Jack Townsend recently posted an article on his blog by David Jolly out of the UK about France now going after UBS for tax evasion.
This prompted me to write a reflection, which Petros has asked if I would post here. It did NOT attract any attention there, so might as well. LOL.
In a quick synopsis I make the connection of UBS being the triggering mechanism for FATCA and the global GATCA, mostly unreported in U.S. media. I have some thoughts about what this might mean for regulatory overload as more and more is piled onto small and medium sized financial institutions that can not keep up. When will the full FATCA blow back happen in the USA, and what will the impact be?
Nothing earth shattering in analysis, or insight. It is just something that has fascinated me. I have been watching for a long time. We are well down the road now to a global dragnet and the total surveillance state. It is dressed up by Progressives, OECD elites and the Tax Justice types as some desired dream state of financial transparency for ALL. For me, it seems like a nightmare. How regressive, dare I say repressive, will these Progressives types be in pushing their GATCA agenda?
I have reproduced my comment below with some tweaks. Might edit it more later, but off for 3 day back packing trip and wanted to post before I left.
I hope you will humor me for a minute. This is not a rage, but a perspective that arises from this article. It is almost amusing now that France is getting worked up about UBS. You could ask, what took them so long? The question that arises, is what will happen, in practical terms?
We know the history in the USA.
Rage at UBS in the States led directly to what I call Congress’s FATCA FATWA with it’s Treasuries Offshore Jihad and many iterations of the IRS OVDP.
More ominously, and mostly ignored in the US media, FATCA has begat a global GATCA. This is the OECD Common Reporting Standards (CRS) that David Jolly so benignly mentions in one sentence.
It is modeled on FATCA, although in many ways more restrictive and less loopholes, and does not have income thresholds. It is residency based and not Citizenship based, and doesn’t have the coercive sanctions that FATCA has. It is a voluntary program, unlike FATCA, where FFIs really have little choice but to comply if they want to use the USD for international transactions, and they ALL do.
GATCA IS A BIG DEAL! I have not seen it covered in any U.S. mainstream media, yet. It deserves more attention than the meager lines that David Jolly wrote.
For those that don’t know what it is, here is some analysis by William Byrnes, an academic type.
FATCA evolving into global GATCA has taken the dragnet approach to stopping tax evasion to a new level, and way beyond the wild dreams of its creators who wanted, as Max Baucus said of U.S. taxpayers, to “stop tax dodging once and for all”
Really? Once and for All? Is that even possible?
Is GATCA the best way to accomplish the mission at a global level? What are the consequences that will naturally arise when millions (billions) of people begin to make individual decisions related to this dragnet reality.
A stream confronting a rock finds a way to flow around it, and I am not sure, given the nature of man, you can ever pile up enough regulatory rocks in the way of human economic activity to create a dam to control all flows, (once and for all) without a lot of upstream consequences.
Looking back, it might never have happened if not for the stupidity (criminality) of UBS combined with the evasion demand from rich U.S. homeland taxpayers. The regulators, DOJ and the IRS didn’t find it, it was exposed by a whistle-blower. This happened right at the time a new idealistic Administration was coming to power with all its plans for ‘Fair share spreading the wealth’ , whatever that means, as a progressive taxation approach. As part of this, it made promises to go after offshore tax evasion.
True to his promise, Obama launched his jihad as a ‘Simple Premise’ of some type of 1099 foreign bank reporting which has evolved into global programs of enormous complexity with many unknown consequences.
Here is where it was announced.
We are where we are today, with FATCA in place, and GATCA breathing down the throats of the global citizenry, because of this little remembered Obama moment.
FATCA is now creating an IRS ‘formageddon’ with what is being required of FFIs around the world. They have to fill out U.S. concentric forms to “cure’ (regulatory term) the disease of U.S. indicia of their customers.
IRS releases Instructions for Requester of Forms W–8BEN, W–8BEN–E, W–8ECI, W–8EXP, and W–8IMY
I don’t think most observers know the magnitude of changes in customer outreach, due diligence and financial review that is going to be required. It is called CDD in the trade as explained by Haydon Perryman in his 4th GATCA podcast. The levels of intrusive customer questioning, form filing and tax supervision by FFIs is going to be stunning. FATCA is definitely deputizing them to be an enforcing arm of the IRS.
