Unnamed: 0
int64 0
4.52k
| report
stringlengths 7
512
|
|---|---|
4,400 | ot paying agent commissions, particularly since the agents were not directly responsible for the company’s failure. Representatives also stated that RMA was correct in paying agent commissions to ensure agent cooperation, to not drive smaller agents into bankruptcy, and to maintain the integrity of the federal crop insurance program. Finally, RMA’s actions in paying full agent commissions could have implications for the future of the federal crop insurance program, but it is unclear how future company and a |
4,401 | gent practices may be affected by RMA’s decisions. RMA’s actions could suggest that it might provide similar financial support in the event of future insolvencies, regardless of company and agent practices. For example, RMA’s actions could have set a precedent for high agent commissions, a key factor in the failure of American Growers, which could, in turn, be a factor in other insolvencies. However, RMA has stated that it plans to consider each new situation on a case-by- case basis and that agents and com |
4,402 | panies should not expect the same treatment as in the case of American Growers. RMA said that a managing general agent had recently gone out of business and that RMA had not stepped in to provide relief to agents. The following are GAO’s comments on the Risk Management Agency’s letter dated April 28, 2004. 1. Per RMA’s suggestion, we have provided additional details in this report noting that NDOI placed American Growers under supervision on November 22, 2002, and later placed the company under rehabilitati |
4,403 | on on December 20, 2002. RMA suggests that the state’s initial action impacted its flexibility in working with the state and the company. As we note in our conclusions, better coordination with state regulators regarding respective authorities and responsibilities in the event of future insurance provider insolvencies is necessary to ensure that RMA’s interests are protected. 2. We revised the report to note that some agents are paid a salary rather than receiving commissions on the premiums from policies s |
4,404 | old. American Growers’ agents received commissions, as do most agents who sell and service crop insurance. 3. At the time of our review, we noted written procedures based on regulations for the yearly review and approval of SRA holders and applicants. However, as noted in this report, these procedures were insufficient to assess the overall financial health of a company. To the extent that the final SRA does not fully address oversight weaknesses identified in our report, RMA should take action to modify it |
4,405 | s regulations or other written policies. 4. RMA on-site financial and operational reviews do not appear to focus on the overall financial health of a company, but rather on internal controls. However, as a minimum, RMA should coordinate these reviews with state regulators who periodically review company operations. In addition to the individuals named above, David W. Bennett, John W. Delicath, Tyra DiPalma-Vigil, Jean McSween, and Bruce Skud made key contributions to this report. The General Accounting Offi |
4,406 | ce, the audit, evaluation and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO’s commitment to good government is reflected in its co |
4,407 | re values of accountability, integrity, and reliability. The fastest and easiest way to obtain copies of GAO documents at no cost is through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and full- text files of current reports and testimony and an expanding archive of older products. The Web site features a search engine to help you locate documents using key words and phrases. You can print these documents in their entirety, including charts and other graphics. Each day, GAO issues a list o |
4,408 | f newly released reports, testimony, and correspondence. GAO posts this list, known as “Today’s Reports,” on its Web site daily. The list contains links to the full-text document files. To have GAO e-mail this list to you every afternoon, go to www.gao.gov and select “Subscribe to e-mail alerts” under the “Order GAO Products” heading. |
4,409 | Three agencies share responsibility for enforcing ERISA: the Department of Labor (EBSA), the Department of the Treasury’s Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC). EBSA enforces fiduciary standards for plan fiduciaries of privately sponsored employee benefit plans to ensure that plans are operated in the best interests of plan participants. EBSA also enforces reporting and disclosure requirements covering the type and extent of information provided to the federal g |
4,410 | overnment and plan participants, and seeks to ensure that specific transactions prohibited by ERISA are not conducted by plans. Under Title I of ERISA, EBSA conducts investigations of plans and seeks appropriate remedies to correct violations of the law, including litigation when necessary. IRS enforces the Internal Revenue Code (IRC) and provisions that must be met which give pension plans tax-qualified status, including participation, vesting, and funding requirements. The IRS also audits plans to ensure |
4,411 | compliance and can levy tax penalties or revoke the tax-qualified status of a plan as appropriate. PBGC, under Title IV of ERISA, provides insurance for participants and beneficiaries of certain types of tax-qualified pension plans, called defined benefit plans, that terminate with insufficient assets to pay promised benefits. Recent terminations of large, underfunded plans have threatened the long-term solvency of PBGC. As a result, we placed PBGC’s single-employer insurance program on our high-risk list o |
4,412 | f programs needing further attention and congressional action. ERISA and the IRC require plan administrators to file annual reports concerning, among other things, the financial condition and operation of plans. EBSA, IRS, and PBGC jointly developed the Form 5500 so that plan administrators can satisfy this annual reporting requirement. Additionally, ERISA and the IRC provide for the assessment or imposition of penalties for plan sponsors not submitting the required information when due. About one-fifth of |
