The problem with FATCA, according to so many foreign financial institutions (FFIs), is that they bear all the costs and none of the benefits of FATCA. This is perhaps untrue. According to the IRS website, informants are entitled to a cut on the proceeds of civil and criminal fines under the Bank Secrecy Act (FBAR):
4.26.7.8 (11-17-2006)
Rewards for Informants
- An individual who provides original information that leads to recovery of a criminal fine, civil penalty, or forfeiture that exceeds $50,000 for a violation of the Bank Secrecy Act may be eligible for a reward, 31 USC 5323 and 31 CFR 103.62.
- The reward may not exceed the lesser of $150,000 or 25% of the net amount collected. Generally officers and employees of the United States, state, or local governments are not eligible to collect the reward.
Thus, if the FFI provides information ratting out their US citizen clients to the IRS, they should be able to claim a portion of any fines that the IRS is able to collect.
Undoubtedly, the IRS will claim that the information was not “original” but required by FATCA. Nevertheless, FFIs should pursue the “legal” possibility of getting a piece of the action.
The benefits of the statute you quote is restricted to individuals and is otherwise completely unrelated to FATCAT and will be of zero interest to PFFIs (participating FFIs).
PFFIs will recover their cost by:
– reducing their corporate taxable income (i.e. reducing tax revenues to the countr(ies) in which they are tax resident and
– attempting to pass it on to the consumers of financial services, i.e. their customers in the countries in which they are tax resident.
It is this horrendous immediate cost to the local economy and fisc with little or no immediate offsetting consideration that should make FATCAT so pernicious in the eyes of foreign governments.
However, these same governments have a long term interest in promoting and becoming members in the totalitarian system of global financial tracing and tracking that FATCAT is dangling before them.
Even if their local laws presently prohibit taking full immediate domestic advantage of such a system, laying the groundwork through FATCAT participation at the international level will smooth their “progression” to a system of total domestic as well as international financial transparency of the kind the United States is proselytizing.
FATCAT is the totalitarian temptation.
That may explain why there has not been a peep of public protest from Beijing or any other totalitarian regime.
While I hate that they are doing this, if I were a bank chief I would just drop all of the US clients as well. Why bother with implementing FATCA (which costs something like $100 Million per bank – at least) when you can just remove the problem at its source? Unless you have a billionaire like Bill Gates or Warren Buffet opening an account, there simply isn’t any economic gain to be made on the bank’s part when you weight the account balance versus the costs of implementation and any future withholding threats from the US for “getting it wrong”.
I think that this is what the future holds for US citizens overseas: they will be shut out of every major bank, insurance plan, investment, mutual fund, stock, etc. The only way that they will be able to live overseas is by holding all of the above in the US – Exactly how I imagine that the US government wants everything to turn out anyway.
It is my understanding that some of the Swiss banks are recuperating their costs by establishing separate subsidiary banks to serve US citizens only. The minimum balance which depositors are required to maintain is $1 million; and the monthly service charge for such accounts is in the order of $1000. Somebody else may have more precise details on this.
@Todundsteuer, You are being very exclusive and inflexible in your interpretation of “individual” as referring only to natural persons. You are probably right. But a flexible FFI could submit the damning information in the name of a single “individual”. Then, that “individual” could collect the reward. I just don’t think that the FFI’s are being creative enough. They have to think about how they can get piece of the action: the plunder of US persons’ foreign accounts shouldn’t go to the IRS alone–how is that right? There is a mine of useful “original” information that could lead to billions in FBAR rewards for the banks. They should take advantage of it.
Two comments this morning…
One, after the experience of “Whistle Blower” Birkenfeld in the UBS case, I think all have gotten a very good lesson on why you may not want to go that route even if the money seems tempting. Also some very interesting additional comments on this post by Jack Townsend that might add to the story. Sort the few comments here by oldest first, and I draw your attention to Insider. Hummm
I see this out of Hong Kong this morning:
FATCA’s legality and fairness questionable, say industry officials in Hong Kong
Somewhere in the world, prior to, or at the time of Final Regulations released by the International Revenue Service, there has to be one countries financial institutions are going to stand up and say no! Could it be Hong Kong or China? Eric would probably have a better feel.
