This guest blog entry was submitted to us by McGladrey & Pullen financial services

Once again the onus has been put on the financial community to be the eyes, ears and to a lesser extent an enforcement arm for various governmental agencies with respect to foreign investment by US persons and entities. Faced with the prospect that the previously announced  mandatory regulatory filing (Treasury International Capital “TIC” Form SLT, Aggregate Holdings of Long-Term Securities by U.S. and Foreign Residents) might only derive somewhat limited information  and have little effect in the financial area because of its exemption for foreign reportable holdings of under $1 billion dollars, the TIC by virtue of the Federal Reserve Bank of New York decided to alter the playing field again and seek pertinent information under the guise of a 5 year benchmark survey. TIC Form SHC, Report of U.S. Ownership of Foreign Securities, including Selected Money Market Instruments, will be required to be filed by Mar. 2, 2012 with respect to the fair value of assets held as of Dec. 31, 2011 where that amount exceeds a much lower dollar threshold of $100 million.

For these purposes the definition of foreign reportable securities has been greatly expanded and the amount of information to be reported similarly increased. They include equity interests representing an ownership in a foreign-resident organization. The broad list of equity interests include common stock, preferred stock, restricted stock, depository receipts,  U.S. resident limited partnerships in foreign resident limited partnerships , other securities such as privately placed equity interests AND shares, units or similar equity interests in foreign-resident funds including mutual funds, exchange traded funds, private equity companies, venture capital companies, investment trusts, commingled funds, hedge funds and similar investment vehicles.  Also foreign for this purpose is determined based on jurisdiction in which it was organized, irrespective of where assets are held.

As a fund manager you need to examine foreign securities held by U.S. funds as well as interests in offshore master funds held by U.S. feeder funds. If in the aggregate you manage more than $100 million in these reportable securities you need to file Form SHC.  Several schedules need to be completed depending on whether those interests are held through U.S. resident custodians or non-U.S. custodians and there are very specific rules as to the information required and how it is to be filed.  Given the broad range of foreign reportable securities, although there are several investments that may be excluded, you must make the determination now as to your obligation to file Form SHC.  Failure to do so can attract penalties ranging from $2,500 to $25,000. Willful failures can incur a penalty of $10,000 and imprisonment of up to a year.

The survey is once every 5 years with the next filing due with respect to the 2016 tax year. However, depending on the information submitted the Federal Reserve Bank of New York can request a more frequent filing. While we are hopeful that your legal advisers have kept you apprised of this onerous benchmark survey, we wanted to make sure you were fully aware of it and attentive to the tight filing deadline of Mar. 2, 2012

For more information, please contact Richard Nichols, Partner, 212.372.1135, Martin Lax, Partner, 212.372.1208, or your local McGladrey & Pullen financial services representative