4,413 | Americans’ retirement wealth is invested in mutual funds, which are regulated by the Securities and Exchange Commission (SEC), primarily under the Investment Company Act of 1940. The primary mission of the SEC is to protect investors, including pension plan participants investing in securities markets, and maintain the integrity of the securities markets through extensive disclosure, enforcement, and education. In addition, some pension plans use investment managers to oversee plan assets, and these manager |
4,414 | s may be subject to other securities laws. EBSA’s enforcement strategy is a multifaceted approach of targeted plan investigations supplemented by providing education to plan participants and plan sponsors. EBSA allows its regions the flexibility to tailor their investigations to address the unique issues in their regions, within a framework established by EBSA’s Office of Enforcement. The regional offices then have a significant degree of autonomy in developing and carrying out investigations using a mixtur |
4,415 | e of approaches and techniques they deem most appropriate. Participant leads are still the major source of investigations. To supplement their investigations, the regions conduct outreach activities to educate both plan participants and sponsors. The purpose of these efforts is to gain participants’ help in identifying potential violations and to educate sponsors in properly managing their plans and avoiding violations. The regions also process applications for the Voluntary Fiduciary Correction Program (VF |
4,416 | CP) through which plan officials can voluntarily report and correct some violations without penalty. EBSA attempts to maximize the effectiveness of its enforcement efforts to detect and correct ERISA violations by targeting specific cases for review. In doing so, the Office of Enforcement provides assistance to the regional offices in the form of broad program policy guidance, program oversight, and technical support. The regional offices then focus their investigative workloads to address the needs specifi |
4,417 | c to their region. Investigative staff also have some responsibility for selecting cases. The Office of Enforcement identifies national priorities—areas critical to the well-being of employee benefit plan participants and beneficiaries nationwide—in which all regions must target a portion of their investigative efforts. Currently, EBSA’s national priorities involve, among other things, investigating defined contribution pension plan and health plan fraud. Officials in the Office of Enforcement said that nat |
4,418 | ional priorities are periodically re-evaluated and are changed to reflect trends in the area of pensions and other benefits. On the basis of its national investigative priorities, the Office of Enforcement has established a number of national projects. Currently, there are five national projects pertaining to a variety of issues including employee contributions to defined contribution plans, employee stock ownership plans (ESOP), and health plan fraud. EBSA’s increasing emphasis on defined contribution pens |
4,419 | ion plans reflects the rapid growth of this segment of the pension plan universe. In fiscal year 2004, EBSA had monetary results of over $31 million and obtained 10 criminal indictments under its employee contributions project. EBSA’s most recent national enforcement project involves investigating violations pertaining to ESOPs, such as the incorrect valuation of employer securities and the failure to provide participants with the specific benefits required or allowed under ESOPs, such as voting rights, the |
4,420 | ability to diversify their account balances at certain times, and the right to sell their shares of stock. Likewise, more attention is being given to health plan fraud, such as fraudulent multiple employer welfare arrangements (MEWAs). In this instance, EBSA’s emphasis is on abusive and fraudulent MEWAs created by promoters that attempt to evade state insurance regulations and sell the promise of inexpensive health benefit insurance but typically default on their benefit obligations. EBSA regional offices |
4,421 | determine the focus of their investigative workloads based on their evaluation of the employee benefit plans in their jurisdiction and guidance from the Office of Enforcement. For example, each region is expected to conduct investigations that cover their entire geographic jurisdiction and attain a balance among the different types and sizes of plans investigated. In addition, each regional office is expected to dedicate some percentage of its staff resources to national and to regional projects—those devel |
4,422 | oped within their own region that focus on local concerns. In developing regional projects, each regional office uses its knowledge of the unique activities and types of plans in its jurisdiction. For example, a region that has a heavy banking industry concentration may develop a project aimed at a particular type of transaction commonly performed by banks. We previously reported that the regional offices spend an average of about 40 percent of their investigative time conducting investigations in support o |
4,423 | f national projects and almost 25 percentage of their investigative time on regional projects. EBSA officials said that their most effective source of leads on violations of ERISA is from complaints from plan participants. Case openings also originate from news articles or other publications on a particular industry or company as well as tips from colleagues in other enforcement agencies. Computer searches and targeting of Form 5500 information on specific types of plans account for only 25 percent of case |
4,424 | openings. In 1994, we reported that EBSA had done little to test the effectiveness of the computerized targeting runs it was using to select cases. Since then, EBSA has scaled down both the number of computerized runs available to staff and its reliance on these runs as a means of selecting cases. Investigative staff are also responsible for identifying a portion of their cases on their own to complete their workloads and address other potentially vulnerable areas. As shown in figure 1, EBSA’s investigative |
4,425 | process generally follows a pattern of selecting, developing, resolving, and reviewing cases. EBSA officials told us that they open about 4,000 investigations into actual and potential violations of ERISA annually. According to EBSA, its primary goal in resolving a case is to ensure that a plan’s assets, and therefore its participants and beneficiaries, are protected. EBSA’s decision to litigate a case is made jointly with the Department of Labor’s Regional Solicitors’ Offices. Although EBSA settles most c |
