Last Wednesday, the IRS released the latest version of its database of GIINs for Foreign Financial Institutions, updated to 24 June. It contains 87,993 entries, up by only about ten thousand from last month. This minor increase doesn’t exactly look like a vote of confidence by the financial sector, especially when compared to estimates of hundreds of thousands of entities that might fall under FATCA’s definition of FFIs.
Furthermore, poorer countries are falling behind (not that the U.S. cares about the collateral damage it’s causing them or anyone else). Some back-of-the-envelope calculations (jump to table) suggest that, below a certain threshold of both total bank size and per-depositor funds, some banks simply don’t have the resources to comply with FATCA — and so, unsurprisingly, only a small proportion of institutions in low-income countries have signed FFI agreements. In Malawi, for example, it looks like only a quarter of the banks with SWIFT codes are in the FFI list.
In fact, about a dozen countries still have no FFIs registered at all. Ironically, one of them is Eritrea, the U.S.’ sole fellow believer in the ideology of imposing universal, unending taxation on emigrants.
Overview
| Economic classification | Count of territories | Registered FFIs | GDP (nominal) | Registered FFIs per US$1 billion GDP | ||
|---|---|---|---|---|---|---|
| Count | % of all signed FFIs | Amount (US$1 billion) | Percent of world GDP | |||
| Cayman Islands | 1 | 17,207 | 19.55% | 2.250 | 0.00% | 7,647.56 |
| Other British Overseas Territories and Crown Dependencies | 11 | 9,151 | 10.40% | 20.844 | 0.03% | 439.03 |
| G7, ex-U.S. | 6 | 18,853 | 21.43% | 17,722.000 | 24.06% | 1.06 |
| United States | 5 | 630 | 0.72% | 16,820.116 | 22.64% | 0.03 |
| Other high-income economies | 58 | 30,679 | 34.82% | 15,531.317 | 21.09% | 1.97 |
| Upper-middle-income economies | 54 | 8,718 | 9.91% | 18,617.257 | 25.05% | 0.47 |
| Lower-middle-income economies | 50 | 2,238 | 2.54% | 4,997.495 | 6.73% | 0.45 |
| Low-income economies | 34 | 484 | 0.55% | 596.023 | 0.80% | 0.81 |
| Remainder | 11 | 141 | 0.16% | N/A | N/A | N/A |
| Total | 230 | 87,993 | 100.00% | 74,306.387 | 100.00% | 1.18 |
| Total (ex-U.S.) | 225 | 87,363 | 99.28% | 57,485.809 | 77.36% | 1.52 |
As Prof. William Byrnes points out over at his blog:
What I find surprising thus far is that I thought (as did many large firm attorneys) many, many more registrations would have pushed themselves through the keyhole. I was thinking in the range of 100,000 to 110,000 would be registered for the July 1 FFI list. Only 10,000 additional registrations was not even in my lowest estimates. I wouldn’t call 88,000 FFI registrations a great success at this stage, considering that nearly 150 countries do not have an IGA and thus FATCA 30% withholding starts today. While the IRS suggested a 500,000 potential FFI registration figure, many industry stakeholders suggest that 800,000 – 900,000 firms fall under the expansive definition of financial institution.
The Cayman Islands remains the territory with the most registrants: 17,207, little increase from last time, but still nearly a fifth of the total FFI list. Other British overseas territories and crown dependencies make up another tenth of the list (9,182). Entities in the United Kingdom itself and other G7 countries besides the U.S. comprise another fifth of the list (18,853). And for some reason I don’t quite understand, the U.S. itself has 621 registrants (including dozens from Puerto Rico which aren’t listed under the separate Puerto Rico country code), plus nine more from its territories like Guam and the U.S. Virgin Islands.
Other members of the World Bank’s list of high-income economies, plus Taiwan, comprise another 35% (30,724). This group would have 1.35 registered FFIs per US$1 billion GDP if we excluded the secrecy jurisdictions (Switzerland, Luxembourg, the Bahamas, Malta, Cyprus, Liechtenstein, Curacao, Barbados, St. Kitts & Nevis, Monaco, Antigua & Barbuda, and Sint Maarten).
