Major Russian business newspaper Kommersant reported in an article yesterday that the Russian government, egged on by Association of Russian Banks (of whom we’ve written previously), is looking into the possibility of signing an inter-governmental agreement for the exchange of bank account information, along the lines of the European deal announced in February. The journalist writes as if such a deal were a foregone conclusion, stating that the Russian government is not looking into “whether” but instead “how” to sell out their sovereignty to the IRS. I’ve translated the article below.
Американский закон пропишут российским банкам
American law registering Russian banksПравительство РФ решает, как раскрывать информацию перед налоговыми органами США
The government of the Russian Federation will work out how to disclose information to the tax organs of the USAПрофильные ведомства изучат вопрос распространения действия американского закона FATCA на российские банки. Такое поручение Минфину, Минэкономразвития, МИДу и ФСФР дал первый вице-премьер Виктор Зубков в конце марта. Неисполнение требований этого закона чревато для участников рынка изъятием 30% сумм транзитных платежей, а исполнение — нарушением законодательства РФ.
Relevant agencies will study the question of the extension of the American FATCA law to Russian banks. This request was given to the Ministry of Finance, the Ministry of Economic Development, the Ministry of Foreign Affairs, and the Federal Service for Financial Markets by first Vice-Premier Viktor Zubkov at the end of March. Non-compliance with the requirements of this law could result in market participants having 30% of the sum of pass-through payments confiscated, but compliance would be a violation of the laws of the Russian Federation.О том, что в правительстве будут прорабатывать вопрос о влиянии вступления в силу американского закона Foreign Account Tax Compliance Act (FATCA), сегодня рассказал исполнительный вице-президент Ассоциации российских банков (АРБ) Андрей Емелин в ходе парламентских слушаний в Госдуме. «26 марта подписано распоряжение Виктора Зубкова с поручением четырем ведомствам рассмотреть возможность проведения переговоров по формату, который используют четыре европейские страны»,— заявил представитель АРБ. Ранее ассоциация выступила с открытым письмом председателю правительства Владимиру Путину, в котором указывала на проблемы, связанные с применением закона FATCA.
Regarding this, the government should study the question of the impact of the entry into force of the American Foreign Account Tax Compliance Act (FATCA), said executive vice-president of the Association of Russian Banks (ARB) Andrei Emelin today in parliamentary hearings in the State Duma [the lower chamber of the Russian legislature, equivalent to Canada’s House of Commons or the U.S. House of Representatives]. “On 26 March, Viktor Zubkov signed a order instructing these four agencies to consider the possibility of carrying out negotiations on the format employed by those four European countries”, said an ARB spokesman. Previously, the association published an open letter written to Prime Minister Vladimir Putin, in which they indicated the problems related to the implementation of the FATCA law.
Of course, the multilateral deal was not between four European countries but five. The Kommersant journalist repeats the error below as well, failing to mention the participation of the United Kingdom in the FATCA deal. This is symptomatic of a larger problem: journalists’ coverage of FATCA is driven largely by the press releases of banks and cross-border tax service providers. When those august institutions are misinformed, journalists just go ahead and directly repeat their errors and misconceptions, in many cases without doing any fact-checking at all. Outside of Canada, they aren’t getting any other side of the story; instead, they’re just acting as PR agents to promote banks’ craven efforts to keep their operating costs down by shredding data protection laws forbidding the transfer of personal data outside of their sovereign territory.
Согласно данному закону, вступающему в силу с 1 января 2013 года, все финансовые организации, в том числе и российские, взаимодействующие с американскими налогоплательщиками, должны заключить специальное соглашение со службой внутренних доходов США (IRS), осуществлять контроль за наличием счетов, открываемых налогоплательщиками США в российских банках, и информировать о них IRS. Неучастие в FATCA для банка сопряжено с санкциями со стороны IRS и иностранных финансовых организаций в виде принудительного изъятия 30% суммы любых платежей, проходящих через США. Однако следование нормам FATCA для российских банков сопряжено с рисками нарушения российского законодательства о банковской и налоговой тайне, а также о персональных данных. До настоящего времени российские власти не сформулировали официальной позиции относительно применения FATCA.
According to this law, which comes into effect on 1 January 2013, all financial institutions, including Russian ones, which взаимодействующие with American taxpayers, should conclude special agreements with the USA’s Internal Revenue Service (IRS), implement controls on the existence of accounts opened by US taxpayers in Russian banks, and inform the IRS about them. Non-participation in FATCA will subject banks to sanctions by the IRS and by foreign financial institutions, in the form of compulsory confiscation of 30% of the sum of all payments which pass through the USA. However, compliance with FATCA’s standards will subject Russian banks to the risk of violations of Russian legislation on banking and tax confidentiality and on personal data. Up to the present time, Russian authorities have not formulated an official position regarding the implementation of FATCA.Вместе с тем Франция, Германия, Италия и Испания уже договорились с правительством США о формате участия в FATCA на уровне государств. На основании совместного заявления указанные европейские государства и их финансовые организации признаются соответствующими FATCA и участвующими в соответствующем международном соглашении. Соответственно, эти страны будут передавать информацию по налогоплательщикам США в IRS централизованно налоговыми ведомствами этих стран, IRS в ответ обязуется передавать в налоговые ведомства этих стран информацию по налогоплательщикам этих стран, имеющим счета в финансовых организациях США. В АРБ предлагают организовать сотрудничество России с IRS аналогичным образом.
