From the highest level of the US Treasury, the White House, the US State Department and the Central Intelligence Agency and its subsidiaries such as the lethal Office of Naval Intelligence ONI , the mindset, intention and perverse primary objective has all along been to resume Fraudulent Finance based on securitisation, as quickly and as seamlessly as possible.
For example, the contracts are themselves VOID. This is because the process of securitisation involves several contracts that are either signed simultaneously, or within a short timeframe — many of which are rendered void inter alia because there is no consideration in contracts used in effecting the securitisations.
Many such contracts involve unilateral executory undertakings containing illusory promises. A unilateral executory promise is not a consideration. Such promises typically include a promise made by the Special Purpose Vehicle to pay out periodic interest, whether contingent or non-contingent on whether the collateral pays cash interest.
Collateral-substitution agreements contain a promise whereby the sponsor agrees to substitute impaired collateral. An assignment agreement of future not yet existing collateral may well be deemed a unilateral executory promise by the sponsor.
Moreover the lack of mutuality characterising such contracts renders them null and void, by definition. In any such contract, each party must have firm control of the subject matter of the contract and the underlying assets consideration , and there MUST be a direct contractual relationship between the parties concerned.
Under this statute and related case law, prosecutors must prove three elements beyond any reasonable doubt:. Although each US State has its own laws regarding the appropriate elements of proof of Constructive Fraud, Section a 2 of the US Bankruptcy Code permits an inference of Constructive Fraud if the following factors exist:.
Statutes [see Legal Notes below], we can state without equivocation that the entire securitisation process constitutes violations of Federal R.
Does your jurisdiction have laws specifically providing for establishment of special purpose entities for securitisation? If so, what does the law provide as to: a requirements for establishment and management of such an entity; b legal attributes and benefits of the entity; and c any specific requirements as to the status of directors or shareholders?
No, there are no federal or state laws that govern special purpose entities established specifically for securitisations. However, as noted in the responses to questions 7. Is it typical to establish the special purpose entity in your jurisdiction or offshore? If in your jurisdiction, what are the advantages to locating the special purpose entity in your jurisdiction? If offshore, where are special purpose entities typically located for securitisations in your jurisdiction?
What are the forms that the special purpose entity would normally take in your jurisdiction and how would such entity usually be owned? If special purpose entities are on-shore, they are often formed under the laws of the State of Delaware or the State of New York; if they are off-shore, they are often formed under the laws of the Cayman Islands.
In the case of on-shore entities, they often take the form of a limited liability company in Delaware , a statutory trust in Delaware or a common law trust in either Delaware or New York. For reasons discussed in section 9, the choice of on-shore or off-shore may be related to tax considerations. New York courts will typically enforce limited-recourse provisions.
To determine whether a limited-recourse provision or one of its carve-outs applies, courts will analyse the specific language, context and purpose of the provision to determine the intent of the parties. See the response to question 2. Covenants not to sue are typically governed by state law and are expressly permitted under New York law.
However, because New York law disfavours agreements intended to absolve a party of its wrongdoing, New York courts apply close judicial scrutiny to determine the intent of the parties. Additionally, a covenant not to sue is construed against the party asserting it and, therefore, must be clear and unequivocal. New York courts will typically enforce contractual provisions prohibiting parties from commencing an involuntary bankruptcy proceeding against a purchaser or another person.
However, as noted in the response to question 7. New York courts will typically give effect to waterfall provisions that provide for the priority of distributions of proceeds of collateral and other payments amongst contractual parties. A New York court will also generally give effect to a waterfall provision that is governed by the law of another country subject to the conflicts of laws considerations discussed in the response to question 2. However, independent directors cannot be prohibited from voting to allow the issuer SPE to file a voluntary bankruptcy petition, because such a prohibition would generally be against public policy.
Further, the failure of a director even an independent director to vote to commence bankruptcy proceedings when the director properly concludes that it would be in the best interest of the issuer SPE, would likely constitute a breach of fiduciary duty.
Is it typical to establish the purchaser in your jurisdiction or offshore? If in your jurisdiction, what are the advantages to locating the purchaser in your jurisdiction?
If offshore, where are purchasers typically located for securitisations in your jurisdiction? Where the purchaser is also the issuing entity for the securitisation, the jurisdiction of its establishment will be determined as discussed in the response to question 7. Assuming that the purchaser does no other business in your jurisdiction, will its purchase and ownership or its collection and enforcement of receivables result in its being required to qualify to do business or to obtain any licence or its being subject to regulation as a financial institution in your jurisdiction?
Does the answer to the preceding question change if the purchaser does business with more than one seller in your jurisdiction? Subject to limited exceptions based on the type of receivable, a purchaser of receivables is generally not required to obtain a licence to do business in the United States for the sole purpose of purchasing and holding receivables.
Also, in some cases, purchasers may wish to hold receivables e. Does the seller require any licences, etc. Does a third-party replacement servicer require any licences, etc.
Generally, a seller of receivables does not need a licence to service the receivables. In limited circumstances, a servicer may need a licence, or other qualification, in order to collect and enforce obligations.
By way of example, a servicer of residential mortgage loans is generally required to hold and maintain a licence issued by the state in which the related mortgaged property is located in order to service the related residential mortgage loan.
Does your jurisdiction have laws restricting the use or dissemination of data about or provided by obligors? If so, do these laws apply only to consumer obligors or also to enterprises?
