Commerce Department Survey of Financial Services Transactions with Foreign Persons Due November 1, 2015

Overview

The Commerce Department’s BE-180 Survey of Financial Services Transactions is a mandatory benchmark survey conducted every five years and administered by the Bureau of Economic Analysis (the “BEA”). Reports are required by November 1, 2015 from all U.S. persons who provide financial services (called “U.S. Reporters”) and had either (i) aggregate sales of financial services to foreign persons in excess of $3 million during their 2014 fiscal year, or (ii) aggregate purchases of financial services from foreign financial services providers in excess of $3 million during their 2014 fiscal year. U.S. persons who did not meet these thresholds are not obligated to report unless they have been directly contacted by the BEA, in which case they are required to submit only an abridged version of the BE-180 form.

The BE-180 form applies to U.S. persons that are “financial services providers,” which encompasses a large number of entities that facilitate financial services, including the management of private investment funds. In particular, the following U.S. persons are considered to be financial services providers by the BEA:

• investment advisors and persons who manage financial vehicles (including private investment funds, mutual funds, pension funds and real estate investment trusts);
• private investment funds, such as private equity funds, venture capital funds, real estate funds and hedge funds; and
• companies involved in commodity contracts and other financial investments and related activities (including security and commodity futures brokers, dealers, exchanges, traders, underwriters, investment bankers and providers of securities custody services).

Financial services transactions that must be taken into account for reporting purposes include the following types of financial services transactions (sales or purchases) between U.S. financial services providers and foreign persons:

• financial management services (including receipt of management fees and incentive-based compensation, such as “carried interest” distributions, for managing funds and other investment vehicles);
• brokerage services;
• underwriting services related to equity or debt transactions;
• credit card services and other credit-related services;  
• financial advisory and custody services;
• securities lending services; and
• electronic funds transfer services.

For purposes of the BE-180 form, a “U.S. person” is any individual, partnership, corporation or other entity resident in the United States or subject to the jurisdiction of the United States, and a “non-U.S. person” is any individual, partnership, corporation or other entity resident outside the United States or subject to the jurisdiction of a country other than the United States.

The BE-180 form requires detailed information about a U.S. financial services providers’ sales to, and purchases from, foreign persons of financial services for the 2014 fiscal year, including sales and purchases listed by country and sub-totals for sales and purchases of certain categories of financial management services.

The BEA has granted all filers an automatic extension to file reports by November 1, 2015. Would-be filers can submit a request for an extension of up to an additional 60 days if the extension request is filed by November 1. Extensions must be submitted via the BEA’s online portal here.

The failure to file a BE-180 form is subject to a civil penalty of between $2,500 and $25,000, with willful noncompliance punishable by criminal penalties.

FAQs for Private Fund Managers

While the definition of “financial services provider” in the BE-180 form is broad, we expect that much of the complexity regarding the BE-180 form will center on its application to complicated private fund structures. Below we set out several common scenarios where a BE-180 filing may be implicated:

Q. If a U.S. fund manager received management fees in fiscal year 2014 from a U.S. fund that had non-U.S. investors (e.g., limited partners) or investments, is that a reportable financial services transaction?

A. No, the management fees are not reportable transactions and do not count toward the $3 million threshold. This is true regardless of whether or not the fund invests outside of the U.S. or has investors outside of the U.S. The key factor is that the management fee is paid by a U.S. person (i.e., the U.S. fund) rather than a non-U.S. investor.

Q. If a U.S. fund manager received management fees in fiscal year 2014 from a U.S. fund it manages, and paid a sub-advisory fee to a non-U.S. sub-adviser in fiscal year 2014, is it necessary to report the sub-advisory fees and count them toward the $3 million threshold?

A. Yes, because the sub-advisory fees are paid to a non-U.S. person during fiscal year 2014 they are reportable transactions that count toward the $3 million threshold. This analysis is not impacted by whether or not the sub-adviser is affiliated with the fund manager.

Q. If a U.S. fund manager advises a U.S fund or separate account and management fees are paid directly by non-U.S. investors (e.g., limited partners) outside of the investment vehicle (rather than indirectly through the investment vehicle), is the payment of management fees by non-U.S. investors a reportable transaction?

A. Yes, management fees paid directly by non-U.S. investors are reportable transactions. If the aggregate amount of all management fees paid by non-U.S. persons, including such non-U.S. investors, in fiscal year 2014 exceeds the $3 million threshold, then a filing is required.

Q. If a U.S. fund manager received (i) $2.5 million in management fees in fiscal year 2014 from one non-U.S. fund it manages, and (ii) $1 million in management fees in fiscal year 2014 from another non-U.S. fund it manages, is it necessary to complete the report?