Along with this, France, Germany, Italy, and Spain have already come to an agreement with the government of the USA about the format of their participation in FATCA at the national level. On the basis of that joint statement, the specified European countries and their financial institutions recognised the appropriateness of FATCA and their participation in the appropriate international agreements. Pursuant to this, in these countries information about US taxpayers will be transmitted centrally by the tax authorities of these countries to the IRS, and the IRS in return undertakes to transmit to the tax authorities of these countries information about the taxpayers of these countries possessing accounts in US financial institutions. The ARB has offered to oversee the cooperation of Russia with the IRS in an analogous form.Дарья Юрищева, “Коммерсантъ-Online”, 03.04.2012 // 19:40
Darya Yurishcheva, “Kommersant Online”, 03.04.2012 // 19:40
“The ARB has offered to oversee the cooperation of Russia with the IRS” — how noble and self-sacrificing of them. Remember folks: your bank is not your friend. And the IRS’ efforts to get their hands on bank data from Russia puts the lie to the claim that they are going after “tax evaders hiding money in tax havens”. Russia is not exactly a major player in the offshore banking industry, to put it mildly. It’s not that hard to predict: almost every single person whose FBAR non-compliance comes to light through this exchange of data will turn out to be a Russian immigrant or an American expatriate in Russia. Once again, the US government is going around kicking puppies while claiming to be “wolf hunters”.
Thanks Eric for highlighting this story… The governments like reciprocity. Just another step towards GATCA. Looking like Russia will be in the “Complain but Comply” mode unless Putin decides to “show them” that he can’t be kicked around.
Russia may say they’re going to join FACTA, but I can bet you if you wanted to open a bank account in Russia, as a US citizen, you speak Russian, and have a “sweetner” for a bank official, you’d be put down on banking records as anything other than US.
How on Earth is the IRS going to stop this? You think the Russians are going to allow IRS auditors to walk into a bank in Moscow? It’s a case of garbage in garbage out in data terms.
I think the integrity of personal data is going to be the hardest challenge of FATCA, and the Americans know it.
How about if I’m American and walk into to a foreign bank with a second passport, a forged Certificate of Loss Nationality, and demand my account be put down as my second citizen and a crooked bank official puts down another place of birth (because I’m no longer “American.”). Or maybe the bank official doesn’t agree with FATCA and it’s his way of putting the middle finger up to the Americans.
Are you breaking a foreign law by putting down a wrong place of birth to avoid IRS reporting in a foreign country? Is the IRS going to go through demand millions of records be manually verifiied each year at tremendous cost?
Alas….integrity of data will be the biggest issue for the IRS. In fact it could be used to a person’s advantage. Once their account is opened with a second citizenship, and an “alternate” place of birth, it will go unreported forever. How is the IRS going to stop that?
The IRS can’t stop people in the US from claiming fake tax refunds, ID theft, people working only in cash etc. They rely upon “data mining” to catch people.
If the data isn’t passed from the bank, to the local tax authority, and on to the IRS, how is it going to be “data mined.” And if the IRS complains it believes that local banks are not passing on the “true” data, what kind of discussion is that going to be? Is the US going to start withholding before they prove a bank “guilty.” The whole process could cost millions on both sides as they argue the toss on data integrity. I believe most foreign officials will play “lip service” to the IRS to string them along. Hell…..how long did it take the US to make Saddam get rid of his alleged WMD (from the 1980s to 2007?)
Is the integrity of the data from over 200 countries really going to be so accurate that the IRS can depend on its accuracy? Lower ranking banking officials will continue to open and close accounts and will be inputting the data.
Is a country really going to allow its banking officials be extradited to the US over a data integrity scandal to the IRS?
To put it in Sen Charles Grassley’s lingo, will a bank official in Paris really care if the place of birth is Paris or Peoria as long as they possess another passport? Especially when putting down a wrong place of birth doesn’t really break French Law (or the odds of getting caught are tiny). Face it Doug Shulman it’s going to happen.
My wife says that purposely putting FALSE information is a crime, at least here in Brasil. I’ve already checked the passport process: you select the country in a drop down menu, so ESTADOS UNIDOS is a real giveaway. This is why renunciation for me is practically inevitable.
I’m really curious to see how this is going to play out. After all, in most countries (Brasil included), if you are a dual citizen, when you are in Brasil you are considered Brazilian. The other nationality doesn’t play a part. Even the Finance Minister, Guido Mantega, is dual Brazilian/Italian.
