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Susan:
Thanks for the update. Gary Hickerson wants this product available on EOL= =20 now (which explains why I am called daily by the trading desk). Do you kno= w=20 when a decision on the Japanese FX principal will be forthcoming? Sara =09Susan Musch@ENRON_DEVELOPMENT =0912/14/2000 03:56 PM =09=09 =09=09 To: Sara Shackleton/HOU/ECT@ECT =09=09 cc: Janine Juggins/LON/ECT@ECT, Melba Lozano/HOU/ECT@ECT, William=20 Stuart/HOU/ECT@ECT, Steve Jacobellis/NA/Enron@Enron@ECT, Jeff=20 Blumenthal/HOU/ECT@ECT, Rhett Jackson/HOU/ECT@ECT =09=09 Subject: Re: FX Product Sara, Attached are two e-mails that I sent yesterday and today on the Japanese FX= =20 trader. In short, we are pursuing the dependent agency approach. The=20 specifics are set forth in the e-mails. Please let me know if you have any questions or need any additional=20 information. Best regards, Susan Susan Musch 12/14/2000 09:46 AM To: Heidi Mason/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Jan-Erland Bekeng/AP/Enron@Enron, Sheila Glover@ECT, Darren Delage@Enro= n,=20 Scott Gilchrist/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Janine Juggins@ECT, Ro= d=20 Sayers@ECT (bcc: Susan Musch/ENRON_DEVELOPMENT) Subject: FX Trader in Tokyo =20 Heidi, In response to your attached e-mail, I am attaching the e-mail message that= I=20 sent out yesterday regarding the structure for the FX trader in Tokyo and t= he=20 EM-Japan traders. (You were already copied on this but I want to make sure= =20 that you got it.) =20 In this e-mail, I explain that PWC-Tokyo has recommended following a=20 dependent agent approach for these traders (which is what you reference in= =20 your attached e-mail). I recommend this approach saying that it is a=20 pragmatic approach and should be easily implemented. I talked with Sheila= =20 Glover and Darren Delage about this approach yesterday evening and they lik= e=20 it as well. (In fact, they were also copied on the e-mail regarding the FX= =20 trader and the EM-Japan traders.) The following points should be kept in mind in following the dependent agen= t=20 approach, which I have already discussed with Sheila and Darren: (1) Agency approach: Enron Japan would be considered to be an agent of ENA= . =20 In this role, it would facilitate trades that would be entered into between= =20 ENA and the third party counterparties. The trades would be entered into i= n=20 the name of ENA. Under this approach, Darren is limited in what he is=20 authorized to do, and his trading parameters will need to be reduced to=20 writing. These parameters must restrict his activities so that they=20 constitute activities that have a preparatory or auxiliary character. The= =20 advice that we received for the FX trader's activities in Australia should= =20 equally apply to our facts here. The following is an excerpt from a memo= =20 that I wrote last year summarizing this advice: Guidelines and boundaries must be established on what the financial trader= =20 can do (e.g. price parameters, product parameters, etc.). Activities cannot= =20 include the negotiation of terms of master contracts, forwards and other=20 derivatives with counterparties. If a master contract must be executed in= =20 Australia, then it should be executed by an independent agent (such as a=20 lawyer) having a power of attorney from the hedging party. Confirmations=20 should be issued by the hedging party, rather than by EA Finance in Sydney.= =20 The Australian tax advisor recommended that the financial trader say: =01&= My=20 principal will deal with you within these parameters =01(.=018 (2) Darren's employment: Darren must be considered an employee of Enron=20 Japan so as to avoid ENA being treated as having a permanent establishment = in=20 Japan. (3) Darren's agency role: Darren should not identify himself as an employe= e=20 of ENA Houston. He should make it clear that the third parties are enterin= g=20 into the transactions with ENA as principal. (4) Service agreement: A service agreement must be put in place between=20 Enron Japan and ENA (similar to what we did for the FX trader in Sydney).