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Federal Reserve officials discussed the need to keep interest rates at levels that will restrict the US economy “for some time” in a bid to contain the highest inflation in roughly 40 years, according to an account of their most recent meeting. The central bank has raised rates this year at its fastest pace since the 1980s. Minutes from the Fed’s July 26th-27th policy meeting, when the central bank raised its benchmark policy rate 0.75 percentage points for the second month in a row, showed officials were sensitive to two opposing risks as they weighed how and when to slow those increases. The first concern, which the minutes described as significant, is that they might need to raise rates more than currently anticipated if price pressures have spread more broadly through the economy. But officials, for the first time, acknowledged they might also raise borrowing costs more than needed, causing unwarranted economic weakness, because of the delay between when borrowing costs go up and when that is reflected in economic activity. The minutes showed that while officials discussed a potential slowdown in rate increases, some pushed back against the prospect of lowering rates in the short run. Some believed that once the fed-funds rate “had reached a sufficiently restrictive level, it likely would be appropriate to maintain that level for some time to ensure that inflation was firmly on a path back to 2%."

 

Financial Times

New York Times

Reuters

Wall Street Journal

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European satellite experts and the German government say Germany’s security guidance for satellites would be a good model for broader cyber standards for the entire space industry as it grows and introduces commercial software. The German agency that recently issued the guidance, the Federal Office for Information Security, is seeking to make it the basis for European or international cybersecurity standards related to the space industry. The Wall Street Journal notes that space missions often involve vendors and expertise from various countries, making common standards crucial, according to space researchers and satellite companies.

 

Wall Street Journal

KPMG’s South Korean business has been fined $350,000 by the Public Company Accounting Oversight Board for failing to set up adequate quality controls. The U.S. accounting watchdog also imposed a $50,000 penalty on Jin Tae Kim, a former KPMG Korea partner, and a $40,000 fine on Se Woon Jung, a former KPMG Korea director. They were charged with improperly altering work papers, the documents auditors collect while assessing their clients' financials. They were also found to have violated auditing standards in connection with the same audit of an unnamed U.S.-listed company.

 

Financial Times

The Wall Street Journal

The rate of suspected global digital fraud attempts in the insurance industry has experienced the greatest rise on a year-over-year basis, increasing 159% in the second quarter of 2022 compared with the same period a year earlier. A new report from TransUnion, based on intelligence from billions of transactions and more than 40,000 websites and apps contained in the TransUnion identity proofing suite, showed that even though there was a global decline of 14% of suspected digital fraud attempts across industries, the insurance and logistics industries witnessed the biggest increase. “We have observed interesting trends in the first half of 2022 with suspected fraudulent activity in the insurance industry continuing to be elevated during the first six months of the year," said Shai Cohen, senior vice president of global fraud solutions at TransUnion. “In recent years, we've seen fraudsters shift their industry focus each quarter. At this time, we believe the insurance industry is seeing more ‘soft fraud' because some consumers may be representing their policies incorrectly in an effort to save money, especially in a high inflation environment that places more pressure on their wallets."

 

Reinsurance News

Senate Finance Committee Chair Ron Wyden (D-OR) is probing the use of private placement life insurance among wealthy Americans to avoid taxes, starting with a request for information from Blackstone's Lombard International. Private placement life insurance, or PPLI, is a decades-old strategy that has been gaining popularity among the super-wealthy as a way to protect their fortunes from income and estate taxes. A key perk is that the vehicles, which typically require a minimum investment of at least $2m, can hold hedge funds and other financial products that would otherwise be taxed at the highest rates.  "I am concerned that these insurance vehicles are being used without a genuine insurance purpose to invest in hedge funds and other investments while avoiding billions of dollars in federal taxes," Mr. Wyden wrote on Monday to Lombard chief executive Stuart Parkinson. Among the questions for Lombard, a wealth manager that New York-based Blackstone bought in 2014, include updates on its assets under administration in PPLI products, whether they're marketed as a way to avoid taxes and whether Blackstone refers possible clients. Answers are due by August 31st. 

 

Accounting Today

Renaissance Technologies is ending one of the hedge fund industry’s most coveted benefits: the chance for its workers to invest their retirement nest egg in its famously profitable employee-only fund fee-free, after the practice caught the attention of the IRS. The firm cashed out investments in its Medallion fund that employees had made through certain tax-advantaged retirement accounts and private foundations, according to a regulatory filing. Medallion, a quantitative fund, has generated average annual returns of about 40% from its inception more than three decades ago. The perk was substantial given Medallion’s enormous levies, which include annual management fees that run as high as 4% of net assets and performance fees equaling as much as 44% of profits. The move to scrap the benefit comes less than a year after Renaissance founder Jim Simons and other members of the firm agreed to pay billions of dollars to settle a separate dispute with the IRS over a complex options strategy Medallion employed to reduce the taxes on its trading profits.  