4,426 | ases without going to court, both the agency and the Solicitor’s Office recognize the need to litigate some cases for their deterrent effect on other providers. As part of its enforcement program, EBSA also detects and investigates criminal violations of ERISA. From fiscal years 2000 through 2004, criminal investigations resulted in an average of 54 cases closed with convictions or guilty pleas annually. Part of EBSA’s enforcement strategy includes routinely publicizing the results of its litigation efforts |
4,427 | in both the civil and criminal areas as a deterrent factor. To further leverage its enforcement resources, EBSA provides education to plan participants, sponsors, and service providers and allows the voluntary self-correction of certain transactions without penalty. EBSA’s education program for plan participants aims to increase their knowledge of their rights and benefits under ERISA. For example, EBSA anticipates that educating participants will establish an environment in which individuals can help prot |
4,428 | ect their own benefits by recognizing potential problems and notifying EBSA when issues arise. The agency also conducts outreach to plan sponsors and service providers about their ongoing fiduciary responsibilities and obligations under ERISA. At the national level, EBSA’s Office of Participant Assistance develops, implements, and evaluates agency-wide participant assistance and outreach programs. It also provides policies and guidance to other EBSA national and regional offices involved in outreach activit |
4,429 | ies. EBSA’s nationwide education campaigns include a fiduciary education campaign, launched in May 2004, to educate plan sponsors and service providers about their fiduciary responsibilities under ERISA. This campaign also includes educational material on understanding fees and selecting an auditor. EBSA’s regional offices also assist in implementing national education initiatives and conduct their own outreach to address local concerns. The regional offices’ benefit advisers provide written and telephone r |
4,430 | esponses to participants. Benefit advisers and investigative staff also speak at conferences and seminars sponsored by trade and professional groups and participate in outreach and educational efforts in conjunction with other federal or state agencies. At the national level, several EBSA offices direct specialized outreach activities. As with EBSA’s participant-directed outreach activities, its efforts to educate plan sponsors and service providers also rely upon Office of Enforcement staff and the regiona |
4,431 | l offices for implementation. For example, these staff make presentations to employer groups and service provider organizations about their ERISA obligations and any new requirements under the law, such as reporting and disclosure provisions. To supplement its investigative programs, EBSA is promoting the self- disclosure and self-correction of possible ERISA violations by plan officials through its Voluntary Fiduciary Correction Program. The purpose of the VFCP is to protect the financial security of worke |
4,432 | rs by encouraging plan officials to identify and correct ERISA violations on their own. Specifically, the VFCP allows plan officials to identify and correct 18 transactions, such as delinquent participant contributions and participant loan repayments to pension plans. Under the VFCP, plan officials follow a process whereby they (1) correct the violation using EBSA’s written guidance; (2) restore any losses or profits to the plan; (3) notify participants and beneficiaries of the correction; and (4) file a VF |
4,433 | CP application, which includes evidence of the corrected transaction, with the EBSA regional office in whose jurisdiction it resides. If the regional office determines that the plan has met the program’s terms, it will issue a “no action” letter to the applicant and will not initiate a civil investigation of the violation, which could have resulted in a penalty being assessed against the plan. EBSA has taken steps to address many of the recommendations we have made over a number of years to improve its enfo |
4,434 | rcement program, including assessing the level and types of noncompliance with ERISA, improving sharing of best investigative practices, and developing a human capital strategy to better respond changes in its workforce. EBSA reported a significant increase in enforcement results for fiscal year 2004, including $3.1 billion in total monetary results and closing nearly 4,400 investigations, with nearly 70 percent of those cases resulting in corrections of ERISA violations. Despite this progress, EBSA continu |
4,435 | es to face a number of significant challenges to its enforcement program, including the lack of timely and reliable plan information, restrictive statutory requirements that limit its ability to assess certain penalties, and the need to better coordinate enforcement strategies with the SEC. EBSA has taken a number of steps, including addressing recommendations from our prior reports that have improved its enforcement efforts across a number of areas. For example, EBSA has continued to refine its enforcement |
4,436 | strategy to meet changing priorities and provided additional flexibility to its regional office to target areas of investigations. More recently, EBSA implemented a series of recommendations from our 2002 enforcement report that helped it strategically manage its enforcement program, including conducting studies to determine the level of and type of noncompliance with ERISA and developing a Human Capital Strategic Management Plan (see table 1). EBSA has reported a substantial increase in results from its e |
4,437 | nforcement efforts since our last review. For fiscal year 2004, EBSA closed 4,399 civil investigations and reported $3.1 billion in total results, including $2.53 billion in prohibited transactions corrected and plan assets protected, up from $566 million in fiscal year 2002. Likewise, the percentage of civil investigations closed with results rose from 58 percent to 69 percent. Also, applications received for the VFCP increased from 55 in fiscal year 2002 to 474 in 2004. EBSA has been able to achieve such |
