From my book:
Banking & Corporate Business Laws
In 2010 the American Government issued The Foreign Account Tax Compliance Act (FATCA), in pursuance to many attempts to support the collection of the required tax from all Americans as citizens and or corporate entities. This step of course is needed, among other things, to support the federal budget and to implement certain measures to curb the deficiencies therein.
There are many American citizens and corporate entities working outside America and mostly they have foreign accounts in the foreign jurisdictions where they live or work. In fact and law, all American citizens and corporate companies are supposed to pay the required tax, when they are due, from anywhere they are living. However, it seems there is lack in this and there is clear tax evasion as they are not paying the required tax. To face this situation the American Government issued the (FATCA).
The FATCA, addresses all foreign financial institutions and foreign banks, all over the world to support The American Tax Authority by sending necessary details and all information related to accounts of any American Citizen or American corporate entity. Non-cooperative financial institutions or banks could be subject to certain penalties or other measures to be taken by American Authorities.
At the beginning, there was some reluctance, from many banks and financial institutions, to disclose confidential information about their clients because this makes clear breach of the banking laws and the confidentiality rules. To overcome this obstacle, the FATCA rules suggest the methodology of obtaining the consent of the client by signing a contract or clear declaration with the bank wherein he \ she authorities the bank or the financial institution to give necessary information \ details about his account(s) to the American Tax Authority, as and when required according to the FATCA Rules and provisions.
The information related to accounts of Americans, in foreign financial institutions and foreign banks, could be given to The American Tax Authority directly by the foreign financial institutions & foreign banks by themselves or, alternatively, to be given through the governments represented by the Central Bank in each country.
It is clear, there are two alternatives and to reach the appropriate approach to implement the best alternative, there was lengthy dialogue between American Authorities and foreign governments. Based on such discussions, it emerged that the best option is to handle the matter exclusively between governments and not to involve banks and financial institutions in direct contact with The American Tax Authority. This was advocated, to give a shield or kind of protection to banks & financial institutions.
Based on the acceptable option, The American Tax Authority signed what is known as , the inter-governmental agreements, with many countries including Denmark, Germany, Ireland, Japan, Mexico, Norway, Spain, Switzerland, United Kingdom, Italy … and many other governments either signed or they are following suit.
It is important, at this juncture, to explain that Central Banks in GCC countries directed financial institutions and banks to adhere to FATCA and implement its rules and to take the necessary legal steps to obtain the consent of their American clients and, thereafter, to give the data and necessary information to the Central Bank. In other words, not to be in direct contact with The American Tax Authority. This ”protection” approach taken by the Central Banks in GCC Countries is clearly in line with the same approach taken by most, if not all, countries. However, still there is an urgent need to sign the inter-governmental agreement between each country in (GCC) and The American Tax Authority. To put things in order, this agreement, is legally required.
The financial institutions and banks in GCC Countries, had already started their internal homework, by undertaking necessary studies on how to go in line with the instructions received from regulators to implement FATCA rules. Moreover, they are in constant work to issue the necessary laws, policies, legal procedures and to prepare the required legal documentation to be in line with FATCA rules.
It is evident that almost all governments & Central Banks are clearly supporting the American initiative to collect tax from foreign accounts by implementing FATCA rules. We could say that, the global support gave real live to the American initiative, which is a very good stand for global cooperation in banking and financial matters. This will help the global economy and international trade, for the betterment of all consumers and stakeholders.
However, while we are in the process of implementing FATCA Rules, there are certain valid points that we should take into consideration. Basically, certain operational or legal risks could arise with particular reference to the confidentiality \ secrecy of the banking information. The contract or declaration to be given by the client is not free-proof problem. After passing the information (any), the client may raise some issues regarding the authority exercised by the bank in giving the information. There is a possibility that he \ she may take the bank to the Court claiming misuse of authority. A legal risk could arise for the bank ?.
Also on the other hand, The American Tax Authority, may not accept the information given to them for any reason and may question the steps taken or even the creditability of the bank. There is a possibility, even remote, that this could happen and a legal risk could arise for the bank ?.
For the financial institutions and banks operation in the GCC Countries, we believe that, it would be better to add a strong disclaimer clause to protect themselves in the face of such legal risks that could arise from each, both parties or any other third party.
The financial institutions and banks need to take many logistical steps to achieve proper implement FATCA Rules. On the face of it, they need to amend or upgrade the data related to all clients in the system to signify the American citizenship (being in full or in part citizenship). This needs hectic internal work and joint external work with existing clients on regular basis and, here, special training skills may be required, to make sure that everything is in order and goes in line with FATCA Rules and the relevant internal policies.
The amendment of the laws, data and the training for implementation are all very crucial issues and they need management, staff, time and money. A question may arise, will the American Tax Authority help, as an incentive, in meeting the expenses of such logistics or training needs ? This could be a genuine question to be addressed, while we are in the process of looking into the best alternatives and possible ways and means for the proper implementation the FATCA Rules. Let’s make FATCA a real catalyst for global fruitful cooperation, in banking and financial matters, taken care of and stemming from all parties involved. By achieving this goal all will benefit…
Dr . AbdelGadir Warsama Ghalib
Founder & Principal Legal Counsel
Dr.AbdelGadir Warsama Consultancy
E-mail : awarsama@warsamalc.com
