The Commerce Department’s Bureau of Economic Analysis (BEA) continues to broaden reporting requirements for its various surveys by mandating that all qualifying business entities submit government surveys during “benchmark” years (every five years). The BE-180 “Benchmark Survey of Financial Services Transactions Between U.S. Financial Services Providers and Foreign Persons,” is the most recent BEA requirement. The benchmark survey for fiscal year 2014 is required from all entities “subject to the reporting requirements of the BE-180 . . . whether or not they are contacted by BEA.” 80 Fed. Reg. 28818.1
When is the BE-180 filing due?
In its May 20, 2015, Federal Register Notice, BEA had set an October 1, 2015, deadline for the submission of these benchmark surveys by all US financial services providers. However, with experience as its teacher, BEA quickly realized that the deadline might be optimistic, and thus promulgated both “automatic extensions” and guidance for seeking further extensions.
Automatic extensions are available until November 1, 2015, under the following circumstances:
- If the U.S. Reporter was notified of the BE-180 survey by BEA and has a BE-180 identification number below 140012490; or
- If the U.S. Reporter was not notified of the BE-180 survey by BEA and does not have a BE-180 identification number.
Automatic extensions are granted to December 1, 2015, if the U.S. Reporter was notified of the BE-180 survey by BEA and has a BE-180 identification number above 140012490.
In addition to these automatic extensions, BEA will consider further extensions up to 30 or 60 days, depending on the reasons for the extension, as noted in the following guidance:
- If the automatic extension applies based on the company’s BE-180 identification number, BEA will consider extensions up to an additional 30 days if a request is submitted by November 1, 2015. These requests can be submitted either by calling BEA at 202 606 5588 or sending an e-mail to email@example.com.
- For entities not notified by BEA and who do not have a BE-180 identification number, extensions up to an additional 60 days beyond November 1, 2015, can be obtained by following the process at http://www.bea.gov/surveys/pdf/be180_eFile_online_instructions.pdf, which is essentially the process for first obtaining a BE-180 identification number, then asking for the extension. These extension requests also must be filed by November 1, 2015.
Only a properly completed filing will comply with the deadline. Thus, a submission must be either a “fully completed and certified BE-180 report” or a properly submitted “qualifying exemption claim,” with either pages 1-5 or 1-3 submitted. 80 Fed. Reg. 28821 (May 20, 2015). As a practical matter, however, BEA excuses erroneous exemption claims made in good faith and will, where such errors occur, request the full filing.
What is the BE-180—background
The BE-180 is a mandatory survey (for those to whom it applies, as described below), conducted every five years by BEA under the authority of the International Investment and Trade in Services Survey Act, 22 U.S.C. 3101-3108 (the “Act”). Section 3103(b) of the Act provides that “with respect to United States direct investment abroad … the President shall conduct a comprehensive benchmark survey at least once very five years.” In Section 3 of Executive Order 11951, as amended by Executive Orders 12318 and 12518, the president delegated responsibility for performing functions under the Act concerning direct investment to the Secretary of Commerce, who in turn delegated it to BEA.
Who must file the BE-180—everyone?
Virtually every financial services provider, as defined in the BEA regulation and instructions, must make a filing of some portion of the BE-180. Thus, the first determination is whether your entity meets the definition of “financial services provider.” A financial services provider for purposes of the BE-180 is an entity that provides financial services as defined in North American Industry Classification System (NAICS) codes 52 and 55.2 Perhaps recognizing that these are broad NAICS codes and hoping to avoid at least some questions, BEA provides a detailed definition of financial services, and a number of examples to help entities determine whether their business must report. BEA also allows for good faith errors by including in the final rule the following guidance: “[t]he determination of whether a U.S. financial services provider or intermediary is subject to this mandatory reporting requirement may be based on the judgment of knowledgeable persons in a company who can identify reportable transactions on a recall basis, with a reasonable degree of certainty, without conducting a detailed manual records search.” 80 Fed. Reg. 28821 (May 20, 2015); 15 CFR 801.12(b)(i). In other words, a company is not expected to conduct a detailed search just to see if it had a one-off or occasional activity that might qualify it as a financial services provider.
