Monday, July 9, 2012

Sam Haven - a senior Bahamian banker has questioned whether complying with the US Foreign Account Tax Compliance Act (FATCA) could breach The Bahamas' financial services laws ...and expressed concerns that institutions could be “caught between a rock and a hard place”

Senior Banker Queries If Fatca 'Breaches The Law'

Tribune Business Editor

A senior Bahamian banker has questioned whether complying with the US Foreign Account Tax Compliance Act (FATCA) could breach this nation’s financial services laws, and expressed concerns that institutions could be “caught between a rock and a hard place”.

Sam Haven, a private banker for more than 40 years, suggested that the Government and financial services regulators needed to become more involved in determining how best the Bahamas meet FATCA’s demands, and whether any changes to this nation’s laws were necessary.

Emphasising that he was not speaking for his employer, Scotiabank (Bahamas), and that his personal views were not those of the bank, Mr Haven said FATCA was set to impose “lots of duress” on jurisdictions such as the Bahamas.

Outlining his main concern, he told Tribune Business that the US legislation, which seeks to make Bahamian financial services institutions and providers ‘tax agents’ of the Internal Revenue Service (IRS), seemed to require them to breach client confidentiality provisions enshrined in laws such as the Banks and Trust Companies Regulation Act.

“Would complying with the provisions of FATCA put us in breach of confidentiality laws as set out in the Banks and Trust Companies Regulation Act,” Mr Haven questioned.

“I think we’re missing the boat on a number of things here. There are views I personally have on this, and that is that the regulators need to give comments and instructions to financial services companies.

“At present, under the requirements of this Act, anyone complying with it would be in breach of the laws of the Bahamas.”

Mr Haven said that while Bahamian law did permit the disclosure of client information in 
“certain circumstances”, usually via the court process, FATCA required the “automatic” provision of such details to the IRS.

Given the implications for Bahamian financial services providers, Mr Haven said both the Attorney General’s Office and regulators, such as the Central Bank of the Bahamas, needed to become more involved in determining how this nation responded.

“What FATCA attempts to do is make all financial institutions reporting agents of the IRS,” Mr Haven told Tribune Business.

“The important thing for us is to have the regulators and government enter into the negotiations to decide how best to implement this, and make sure changes are made to our laws to accommodate this if we decide this is the way we want to go......

“Certainly, the Government and legislators now need to step forward. The Central Banks needs to propose some guidelines for the Government was to whether we change the laws to facilitate this, otherwise institutions will be caught between a rock and a hard place.

“I’m not sure what the solution is at this point, but there are persons in position to steer it and give guidance on how it should be done.

“The fact is we’re getting a lot closer, and nothing seems to be happening. FATCA is saying you automatically release the information, which creates issues for institutions, as they are potentially breaching the Banks and Trust Companies Regulation Act and client confidentiality.”

Bahamian and other global financial services providers are required to reach Foreign Financial Institution (FFI) agreements with the IRS by July 1, 2013, next year for the purpose of supplying them with details on all their US clients. Otherwise, these clients will be subject to a 30 per cent withholding penalty on all US-sourced income.

Mr Haven said several Bahamian financial services firms had been talking about the action/systems they were implementing to meet FATCA’s requirements, but this was all based on what the IRS was demanding.

He warned that should the Government enter the process and make changes, these firms might “need to start over again”, with all the time and extra expense that would incur.

“The Bahamas, for a long time, has held its head high as a major player, not only in financial services but in implementing and enforcing standards around the world, such as Know Your Customer (KYC),” Mr Haven said.

FATCA, though, went further than any previous international or extra-territorial initiatives, and “creates a situation involving a lot of duress for jurisdictions like ourselves.

“The cost of implementing what they’re proposing is going to be exorbitant and enormous,” Mr Haven added.

FATCA seeks information on anyone who has even the slightest US nexus, connection, and holds bank accounts outside the US. This means that Bahamians who hold dual US citizenship or are green card holders will have to be reported to the IRS.

This is one of the major challenges for Bahamas-based financial institutions, especially the commercial banks. They will now have to drill down into all existing clients and investment structures to determine whether there is any US ownership that needs to be reported. And the information sought from new clients on account opening forms will also have to be changed to determine any US connection.

Mr Haven told Tribune Business that the US “power and might” would be virtually impossible to resist, especially given the need for all banks to access the US financial and capital markets systems.

Then there were the correspondent banking relationships that have to be maintained with US institutions, especially for dealing in US dollars, along with associated clearing and settlement.

Mr Haven said it was unclear how correspondent banking relationships would be impacted if FFI agreements were not reached by the IRS deadline.

While FATCA potentially placed “a very serious burden” on the Bahamian financial services industry, he added that it was “not necessarily as onerous as you think”, given that the sector had already done much work on KYC and due diligence when it came to new accounts.

July 09, 2012