 

Bloomberg

Cuba plans to allow some foreign investment in local wholesale and retail trade for the first time since Fidel Castro’s 1959 revolution, the government said late on Monday. Deputy Trade Minister Ana Teresita Gonzalez said foreign investors would be allowed to fully own local wholesalers for the first time or enter the market through joint ventures. Retail would be more restricted but she opened the door to some public/private ventures in that sector as well. The reforms would allow foreign-owned entities to invest in warehouse and back-end logistics operations supplying state-run and private businesses. Ms Gonzalez also said Cuba would “selectively” allow some foreign investors into the retail market, provided the investment contributed to the country’s socialist goals and lowered prices.

 

Reuters

The High Court of Australia, the country's top court, has overturned a ruling that had found Google engaged in defamation by supplying a link to a contested newspaper article. The seven-judge panel voted 5-2 to throw out an earlier finding that the company played a role in publishing the disputed article by acting as a "library" housing it. The panel said the website had no active role. Reuters says the decision shines the spotlight again on how online libel cases are handled in Australia and about where liability rests for online defamation. A protracted review of Australian libel law is yet to give a final recommendation on whether large platforms like Google and Facebook should be accountable. The case stemmed from a 2004 article which suggested that a criminal defence lawyer had crossed professional lines and become a "confidant" of criminals.

 

Reuters

Asset managers are tightening controls on personal communication tools such as WhatsApp as they join banks in seeking to ensure that employees adhere to the rules when doing business with clients remotely. Most of the companies caught up in communications and record-keeping investigations by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have hitherto been banks - which have collectively been fined or have set aside more than $1bn to cover regulatory penalties. But Reuters reports that fund firms with billions of dollars in assets are also increasing their scrutiny of how staff and clients interact. “It is the hottest topic in the industry right now,” said one deals banker, who declined to be named in keeping with his employer’s rules on speaking to the media.

 

Reuters

Crypto brokerage Genesis is laying off 20% of its 260-person workforce weeks after court filings revealed that the firm lent $2.4bn to the now-bankrupt crypto hedge fund Three Arrows Capital. Michael Moro, Genesis chief executive, is also to depart. The Wall Street Journal says Genesis, which is a wholly owned subsidiary of crypto conglomerate Digital Currency Group (DCG), was hit hard by the collapse of Three Arrows, which put down 50% collateral on its $2.4bn loan. After liquidating the collateral, DCG remains the biggest creditor of Three Arrows and has a claim of $1.2bn against the hedge fund.

 

Wall Street Journal

U.S. workers on unpaid leave lost an estimated $28bn in wages during the first two years of the pandemic, according to an analysis which also showed that the greatest increases in unpaid absences were among low-income workers who were self-employed, Black or Hispanic, female, or raising families with children. Work absences precipitated by personal illness, child care requirements, or obligations to family members rose by half from previous years. "Missed wages from unpaid leave have affected populations already at greater risk of severe COVID infection and of economic and material hardship , compounding existing economic, racial and gender disparities," observed Chantel Boyens, principal policy associate at the Urban Institute, an economic and social policy research group, adding "Workplace safety standards and public health policies combined with comprehensive paid leave policies that cover all workers, could help reduce the spread of COVID while protecting workers and families from missed wages due to medical and caregiving needs." In all, the analysis showed that 58% of all absences from work were unpaid before the pandemic and during its first two years.

 

U.S. News

More than three-quarters (78%) of business leaders say they are more likely to hire freelancers than full-time employees while economic conditions remain uncertain, according to a survey by freelance marketplace Fiverr which also found that 85% of U.S. companies plan to implement a hiring freeze during the current downturn, and 78% plan to lay workers off. “A lot of companies are contemplating doing cutbacks and layoffs. But at the end of the day, all companies need to continue performing,” said Micha Kaufman, Fiverr’s chief executive officer. “They view independent talents as a variable expense that they can scale up or down as needed, without any strings attached.”

 

Bloomberg

The results of a poll of 150 business executives in the tristate area by the Federal Reserve Bank of New York suggest that more New York area service firms think remote work is hurting productivity than helping it. Thirty per cent of firms from a range of industries outside of manufacturing reported a negative effect on productivity, 20% indicated a positive effect, and the remaining half noted little change. Almost 30% of service employees are estimated to now be working remotely at least some of the time, with most doing so on Mondays and Fridays. Businesses say employees are currently working remotely an average of 3.3 days a week, and they see that moderating to 3.2 days a year from now.

 

Bloomberg

German chancellor Olaf Scholz will on Friday face questioning by lawmakers over his role in tackling the dividend stripping, or “cum-ex,” multibillion-euro tax fraud. The scheme saw banks and investors rapidly trade shares of companies around their dividend payout day, blurring stock ownership and enabling false reclaim of tax rebates on dividends. Reuters observes that the investigation into the scheme, which has snowballed into a political scandal, and which government officials say involves some 100 banks on four continents and at least 1,000 suspects, threatens to undermine Scholz.

 

Reuters

Reuters