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So where were the journalists at the May 15th FATCA public hearing?

Posted on by Posted in Issues regarding US persons abroad 81 Comments

Since I did not see much in the way of in depth reporting on the FATCA public hearings of May 15th, I searched out the written testimony and sat down for a read this weekend.  Thought I would share a few observations, (not an exhaustive analysis) and the provide the entire document for your own reading pleasure, so you can draw your own conclusions.

After all the opening patronizing comments about supporting the goals of FATCA and thanking the IRS for “allowing” them to comment, the speakers got down to some pretty serious criticism and concerns about FATCA rules which are currently in a 388 page draft form.

Sadly, there was very little outright push back at all these extraterritorial compliance requirements, other than to say, by some, “we can’t do that!” Maybe those that stayed home are sending a message with their absence!

The strongest statements of what was wrong with FATCA, in my opinion came from Japan, Sweden and BlackRock.

The BIGGEST issue, that almost all expressed concern about was implementation delays. There is way too much uncertainty to spend a lot of money and IT time on something still unworkable and not final. The general consensus was that it would take 18-24 months from the point of finalization to implementation, if it was doable at all.

Here are a few selected classic quotes.

The Bank of New York Mellon, Harris Horowitz, managing director and global head of tax at BlackRock said……. “We support the goal of evasion of U.S. taxes ,ah, stopping the evasion of U.S.taxes –(Laughter) Sorry”

The Canada Banking Association said, “Financial institutions cannot be expected to start building systems until the regulations and the FFI agreements are finalized.”

The head of tax at TD Bank Group said   “We cannot even begin implementation in earnest until the regulations, intergovernmental agreements, and relevant forms are finalized.”

Brazil said,  “Regarding the deadlines, we think that after the rules are established for pass-though, we would need at least 5 years to be able to put operational systems in place.”

Sweden said, “The definition of financial accounts is unclear, and we have tested that on our lawyers, that they read the text of the regs and no one understands it.” (Laughter)

Also, in my reading of the comments, I was struck by the general pessimism about the rules and how unworkable they are. Many concerns about the unintended consequences and systemic risks to the international financial markets were expressed.

Certainly the KYC (know your client) and AML (Anti Money Laundering) regulations were mentioned by many speakers as a better method to be used in place of the obnoxious and unworkable documentation requirements of FATCA. There was much pleading for using Risk assessment models as a better way of assessing who needed to comply. There were also many pleas for this or that entity or group to be “deemed compliant” and lots of exemptions  requested.

For the readers interest, here is a non exhaustive list of comments I noted and jotted down.

-Rules unfairly favor U.S. banks over FFIs

-Need a risk based approach

-Due diligence inconsistent with AML/KYC

-Conflicts with local and foreign law

-unprecedented extraterritorial reach

-Documentation renewal and records very expensive, eliminates the convenience of opening an online account.

-Entity documentation should be made considerably less burdensome

-superannuation and retirement funds must be deemed compliant

-has some degree of inconsistency and unreasonableness

-Implementation should be delayed ~18-24 months after final regs.

-Treasury has not considered FATCA’s impact on investors, capital markets, and penalizes U.S. funds

-Extremely unreasonable and unfair that punitive withholding tax would be imposed

-Regarding Mutual funds- one-size-fits-all approach doesn’t work in practice

– FFIs will need to quarantine some branches/affiliates in countries where compliance cannot be achieved.

-Regs a step backward, unnecessary impediments, a very negative effect on U.S.
competitiveness, U.S. jobs, and U.S. capital markets.

-The definition of a “U.S. person” very complicated for IT support criteria.

-It’s another inconsistent and unreasonable aspect of FATCA.

-Impossible for financial institutions to meet required target dates

-Certain “so called” Entities are not really entities so need exceptions

-Unnecessary and costly duplication of effort and must be modified in the final regulations

– and many many more…

Finally…

Thinking about what I read, you have to wonder what is the likelihood that the IRS is going to resolve all those problems in the short time left before the final Regs are due this fall?   I see that this story is out tonight on Reuters saying that the U.S. aims at 5 EU tax evasion deals this month. I don’t see how they do it without just ignoring a lot of the issues presented in these hearings.

