Why don't foreign banks ignore the IRS?

In My Humble Opinion (IMHO)
#1

This thread about renouncing US citizenship contains a lot of posts that mention how the IRS has the reach and pull to demand documentation of US ex-pats money in countries other than the US. It would seem that it has gotten to be such a pain that many banks in countries other than the US are refusing to do business with citizens of the US that reside in those other countries for what ever reason.

Why do these banks submit to the IRS (a foreign, to them, agency) demands instead of telling them to get stuffed?

What bit of knowledge and/or understanding am I missing here?

Is it a treaty thing?

#2

Presumably the do business with the US in some form, and would like not to be shut out.

#3

There are tax treaties in force with many countries that require the mutual sharing of information. Additionally, foreign banks that have interests in the US (which is nearly all of them) who refuse to cooperate may find themselves cut off from the US banking system. That is not a desirable position to be in.

#4

The main tool that FATCA gives the IRS to force foreign bank compliance with reporting requirements is a 30% withholding tax on gross payments to non-compliant banks.

For example, let’s say a foreign bank buys a $1,000,000 6-month T-bill from a New York bank for $900,000. When the T-bill matures $300,000 will be withheld from the payment and the bank will receive $700,000.

The same will apply to other transactions linked to the the US: dividends, interest, insurance premiums. Virtually all payments will be at risk. And this also imposes a burden on US counter-parties to these transactions. They have to determine whether the foreign financial institution is subject to withholding. Failure to withhold could make the US institution liable for 100% of the tax plus penalties. So US financial institutions and other businesses would be reluctant to do business with non-compliant foreign financial institutions.

It’s a very harsh law and the US is essentially throwing around its weight as the world’s financial center and the keeper of the world’s main reserve currency.

#5

huh! well ok then. Seems like a good way to influence people and not make friends.
Presumably, US banks have the same requirements for reporting etc?

#6

No. Not at all for domestic accounts. Domestic banks and financial institutions are not required to report on accounts of US citizens.
And unless there is a specific Tax Information Exchange Agreement, US banks and financial institutions are not required to disclose information to foreign countries about accounts held in the US by foreign citizens. In the instances where disclosure is required the reporting requirements are not so onerous. It is more like the bank responding to a court subpeona related to a specific account holder.

Think carefully. Did you have to provide actual proof of citizenship to your US bank to prove you are not a citizen of another country*? Probably not. I know I *never *showed my birth certificate or passport to a bank in the United States.

But banks overseas are finding they must establish the citizenship of their clientele in order to know which of their clients they need to [del]report[/del] snitch on to the IRS. That means asking *all *of their clients, even the non-Americans, to provide documentation on their citizenship.

Foreign banks have found themselves with a choice - act as enforcers of IRS rules or stop doing business with Americans. Some have chosen the latter, making it difficult for Americans abroad to have basic banking services.

*Aside from the whole issue of proving a negative, the FATCA requirements are a joke for dual citizens. Just show your bank the *other *passport.

#7

Not sure what you mean here. My banks, which are domestic, send 1099s for my earnings to the IRS every year. I assume they’re not doing so voluntarily.

#8

Domestic US banks do not report the same sort of information about you that is required of foreign financial institutions reporting about Americans abroad.

Domestic banks do report interest earnings and key that to your Social Security or Taxpayer ID numbers. They do not report your balance, account numbers, addresses, etc… which is required of Foreign Financial Institutions (FFI’s) making a report under FATCA.

Your domestic banks does not report your connection to funds if they are not yours. FFI’s are required to make reports if an American has signatory control of the funds even if the funds do not belong to the American. (*e.g. *American has signatory authority over his elderly French in-laws’ accounts in order to write the checks to pay their monthly bills. The FFI must report the details of the in-laws’ accounts to the IRS under FATCA.)

#9

Does the IRS require your banks to list all of your bank accounts with a cumulative value of over $10,000?

Does the IRS require your banks to list all accounts over which you have signing authority, even if it’s not your money (e.g. - you have signing authority over an account with your employer, a non-profit you volunteer for, or your church if you volunteer there) if the cumulative balance is over $10,000?

