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WIDER FATCA NET TO HAVE 'GREATER IMPACT'

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Published On:Friday, January 27, 2012

By NEIL HARTNELL

Tribune Business Editor

NO SINGLE foreign law is likely to impact the Bahamian financial services industry more than the US Foreign Account Tax Compliance Act (FATCA), a well-known accountant telling Tribune Business yesterday its effects would be "the same or greater" than previous international efforts.

Lawrence Lewis, a partner at Deloitte & Touche (Bahamas), said that while the likes of the US Qualified Intermediary (QI) initiative, and OECD/FATF efforts, had tended to focus on one particular aspect of the financial services industry, Washington's FATCA initiative would touch multiple areas simultaneously.

"In order of magnitude, I would say it is the same or greater in terms of the level of impact on organisations," Mr Lewis told Tribune Business, when asked to compare FATCA's likely impact on the Bahamian financial services sector to previous extra-territorial efforts.

"The others have been reasonably well siloed to an anti-money laundering focus, they've had some operational focus and so forth. But none had anything requiring you to make changes to your operations and how you deal with clients, how you operate the business, how you deal with clients inbounding.

"It has tax and legal implications, it has technology implications, and has overall risk management for your organisation implications. That's all packaged up in a single piece of legislation. That's significant..... The consequences of compliance will not be inconsequential".

The Obama administration's main aim in passing FATCA is to ensure US persons with financial assets, such as bank accounts, outside the US are paying their due taxes to the Internal Revenue Service (IRS).

To achieve this, Washington is effectively asking all Bahamas-based financial institutions - and around the globe - to become reporting agents for the IRS. They must enter into contractual agreements with the US Treasury Department to identify and report all US persons, and their assets, otherwise a 30 per cent withholding tax will be imposed on all US-sourced income post-December 31, 2013.

Apart from changing procedures to deal with new clients, FATCA will force all Bahamian financial institutions to drill deep down into all accounts, investment funds and structures they oversee and manage, in a bid to detect whether there is even the smallest trace of US beneficial ownership.

Given that it is targeting all US citizens "anywhere in the world", Mr Lewis said FATCA would also catch in its net Bahamians who either held US dual citizenship or US permanent residency certificates, plus those who spent more than a specified number of days in the US over a three-year period.

Warning that "time is short" for Bahamian financial institutions to prepare, Mr Lewis said FATCA was set to take effect from January 1, 2013. "There's some things that have to be in place by that point," he added.

"Those things are starting to work through existing accounts, and have on boarding procedures for new accounts. Between January 1, 2013, and June 30, 2013, is when the majority of the Foreign Financial Institution agreements with the US Treasury are expected to be signed, so institutions are not subject to withholding that starts in 2014."

When it came to the Bahamian financial services industry, Mr Lewis said: "In terms of the preparation of the sector, the reality is it's not as well prepared as it should be."

He qualified this, though, by acknowledging that preparation levels varied business by business, and noted that the FATCA regulations supposed to have been published in December 2011 had not come out yet. These contain the details allowing financial institutions to properly prepare, and are expected to be published by the US Treasury imminently.

"There's only so much any institution can do at this point, but even against that backdrop there's probably a fair number of people that have not done much of anything," Mr Lewis added.

International head offices had "started to drill down into operations like the Bahamas" and put in place structures to cope with FATCA compliance, but with Bahamian-owned institutions "it's a bit of a mixed bag".

"Some have started to look through it and see where the issues lie, but a number of them have not done a detailed assessment of where they are. It's been a high level view of it," the Deloitte & Touche partner said. "It's a very short window to get substantial movement in respect of it.

"For those that haven't started yet, you have to put in place some type of governance structure around it, because this is a significant business issue, not just a tax issue.

"If you're a small organisation it's perhaps a little clearer who leads it, who needs to be involved, but with larger organisations it touches so many functions, so you have to put in place a structure and who executes it."

Reader Comments - 2 Total

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Posted By: 4Well On: 1/28/2012

Title: In summary

Lousy political leaders sold their souls to foreign regulators, while ignoring the constitution and sovereign right of the Bahamas, and got in return a collapsing Financial Services Industry. Well done Ingraham and Christie. Cowardly leadership at its best!

