US Congress to request details of foreign account holders with US banks
Labeled ‘part of a crackdown on tax evasion’, the US will potentially have access to the details of millions of foreign customers who hold accounts with America-based branches, according to Reuters. The move is expected to face strong resistance from the banking industry. Wealthy foreigners and financial institutions that bank in the US could have their account details given to the US government. The Obama administration is expected to make the request of Congress in a forthcoming Whitehouse budget proposal. The Foreign Account Tax Compliance Act (FATCA) already requires overseas financial companies to identify their American customers to the Internal Revenue Service. In January this year, Switzerland’s oldest bank, Wegelin & Co., was forced to close after the US imposed a $22 million fine on the institution, alongside restitution of $20 million to the IRS, and a $15.8 million fee. The bank was accused of allowing American nationals to hide their earnings after US judge gave the Internal Revenue Service (IRS) permission to obtain data on the bank from Swiss financial institution UBS. On January 5th, a Manhattan federal court ruled the information on Wegelin & Co’s former clients could be demanded by the US. It’s highly possible that the new proposal will be part of a move to aid negotiations with foreign financial agencies. Reuters published part of a letter written last October by Mark Mazur, Treasury Assistant Secretary for Tax Policy, saying that the government aimed “to pursue equivalent levels of reciprocal automatic exchange in the future.” America is requesting data from foreign sources even now, and some are resisting its pressure. If successful, it is likely further fines will be imposed. Bilateral agreements mean that four countries have already started sharing information on the finances of their US residents – the United Kingdom, Denmark, Ireland and Mexico. The US is negotiating with another 50 countries. Many have been unable to meet the US’s requirements as they would come into direct conflict with local privacy laws. Some countries, including France, Germany and China have been delaying the sharing of information, as they consider it one-sided and unreasonable that they are expected to share details of the US accounts of French, German and Chinese nationals abroad. However, the US has already progressed in their negotiations with the three. Reuters said that although China appears reluctant to comply, the country is in ‘behind the scenes’ discussions. FATCA requires financial institutions (non-US banks and investment funds) to inform the IRS about accounts held by those from the US with balances of more than $50,000. They face economic restrictions should they fail to provide data. FATCA was set into motion in 2010, and will come into play towards the end of 2013.The IRS held an ‘offshore amnesty’ in October 2011, which offered the opportunity for people with money in offshore bank accounts to come forward, before the IRS found them through data sharing. Switzerland is following the UK and signed a FATCA deal with the US in December 2012, which is due to come into play in January 2014. Switzerland attracts many rich foreigners and has already been subject to US action. “The United States is committed to a policy of transparency and equivalence, where appropriate, in furtherance of international cooperation to combat offshore tax evasion,” said a Treasury spokesman. Swiss Federal Data Protection and Information Commissioner (FDPIC) stated in 2012 that the model for the agreement raised numerous privacy and data protection concerns. FDPIC’s 19th annual report called the agreement effectively an ‘automatic exchange of information,’ adding “We are very critical of this law that has been imposed unilaterally by the United States.”On January 18th, the European commission also warned the Swiss over its tax practices, saying that if the country did not agree to an automatic exchange of information, it would be ‘blacklisted’, and sanctions could be imposed.