Trading Forex in the US after new Dodd-frank rule

[oversea]

@oversea thanks very much for your input! No other extenuating circumstances. I simply married an American, the US is looking like my long term destination, and I do not want to mess with the IRS. Delaying relocating my IB account may not be a big deal, but I still plan to pay US taxes on it come March 2018. Guess there's another option here: not relocating the account, and declaring it to the IRS as a foreign brokerage account.

Got it.
As I was writing the last post, I was wondering what you were going to do re taxes.

Something to have in mind...presuming that you don't spend 183 days in the US this year, you won't have to pay US taxes for 2017 tax year. Subsequently, that means you wouldn't have to worry about the IRS until March/April 2019. Before undergoing any of the rather significant changes listed above, I would hold out for the next few months and get an indication of how serious they were about repealing Dodd-Frank (and which parts!).

If you're indeed dead set on doing one of options 2-6 from the outset...with regards to option #5, why bother with BVI? I imagine it would be both easier and considerably cheaper to setup everything in the UK while you're still there --- Companies House, Bank Account(s), migrating IB, etc. And also...moving forward, you won't have that 'eyesore' of a shady jurisdiction on your tax return and FBAR! You'll also find out, that US banks get really uptight when you're wiring money back-forth these places as well.

 

[panganp]

Thanks @dumpdadump. Its own funds exclusively for the moment. Had never heard of wire fraud before, but it doesn't seem applicable, as I wouldn't be taking anyone's money: criminal.findlaw.com/criminal-charges/wire-fraud.html.

As said not sure lying to own's broker is illegal at all. The rule is intended to protect investors, not brokers nor exchanges. And the burden of proof lies with the broker. If the broker doesn't conduct a proper KYC, asking for documents to back up claims, its plain bad KYC procedures. Lying in general terms is not illegal, unless it results in damages, or one is lying under oath, or one is lying on legal documents. Its the old "its none of your business" reasoning. Privacy. Just because we are asked something it doesn't mean we need to answer or answer truthfully. On the other hand, if lying to own's broker results in SEC imposing penalties to the broker, then that may be illegal. Also the IB Account Details section where one may update one's financial information has the following notice which may render that section a legal document:

Notice Regarding Anti-Money Laundering and Customer Identification Procedures: To help the U.S. government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person or entity who opens an account. We are required by law to ask you to provide your name, address, date of birth and other information about you, your organization or persons related to your organization that will allow us to identify you before we approve your account. We also will ask you to provide certain identifying documents, such as your driver's license or passport or your organization's articles of incorporation and may obtain credit and other consumer reports to assist us in verifying your identity and in determining whether you satisfy our account criteria. Unless you provide the requested information and documentation, we may not be able to open your account. By applying for an IB account, you agree to provide accurate and truthful information as requested by IB and you consent to IB's acquisition of credit and other consumer reports about you for the purposes described above.

I'm leaning towards #3 once the time comes.

 

[panganp]

Thanks @oversea. Excellent points. I will land with a newly-minted US resident visa, so I will become a US tax person as soon as I set foot in the country. Really hope all of Dodd-Frank goes down the drain, but they may just modify part of it, and who knows when. BVIs are relatively cheap. Would not need to be a BVI, should have said non-US company.

 

[Overnight]

"...State I have assets over USD 10 million to be recognized as an eligible contract person - Lying is never good, but would it be illegal? It may very well be 100% legal. The SEC rule regulating this (17 CFR Part 240) states SEC regulated brokers are prohibited from doing retail forex transactions with non-eligible contract participants. But I have found nothing indicating that falsely claiming to have assets over 10 million is illegal in any way. And I have read hundreds of pages of legal documents looking for it."

Seems you have a lot of money on the line here. Find a US-based lawyer and get definitive advice. When working with that much money, why are you asking on this forum? Why not seek professional advice?

 

[Sig]

"...State I have assets over USD 10 million to be recognized as an eligible contract person - Lying is never good, but would it be illegal? It may very well be 100% legal. The SEC rule regulating this (17 CFR Part 240) states SEC regulated brokers are prohibited from doing retail forex transactions with non-eligible contract participants. But I have found nothing indicating that falsely claiming to have assets over 10 million is illegal in any way. And I have read hundreds of pages of legal documents looking for it."

Seems you have a lot of money on the line here. Find a US-based lawyer and get definitive advice. When working with that much money, why are you asking on this forum? Why not seek professional advice?

Because no lawyer is going to go on record saying to lie. Great point though, if there is a lot of money on the line and you know what a lawyer would say, why risk it.