All of the above total to 87% of the list. The rest of the world — all of Latin America besides Chile and Uruguay, all of Africa besides Equatorial Guinea, and most of Asia — accounts for the remaining 13%.
From the 55 upper-middle income economies, a category which includes all of the BRICs besides Russia (classified as high-income), we get 8,652 registrants (9.8% of the total). This group would have a slightly lower 0.37 FFIs per US$1 billion GDP if we exclude secrecy jurisdictions (Mauritius, Panama, Belize, St. Vincent & the Grenadines, Marshall Islands, St. Lucia, Seychelles, Grenada, and Dominica). This list dates from before the China–U.S. IGA announcement, so it’s not surprising to find it contained no additional registrations from mainland China. Nevertheless, some Chinese state-owned banks — Bank of China and ICBC, specifically — made moves to register their Hong Kong and overseas entities during the past month, though China Construction Bank, Agricultural Bank, China Merchants’ Bank, and Minsheng Bank did not.
[Correction: China Construction Bank has two registered FFIs: its London subsidiary (W5X52R.00000.LE.826) and its Tokyo branch (J35UPV.99999.SL.392). However its ten other foreign branches and four foreign subsidiaries — listed here, at lower left — remain unregistered, not to mention its domestic operations.]
And out of the poorest parts of the world, the 50 lower middle income economies account for 2.5% of registrants (2,238 entities), while the 34 low income economies account for barely half a percent of registrants (484 entities). Finally, territories not classified by the World Bank (mostly French & Dutch dependencies), or listed as “Other” by the U.S., contributed 141 registrations.
FATCA and sanctions
It shouldn’t be too surprising to hear that Iran, Syria, and Cuba are among the countries in which no FFIs have registered. Additionally, three out of the four North Korean entities which appeared in the previous list have disappeared (the remaining one is a branch of Luxembourg-based ECM Special Situations Master Fund SICAV).
Similarly, banks in partially/mostly-unrecognised separatist states also seem to be having trouble handling the FATCA problem. I could only find one registration definitively from Northern Cyprus, Sekerbank Kibris (with the country indicated as “Other”), but other banks in Northern Cyprus seem to be absent. Kosovo had one foreign bank (Raiffessen) listed under Serbia, and another (Grawe) listed as “Other”. I wasn’t able to identify any Western Saharan, Transnistrian, South Ossetian, Nagarno-Karabakh, or Abkhaz entities (though, admittedly, my unscientific procedure consisted solely of Googling for “banks [country name]” in Russian and then failing to find them in the list).
All this was anticipated nearly two years ago by the folks over at Risk.net, in their article “Sanctioned jurisdictions struggling with FATCA:
“If you are a Lebanese bank with operations in Syria what do you do? From how I understand Fatca works, a Lebanese bank in this situation is in serious trouble.” Another jurisdiction of interest where sanctions and Fatca compliance might clash is Iran. According to Boulier, Iran is simply off the Fatca radar … “Would the sanctioned entities operating in a sanctioned country like Sudan and Syria be allowed to register as a limited FFI?” …
The sanctions and Fatca compliance question stretches to jurisdictions such as China as well. According to Sexton, a large amount of trade finance is done between China and Iran. On top of this, a lot of Chinese banks clear US dollar transactions for Iran. “Working through these things is a real conundrum,” she says. “I think China will struggle with this because they continue to have dealings with Iran. They will need to work out how they will unpick that and become compliant with Fatca when they are dealing with a sanctioned country.”
The third world
However, the FATCA laggards include not just the U.S.’ geopolitical enemies, but some of its former colonies as well: two out of three Compact of Free Association states (Palau and F.S. Micronesia) have no registrations. Other Pacific island countries with no FFI registrants include Nauru, Niue, and Tuvalu. On the other hand, there’s fewer African countries than you might expect in the list of zero-registration countries: only four. Ethiopia, Sudan, and Somalia are three.
