FATCA Overview: Tax Compliance Act Impacts US Persons Abroad

The Foreign Account Tax Compliance
Act (FATCA)
MAS 6309
Siddharth Aggarwal
December 10, 2014
The University of Texas at Dallas
For: Professor Steven Solcher
Naveen Jindal School of Management
JSOM 4.425

Table of Contents
1. FATCA Executive summary
2. FATCA-A brief overview
3. FATCA-Implementation Timeline considerations
4. FATCA-Compliance efforts
5. FATCA-Individual Impact
6. FATCA’ future global cousins
7. FATCA’s opponents and their reasoning
8. International examples of benign negligence
9. Impact to FFIs & Companies
10.FATCA’s efforts to establish global trust with the IGAs
11.GATCA & Rubik: FATCA cousins making an international mess
12.Local impact of FATCA
13.Asian preference for FATCA
14.Green Card holders and Lawful permanent residents abroad
15.FATCA White Papers
16.Technological implementation Categories
17.Successful FATCA implementation scenarios
18.FATCA-Proposed Solutions
19.Conclusion
20.Works Cited/Bibliography
21.Appendix
FATCA Executive Summary
The Foreign Account Tax Compliance Act is a measured response by the United
States government, signed in 2010 and implemented in 2014 after a litany of
modifications along the way. It is one of many federal government efforts to generate
greatly needed lost tax revenues from US-related persons’ accounts overseas.
Whereas it doesn’t ensure that the vast majority of lost tax revenues will be collected, it
does guarantee hundreds of millions of dollars of new revenues to the IRS and Treasury
department. It does this while also creating a global policing standard to ensure future

dodgers think twice before hiding monies overseas. Some important ramifications of
FATCA domestically and internationally are yet pending. A new generation of “FATCA”-
inspired models developed by European nations and other parts of the world are now
looking to the United States for guidance on how to recoup tax revenue losses. The
impact to US related persons is staggering on several levels (individually, holistically).
As of 2013, FATCA has been increasingly mentioned in leading financial and daily
newspapers like USA Today and the Wall Street Journal. Any FATCA news commonly
produces negative headlines like “Americans abroad find citizenship too taxing to
complete” and “American Expats’ Tax Nightmare”.127 These headlines certainly do not
help the US government with its goals for FATCA. FATCA written in 2010 as an
addendum to a “jobs bill” and lacked functional depth. Although the United States
Department of the Treasury jointly with the IRS has had the crucial undertaking to fill out
the details of FATCA; recently some important details and questions for all parties
involved have arisen over the past four years. A nonresident US Citizen must consider
FATCA’s important ramifications such as its current global impact, its individual impact,
and its impact on commercial dealings between taxpayers and FFIs or employers
abroad.
An important purpose of this paper will be to look at what the federal
government’s own auditing agency, the Government Accountability Office (GAO), has
found regarding the assumably billions of dollars of missing revenues to the IRS that
required from US persons overseas. The GAO has indicated that the complexity of pre-
FATCA efforts to collect financial information, called the FBAR recommendations, is
duplicative with current FATCA regulations. The GAO is tasked to ascertain how much
of this duplication contributes to excess costs for US taxing authorities, foreign taxing
agencies, overseas United States Persons filing their taxes, companies with US Citizen
employees, and foreign financial firms with American business dealings that must
comply with FATCA under strict and imminent timelines.
An important position and objective of this paper will be examining how the
Government Accountability Office has found gaps in IRS revenues gathering from
overseas US citizens. The gaps are compounded by the complexity of duplicative pre-
FATCA recommendations (FBARs) with newly added FATCA recommendations and

