UBS and the IRS – What’s Next?

U.S. Taxpayers with UBS accounts face civil tax audit risk. If UBS transfers account information to U.S. Taxpayers (as proposed) the IRS may then commence a civil tax audit (under a 6 year statute of limitations).

Under a civil tax audit, the IRS may obtain evidence that may be illegal under criminal proceedings (e.g., Fifth Amendment defenses, objections to “tainted evidence”). With tax evidence obtained from the civil tax audit, the IRS (with the U.S. Attorney) may initiate criminal proceedings.

In 2006, the U.S. Senate reported $100 billion per year in taxes not being paid for U.S. Taxpayer offshore assets. Subsequently UBS, the largest Swiss Bank, was investigated for criminal tax evasion.

In February 2009, UBS AG, Switzerland’s largest bank, entered into a deferred prosecution agreement with the U.S.:

1. Admitting guilt on charges of conspiring to defraud the U.S. by impeding the IRS tax collection.

2. Paid $780 million in fines, penalties, interest and restitution.

3. Agreed to provide the identities and account information of more than 4,000 U.S. Taxpayers with “cross-border” UBS accounts.

2/19/09 Confirmed that, as part of the UBS deferred prosecution agreement ($780M fine), UBS supplied the IRS with the names of 323 Americans who wired money from their U.S. accounts to Switzerland. All the documents UBS turned over, however, were US records (not Swiss records).

11/18/09 Wall Street Journal: The Swiss government said it would turn over to US authorities by August 2010 the names of U.S. Taxpayers with UBS accounts of more than 1 million Swiss francs ($993,000), and also those holding suspicious accounts as low as 250,000 francs.

1/4/10 New York Times: Confirmed that UBS agreed to disclose to the American authorities the names of 4,450 wealthy Americans suspected of dodging taxes through secret offshore accounts (in addition to the 323 already disclosed; Total: Nearly 4,800 Americans).

IRS Prosecution

The IRS is prosecuting:

1. U.S. Taxpayers who fail to report offshore income.

IRC §7201: Tax Evasion (Willful Evasion of Tax)

Felony: Up to 5 years in prison. Fine: $100,000 (individual); $500,000 (corporation)

2. Third parties who obstruct tax collection and commit conspiracy to impede tax collection face two separate felonies, which together may be punished by up to 8 years in prison.

IRC §7212: Obstruct (Impede) Tax Collection

Felony: Up to 3 years in prison. Fine: $5,000

18 U.S.C. 371: Conspiracy to Impede Tax Collection(Separate Charge of Impeding) Felony: Up to 5 years in prison

3. FBAR Filings

U.S. Taxpayers who have failed to disclose the foreign account under Form 1040 commit perjury (i.e., they are required to list any foreign accounts under Form 1040/Schedule B, Part III, Question 7(a)).

Taxpayer perjury is a willful violation. If a U.S. Taxpayer willfully violates tax reporting requirements while violating other laws of the United States, (or as part of the pattern of any illegal activity involving more than $100,000 in a 12 month period), such U.S. Taxpayer will be subject to a monetary fine of not more than $500,000 or imprisoned for not more than 10 years or both (31 USC 5322(b), 31 C.F.R. 103.59 (Criminal Issues)).

In the 3/18/10 Foreign Account Tax Compliance Act (as part of the Hiring Incentives to Restore Employment Act “HIRE”), the new law provides for an extended 6 year statute of limitations for understated income (gross income in excess of $5,000).

The 6 year statute of limitations applies to income (in excess of $5,000) omitted from an income tax return, attributable to foreign assets for which a foreign financial disclosure is required (i.e., foreign financial assets greater than $50,000).

The 6 year statute of limitations is effective for tax returns filed after 3/18/10 (and for any other tax return for which the assessment period has not year expired as of 3/18/10, i.e., Tax Year 2006 forward).

Third Party Conspirators

Third party conspirators who benefit from tax evasion by U.S. Taxpayers include:

a. Banks (who receive U.S. Taxpayer funds).

b. U.S. Tax Professionals (Lawyers, Accountants) who recommend and participate in the tax evasion.

c. Tax Promoters who facilitate tax evasion schemes.