I do note that Hong Kong and China did not present comments at the May 15th public comments:
And then counter the above with the real reason FATCA /GATCA will probably happen as envisioned by our Masters in DC, and frankly it is the same reason why the US war making will never end. An industrial complex is born.
@Just Me: RE: Bradley Brikenfield. Nobody likes a rat. Nobody trusts a rat.
And also, you should never negotiate with terrorists or with a criminal organization. (And here I mean the IRS/US government).
That’s like putting a bounty on all US persons living outside the USA and enlisting all banks outside the USA as bounty hunters! It’s devious, despicable and diabolical … and sadly exactly what I have come to expect from the US government.
@Em, Notice however that TodundSteuer is probably right, and that the suggestion I made in my original post would never hold up. Also notice that Just Me’s comment that the US put the watchdog in jail instead of giving him his share of the proceeds. This shows the utter greed of the United States in not wanting to share the action, even with the FFIs that would help them. With FATCA they want the FFIs to cover all the cost but get none of the proceeds of their thuggery.
The 30% withholding is akin to extortion, a reward is bounty.
@All, since this thread has a bit of attention right now, I want to point out the power of Twitter again for those who question it’s value…
Read this French story, just out, and notice this term DATCA? Yup, that came from using twitter to direct a journalist to the DATCA is not Dead thread.
Mates: we have to use as many media sources as we can. The MSM isn’t listening, so if you aren’t twittering, I would really encourage you to reconsider. It can have results, and message can get spread farther than just emails.
@Just Me, aren’t you the one who made up, “DATCA” for domestic ATCA?
Well, here is a bit of a strange piece of information from Costa Rica: In a Tax Information Sharing Agreement With Canada, Costa Rica is now agreeing to share information with Canada on financial assets held by citizens in each other’s country.
The article compares the agreement to FATCA and says: “Costa Rica does not tax her citizens for income realized abroad, so this agreement is mostly for Canada to keep an eye on the assets of her taxpayers who reside here.”
That doesn’t make any sense. Canada taxes based on residence, not citizenship. Has anyone heard of this?
@ Blaze
The small blurb just says, “It is an agreement between Costa Rica and Canada to share financial information on citizens of both nations who keep bank accounts here or abroad.”
This may only mean the same arrangement Canada has with the USA which does not share detailed banking information, only taxable income information. Both countries tax on world wide income remember. (We had to report interest earned in a USA account to CRA — until we made that account interest free.) There’s a big difference. I have to hope it’s the latter because I would be extremely angry if our government was doing a mini FATCA arrangement with Costa Rica while on the surface at least decrying the US’s attempt to execute a global FATCA or GATCA.
@Em: I can understand a tax treaty similar to that with US, except for the statement that this is to mainly to allow Canada to keep an eye on the assets of her citizens who reside in Costa Rica.
It would make sense if Costa Rica is reporting on income from assets held in Costa Rica by Canadian residents. But, that’s not what the part about citizens who reside in Costa Rica says.
I hope it was simply a misunderstanding on the part of the reporter, but it’s concerning.
*With respect to the various tax “information” treaties the US currently has with some countries such as Brazil and others which have refused to enter into full tax treaties with the US, they provide for the exchange of tax information on specific individuals who are being pursued for tax evasion. They do not include any provisions for a general blanket exchange of tax information.
I suspect, but don’t know, that this might also be the purpose of the agreement between Canada and Costa Rica, both of which tax on the basis of residence but not on citizenship.
