FATCA: The long arm of Uncle Sam

Executive magazine

America throws its weight around in Lebanon

With the United States’ debt having surpassed 100 percent of gross domestic product, at over $15.7 trillion, the Internal Revenue Service (IRS) has launched an aggressive worldwide campaign to try and curb the deficit by bringing in tax revenues from US citizens abroad.
While the Foreign Account Tax Compliance Act (FATCA) is not to go fully into effect until 2014, it has already caused waves in the international banking community and within Lebanon, as it will require all banks to essentially act as agents of the IRS by listing US citizens holding accounts. In Washington DC, a new building is under construction that will be devoted to handling FATCA files alone, given there are an estimated 117 million Americans abroad — including Green Card holders — and that the IRS assumes it may be able to repatriate upwards of $100 billion in taxes.
“The US is not looking at Lebanon as a place to hide money but rather at Singapore, Lichtenstein and Switzerland,” said Fadi Osseiran, general manager of BlomInvest Bank, in reference to the world’s major tax havens. “We are involved for a stupid reason, as some Lebanese have dual nationality.”
Anecdotal evidence suggests there are an estimated 22,000 people in Lebanon holding US citizenship, although the US embassy declined to confirm this. While FATCA concerns earnings above $100,000, banks will nonetheless have to require customers to declare whether they have a US passport, Green Card or were born in the US. As Lebanon has banking secrecy, a client can refuse to disclose such information. In such a case, the bank will refer the individual to the Central Bank’s Special Investigation Commission.
The risk for banks is that if they do not comply with FATCA they could be designated as non-compliant and international banks, especially in the US and Europe, will refuse to deal with them. To make sure US citizens do not try to evade the upcoming act by transferring funds or changing account holdership to non-US citizens, the IRS can go back several years through accounts. And if someone gives up their citizenship, they will have to pay taxes for five more years.
“The IRS is calculating this kind of evasion, although it is worth little compared to the revenues they’ll have,” said Paul Morcos, founder of the Justicia law firm that provides legal consulting for the banking sector. However, all is not yet clear on full disclosure. “This law will lead to confusion and gray areas, like for example cases where we have a joint account between a Lebanese father and a son who has been naturalized in the US. Does a bank have to report on this or not?” added Morcos.
Who will report to the IRS is a further issue; whether it will be Banque du Liban (BDL), Lebanon’s central bank, or the individual banks is currently being hammered out in a bilateral agreement between Lebanon and the US. “The BDL could be the agent for all Lebanese banks but I don’t know if the IRS will agree,” said Samih Saadeh, managing director of Banque BEMO.
Bankers deny that FATCA will be a nail in the coffin of banking secrecy as it only concerns US citizens, but it could be the beginning of the end of such a service if there are further amendments to FATCA and if Europe and other jurisdictions follow the US lead with an act of their own, similar to how the US’ recent emphasis on enforcing the Foreign Corrupt Practices Act was repeated by the British government with its Bribery Act.
“From my point of view, banking secrecy is less and less important,” said Osseiran. “For me, we don’t need banking secrecy. The only reason to do it is a culture of privacy for customers, but to avoid taxes or launder money, it shouldn’t be the case.”
What is curious about FATCA is that tax evasion is not illegal in Lebanon, meaning that the US as a foreign fiscal authority has gained influence over the country.
“It is extra-territorial, being a law implemented beyond frontiers. We are witnessing the supra-national effect of the law, starting with the US Patriot Act and now FATCA, and I’m afraid of FATCA II and FATCA III,” said  Morcos. “I wonder if FATCA II or III will be more aggressive or much clearer, but I think it will be more extensive and will bring about new practices in the finance and banking industry to enhance monitoring and reporting through foreign channels.”