A. Yes, a filing is necessary because the aggregate sales of financial services to non-U.S. persons (i.e., the non-U.S. funds) exceeds the $3 million threshold.

Q. If a U.S. fund manager (i) received $2.5 million in management fees in fiscal year 2014 from a non-U.S. fund it manages, and (ii) paid $1 million in sub-advisory fees in fiscal year 2014 to a non-U.S. sub-adviser, is it necessary to complete the report?

A. No, so long as there are no other reportable transactions. The U.S. fund manager has neither purchased more than $3 million of financial services from a non-U.S. person nor sold more than $3 million of financial services to a non-U.S. person. Purchases and sales are not aggregated for purposes of calculating the $3 million threshold for mandatory reporting.

Q. If a U.S. general partner of a non-U.S. fund received (i) $2 million in management fees in fiscal year 2014 from such non-U.S. fund, and (ii) $2 million in incentive-based compensation (e.g., incentive fees, performance allocations, promote payments, carried interest distributions, etc.) in fiscal year 2014 from such non-U.S. fund, is it necessary to complete the report?

A. Yes, the BEA requires a general partner (or fund manager) to aggregate the management fees and incentive-based compensation it receives from non-U.S. persons when calculating the amount of financial services sold to non-U.S. persons.

Q. If a U.S. fund manager received management fees in fiscal year 2014 from a U.S. fund it advises, and the owners of the U.S. fund manager include both U.S. persons and non-U.S. persons, is it necessary to complete the report?

A. It depends. The payment of management fees by the U.S. fund to the U.S. fund manager is not reportable, as there is no cross-border transaction. If the non-U.S. owners of the U.S. fund manager receive their portion of the profit from the fund manager’s operations, that payment is not reportable. If, however, there is a contractual relationship whereby the U.S. fund manager pays a non-U.S. person a fee (or a portion of the management fee received) in exchange for financial services, then that payment is reportable for the fund manager if the aggregate amount of financial services it purchased from non-U.S. persons exceeds the $3 million threshold.

Q. If a non-U.S. fund has a U.S. general partner and a U.S. management company, and (i) the U.S. general partner received $4 million in incentive-based compensation (e.g., incentive fees, performance allocations, promote payments, carried interest distributions, etc.) in fiscal year 2014 from the non-U.S. fund, and (ii) the U.S. management company received $4 million in management fees in fiscal year 2014 from the non-U.S. fund, who has a reporting obligation?

A. Each of the general partner and management company would have separate filing obligations, as they each separately had sales of financial services to a non-U.S. person in excess of the $3 million threshold.

Q. If a non-U.S. fund has a U.S. general partner and a U.S. management company, and (i) the U.S. general partner received $2 million in incentive-based compensation (e.g., incentive fees, performance allocations, promote payments, carried interest distributions, etc.) in fiscal year 2014 from the non-U.S. fund, and (ii) the U.S. management company received $2 million in management fees in fiscal year 2014 from the non-U.S. fund, who has a reporting obligation?

A. Neither the general partner nor the management company would have an obligation to file so long as they had no other reportable transactions, as they each separately had sales of financial services to a non-U.S. person that did not exceed the $3 million threshold.

Q. If a U.S. fund manager advises a U.S. fund that has a non-U.S. subsidiary does that trigger reporting?

A. Not necessarily. The presence of a foreign subsidiary does not, by itself, trigger a reporting obligation. This arrangement would trigger a reporting obligation if there were “financial services transactions” in excess of $3 million between the U.S. fund or U.S. fund manager and the foreign subsidiary during fiscal year 2014 (e.g., if the subsidiary paid $3.1 million of management fees directly to the fund manager).

Q. If a U.S. fund manager advises a private fund with a master-feeder structure (e.g., a non-U.S. master fund with both U.S. and non-U.S. feeder funds) where the fund manager has the ability to charge management fees either to the feeder funds or to the non-U.S. master fund, are the “financial services transactions” calculated based on what could have been charged to the foreign master fund or what was actually charged to the various funds?

A. In this situation, the BE-180 form would require that the fees be measured by what could have been charged to the non-U.S. master fund.

Q. Is the purchase of an interest in a private fund a reportable “financial services” transaction? 

A. No, the purchase of an interest in a private fund does not constitute a reportable transaction.

Q. If a U.S. fund manager hires a non-U.S. placement agent to assist with the introduction to potential investors (e.g., limited partners), is the payment of the placement agent fees reportable? 

A. No, the placement agent is providing marketing services, not financial services.