 

[panganp]

Indeed. #6 is the kind of thing that needs to be discussed with a lawyer in person, not over the phone. Not because it is delicate, but rather because no lawyer would discuss this unless knowing the person. That would be on my next trip. In the meantime I thought to see if someone in the know may read this and provide valuable insights. I am pretty sure I am not the only one who is or has gone through this thought process, yet I have not seen this discussed anywhere. I have now found indications that it is a gray area and that it may or may not be legal. I would only pursue #6 if certain it is legal. This is a good read if interested in the subject: works.bepress.com/steven_morrison/15. If at any point I find a definitive answer I'll come back and share it here. Thank you all, these exchanges helped me order my thoughts.

 

[comagnum]

In August 2016, Interactive Brokers communicated to their clients that they were going to limit leveraged forex trading to "eligible contract participants" only. Among other things, eligible contract participants must have a balance of over $10 million.

I am able to trade Forex at IB and my account is no where close to $10M. The key word IB uses when indicating $10M is required is 'leveraged Forex'. I believe that implies using a margin loan to purchase a position in excess of your available account value.

Disclaimer: IB is not my primary Forex broker. I do not have expertise into the policies of Forex trading with IB. My comment may be wrong. You will still need to check with IB on this.

 

[panganp]

@comagnum this only applies to those US persons trading forex with leverage with IB as it is a SEC regulated broker. e.g. putting on a 1mio GBPUSD trade on a 500k account represents leverage, and such leverage is independent of any risk management measures. Are you a US resident trading leveraged forex with IB?

 

[dumpdapump]

Lying is illegal in many more cases as you attempted to define. Wire fraud covers many more areas than just the transfer of funds (you may want to read up on it as you plan to move to the US, for example it includes opening bank accounts and brokerage accounts under false pretense, including providing factually wrong information with intend to mislead) . And why were you saying earlier on that you intend to manage others funds and ask for advice when that information is now not applicable? Hard to give advice when you change the scenario half way through.

Even in the lightest case re KYC misrepresentation , you will be defrauding your broker and violate agreements you signed with the broker. As IB customer I don't find this cool and so should not any other IB customers. Your intended misrepresentations raise the risk profile of a broker that others chose for a specific reason, among others, strict risk management guidelines and a low profile on runins with regulators and the government. I would recommend you to stick to the legal and even ethical and moral side of things and to make this small effort to contribute to make this world a slightly better place to live in rather than accomplishing the opposite with a me-me-me-always-first approach. Just my 2 c.

Thanks @dumpdadump. Its own funds exclusively for the moment. Had never heard of wire fraud before, but it doesn't seem applicable, as I wouldn't be taking anyone's money: criminal.findlaw.com/criminal-charges/wire-fraud.html.

As said not sure lying to own's broker is illegal at all. The rule is intended to protect investors, not brokers nor exchanges. And the burden of proof lies with the broker. If the broker doesn't conduct a proper KYC, asking for documents to back up claims, its plain bad KYC procedures. Lying in general terms is not illegal, unless it results in damages, or one is lying under oath, or one is lying on legal documents. Its the old "its none of your business" reasoning. Privacy. Just because we are asked something it doesn't mean we need to answer or answer truthfully. On the other hand, if lying to own's broker results in SEC imposing penalties to the broker, then that may be illegal. Also the IB Account Details section where one may update one's financial information has the following notice which may render that section a legal document:

Notice Regarding Anti-Money Laundering and Customer Identification Procedures: To help the U.S. government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person or entity who opens an account. We are required by law to ask you to provide your name, address, date of birth and other information about you, your organization or persons related to your organization that will allow us to identify you before we approve your account. We also will ask you to provide certain identifying documents, such as your driver's license or passport or your organization's articles of incorporation and may obtain credit and other consumer reports to assist us in verifying your identity and in determining whether you satisfy our account criteria. Unless you provide the requested information and documentation, we may not be able to open your account. By applying for an IB account, you agree to provide accurate and truthful information as requested by IB and you consent to IB's acquisition of credit and other consumer reports about you for the purposes described above.

I'm leaning towards #3 once the time comes.

 

[dumpdapump]

"valuable insights" into defrauding, lying, or cheating? I thought until now that the average profile of even ET members stood a notch above that. The race to the bottom just accelerated. I hope you don't fuck things up for the rest.

Indeed. #6 is the kind of thing that needs to be discussed with a lawyer in person, not over the phone. Not because it is delicate, but rather because no lawyer would discuss this unless knowing the person. That would be on my next trip. In the meantime I thought to see if someone in the know may read this and provide valuable insights. I am pretty sure I am not the only one who is or has gone through this thought process, yet I have not seen this discussed anywhere. I have now found indications that it is a gray area and that it may or may not be legal. I would only pursue #6 if certain it is legal. This is a good read if interested in the subject: works.bepress.com/steven_morrison/15. If at any point I find a definitive answer I'll come back and share it here. Thank you all, these exchanges helped me order my thoughts.