= =20 Enron Japan should at least initially be compensated at a cost plus 5%=20 mark-up. Yesterday evening I also forwarded to Sheila and Darren by e-mail= =20 the old service agreement that we put in place for the FX trader in Sydney = so=20 that they could review what terms have been previously used. (Incidentally= ,=20 the service agreement we put in place between Enron Australia and ENA was= =20 very similar (almost identical) to the one that was put in place between=20 Enron Europe and ENA for the FX trader in London.) (5) Potential issues upon Japanese tax audit: Notwithstanding that this=20 approach is easier to implement, more workable and more pragmatic in=20 approach, we need to be aware that there could be questions upon a Japanese= =20 tax audit. In that event, transfer pricing issues could be raised. That i= s,=20 the auditors could question whether a cost plus 5% mark-up is commensurate= =20 with what an unrelated third party would charge for similar services. We= =20 would then need to justify that service fee, or if unsuccessful, try to wor= k=20 out a commission fee that would be acceptable to the Japanese tax auditors.= =20 Management needs to be aware of this potential. I guess I wasn't clear in my attached e-mail. I am sorry for any=20 inconvenience this may have caused you. I hope this e-mail better explains= =20 the recommended structure. Please let me know if you would like to set up = a=20 conference call to discuss this further (and let me know who you would like= =20 on the call). Best regards, Susan Susan Musch 12/13/2000 06:07 PM To: Jan-Erland Bekeng/AP/Enron@ENRON cc: Jane McBride@Enron, Tina Ward@ECT, Paul Simons@ECT, Alan Aronowitz@ECT,= =20 Rod Sayers@ECT, Janine Juggins@ECT, Heidi=20 Mason/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Joseph P Hirl/AP/ENRON@ENRON,=20 Sheila Glover@ECT, Darren Delage@Enron (bcc: Susan Musch/ENRON_DEVELOPMENT) Subject: Enron Metals & FX Traders in Japan =20 Jan-Erland, I have not yet received the 2001 projections/budget for the Enron Metals=20 trading in Japan. If you have already sent it, could you please re-send it= ? =20 Also, I talked with PWC-Tokyo late last night about structuring for the FX= =20 trader and Japanese Metals traders to confirm Baker & McKenzie's advice on= =20 not using a dependent agent structure in Japan. PWC has advised that=20 although Baker & McKenzie's approach is more technically correct, foreign= =20 traders usually set up their Japanese trading operations through the use of= a=20 dependent agent in Japan. The Japanese dependent agent is usually reimburs= ed=20 using cost plus 5%, at least initially. Then, if the Japanese tax=20 authorities raise questions upon audit, a commission arrangement is general= ly=20 used, with the question being what should the profit split be between the= =20 agent and the foreign company. Whether the Japanese tax authorities raise= =20 questions upon audit is dependent upon the volume of trades and the magnitu= de=20 of the trades. The PWC Japanese tax partner suggested that we use this=20 arrangement for both the FX trader and the EM Japan trades. I have asked P= WC=20 to send this advice in writing by tomorrow. This seems to be a much more pragmatic approach than the one suggested by= =20 Baker & McKenzie. And it should be easy to implement by year-end. However= ,=20 management must be aware of the fact that PWC's approach could raise=20 questions upon a Japanese tax audit. Note that if we follow this approach,= =20 we would need to set up a services agreement between Enron Japan (whichever= =20 the appropriate entity is) and ENA. Please let me know if you have any questions or need any additional=20 information. Best regards, Susan HEIDI MASON 12/13/2000 08:38 PM To: Susan Musch/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Jan-Erland Bekeng/AP/Enron@Enron=20 Subject: Re: Japanese Financial Subsidiary =20 Thanks for the note Susan. Like you, I would love to get the funding resolv= ed=20 before year-end as we have finalised the amounting owing to Houston etc=20 (subject to some invoices etc being received) so it would be a good time to= =20 get this done.