@Don Pomodoro. A successful business model would be for a business to segregate its clients and profits. One growth business will be the one which excludes US citizens and US investment. The deadbeat business would be the one with the Kryptonite of US account holders (administration burdens) and/or US investments (risk of 30% confiscation). I have worked for companies which have succeeded to minimize such deadbeat business segments and maximize their growth businesses. In this case, the ones with US ties will die and the ones without US ties will prosper. One of the Brockers mentioned that Argentina has isolated the US contacts out of the private banks, where success will be possible. This will be the strategy of so many of the countries of the world which will find ways to prosper without the FATCA burden (think of countries such as Burma, Nigeria, South Africa, Sri Lanka, Thailand, Qatar, Egypt, Algeria, Chile. Countries rich with emerging natural resources or service labor who cannot succumb to 30% confiscations.) Large countries will be slow, but they will be led with examples such as the Canadian credit unions.
@Roger…
You have been quiet for a few days, and you might have missed this. Wonder what you make of it? I posted it on another thread here…
@Petros…
Regarding DATCA. Yes, that was my not so clever invention, (someone else here came up with GATCA) I so was pleased to see this journalist lead with it on the headline!
I keep repeating the narrative refrain (talking point) to all journalist that will listen…. FATCA begets DATCA begets GATCA
@JustMe, when they debate who invented the term DATCA, and the equation of “FATCA begets DATCA begets GATCA “, we’ll all point them to your prescience. Actually, I think that a Wikipedia entry on that very term and phrase would do a world of good for the cause – and give you credit where it is due!
@Badger…
I really don’t care about the credit, I just want the narrative to stick out there in some of these journalist minds… Although I must admit a little smile cracks when I see folks who I have never heard of before speaking in terms of Minnows and Whales,or causally dropping the term of LCUs or DATCA into a conversation. I keep looking for little hooks or phrases that people will remember and repeat and thus help spread the story in ways that go against the conventional wisdom. Frank Luntz is a master at it, and would love to have that skill. Things like “death taxes” and ‘Pro Life” are his creations, and no matter your views on the subjects, his language has framed the narrative. It is very effective. That is what we want with this story. We really need to spend more time thinking about it, and try out other ‘talking points’ and then repeat them endlessly. I am always looking for new ones here that I stumble across that might resonant.
The Costa Rica Canada agreement has NOTHING to do with FATCA. It its is simply an agreement to share tax information UPON REQUEST similar to dozens of other agreements both countries have with other third countries(Canada has agreements similar to the one with Costa Rica with over 100 other countries already). What makes the Costa Rica agreement “somewhat” different is it is not a full tax treaty only a TIEA. However Canada allow active business income derived from sources in treaty or tiea countries to be exempt from Canadian tax(essentially a territorial corporate income tax) thus there is certain incentive for many small countries who want Canadian investment to enter TIEA’s.
@Just Me, the power of the hooks is very aptly demonstrated when they’re passed from person to person and become part of our casual language – and as you note, so it has been with LCU’s, DATCA, whales, minnows, etc. I remember when I first read those in your posts here and at Jack Townsend’s blog. Those little touches made me feel like I had support and comradeship from a real person who understood, and wanted to help. If we use them, it is because they speak to us, and help us to reach others – and you’re so right about helping to frame the narrative. It is so unfortunate however, that we have had to expend so much time, ‘LCU’s, psychological, emotional and physical resources, and create a shared and specific language and narrative to combat such a useless and profit-less situation – when there are so many other things we need to write about and advocate for. Proving over and over that we owe no tax to the US, proving over and over that we are law-abiding taxpaying people where we live and earn. What a waste of human capital. Only good to know that we are helping ourselves and the others who might not even have discovered the problem yet. And I suppose, honing skills to apply to another issue – exploring how to reach others we will never see.
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Bradley Birkenfeld, the UBS whistleblower/ blackmailer, who likely set FATCA in motion, is to be released from a US prison on August 1, 2012, according to Swiss media “Inside Paradeplatz” today. He apparently wrote a letter to this publication advising them of his impending release, ironically scheduled for the Swiss National Day:
http://insideparadeplatz.ch/2012/07/25/ubs-zerstoerer-birkenfeld-kommt-vorzeitig-frei/
http://www.nzz.ch/aktuell/wirtschaft/wirtschaftsnachrichten/bradley-birkenfeld-kommt-vorzeitig-frei-1.17398643