“Legislation could make banking more expensive”: Fatca forces banks to dance to the tune of Uncle Sam

POSTED: 02/4/13 2:41 PM

St. Maarten – Did the Democratic Party faction ask for a central committee meeting about Facta or about Fatca? A media report stating that MPs Leroy de Weever and Roy Marlin want a meeting to discuss the consequences for local businesses of legislation imposed by American authorities.

The report refers to rules that are applicable to all foreign banks doing business with banks in the United States.

But the Facta the article referred to (even explaining that this is the Fair and Accurate Credit Transaction Act) has nothing to do with banking transactions. This act “allows consumers to request and obtain a free credit report once every twelve months from each of the three nationwide consumer credit reporting companies” a definition on Wikipedia explains.

The Fatca however is a different animal: this is the Foreign Account Tax Compliance Act. This newspaper reported about Fatca on July 26 of last year.

The act obliges foreign financial institutions to report American account holders with assets exceeding $50,000 to the Internal Revenue Service.

Windward Islands Bank director Jan Beaujon told this newspaper last year that this American rule could make banking in St. Maarten “more expensive for everyone,” adding that the banks have no escape routes: “We have little choice, because if we do not comply we are no longer able to do business with the United States. All our international bank transfers go through New York.”

In 2010 the United States enacted the Foreign Account Tax Compliance Act (Fatca). Foreign financial institutions like banks, pension funds, insurance companies, asset managers and private equity funds have to enter into an agreement with the IRS by June 30 of this year. These institutions will be obliged to “undertake certain identification and due diligence procedures with respect to its account holders” and to report to the IRS annually “on its account holders who are US persons or foreign entities with substantial US ownership,” this newspaper reported.

They will also be obliged to “withhold and pay over to the IRS 30 percent of any payments of US source income, as well as gross proceeds from the sale of securities that generate US source income.”

Beaujon said that banks will have to update their computer systems to enable them to comply with the American regulations.

“I do not know exactly what it will cost, but it will probably be several hundred thousand dollars. Even if you have only ten American clients, you still have to make that investment,” he said.

The Fatca-requirements add another layer to the requirements imposed on financial institutions in the battle against tax evasion, money laundering and terrorism financing.

Beaujon still saw a ray of light last year but that has in the meantime been extinguished: had Obama lost the elections, he thought it likely that the Republicans would have killed the legislation.

Beaujon did ask himself already last year the question whether it is normal for the United States to impose its rules on the rest of the world, but in the meantime the Windward Islands Bank is doing everything to be ready for executing the new rules.

Will this lead to the departure of many American account holders? “I think Americans have been expecting this, and we have little choice. The same rules also apply in Europe,” Beaujon said.

Minister Tuitt had a more somber view on this development last year: “St. Maarten will bear the brunt of the American legislation. This is going to cost money and a lot of banks don’t want to do business with Americans anymore.”

The minister said that he was examining several options to soften the blow and maybe this will become a topic of discussion in the Central Committee meeting. One option, according to the minister, is to piggyback on the arrangement several European countries made with the IRS.

Under this agreement they are not bound to withhold 30 percent from payments of US source income, and the exchange of information about tax payers will become reciprocal. Another option is to go with Caricom; it was already last year in the process of negotiating a similar arrangement for its members with the IRS.

Tuitt said that the cost to the banks have to make to comply with Fatca will outweigh revenue for the IRS.

“Several other countries are now turning away American customers because their accounts are not worth the hassle. But St. Maarten is entirely depending on the American economy.”

Another negative effect Tuitt foresees is in the reaction from financial institutions.

“Capital flight may be on the way. These rules might force financial institutions to move to non-complying countries. We will examine all options to arrive at the best solution for businesses in St. Maarten.”

 

 

 

 

 

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  1. JemmaDH says:

    The problem is not just American account holders. It’s our spouses who are not American and our children who are also not American being reported to what for them is a foreign country if our name appears anywhere on their accounts. This includes disabled foreign children whose accounts a person might need to have their name on for purposes of helping them to pay bills among other innocent accounts of FOREIGN persons. Therefore, I will not comply with FATCA as a Canadian citizen. If my bank asks my place of birth with the intent to treat me differently than other account holders then I will sue as they will then be in non compliance with the Canadian Charter of Rights and Freedoms and I will not be alone. Furthermore Scotiabank you can expect not only to lose my account but, you will lose my spouses account, my grown child, my sister in law, two nieces and every single Canadian person in my family who will then go to a local credit union who does no business with the U.S.