The Tribune

By NEIL HARTNELL

Tribune Business Editor

BAHAMIAN commercial banks are "still trying to put our hands totally around" the US Foreign Account Tax Compliance Act (FATCA), Tribune Business was told yesterday, some suggesting it may force them to ensure "the quality of accounts" taken on justifies the increased due diligence requirements.

Paul McWeeney, Bank of the Bahamas International's managing director, said many "grey areas" remained with FATCA, which is set to be fully implemented by the US Internal Revenue Service (IRS) from 2014 onwards, although the increased due diligence and reporting obligations it will impose are not in doubt.

"We're still trying to put our hands totally around it," Mr McWeeney told Tribune Business. "There will be some enhanced due diligence and reporting we have to fulfill."

Given that FATCA's main aim is to ensure US citizens with financial assets, such as bank accounts outside the US, are paying their due taxes, the greatest compliance concern for Bahamian commercial banks will likely be identifying Bahamian customers who have dual US citizenship or are 'green card' holders. Any US nexus means their identities, and asset details, must be reported to the IRS and US Treasury on an annual basis.

Mr McWeeney told Tribune Business that Bank of the Bahamas International was likely to have to reassess the "basic requirements of foreign currency accounts" it provided.

He added: "We're looking at changing the standard to limit the responsibilities we have. We're looking at the standard to ensure the quality of the accounts we do get justifies the due diligence and reporting going forward.

"I think it [FATCA] may be something the industry looks at as a whole, how we treat these accounts and what responsibilities we place on ourselves. There's a lot of grey areas at this point in time, and we need to put them into black writing, but we're some way off from that."

Acknowledging that FATCA's impact "could be very significant", given the number of foreign currency bank accounts in the Bahamian financial system, Mr McWeeney added that the main task would likely be "making sure the quality of accounts justifies the due diligence. It's coming. We can't ignore it".

FATCA's demands are thus likely to impose extra demands on all Bahamas-based financial institutions in terms of resources and time needed to do the extra due diligence, resulting in them incurring increased costs - some of which are likely to be passed on to consumers, raising banking costs again.

Washington is effectively asking all Bahamas-based financial institutions - and those 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.

Mr McWeeney said Bank of the Bahamas International had formed a FATCA team, headed by its chief financial officer. Commonwealth Bank, too, has moved to prepare for its implementation by contracting an accounting firm to identify any gaps in its system.

"We're going through a gap analysis with one of the professional accounting firms, and we will be in a better position once that is completed," Ian Jennings, Commonwealth Bank's president and chief executive, told Tribune Business yesterday. "It's like shooting at a moving target."

He added that currently, FATCA's full impact was unknown, given that more regulations were still to be finalised by Washington despite the bulk being published in April this year.

With FATCA "still evolving", Mr Jennings said the 'gap analysis' was examining the type of information the IRS required, whether Commonwealth Bank's current system was obtaining it, and if more information was required from existing account holders or amendments made to account opening documents.

Commonwealth Bank had between 50,000-70,000 account holders, and Mr Jennings said FATCA would not only impact them but joint account holders.

Acknowledging that FATCA would likely impose "another layer of Know Your Customer documentation", Mr Jennings added: "The biggest challenge is going to be questions of joint nationality.

"For our customer base, if you've got a Bahamian citizen born in the US, and they've got US citizenship or a potential claim to US citizenship, the system may require getting the correct documentation on those clients, depending on the size of the relationship with the bank."