Federal and state laws also require entities possessing consumer information to have data security policies and procedures. If the obligors are consumers, will the purchaser including a bank acting as purchaser be required to comply with any consumer protection law of your jurisdiction? Briefly, what is required? Depending on the statute and the nature of the transaction, a purchaser may be liable for the actions of the originator of the receivables.
In addition, the purchaser may be required to comply with obligations relating to servicing and collecting receivables, and protection of consumer data.
However, anti-money laundering laws require financial institutions of various kinds to adopt procedures to detect and prevent money laundering and terrorist financing activities, and sanctions laws prohibit doing business with designated persons or countries. How are securitisation transactions in your jurisdiction usually structured to satisfy those risk retention requirements?
Have there been any regulatory developments in your jurisdiction which are likely to have a material impact on securitisation transactions in your jurisdiction? For example, the CARES Act included broad relief measures for certain residential mortgages and thus affected how many residential mortgages are serviced after they are securitised.
As in non-U. Will any part of payments on receivables by the obligors to the seller or the purchaser be subject to withholding taxes in your jurisdiction? Does the answer depend on the nature of the receivables, whether they bear interest, their term to maturity, or where the seller or the purchaser is located?
In the case of a sale of trade receivables at a discount, is there a risk that the discount will be recharacterised in whole or in part as interest? In the case of a sale of trade receivables where a portion of the purchase price is payable upon collection of the receivable, is there a risk that the deferred purchase price will be recharacterised in whole or in part as interest?
If withholding taxes might apply, what are the typical methods for eliminating or reducing withholding taxes? For purposes of the answers below, it is assumed, for withholding tax purposes, that purchasers of receivables are treated as beneficial owners of the receivables rather than as lenders taking a security interest and that the transfer of any interest-bearing receivables will likewise be treated as a transfer of beneficial ownership to the purchaser.
Generally, payments of interest on interest-bearing receivables made by U. Furthermore, unless certain recipients of U. Any amounts withheld may be refunded by the U. Payments of non-U. If a seller sells a trade receivable where a portion of the purchase price is payable upon collection of the receivable, then depending on the particular facts, the seller may be required to treat a portion of such purchase price as interest income for U.
Absent any exceptions, a foreign seller may be subject to U. Does your jurisdiction require that a specific accounting policy is adopted for tax purposes by the seller or purchaser in the context of a securitisation?
Most sellers and purchasers are generally required to use the accrual method of accounting with respect to amounts of interest payable by the obligors on the receivables.
Does your jurisdiction impose stamp duty or other transfer or documentary taxes on sales of receivables? There are generally no federal stamp duty or other transfer or documentary taxes on sales of receivables.
Generally, such charges are also unusual at the state level. However, certain states, such as Tennessee and Florida, impose tax upon the recordation of certain instruments of indebtedness, which should be considered. Does your jurisdiction impose value added tax, sales tax or other similar taxes on sales of goods or services, on sales of receivables or on fees for collection agent services?
At the federal level, there are currently no value-added tax, sales tax or other similar taxes on sales of goods or services, on sales of receivables or on fees for collection agent services. However, that may not be true for state and local taxes. For example, most states have some form of sales tax or other similar tax on sales of goods or certain enumerated services.
Sales tax generally does not apply to the sale of receivables. If the seller is required to pay value-added tax, stamp duty or other taxes upon the sale of receivables or on the sale of goods or services that give rise to the receivables and the seller does not pay, then will the taxing authority be able to make claims for the unpaid tax against the purchaser or against the sold receivables or collections?
As noted above, there are no such charges or duties at the federal level. However, such charges or duties may apply at the state or local level, and any related purchaser liability would depend on the particular state or local tax law in question. Depending on the particular facts or circumstances, a foreign purchaser of receivables may be treated as conducting a business in the United States. Such treatment is most likely if the purchaser participates or is deemed to participate in the origination of the receivables, conducts origination activities through a permanent U.
A foreign purchaser that is treated as engaging in a trade or business in the United States will generally be required to pay U. If an applicable income tax treaty applies, a foreign purchaser will generally be liable for U. If a purchaser located in your jurisdiction receives debt relief as the result of a limited recourse clause see question 7. Sidley Austin LLP. Chapter Content Free Access 1. Receivables Contracts 2. Choice of Law — Receivables Contracts 3. So far, much of the financial reform debate has focused on questions about particular innovations, and whether they should be regulated or even banned.
There seems little doubt that the ability to securitize loans makes it easier for banks to sell off loans, so that they can raise financing to make new loans, generally a good thing. A consensus is beginning to form around the idea that this innovation was probably not a good thing because each layer of securitization adds substantial complexity and makes it difficult to adjust the terms of the underlying loans when and if some of those loans get in trouble.
In retrospect, this seems obvious, but apparently it was not so obvious at the time that these securities were invented. And I would guess that it is rarely obvious when a new security is first invented that it might cause trouble down the road. As Leo Tillman and Nicholas Dunbar have already argued in this debate, it is very difficult to identify in advance which innovations are abusive. Instead, I would argue that the debate should not be about particular innovations, but about how they are used.
I would suggest three simple tests that can be applied at the time the security is being created or the innovation is being used to determine whether it is a positive contribution to the economy as a whole, or an abusive instrument likely to cause trouble:. If the answer is yes to any of these questions, then the innovation is probably being abused, likely to lead to problems, and should be prohibited or at least closely monitored by regulators.
If the innovation is being used to get around regulations, then Congress and regulators should take a serious look at whether the regulations should be changed, or the arbitrage outlawed.
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