Criminal Attorney, Sanford Passman, Esq., discusses the UBS case and Co-Conspirator criminal penalties for facilitating tax evasion, including:

1. Hidden Income in Offshore Banks and Brokerage Accounts

2. Nominee Owners (acting on behalf of U.S. Taxpayers)

3. Offshore Debit and Credit Cards

4. Undisclosed Wire Transfers (Unreported Income)

5. Foreign Trusts

6. Private Annuities

According to Mr. Passman:

18 U.S.C.A. §371 is the Federal Statute for conspiracy which provides that: “If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined not more than $ 10,000 or imprisoned not more than five years, or both.”

Violations of the Internal Revenue laws speak to a statute of limitations of three years after the commission of the offense.

The statute of limitation shall be six years for offenses involving the defrauding or attempting to defraud the United States or any agency thereof, whether by conspiracy or not, and in any manner; for the offense of willfully attempting in any manner to evade or defeat any tax or the payment thereof.

Offenses include: willfully aiding or assisting in, or procuring, counseling, or advising, the preparation or presentation under, or in connection with any matter arising under, the Internal Revenue laws, of a false or fraudulent return, affidavit, claim or document (whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim or document).

Offenses include: willfully failing to pay any tax or make any return (other than a return required under authority of Part III of Subchapter A of Chapter 61) at the time or times required by law or regulations; for offenses described in Sections 7206(1) and 7207 relating to false statements and fraudulent documents.

Offenses for conspiracy arise under Section 371 of Title 18 of the United States Code (Conspiracy), where the object of the conspiracy is to attempt in any manner to evade or defeat any tax or the payment thereof.

If an individual or individuals charged with committing any of the offenses articulated above, are outside the United States or are fugitives from justice, within the meaning of Section 3290 of Title 18of the United States Code, the Statute of Limitations is tolled.

When individuals attempt to repatriate into the United States, the funds contained in the undisclosed foreign bank accounts, they may be culpable for money laundering. Individuals who maintain foreign bank accounts where disclosure of said bank accounts is not revealed pursuant to law, and who would be culpable under the various offenses recited above, may be culpable for money laundering (specifically 18 U.S.C. 1956 and 1957, which is part of the Money Laundering Control Act of 1986).

18 U.S.C 1956 penalizes individuals who knowingly and intentionally transport or transfer monetary proceeds from specified unlawful activities. While the funds reposing in the foreign bank accounts may have been derived from lawful activities conducted within or without the United States by American citizens, the various violations of the Internal Revenue Code and the conspiracy statute, could well subject individuals to charges of money laundering.

If in fact the unreported bank accounts contained funds derived from unlawful activities, it may subject individuals to not only violations of Federal statutes but California statutes as well (e.g., California Penal Code §§ 182 and 186.10, which deal with conspiracy and money laundering).

With the foregoing in mind, and with specific attention to the UBS matter concerning Switzerland’s largest bank, the defendant bank entered into a plea agreement with the United States Government, that consisted of a $780M monetary fine and the obligation by the bank to deliver to U.S. authorities the identity of United States citizens who maintain accounts with the bank and the attendant information concerning the contents and transactions of those accounts.

The Swiss Government has issued an edict mandating that the bank cease and desist “turning over” the identities of those U.S citizens and the attendant information, and there is presently pending in Switzerland, legislation to address that issue.

Faced with the dilemma of either breaching the plea agreement entered into with the U.S., or suffering sanctions from the Swiss Government, UBS proposed a course of conduct which insulates itself from conflicts with the Swiss Legislature and the United States authorities.

The action proposed by UBS was to send to each U.S. Taxpayer who maintained bank accounts with UBS abroad, a USB stick containing the respective bank records of those U.S. Taxpayers.

A USB stick is identical to a “flash drive” and places all the bank information sought by the U.S. authorities in the hands of the individual account holders (whose identities were revealed by a former UBS banker by the name of Bradley Birkenfeld to the United States authorities in the hopes that it would be a benefit to him when he was sentenced by the United States for banking violations).