how much of the duplication contributes to excess costs for the US taxing authorities,
foreign taxing agencies, and overwhelmed non-resident US-related taxpayers overseas
who must comply with FATCA under strict and imminent timelines.
FATCA- A brief overview
The United States annually loses billions or even trillions of dollars as a result of
lost tax revenues from those US Citizens abroad who do not report authentic tax liability
information to the IRS. Under FATCA, foreign banks are required to report account
information owned by U.S. citizens to the IRS. The global recession which ended in
2009, is still being felt a half decade later despite an economy recovery. A recently
elected and popularity-starved 111th Congress tacked on the FATCA law as addenda to
the major Obama-led legislation colloquially known as the “jobs bill”. This bill is known
as the Hiring Incentives to Restore Employment Act. Because of the additional billions
of lost IRS tax revenues from overseas that FATCA could bring with it, politically FATCA
encountered no opposition. Almost 80,000 financial institutions and over 80 countries
and counting have said they will follow FATCA rather than face penalties.1 According to
Richard Harvey, a distinguished Villanova University tax law professor and one of the
original writers of FATCA, the law could actually rake in “$20 to $30 billion” in lost tax
revenues for the Treasury and IRS. 81
FATCA- Implementation Timeline Considerations
America is ubiquitously considered the only industrialized and developed nation
on earth that taxes its citizens everywhere on any earnings. FATCA in theory ensures
that not a single cent is missed without an IRS audit of that individuals’ earnings related
tax information. The original FATCA mandate was scheduled to be implemented on
January 1, 2013 but was delayed in six month intervals eventually to July 1, 2014.
FATCA is legally stated as “Except as otherwise provided in this subsection, the
amendments made by this section shall apply to payments made after December 31,
2012.” But in July 2013, the United States Treasury and the IRS jointly released Notice
2013-43 that delayed FATCA withholding liability to July 1, 2014 from January 1.
FATCA was delayed to give IRS officials, lawmakers, attorneys, accountants, and
taxpayers more time and because many underdeveloped, emerging, and newly
industrialized nations need more guidance and supervision on signed agreements and

intergovernmental agreements (IGAs); necessitated over the past four years. The delay
was imperative but still not enough time grated to most people affected by FATCA. The
extra time added owes a lot to the ambiguity and uncertainty in FATCA guidance. IRS
Notice 2013-43 says that withholding on withholdable payments is not required until July
1, 2014 but withholding is exempt if documentation can reliably prove a withholding
agent can reliably prove exemption status.
Even the Treasury Departments tax policy experts are saying that despite
FATCA’s intent to make sure all taxpayers are paying their dues “regardless of where
they live”, the Treasury Department needs to “maintain a balance between enforcement
efforts and equity, including the burdens that may be placed on taxpayers”. 46
The developed timeline for implementing FATCA presents complexities for American
taxpayers and FFIs. While FFIs support IGAs as a friendly resolution to conflicts in
complying with FATCA, there is continued ambiguity about whether IGAs in various
legal dominions will be impeding FFIs and withholding agents to complete their own tax
audits for due diligence and implementation. Jointly, the Treasury and the IRS have
been ergo extending the timelines for FATCA withholding since 2013 each time at 6
month intervals to allow modifications to be made.
FATCA-Compliance Efforts
In the face of FATCA appended to the Internal Revenue Code in2010, financial firms
and other withholding agents have been busy the past few years making sure FATCA
upholds and maintainsstandardswithregardstopayments.Pre-FATCArulesandgrandfather
clauses dating to prior to December 31, 2012 are important in terms of integration to current
FATCA adherence. They must adhere to the post-grandfathered 2012 requirements which
were finalized by January 2013. 5 These obligations include debt instruments before
12/31/12 that are not subject to FATCA withholding. Reissued debt and equities (for
income tax purposes) after 12/31/12 will not be grandfathered, and all future transactions
of liquid assets will be subject to FATCA rules. 6 The government has given this extra time
for financial firms to register on an IRS portal to become familiar with the FATCA process
and edit and assess its current information prior to 2014.
FATCA- Individual Impact