But frankly, these details are all too boring for the average person to get their brains around, and so it is left to the legions of financial compliance elites to spread the word of the requirements.
As I have quoted John Oliver before, “If you want to do something evil, hide it is something very boring”. FATCA with all its boring compliance instructions is “Mission accomplished”.
Going back to UBS…
But this was a political and ideologue mission, so none required. In many ways, it is how we got the Patriot Act after 9/11. The NeoCons were just waiting for the crisis, as it was written and ready to go in short order after the towers came down.
But everyone knew there was a Patriot Act, although few knew total surveillance was inside it. The global FATCA sanctions and financial surveillance program was created in more stealth than the Patriot Act. It was without any knowledge of the citizenry, or even the knowledge of the majority of the Congressman that voted for it. A stunning development, in retrospect.
It, combined with many other new financial regulations arsing out of the financial crisis, and other anti terrorist money laundering initiatives that arose out of 9/11 is creating a world where global financial activity is becoming more and more restricted with a level of regulation complexity and cost that would heretofore be unacceptable.
In case you haven’t been aware, there has been a global financial war raging for some time. It is under the direction and control of U.S. Treasury. I don’t think many have recognized the full impacts of this mission. Treasury is using US financial might and USD domination to get the world to bend to America’s will.
If you haven’t, you really should read Treasuries War.
All of this has consequences and collateral damage, but you have to assemble the pieces to begin to see the whole.
Here is one. Look at what is happening with poor immigrants in America from this recent New York Times Dealb%K article…
Immigrants From Latin America and Africa Squeezed as Banks Curtail International Money Transfers
Now, alarmingly, but without much media attention, FATCA (just another facet of the broader financial war) has evolved into a global GATCA which assures that all personal privacy is lost in the total surveillance world that America is creating.
That loss aside, you have to wonder, how many more pages of regulations will be heaped onto the pile created since 2008, before we totally choke off most small to medium financial firms and leave only the Too Big To Fail (TBTF) financial institutions with their implied government guarantees that come at tax payer expense? How can the small competition to the Big Guys keep up with the expensive and onerous compliance demands of governments?
Look at these graphics, in the Avalanche of Regulations. I would NOT want to be a compliance officer at my local bank.
Notice, when you look at these regs, FATCA is NOT listed. It is still to come, which gives rise to the question of when? When will FATCA finally blow back onto America shores in a form of a domestic DATCA? We are told that the US President will sign up to GATCA in September in Cairns, Australia at the G19( G20-Russia) summit. Does that finally force the issue in the USA?
What impact will all those 1000s pages of new DATCA/GATCA regulations, and complex reciprocity reporting requirements have when added onto the USFIs regulatory and compliance plate as shown in the ABA graphic above?
DATCA would place onto the homeland financial institutions the same onerous FATCA regulations we require of the world. This is necessary to meet the IGA reciprocity promises that Treasury has made. It was the carrot to make the 30 % withholding sanction medicine go down.
To do anything less is hypocrisy of the first order. It is well noted around the world how the USA protects its own tax haven status.
As FATCA nears, US is accused of hypocrisy in attacking offshore secrecy while keeping its own
Will FATCA which has now evolved to a global GATCA result in a domestic DATCA? Or, will the USA end up being the last Tax Haven standing when it refuses to go along?
Was that by design or accident?
I don’t think Congress as currently constructed, will knowingly go along with GATCA or DATCA, but would I bet on it? I never underestimate the current set of ideologues in power, which I call the FATCAnatics, to find a vehicle to enact this by stealth.
Time will tell what the unintended consequences or financial collateral damage will be from the criminal actions of UBS and the resulting prosecution, but FATCA / GATCA have certainly been the direct result.
Not sure when DATCA will happen, but if it doesn’t, it won’t be for for lack of effort by this administration. DATCA is buried in the Obama FY15 budget on page 203.
Read it yourself.
