USA Law and Practice Contributed by: Nicholas A Dorsey, Ryan J Patrone, Kelly M Smercina and Margaret R M Rallings, Cravath, Swaine & Moore LLP
ment or otherwise extending credit, then the anti-tying rules are not implicated. In the USA, market practice is for the bank and the client to reach such a voluntary agreement. FinCEN FinCEN is a part of the Department of the Treas- ury’s Office of Terrorism and Financial Intelli- gence, and administers the Bank Secrecy Act, which aims to address the problems of money laundering and other forms of illicit finance, including terrorist financing. In May 2018, Fin- CEN updated its “know-your-customer” rules for all federally regulated financial institutions, requiring financial institutions to perform cus- tomer due diligence. These regulated institu- tions include banks and securities brokers. The customer due diligence rules require regulated financial institutions to identify and verify the beneficial owners of their “legal entity custom- ers” . “legal entity customer” includes a corpo- ration, limited liability company or other entity that is created by the filing of a public docu- ment with a Secretary of State or similar office, a general partnership, and any similar business entity formed in the USA or a foreign country. Importantly, companies traded publicly in the USA are excluded from the definition of legal entity customer. A financial institution is required to identify at least one individual who has significant control over the legal entity’s affairs (ie, “control prong” ) and to collect information on all individuals who hold, directly or indirectly, 25% or more of the equity interests of a legal entity customer (ie, “ownership prong” ). Financial institutions can ask legal entity customers to provide informa- tion for the control prong and ownership prong by filling out the Certification Regarding Ben- eficial Owners of Legal Entity Customers Form provided by FinCEN, or provide that informa-
tion in other formats. A financial institution can rely on information presented by the legal entity customer regarding the status of its beneficial owners, provided that the institution has no knowledge of facts that would reasonably call into question the reliability of the information. Margin Rules The US margin rules limit the ability of banks to make loans for the purpose of purchasing publicly traded equity securities if the loans are secured by such securities. At a high level, the loan amount cannot exceed 50% of the mar- ket value of the margin stock used as collateral. The margin rules are generally not implicated by a one-step merger involving a public company because at closing the target company’s stock is no longer publicly traded. A two-step merger might present margin rule concerns if the law of the jurisdiction requires a high minimum tender condition before the back-end merger can be consummated. Under Delaware law, it is pos- sible to address this concern by structuring a two-step transaction such that the back-end merger can occur following the tender of a sim- ple majority of outstanding shares. 8. Tax Issues 8.1 Stamp Taxes There is no US stamp tax applicable to financing transactions. 8.2 Withholding Tax/Qualifying Lender Concepts The USA generally imposes a 30% withholding tax on interest payments made by US borrowers to foreign lenders. Withholding can be reduced, and often eliminated, if the lender is a treaty-eli- gible resident in a jurisdiction with a comprehen- sive US tax treaty. Foreign banks typically avail
540 CHAMBERS.COM
Powered by FlippingBook