Having been passed in 2010, the Foreign Account Tax Compliance Act orders
Americans in foreign countries and their financial firms to report all US clients’ accounts
to the IRS and those entities who fail to do so are subject to 30% withholding tax by the
United States. These laws apply not only to United States citizens but permanent
residents and spouses of citizens and green card holders as well. 10 New immigrants to
the United States are not exempt as well. A “US person” according to the law is anyone
with a meaningful or substantial legal connection to the United States; they are subject
to FATCA, thus ensuring ambiguity in defining what consists of “substantial” and
providing more paid work for tax accountants and tax lawyers. Ambiguity is cleared by a
more specific description for US persons’ for tax purposes would require the person to
be a “specified” US person. FATCA goes beyond persons to entities and says that US
persons’ can also be US branches of foreign corporations that trade stocks, US
incorporated corporations, US tax-exempt organizations, US agencies abroad, any US
possession, banks, real estate investment trusts, regulated investment firms, common
trust funds, charitable trusts, dealers (securities, derivatives, commodities) and
brokers.104 Some US persons may perhaps been born to Canadian parents in American
hospitals or were children of American-born parents but themselves have never been to
the US (let alone lived), are considered US-persons by proxy at the very least.40 42
Even more specifically, a U.S. Account that is Reportable is an account “owned
by a U.S. individual (person), U.S. entity, or a non-U.S. entity that has U.S. owners --
regardless of the currency of the account itself. FATCA applies to all types of financial
accounts, including insurance, investments and business accounts.”14 Incidentally,
FATCA’s individual impact to account holders is being misrepresented on many
occasions by the media and critics since it requires US persons with over $50,000 in
total accounts and assets to report rather than the previous FBAR $10,000 requirement.
This change in reporting sum should significantly alleviate concerns for unemployed
citizens abroad and middle class earners abroad. 82
Yet, the broad and reaching definition of “American” clients is so large now that
many foreign firms think Americans are simply too much of an inconvenience and time
consuming. Even Canadian visitors to the United States, known as “snowbirds” who
choose to stay in America only a few months a year have to make sure they only stay

less than 180 days or so otherwise they face full US tax classification liabilities under
FATCA11. Other requirements include filing if income requirements are met such as
$10,000 for singles and $20,000 for couples in addition to other forms. 10
The issue has grown to such a dilemma that 2013 was the year of the most
American citizenship renunciations in the history of the United States. One dire concern
is taxes are higher in many countries where these Americans are moving to so US tax
liabilities are removed for the most part since the taxes in other places like Canada or
an EU nation are higher. The income tax paid in one of those nations can be used to
balance out any US tax liabilities. Despite these realities, FATCA requires reporting and
past non-reporting by nonresidents over the span of a few decades can and will cost
dearly. The non-reporting for the estimated almost 8 million non-military US Citizens
overseas has cost the government potentially trillions over the past decades but many
of these Americans have been living in ignorance mainly. Of the 8 million US citizens
overseas it has been polled that almost 75% of them are considering giving up their US
passports. 36 Remarkably, the State Department feebly insists that a fee hike starting
September 2014 raising the renunciation fee by over 400% from $450 to $2350 is only
due to increasing demand, increasing turnaround times and labor administrative loads.
53 Because of America’s unique tax laws, US citizens may not owe any taxes however
they face large fees and potential civil and criminal negligence penalties for not filing
forms such as the FBAR (Report of Foreign Bank and Financial Accounts).
Today, an unbiased observer can safely speculate that FATCA is a modern-day
“witch-hunt” for American’s overseas and each of those citizens has a “scarlet letter” or
“yellow star” due to FATCA. Complications have arisen from FATCA such as
American’s now having more difficulty in securing: capital, investment accounts,
insurance, mortgages, opening new bank accounts, job promotions, and even
permanent personal relationships (marriages). Skilled laborers abroad are simply not
being hired because FATCA is costly and time-consuming. FATCA’s double impact on
their compensate packages as expatriates makes them more burdensome for foreign
employers. 82
One significant example of FATCA that bears witness to its potentially
disproportionate and exacerbating reach is the clients of one New York attorney,