Posted By: Gilbert NMO Morris On: 1/27/2012

Title: Lex Americana Universalis

One should always fear being both right and in the right. Our country, the Bahamas, is one in which being right or in the right, often means nothing. It was right to say, 11 years ago, that the Bahamas acted wrongly in response to the OECD. This applies to both political parties.
It was right to say so, because then as now, the Bahamas was in the right not to adhere to or comply with impositions from institutions lacking international legal legitimacy, seeking to enforce self-serving initiatives as "international standards".
The Bahamas was in the right because, then as now, those initiatives were and are unconstitutional. But it is unsurprising, yet amazing how being in the right means so little to us in our obsequious rush to fling ourselves beneath the feet of insistent foreigners in short sleeve shirts, telling us tenderly to never mind our constitutions or at least those parts inconvenient to him and those he represents. They tell us that the true meaning of constitutions is that they are large and we are small and so they win.
We supplicate on that dubious legally indifferent logic because we lack the psychological prerogative of right either in law or as a culture. For us, cynically, everything is salable for a temporary survival. Only that can explain our constant love of Democrat party US Presidents who have been the centripetal forces in our constant ignominies. Only a lack of deep national purpose and cultural value can explain our inability to separate our regard for Mr. Obama's achievement in becoming President, from his strategic inconvenience for us as President in policy terms.
And because we have actually treated our constitution as shabbily as they are prepared to within the Bahamas, caring little for how we treat each other constitutionally, such facile propositions about the rationale of capitulation appeals to us, and we begin making justifications for unconstitutional behaviour, which in our rush to stoop over, we take to be wisdoms concerning the realities of politics.
The FATCA is just a final stage in our abandonment of duty and our abnegation constitutional value because it is inconvenient for people or institutions outside the Bahamas; all of which (whether QI or OECD Directives or TIEAs etc) are in direct egregious contravention of ARTICLES I,II; 27(i b & c - i & ii); 42 (ib); 48 (ib); 52(i) of the Bahamas constitution.
In fact, if governments of the Bahamas - even of their own logic of capitulation had followed the proscriptions I and others advanced so long ago, that we make our case on the basis of law, the Bahamas may have had to give up something, but it would not have become a taxing agency for Lex Americana Universalis.
That is to say, the Bahamas financial institutions under FATCA face a dilemma:
either:
You spend your time and limited business resources combing over your books to find that odd American account-holder,
or,
You contribute to a new overriding taxing regime in the Bahamas which is a 30% withholding enforced by US institutions.
Of course you may simply eschew having US clients. But lo, and woe unto you that an American client should be discovered in your ranks, you would now have to aggressively renounce him, and become an informant for the US Treasury on pain of your own likely legal problems.
This means, we are all now governed by US law, and we may now cease pretending that that we are a constitutional people as such, and admit, now at long last, that we are just fodder for those whose actions actually promote their ends; since, it seems, we have no ends, but feverish compliance to the demands of others.

The Bahamas was in the right because, then as now, those initiatives were and are unconstitutional. But it is unsurprising, yet amazing how being in the right means so little to us in our obsequious rush to fling ourselves beneath the feet of insistent foreigners in short sleeve shirts, telling us tenderly to never mind our constitutions or at least those parts inconvenient to him and those he represents. They tell us that the true meaning of constitutions is that they are large and we are small and so they win.
We supplicate on that dubious legally indifferent logic because we lack the psychological prerogative of right either in law or as a culture. For us, cynically, everything is salable for a temporary survival. Only that can explain our constant love of Democrat party US Presidents who have been the centripetal forces in our constant ignominies. Only a lack of deep national purpose and cultural value can explain our inability to separate our regard for Mr. Obama's achievement in becoming President, from his strategic inconvenience for us as President in policy terms.
And because we have actually treated our constitution as shabbily as they are prepared to within the Bahamas, caring little for how we treat each other constitutionally, such facile propositions about the rationale of capitulation appeals to us, and we begin making justifications for unconstitutional behaviour, which in our rush to stoop over, we take to be wisdoms concerning the realities of politics.
The FATCA is just a final stage in our abandonment of duty and our abnegation constitutional value because it is inconvenient for people or institutions outside the Bahamas; all of which (whether QI or OECD Directives or TIEAs etc) are in direct egregious contravention of ARTICLES I,II; 27(i b & c - i & ii); 42 (ib); 48 (ib); 52(i) of the Bahamas constitution.
In fact, if governments of the Bahamas - even of their own logic of capitulation had followed the proscriptions I and others advanced so long ago, that we make our case on the basis of law, the Bahamas may have had to give up something, but it would not have become a taxing agency for Lex Americana Universalis.
That is to say, the Bahamas financial institutions under FATCA face a dilemma:
either:
You spend your time and limited business resources combing over your books to find that odd American account-holder,
or,
You contribute to a new overriding taxing regime in the Bahamas which is a 30% withholding enforced by US institutions.
Of course you may simply eschew having US clients. But lo, and woe unto you that an American client should be discovered in your ranks, you would now have to aggressively renounce him, and become an informant for the US Treasury on pain of your own likely legal problems.
This means, we are all now governed by US law, and we may now cease pretending that that we are a constitutional people as such, and admit, now at long last, that we are just fodder for those whose actions actually promote their ends; since, it seems, we have no ends, but feverish compliance to the demands of others." />

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