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How FATCA Has Changed The World Of Offshore Banking

Global Banking In Our Post-FATCA World

“‘Knock three times and ask for Roscoe.’

“That’s what offshore banking used to be,” Peter Zipper, an offshore banker with more than three decades of experience, explained to the crowd in attendance at last week’s Global Asset Protection and Wealth Summit in Belize.

“But those days are over,” Peter continued.

“In 1999, there was a global banking conference, which I attended, during which the world of offshore banking was changed dramatically. One specific outcome of that convention, for example, was the end of the numbered account. Ever since, if you want to bank with Roscoe, you’ve got to reference your account name,” Peter assured the group.

The offshore banking industry is right now experiencing another dramatic upending, this time not in the interest of cleaning up banking dumps but with the clear and straightforward agenda to track the movement of money around the world more tightly and to tax every possible dollar along the way.

July of this year was the deadline for banks around the world to begin complying with IRS FATCA regulations or risk U.S. dollar transfers to their bank having 30% withheld by the sending bank. Come July, however, neither the IRS nor the global banking industry was in a position to meet FATCA administration requirements, so the compliance regulations have been loosened to allow everybody more time to continue working through the associated red tape. Banks have been signing up for their Global Intermediary Identification Numbers (GIIN); many have received them but not all. During this time of transition, compliant banks are to maintain the IRS-required information to do with money transfers and account holders, but they don’t have to begin sending this information to the IRS until next year.

“Which banks won’t comply?” Lief Simon asked the audience at the conference.

“That is,” Lief continued, “maybe you’re thinking that you’d like to identify those banks that don’t intend to comply with IRS regs and do business with them alone?

“That’s not a practical strategy,” Lief explained. “A noncompliant bank will have that 30% withholding yoke on it, meaning it’s going to be really expensive to do business with a noncompliant bank. In other words, any bank that wants to deal in U.S. dollars will be compliant. I’m not sure which banks that fact leaves out, but I’m guessing you aren’t going to be able to conduct whatever business you want to conduct through them.

“One way for a bank to comply with FATCA rules,” Lief said, “is to have no U.S. account-holders. A number of banks around the world are going this route, but not all, of course, and the American looking to diversify his banking offshore still has good options.”

Lief offered six recommendations for good offshore banks that are still accepting U.S. clients. Then he offered a non-recommendation for one bank that we’d formerly done business with personally. This bank sent us the dreaded “We’re closing your account” letter last year. They provided no explanation for why they were throwing us out and closing our account and gave us but 30 days to move the money.

“The worst part,” Lief explained, “was that this was the one instance where I hadn’t taken my own advice. I didn’t have a second, backup account for this corporation, so I had to scramble. I spent a good number of the 30 days I’d been allowed knocking on the doors of banker-friends, trying to find one who’d open a new account for me before the deadline. I finally found one (it’s one of the banks on my top six list).”

One symptom of the shake-up (shake-down?) taking place in the offshore banking world right now is rising fees. Banks are passing along the costs of complying with FATCA rules to clients.

“One bank in Panama,” Lief explained, “is now charging a fee of any foreigner interested in opening an account with them. This fee is payable up front, before any other discussion takes place. If, after reviewing your paperwork, the bank decides it will not open an account for you, the fee is not refundable.”

Lief closed his offshore banking remarks to the group with three pieces of advice:

  • Create redundancies. For every foreign bank account you have, you need a second, backup account…
  • When you have the opportunity to open an offshore account…open it. “You’re here in Belize this week,” Lief said. “I suggest you take advantage of this opportunity to start the process of opening an account. Two Belize banks are represented here at the event. All you have to do is stop by their tables in the exhibit hall…”
  • Don’t close any foreign account you have if you don’t have to—even if you have no immediate need for it. You never know when or if you’d be able to replace it in the future…

Kathleen Peddicord

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