“I know of one client whose parents live outside the US," he said. “They are in
their 90s, and have a bank account in their home country. They added their son as a
signatory because if they become incapacitated, they want him to have access to
money to pay their bills. But their account has now been frozen because he's American.
The bank wants the son to provide the last five years of his tax returns before it will
unfreeze the account. He has had to hire a lawyer to sue the bank to let his parents’
access their own money." Americans’ accounts overseas are being frozen and many
times without their own knowledge or unfairly against them. 82
Apparently, non-Americans who do not have the tax reporting requirements
burdens are easier to hire and less expensive. Countless commercial transactions are
at risk because European governments and local agencies do not want the IRS to have
unrestricted access to their finances and even dual EU/US citizens cannot get
savings/checking accounts because of the complications. Another example is of
Americans’ living overseas who are dependent on their EU/non-US spouses. These
Americans are limited in their options because they cannot fill out the necessary
paperwork. Moving to individual bank accounts for these Americans is risky because
they may not have income and under EU laws may not have rights to access their
spouse’s accounts. 3
For married couples, an easy fix would be to remove the American from their
signature right but to be practical and fair, is that really something that non-resident
Americans should be forced to do on their own families’ accounts including personal
and commercial transactions? 83
For the entire furor over FATCA, the issue of privacy seems to be confined to a
double standard. While the IRS will have foreign banks following US protocol of auditing
the financials without America having to take into account that nations’ domestic privacy
laws, the US will have more information on their citizens’ international holdings than
their citizens’ private domestic assets and equities. In other word’s FATCA will allow the
IRS to basically have free financial crimes information gathering services rendered by
foreign banks and foreign agencies as essentially subservient US tax law enforcers
abroad.
FATCA’s future global cousins

America as a superpower has the seeming duplicity of setting these FATCA rules
while its government will be refraining from duplicating the remitting of similar data to
the world’s own FATCA-type settings. The world has modelled a new bilateral tax treaty
backed by dozens of nations to help create truly multinational tax information exchange
(known as GATCA) where gathering is shared. 7 GATCA (Global Account Tax
Compliance Act) is a theoretically more stringent version of FATCA and will be
implemented by leading member nations of the Organisation of for Economic Co-
operation and Development (OECD) including France, Germany, the United Kingdom
and others. 7
According to OECD leaders, FATCA has precipitated the new “GATCA”
reciprocating movement around the world precluding tax dodgers of all nationalities into
an extremely limited range of options to hide assets in the near future. The OECD is
leading the efforts to have an automatic exchange of financial account information that
is draws on the FATCA model, yet goes in differing information gathering route based
on taxpayers’ residence rather than citizenship or residency status as FATCA does.
The potential onslaught of diverging GATCA obligations (also known as AEOI)
could either sync with FATCA or create further discord and disarray. As a prominent
Hong Kong law firm partner said “If GATCA is not harmonised with FATCA and the
various regional information sharing Initiatives, GATCA will add more patches to the
already patchwork quilt of global taxation”.7 According to KPMG, one of the “Big 4”
global audit firms, “Governance requirements for AEOI processes could be significantly
greater than under FATCA, and need to be designed accordingly.” 23
It is not certain whether the United States will the US will accept GATCA in the
near future by 2017 since over 70 nations have in 2014 signed up for GATCA and over
half are committed to starting early by even 2016.8 America would be hypocritical to not
agree to GATCA since laws and regulations are needed to change for the US to permit
sharing information of foreigner’s bank accounts in the US to their home nations’ taxing
agencies. Legally, GATCA is possible but the US Congress may block GATCA’s
implementation in the United States. 7
Almost shockingly, there are even some rumors and anxieties that the US may
not even acknowledge, let alone consider GATCA because the Automatic Exchange of

Information (AEOI) in FATCA may already cover some of GATCA’s requirements,
however, unlike FATCA, GATCA does not apply withholding tax penalty. Secondly as
mentioned earlier, FATCA addresses taxes not only on residency but on citizenship,
(the US is the only country asides from North Korea with citizenship-based taxing)
whereas GATCA focuses on the AEOI (Automatic Exchange of Information) of an
account holder’s tax residence. The US bylaws maybe arrogantly consider AEOI
inadequate from a US tax legal scope.7
FATCA’s opponents and their reasoning
Congress’s decision to tack on FATCA to the Hiring Incentives to Restore
Employment Act (“jobs bill”) early in Obama’s presidency was surprisingly without any
congressional debates and committee hearings as opponents like to point out. 45 The
black and white lettering of the law while intended to be simple ended up complicating
the decision for many taxpayers in whether to report or rescind US passports or to
plainly evade taxes even more. Many congressional members were even aware of the
law’s implications in depth beyond the surface level, hence the recent political jockeying
of both parties on their stance and FATCA’s recent publicity in major American
publications such as Businessweek, Forbes, and the Wall Street Journal. 45
America’s potential relationships with many member OECD nations and GATCA
members will come into light in how America responds to sharing its own financial data
of those aforementioned account holders.2 Public advocacy think tanks like the Cato
Institute have even likened FATCA to “financial imperialism”. 80
Banking associations supported by vote-seeking senators and other politicians
have fought in federal court against the IRS warning of a massive foreign banking
customers’ held assets loss. The federal courts have sided with the IRS, outlining that
the IRS will send the financial information reciprocating the AEOI directives of
accounting holders to the 70 or more nations who have the GATCA requirements. This
ulterior “promise” addresses the bankers’ and opponents supposed concerns and
requires that the transmitted financial information is done so securely. The information is
promised by the court to be only for foreign governments’ taxing agencies’ eyes only as
a means of allaying wealthy clients and banking firms’ fears.18 19

