from an to Asia over a long period of time, the evolution of financial integration models. Calculations and comparisons, the construction of tables was carried out on the basis of statistical methods, which are applied for the study of currency and credit relations. The information base of the studies was based on reports and statistics of the World Bank (IBRD), the International Monetary Fund (IMF), the Asian Development Bank, as well as analytical materials of the Institute of World Economy and International Relations of RAS.

Bilateral Capital Flows: Transaction Patterns and Gravity

Holdings of cross-border bilateral assets are highly responsive to information frictions, market size, transaction costs, and trade ties. But empirical support using transactions data are constrained by the lack of comprehensive bilateral capital flows data covering large sample of economies for several years across investment and investor types. One expects that as information frictions weaken, transaction costs decline, and trade links strengthen, financial transactions between two economies will rise. This paper tests this hypothesis. Using bilateral Financial Accounts data from the Regional Balance of Payments Statistics of 10 advanced economies—yielding an unbalanced panel with 182 country pairs—for 2000-2016, the results provide strong evidence on the significance of information frictions, bilateral trade, transaction costs, and market size on bilateral capital flows. However, the findings show varying sensitivities of domestic and foreign investors to information asymmetries and trade ties. Moreover, investors appear to be more responsive to domestic transaction costs and foreign market size effects, than the converse. This study demonstrates an application of using bilateral capital flows data in revealing the patterns of international financial market segmentation still prevailing in cross-border financial transactions.

Openness, Government Size and Economic Growth in Nigeria

This paper investigates the relationship among openness, government size and economic growth in Nigeria. The study employed the autoregressive distributed lag (ARDL) approach to cointegration to investigate the relationship among the variables. Empirical estimates revealed that in the long run, financial openness and trade openness had an insignificant negative effect on economic growth while physical capital and government size had significant positive and negative effect on economic growth, respectively. In the short run, financial openness, physical capital and government size had significant negative effects on economic growth while trade openness had significant positive effect on economic growth. The study concluded that openness and government size do not positively contribute to the country's economic growth performance which implies that efforts by the government at removing restrictions to trade and cross-border financial transactions, as well as increases in government size have not yielded the desired economic benefits.

New Analysis of Capital Flight from Saudi Arabia: The Relation with Long-Term Economic Performance

This research provides new estimates of illicit capital flight from Saudi Arabia using the Residual methodology and accounts for the social opportunity cost of those unregulated funds in terms of forgone economic growth by utilizing the Incremental Capital-Output Ratio (ICOR) approach. The empirical findings reveal that over the period 1971-2015, capital flight from Saudi Arabia reached over 212 billion of 2010 USD, causing an annual average of 3.57 percent of wasted potential additional economic growth for the same period. When considering the median instead, an incremental 1.72 percent would have been added annually to the aggregate output growth in Saudi Arabia had capital flight not taken place with the observed pattern during the analysis period. The research concludes with important suggestions for extending this work and crucial remarks for policymakers to tackle unregulated cross-border capital flows and minimize the related consequences. Critical policy measures include coordination with trading partners and key investment destination for Saudi capital flows, as well as strengthening of the regulatory framework for cross-border financial transactions based on best international practices.

Regulations Deem Debt to Be Equity and Derivative Payments to Be Dividends

Two sets of regulations recently finalized by the US Treasury may significantly impact the structure of cross-border financial transactions with US exposure.

Changes and Responses in the International Monetary System

The international monetary system has not been successful in contributing to stable and high global growth while maintaining price and financial stability. Interconnection of financial markets, free cross-border financial transactions and interdependence of economies have expanded the effects of financial crises, resulting in global financial instability. Considering the difficulty of handling cross-border capital flows at the individual country level, international monetary coordination seems to be needed. For developing countries, cautious approach to capital account liberalization and active capital account management is required to maintain macroeconomic and financial stability. Central banks ought to move from narrow inflation targeting framework to multiple responsibilities framework and be involved with financial regulation and supervision in order to ensure price and financial responsibility with economic growth.

Cross-Border Financial Transactions and Arm’s Length Interest Rates: A Two-Step Approach

Financial transactions between related parties are often scrutinized in tax audits. In order to analyse whether the conditions (transfer prices) underlying these transactions, in particular regarding intercompany loans, are appropriate from a tax point of view, they have to be in line with the arm’s length principle. Given this, there is a substantial burden for the taxpayer as there are no precise regulations on how the arm’s length prices are to be determined, neither on a national nor on an international level. Subject of this article is to discuss cross-border financial intra-group transactions by taking into account economic as well as administrative reasoning. Basing on this discussion, a two-step approach is developed which combines the two pillars by providing an indication on how arm’s length prices could be determined on the one hand while also focusing on administrative issues on the other hand. This two-step approach could be applied to any kind of financial transactions.

Capital account liberalization and financial deepening: Does the private sector matter?