It is the opinion of this author that UBS may “sell out” all of these American account holders due to the fact that the U.S. authorities may subpoena these USB sticks and obtain all tax information that was sought from the bank itself.

Account holders who received the USB sticks, were they to destroy them, would be culpable of an additional Federal felony (i.e., obstruct tax collection), which carries with it a fine and up to 3 years in prison.

Under the 6 year statute of limitations, the Internal Revenue Service could initiate a civil tax audit of a Taxpayer’s returns – (for six [6] prior years) and, attendant to said audit, request all information concerning bank accounts wherever located.

Given the fact that the government knows these individuals maintained undisclosed bank accounts with UBS, the Taxpayer has essentially been checkmated by UBS.

Faced with this dilemma, and prior to indictment by the Government for tax evasion and/or related offenses, U.S. Taxpayers can take steps to mitigate the impact of this conduct. Retaining counsel to amend the returns and pay the appropriate taxes and/or penalties and assessments, could be a firewall protecting them from criminal prosecution.

The reader of this information should keep in mind that any individuals who participated in any of the enterprises described herein, could and most probably would be susceptible to criminal indictments. Those persons would include, but not be limited to family, friends, business associates, accountants, financial advisors, attorneys and bank officials who created, choreographed and orchestrated the tax evasion/avoidance.

It is anticipated that the United States authorities will proceed against other foreign banks in a similar fashion, and that a greater number of account holders will be subject to scrutiny by the relevant authorities.

Civil/Criminal: Essential Issues (Tax)

1. Burden of Proof: (Civil Fraud/Criminal Fraud)

Criminal fraud requires a higher standard of proof than civil fraud. The government must prove “beyond a reasonable doubt” that the defendant is guilty of criminal fraud, whereas in civil fraud, the burden of proof required is preponderance of the evidence (also termed a “by a preponderance of the evidence”).

A criminal decision of a court or jury will bind a civil decision, but a civil decision does not bind a criminal decision.

2. Statute of Limitations: (Civil and Criminal Proceedings)

For civil tax fraud, there is no statute of limitations (the tax can be assessed at any time).

For criminal tax evasion, the criminal statute of limitations is only on the prosecution of the crime i.e. tax evasion (not the assessment of tax owed).

3. Collateral Estoppel:

When criminal proceedings are followed by civil proceedings, the legal doctrine of collateral estoppel may apply. This doctrine provides that an issue necessarily decided in a previous proceeding (the 1st proceeding) will determine the issue in a subsequent proceeding (the 2nd proceeding), but only as to matters in the 2nd proceeding that were actually presented and determined in the 1st proceeding.

Conviction for criminal tax evasion collaterally estops the Taxpayer from contesting the existence of fraud for purposes of the civil fraud penalty because a finding of criminal fraud (beyond a reasonable doubt) establishes proof of civil fraud (by a preponderance of the evidence).

Acquittal of criminal tax evasion does not collaterally estop the government from proving civil fraud (by a preponderance of the evidence). The criminal acquittal may establish that proof of fraud did not exist beyond reasonable doubt, but that does not mean that proof of fraud by a preponderance of the evidence does not exist.

The Risks: Civil & Criminal Tax “Double Jeopardy”

U.S. Taxpayers with unreported foreign bank accounts (and income) are subject to IRS civil tax audits with civil penalties (monetary penalty, only) and criminal tax prosecution (monetary penalty and jail).

The U.S. Taxpayer’s tax records may include evidence which supports culpability for a crime (e.g., tax evasion) and civil penalties (e.g., 75% fraud penalty).

The U.S. Taxpayer’s exposure to civil penalty/criminal prosecution for unreported foreign bank accounts (and income) is a “double-edged” sword with dual civil/criminal:

1. Evidentiary Standards of Proof

2. Statute of Limitations

3. Collateral Estoppel Issues

If the IRS, first institutes a civil tax audit they may summons evidence which may support both a civil penalty (e.g., fraud) and criminal culpability (e.g., tax evasion). The evidence from the civil tax audit may then be used for a subsequent criminal prosecution of the same U.S. Taxpayer.

