Cen­tral Bank Gov­er­nor Jwala Ram­bar­ran said yes­ter­day that the US For­eign Ac­count Tax Com­pli­ance Act (FAT­CA) has been de­scribed as "a kind of US back­ward im­pe­ri­al­ism," and he called on Caribbean coun­tries to "build al­liances with oth­er ju­ris­dic­tions in the Amer­i­c­as that are equal­ly af­fect­ed by FAT­CA" to ad­dress the is­sue that is "of im­me­di­ate con­cern to all reg­u­la­tors in the Amer­i­c­as."

Ram­bar­ran was speak­ing at the meet­ing of the Coun­cil of Se­cu­ri­ties Reg­u­la­tors of the Amer­i­c­as (COS­RA) at the Hy­att Re­gency Trinidad about FAT­CA, leg­is­la­tion passed in the US in 2010, which re­quires non-US fi­nan­cial in­sti­tu­tions to re­port di­rect­ly to the US In­ter­nal Rev­enue Ser­vice (IRS) all ac­counts held by US cit­i­zens or green card hold­ers liv­ing out­side of the US above a cer­tain thresh­old.

"Since FAT­CA was en­act­ed in March 2010 by the US gov­ern­ment as part of the Hir­ing In­cen­tives to Re­store Em­ploy­ment (HIRE) Act, it has gen­er­at­ed much heat­ed de­bate and has been de­scribed in rather un­com­pli­men­ta­ry terms. FAT­CA has been hailed as 'a tick­ing time-bomb; an at­tempt to con­vert for­eign­ers in­to un­paid IRS agents; (and) a kind of US back­ward im­pe­ri­al­ism'."

He told the gath­er­ing of se­cu­ri­ties reg­u­la­tors from North, Cen­tral and South Amer­i­ca, and the Caribbean, "to prop­er­ly com­ply with these new re­port­ing re­quire­ments, a for­eign fi­nan­cial in­sti­tu­tion will have to en­ter in­to a spe­cial agree­ment with the IRS by June 30, 2013."

Un­der this agree­ment, the fi­nan­cial in­sti­tu­tion will be ob­lig­at­ed to ob­tain in­for­ma­tion to de­ter­mine which ac­count hold­ers are US per­sons, com­ply with ver­i­fi­ca­tion and due dili­gence pro­ce­dures on such ac­count hold­ers as re­quired by the IRS, and re­port an­nu­al­ly to the IRS on the name and ad­dress of each US client, as well as the largest ac­count bal­ance in the year and to­tal deb­it and cred­its of any ac­count owned by a US per­son or for­eign en­ti­ties with sub­stan­tial US own­er­ship.

"The penal­ties for non-com­pli­ance are steep," he said. If a for­eign fi­nan­cial in­sti­tu­tion re­fus­es to com­ply with these re­quire­ments, a with­hold­ing tax of 30 per cent will be ap­plied on all US source in­come of that in­sti­tu­tion, re­gard­less of whether or not such pay­ment was made for the ben­e­fit of the US ac­count hold­er, for an­oth­er client, or for the in­sti­tu­tion it­self, he said.

For­eign fi­nan­cial in­sti­tu­tions "may broad­ly in­clude" every mem­ber of the in­vest­ment com­mu­ni­ty and en­com­pass banks, cred­it unions, cus­to­di­ans, as­set man­agers, in­vest­ment funds and pen­sion fund schemes, bro­kers and in­sur­ance com­pa­nies where their prod­ucts have an in­vest­ment el­e­ment, he said.

In ad­di­tion, FAT­CA re­quires US cit­i­zens and green card hold­ers who have fi­nan­cial as­sets out­side of the Unit­ed States ex­ceed­ing US$50,000 to re­port these as­sets to the IRS. FAT­CA fo­cus­es on the high net-worth in­di­vid­u­als, the so-called FAT­CAts, he said.

"It would be quite easy for some non-US in­sti­tu­tions to be­lieve that they will not be af­fect­ed by FAT­CA, as they do not have any US in­vestors, but FAT­CA paints with a very broad brush," he said. The leg­is­la­tion is struc­tured so that all ac­counts will be deemed non-com­pli­ant or re­cal­ci­trant un­less the in­sti­tu­tion can demon­strate it un­der­took a rig­or­ous due dili­gence process to prove it has no US ac­count hold­ers. Oth­er­wise the 30 per cent with­hold­ing tax will be ap­plied, he said.

Se­cu­ri­ties reg­u­la­tors at­tend­ing the con­fer­ence heard that the Unit­ed States gov­ern­ment fore­goes US$377 bil­lion a year from tax eva­sion by US-based firms and in­di­vid­u­als. "To put this sum in per­spec­tive, it rep­re­sents some 7.5 per cent of to­tal US gov­ern­ment rev­enue. In ad­di­tion, the Eu­ro Zone coun­tries of Italy, Ger­many, France and Spain as well as the Unit­ed King­dom are es­ti­mat­ed to each lose at least US$100 bil­lion in rev­enue every year to tax eva­sion," he said.

On T&T's readi­ness for FAT­CA, Ram­bar­ran said: "Our three Cana­di­an and the US-owned banks are at the high­est lev­el of pre­pared­ness, hav­ing been part of their glob­al par­ents' pro­gramme of FAT­CA com­pli­ance." The three Cana­di­an banks are Sco­tia­bank, CIBC First Caribbean In­ter­na­tion­al Bank and RBC Roy­al Bank. The US-owned bank is Citibank.

"The two large lo­cal banks (Re­pub­lic and First Cit­i­zens) have ini­ti­at­ed projects which would en­able them to be well in train to com­ply with the FAT­CA re­quire­ments. The small­er banks are in the process of amend­ing their Know Your Cus­tomer (KYC) pro­ce­dures to iden­ti­fy US res­i­dents and cit­i­zens," he said.