This paper tests, using cross-sectional and Generalized Method of Moments (GMM) dynamic panel estimation techniques, the effect of freeing cross-border financial transactions on financial sector development for a sample of 90 developed and developing countries over the period 1980–2009. it tests, specifically, if the effect of financial integration on financial deepening depends on some prerequisites in the economy. The main results of the paper are the following: First, in developing countries financial integration is not found to lead to higher financial development unless a set of prerequisites are already in place. Second, to have successful capital account liberalization in middle income countries, there is a need to develop the institutional environment and the private sector as prerequisites. Third, the effect of freeing cross-border capital flows on economic growth is found to depend on the same prerequisites in these countries.

Comment on “Connectivity in East Asia”

Brooks (2016) paper attempts to account for rising connectivity and integration in East Asia. The paper explains how improvements in logistics and infrastructure services have influenced Asia's trade in goods and services. It also discusses the role of information and communication technologies and cross-border direct investment on production networks and intra-firm trade in East Asia. The paper is on an important topic, and provides interesting analyses and conclusions. The extent of connectivity and integration of East Asian economies has increased significantly, both regionally and globally. Empirical findings suggest that economic interdependence between emerging East Asian and major industrial countries continued to increase in the recent decades. In addition, Asian economies have become increasingly interdependent (Kim & Lee, 2012). China plays a central role in Asian production networks, and segmented production for global supply chains has stimulated trade and direct investment in the region, with China as a hub. Linking locations to enable the flow of goods, services, finance, technology, and people are certainly beneficial to the connected economies. As emphasized in Brooks (2016), a high degree of economic openness and integration was a vital ingredient of East Asia's success. Outward-looking export-led industrialization helped Asian economies grow rapidly by exploiting large external markets and imitating advanced technologies. Nonetheless, Brooks seems too credulous with the benefits of connectivity and integration. The global financial crisis of 2008–2009 highlights the risks of Asia's excessive dependence on exports. The region took a hit from the sharp decline in the demand for its exports, and saw many of its economies shrink. While Asian emerging economies were relatively resilient during the global recession, as strong and stable growth in China supported export-led recovery for the rest of Asia, the recent slowdown in Chinese economy triggers worries about sustained growth of Asian economies. The growth rate of China was 6.8% in 2015, the slowest since 1990, and it is expected to continue slowing down, which is a significant threat to the rest of Asia, in particular exporters of commodities and capital goods. It is debatable whether Asian economies should continue to promote integration and pursue export-led growth. Under current uncertain global environments and downside risks in China, emerging Asian economies must pursue appropriate policy measures to rebalance sources of growth and improve productivity (Kawai & Lee, 2015). Lee and McKibbin (2014) suggest that enhancing productivity in the service sector in Asia is critical to more balanced and sustainable growth of Asian economies. Whether enhancing connectivity in financial flows is as beneficial as trade connectivity is an important issue. Financial flows as well as direct investment have been significantly active within the region, contributing to interconnected Asian economies. Since the Asian financial crisis, Asian governments have promoted cross-border financial transactions through financial market deregulation and capital account liberalization. The measures for the extent of financial integration—quantity- and price-based measures—show significant progress in Asia's financial integration (Kim & Lee, 2012). Cross-border financial integration helps each country to be insured against country-specific income risks. It often contributes to the development of the domestic financial system and regional financial cooperation. In contrast to these general benefits, greater financial integration can also incur costs by increasing the sensitivity to external shocks and spillovers. Indeed, the Asian financial crisis in 1997–1998 and recent global crisis 2008–2009 exposed weaknesses in emerging Asia's financial sectors. The region's financial systems still remain inefficient, unable to maintain the pace of change and transformation occurring in real sector. Asian countries must pursue right policies to reap the benefits of financial integration. To strengthen the financial environment against the volatile external shocks, Asian economies need to improve financial sectors' weaknesses while developing more effective financial supervision and regulation and macroeconomic policy frameworks. An interesting question is whether Asian economies should push for greater regional trade interdependence, rather than globally, when larger global markets can bring larger welfare gains to trading partners. Brooks points out a number of cases supporting regional integration. For instance, it is pointed out that while geographical distance becomes less important for trade in goods and services, “comparative advantage of the region matters as much as that of the country when it comes to joining a global value chain.” The state of physical and ICT infrastructure is quite diverse across economies. The costs and benefits of intra-regional integration and specific cross-border infrastructure investment should be assessed accurately in order to design effective policies (for example, in terms of the area and sequencing of cross-border infrastructure investments) that can maximize the benefits of connectivity in the region.

Cross-Border Intra-Group Financial Transactions - Evidence from Germany

Literature provides evidence of profit shifting of MNEs, particularly by intercompany debt. Therefore, we conducted a broad empirical investigation (survey), focusing on specific issues regarding cross-border intra-group financial transactions. This paper aims to work out empirical evidence of cross-border intra-group financial transactions behavior of MNEs in Germany and tends to introduce and evaluate the respective empirical results in order to provide first significant insights regarding this (not only) tax relevant issue.