=20 Re the FX trader, I have been harassing Sheila a bit this week, so I was=20 hoping to hear from you or her on the progress here. At this stage I=20 understand that the deals are still being done in the name of ENA, but ther= e=20 have not been alot, so again if we can get this addressed before the volume= =20 grows it would be best for all. I was reviewing this matter with JEB=20 yesterday and he indicated that his preference is for an agency style=20 agreement which avoids the need for the back to back deals.=20 With thanks Heidi Mason=20 Chief Financial Officer Enron Australia From: Sara Shackleton@ECT on 12/14/2000 01:22 PM To: Janine Juggins/LON/ECT@ECT, Susan=20 Musch/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Melba Lozano/HOU/ECT@ECT, William Stuart/HOU/ECT@ECT, Steve=20 Jacobellis/NA/Enron@Enron, Jeff Blumenthal/HOU/ECT@ECT, Rhett=20 Jackson/HOU/ECT@ECT=20 Subject: Re: FX Product Janine: Thanks for the update. Any word on the Japanese FX desk principal? Sara ----- Forwarded by Sara Shackleton/HOU/ECT on 12/14/2000 01:23 PM ----- =09Janine Juggins =0912/13/2000 04:04 PM =09=09 =09=09 To: Sara Shackleton/HOU/ECT@ECT =09=09 cc: Jeff Blumenthal/HOU/ECT@ECT, Rhett Jackson/HOU/ECT@ECT, Melba=20 Lozano/HOU/ECT@ECT, Susan Musch/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT =09=09 Subject: Re: FX Product Your summary is correct based on information to date (in this regard the=20 agreement between ENA and EEFT still requires amendment in respect of RMT a= nd=20 I undertake to get this done).=20 However, please note that there have been some last minute changes in the= =20 Japanese tax advice, received I understand only as of last night. Susan Mus= ch=20 will be following up on these changes at a meeting today with Sheila Glover= =20 and Darren Delage, and has undertaken to keep you appraised of the position= .=20 The effect of the change would be to permit RMT to be the principal for the= =20 Japanese FX desk, with a Japanese entity acting as agent to arrange the=20 transactions.=20 Best regards Janine From: Sara Shackleton on 13/12/2000 13:52 CST To: Janine Juggins/LON/ECT@ECT cc: Jeff Blumenthal/HOU/ECT@ECT, Rhett Jackson/HOU/ECT@ECT, Melba=20 Lozano/HOU/ECT@ECT=20 Subject: FX Product Janine: With respect to the attached (internal) FX product for EOL, I just wanted t= o=20 verify with you that internal counterparties should transact on EOL with: (1) RMT (as principal for Houston FX desk) (2) EEFT as agent for RMT (as principal for London FX desk). In this=20 regard, was the services agreement between ENA and EEFT ever extended to=20 include RMT for internal trades?=20 (3) Enron Japan Corp. (as principal for Tokyo FX desk) There appears to be some confusion since our meeting of November 3. Thanks= . =20 Sara ----- Forwarded by Sara Shackleton/HOU/ECT on 12/13/2000 11:22 AM ----- =09Melba Lozano =0912/11/2000 05:59 PM =09=09=20 =09=09 To: Sara Shackleton/HOU/ECT@ECT, Mark Taylor/HOU/ECT@ECT =09=09 cc: Robert B Cass/HOU/ECT@ECT, Steve Jacobellis/NA/Enron@Enron, Kevi= n=20 Meredith/Corp/Enron@ENRON, Steve Jacobellis/NA/Enron@Enron =09=09 Subject: FX Product Sara / Mark, I need an approval as soon as possible from you for the FX Description=20 attached. Steve Jacobellis is requesting that this gets out on the web as= =20 soon as possible. =20 Thank you, Melba=20 58986 ---------------------- Forwarded by Melba Lozano/HOU/ECT on 12/11/2000 05:5= 3=20 PM --------------------------- =20 From: Melba Lozano = =20 11/30/2000 06:41 PM=09 =09 =09 =09 =20 =09 To: Sara Shackleton/HOU/ECT@ECT, William Stuart/HOU/ECT@ECT cc: Robert B Cass/HOU/ECT@ECT=20 Subject: FX Product Sara: Please approve on the attached language for the FX Product. William: There is a gap between hour ending 3:00 and 4:00 . Do you want t= o=20 go ahead and set up Central time to trade until Hour Ending 4:00? Please l= et=20 me know. =20 Thank you, Melba
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