Last month, I warned that the Foreign Account Tax Compliance Act, an attempt by the
U.S. to impose reporting burdens on other countries' banks, would produce blowback for domestic financial institutions. Credit unions, at least, are
worried.
The powerful Credit Union National Association has thrown its support behind
Senator Rand Paul's bill to repeal the anti-privacy provisions of this heavy-handed law.
"We share your concern that FATCA, if left in place, will impose
billions of dollars of compliance costs on U.S. credit unions and banks
annually," Bill Cheney, CUNA's
president and CEO, wrote to Sen. Paul on May 8. "We are also concerned that FATCA and
FATCA-related intergovernmental agreements with foreign nations undermine the
constitutional privacy rights of U.S. credit union members and bank
customers."
Cheney went on to emphasize the fear of reciprocation by foreign governments
for Washington's overreaching.
"CUNA is also concerned that the European Union is considering adopting
a 'European FATCA' which would regulate U.S. credit unions and banks in the
same manner that the United States' FATCA purports to regulate credit unions
and banks in the European Union," he wrote. "Unless Congress
repeals FATCA, we think that it is only a matter of time before the
extraterritorial diktats of a European FATCA and other FATCA-inspired foreign
laws become additional compliance burdens on U.S. financial
institutions." As the largest credit union advocacy association in the
United States, CUNA
represents nearly 90% of America's 7,000 state and federally chartered credit
unions and their 96 million members.
Sen. Paul has cited the destructive effects of the law and questioned its
legitimacy as a tool to combat tax evasion, arguing that "FATCA has had the practical effect of forcing [foreign
financial institutions] to relinquish any association with American
customers, and to avoid direct investment in the United States. Perhaps even
more troubling, the implementation of FATCA has allowed the Treasury
Department to make independent decisions with respect to the sovereignty of
foreign nations and the privacy of United States citizens."
CUNA's support for rolling back FATCA follows a move on March 27 by the World Council of Credit Unions, which represents member-owned cooperative nonprofit lenders in 100
countries. Michael S. Edwards, the council's vice president and chief
counsel, called for full repeal of the law, similarly citing the boomeranging costs
of FATCA from foreign institutions to domestic U.S. entities like credit
unions.
By comparison, the credit unions' banking brethren have been subdued in their
resistance to FATCA. Texas and Florida banks have sued to block a regulation requiring them to tell the IRS when they pay
interest to nonresident aliens, and the American Bankers Association has urged the agency to spare certain products and balances from reporting
requirements.
Aside from the credit unions, many in Washington are weighing in on the
matter. In its 2014 budget, the administration buried a request for Congress to authorize the Treasury Department to issue
unprecedented regulations requiring U.S. financial institutions to report
information on nonresident accounts for the IRS to share with foreign
governments. This plan may be dead on arrival.
According to the White House's "Analytical
Perspectives to
the Fiscal Year 2014 Budget,"
"the [budget] proposal would provide the Secretary of the Treasury with
authority to prescribe regulations that would require reporting of
information with respect to nonresident alien individuals, entities that are
not U.S. persons, and certain U.S. entities held in substantial part by
non-U.S. owners, including information regarding account balances and
payments made with respect to accounts held by such persons and
entities."
Without such authority, the Treasury Department will be unable to follow up
on its promises that have been a part of the already-negotiated "intergovernmental
agreements." The IGAs have been instrumental in persuading foreign
governments to enforce FATCA on themselves in exchange for imposing
FATCA-like mandates domestically in the United States. But the agreements are
an unauthorized creation of the U.S. Treasury Department, according to McGill
University law professor Allison Christians, author of a recent Tax Notes
International article, "The
Dubious Legal Pedigree of IGAs (and Why It Matters)."
James George Jatras of RepealFATCA.com calls Sen. Paul's bill "a major
game-changer." He also predicts Congress will fail to legislate the
necessary reciprocity authority to rescue the flawed statute. "With the
wind in Washington now blowing against FATCA, foreign governments are on
notice that Treasury's promises of 'reciprocity' are plain rubbish,"
according to Jatras.
Though Sen. Paul's bill aims to repeal only certain anti-privacy provisions
of the FATCA legislation and a companion version is expected in the House, he
has also been holding up Senate approval of all tax treaties since he was elected in 2010.
Jatras encourages all international firms to get involved, adding that
"American and non-U.S. firms that stand to lose millions of dollars each
complying with FATCA need to help push the repeal bill through. FATCA repeal
needs to be part of any tax reform."
With a litany of bipartisan reasons to oppose FATCA, ranging from privacy and
sovereignty to U.S. economic competitiveness, it is startling that the
legislation has advanced as far as it has. The situation speaks volumes about
the opaque process of continually "hiding" the specifics of putting
laws into practice in other legislation, resulting in the nearly seven-year
implementation timetable.
By Jon Matonis
American Banker
Thursday, May 23, 2013
http://www.americanbanker.com/bankthink/credit-unions-fear-collateral-damage-from-fatca-1059360-1.html