Also these deals depend on DATCA, and it is not done. Regulations have not yet been issued. As Isaac Brock readers know, the U.S. reciprocity promise is in the DATCA details, and I understand there is growing Congressional opposition to this domestic version of FATCA that is supposed to make these FATCA partnerships work.  If DATCA gets stopped either by legislative or legal means, I think that puts a big wrench in the IRS 5 deal wringer.  There is a recent Miami Herald story entitled “New IRS rule scares foreign depositors.” which you might want to read.  I don’t think the opposition to DATCA is going away soon.  I know the IRS has yet to issue the rules, and there will assumedly be a comment period and hearings. I would think that will get more press than the FATCA hearings, so this DATCA battle isn’t over until the FATCA Lady sings.

Another consideration. If these “EU deals” happen while they are still finalizing FATCA rules, it actually might complicate FATCA for a lot of bigger FFIs with groups operating across Partner and non partner countries. There will be different rules for the same group.  That will cause real headaches, as there will be a myriad of effective dates across a single group. Additionally different governments will have different procedures across the same group, and that make things more complex which is the opposite of “lightening the load.” which some analysts insist FATCA partnerships will do.

It seems to me, given the short time frames before final regulations are due in the Fall, the IRS will have to make some key decisions shortly. Either they will they just press ahead without due consideration of the testimony I read, and this was all just kabuki theater, or they will have to announce some delays soon so FFIs know what to expect.

What was missing in those hearings, and maybe that is just what happens at all such Public hearings is that there were no questions asked by the IRS and Treasury group who were there to just to listen, I guess.  Not sure what, if anything, they actually heard and took on board. Maybe that happens later in back rooms and side conversations, but I would of thought that for some of the more technical points being made, someone would have at least asked for a clarification.

Finally, I have put up links to 5 of the testimonies which were of particular interest to the Isaac Brock Society readers in Canada and put them in the appropriate thread dealing with the subject.

The Canadian Bankers Association

TD Bank Group, a worldwide financial services group headquartered in Toronto, Canada

Australian and New Zealand Banking Industry

World Council of Credit Unions.

Democrats Abroad

If someone wants to read the entire testimony, below is a copy for your reference.

FATCA Public Hearing May 15 2012

If you need it, here is a link to FATCA definitions

81 thoughts on “So where were the journalists at the May 15th FATCA public hearing?”

  1. A call for Brocker comments on the recent WSJ blog called IRS Could Face ‘Serious Problems

    This another good opportunity to highlight how the IRS wastes resources in pursuit of the wrong mission.  You should see some familiar names, but I will call out one from an ACA director.

    • Jackie Bugnion wrote :

    The IRS should get its priorities right, and Congress as well. There has been such a witch hunt for tax evasion using foreign accounts that it has absorbed a disproportionate amount of IRS resources,with little return. A a tax lawyer who recently visited the Treasury Department with a specific proposal obseved that the IRS and Treasury were so absorbed by preparing for the implementation of FATCA that everything else was put on the back burner. Yet the IRS faces massive issues with identiy fraud, abusive fraud on child tax credits by illegal immigrants, non-payment of taxes by U.S. residents and as the article highlighted must work on implenting Obamacare. What’s more, FATCA is proving totally unworkable. Proof is that Treasury is developing special government to government partnership agreements which circumvent significant elements of FATCA. FATCA is bad legislation, unworkable and unacceptable to the rest of the world. FATCA is also destroying the community o Americans residing overseas as they are pushed out relationships with foreign financial institutions who perceive FATCA and Americans as pariahs.

  3. @outragedcanadian.  Thanks.  Sometimes it doesn’t seem worth it, but “Those drips of water, can wear away the stone.”  🙂

  4. @Just Me, actually, to tell you the truth, I enjoy it.  I try to come at it from a different perspective each time. Keeps it interesting. And I love reading the comments by you and Roger, and quite often, Julian Hudson.

