Over the past year or so I have spoken
to many dozens of fiduciary businesses about the impact that they expect the FATCA
regulations to have on their business.
By and large, most struggle to answer the question – they are aware that
the regulations are coming in, and broadly what they concern, but are very
lacking in any detailed knowledge or preparation. For understandable reasons, many are adopting
a wait-and-see approach, and aim to follow others once it has become clear what
most industry participants are doing to comply rather than be at the forefront
of analysing the impacts for themselves; after all, nobody wants to have to
invent the wheel themselves. But as time
marches on towards implementation date, I have a growing concern that many fiduciary
businesses may be kidding themselves about the extent to which the regulations
will impact on them, and that failing adequately to prepare now is likely to
cause great difficulty in the months to come.
Based on my conversations with trust
company directors, I believe there is a significant number of fiduciary
businesses who do not expect to have to concern themselves with FATCA because
they “do not do business with Americans”.
In many cases, they are over-confident in this assumption – even if the end
client is not an American passport holder and doesn’t have his main address in
the country, the trust company will also need to be able to analyse whether any
of the other “markers” of a US involvement are present.
The FATCA regulations stipulate a
number of “indicia” which must be considered in making a determination - having one of these indicia does not mean that the account
is owned by a U.S. person, but it does mean that it must be given closer
scrutiny and that additional documentation may need to be gathered in order
properly to make the determination.
The indicia are:
- U.S. citizenship or lawful permanent resident (green card) status;
- A U.S. birthplace;
- A U.S. residence address or a U.S. correspondence address (including a U.S. P.O. box);
- Standing instructions to transfer funds to an account maintained in the United States, or directions regularly received from a U.S. address;
- A “care of” address or a “hold mail” address that is the sole address with respect to the client; or
- A power of attorney or signatory authority granted to a person with a U.S. address.
The majority of trust company IT systems
that I am familiar with have fields which have to be completed which would show
the country of residence of a client, and in many cases the country of
citizenship. The better systems would
allow a report to be produced sorted by the jurisdiction populated in these
fields on the system (although a good number would not, and although the data may
be on the system it would need to be manually checked on a case by case basis).
But I know of no IT systems which
currently cover all of the 6 indicia, and indeed in my experience it is not
routine for administrators to even ask the questions which would be needed to cover
all of the indicia. As a consequence,
many are likely to lack the basic information they need to make the
determination, even if they do have a system on which they could theoretically
record the information. Very few trust
companies routinely record in any systematic way, for example, the addresses of
people who may be authorised signatories on a bank account, or whether a client
holds a green card, or whether a client owns a second home in the US.
The reality is that for many trust
companies the only way they are going to be able to be confident that they are
not inadvertently falling foul of the regulations is to do a manual trawl
through every single file to ascertain whether they have all of the information
they need on each of the indicia for each client, and to request information
from the clients to fill any gaps. Given
that trust companies often have thousands, if not tens of thousands of clients (and indeed, there may be multiple persons who need to be checked for every client entity - such as beneficiaries of a trust, or investors in a fund), this will be no mean
feat and will take a great deal of time to achieve, particularly given the fact
that it can be notoriously difficult to get information and documentary evidence
of such matters from people who may have been clients for years.
So there are 2 questions that trust
companies need to start asking themselves very quickly. Firstly, do we have all of the information
somewhere on file to enable us to know whether any of the indicia are present
in every case we manage? And secondly,
if we do have that information, do we have it stored in a place which is easy
to access, update and report on?
There are those who have been postponing acting in the hope that some of the initiatives which are being discussed (such as exchange of information on a country basis, rather than each reporting entity having to deal directly with the IRS) may significantly lessen the impact of FATCA compliance, but I believe this is a forlorn hope. None of the initiatives currently under discussion, so far as I am aware, change the data that will need to be gathered and reported - the only thing that may change is to whom the reports are sent and in what format. Whilst these discussions may therefore be welcome in many ways, they will not provide a magic solution for the very real practical problems that trust companies are likely to face.
Like
it or not, the time has come to bite the bullet.
Anyone wanting further information on
this subject can contact me on np@mp-csl.com.
PLEASE NOTE THIS BLOG POST IS NOT INTENDED TO PROVIDE LEGAL
ADVICE AND SHOULD NOT BE RELIED UPON FOR THESE PURPOSES.
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