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!