Civil and criminal tax deficiencies may differ:

1. Criminal violations are charged only against the tax deficiency that results from fraud.

2. Civil tax deficiency includes all tax due on the tax returns (“evaded income and deductions adjustments”).

3. Evidence that does not meet the burden of proof in a criminal investigation may be adequate for civil tax issues (i.e., the IRS standard of proof is “a preponderance of the evidence” for civil penalties, and “beyond a reasonable doubt” for criminal penalties).

IRS Criminal Investigation Division has authority:

1. To examine criminal FBAR issues (since 1992)

2. Investigate money laundering offenses where the underlying conduct is subject to investigation under the Internal Revenue Code (Title 26) or under the Bank Secrecy Act.

3. Investigate unreported income felonies (e.g., tax evasion, conspiracy).

If the IRS, first institutes criminal prosecutions, rulings made in the criminal case on evidentiary issues (under the higher evidentiary standard, i.e., “Beyond a Reasonable Doubt”) apply in the civil case (which has a lower evidentiary standard (i.e., the “Preponderance of the Evidence”).

Under the Doctrine of Collateral Estoppel, the Court’s evidentiary rulings in the criminal matter collaterally estop the U.S. Taxpayer defenses on the same tax issues in the IRS Civil Tax Audit.

Failure to report foreign bank accounts (and income) under the “FBAR rules” risk both civil penalty and criminal prosecution. Under IRS procedure, civil FBAR assessments and penalties are not assessed until the criminal investigation is closed.

Child Support Law

Child support laws have a number of orders and rights for the parent in order to have legal obligation, so that they can have support for their children. The obligation for any child under support act continues from minor to the age of 18-19. All the liabilities and responsibilities of child as well as his/her requirements like food, education, shelter, clothes etc are usually divided between both the parents by the court under these laws. Thus, in case of family division either by divorce or separation, the child who is innocent and dependent on the parents due to his/her mental and physical disability or under growth have full support of the county law and order. Among various programs that are running all over the world, the Oakland county child support law is one.

This law is mainly prescribed by the Supreme Court of the county. So, the amount of obligation for child support can be determined through available guidelines as per the government and Supreme Court statements. These guidelines are provided only after recognizing the duty of the parents equally so that the appropriate and perfect judgment can be made as per the proportion of respective income of each parent. However, order by the court may have varied amount from prescribed guidelines. This type of change would only be possible if court finds necessity of such adjustment, so that justice can be made in support of child as well as the parents.

The Oakland county child support law also has order for the medical support of child. If the parents have any health insurance or benefit plan for health then it would be considered as reasonable for the child medical support and health.

Under this law, the payments can be sent to the court office or to the human services department collection center by the parents. So, the direct payment to other custodial parent is prohibited in order to avoid any confusion. So, the parents can see the right location for sending their child support payment in their child support orders. Parents can clear their doubts from the clerk of court office.

Child support is flexible and can have modification in its child support orders in future. If any substantial changes of circumstances of either parent occur then court may modify its order subsequently. The changes like: any change in earning capacity, change in employment, change in resource and income of non-custodial parent. In addition, changes can also be made if child has any new educational requirement or there is any change in his/her habits and health. Court also take action against any disobeying of the court orders and consider it as contempt of court by the responsible party.

Oakland county child support law also has lots of the measures to enforce the compliance with child support orders, including garnishment, withholding, contempt of the court and liens.

What Is United States Anti-Trust Law?

Although the term “antitrust law” may sound complex, it’s simply a way of referring to the body of law that prohibits anti-competitive behavior (a monopoly) or unfair business practices. The purpose of these laws it to promote competition and protect consumers.

There are three core federal antitrust laws. In 1890, Congress passed the first antitrust law, the Sherman Act. In 1914, Congress passed two additional antitrust laws, the Federal Trade Commission Act (creating the FTC), and the Clayton Act.

