We’ve known all along reciprocity is not really reciprocity. Not only that, but FATCA IGAs Are A Bad Deal For Partner Countries.
While vendors are cheering themselves on and salivating at the opportunity to make big money off our nightmare, Jim Jatras says “it isn’t clear that FATCA itself is doing as well.”
Why? Because the U.S. Treasury Department’s ability to enforce FATCA directly, on each and every FFI on the planet is highly questionable.
Getting IGAs signed isn’t proceeding like U.S. Treasury thought it would. Plus, faux reciprocity in Model 1 is in trouble.
Even according to an IRS manager, ““clearly existing U.S. rules don’t require U.S. financial institutions to provide the exact same information that a foreign institution has to under FATCA.”
Mr. Jatras does an excellent assessment of that:
Some have been critical of Mr. Setzer for having the bad manners to speak something like the truth out where it could be reported to those not familiar with the imbalance codified in the IGAs. But putting aside questions of indiscretion and the vague characterization of a timeframe for “full reciprocity” – something that clearly isn’t going to happen anytime soon, and probably not ever – it’s nice to have confirmed officially what most people familiar with the details prefer to obscure.
In his article, Mr. Jatras also points out many ways US has to unilaterally change or escape from an IGA after it is signed.
Moreover, an IGA provides no protection at all for one additional, simple reason: they are written on sand.
American Bankers Association have also now joined the fray
“There is no indication or evidence suggesting that the Treasury conducted the required due diligence for entering into such an automatic exchange relationship” with Mexico.
Mr. Jatras further says:
As a bad deal for all concerned, the IGAs should also be seen as a “weak link” for undermining FATCA and working for its repeal before its worst features go into effect.
Foreign governments need to stop helping to save FATCA from its own fatal flaws by signing IGAs that cannot provide promised protection for cherished institutions. Instead, they should tell Treasury in clear and principled terms that they will not allow their domestic firms to comply with FATCA, and that they’re prepared to respond with WTO and other remedies if IRS tries to apply sanctions.
Finally, firms faced with wasting untold millions of dollars to comply with FATCA need to stop pressing their governments to sign IGAs and instead help get rid of it by supporting the repeal campaign in the United States.
We need to keep up the pressure on our own governments and financial institutions.