FATCA Leads Banks To Turn Away US Customers


FATCA was always going to prove a controversial measure imposed by Congress to track down the assets of US taxpayers in tax havens around the world.

But one unintended consequence of the Foreign Account Tax Compliance Act (FATCA) is that foreign banks are opting not to register with the Internal Revenue Service (IRS) because it would mean spending millions of pounds in compliance measures.

Many are now increasingly opting for the cheaper course of asking US customers to bank elsewhere.

Nigel Green, chief executive of international financial consultancy deVere Group, says: “There is research which suggests that for a non-US bank to become FATCA compliant is going to cost millions of pounds.

“On top of this, there will be a reduced foreign investment in the US because of FATCA – at a time when the US economy needs it.”

Banks don’t want FATCA costs

He added that it was increasingly attractive for those US citizens who had settled abroad to give up their citizenship and avoid being drawn into FATCA.

The IRS says that in 2011, 1,780 people gave up their US passports.

FATCA compels foreign financial intuitions (FFI) to reveal to the IRS which US citizens have accounts and what their balances are.

Failure to comply with the law will see the US government withhold 30% of monies owed to a FFI.

Already there are reports that some banks around the world are rejecting applications from US citizens for accounts and even, in some cases, cancelling old expat accounts rather than spend a fortune in complying with the law.

The Institute of International Bankers confirmed that some banks, including some industry leaders, were taking this action because of ‘unnecessary burdens and costs’.

6 million US expats affected

With around 6 million expat Americans living around the world, the withdrawal of banking services for US customers is likely to become a major issue.

Among the banks to have withdrawn services to US citizens are HSBC, which announced in July 2011 that its wealth-management service was no longer being offered to US residents and Deutsche Bank.

Banks have also flagged up another issue with FATCA which is how the law determines whether a client is a US citizen.

Essentially, a US citizen is defined by the act as someone who is tax resident citizen or who holds a green card – but anyone who has lived in America for at least 183 days in a three-year period is also considered to be a US taxpayer under the legislation.

Failure by a US expat taxpayer to register with the IRS and detail accurately their foreign financial assets including savings, insurances and equities, is punishable by hefty fines.

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  1. Your definition of US citizen as ‘ someone who is a tax resident citizen’ is not correct. NON-RESIDENT US CITIZENS ARE ALSO US TAX-PAYERS as far as US is concerned. In addition, the USA considers anyone born in the USA (even if they left as a child), a citizen and thus a tax-payer. For example, someone born in USA to Canadian parents (thus dual from birth), who left as an infant is required to file annual tax returns and reveal all their Canadian account details (foreign as far as USA is concerned) to the IRS. Even someone born outside of the USA to at least one American parent is a US citizen despite never setting foot in the USA.

    THE USA IS THE ONLY DEVELOPED COUNTRY IN THE WORLD TO TAX ITS CITIZENS REGARDLESS WHERE THEY LIVE. It is this citizenship-based taxation (versus residence based) that is causing 6 million non-resident US citizens (who may also be citizens of the countries they reside in), huge problems (confusing forms, accountants fees, threats of penalties) while trying to fill out all the mountains of forms for not only tax reporting, but ‘foreign account’ reporting as well.

    Furthermore, a lot of these 6 million non-resident US citizens, had no idea they had to file annual tax returns, and had never even heard of FBAR reporting requirements to provide the details of their ‘foreign’ accounts. These ‘foreign’ accounts are ‘foreign’ as far as the USA is concerned, but not foreign to the people who live and work in that country. US citizens abroad are now being told to ‘come clean’ to the IRS under threat of huge penalties even if they do catch up on back filing and reporting. Most will owe no taxes by the way, but are scared to death of possible penalties, and a lifetime of expensive, confusing, onerous reporting, and the implications (identity theft for example) of revealing personal financial details to the IRS that no homeland American must report.

    In summary, the debt-ridden USA is acting like a big bully, trying to extort after-tax money from other countries.

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