Ultimately, however, the NAICS codes govern, and submissions are therefore required from a wide range of entities in the financial industry, whether they provide these services directly or as an intermediary. The General Instructions that accompany the BE-180 include the following definition of “financial services”:
Financial services include trading, issuing, dealing, underwriting, lending, custody, etc., of financial instruments; financial advisory or management services; credit card services; credit-related services (including establishing, maintaining, or arranging credit, letters of credit, lines of credit, mortgages, etc.); financial rating services; electronic funds transfer services; insurance services; etc. These services typically are performed by firms classified in Sector 52 — Finance and Insurance [and Sector 55] -- holding companies, from [the NAICS].
The General Instructions elaborate somewhat on this definition, providing a list of financial services covered, as well as a list of financial services not covered. Each of these services is defined, often at length. Entities are included in the BE-180 definition of “financial services provider” if their business includes, either directly or as an intermediary:
- Brokerage services
- Underwriting and private placement services related to debt or equity transactions
- Financial management services
- Credit-related services
- Credit card services
- Financial advisory and custody services
- Securities lending services
- Electronic funds transfer services.
Excluded services include:
- Stock quotation and financial information services
- Insurance premiums and losses
- Commissions on insurance
- Annuity purchases
- Pension fund contributions and benefits
- Interest and dividend receipts and payments
- Premiums and other proceeds from writing options, forwards, futures and swaps
- Earnings of principals from buying and selling of financial instruments
- Foreign currency exchange transactions
- Bond transactions
Although not defined in the form or instructions, the Federal Register notice provides what appears to be the applicable definition of intermediary services covered. These activities are in addition to the direct financial services included in the definitions:
- Depository credit intermediation and related activities (including commercial banking, savings institutions, credit unions, and other depository credit intermediation);
- Activities related to credit intermediation (including mortgage and nonmortgage loan brokers, financial transactions processing, reserve, and clearinghouse activities, and other activities related to credit intermediation); and
- Securities and commodity contracts intermediation and brokerage, and securities and commodity exchanges.3
Once an entity determines that it is a covered financial services provider, the BE-180 instructions confirm the filing requirement applies even to those entities that do not meet the minimum threshold for a full report—$3 million of either sales and/or purchases.4 The second question then is whether the entity must submit a “full” report or only certain limited information. A full BE-180 report must be filed by each US entity that:
- Is a financial services provider or intermediary, or whose consolidated US enterprise includes a separately organized subsidiary or part that is a financial services provider or intermediary; and
- Had either combined sales to foreign persons of financial services in excess of $3 million for fiscal year 2014 or combined purchases from foreign persons of financial services in excess of $3 million for fiscal year 2014;5 or
- Entities that had combined sales and combined purchases of financial services of $3 million or less, if the entity was notified by BEA about the survey.
Even if a full report is not required (i.e., the entity does not exceed the mandatory threshold of $3 million), entities that provided financial services directly to foreign persons are required to complete and submit the report through page 5. These entities do not need to submit the detailed transactional data called for in the schedules.
The aspect that threatens to catch many US firms unaware is that which requires a filing, albeit the least amount of information. According to the instructions on page 1 of the BE-180 and the General Instructions, even financial services providers that do not have any financial services transactions directly with foreign persons must complete and submit pages 1 through 3 of the BE-180. As with prior benchmark surveys, BEA’s instructions mandate that virtually every covered entity submit at least the identifying information in the BE-180. In prior conversation with BEA, where the instructions appeared to capture all US enterprises in earlier surveys, BEA representatives indicated that this was not the intent. Nonetheless, the form and instructions clearly indicate that US financial services providers must submit pages 1 through 3, even if they do not directly “have financial services transactions . . . with foreign persons.” Thus, caution should be exercised before relying upon such informal information, should it be obtained here. See, e.g., United States v. Lachman, 387 F.3d 42 (1st Cir. 2004) (“informal statements” by agency officials are not binding and parties should utilize available formal processes).
Though the breadth of coverage in the BE-180 is designed to provide as much information to the government about the US financial services sector as possible, both to enhance the benchmark survey and to allow BEA to identify entities from whom it will require subsequent annual or quarterly reports, it is likely that entities that do not provide or purchase financial services from foreign persons will not readily realize that the filing requirement applies to them in its basic form. At the same time, the extensions suggest that BEA recognizes many first-time filers will not have experience with this reporting requirement, and therefore will need additional time to comply.