But in a crowning touch of irony, the fourth African country with zero registered FFIs is … Eritrea. You’d think the Eritrean government would be jumping up and down to push FATCA compliance and prove itself a “responsible international actor” so the U.S. would sign an IGA — that way they could get information about overseas Eritreans’ bank accounts and take a shot at enforcing that 2% diaspora tax. This should be an especially high priority for them, given the Harper government’s continued pressure for them to stop diaspora tax collection in Canada. Maybe Eritrea just doesn’t believe in the U.S.’ legally-dubious promises of reciprocity.
Unsurprisingly, the Third World in general is behind on FATCA compliance. Bhutan, Comoros, Equatorial Guinea, Guinea Bissau, Kiribati, São Tomé and Príncipe, and Turkmenistan for example each has only one FFI listed; Uzbekistan and the Central African Republic have only two, Burundi three, and Gabon four.
Even in countries with more registrants, the banks getting into compliance with FATCA are mostly foreign-owned banks & branches, not local ones. East Timor and the Solomon Islands have no local banks registered, Myanmar only one (Co-Operative Bank), and Mali and Maldives and South Sudan three, and Togo four, with the remainder of registrants in those countries being branches or subsidiaries of foreign banks.
Bank size and FFI registration
Part of the reason for these small numbers is that low-income economies have just a small percentage of the number of banks and investment companies that high-income economies do, and certainly not the thousands of trusts & special purpose vehicles which round out the list of FFIs in places like the Cayman Islands. But that doesn’t tell the whole story.
Banks in the lowest and highest-income economies differ wildly in the size of their deposit bases, both in absolute and per-customer terms. Based on World Bank statistics on the number of people with bank accounts and bank deposits as a percentage of GDP, and NBER figures for the number of banks relative to population size (available at page 47 in this paper), here’s some back-of-the-envelope figures for the relationship between the size of banks in a country and the number of FFI registrations:
| Income group | Count of territories with statistics available | Estimated number of banks | Bank deposits | Registered FFIs | ||
|---|---|---|---|---|---|---|
| Per bank (US$ mil) | Per depositor (US$) | Count | Ratio vs. estimated number of banks | |||
| High | 34 | 7,387 | 8,543 | 78,872 | 36,050 | 4.88 |
| Upper-middle | 26 | 1,254 | 20,503 | 19,030 | 7,757 | 6.18 |
| (Upper-middle, excluding China) | 25 | 981 | 8,273 | 5,981 | 7,544 | 7.69 |
| Lower-middle | 19 | 877 | 3,187 | 3,975 | 1,669 | 1.90 |
| Low | 10 | 253 | 541 | 953 | 199 | 0.57 |
Unsurprisingly, in poorer countries, banks are smaller (except in China, which has unusually large banks), and individual deposits are smaller. And the number of registered FFIs is far lower in poor countries than in rich countries not just in absolute terms, but even proportional to the number of banks in those countries. Combine that with the fact that the count of registered FFIs includes multiple entities for single banks and entities which aren’t banks at all, and it’s clear that in many poor countries only a small fraction of the actual banks have registered for FATCA.
Cursory eyeballing against other systemic lists of participants in the international financial system — like those with active SWIFT codes — points to the same conclusion. For example, there’s 13 banks in Malawi with active SWIFT codes (not counting different branches of single banks), but only 10 registered FFIs from the country — and six of those are just sub-units of one of the other four. This means that more than three-quarters of Malawi’s banks do not have GIINs.
It isn’t that hard to come up with a theory about the causal connection between those numbers. FATCA compliance has both fixed costs (understanding and negotiating an FFI agreement, revamping client onboarding procedures) and variable costs (account documentation, staff training) — while the banks in low-income economies have far less money to bring to bear to tackle those costs.
And those institutions which are in the best position to pay those costs are most likely branches or subsidiaries of rich-world banks. No doubt they’re quite happy to see a giant moat of FATCA compliance costs forming the perfect “barrier to entry” for any uppity local rivals with dreams of expanding into neighbouring countries. It’s just like the words that remarkably-prescient parody video put into the mouth of an IRS agent: “banking is a rich man’s game, and we kinda like the idea of keeping it to ourselves!”