The Sherman Act

The Sherman Act forms the foundation for most federal antitrust law. The Act outlaws “every contract, combination… or conspiracy in restraint of trade,” and any monopolization, attempted monopolization, or conspiracy or combination to monopolize. The United States Supreme Court has held that the Sherman Act does not prohibit every restraint of trade; instead it only prohibits those that are unreasonable. The most frequent violations of the Act are price fixing and bid rigging, both of which are usually prosecuted as criminal violations.

The Federal Trade Commission Act

The Federal Trade Commission Act prohibits “unfair methods of competition” and “unfair or deceptive acts or practices.” The Act also created the Federal Trade Commission to police violations of the Act. The Act carries no criminal penalties.

The Clayton Act

The Clayton Act prohibits mergers or acquisitions that are likely to lessen competition, and other business practices that are likely to lessen competition. The Clayton Act is a civil statute, meaning there are no criminal penalties under the Act.

Criminal Penalties

If an individual or business violates the Sherman Act they may be prosecuted in federal court. The Department of Justice alone is empowered to bring criminal prosecutions under the Act.

The criminal penalties for violations under the Act can be up to $100 million for a corporation and $1 million for an individual, as well as a maximum of ten years in prison. Additionally, under federal law the maximum fine may be increased to twice the amount the conspirators gained from the illegal acts or twice the money lost by the victims of the crime, if either of those amounts is over $100 million.

In order to be convicted under the Sherman Act, the government has to satisfy certain elements. For there to be a violation of Section 1, there are three elements the government must prove:

(1) An agreement

(2) which unreasonably restrains competition, and

(3) which affects interstate commerce.

A Section 2 violation under the Sherman Act has two elements:

(1) The possession of monopoly power in the relevant market, and

(2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.

As with most federal crimes, the elements are very vague. Such vagueness allows U.S. Attorneys to liberally charge for violations of the statute. For example, under Section 1 there doesn’t necessarily have to be a verbal agreement, the agreement could be inferred from the parties’ conduct.

There has been a drastic increase in the number of individuals the U.S. Government is charging under the Sherman Act and an increase in the sentences that are being imposed. In 2004, the U.S. Sentencing Guidelines were revised and penalties for antitrust violations increased. In 2010, 78 defendants were sentenced to jail time under the Sherman Act for a total of 26,046 total days to be served. In 2000, 38 individuals were charged under the act and only served a total of 5,584 days in jail.

It should also be noted that whenever possible, the Department of Justice will prosecute and seek extradition of fugitive antitrust defendants. Historically, the Department of Justice could not even threaten extradition in criminal antitrust cases since the U.S. and Canada were the only jurisdictions that considered price-fixing to be a crime. [9] However, since 2010, the Department of Justice Antitrust Division has been successful in its efforts to have foreign nationals extradited to the United States for prosecution for antitrust violations. This change in extradition has come because more jurisdictions are criminalizing price-fixing.

Immigration Consequences

Many times the immigration consequences for an antitrust conviction are more severe than the criminal punishment. The U.S. Justice Department has a policy that treats violations of the Sherman Act as “crimes involving moral turpitude,” subjecting foreign executives to exclusion or deportation from the U.S. This policy is the called the “Memorandum of Understanding” (also known as “”MoU”) that is between the Antitrust Division of the Department of Justice and the Immigration and Customs Enforcement Division of the Department of Homeland Security. MoU specifically says it “[C]onsiders criminal violation of the Sherman Act… to be crimes involving moral turpitude, which may subject an alien to exclusion or deportation from the United States.”

Of interest is that most antitrust convictions are obtained against non-U.S. executives – and every one of these convictions but one has been by plea agreement rather than trial. The reason these non-U.S. executives plead guilty is not because of the strength of the Government’s case, but rather the threat of a U.S. travel ban. The 15-year minimum ban on travel to the United as a result of the MoU can be devastating to many foreign executives’ careers. This gives the Department of Justice leverage in securing guilty pleas. The MoU is included in nearly every plea agreement whereby the government will grant an exemption from travel restrictions to foreign executives in exchange for a guilty plea.