4,438 | results with relatively small recent increases in staff. Full-time equivalent (FTE) authorized staff levels increased from 850 in fiscal year 2001 to 887 FTEs in fiscal year 2005. The President’s budget for fiscal year 2006 requests no additional FTEs. Previously, we and others have reported that ERISA enforcement was hindered by incomplete, inaccurate, and untimely plan data. We recently reported that the lack of timely and complete of Form 5500 data affects EBSA’s use of the information for enforcement pu |
4,439 | rposes, such as computer targeting and identifying troubled plans. EBSA uses Form 5500 information as a compliance tool to identify actual and potential violations of ERISA. Although EBSA has access to Form 5500 information sooner than the general public, the agency is affected by the statutory filing deadlines, which can be up to 285 days after plan year end, and long processing times for paper filings submitted to the ERISA Filing Acceptance System. EBSA receives processed Form 5500 information on individ |
4,440 | ual filings on a regular basis once a form is completely processed. However, agency officials told us that as they still have to wait for a sufficiently complete universe of plan filings from any given plan year to be processed in order to begin their compliance targeting programs. As a result, EBSA officials told us that they are currently using plan year 2002 and 2003 Form 5500 information for computer targeting. They also said that in some cases untimely Form 5500 information affects their ability to ide |
4,441 | ntify financially troubled plans whose sponsors may be on the verge of going out of business and abandoning their pension plans, because these plans may no longer exist by the time that Labor receives the processed filing or is able to determine that no Form 5500 was filed by those sponsors. The Form 5500 also lacks key information that could better assist EBSA, IRS, and PBGC in monitoring plans and ensuring that they are in compliance with ERISA. EBSA, IRS and PBGC officials said that they have experienced |
4,442 | difficulties when relying on Form 5500 information to identify and track all plans across years. Although EBSA has a process in place to identify and track plans filing a Form 5500 from year to year, problems still arise when plans change employer identification numbers (EIN) and/or plan numbers. Identifying plans is further complicated when plan sponsors are acquired, sold, or merged. In these cases, agency officials said that there is an increased possibility of mismatching of EINs, plans, and their iden |
4,443 | tifying information. As result, EBSA officials said they are unable to (1) verify if all required employers are meeting the statutory requirement to file a Form 5500 annually, (2) identity all late filers, and (3) assess and collect penalties from all plans that fail to file or are late. Likewise, PBGC officials said that must spend additional time each year trying to identify and track certain defined benefit plans so that they can conduct compliance and research activities. EBSA officials said they are co |
4,444 | nsidering measures to better track and identify plans but have not reached any conclusions. Our recent report makes a number of recommendations aimed at improving the timeliness and content of Form 5500 that will likely assist EBSA’s enforcement efforts. In addition to problems with Form 5500 information, concerns remain about the quality of annual audits of plans’ financial statements by independent public accountants. For many years, we, as well as the Department of Labor’s Office of Inspector General (OI |
4,445 | G), have reported that a significant number of these audits have not met ERISA requirements. For example, in 1992 we found that over a third of the 25 plan audits we reviewed had audit weaknesses so serious that their reliability and usefulness were questionable. We recommended that the Congress amend ERISA to require full-scope audits of employee benefit plans and to require plan administrators and independent public accountants to report on how effective an employee benefit plan’s internal controls are in |
4,446 | protecting plan assets. Although such changes were subsequently proposed, they were not enacted. In 2004, Labor’s OIG reported that although EBSA had reviewed a significant number of employee benefit plan audits and made efforts to correct substandard audits, a significant number of substandard audits remain uncorrected. Furthermore, plan auditors performing substandard work generally continue to audit employee benefit plans without being required to improve the quality of the audits. As a result, these au |
4,447 | dits have not provided participants and beneficiaries the protections envisioned by Congress. Labor’s OIG recommended, among other things, that EBSA propose changes to ERISA so that EBSA has greater enforcement authority over employee benefit plan auditors. As we have previously reported, restrictive legal requirements have limited EBSA’s ability to assess penalties against fiduciaries or other persons who knowingly participate in a fiduciary breach. Unlike the SEC, which has the authority to impose a penal |
4,448 | ty without first assessing and then securing monetary damages, EBSA does not have such statutory authority and must assess penalties based on damages or, more specifically, the restoration of plan assets. Under Section 502(l), ERISA provides for a mandatory penalty against (1) a fiduciary who breaches a fiduciary duty under, or commits a violation of, Part 4 of Title I of ERISA or (2) against any other person who knowingly participates in such a breach or violation. This penalty is equal to 20 percent of th |
4,449 | e “applicable recovery amount,” or any settlement agreed upon by the Secretary or ordered by a court to be paid in a judicial proceeding instituted by the Secretary. However, the applicable recovery amount cannot be determined if damages have not been valued. This penalty can be assessed only against fiduciaries or knowing participants in a breach who, by court order or settlement agreement, restore plan assets. Therefore, if (1) there is no settlement agreement or court order or (2) someone other than a fi |