Still, against data on actual revenues lost by emerging economies from offshore
tax evasion being unreliable, the combined annual global estimate is around $120 billion
per year. These losses from tax evasion cause a severe drain on developing nations’
and emerging nations’ social infrastructures because reduced revenues reduces cash
for those nations’ treasuries. Those nations cannot spend valuable tax revenues on
social welfare programs to help curtail poverty. Implementation of modernized
educational and vocational training that would improve the socioeconomic status of
these nations’ citizens on a global scale is prevented. Class warfare-induced riots are
increasingly becoming an issue in much of the emerging world as well as the developed
world such as the European Union (places like UK, Belgium, Greece) where the wealthy
are being overtaxed or undertaxed at inequitable levels compared to the rest of the
population. Even the United States had the dilemma between the “1%” and the “99%” in
America’s 2011 Occupy Wall Street movement which affected national morale and
further socioeconomic commentary. Tax haven nations such as Switzerland in the
future face the potential burden of having a government that is perceived sterile if its
wealthy foreign expatriates can politick the government and its direct-democracy voting
base into bending towards their interests. 117
Yet curiously despite all the American obstinacy to automatic exchange, foreign
nationals such as those from Latin America continue to hold money offshore in Florida
ironically away from their home countries thus making the United States a tax haven in
the same light that its government portrays so many other nations as. 18 Many banks in
places like Miami or outside the US in Hong Kong19 for example hold hundreds to
thousands of US green card holders and citizens’ money and will have to overturn the
information of the once hidden “dirty money”. The IRS has calculated that 400 billion
dollars or more is held domestically by foreign nationals. 18
Other forms of tax dodging such as “quiet disclosures” are being also highlighted
by FATCA but putting FATCA’s gains and the energy put into FATCA versus the lost
IRS and Treasury revenue by underreporting of revenues and net income by small and
medium sized enterprises (SMEs) across the United States, such is a domestic issue. 2
89 The United States Congressional Joint Committee on Taxation has estimated
(perhaps prematurely) that over the first ten years of FATCA, almost $9 billion will be

generated (about $900 million a year). These numbers give fuel to those who oppose
FATCA and undermine the estimates by tax professionals such as Richard Harvey in
the aforementioned estimates of $20 to $30 billion. Yet the critics have pointed that the
costs of FATCA will surely be much higher than $9 billion to implement. 35 The US
federal deficit sat at almost $700 billion in 2013 and around $500 billion in 2014. FATCA
ultimately can be considered an immaterial amount on the grand scale that critics have
legitimate claims in their questions regarding FATCA’s implementation costs.
International examples of benign negligence
There are individual cases of non-reporting in the pre-FATCA era and FATCA
era that have led to the widespread disapproval and fear-mongering of FATCA. An
incident where a schoolteacher overseas voluntarily disclosed her financial information
through the OVDI/OVDP program had her subjected to time-consuming court taxpayer
services, legal fees, and accounting fees of over $50,000 of her own personal wealth. In
fact she was told by the US Embassy that the OVDI/OVDP program was for “criminals,
not schoolteachers”. 84
After much effort, she got the Taxpayer Advocate Service (TAS), an independent
investigative wing of the IRS to work on behalf of her rights pro bono mapping through
the IRS’s complexities. Her experience with the TAS was beneficial and the TAS helped
her file the FBARs and fight her case. She was glad of the TAS’s help and was “happy
to know they were there” during the “confused process” of the OVDP. Her main
takeaway from the experience was that the IRS does not recognize that the “one size
does not fit all” regarding liabilities, tax brackets, and financial reporting requirements. 84
One woman living overseas proceeded to complete her FBAR’s after she heard
about the OVDP but the entire process took about two years the IRS and her
exchanged hundreds of pages of bank records, legal documents, and tax forms in order
for her tax returns to yield the answer of her owing no taxes. She called an American
number but the IRS agent couldn’t call her back directly since she was an international
number. This experience led her to permanently settle abroad stating “it seemed as if
Congress and the IRS were unconcerned about the needs of Americans living abroad” if
they cannot even exchange phone calls overseas.