  5. I have been having an email conversation offline, on the subject of the testimony that @oohlala posted above on the proposed DATCA regulations. (thank you oohlala) 

    We have been talking to motive for these actions, as revenue generation can not be it, as represented in the 2009 press release on FATCA where it said this..

    Interaction among the various proposals in the bill has been estimated to raise an additional $0.8 billion over 10 years.

    Note: Correction: I failed to download the PDF, and misunderstood this note above. The actual press release says that they expect to raise $8.5 Billion over 10 years.
    The question I was raising is, 

    “That’s It?  All this effort and expense for $0.8$8.5 billion over 10 years, really? We know their projections aren’t worth the electrons it takes to create the font to write them, but this stuns me that they would proceed with a bill justified by a revenue projection that could be a rounding error on the annual budget. I am assuming that they upped it later to get the votes in Congress, but as we know, it is still just a fantasy game. There is another agenda at work, and I tend to think it is GATCA, the global system, and FATCA is just the stepping stone to force it.”

    To which I got a couple good replies that I will post here:

    This low estimate, which even though it is so low is probably an overestimate. It is just one more substantiation that the US policy of citizenship based taxation is primarily to impose a Sin Tax rather than to generate revenue.  

    Sin taxes have as their primary purpose the penalizing of persons for certain actions or activities considered undesirable by the government or society, and are used as fiscal clubs to discourage them from engaging in this undesirable activity.  

    Do it if you are determined to do so, but you will pay through the nose if you do!

    And this one speaking to the original testimony…

    The language here is critically important to focus on:  Members of Congress always see things in terms of what is taken away from them which will always be for “the good of humanity”.  No one ever says:  “We want more money because we’ve pissed it all down a drain that didn’t work, so we’re going to look for targets that have no voice, no money, and demonize them and everything they do, so we can bleed them with no consequence to us.” So the response ALWAYS has to be a HIGHER response, such as:  “The more Congress rapes and pillages overseas Americans, the greater increase in the trade deficit and the bigger the loss in tax revenues to the Treasury as a result.  It makes no sense to squeeze a rock of juice that isn’t there, when there is a $600 billion lemon of a trade deficit, the reverse of which would yield $150 billion in new tax revenues and 30 million new jobs inside the USA!” Everything they do against us MUST be thrown back in their faces for the absurdities that they are – everything!  You can’t “reason” with a grizzly bear intent on devouring you; you can only fight back with everything you find in as vicious a way possible.  Make no mistake:  We are in a fight to the death with a grizzly bear – that all of us thought was really a teddy bear.  The claws on this one are real! That’s my view anyway…

    Finally, speaking to the WSJ article on IRS problems, I note this comment in the text of the article. 

    The IRS managed to stop $14.4 billion of fraudulent refunds in 2011, the report found, but that left about $1.8 billion that fell through the cracks and apparently made its way into the wrong hands.

    So let’s do the math, projecting over 10 years, as they do for budgeting fantasies, they are losing $18.0 Billion due to fraudulent refunds as compared to $0.8 $8.5 Billion of tax evasion they hope to make prevent from FATCA.  What does that say about their priorities, which as Jackie Bugnion has noted that

    …IRS and Treasury were so absorbed by preparing for the implementation of FATCA that everything else was put on the back burner. Yet the IRS faces massive issues with identiy fraud, abusive fraud on child tax credits by illegal immigrants, non-payment of taxes by U.S. residents and as the article highlighted must work on implenting Obamacare. 

    If a business misplaced its priorities like this, and was bleeding from their balance sheet this bad, while they focused on some esoteric Global strategy for 10 years in the future, they wouldn’t survive very many quarters before bankruptcy came knocking.  However, the IRS doesn’t have any market constraints or profit requirements, and so it just continues, on, and on, and on, and on, and on in perpetuity! Something has to be done to stop this nonsense. I wished it was as simple as a change in administration, but in my wildest fantasies, I just don’t see that as being the cure alone, given the fact we have a Bush guy called Commissioner Shulman heading up this charge right now. So it goes…

  6. @badger

    Hope you don’t mind, (I didn’t ask permission, and I apologize) but I liked your comment so much above as posted on June 5, 2012 at 11:48 am ,  that I used some of it, in a comment I made at a Washington Post Article called Commodity prices drop on economic woes in Europe, China, U.S..  Now you may wonder how I made that stretch on a subject so titled.  I often key off Roger Conklin and his comments. If he can even obliquely post something on an off subject news story to draw a connection to citizenship taxation and impacts on export jobs, he does, and I like to try to support him.

