Petros discusses some links he found over the holidays: MF global scandal, Scotia Bank and FATCA, Mexico and FATCA, Reflexions on NAFTA
MF Global: the end of the world as a we know it
When I’m not writing for the Isaac Brock Society, I am a DIY investor, in Canadian resources. So I am very alarmed about the MF Global scandal. The truth of the matter is that Jon Corzine robbed the small-time commodities investors and thanks to the regulators, J.P.Morgan went to the front of the cue in the bankruptcy proceedings and the small investors, whose money was stolen, got it in the hind end with a red hot poker. Gonzalo Lira summarizes what happened and explains that it is the beginning of a run on the global banking system (picked up by Zerohedge); and Ann Barnhardt tells Peter Schiff why she closed her small commodity trading firm as a result (hat tip Monty Pelerin, “Government is hunter, you are prey”). This event signals for me more than anything that has happened so far that the regulators are in bed with the big banks and the rest of us are the victims. The participants at this blog will have no trouble believing this, when the IRS is going after their RRSPs, RESPs and their RDSPs, and all it would take is one small word from Geithner and our nightmare would be over.
Scotia Bank and FATCA
I found this document from Scotia Bank, a letter to the IRS. They mention that with all their branches in so many countries, they will find it difficult to comply, partly because each country has its own banking laws. They hope that the whole bank won’t be penalized because the branches in just one country cannot comply with FATCA. They mention privacy laws explicity. Here is the money quote:
The Scotiabank Group operates in over 50 national jurisdictions, some of which have a multitude of regulatory jurisdictions (including federal and sub-national jurisdictions and/or sectoral/functional regulators, such as bank, insurance, securities regulators, and or prudential and market conduct regu-lators). Assessing all possible legal and regulatory challenges FATCA may pose in these various na-tional and regulatory jurisdictions is a huge undertaking. We are particularly concerned that the Sco-tiabank Group could be penalized (e.g., its FFI Agreement cancelled and its worldwide customer base subjected to 30% withholding) because a domestic conflict-of-law issue prevents a particular subsidiary from complying with FATCA. We have started a broad review of potential conflicts between FATCA requirements and local laws in the jurisdictions in which we operate, including Canada. While this assessment is complex and far from complete, we have already gathered information that points to the possibility of local compliance roadblocks with FATCA requirements.
Privacy laws exist in most of the jurisdictions in which we operate and these laws would generally prohibit the sharing or disclosing of confidential customer information. Also, some jurisdictions ex-pressly prohibit the cross-border sharing of banking information. We are reviewing the extent to which customer consent will address privacy and other concerns in our many jurisdictions. We have also determined that “requirements to serve” exist in some of the jurisdictions in which we operate, and our legal ability to compel required information or to close recalcitrant accounts is far from clear. In this latter respect, we note that the guidance suggests that the Treasury and the IRS will consider terminating FFI Agreements due to the number of recalcitrant account holders remaining after a reasonable period of time.
This means that the banks know that FATCA conflicts with Canadian human rights and privacy codes–and they have known it for over one year! But as banks do, it is, “Nothing to see here. Move along!”
Mexico and FATCA
The Mexicans are not exactly beating their piñatas over FATCA either (see this letter to IRS and the Treasury Department). The main points are how FATCA requires that banks violate several Mexican laws, which would not permit them to share private bank information with the IRS, nor withhold from clients, nor close the accounts of clients. They are also, like the Canadians, worried about retirement accounts.
NAFTA and FATCA
Rivka brought up an interesting point regarding FATCA and its potential conflict with NAFTA ch. 14 on financial services: She asks specifically if it imposes requirements on Canadian and Mexican FFI’s not imposed on US institutions. Wow. You mean there is actually a treaty governing the financial relationship of Canada, US, and Mexico? Who woodda thunk? I skimmed ch. 14 of NAFTA and replied to Rivka with these words:
Isn’t FATCA the end of NAFTA, which requires cooperation and gives rights and most favoured nation status to the member states. But now, FATCA repeals NAFTA, in spirit if not letter, by insisting upon unilateral conditions that all the other member states must adhere to in order to have access to the US market. This places Canada and Mexico at the same level as the other countries in the world. It is a slap in the face. At very least, FATCA would have to be agreed to by the member states–but it should have required ratification by all the parties to NAFTA.
NAFTA is dead. D-E-A-D!
Some very interesting references and comments here Petros, thnx. I don’t know how you have the time to keep this blog up with the other things you are apparently doing.
A couple comments in the “For what it is worth” column. This is not IRS, FBAR, or FATCA related.
First, on the MF Global Situation. This story fascinates me, not because I am a Big DIY investor, but rather that it is the part of the biggest and best story of the Century, in my opinion, and that is the Financial melt which came to a head in 2008. I too read Zerohedge occasionally, but had not seen the piece on MF Global. So, let me give you one back, and that is the best investigative piece on MF Global yet, in book chapter form, at Motley Fool. Here is the link to the first chapter.