@geeze..for passports that’s true. Banking records and passport records are two separate issues. I’m here in the UK, and not sure of the position as to banking records or if you are resident in the UK, you are British. Or if you are resident in the EU you are EU.
My point is that if you show your foireign passport with a US place of birth, the foreign bank could make a” clerical error” for the place of birth.
At the end of the day if the local government is collecting their tax, is your place of birth really of any importance to them or the bank??
This is what the US will be up against?
@John
You could be correct. However, I believe the ‘big five’ Canadian banks are so tied up with the US and at least three of them have such a large presence in the US, they will most definitely ‘comply’. One of our banks is now the 3rd largest bank in New York City; it has more branches in the US than it does in Canada. A second one is running a ‘close second’; they will not do anything to jeopardize their profits south of the border. That is how ‘big business’ works. That is what their shareholders would expect. It is unfortunate for all Canadians born in America, but I am afraid that is what will happen and that is what the other clients at these banks would expect. For those of us who are clients of these banks and have the US connection, we might be best to leave those institutions.
Perhaps the data integrity will depend upon the “exposure” to the US retail market. For example, most Euorpean Banks do not have retail operations in the US and most of their business is investment banking etc.
You’re right the more exposure (not by money but also number of branches and type of business investment vs retail) is going to have a bearing on how hard the IRS can push banks.
Maybe in future TD for example may decide the US isn’t worth all the regulatory bull**it and sell up. TD can just as easily make money in the Far East as the US.
Leave American banking to the Americans type of thinking.
A emerging problem in the UK is some big banks now find the majority of their business now comes from outside the UK and one bank in particular was thinking about moving its HQ from London to Hong Kong.
Who knows where all this is leading, but I know one thing the US isn’t going to get it all its way. The longer FATCA can be strung out and watered down the less effective its going to be as the US’s economic power declines in the years to come.
@ John who wrote: “Russia may say they’re going to join FACTA …”
Thanks for calling FATCA FACTA … I do that too quite frequently so at least I’m not the only one. You can’t be in this bizarro world created by the IRS without having a galaxy of acronyms spinning around in your head.
Right now in Canada it is illegal for banks to ask account-holders where they were born. The very day that they, or the Canadian government, steps over this line is the day the War of 2012 officially begins.
John –
Your anticipation of a heaping pile of data trash rings true. Good data is hard to create and hard to maintain. There is no incentive to produce good data in formality reporting to a coercive foreign government. After all, the “FFI” will be thinking of that other entity as foreign! If local custom incorporates tweaking, then even more data trash.
Anybody want to guess how useful all that FBAR reporting by honest folk has helped in prosecution of money laundering? That’s like requiring a throatslitter to mail in blood fingerprints within 24 hours of committing the crime. The bureaucracy is insane. The same resources directed with wit would have far more payback.
@ usxcanada…
Re “Good data is hard to create and hard to maintain. ”
Boy is that a truism!! I have wondered about just that related to maintaining the data on who is FFI compliant, deemed compliant or non compliant around the world. I just posted a comment about that here…
http://isaacbrocksociety.com/2012/01/23/fatca-the-need-to-know-basis-is-not-satisfied/#comment-12053
Once anecdotal piece of evidence about data quality issues in second-and-third-world countries: I was rambling on about FATCA with a buddy of mine here (he’s Korean not American, though he does work in finance so he’s vaguely familiar with the issue and what it’s doing to all his American investors), and he mentioned that he once had a bank account with a small bank in mainland China which listed his nationality as … Comorian. He says he only found out recently when he tried to close the account and they asked him for his Comoros passport.
After a bit of cogitation (and large amounts of beer), we came to the conclusion that this happened because he showed them his HKID card instead of his passport when he opened the account, and someone clueless clerk mistook the immigration status code on the old ID card for a country code (HKID cards don’t show country of origin). Our old ID cards had the code CMO (“C”onditional stay, “M”ale, “O”ther place of birth), and the ISO-3166 code for Comoros is COM. Then when they computerised all the records years later, they probably made a typo …
There are probably Americans out there who have the same “problem” with their bank accounts. I only wonder if they’ll realise what a treasure they’re holding in their hands =)
I have a very strong feeling that this “FATCA” propaganda is to scare a few more “plastic surgeons” out of the bushes. I hope it works for the US Government! Sabre-rattling, bush shooting, whatever you want to call it. I really believe that if someone lives in US territory and owes money, they should pay.
Expats on the other hand…. Americans should be ashamed of themselves. Unless we live on 1-2 countries in the PLANET, we owe no taxes to the US Government, even according to their own rules.
@Eric
Good story Eric… I am sure there will be lot of data crap in this entire fiasco.
@John,
Appreciate your points about data integrity…
However, when it comes to compliance for banks, it’s not just retail operations or even investment banking…It’s about whether they can actually use US markets to borrow the debt to finance their home county operations. That’s where the rub happens. They may not have any withholding slapped on them, but they will have to go elsewhere for financing (that is when they aren’t borrowing it from their governments.) Not bloody likely.