    I trust you will forgive my plagiarism, and take it as flattery 🙂

  7. This report just surfaced in efinancialnews.  Very sketchy on detail, but it does end with

    …echoed other warnings in the industry over Fatca, with concerns that some firms will have to completely divest from US assets as a result.

    Also a new article from Thomson Reuters.  This one includes a link to a FATCA preparedness survey.  And from that survey:

    Nearly a quarter of respondents, however, do expect a fundamental change: 8 percent of firms have taken the major strategic decision to terminate all existing U.S. client relationships and to turn away any new U.S. clients, while 16 percent are at least expecting to turn away any new U.S. clients. It is as yet unclear whether firms that choose in mid to late 2012 to divest U.S. clients will be able to avoid FATCA’s reach. For those firms without a U.S. legal entity within the group the proportion of firms that expect to terminate or turn away all future U.S. client relationships rose to 30 percent.

  8. @JustMe, I don’t mind at all. Anything to help with getting the issues out there. I am flattered! thanks for all your hard work!

    : )

  9. Watcher in name, Watcher in practice… 🙂

    Thanks for the links to those articles.  I see the Reuters story is stirring additional “coverage” around the internet.  Here is another one from Securities Technology Monitor

    I decided to take the invitation in the efinancialnews article to  “Write to Sophie Baker, sophie.baker@dowjones.com”  

    Here is what I said:

    Sophie,

    Thanks so much for your story on this “patchy’ preparation.

    I worry more about the systemic risks of this entire FATCA operation and possible U.S. divestment will have on an already shaky financial community. 

    It is almost like the US is telling the world, don’t invest with us any more.  We will make the requirement too onerous.  Sadly, I don’t think Congress understands that the bleeding wound on their foot comes from the discharge of that FATCA gun they are holding in their hand.

    I am not for sure that you have seen the testimony of the FATCA public hearing on May 15th, although I noticed you mentioned it and the letters received. The more telling concerns (with emphasis) were in the actual testimony, I thought.   Although, I think you did identify the 3 main elements.  Those would have been the ones I would have highlighted if I had to deal with an editor and write a word constrained article. Well done!

    You can find the complete testimony here, under the title of:

    So where were the journalists at the May 15th FATCA public hearing?

    Thanks for your continuing coverage of this story.

    Best regards

  10. Here are a few more things I have found today… (this is not exhaustive)

    US signs two-way FATCA information deals with EU

    FATCA: The Practical Challenges of Client Identification

    Are you prepared for FATCA? Take our survey

    Survey reveals industry unprepared for FATCA

    FATCA Will Further Stretch Saturated Compliance Functions, Finds Survey –

    FATCA Will Further Stretch Saturated Compliance Functions, says Thomson … – AFX News

    FATCA concerns and the IRS

    Quality control: can small firms keep compliance in-house?

    FATCA could overload stretched compliance functions says survey

    and more for your viewing pleasure…

  11. Every government of the world should stop letting Americans reside in their countries’. Eventually the ones that have slipped in before the draw bridge was raised will die off, leaving each country sanitized of these toxic elements. No more punishment for leaving the homeland, no more drain on anyone’s resources trying to hunt us down. Citizenship based taxation, the sacred cow of stupidity.

  13. @Chrisstophe…  To which I added a comment, in moderation..

    There certainly an explosion of stories today on FATCA on the web, but you won’t hear this reported on Brian Williams NBC nightly News…

    In fact, I can guarantee you that the vast swath of America have no idea that a Global tax data collection system is being forced down the throats of the worlds FFIs by FATCA, or its domestic equivalence, DATCA.  Lets do a quick FATCA search around the Web for MSM reports on FATCA today, looking where America gets its news, and see what results we get.