The pressure to plead guilty due to immigration consequences is depriving these non-U.S. executives of their right to a trial. Even in cases where the government lacks evidence they are still obtaining pleas of guilty from these executives. Since the majority of their cases end in a guilty plea, most U.S. Attorneys in the anti-trust division lack trial experience. In most cases, instead of pleading guilty these defendants should retain experienced trial attorneys to take their case to trial to obtain a not guilty verdict.

Leniency Program

According to the Department of Justice, its Antitrust Division’s Leniency Program is its most important investigative tool for detecting antitrust violations. If an individual or corporation reports the antitrust violation and cooperates with the investigation they can avoid criminal conviction, fines, and prison sentences if all the requirements of the program are met.

To be eligible for the leniency program, the individual or corporation must

(1) have taken prompt and effective action to terminate its participation in the anticompetitive activity being reported upon discovery of the activity; and

(2) did not coerce any other party to participate in the anticompetitive activity being reported and was not the leader in, or the originator of, the activity.

The applicant bears the burden of proving he or she is eligible to receive leniency. The applicant must also agree to provide full, continuing and complete cooperation with the Antitrust Division in connection with the anticompetitive activity being reported. This includes providing a full exposition of all facts known to the applicant relating to the anticompetitive activity, and providing all documents, information and other materials relating to the conduct.

If the applicant meets the requirements of the program, the Antitrust Division agrees to not bring any criminal prosecution against the applicant for any act or offense committed prior to the date of the agreement in connection with the anticompetitive behavior being reported.

The problem with the leniency program is that even if the applicant is eligible for the program and agrees to cooperate, the Antitrust Division only has to agree “conditionally” to accept the applicant into the leniency program. This means the division may revoke the leniency at any time (even after the applicant has already given the Antitrust Division incriminating statements and documents). Also, the leniency only relates to the antitrust conduct being reported, thus the applicant could still be charged for unrelated antitrust violations.

Family Law Courts Are The Perfect Option For Solving Family Disputes

There are several cases in the court of justice and the varieties in them ranges a lot. So, there are certain classifications in the courts present in any judicial system of the country. Some of them like civil, criminal, consumer, taxation and many more are categorised according to the types of cases that come in the court’s way. The specialization for the lawyers is even categorised. But, there are consultants and firms who help in all your legal problems and that mean, one place solution for all your problems. Suppose you have a family legal problem then how would you get family law lawyers and trust on his/her expertise if found one? It seems a hard task to talk about.

The family law courts deal with the cases related to family issues. Family issues are many and the list is quite big to lay out with a complete explanation. Some of them are, adoption, prenuptial agreements, marriage, divorce, separation, legal separation, property division after the death of the parents, division of property on the breakage of marriage, domestic violence (western countries are very strict on these issues, even a mother can be arrested for beating her child), child labour, abuse on marriage to the lady, parental rights, juvenile and many other issues which make sense for having a justice.

The family law courts are criticized a lot about not giving a proper justice and forwarding the case to those higher courts which demands more money and more family law lawyers. So, in a sense they are considered of no use but this is a complete false notion. Instead of the family court the losing party calls for the higher court’s justice. There are also some other issues that has been under the family courts like, the cases relating to, criminal laws inside family, property related laws, probation laws and so on.

The family courts are the most crowded places in almost every country. They deal mostly cases relating to social and economic issues and these are numbered more than any other cases. These courts include less complex cases. The clients who enter into lodging a complaint may be new in these terms and the process might be intimidating for certain people. But, it is perfectly fine about all these because here you abide by the government’s support as they ensure you justice.

One important thing is not to trust anybody out here in this field and hence you must thoroughly understand the terms of the laws. It might be a difficult task for you but the terms relating to your particular case are very important to understand. So, you can readily go for those and make sure nobody cheats you.