One after thought…
Keep an eye on the Corporate inversion issue and any legislation that might result from the outrage that is being whipped up in the name of Patriotism. I have an uneasy feeling that this has enough populous appeal, it could be the means for imposing DATCA by stealth. I hope I am wrong. This is just speculation on my part, but stay alert.
Congress is sleeping while all this goes down.
@ Mark Twain
Congress is too busy running for office to notice.
From what I have been reading, the Swiss recognize that there was a problem, but now feel that they are being picked on because they don’t have strong allies, being a neutral country.
Pity the poor FATCA compliance officer in Argentina: there is no IGA providing them with cover because Argentina won’t sign something that isn’t reciprocal, but they will be violating national bank secrecy laws if they comply.
Meanwhile, the Chinese press is now full of talk of the downsides of the greencard and the splitting of the world economy into currency blocs (or at least that is what google translate suggests). It’ll end in tears.
Great post @Just Me,
very informative, and provides the backdrop to what we are seeing happen with FATCA imposed on our home countries – outside the US – via Intergovernmental Agreements that are not contemplated or enabled as part of the FATCA package that Congress passed.
Here is a comment about an opinion that Obama doesn’t need the approval of Congress – as an imperial president – apparently, Caesar can just use – you guessed it – his executive authority
“Inversions: White House Can Do It Alone
James Willhite reported in the Wall Street Journal that the White House might be able move against inversions all by itself, without waiting for Congress. (The WSJ also cited a Reuters report on the topic.)
Apparently, former Deputy Assistant Treasury Secretary Stephen Shay is writing in an article for Tax Notes that 1969 tax law allows the president to restrict foreign tax-domiciled companies from using inter-company loans and interest deductions to cut their US taxes………….”
Also cited are;
Wall Street Journal
CFO Journal, Morning Ledger
“……..The White House may be able to limit the advantages of corporate tax inversions that shift U.S. companies into friendlier tax domiciles on its own authority, without waiting for Congressional authorization…….”
‘Obama could curb corporate ‘inversions’ on his own: ex-U.S. official’
By Kevin Drawbaugh
WASHINGTON Mon Jul 28, 2014
If they really wanted to curtail tax evaders, the countries would all just get together and sign legit treaties whereby anyone opening a financial account in a country outside his/her tax residence would see that account reported to the tax authority of his/her home country.
The US would stick out like a sore thumb with it’s requirement that it’s citizens abroad have 2 “tax homes.” Which might embarrass them into going RBT like the rest of the world.
FATCA is such overkill and a total waste of resources. Not even to mention all the harm it’s doing.
RE: When will the full FATCA blow back happen in the USA, and what will the impact be? & RE: GATCA
Lots of information provided in the article above. Just some collection of thoughts:
GATCA could have been planted by the US as part of the cover for FATCA. The reasoning is like this: yes we governments of the world are now collecting USP info yet we will get some information back and there is a global trend to collect such information and share with other countries. This the USG has suggested to them.
Or, GATCA could have sprung out of governments embarrassed of what they had to agree to in regards to FATCA and that movement toward GATCA is a covering move.
Or, tax evasion is a real issue for many countries with citizens/companies with accounts abroad. (I think this is the correct answer). Yet the governments of the world want to tighten up reporting while seemingly letting the multinationals legally hideout in low tax countries such as Ireland protected by such “legal” techniques as the “double dutch sandwich.” Then also why is the US letting GE pay no federal corporate tax while making billions in profit? This whole taxation of multinationals is a major part of it – and that topic will be on the agenda of the upcoming G20 meeting in Brisbane. Could we get the adverse impacts of FATCA and CBT on the G20 agenda???
I can see implementation issues with GATCA compared to FATCA. While it may be relatively easy to ask yes or no are you a U.S. citizen, when all the countries of the world are included then it all gets more complex. Imagine a form with 196 countries listed. You know there would need to be validation of the country. It can’t be an open ended question where “Australia” may be confused with “Austria” for instance. I heard one person say to respond “Klingon.” The number of countries seemingly change each year.