Conclusion
As Prof. Christians stated recently:
There really isn’t any doubt that some of the poorest countries in the world will be most unfairly treated in any multilateral regime for global information exchange which excludes the United States because it acts unilaterally to attain solely its own goals, with no regard for the price others must pay or the appropriateness of imposing that cost where no wrong has ever been accused much less proven … even if they wanted to, many of the countries in the third map cannot forestall the present threat of economic sanctions. The United States simply doesn’t need them. Yet many, many of these countries suffer far more from bank secrecy provided by the US and elsewhere than the other way around.
The unjustified and virtually-ignored perfection of US citizenship taxation is one part of FATCA’s unexamined legacy, the dismantling of comity in international taxation another; so, too, the repeated exclusion of the developing world from an institutional order that is becoming increasingly unjust.
As the first of July has come and gone, we see the result: those actually threatened by FATCA’s excessive compliance costs and 30% withholding are neither rich countries nor tax havens nor big transnational banks holding accounts for multinationals who play tax games themselves, but poor people and small local banks in poor lands which can least afford exclusion from the global financial system, and which suffer the most damage by the U.S.’ own facilities for hiding assets.
@Eric
An excellent piece of detailed analysis and some alarming conclusions. Even worse, those 3rd world countries that are suffering the most are probably the least likely places for any genuine tax cheats to be hiding money and probably have very few USP resident there either. They are literally on a hiding for nothing.
I wonder when the first documented case of an FFI withholding 30% on one of these countries will surface?
Added correction on China Construction Bank. Somehow I missed two of their overseas entities. (Probably something stupid like misspelling “construction” when I was checking the list.)
@osgood: thanks for that. re: Even worse, those 3rd world countries that are suffering the most are probably the least likely places for any genuine tax cheats to be hiding money and probably have very few USP resident there either
FWIW, the three low/lower-income countries which score in the the top half of the Financial Secrecy Index are not well-prepared for FATCA either. Vanuatu has only 5 FFIs listed (four out of the seven banks with SWIFT codes, plus an investment fund). Samoa and Liberia are doing a bit better with 51 & 29 FFIs respectvely, but still half of their banks seem to be missing.
So I guess the low-end tax havens are going to get hit along with the rest of the poor countries, while the high-end tax havens can go merrily on their way with the real big business of transfer pricing abuse.
Sounds like someone can make a killing offering FATCA free US$ trading services in quite a few countries. It certainly won’t cost 30% – a couple of fairly simple swap transactions and presto! I would estimate the cost to be less than 1% in most cases. Mind you, in a world where Treasuries are paying such a paltry return, that is not insignificant. Pretty simple way for banks who have been clobbered with compliance costs to raise money for the USG could recoup some of their investment – go into business selling synthetic US$ exposure to any FFI unable or unwilling to sign up with FATCA. The costs of swapping between major currencies – eg. Euros and US$ are pretty low and even an Eritrean bank wanting to get exposure to US$ can certainly pay in Euros to a bank willing to take on the US$ side of the deal. Not rocket science and likely cheaper (for the Eritrean bank) than dealing with compliance costs. Of course Eritrean banks, Congolese banks – all of these are just crawling with maggoty US tax cheats just waiting to be ferreted out! What hubris.
So is the US Government going to apply the 30% to these poor countries? The rich in those countries employ people so it’ll be the working poor who will be made to suffer FATCA Abuse when they lose their jobs.
Good advertising for the US Government when the unemployed in those countries find out it was because of FATCA.
Another issue will be the quality of the data from those countries? I suspect most of them will spend the least amount of resource for FATCA and they’ll pay lip service until the US Government complains their data is crap.
The people in these banks will probably take the view that FATCA is work they should be doing in the first place and the quality of data will reflect this.
@Eric, but another component is the fact that many of these FFIs are not financial institutions that the public would commonly think of.
Some observations from across the pond……..
I am surprised to see the number of Canadian credit unions registered. In the EU when you do the same search, you get very few if any registered.
Also there are many local client base firms that are asking FATCA type questions but do not have a GIIN and they are no doubt non-registering local client base firms.