The US Justice Departments Little Lie

The Federal Trade Commission’s Consumer Division’s Franchising Group is not well known by consumers or the citizenry. Franchising in the United States Accounts for one-third every consumer dollar spent and 400,000 outlets or stores. The Federal Trade Commission over sees the franchising industry. Some franchisors believe the FTC desperately needs turn over at the franchising division. Some attorneys who make money suing franchisors on behalf of franchisees and vendors like things just the way they are and realize any change would tip the balance and they would lose income in a highly litigious and good paying sector of law.

One attorney we interviewed said in an email: “Well, I have to, very respectfully, disagree. Franchising has a good and competent friend in the FTC, and particularly with Steve Toporoff, who has lead responsibility for the FTC in this area.”

Yet the franchising community also knows that while at the helm there were no changes to the FTC Franchise Rule for over 10 years and this caused more hardship for franchisors who create jobs, tax base and economic vitality, which are important for a healthy economy. Now that the FTC has totally botched the franchising rules in our country and tilted the field in favor of not franchisor or franchise, not of free markets of free economies, but for attorneys to make more money due to incessant over regulation; these same attorneys wish to export these same ridiculous rules to other countries as well, thus giving our attorneys leverage and opening new markets for them.

One attorney stated; “I believe that the FTC, in general, does an excellent job, at least in the franchising area, which is the only field in which I have any meaningful experience. In addition, the proposed new rule is, again in general, a clear step forward toward more rational and effective franchise disclosure, and may well serve as the model for other countries’ attempts at rational regulation in this area.”

The current disclosure laws, which are mandatory are a set of 200 plus pages of disclosure documents given to franchise buyers before purchase. Each paragraph in the entire required disclosure is open for interpretation of law and possible lawsuits. The attorneys call this ‘rational regulation,’ I call it a windfall for them. There are few if any franchising complaints in the Industry. Even the complaints, which do come in are usually not real, just someone trying to get something for nothing. Most attorneys believe it is a good system never the less, not perfect they admit, but a good system indeed. Good for who? Good for them of course. Many franchisors have made there feelings known, here is an example of some of their comments;

The lack of law changes has helped increase franchising lawsuits over the years and instead of reducing regulation and paperwork these new sets of laws are going to increase it. More laws and rules mean more lawsuits of course. One attorney commented on this thought stating;

“While, in a perfect world, it might have been nice for the process of re-writing the FTC Franchise Rule to have moved along more quickly, we should be realistic and note that franchising is, frankly, not the FTC’s highest priority, perhaps because of the relatively low number of complaints it receives from Franchisees or others, compared to the large role franchising plays in the U. S. economy.”

These attorneys are busy hob knobbing with the government regulators and often get the inside story, yet if a franchisor calls up to criticize or point out flaws with the law they never receive a return phone call and if they are able to get through they are often ‘hung up on’ during the conversation when they try to explain their points. Why is it that lawyers have complete access to the government regulators, yet entrepreneurs who are responsible for everything in the world cannot get through? One attorney speaking about the FTC stated:

“I recall a conversation I had at a breakfast with one of the FTC Commissioners a few years ago in which I asked her if she saw any significant problems with franchising. After a few moments for thought, she replied that she didn’t, other than possible issues related to overlapping regulation by both the states and the feds.”

Interesting, but if there are no issues in franchising, why are we not having decreased regulations? The same attorney goes on to say:

“So, for me, the FTC has done a fine job in promulgating and revising the Franchise Rule over the years, particularly given that there are other areas of much greater concern to them, such as Bus. Opp. fraud, consumer financial privacy, the National Do Not Call Registry, regulation of Truth in Advertising, overseeing corporate mergers, etc.”

“We shouldn’t let our focus on franchising become parochial and forget that our field is just one small part of the big picture, at least from the FTC’s standpoint and probably from that of regulators generally. It’s probably a tribute to the relatively good health of franchising that we don’t get more regulatory attention than we do!”

Again the attorney seems to indicate that franchising is a small part of the FTC’s agenda and therefore not to worry, he likes things just the way they are. Of course he does, he is making money on the backs of franchisees and franchisors across America, why would he want anything to change? America, we need a regulatory reality check and we need it now. Think about it.