4,450 | duciary or knowing participant returns plan assets, the penalty may not be assessed. For example, last year we reported that ERISA presented legal challenges when developing cases related to proxy voting by plan fiduciaries, particularly with regards to valuing monetary damages. As a result, because EBSA has never found a violation that resulted in monetary damages, it has never assessed a penalty or removed a fiduciary because of a proxy voting investigation. Given the restrictive legal requirements that h |
4,451 | ave limited the use of penalties for violations of ERISA’s fiduciary requirements, we recommended that Congress consider amending ERISA to give the Secretary of Labor additional authority with respect to assessing monetary penalties against fiduciaries. We also recommended other changes to ERISA to better protect plan participants and increase the transparency of proxy voting practices by plan fiduciaries. Recent events such as the abusive trading practices of late trading and market timing in mutual funds |
4,452 | and new revelations of conflicts of interest by pension consultants highlight the need for EBSA to better coordinate enforcement strategies with SEC. Last year we reported that SEC and EBSA had separately taken steps to address abusive trading practices in mutual funds. At the time we issued our report, SEC had taken a number of actions to address the abuses including: charging some fund companies with defrauding investors by not enforcing their stated policies on market timing, fining some institutions hun |
4,453 | dreds of millions of dollars (some of this money was to be returned to long-term shareholders who lost money due to abusive practices), permanently barring some individuals from future work with investment companies, and proposing new regulations addressing late trading and market timing. Separate from SEC activities, EBSA began investigating possible fiduciary violations at some large investment companies, including those that sponsor mutual funds, and violations by plan fiduciaries. EBSA also issued guida |
4,454 | nce suggesting that plan fiduciaries review their relationships with mutual funds and other investment companies to ensure they are meeting their responsibilities of acting reasonably, prudently, and solely in the interest of plan participants. Although SEC’s proposed regulations on late trading and market timing could have more adversely affected some plan participants than other mutual fund investors, EBSA was not involved in drafting the regulations because it does not regulate mutual funds. In another e |
4,455 | xample of how EBSA and SEC enforcement responsibilities can intersect, SEC recently found that potential conflicts of interest may affect the objectivity of advice pension consultants are providing to their pension plan clients. The report also raised important issues for plan fiduciaries who often rely on the advice of pension consultants in operating their plans. Recently, EBSA and SEC issued tips to help plan fiduciaries evaluate the objectivity of advice and recommendations provided by pension consultan |
4,456 | ts. Americans face numerous challenges to securing their economic security in retirement, including the long-term fiscal challenges facing Social Security; the uncertainty of promised pension benefits; and the potential volatility of the investments held in their defined contributions plans. Given these concerns, it is important that employees’ benefits are adequately protected. EBSA is a relatively small agency facing the daunting challenge of protecting over $4 trillion in assets of pension and welfare be |
4,457 | nefits for millions of Americans. Over the years, EBSA has taken steps to strengthen its enforcement program and leverage its limited resources. These actions have helped better position EBSA to more effectively enforce ERISA. EBSA, however, continues to face a number of significant challenges to its enforcement program. Foremost, despite improvements in the timeliness and content of the Form 5500, information currently collected does not permit EBSA and the other ERISA regulatory agencies to be in the best |
4,458 | position to ensure compliance with federal laws and assess the financial condition of private pension plans. Given the ever-changing complexities of employee benefit plans and how rapidly the financial condition of pension plans can deteriorate, it is imperative that policymakers, regulators, plan participants, and others have more timely and accurate Form 5500 information. In addition, there is a legitimate question as to whether information currently collected on the Form 5500 can be used as an effective |
4,459 | enforcement tool by EBSA or whether different information might be needed. Without the right information on plans in a timely manner, EBSA will continue to have to rely on participant complaints as a primary source of investigations rather than being able to proactively identify and target problems areas. Second, in some instances, EBSA’s enforcement efforts continue to be hindered by ERISA, the very law it is charged with enforcing. For example, because of restrictive legal requirements, EBSA continues to |
4,460 | be hindered in assessing penalties against fiduciaries or others who knowingly participate in a fiduciary breach. Congress may want to amend ERISA to address such limits on EBSA’s enforcement authority. Finally, the significant changes that have occurred in pension plans, the growing complexity of financial transactions of such plans, and the increasing role of mutual funds and other investment vehicles in retirement savings plans require enhanced coordination of enforcement efforts with SEC. Furthermore, |
4,461 | such changes raise the fundamental question of whether Congress should modify the current ERISA enforcement framework. For example, it is important to consider whether the current division of oversight responsibilities across several agencies is the best way to ensure effective enforcement or whether some type of consolidation or reallocation of responsibilities and resources could result in more effective and efficient ERISA enforcement. We look forward to working with Congress on such crucial issues. Mr. |