Its also interesting to see the new onboarding questions. Some firms are taking a light touch no doubt afraid of discrimination lawsuits based on origin.
I have seen as little as;
Are you a solely a citizen of X and solely resident of X? (If no, then you complete another form)
But I have also seen;
Place of birth
Country of birth
Citizenship (w/multiple lines)
Countries of tax residence (w/multiple lines)
What I have NOT seen is, which is needed;
Place of Birth:_______________ *
*If born in the United States have you relinquished your US Citizenship? Yes/No
On that IRS website, for a country of 1B people, China only has 213 entries which most appear to be European / non-China entities.
China appears to be in no hurry to comply with FATCA at present.
Also would DC dare to anger China with the 30% who owns over $1,000,000,000,000+ of US Bonds?
Interesting question?
Amazing analysis @Eric, many thanks. Perhaps Allison Christians might be interested in this, as it relates to some of the observations/predictions she has made about FATCA’s disproportionate burden on smaller countries (who could not be rationally considered a tax haven for ‘UStaxablepersons’, and is in line with her interest in how taxation and society/ies interact.
Might you send it to her?
@badger: Thanks for the kind words — she saw it already: https://twitter.com/FATCA_Fallout/status/487101081877364738
@Don: the interesting thing will be to see how many Chinese banks are in next month’s list. And yes, data quality will be abysmal, and in at least some cases I expect that will be deliberate — banks testing the boundaries to see how little they can get away with, mostly.
@Eric – Data integrity will be a huge challenge of FATCA. But also think about it from the other side, someone is being prosecuted with FATCA data used as evidence against them.
I would be willing to bet that some smart defence attorney could craft and argument that the FFI screwed up and that data is wrong.
What’s going to happen then? Is the US Government going to fly out witnesses from abroad? Or start allowing the use of video links from far flung destinations in a federal court room? Could the USG even force FFIs to testify from abroad? Or would the USG simply use written statements, but the defence would have the right to cross examine I suppose?
Would the USG go to all that trouble for a small fish that may only owe a few grand in tax? Wouldn’t the USG be better to use their resources collecting easily collectible taxes domestically?
It’s all uncharted territory.
Marvelous analysis, Eric! Thank you for the hours and hours of time you must have put in to bring this to us. Perhaps I should transfer my bank accounts to Eritrea! 🙂
Top-notch, Eric. Point about it being really small tax havens that are left was spot on.
@George
Speaking of foreign financial institutions being affected in unexpected ways, the number of ffis in the U.K. should be much larger, since every family trust should have have a filing. There are millions of these. Oddly, since I thought of this point this morning I saw this article about how FATCA has got the managers trusts set up by 19th century Quakers quaking.
http://www.birminghampost.co.uk/business/finance/quaker-trusts-caught-up-tax-7399154
@Publius,
I like this bit.
>”The thing to remember though is that if you have nothing to hide then you have nothing to worry about.”
A few years ago when I worked out we might have a problem with our ISA my wife looked worried. Don’t worry I said. The IRS just wants their tax money. We would pay the back taxes which won’t be big and some small penalty. This of course is a completely reasonable way of thinking if you only know what the IRS does with problems with US income reporting.
We are now at a point where if you don’t cross the t’s and dot the i’s and it’s foreign the IRS wants a chunk of your money. 3520 is the best example where they don’t miss a cent of tax but are entitled to 20-30% of the assets.
@Eric
Don’t the FFIs in IGA (or agreed in principle IGAs) countries have until January 1 2015 to register now? I thought that was part of the recent announcement. Even if they do, I don’t think non-IGA countries have that luxury so they should technically be withheld upon now shouldn’t they?
Note: I put our excellent analysis over on linked in and I see William has noted it 🙂
http://profwilliambyrnes.com/2014/07/09/the-isaac-brock-society-irs-releases-updated-ffi-list-poor-countries-falling-behind/
@Neil, “We would pay the back taxes which won’t be big and some small penalty. This of course is a completely reasonable way of thinking”
My morning coffee went up my nose on reading that……….