A fix to the above would be a global tax file number. So you provide the number and bang the database fills in the particulars reducing the need for lengthy forms. (Sorry for suggesting.) I could see it now based on the US social security number where they don’t have to change but every other country has to change all their tax file numbers to comply. Or, there might be a big data database with all the tax file numbers for individuals and companies of the world – then the hope would be no two countries use the same numbering system. Major privacy and implementation issues here. And the UN would not want to pay for this for the 1 billion + people who live in poverty to property identify them and make sure that they get and know their global tax file number or tattoo them with it – they would rather spend money on fighting malnutrition, disease, and poverty.
Blow back – FATCA fails in the U.S. Let’s say the Republicans repeal it or a Supreme Court challenge is successful. Ok back to where we were a few years ago. Yet there will be a lot of pissed off nations and FFI who had to make all the adjustments in their IT systems and processes. Perhaps there would be damages claims. It would be real bad for the Obama Democrats. Others say it will continue regardless but perhaps in a mutated form. Maybe the mutation (the darn virus lives on) could be to only report if the account holders have a US address.
Blow back – ADCS charter challenge to FATCA succeeds. The government could just continue with the information give away – then what is done impeachment? Or, then FATCA reporting would stop in Canada and would the US then “blink” at that moment and declare an extension for Canada while the details are worked out? Maybe the Canadian government would suggest an indefinite extension to work out the details. May I suggest as part of the “details” at this point a revision of the Canada-US tax treaty be part of the solution – in there could be the removal of the 30% witholdings penalty and other consequences of giving the information to the IRS – and basically abolish CBT requirements for Canadians, with mega exemptions for family home, estate, insurance, retirement payouts and lots more such as no reporting for entrepreneurs, small businesses, and business executives with account signature authority (or the USG is required to pay a fee in compensation for these reports, which the Canadian government may levy them for). So then there could still be some of FATCA but without the nasty consequences – and with the success of a Charter challenge then the “FFI” would have to stop asking if account holders are USP, else face legal action. Hopefully, other nations of the world would then get on board and demand revision of their tax treaties.
I hope this helps.
@Moose, In regards to two tax homes, I think every nation should adopt retaliatory/reciprocity with respect to CBT. By way of example, a dual Irish/German national resident in Germany pays tax and fills forms solely in Germany. But a dual Irish/US National resident in Ireland can pay tax and be buried in two countries forms, while that same dual Irish/US National resident in the USA only pays tax and files forms in the USA.
I would like to see the Government of Ireland tax all its Irish diaspora who are Irish Citizens in the United States the same way the US taxes the Irish in Ireland!! However a dual Irish/Canadian would and does pay tax/forms solely in one country.
I assume there are many dual Irish/US politicians and this would hit them immediately. If they do not like it, I am sure Ireland should create an exit tax for covered ex-Irish patriots!!
@JC, regarding blowback….I think you have done well. Another blowback if sane people were handling this would be to have reciprocity in filing via a dual tax treaty.
The United States with respect to Canada should state in a tax treaty with Canada; “A US Citizen lawfully resident in Canada will be considered to have met his/her obligations under the US Internal Revenue Code having fullfilled his/her obligations under the Canadian Revenue Code.”
Then if the US wanted to have a form….they could have Form 1040-R (Reciprocal) where you would state your name, address, SSN, then sign a statement that you have complied with the tax obligations in your country of residence. The maybe attach that countries tax return.
GATCA: Brace for FATCA on Steroids
Someone else has picked up the theme, GOTCHA GATCA…
@George Like the tax treaty wording.
For that to work [I think too much about the details that I am still trying to understand]: Your 1040-R may also just have a simple box, dont’ have any assets and income with U.S. financial institutions. This would clear the majority.
If in case the Canadians did have income and assets in the U.S. then there may be some automatic witholdings on U.S. source dividend and capital gains. Then there would need to be the definition of when a distribution is a principal distribution or one of capital gains and dividend, so these people still may file some U.S. return yet only on their U.S. source money, and income. Yet then we have the problem of Canada wanting to tax that is well – so double taxation continues – but more limited than before.
A cross reference to another thread…
Wonder if this is the way the Executive is going to impose AML/CDD as the Faux DATCA onto USFIs to meet reciprocity promises and avoid Congress like it does with everything these days… Just order it to be so without regards to Congressional wishes…
See Eric’s observations here….
