Round-tripping, also known as round-trip transactions or "Lazy Susans", is defined by ''

The Wall Street Journal ''The Wall Street Journal'' is an American business-focused, international daily newspaper based in New York City, with international editions also available in Chinese and Japanese. The ''Journal'', along with its Asian editions, is published ...

'' as a form of

barter In trade, barter (derived from ''baretor'') is a system of exchange in which participants in a transaction directly exchange goods or services for other goods or services without using a medium of exchange, such as money. Economists dist ...

that involves a company selling "an unused

asset In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that ca ...

to another company, while at the same time agreeing to buy back the same or similar assets at about the same price." Swapping assets on a round-trip produces no net

economic substance Economic substance is a doctrine in the tax law of the United States under which a transaction must have both a substantial purpose aside from reduction of tax liability and an economic effect aside from the tax effect in order to qualify for any t ...

, but may be fraudulently reported as a series of productive sales and beneficial purchases on the books of the companies involved, violating the

substance over form Substance over form is an accounting principle used "to ensure that financial statements give a complete, relevant, and accurate picture of transactions and events". If an entity practices the 'substance over form' concept, then the financial sta ...

accounting principle. The companies appear to be growing and very ''busy'', but the round-tripping ''business'' does not generate profits. Growth is an attractive factor to speculative investors, even if profits are lacking; such investment benefits companies and motivates them to undertake the illusory growth of round-tripping. They played a crucial part in temporarily inflating the market capitalization of energy traders such as

Enron Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. It was founded by Kenneth Lay in 1985 as a merger between Lay's Houston Natural Gas and InterNorth, both relatively small regional compani ...

CMS Energy CMS Energy, based in Jackson, Michigan, is an energy company that is focused principally on utility operations in Michigan. Its principal business is Consumers Energy, a public utility that provides electricity and natural gas to more than 6 mi ...

Reliant Energy Reliant Energy is an American energy company based in Houston, Texas. History Headquartered in Houston, Texas, Reliant Energy, a subsidiary of NRG Energy, is one of the largest Texas electricity providers serving over 1.5 million Texans. Reliant ...

Dynegy Dynegy Inc. is an electric company based in Houston, Texas, in the United States. It owns and operates a number of power stations in the U.S., all of which are natural gas-fueled or coal-fueled. Dynegy was acquired by Vistra Corp on April 9, ...

and Wirecard. In international scenarios, round-tripping is a method of

structuring Structuring, also known as smurfing in banking jargon, is the practice of executing financial transactions such as making bank deposits in a specific pattern, calculated to avoid triggering financial institutions to file reports required by law ...

to evade taxes and to launder money.Aswath Rau and Pallabi Ghosal: “Entering the Tiger’s Den: Foreign Investment in India through Mauritius or Singapore”; ''Singapore Law Gazette'', Feb.2012. Other companies making unconventional round-tripping deals include AOL with

Sun Microsystems Sun Microsystems, Inc. (Sun for short) was an American technology company that sold computers, computer components, software, and information technology services and created the Java programming language, the Solaris operating system, ZFS, ...

and

Global Crossing Global Crossing was a telecommunications company that provided computer networking services and operated a tier 1 carrier. It maintained a large backbone network and offered peering, virtual private networks, leased lines, audio and video conf ...

with

Qwest Communications Qwest Communications International, Inc. was a United States telecommunications carrier. Qwest provided local service in 14 western and midwestern U.S. states: Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dako ...

. It is alleged that when some telecommunications companies swapped capacity, they booked the value of the incoming capacity as revenue and the value of the outgoing capacity as an investment. These transactions had the effect of inflating profits. The SEC ruled that booking revenues from swaps in telecommunications capacity was improper. Many such companies have used round-tripping to distort the market by establishing false revenue benchmarks, aiming to meet or beat the numbers put out by

Wall Street Wall Street is an eight-block-long street in the Financial District of Lower Manhattan in New York City. It runs between Broadway in the west to South Street and the East River in the east. The term "Wall Street" has become a metonym for ...

stock analysts. As a result of abusive round trips, barter between publicly held companies has become discredited among professional investors.

References

External links

Forbes.com Round Tripping On Energy
May 16, 2002. Commercial crimes Finance fraud {{finance-stub

See also

References

External links