It doesn’t seem to help that the IRS has given contradictory instructions in the
informal IRS “FAQs” and due to the ever changing terms of the OVDP and the
guidelines of the IRS’s official source of instructions, the IRM (Internal Revenue
Manual). Taxpayers get inconsistent tax advice from their accountants who may also be
struggling to understand the ever-changing bylaws. 84
Another taxpayer was even recommended by a congressional lawmaker to
potentially renounce US citizenship regarding the taxpayer’s situation. The taxpayer
mentioned that some his acquaintances who hold green cards in the US but live in the
taxpayer’s home country are scared to declare earnings because they were benignly
negligent regarding FBARs and that is now ending up them costing them draconian-
level avoidance fines.
One taxpayer making a miniscule amount of rental income on his overseas home
was required by IRS agents to include the value of the home in the calculation of tax
liability, but since the regulation was so “black-and-white” it seemed to the taxpayer that
this requirement was discretionary and disproportionate to the taxpayers net assets.
The taxpayer eventually got his fines reduced from $172000 to $25000 through the aide
of the TAS but it took almost 2.5 years “processing” his “benign negligence”. His
recommendation is that the IRM needs to give IRS agents more discretion to
communicate with taxpayers abroad such as email.84
Impact to FFIs and companies
As mentioned earlier, adherence of FATCA requirements’ may actually cost FFIs,
companies, and individual taxpayers more than the money FATCA collects to give back
to the IRS. A prime example of this is Canada’s second largest bank TD (Toronto
Dominion), who even said it will cost up to 150 million Canadian dollars to change its
systems in accordance to FATCA with regards to overhead and upfront costs such as
employees, training, technology costs, compliance costs and processes. 49
Under FATCA, the definition of an FFI is a “financial institution” outside the US. It
“accepts deposits in the ordinary course of a banking or similar business”; an entity that
“holds financial assets for others as a substantial portion of its business”; an entity
“engaged in reinvesting or trading in securities, partnership interests, commodities,
notional principal contracts, insurance or annuity contracts, or any interest (including

futures, forward contracts or options) in any of these types of assets” (foreign
investment funds, charities, foreign retirement plans); “an insurance company that
issues, or is obligated to make payments to, any cash value insurance contract, annuity
contract or other “financial account” or the holding company of such an insurance
company.” 104 105
A Thomson Reuters Cost of Compliance survey in January 2014 said that only
16% of FFIS and US citizens with foreign accounts felt that FATCA compliance would
cost them anyway from $100000 to $1 million dollars but less than a year later that
number has jumped to 27%. 300 FFIs were polled and over 55% of firms expected to go
over their budgets due to FATCA. The survey was conducted as of October 29, 2014
when over 50 OECD nations signed an agreement to automatically exchanged financial
information (AEOI), also known as the Common Reporting Standards (CRS or GATCA).
The pact is intended to “help to recover the trust the public today has lost” according to
the OECD. 70 Another 34 nations have committed to the pact by 2018. 70
Globally FATCA and its cousins will cause massive budget overruns for FFIs in
addition to requiring time-consuming research to identify the residences of account
holders and determination of the US-related status of the said person. Furthermore,
reporting to the proper tax agencies is necessary as there are many different
bureaucratic agencies amongst many nations. Critics argue that the “scope, depth, and
complexity of reporting” will cause FATCA to become a bigger “problem” than it already
is. Yet supporters like the British Finance Minister Osborne say that the more countries
that sign CRS (AEOI) and the more CRS is refined and retooled, countries’ taxing
agencies will be able to “clamp down on tax evaders”. The German Finance Minister
Wolfgang Schaeuble even said that CRS is necessary because “banking secrecy, it its
old form, is obsolete. 72 74 Most nations seem to agree that the current tax guidelines are
needed for modern global economies. 75
If America does decide to automatically exchange information, the
intergovernmental agreements could do wonders for global diplomacy in other sectors.13
If not, the ramifications are particularly dangerous for the United States. If derivative
securities, bank deposits, debt securities, and equity securities are withdrawn from the
United States by foreigners, foreign direct investment (FDI) will be severely impacted. 12