What information is required for the full BE-180 filing?
A financial services provider is required to provide information regarding its transactions with foreign persons. The General Instructions list four (4) types of covered transactions that should be reported, and two (2) types of transactions that should not be reported. Parties should report:
- Transactions with affiliated foreign persons as well as with unaffiliated foreign persons;
- Transactions between the US entity and a foreign person, whether the service was performed in the United States or abroad;6
- Transactions with US affiliates of foreign firms for the account of their foreign parent firm, which should be reported as transactions with unaffiliated foreign persons; and
- Transactions with foreign persons made by the US entity’s foreign affiliate for the US entity’s account, which should be reported as transactions with unaffiliated foreign persons.
Parties should not report:
- Transactions with US affiliates of foreign firms for their own account, which are considered domestic-to-domestic for the purposes of the BE-180; and
- Transactions with foreign persons made by the US entity’s foreign affiliates for their own account.
BE-180 reports must be submitted using BEA’s online form and process, which includes Schedules A and B7 for reporting the amount of sales and/or purchases. Each schedule organizes the component transactions which make up the total purchase or sale amount by country. Within each country, the transaction amounts are further separated into one of three categories, depending on the parties involved in the total sales or purchases with that country (foreign affiliate; foreign parent group; or unaffiliated foreign person). Thus, companies with a large number of smaller transactions in several countries may find the submission more burdensome.
Because BEA purposely defines terms broadly with the apparent goal of generating as much data as possible, familiarity with key BEA definitions is helpful. Several salient definitions demonstrate this aspect of the filing requirement:
- Person includes any individual, branch, partnership, associated group, association, estate, trust, corporation, or other organization (whether or not organized under the laws of any state), and any government (including a foreign government, the United States government, a state or local government, and any agency, corporation, financial institution, or other entity or instrumentality thereof, including a government sponsored agency).
- Affiliate means a business enterprise located in one country that is directly or indirectly owned or controlled by a person of another country to the extent of 10 percent or more of its voting stock for an incorporated business or an equivalent interest for an unincorporated business, including a branch.
- Foreign affiliate means an affiliate located outside the United States in which a US person has direct investment.
- US affiliate means an affiliate located in the United States in which a foreign person has direct investment.
- Foreign affiliate of a foreign parent means, with reference to a given US affiliate, any member of the affiliated foreign group owning the US affiliate that is not a foreign parent of the US affiliate
- Foreign parent group means (i) the foreign parent, (ii) any foreign person, proceeding up the foreign parent’s ownership chain, that owns more than 50 percent of the person below it, up to and including the person that is not owned more than 50 percent by another foreign person, and (iii) any foreign person, proceeding down the ownership chain(s) of each of these members, that is owned more than 50 percent by the person above it.
- Affiliated foreign person means, with respect to a given US person in a direct investment relationship, (i) a foreign affiliate of which the US person is the US parent, or (ii) the foreign parent or other member of the affiliated foreign group of which the US person is a US affiliate.
- Unaffiliated foreign person means, with respect to a given US person, any foreign person that is not an affiliated foreign person as defined in paragraph 4.
Nothing can substitute for a full reading of the regulation and the BE-180 instructions, which include a significant amount of detail regarding the filing requirements.
Penalties for non-compliance
The BEA survey requirements are not completely without teeth, and non-compliance can subject an entity to civil penalties and the entity and its officers, directors and employees to criminal punishment for willful violations. Under 31 C.F.R. § 806, non-compliance can result in:
- Civil penalties from $2,500 to $27,500 for failure “to furnish any information required” or “to comply with any rule, regulation, order or instruction promulgated under the Act,” and to injunctive relief commanding such person to comply.
- Criminal penalties up to $10,000, and/or imprisonment up to one (1) year, for individuals, may be imposed for willful failure “to submit any information required by the Act” or willful violation of “any rule, regulation, order or instruction promulgated under the Act.” Any officer, director, employee, or agent of any corporation who knowingly participates in such violations, upon conviction, may be punished by a like fine, imprisonment or both.