February 27, 2012
Banking privacy is dead. Completely, totally dead. Murdered, really. The US government is the assailant, and FATCA is the murder weapon.
We’ve talked about this a few times before– FATCA is the heinously insidiously piece of legislation that the Honorable Barrack Hussein Obama passed into law in 2010 as part of the “Hiring Incentives to Restore Employment Act”.
There were no hiring incentives, and there was no restoration of employment. But any vestiges of banking privacy were destroyed.
In brief, FATCA has two key concepts. First, it requires an additional (and completely unnecessary) layer of reporting from all US taxpayers who have ‘foreign financial accounts’ at ‘foreign financial institutions.’ Though as we have discussed before, both of these critical terms are ridiculously and flagrantly ambiguous, putting the onus entirely on the taxpayer.
Without clarifying what constitutes foreign financial accounts and institutions, Congress has effectively created decades of debate in tax court… a move that will undoubtedly ruin the lives of the unfortunate folks who get dragged into the fight.
The second key issue is that FATCA puts a burden on ALL foreign financial institutions worldwide to enter into an information-sharing agreement with the IRS; this essentially obliges every bank on the planet to submit reports and customers’ private data to the IRS.
Banks who don’t enter into this information sharing agreement will have a 30% tax withheld on funds that originate from, or go through, the US banking system. Further, banks who enter into the information sharing agreement are obliged to withhold the 30% tax on transfers to other banks who do NOT enter into the agreement.
Such provisions are absolutely, 100% impossible. And it’s becoming clear that FATCA was passed with no intention of being enforceable. It’s inconceivable that every institution on the planet could enter into an agreement. And it’s inconceivable that every institution on the planet could possibly know whether every other institution has entered into the agreement.
The only thing FATCA has accomplished is scaring the living daylights out of non-US banks. So much so that foreign banks have approached their governments to ask for help.
As I wrote last week, in order to dull the effect of FATCA in their countries, the governments of Spain, Italy, Germany, France, and the United Kingdom recently announced that they were entering into inter-governmental information sharing agreements. Individual banks will no longer have to comply with the IRS, but instead share all with their home governments.
In other words, French banks will report to the French government, US banks will report to the US government, and the two governments will swap data.
It’s no small coincidence that the first signatories to such an inter-governmental sharing agreement are five of the largest (albeit most insolvent) countries on the planet, forming the core of the OECD. Now it’s only a matter of time for smaller nations to fall in line.
Last Friday, Isle of Man became the first. Treasury Minister Eddie Teare announced that “the inter-governmental partnership approach announced by the US, France, Germany, Italy, Spain and the UK should be explored by the Isle of Man Government” and that a “high-level FATCA working party has already been formed.”
With Isle of Man laying down, we can expect places like the Channel Islands, BVI, Cayman, Bermuda, Mauritius, and other popular offshore banking jurisdictions to sign up next.
There are two key points I’d like to make here-
1) There is no such thing as banking privacy. Do not trust your banker to keep secrets for you, and definitely do not trust a government-regulated banking system to keep secrets for you. If you have undeclared income that’s been nestled offshore, it should be obvious at this point that such arrangements will soon unravel.
Voluntary disclosure is always better than getting caught by your home government’s tax authorities. And, especially if you’re a US citizen where tax noncompliance is a criminal offense, paying hefty penalties is a much better outcome than going to court and ending up in a day-glow orange jumpsuit.
2) Most people who are interested in financial privacy tend to use cash. But since carrying large amounts of cash is more and more being criminalized (and confiscated), this is no longer a viable option.
The best form of financial privacy at the moment is physical gold, at least until a better option for digital currency hits the market. Gold may not be useful for day-to-day transactions, but as a store of value tucked away in an anonymous offshore facility, there is no better way of maintaining financial privacy.