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restrictions on the operations of Mexican financial institutions,
having already closed its borders to non-Mexican financial
institutions. The culmination of Mexico's restrictive investment
regime was the imposition of exchange controls by presidential
decree during September 1982 and the nationalization of the
country's private banks. From that date onward, no Mexican-
chartered bank or financial institution was permitted to handle
foreign-currency-denominated accounts. Peso-based investments
lost value. During 1982, many of the accounts managed by
InverMexico were diminished as a result of the capital flight.
Clients of InverMexico were sending their money to Merrill Lynch
in the United States and to Swiss and Japanese banks.
From its inception through its taxable year ended June 30,
1990, LTD did not file any registration statement, reporting
statement, or any other statement with any governmental entity in
Mexico. During each of its taxable years ended June 30, 1984
through 1990, LTD was not registered to do business in Mexico.
D. Creation of INC
Prior to 1983, LTD had fewer than 15 clients. For the
administration of the accounts of such clients, LTD used the
services of United States Trust Co. of New York (Cayman), Ltd.
(United States Trust); Paine Webber; and Shearson, American
Express, Inc. (Shearson). United States Trust provided basic
research, accounting, bookkeeping, reporting, and order-filling
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