Russian lawmakers and banks are still squabbling about how to join the Foreign Account Tax Compliance Act (FATCA) network after the US closed the door on talks following Moscow’s role in the Ukraine crisis.
In recent weeks, Finance Minister Anatoly Aksakov pledged to Russian banks that a new law allowing them to give FATCA data to the US Internal Revenue Service (IRS) would be in place by June 1, 2014.
This was after he flew to Washington to try to sign a FATCA treaty with the US, but was politely sent home after talks with US Treasury officials who blocked his move.
Now, Russian politicians are telling bankers who give customer information to the US that they will be considered as breaking bank secrecy laws and could face prosecution leading to fines of up to £1,400 or two years in jail.
The threat was made during FATCA debates in the Russian parliament’s lower house.
Die-hards stalling
Russia has already drafted laws allowing financial institutions to pass FATCA information to the IRS.
The draft was green lighted by the Finance Ministry and central bank in May but progress has been mired as MPs ask for more detail and amendments to the legislation.
Government die-hards seems to be stalling for a version of FATCA in an effort to gain special treatment, while the US has imposed what the US Treasury terms a ‘silent sanction’ on Moscow that could cost banks administration costs if they sign up to FATCA or huge fines if they fail to join.
The Russian financial ombudsman Pavel Medvedev observed the in-fighting would hamper Russia’s involvement in the international financial community and could impact on the economy.
FATCA is due to start from July 1, 2014 and calls for foreign financial institutions to deliver financial information about US taxpayers to the IRS every year.
Bulgaria and Azerbaijan join FATCA
Offshore financial organisations that fail to do so could face up to a 30% withholding tax on all financial transactions in the US and even exclusion from the US money markets.
So far, around 60 nations are considered FATCA compliant by the US.
FATCA applies to all earnings and gains on financial accounts controlled by US taxpayers.
The latest to sign agreements are Bulgaria and Azerbaijan.
Both countries are allowing their state tax services to collect the data from financial institutions and to pass the information on to the IRS under inter-governmental agreements.
