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By Bloomberg

Apple Inc. has raised a flag about the potential cost if the company is required to pay past taxes to Ireland as part of a European Commission investigation that started last year.

While Apple hasn’t been able to estimate the amount, it could be “material,” the Cupertino, California-based technology company said Tuesday in a filing with the U.S. Securities and Exchange Commission. It said in January that such an action could “adversely” affect its cash flows and financial condition.

The European Commission last year said it was looking into whether Ireland improperly gave Apple’s two subsidiaries state aid. In September, the commission said Irish tax authorities failed to conform to international guidelines when they “reverse engineered” an agreement with Apple to determine the company’s bills. The findings were preliminary.

“The company believes the European Commission’s assertions are without merit,” Apple said in the filing. If the commission concludes against Ireland, it could require the nation “to recover from the company past taxes covering a period of up to 10 years” reflecting the disallowed state aid, Apple said.

The European Commission’s review can take more than a year, and decisions can be challenged at the European Court of Justice in Luxembourg.

Apple “did not receive selective treatment and was taxed fully in accordance with the law,” the Irish Finance Ministry has said.

Compliance Policy

Puerto Rico House Rejects Tax Overhaul, Pushing Bonds Lower

Puerto Rico’s House of Representatives rejected a tax- overhaul bill that would have paved the way for a $2.9 billion debt sale needed to avert a cash crunch, pushing prices on the commonwealth’s newest bonds to a record low.

The chamber voted against the measure 28 to 22 Thursday, Ileana Baez Bravo, a spokeswoman for Governor Alejandro Garcia Padilla, said in an e-mail. The bill would have introduced a 13 percent levy on goods and services along with a 1 percent sales tax.

The Development Bank, which handles the U.S. commonwealth’s debt sales, has said passage of the tax plan is essential to attract investors to the planned bond deal. Proceeds of the debt would bolster the finances of the bank, which lends to the island and its localities.

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Compliance Action

U.K. Banks’ FX-Rigging Charges Hit $1.7 Billion in Quarter

Royal Bank of Scotland Group Plc has brought the amount British banks set aside in the first quarter to cover the cost of settling probes into possible trading manipulation of key currency benchmarks to more than $1.7 billion.

The Edinburgh-based lender took a 334 million-pound charge ($516 million) for alleged foreign-exchange market rigging, adding to an 800 million-pound provision taken by Barclays Plc on Wednesday. RBS said it’s in “advanced” talks with the U.S. Justice Department to settle the probe.

RBS, Barclays and HSBC Holdings Plc have made provisions totaling about $6 billion since authorities began a global probe into the rigging of currency markets two years ago. The Justice Department is seeking about $1 billion from each of the global banks being investigated, according to people familiar with the matter. RBS Chief Executive Officer Ross McEwan told reporters Thursday that he expects the fine to be less than that.

Rising legal bills and restructuring costs are undermining British banks’ efforts to shore up earnings. RBS has now set aside about 1 billion pounds to cover the cost of the foreign- exchange investigation. Barclays has set aside about 2.1 billion pounds to cover a currency-rigging settlement. HSBC set aside $1.2 billion to cover the cost of the probe in 2014.

Authorities around the world are investigating the $5.3 trillion-a-day currency market. Six banks including RBS agreed to pay $4.3 billion in November in an initial round of settlements with some authorities. Criminal and antitrust authorities continue to investigate the allegations.

Barclays, which wasn’t part of the November settlement, is now in “fluid, real-time dialogs” with regulators over reaching a deal, and is working hard to resolve the matter, Finance Director Tushar Morzaria said.

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Courts

Austria Rejects U.S. Request to Extradite Ukrainian Businessman

An Austrian court rejected a U.S. request to extradite Ukrainian businessman Dmitry Firtash, agreeing with a defense argument that the case was politically motivated.

U.S. prosecutors sought the arrest of Firtash, a one-time ally of ousted Ukrainian President Viktor Yanukovych, during a “power vacuum” in his home country last year tied to its standoff with Russia, Judge Christoph Bauer in Vienna said, adding this was “probably not” a coincidence.

An Austrian prosecutor presenting the U.S. request appealed the decision. Firtash is allowed to leave Austria until a second court makes a final ruling in the case, Bauer said.

U.S. authorities accused Firtash of leading a conspiracy to pay $18.5 million to Indian officials to facilitate a mining project there. Firtash said he is caught up in a larger battle over the future of Ukraine, which is fighting a year-long pro- Russian insurgency in its eastern regions.

“I have my views on how Ukraine should develop, and they are different from those” of the U.S. government, the 49-year- old Firtash said during a 12-hour hearing Thursday. “I won’t confess to paying bribes in India.”

Firtash’s lawyer, former Austrian Justice Minister Dieter Boehmdorfer, told the court that the U.S. wants to eliminate Firtash from Ukrainian politics because he’s perceived as being pro-Russian. U.S. prosecutors seeking his extradition have denied such a link.

The indictment of Firtash was kept secret for almost a year before being unsealed by U.S. prosecutors in April 2014, just weeks after Russia’s annexation of Ukraine’s Crimea.

Interviews/Studies

Dangers From Trading Algorithms Flagged by Global Regulators

The computer algorithms that dominate trading in global markets need stronger oversight, according to a group of prominent financial regulators from around the world.

“The immediate need for stronger controls is paramount,” according to a new report from the Senior Supervisors Group, made up of regulators including the Federal Reserve and European Central Bank. “While it is not possible to eliminate risk entirely, firms should strive to reduce risk by applying strong, layered controls.”

By using algorithms to automatically buy and sell assets in tiny fractions of a second, traders are increasing their own risks and boosting the danger for the entire financial system, according to the group. Better communication is a key part of staying on top of the situation, the regulators said.

The Senior Supervisors Group is comprised of representatives from regulators in 10 countries and the European Union. The group periodically issues reports on supervisory issues and financial institution risks.

While algorithmic trading can be beneficial, it “also increases operational risk at individual firms and across the financial system,” according to the note.