December 6, 2016 / 2:37 PM / 8 months ago

Argentines use currency exchange tactic to comply with tax amnesty

A woman walks past a currency exchange rates board at a money exchange in Buenos Aires' financial district, Argentina, December 16, 2015.Marcos Brindicci

BUENOS AIRES (Reuters) - Argentines with funds at a Bank of New York Mellon Corp (BK.N) unit cannot wire money straight to their government to pay fees for a tax amnesty program, prompting some to use an indirect foreign exchange trade to make payments, a lawyer and a broker said.

As part of his bid to jump-start Argentina's recession-stricken economy, center-right President Mauricio Macri started a program to allow Argentines to pay a fee and declare the estimated $400 billion in hidden wealth they have abroad without fear of prosecution for tax evasion.

Those who declare can keep their money abroad but must pay a fee of up to 15 percent of the value of their assets. But clients of BNY Mellon's Pershing LLC custodian and asset manager cannot pay the fee through a wire transfer to the AFIP tax agency, according to two lawyers, an accountant and a broker.

As a workaround, some Pershing clients have resorted to a currency exchange tactic called the "contado con liqui," or blue-chip swap, that gained prominence when currency controls implemented by populist former President Christina Fernandez were in place.

A Pershing spokesman declined to comment on why Argentine clients could not transfer the fee payments directly to the government. One of the lawyers consulted and a Buenos Aires-based broker said it was common for custodian banks to prohibit wire transfers of funds to third parties.

Many Argentines with funds abroad turn to Pershing for its lower fees and because of difficulties opening accounts at commercial banks, said Sebastian Arena, director of brokerage Buenos Aires Valores.

"For an Argentine to open a checking account at a United States bank isn't as simple as for an American," he said.

Argentine President Mauricio Macri speaks during news conference at the Olivos presidential residence in Buenos Aires, Argentina, September 28, 2016.Marcos Brindicci/File Photo

Commercial banks were reluctant to open accounts for Argentines while the country was on the Financial Action Task Force's list of nations not doing enough to fight money laundering between 2011 and 2014, he said.

"Many private bankers in Argentina have business channels with Pershing," Arena said.

Under the Fernandez regime's currency controls, which Macri lifted in 2015 shortly after taking office, Argentines looking to get dollars would often buy a security like a sovereign bond or stock in state-owned oil company YPF SA (YPFD.BA) in Argentine pesos on the local market. They would then sell the security in dollars in the United States.

Now Pershing clients have reversed the trade.

"They're buying YPF's (American Depository Receipts) on Wall Street with their Pershing money and then selling stocks here so they can use it legally, use it to pay the tax," said Buenos Aires lawyer Eduardo Aguilera of RCTZZ Abogados, who has clients participating in the amnesty.

Aguilera said Argentines who do have accounts with commercial banks have largely not reported problems making transfers to pay the fees.

The most common "contado con liqui" trade is between sovereign bonds expiring in April and traded in the United States in dollars ARAA17=RRPS and the same bonds in pesos traded in Argentina ARAA173=BA, Arena said.

The amnesty program is considered a success so far, with nearly $22 billion declared by Nov. 21. Total fees that AFIP collects may affect how much debt Macri's government needs to take on next year.

Reporting by Luc Cohen; Editing by Lisa Von Ahn

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