    Fox News.com  Result  Did you mean: “fatwa” ? Last story was  Fri, 15 Jul 2011

    ABC News    No results found

    CBS News  Result  Please try your search again

    NPR.org   Did you mean: FATAL

    PBS News Hour  No Results

    NBC News   The Reuters story that you mention..

    PRI  There were no entries found that match your criteria.

    So that tells you this freight training is going through town without ever blowing its whistle or car crossing warnings being activated to wake up the sleeping residents or warn those driving around town. 

  14. I  notice in the “US signs two-way FATCA information deals with EU” 
    article,  which seems to imply the deals are actually finalized with the
    European countries,  that it refers to “citizens”  of those European 
    countries.  I  thought the countries would actually be more interested in 
    their “residents”,  having sensible residence based taxation,  so that
    would suggest to me  that it is sloppy journalism,  using citizen and
    resident interchangeably..  Does anyone know anymore about this supposed deal?

  15. @CanuckDoc

    I would think that this is sloppy reporting or characterization of something they read elsewhere.

    I have a question/comment in moderation…

    So, do you know what is in these so called ‘Deals’? They must be pretty simple, kinda MOUs, or do they include all the onerous portions of the 388 pages of Draft regulations? Have you read all the push back on FATCA that was displayed in the May 15th FATCA public hearing in DC?

    http://bit.ly/Lo46H6

    Also, please note this. Countries around the world, are only interested in their Citizen’s bank activity in US, if they are also living and resident in their countries. It is only the US , with its unique Citizenship Taxation that is interested in its Citizens no matter where they live in the world. A BIG difference! So, this deal is not really reciprocity, and it why you find Banks getting gored by the same ox as US Expats overseas…

    http://bit.ly/Ngoss8

  16. *I am feeling pessimist. This is all being done by the IRS under the noble need not to allow Americans hide their investments in foreign banks in order not to pay US taxes. Who will have the interest in defending Americans living and working abroad and differentiate them from the tax cheaters?…Only us. But we have no voice or representation (except for AARO, ACA and thos Society). The public opinion could care less. So I predict that FATCA and DATCA will be implemented sooner or later. Can you imagine a dual citizen filling up papers to his two countries, with reports and more reports to see if they owe some tax to their country of origin?…They and many more will be the casualties I predict. But thanks you all for being here.

  17. Since we still don’t have email notices for additions to old threads on this new .ca domain, I am referencing something here as an update that I have done on the DATCA is not Dead thread.   

    My comment reports focus on a recent Miami Herald Op Ed by the President of the Florida Bankers association, where he is making the one sided argument regarding why DATCA is bad for America, without any reference or acknowledgement of FATCA.  I wasn’t sure if he didn’t realize that FATCA was the cause of his woes. Did he not recognize that DATCA the leverage the IRS was using to force FATCA down the throats of the FFIs, and was just a stepping stone towards a Global Tax Data reporting Regime – GATCA?  Or was this a deliberate and necessary ommision to plead his case of “Bad for America” to an audience that probably would not get it anyway!

    Here is what I have posted, if you have an interest. 

  18. Another thought on this supposed deal, if it actually exists. Most of the articles I’ve read use words like “aim to” and “hope to” and “agree to negotiate”. As they say, “the devil’s in the details”, which is why I would like to see what is actually in it, if it ever happens.

    But if it ever does, and the other countries “agree” to collect and pass on all the information to the IRS that the IRS wants, I can’t imagine they’ (the European countries) are going to put a lot of effort into making sure they find every single “US person” to report to the IRS. There might be rules but it’s hard to imagine they’re going to invest much in enforcement, at least against minnows, and residents of their countries.

    It will get the IRS off the back of the FFI’s in their country, but it may also water down the whole thing so much as to be pretty harmless. At least I am hopeful that might happen.

