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SAFEGUARDING ASSETS by Janice Leahy
DiversityBusiness.com Article/- The current economic global crisis has US businesses focused on safeguarding their assets. The astute executive employs local jurisdictional rights in support of safe measured expansion and asset protection. These rights include the application of local business law, insurance protection, currency management, contingency planning, and efficient repatriation. When this armament is employed through a best-practices approach, businesses are well equipped to navigate through the international battlefields of commerce.

Traditionally the term ‘safekeeping’ meant that financial institutions were physically trusted with securely safekeeping one’s liquid assets. The custodial responsibility over assets has broadened to include other physical and intellectual assets of a company such as marketing materials and processes, customer relationships, deferred tax assets, fixed assets, inventory, manufacturing processes, formulas, patents, and trademarks. It is senior management’s fiduciary duty to defend and protect all items of ownership. When is it appropriate to trust the safeguarding of assets to others outside of one’s control? How are these risks identified and measured? What is the business contingency plan to safeguard assets?

Safeguarding assets begins with the implementation of appropriate internal and external controls, and employment of a sound financial disaster recovery plan. Setting policy as to who has access and control over certain aspects of one’s assets is the first step in understanding where a risk of loss may exist. Today’s businesses must implement controls beyond traditional physical safeguarding.

Implement sound internal controls and contingency planning.


Jurisdictional business regulations are predicated on a region’s ability to attract and derive revenues from the local accumulation of wealth. The concept of a permanent establishment (“PE”) defines certain activities a business performs in a jurisdiction may trigger local taxation. These activities defined in a country’s bilateral treaty may negate or reduce levels within tax classifications. Maintaining control directly over one’s assets in another jurisdiction may cause PE, and depending on the jurisdiction, there could be taxation without representation (including a lack of jurisdictional and commercial legal protection unless incorporated). Choosing where and when to separately incorporate activities is vital to measured expansion and related protection of a multi-national corporation. It is therefore prudent to have a sound expansion plan including substance over form detailed within the business risk profile. It is necessary to remain flexible in order to brace for any crisis caused by economic, political, pending or enacted legislation to ensure the safeguarding of your assets.

Understand the benefits of incorporating in the jurisdictions in which you operate.


Operations by multi-national businesses in foreign countries are susceptible to risk from physical, economic /financial (accounting) loss or both. The former may be in the shape of fraud, theft, business interruption, or natural disaster; the latter in the form of foreign currency fluctuation, loss of market share, or write-down of related intangible assets.

Local laws protect entities from infringement, fraud, or theft and provide for certain legal remedies. Most countries have local mandatory insurance coverage requirements for physical loss. However, directors and officers, fiduciary bonds, and general liability insurance are vulnerable; there may not be adequate access to capital to compensate directly for a loss.

Understand the jurisdictional shortfalls and coverage nuances of insurance and local laws.


Transacting business outside the US may lead to doing business in currencies that are not US dollars ultimately leading to foreign exchange risk. Implementing a global banking cash reporting platform is an optimal way of instantly tracking multi-currency cash balances. Uniformity of financial policies and applications provides additional control over assets held by foreign affiliates, and may further assist in identifying foreign currency exposures. There are multitudes of ways to protect against the movement in value of a currency, accounting losses, and actual cash loss currency fluctuations may cause. By standardizing reporting, identifying offsetting currency movements (natural hedge techniques that offset the effect of foreign exchange fluctuations internally), and implementing formal hedging policies and instruments, businesses can offset or defer the impact of exchange volatility, further stabilizing their asset values.

Understand your currency exposure, from net positions of unhedged currency to use of hedge instruments to mitigate volatility. Measure, assess, then measure again.


Assets are protected through application of appropriate local law, insurance, contingency planning, and hedging techniques. Repatriating assets such as cash can be done efficiently at minimal cost to the owner, or ineffectively through the triggering of tax costs well in excess of the property value, triggering of accounting losses, and/or the absence of exchanging into appropriate currencies timely or efficiently. Knowledge of local jurisdictional laws, US international laws, treasury practices, and domestic & international accounting rules is essential to ensure the property repatriated is maximized and any adverse financial impact minimized.

In determining a risk profile, safeguarding assets is a top priority. Risk adverse companies will not speculate their assets. A best practice organization will analyze the market tolerance and measure economic scale and scope.

For example, macro/micro economics scale refers to organizational size (total assets, equity and sales) while economic scope refers to an organizations diversity of operations such as Foreign Direct Investment (FDI). This could include the number of geographic locations, and the complexity of operations. While size reflects economic scale and foreign operations reflect economic scope, the level of income reflects both economic scale and scope. The level of income reflects economic scale because the size of the company influences the size of pre-tax income. The level of income reflects economic scope because the diversity of the company’s operations influences a company’s ability to offset losses with income from other business segments.

A best practice company will establish a clear vision and set goals. These goals are achieved by implementing controls and executing policies. Under their defined policies, companies will identify, mitigate, and measure potential exposures. Companies safeguarding assets frequently report and account for their transactions by monitoring and managing risk exposure. These internal processes, a COSO (the Committee of Sponsoring Organizations) framework, affected by an organization’s board of directors, key management and other personnel, are designed to provide reasonable assurance.

| Contact: | Janice Leahy | Dahn & Leahy LLP | Phone: 978-749-9900 | website: www.dahnleahy.com |

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Launched in 1999, DiversityBusiness, with over 50,000 members, is the largest organization of diversity owned businesses throughout the United States that provide goods and services to Fortune 1000 companies, government agencies, and colleges and universities. DiversityBusiness provides research and data collection services for diversity including the "Top 50 Organizations for Multicultural Business Opportunities", "Top 500 Diversity Owned Companies in America", and others. Its research has been recognized and published by Forbes Magazine, Business Week and thousands of other print and internet publications. The site has gained national recognition and has won numerous awards for its content and design. DiversityBusiness reaches more diverse suppliers and communicates more information to them on a more frequent basis then all other organizations combined. We also communicate with mainstream businesses, government agencies and educational institutions with information related to diversity. Our magazine reaches over 300,000 readers, a monthly e-newsletter that reaches 2.4 million, and website visitors of 1.2 million a month. It is a leading provider of Supplier Diversity management tools and has the most widely distributed Diversity magazine in the United States. DiversityBusiness.com is produced by Computer Consulting Associates International Inc. (CCAii.com) of Southport, CT. Founded in 1980.


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