United States-based FDI is estimated at almost $3 trillion and would affect the future
growth potential of the recovering United States economy which has fully recovered yet
in 2014. Attracting FDI necessitates that foreign companies have eased regulations and
more transparency allowing them to easily divest funds across borders. The free flow of
wealth and capital from those nations to the United States would contribute to already
high underemployment and unemployment. Trade deficits would get worse and FATCA
may be attributed to all this. 12
The aforementioned “patchwork” of agreements could add to further perceived
disarray in compliance processing for multinational banks and portfolio traders. FATCA
even has a nickname now as the Fear and Total Confusion Act. 13 The nickname’s
justification can be added from The Bank Secrecy Act (BSA) by Congress in 1970. The
law is almost a half century old and requires a form to be filled by taxpayers called the
FBAR which requires US-related persons including those with financial interests in the
United States to file paperwork with the US Treasury.55 These FBARs antecede FATCA
by about 40 years but the policing of this law has been lax at best despite the IRS
having implemented many programs. As recently as 2009, the OVDP (OVDI)(Offshore
Voluntary Disclosure Program/Initiative) was a major FBAR restructuring attempt. 51
These programs were in effect to encourage non-resident US citizens to comply with
IRS guidelines and give them enough time to gather their assets for recordkeeping and
reporting.55
Critics of FATCA actually claim that the OVDP is far more successful than the
FATCA will be and OVDP is superior to the ill-fated OVCI (Offshore Voluntary
Compliance Initiative). The OVCI was a 2003 IRS plan to attract offshore Americans
who evade taxes using offshore tax haven-based credit cards only yielded 1,300
evaders. Before 2014, the latest version of the OVDP is the 2012 OVDP. The 2012
version is the third after the 2009 and 2011 OVDP. In fact, the IRS estimates that these
three programs have generated over $6.5 billion in lost tax revenues, interest, and
penalties through voluntarily compliance of 45,000 taxpayers who otherwise would not
have reported to the IRS prior to the program. 87 FATCA has influenced OVDP since the
latest edition of OVDP, 2014, is potentially subject to 50% offshore penalties compared
to 27.5% in 2012, 25% in 2011, and 20% in 2009 97 . Enforcement is done by FinCEN, a

bureau of the US Treasury that fights financial crimes dating to the Bank Secrecy Act’s
FBARs. Due to the enormity of FATCA compared to OVDP, FinCEN now has turned its
attention towards FATCA and away from its past OVDP mandate.
More fear and confusion is added by the fact that those non-abiding US citizens
for all these years are suddenly liable for their past “transgressions” and current non-
reporting. In fact in 2012 only about 825,000 FBARs were filed which indicates only
10% of US citizens abroad (and many more US-related persons) are reporting and most
disturbingly are not reporting. What’s even more alarming is that those who ignored or
misrepresented their FBAR forms, some of them are irate and actually blaming the IRS
for causing them to be “ignorant” of the FBAR rules and paperwork. Despite all of the
government’s efforts to publicize the FBAR and institute questions about foreign bank
accounts on the U.S. Individual Income Tax Return Form 1040, many answered “No”
knowingly. Whether they knew about the rules or not, those who didn’t pay in the past
can complete “quiet disclosures” but that amounts to “admitting by amending” past due
FBARs to the IRS. These taxpayers think that amended tax returns will prevent
penalties but the GAO, which says that the IRS is aware of the multiple violations in the
processing and writing of tax forms with “amended” quiet disclosures. Tens of Billions
of dollars in losses are occurring to the IRS/Treasury Department according to the GAO
due to the fact that only about 40,000 people applied for IRS amnesty but the number of
foreign accounts ranges to almost 520,000. Penalties can be almost ten years in prison
and multiple fines that range from 25% of total assets or $500,000 depending on the
size of the account. 56 57 58 59
Anti-FATCA and anti-automatic exchange proponents say that most
governments around the world especially in emerging economies such as the BRICS
nations (including India, China, Brazil, Russia) already have appropriate systems in
place to collect important financial information about their taxpayers. FATCA supporters
can argue that the biggest benefit of the FATCA-inspired automatic exchange model
may be “that it deters rather than detects” according to one official at the Tax Justice
Network, a tax research and advocacy group. 12
Bankers’ associations and foreign governments have other arguments against
FATCA. They claim that the IRS already has many tools to track tax evaders such as