  19. Interesting comment in Lebanese newspaper yesterday, called Now Lebanon

    FATCA targets US fat cats abroad 

    Riad Salameh, in an interview with Executive magazine published in August 2011, surprisingly urged local banks to flout the law.

    “[O]ur recommendation to the bank is going to be to go for the 30 percent [withholding] option because [compliance] is legally difficult,” Salameh said at the time. He’s since changed his tune.

    Speaking before the Beirut Chambers of Commerce in late April, Salameh said: “We are preparing a mechanism to implement the US action in accordance with the Lebanese law and in a way that will not affect the banking secrecy law.”

    The question is, how do they do this? 

    If the client refuses, Jebeyli said, the bank will alert the IRS to the client’s refusal, in line with FATCA stipulations.

    Then this…

    Baasiri said the Central Bank is pushing to amend the law to add tax evasion as a reason to lift secrecy.

    A ultimately they will go along regardless of cost, but don’t you believe for a minute that it will not be passed onto other customers in the ways of increased fees. 

    “I cannot disclose [exact] costs, but it’s pretty expensive,” he said. “It’s not a cost that banks can transfer to their clients. It is an expensive compliance system that has to be implemented.”

     
      
      

  20. Do you think Greek banks are going to be able to comply with FATCA with all the other problems they have going on?  This from a New York Times story titled: 

    Greece Warns of Going Broke as Tax Proceeds Dry Up

    …the government started enforcing a 1995 law that gives them access to bank accounts of suspected tax evaders. But Nikos Lekkas, a top official at the financial crimes agency where Mr. Maitos works, said Greek banks had obstructed nearly 5,000 requests for account data since 2010. “The banks delay sending the information for 8 to 12 months,” he said. “And when they do, they send huge stacks of documents to make it confusing. By the time we can follow up, much of the money has already fled.” 

    And these guys are going to come up with FATCA compliance mechanisms to satisfy the IRS? 

  21. When you read the testimony, the uniform cry from those in attendance was for adequate time to comply after the final Regulations are issued.  ~18 months.  I have moved over to Linked in recently, and reluctantly, but realized there are lots of the (PCIC) Practitioner Compliance Industrial Complex types there, and would be good to hear what is being said.

    I just came across this comment.  It was made a week before the hearings, which may say something about what value there was in having a public comment forum.  We shall see. 

    http://linkd.in/KzHBBc

    An attorney-adviser, IRS Office of Associate Chief Counsel (International), mentioned on May 7 there are no plans to delay the overall effective date, however there may be addtional time provided in certain areas. 

    Another Comment:

    A similar response from the same office was received as part of the Tax Conference that took place in DC a week ago. Based on the comments that have been outlined as part of the public hearing on Tuesday, my personal opinion is that the IRS may postpone the implementation date but not the date by which the FFIs need to enter into an agreement with the IRS. 

  23. @JustMe

    As to your comment back on June 12th the date for FFI’s to enter into an agreement is actually I believe January 1 2014 while they are supposed to start complying by July 1 2013. So pushing back the July 1 2013 date but no the January 1 2014 date would still be pretty significant.

  24. Comprehensive link to many FATCA comment letters that went in prior to the May 15 public Hearing

    http://www.fsitaxposts.com/category/fatca-comment-letters/ 

    @Tim… Doesn’t the FFI registration process start Jan 1st, 2013  

    Here is what Earnst and Young says…

    Jan 1, 2013  

    FATCA becomes effective for US institutions.

    Accounts opened prior to 1 January 2013 will be considered “pre-existing” at USWAs. USWAs may begin entity account due diligence at any time.

    FATCA-compliant onboarding processes/systems must be operational.

    FFI electronic application process expected to begin.

    Grandfathered obligations. FATCA withholding not required on obligations outstanding on 1 January 2013 unless materially modified.

  25. I just came across the most comprehensive list of comment letters on FATCA I have found.  It is here.  I am sure there are other lists, but this is a handy one.  When you look at the magnitude of the comments, you have to wonder, why is their just one of these institutions willing to step to the plate and fund a repeal or modification process.  

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