4,462 | Chairman, this concludes my statement. I would be happy to respond to any questions you or other members of the committee may have. For further information, please contact me at (202) 512-7215. Other individuals making key contributions to this testimony included Joseph Applebaum, Kimberley Granger, Raun Lazier, George Scott, and Roger Thomas. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without fu |
4,463 | rther permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. |
4,464 | The Congress passed the Communications Satellite Act of 1962 to promote the creation of a global satellite communications system. As a result of this legislation, the United States joined with 84 other nations in establishing the International Telecommunications Satellite Organization—more commonly known as INTELSAT—roughly 10 years later. Each member nation designated a single telecommunications company to represent its country in the management and financing of INTELSAT. These companies were called signat |
4,465 | ories to INTELSAT, and were typically government- owned telecommunications companies, such as France Telecom, that provided satellite communications services as well as other domestic communications services. Unlike any of the other nations that originally formed INTELSAT, the United States designated a private company, Comsat Corporation, to serve as its signatory to INTELSAT. During the 1970s and early 1980s, INTELSAT was the only wholesale provider of certain types of global satellite communications serv |
4,466 | ices such as international telephone calls and relay of television signals internationally. By the mid-1980s, however, the United States began encouraging the development of commercial satellite communications systems that would compete with INTELSAT. In 1988, PanAmSat was the first commercial company to begin launching satellites in an effort to develop a global satellite system. Within a decade after PanAmSat first entered the market, INTELSAT faced global satellite competitors. Moreover, intermodal compe |
4,467 | tition emerged during the 1980s and 1990s as fiber optic networks were widely deployed on the ground and underwater to provide international communications services. As competition to INTELSAT grew, there was considerable criticism from commercial satellite companies because they believed that INTELSAT enjoyed advantages stemming from its intergovernmental status that made it difficult for other companies to compete in the market. In particular, these companies noted that INTELSAT enjoyed immunity from lega |
4,468 | l liability and was often not taxed in the various countries that it served. By the mid-1990s, competitors began to argue that for the satellite marketplace to become fully competitive, INTELSAT would need to be privatized so that it would operate like any other company and no longer enjoy such advantages. At about the same time, INTELSAT recognized that privatization would be best for the company. Decision-makers within INTELSAT noted that the cumbersome nature of the intergovernmental decision-making proc |
4,469 | ess left the company unable to rapidly respond to changing market conditions. In 1999, INTELSAT announced its decision to privatize and thus become a private corporation. By the late 1990s, the United States government also decided that it would be in the interests of consumers and businesses in the United States for INTELSAT to privatize. The ORBIT Act, enacted in March 2000, was designed to promote a competitive global satellite communication services market. It did so primarily by calling for INTELSAT to |
4,470 | be fully privatized. The ORBIT Act required, for example, that INTELSAT be transformed into a privately held, for-profit corporation with a board of directors that would be largely independent of former INTELSAT signatories. Moreover, the act required that the newly privatized Intelsat retain no privileges or other benefits from governments that had previously owned or controlled it. To ensure that this transformation occurred, the Congress imposed certain restrictions on the granting of licenses that allo |
4,471 | w Intelsat to provide services within the United States. The Congress coupled the issuance of licenses granted by FCC to INTELSAT’s successful privatization under the ORBIT Act. That is, FCC was told to consider compliance with provisions of the ORBIT Act as it made decisions about licensing Intelsat’s domestic operations in the United States. Moreover, FCC was empowered to restrict any satellite operator’s provision of certain new services from the United States to any country that limited market access ex |
4,472 | clusively to that satellite operator. Market access for satellite firms to non-U.S. markets was also affected by trade agreements that were negotiated during the 1990s. Specifically, the establishment of the World Trade Organization (WTO) on January 1, 1995, with its numerous binding international trade agreements formalized global efforts to open markets to the trade of services. Since that time, WTO has become the principal international forum for discussion, negotiation, and resolution of trade issues. F |
4,473 | or example, the first global trade agreement that promotes countries’ open and nondiscriminatory market access to services was the General Agreement on Trade in Services (GATS), which provides a legal framework for addressing barriers to international trade and investment in services, and includes specific commitments by member countries to restrict their use of these barriers. Since adoption of a basic telecommunications services protocol by the GATS in 1998, telecommunications trade commitments have also |
4,474 | been incorporated into the WTO rules. Such commitments resulted in member countries agreeing to open markets to telecommunications services, such as global satellite communications services. FCC determined that INTELSAT’s July 2001 privatization was in accordance with the ORBIT Act’s requirements and licensed the new private company to provide services within the United States. FCC’s grant of these licenses was conditioned on Intelsat holding an initial public offering (IPO) of securities by October 1, 2001 |
4,475 | . The Congress and FCC have extended this date three times and the current deadline for the IPO is June 30, 2005. Because Intelsat has not yet completed the IPO, some competing satellite companies have stated that the privatization is not fully complete. Some parties have pointed out that there was a possibility that implementation of the ORBIT Act could have given rise to action arguably inconsistent with commitments that the United States made in international trade agreements. However, we were told that |