Neil my friend, you were still thinking you were dealing with the very rationale and proportionate good people at HMRC,
@Neill
Yes, I worry about the aggressiveness of the Irs towards benign actors as well. I knew that the U.S. was particularly interested in opening up the books on U.K. Family trusts, but it is rather shocking that the Quaker ones are being affected since these focus on things like improving life for poor people.
@george
Well, the HMRC was very harsh toward a friend of mine once who had been undertaxed but it is competent. They knew how much money my husband earned last year better than he did. Also, their fines are in proportion to the amount of tax evaded.
@Eric..
I didn’t mean “our”. It is all “your” analysis. But then, you knew that. I am just more dyslexic than normal when trying to post comments from a cellphone, I guess. 🙂
@Just Me: if I post it here, it’s “our analysis” =). Especially since other folks here point out stuff that I forgot or didn’t think of.
In particular, one thing that George mentions, and I didn’t really try guessing here, was how many banks are going to be exempt from obtaining GIINs. Many banks in the third world may think they’re deemed-compliant local-client-base institution. Do they have to get a GIIN or can they just self-certify as such to counterparties? And will the counterparties keep accepting that self-certification even if there’s obvious signs it’s not true?
One big problem, of course, is that poor countries send out guest workers, which is a two-fold problem: if those guest workers have bank accounts back home, they’re contributing to the bank losing its “98% local” status, and if they’re working in the US (whether legally or illegally), then the remittances themselves could be withheld against. Which goes back to that NYT piece you tweeted earlier which started me thinking about this whole mess:
http://dealbook.nytimes.com/2014/07/06/immigrants-from-latin-america-and-africa-squeezed-as-banks-curtail-international-money-transfers/?_php=true&_type=blogs&smid=tw-share&_r=0
Fran Hendy has an updated by-country breakdown of FFIs with GIINs. Still none from Eritrea.
http://franhendy.com/2016/08/03/fatca-update/
Haydon Perryman has a by-country breakdown of FFIs with GIINs, updated to 1 February 2017.
https://haydonperryman.com/by-jurisdiction/
Cuba, Iran, North Korea, Nauru, Niue, and Tuvalu still have zero registrations. Oh yeah, and Eritrea.
Related: the Marshall Islands are basically getting kicked out of the international financial system:
https://www.wsj.com/articles/unbanked-marshall-islands-gets-further-cut-off-from-the-worlds-money-1529665201 (archived https://archive.is/NOG83)
FWIW, none of the countries with Compacts of Free Association (Marshall Islands, Palau, FS Micronesia) have signed IGAs with the US
To prevent money laundering and terrorist financing, it sure is appropriate to stop cashing paychecks from the world’s biggest tax haven and invader of other countries.
Yet they’re apparently getting ready for their first CRS exchanges.
http://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/crs-by-jurisdiction/crs-by-jurisdiction-2018.htm
Some country or countries seem to think it’s worth their time to sign an AEOI agreement with the Marshall Islands.
“world’s money” – snort!
Bloody IMF!!!
@Norman
USG civilian and military personnel will virtually all get their pay by direct deposit to the local military banking facility or to a credit union (Pentagon, Navy Federal, etc.) or USAA FSB and use a debit or credit card and the ATM on base, mostly avoiding bank and ATM charges https://www.nerdwallet.com/blog/banking/best-military-banks-credit-unions/ And getting (relatively) newly-printed $20 bills.
(Dirty money is a bugbear of foreign countries that use the US$. A friend told me that Citibank, when it had a branch in Monrovia, Liberia, would stack and bind old bills, then cut them in half with a commercial paper cutter and send the halves by separate airfreight shipments for replacement by the NY FRB. President for Life Master Sergeant Samuel Doe didn’t understand that Liberia had a positive trade balance of the sort Donald Trump envisages (from timber and rubber exports), and when he trashed the economy and started printing money, bad local currency (previously prohibited by law) drove out good US dollars.)
“… the use of cash across the Oceania region is rising …”
I actually see that as a positive. I abhor the concept of a cashless society. It’s too easy to financially wipe out recalcitrants, dissenters, deplorables … whatever you want to call them … with the touch of a keyboard when their financial lives are totally digitized.