Chapter One: The Astonishing Collapse of MF Global
Additionally, let me share my reading/watching/listening list for those that want to understand what happened leading up to 2008, and avoid being captured by partisan Conservative or Liberal talking points as to this or that cause. I am sure many of those reading here, have heard or read some of these. There is nothing special or secret about them. Some are best sellers, and for good reason. For brevity, I will leave out links.
1. Liars Poker.
2. The Big Short
3. Too Big to Fail
4. All the Devils are Here.
5. Thirteen Bankers
Frontline: The Warning.
Frontline: Breaking the Bank
Frontline: Inside the Meltdown
Documentary: Inside Job
Podcasts. The best series of story telling and reporting I have heard is listed below. In these, Ira Glass and crew in partnership with Planet Money and ProPublica try to understand what was happening and why, and then explain it to all of us that were not paying attention at the time. In my opinion, these are great, and “must listen” podcasts, if for no other reason then the story telling style.
This American Life:355: THE GIANT POOL OF MONEY 05.09.2008
This American Life:365: ANOTHER FRIGHTENING SHOW ABOUT THE ECONOMY 10.03.2008
This American Life: 375: BAD BANK 02.27.2009
This American Life: 382: THE WATCHMEN 06.05.2009
This American Life: 390: RETURN TO THE GIANT POOL OF MONEY 09.25.2009
This American Life: 405: INSIDE JOB 04.09.2010
Now there are many others that I could provide fill in the picture of this endlessly fascinating story, but those will give one a good basis of understanding how the financial engineering got started, who recognized it, who shorted it, how and why regulators failed, negotiations leading up to Lehman brothers collapse, why the banking credit froze up, the creation of TARP, and the many other factors that created the mess that still plagues us today. MF Global is just an ongoing chapter of the same story, and you would be a fool not to be paying attention to it now. So that is why I appreciated the link to the Zerohedge story. Thanks.
Hi Just me: thanks for the comment. I agree that it is part of the same story since 2008. I think for me the difference between the bank bailouts and MF Global is that in the earlier instances all the taxpayers and holders of US money bailed out the banks; in MF Global the clients of the brokerage seem to have bailed out the banks–and quite against the bankruptcy laws.
My concern is even for my own holdings. I trade, and I have a very conservative approach to leverage, though I do use some considerable leverage. Now, that means I take a position for which I require margin. If my broker steals my cash, my cash-covered position are vulnerable and subject to closure not at a time that suits me. That has a killer effect on my desire to continue doing business.
The other day I read someone on bullboard (Stockhouse) who said that they put a sell order on their PBN.to, Petrobakken, so that they could not be lent out to another for short selling. I.e., what happens if my long positions are sold out from under me because another person made a short position using my shares?–and my brokerage, doesn’t have the ability to cover that person’s short? Even my long positions would be in jeopardy. That scares the hell out of me.
It should scare you as there should not be leverage without some fear! That is what makes the risk/reward formula work. Not sure of the trading rules in Canada, but there is/was a lot of naked shorting in the US, so maybe your shares are not lent out??
One other book I neglected to mention, is Reckless Endangerment.
It doesn’t seem right, however, that my shares can be lent to someone else. I don’t remember my brokerages ever telling me that when I opened my accounts–though it may be in fine print. And for that loan of shares, what benefit do I accrue? I would think, only the ability to short shares myself, but I never short, except put options [i.e., I sell puts], and that is equal to a long position in risk.
It might not seem right, but I am sure it is in the fine print somewhere, as they do it all the time.
NAFTA was dead out of the womb. The U.S. has never stopped its harrassment of Canadian softwood lumber nor has it ever repaid the fines that it collected. The truth is that the Americans are openly shameless dishonest negotiators.
They believe that they are exceptional and therefore above every other nation in the world. When it comes to negotiations the U.S. only pretends that it is an equal party. Witness its hyprocisy on the tax treaties it has signed. Reserving to itself the right to tax its citizens regardless of where they live was a violation of both the letter and spirit of the tax treaties, which was the avoidance of double taxation.
You can’t claim to be avoiding double taxation when you are forcing your citizens to pay taxes on the same income that taxes have already been paid on. It is also a definite case of taxation without representation since the government of the U.S. does not represent its expat citizens in the legislative body of my country of residence or even within the U.S. legislature. Unless a person owns land in the U.S. then there is no legal or economic connection between the U.S. citizen and his/her government.
Taxation is a sovereignty issue, plain and simple. The U.S. government is not my sovereign. I reside outside of all congressional districts and the U.S. government lacks the ability to legislate any laws nor can it spend any U.S. revenues that can govern or benfit my life in Canada.
Great comments. I agree totally. Cheers, Peter