4,476 | actual implementation avoided such outcomes and no disputes arose. On July 18, 2001, INTELSAT transferred virtually all of its financial assets and liabilities to a private company called Intelsat, Ltd., a holding company incorporated in Bermuda. Intelsat, Ltd. has several subsidiaries, including a U.S.-incorporated indirect subsidiary called Intelsat, LLC. Upon their execution of privatization, INTELSAT signatories received shares of Intelsat, Ltd. in proportion to their investment in the intergovernmental |
4,477 | INTELSAT. Two months before the privatization, FCC determined that INTELSAT’s privatization plan was consistent with the requirements of the ORBIT Act for a variety of reasons, including the following. Intelsat, Ltd.’s Shareholders’ Agreement provided sufficient evidence that the company would conduct an IPO, which would in part satisfy the act’s requirement that Intelsat be an independent commercial entity. Intelsat, Ltd. no longer enjoyed the legal privileges or immunities of the intergovernmental INTELS |
4,478 | AT, since it was organized under Bermuda law and subject to that country’s tax and legal liability requirements. Both Intelsat, Ltd. and Intelsat, LLC are incorporated in countries that are signatories to the WTO and have laws that secure competition in telecommunications services. Intelsat, Ltd. converted into a stock corporation with a fiduciary board of directors. In particular, FCC said that the boards of directors of both Intelsat, Ltd. and Intelsat, LLC were subject to the laws of Bermuda and the Unit |
4,479 | ed States, respectively, and that the laws of these countries require boards of directors to have fiduciary obligations to the company. Measures taken to ensure that a majority of the members of Intelsat, Ltd.’s board of directors were not directors, employees, officers, managers, or representatives of any signatory or former signatory of the intergovernmental INTELSAT were consistent with the requirements of the ORBIT Act. Intelsat, Ltd. and its subsidiaries had only arms-length business relationships with |
4,480 | certain other entities that obtained INTELSAT’s assets. In light of these findings, FCC conditionally authorized Intelsat, LLC to use its U.S. satellite licenses to provide services within the United States. However, FCC conditioned this authorization on Intelsat, Ltd.’s conducting an IPO of securities as mandated by the ORBIT Act. In December 2003, FCC noted that if Intelsat, Ltd. did not conduct an IPO by the statutory deadline, the agency would limit or deny Intelsat, LLC’s applications or requests and |
4,481 | revoke the previous authorizations granting Intelsat, LLC the authority to provide satellite services in the United States. In March 2004, Intelsat, Ltd. filed a registration statement with the Securities and Exchange Commission (SEC) indicating its intention to conduct an IPO. Since that time, however, the Congress further extended the required date by which the IPO must occur. In May 2004, the Congress extended the IPO deadline to June 30, 2005, and authorized FCC to further extend that deadline to Decemb |
4,482 | er 31, 2005, under certain conditions. In late May 2004, Intelsat withdrew its filing with SEC regarding its registration to conduct an IPO. On August 16, 2004, Intelsat, Ltd. announced that its Board of Directors approved the sale of the company to a consortium of four private investors; the sale requires the approval of shareholders holding 60 percent of Intelsat's outstanding shares and also regulatory approval. According to an Intelsat official, this transaction, if approved, would eliminate former sign |
4,483 | atories’ ownership in Intelsat. Most companies and experts that we interviewed believe that, to date, Intelsat’s privatization has been in accordance with the ORBIT Act’s requirements, and some of these companies and experts that we interviewed believe that FCC is fulfilling its duties to ensure that the privatization is consistent with the act. These parties noted that the ORBIT Act set forth many requirements for Intelsat and that most of these requirements have been fulfilled. However, some companies and |
4,484 | experts believe that the IPO is a key element to complete Intelsat’s privatization. According to some parties, the IPO would further dilute signatory ownership in Intelsat, Ltd. as envisioned by the ORBIT Act, which would reduce any incentive that former signatories might have to favor Intelsat when selecting a company to provide satellite services. Table 1 compares Intelsat, Ltd.’s ownership on the day of privatization in 2001 with the ownership as of May 6, 2004. As indicated in the table, in May 2004, m |
4,485 | ore than 50 percent of Intelsat, Ltd. was owned by the former signatories to the intergovernmental INTELSAT; although, as mentioned above, the recently announced purchase of Intelsat by four private investors, if approved, would eliminate former signatory ownership in Intelsat, according to an Intelsat official. We were told that there were potential inconsistencies between the ORBIT Act and obligations the United States made in international trade agreements. In particular, the ORBIT Act set requirements f |
4,486 | or INTELSAT’s privatization that, if not met, could have triggered FCC’s denial of licenses that would allow a successor private company to INTELSAT to provide services in the United States once that company was incorporated under foreign law. Some stakeholders told us that, had this occurred, FCC’s actions could have been viewed as inconsistent with U.S. obligations in international trade agreements. In fact, on August 1, 2000, following the enactment of the ORBIT Act, the European Commission (EC) stated t |
4,487 | hat the ORBIT Act raised a general concern regarding its compatibility with the U.S. obligations in the WTO. The EC further emphasized that if the act was going to be used against European Union (EU) interests, the EU would consider exercising its rights to file a trade dispute under the WTO. While we were told that potential inconsistencies could have arisen, INTELSAT privatized according to the ORBIT Act removing any need for FCC to act in a manner that might be inconsistent with U.S. international trade |
