Everyone is gearing up for the implementation of the US Foreign Account Tax Compliance Act… and for very good reason.

FATCA requires banks to report the financial holdings of any US National with funds in excess of $50,000 held by the Bank or Fund (essentially so that the US government can find out about any US Citizen who is avoiding tax by not declaring their overseas assets).

The financial penalty for not complying with this Act would be the US Government retaining 30% of the Financial Assets in America of the Bank or Fund in question.  This is in addition to the law already in place whereby US citizens are currently obliged to report any holding of $10,000 or more outside of the US (though, clearly many US citizens are failing to comply with this).

Whilst every Institution should know the nationality of their account holders through KYC, this will still be a huge administrative and reporting headache for all concerned.

Despite the regulatory and reporting nightmare that Institutions are going to have to contend with through FATCA, I do understand (and in a way, sympathise with) the rationale behind the Act…..  it has been reported that if all of the tax due on all US citizens’ income was paid (without the use of avoidance schemes), the US would be debt free within 2 years… So it is argued that there is a sizeable, unreported amount of money held in offshore funds.

But will the rest of the financial world fall in line with the requirements of FATCA? Or will this push US citizens to hold their money in countries (outside of the regular financial markets) with no financial ties to the US?

Jon Goodman is the Risk, Regulatory & Compliance Consultant for BrightPool.