July 31: Hong Kong banks face global tax woe
It really upsets me when I think about it and come to the conclusion that the UBS scandal was the instigation for the FATWA CBT jihad we have seen in the past couple of years.
The French government is increasingly trying to crack down on banks in Switzerland. Some dual Franco-Swiss people are even preemptively renouncing their French nationality.
In an article on Swiss Francophone national television site http://www.rts.ch/info/suisse/6004360-de-plus-en-plus-de-franco-suisses-renoncent-a-leur-passeport-francais.html the French National Assembly delegate representing French expats in Switzerland, Claudine Schmid is quoted as having stated to the Geneva newspaper “Tribune de Genève”:
Translation There are fears concerning a project of the government to tax the French and notably in Switzerland, in a similar way that the US practices with its citizens…
The article goes on to state that the renunciation phenomenon is not being seen elsewhere to such an extent, that there are 163’000 French in Switzerland, 50% of whom are Franco-Swiss, and that Switzerland has more French residents than any other foreign country.
@Jefferson D. Tomas
One of the other fears I have had about FATCA is that not only would more countries copy FATCA or create a global GATCA, which is obviously happening, but is that some would think that CBT is a GRAND idea. The French would be the obvious candidate with their socialist thinking. As much as they bitch and moan about America, they sure do know how to copy its worst ideas.
Of course, years ago, Andy Sundberg explored the idea (tongue in check) of what would happen if the rest of the world copied U.S. Citizenship Taxation. For those that haven’t seen it here is the link from back at the beginning of IBS.
That article makes the point about Regulatory pile on, doesn’t it?
BTW, I opened a Credit Union Account yesterday, and of course, they knew nothing about FATCA or a coming DATCA. They did have me read a statement declaring I was a U.S. Citizen or U.S. Person without ” ” around it, or if I was a non resident, I was NOT subject to withholding. No documentation was necessary except a drivers license. No questions about my tax residency status in another jurisdiction. No IRS formageddon. Just had to sign their generic opening agreement. I told the nice gal doing the “on boarding” that her CDD in the future was going to be miserable. 🙂 We then had a nice chat about the regulation burdens they are facing since 2008.
Are you in the US right now so the credit union account opened there vs outside the USA? Regulatory pile-on. Another good description.
I am back in the States. Thought I would move out of my TBTF Wells Fargo Account to a credit union, just to support the local guys…
As for Regulatory pile-on, it is just another aspect of everything that is happening since 2008 and this administration, and DATCA has yet to fully hit them. It will kill off the small to medium size financial institutions and just leave the TBTF (Too Big to FAIL) institutions standing.
The Big guys (like Wells Fargo) don’t like the competition, and government regulation helps them eliminate it. So it is another reason they keep their mouths shut about FATCA / DATCA. Just accept it, as they do have their huge profits, implied government guarantees, and access to the Fed Discount window when they get into trouble.
In the meantime, the regulation pile-on squeezes the smaller firms who can NOT keep up with IT resources or afford the penalties for non compliance. An FCC member said this to me today about compliance….. “What I also know is that the majority of the banks seem to give up on being fully complaint and simply keep a slush fund specifically for penalty payments. Some of this has come out in the press – BNP Paribas, Citifund, etc. ” They can afford it.
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The FATCA infection spreads to the domestic doctor and his patients…
FINCEN Issues New Due Diligence for Beneficial Owners of US Accounts to Provide FATCA Reciprocity to Foreign Governments
Creating the domestic DATCA to impose on USFIs without Congressional Authority. Never underestimate the FATCAnatics and this Administration Executive power to do what they hell they want, to impose what they can not get legislatively. DATCA reciprocity is buried on page 203 of their FY15 budget, and that hasn’t passed, so this move does NOT surprise me.
FATCA is truly the Ebola virus of the financial system. Its infection has spread to the global GATCA, and now just like the Doctor patient coming home from Africa for treatment of Ebola contracted overseas, DATCA is now spreading back to the homeland to infect USFIs. There is no known cure to stop the spread without voting the Dems out of the Senate in the midterms to put the virulent Executive Branch in an isolation chamber to stop further infections..