4,488 | obligations, and no trade disputes arose. Most stakeholders we spoke with generally stated that the ORBIT Act’s requirements have not conflicted with international trade agreements during the privatizations of INTELSAT. Officials from FCC, USTR, the Department of State, as well as satellite company representatives and experts on telecommunications issues, told us that INTELSAT privatized according to the act’s requirements. Several stakeholders emphasized that trade disputes had not arisen because INTELSAT |
4,489 | privatized in accordance with the ORBIT Act. As of June 2004, WTO and USTR documentation showed that no trade complaints had been filed at the WTO about the ORBIT Act and INTELSAT’s privatization. Finally, several stakeholders noted that the act had the effect of complementing international trade agreements by seeking to further open and liberalize trade in international satellite communications services. According to most stakeholders and experts we spoke with, access to non- U.S. satellite markets has gen |
4,490 | erally improved during the past decade. In particular, global satellite companies appear less likely now than they were in the past to encounter government restraints or business practices that limit their ability to provide service in non-U.S. markets. All five satellite companies that we spoke with indicated that access to non-U.S. satellite markets has generally improved. Additionally, four experts that we spoke with also told us that market access has generally improved. Most stakeholders that we spoke |
4,491 | with attributed the improved access in non-U.S. satellite markets to the WTO and global trade agreements and the trend towards privatization in the global telecommunications industry, rather than to the ORBIT Act. Five satellite companies and four of the experts that we spoke with said that agreements negotiated through the WTO, such as the basic telecommunications commitments, helped improve access in non-U.S. satellite markets. Additionally, two of the satellite companies and one expert told us that the t |
4,492 | rend towards privatization in the telecommunications industry—such as governments privatizing state- controlled telephone companies—has helped improve market access. At the same time, many stakeholders noted that the ORBIT Act had little to no impact on improving market access. According to several stakeholders, market access was already improving when the ORBIT Act was passed. While some of those we spoke with noted that the ORBIT Act might have complemented the ongoing trends in improved market access, on |
4,493 | ly one satellite company we interviewed stated that the act itself improved market access. This company noted that, by breaking the ownership link between state-owned or monopoly telecommunications companies and Intelsat, the ORBIT Act encouraged non-U.S. telecommunications companies to consider procuring services from competitive satellite companies. Some satellite companies have stated that some market access problems still exist, which they attribute to foreign government policies that limit or slow entr |
4,494 | y. Some of the companies and experts we spoke with attribute any continuing preference that governments and foreign telecommunications companies may have for doing business with Intelsat to the long-standing business relationships that were forged over a period of time. While some satellite companies believe that FCC should be taking a more proactive approach toward addressing any remaining market access problems in non-U.S. markets, FCC has stated that concerns about these issues provided to them have not |
4,495 | been specific enough to warrant an FCC proceeding. Additionally, FCC has stated that many concerns about market access issues would be most appropriately filed with USTR. USTR has received no complaints about access problems by satellite companies in non-U.S. markets in either their annual review of compliance with telecommunications trade agreements, or in comments solicited in the context of ongoing WTO services negotiations. Despite the general view that market access has improved, some satellite compani |
4,496 | es and experts expressed concerns that market access issues still exist. These companies and experts generally attributed any remaining market access problems to foreign government policies that limit or slow satellite competitors’ access to certain markets. For example: Some companies and experts we spoke with said that some countries have policies that favor domestic satellite providers over other satellite systems and that this can make it difficult for nondomestic companies to provide services in these |
4,497 | countries. For example, we were told that some countries require satellite contracts to go first to any domestic satellite providers that can provide the service before other providers are considered. Some companies and one expert we spoke with said that because some countries carefully control and monitor the content that is provided within their borders, the countries’ policies may limit certain satellite companies’ access to their markets. Several companies and an expert we interviewed said that many cou |
4,498 | ntries have time-consuming or costly approval processes for satellite companies. In particular, we were told that some countries have bureaucratic processes for licensing and other necessary business activities that make it time-consuming and costly for satellite companies to gain access to these markets. Some stakeholders believe that Intelsat may benefit from legacy business relationships. For approximately 30 years, INTELSAT was the dominant provider of global satellite services. Moreover, until 2001, IN |
4,499 | TELSAT was an intergovernmental organization, funded and controlled through signatories—often state-controlled telecommunications companies—of the member governments. Several stakeholders noted that Intelsat may benefit from the long-term business relationships that were forged over the decades, since telecommunications companies in many countries will feel comfortable continuing to do business with Intelsat as they have for years. Additionally, two of the satellite companies noted that because some of thes |
Subsets and Splits
No community queries yet
The top public SQL queries from the community will appear here once available.