That’s how intrusive the reporting requirements are for Americans abroad. A friend of mine is a dual citizen and normally in the employment position he holds, he has signing authority over some of the employer’s accounts. He has relinquished that authority because he sees no reason why the employer should have its Canadian bank accounts and bank balances reported to the IRS.

Note that in some circumstances, this might make it more difficult for a dual citizen to be hired to jobs higher up in a company, simply because the Canadian company doesn’t want to have its financial information reported to a foreign government.

#10

nope never had to do anything special to open a bank account of any kind except have a few bucks to put in it. Just never really thought about it before.
This policy we have here in the US regarding all of this (going both directions) most definitely seems to me to be a short-sighted policy. I wonder if its a symptom of … not decay, corruption isn’t correct but has some of the connotation I’m looking for, corrosion, no…its a symptom of me I guess. My own [del]myopic view[/del] willful ignorance of my country, from the inside.

As much as I hate to admit that:(

sometimes “ignorance fought” aint happy words.

#11

Got it. I didn’t think Iggy meant his remark at face value, and I appreciate the clarification.

guestchaz, the policy involved is deterrence of tax fraud. In the past, it has been a not-uncommon practice among very rich US citizens to park assets overseas such that the income they accrued stayed out of sight of US tax authorities, sometimes under a family member’s name. The heightened reporting is designed to verify that the income from a particular account represents a reasonable return from a legitimate investment and is not in some way a sham designed to conceal.

I never heard of Canadian banks being used for such a purpose, and so the law is probably over-inclusive as applied there, but it may not be the sort of thing that can be spelled out in regulations on a by-country basis.

Such intrusive reporting is not necessary for accounts in US banks, because US banks are already subject to a vastly intrusive regulatory regime of their own, which provides tax authorities with reasonable confidence that their reporting legitimately reflects income accrued there.

#12

Credit Suisse, Standard Chartered, HSBC, Royal Bank of Scotland, BNP Paribas, Barclays Bank, Deutsche Bank, Credit Agricole, Societe Generale, UBS, etc., all have significant operations in the US.

#13

The major banks of nearly every country are so spliced into each other and esp. the U.S. and largest Euro nations, that they cannot refuse such a demand. I have no doubt at all that if the Fed govt of Canada was still run by a leader like Pierre Trudeau, he would have had the balls and brains to tell the U.S. to F.O.
You cannot imagine what a bully the u.s. is under every admin. It mandated all other countries to halt bzns and all banking and finance with Cuba for its own embargo - to stall them getting ahead of the u.s. there - and did massively punish some minor businesses who violated it in Canada and other places. But now, hey, forget all that as long as the u.s. can rush back in.

Consider the years of conflict because Singapore did not want chewing gum in its own nation partly because it was jamming the doors of the new subway system & ruining the floors of the newest and most beautiful airline terminal in the world. Ballsy Lee of Singapore would not back down to Goliath & it went on for decades. Then, the u.s wanted a free trade agreement with S., and it was near signing, when Wrigleys chewing gum of Chicago told Geo. Bush not to do it, threw some money his way, and BANG, no treaty - stalled for yrs. Then, Lee & his people said they had wanted to get in stop-smoking gum for years, so they passed a law saying that gum could be allowed if prescribed by an M.D. Victory for Singapore - David beats Goliath. How much $ do you suppose Wrigleys could possibly sell a small Asian island nation per year ? $1m, 3m, and yet because the U.S. does this crap every day, around the world, aggression, push, shove, threaten, punish, isolate, etc. they do it even to overrule the legit desire of a friendly sovereign nation. Sickening.

#14

At the very least, they will offer things like mutual funds based on NASDAQ and NYSE. Now explain to your customers that their retirement investment went “oops” because you failed to report on the account movements of some foreigner to that foreigner’s own government…

#15

One of the key US links for many banks is in sending wire transfers. Many of the intervening steps are often routed through a correspondent bank in New York even if the sender and receiver are not in the United States. This is particularly so if a foreign currency exchange is required.