It’s reassuring that the fireworks of the Foreign Account Tax Compliance Act (FATCA) are showing no signs of slowing down. One might even call it a global review and title it “The FATCA Follies.”
Since FATCA became law in 2010, it has had many ramification such as compelling firms with clients affected by the law to rethink and revamp securities-related operations. FATCA compliance also imposes regulatory reporting to the Internal Revenue Service (IRS) and pushes firms in the U.S. to clean up relationships with clients via know your customer (KYC) due diligence operations. The FATCA effect is causing financial services firms to continually reassess internal and external compliance systems, procedures, workflows, IT infrastructures and enterprise-wide operations.
Yet it’s the shenanigans that FATCA has caused across the globe that we remember most.
For our first stop on the FATCA Follies Tour, let’s go to London where the mayor Boris Johnson famously attempted to avoid paying his FATCA bill on a major real estate transaction in north London.
Even though he was born in New York but left the U.S. when he was five, the eyes of FATCA still see him as a U.S. citizen and thus covered by the legislation. To be sure, FATCA extends the reach of the Internal Revenue Service (IRS) to any U.S. citizen living anywhere.
Johnson got caught up in the FATCA Follies because he declared during a National Public Radio interview that the FATCA tax bill levied against him was “outrageous,” and that he would not be paying it. FATCA-fighters quickly applauded Johnson’s stand.
Fast forward to the present and even the witty and engaging Johnson had to settle with the very powerful IRS. However, in a twist, he is now focusing on how to renounce his American citizenship. His motivations may be political and practical. He is running for a seat in the U.K. parliament to represent Uxbridge and South Ruislip in the upcoming general election. It may help him get votes if he reaffirms his U.K. roots and could remove a potential barrier to one day becoming prime minister. He would also like to avoid another major tax liability in the future. We will keep watching Johnson as it looks as if he’s begun an interesting political journey.
But Johnson is not the only politician to participate in the FATCA Follies.
Likely GOP presidential candidates such as Bobby Jindal, the governor of New Orleans, Marco Rubio, U.S. Senator for Florida, Chris Christie, the governor of New Jersey, and Scott Walker, the governor of Wisconsin, are either heading to London or have recently visited the city. Each will have made a point of reaching out to ex-pat Republican Americans who undoubtedly are very upset about FATCA. It’s likely that the ex-pats being asked to contribute to presidential campaigns want FATCA to become a campaign issue. We shall see.
Our next stop is Russia.
The Sputnik News service is reporting that Russian banks are canceling contracts with U.S. clients as a direct result of FATCA’s demand upon the foreign banks that have to gather data on U.S. citizens and report back to the IRS or face financial penalties.
The Russian news service (which launched Nov. 10, 2014) quotes Pavel Livadny, deputy director of Russia’s Federal Financial Monitoring Service, as saying: “We could not put our national security under risk in this case, this is why a rule was adopted, under which every credit services organization may cancel the contracts with its clients, the U.S. residents, and avoid FATCA regulations this way.”
Livadny is also reported to have said that Russian banks must tell the Russian Central Bank, the Federal Financial Monitoring Service, and the Federal Tax Service about their U.S. clients.
It’s clear then that FATCA has become a political football between the U.S. and Russia. My guess is that this is not the end of the story there as long as Vladimir Putin, Russia’s president, is fostering an ongoing international crisis via his invasion of Crimea and further aggression against the Ukraine.
We have to take a major turn to the United Arab Emirates (UAE), where the financial services firms there and the Ministry of Finance (MoF) are hammering the next steps for FATCA compliance. In addition to the MoF, the UAE Central Bank, Securities and Commodities Authority, Dubai International Financial Centre (DIFC) and the Insurance Authority have also taken on roles to facilitate FATCA compliance.
MoF officials say they expect the final agreement with the IRS “will be completed and signed in February 2015, and will be passed on electronically to the IRS in September 2015,” according to MoF officials.
For our last stops, we are off to the Cayman Islands and the British Virgin Islands.
From the FATCA provider front, Vizor Software, a regulatory supervision software vendor, reports that two tax authorities — the Cayman Islands and the British Virgin Islands — on a list of the top five countries with the most U.S. citizen registrations to date, are using Vizor to meet reporting obligations.
By the way, the latest list for foreign financial institutions (FFI) list, complete with the number of registrations, was released Feb. 1 and the top five are:
- Cayman Islands: 28,045
- United Kingdom: 22,022
- Luxembourg: 7,298
- Brazil: 5,082
- Virgin Islands (British): 4,904
The Cayman Islands Tax Information Authority (TIA) and British Virgin Islands (BVI) International Tax Authority (ITA) are using the Vizor offering to help gather, validate and manage FATCA returns from FFIs for onward transmission to the IRS, say Vizor officials. In fact, the Vizor for FATCA solution is the second Vizor software product for the BVI authority. Last year, the BVI Financial Services Commission decided to use Vizor Software “for the supervision of all onshore and offshore financial institutions,” Vizor officials say.
As we wind down this part of the FATCA Follies tour, we are certain there will be more twists and turns to come.
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