Tax Information Agreements, international agency conventions, and Legal Assistance
treaties. Despite the media uproar over America’s tax evaders, the IRS has actually
collected over almost $6 billion from recent charges of noncompliant banking firms and
taxpayers prior to FATCA. 12 FATCA is designated as a law to convince foreigners to
favor the US’s strict tax laws and help the US find delinquent US-related persons’
accounts.
One of the major global pitfalls of FATCA is that the law grants exemption from
reporting only if the foreign entity does not have a substantial U.S. ownership holding
defined as under 10%. Basically any person with 10% or more interest in a foreign
corporation, partnership, or trust is liable. This 10% ownership rule applies to millions of
companies around the world who may be non-listed and privately held and have
financial transactions with the United States. This requirement also includes names and
addresses of the foreign partners. The foreign names will appear in tax filings of
American citizens and the IRS consequently would be able to valuate privately held
non-listed companies. This simple act would prevent millions or billions of dollars of FDI
from abroad remitted to the United States while circumventing Americans in foreign
investments overseas. An example of this instance is a joint venture that comprises
foreigners and an American overseas, but because of the IRS reporting requirement the
American would be have to kicked out of the team regardless if the American started
the venture. The logic would is that if an American is part of a group of partners in a joint
venture with signature capability in a commercial bank account; their foreign team
partners may become extremely reluctant to allow the IRS to audit the joint venture for
tax liabilities. There are basically penalties for non-reporting whether income tax is owed
or not, a penalty is appraised for reporting failure.83
For non-US corporations and partnerships that are not FFIs, FATCA enforces a
30% withholding tax on US-source payments to “entities such as corporations,
partnerships or trusts that are not FFIs unless certain requires can be proven. For
NFFEs (Non-Financial Foreign Entity), the compliance regulations are less onerous
than those for FFIs but still 30% withholding penalties can be applied if compliance
efforts are not made. NFFEs typically have to prove their FATCA exemption status with
certifications showing they do not have substantial US owners or provide the names,

addresses, and TIN (Taxpayer Identification Numbers) of each substantial US owner.
NFFEs are typically corporations with traded stock, governments, international
organizations, or any other type of bank or firm that poses lower tax evasion risks
according to the IRS. NFFE’s must be certified as “Passive”, “Active”, or “Excepted” to
avoid withholding penalties. Those entities, who are “Excepted NFFEs”, include several
entities such as exempt entities wholly owned by exempt beneficial owners and Active
NFFEs (if less than 50% of its gross income is passive and less than 50% of its assets
produce passive income). The IRS decides “Excepted NFFE’s” as those who “will not
be vehicles for US persons to hide their assets because of the nature of their activities”.
86 91
Active NFFEs conduct a business activity on an ongoing and income-generating
basis. Passive NFFEs are officially designated as those entities that are not otherwise
“Excepted” or “Active”. They include privately held operating businesses, professional
service firms, and other non-publicly traded foreign entity that is not dealing with
investment-sector and banking.
The 10% US holdings rule is fiscally illogical for American commercial expansion
overseas and the perception of the American economy in the world’s eyes. Foreigners,
companies, and FFIs will increasingly reject any business dealings with Americans if
this law continues. In an ever increasingly global economy, America cannot afford to
risk being difficult to do business especially as BRIC economies seek to increase their
ease of doing business ranking in order to grow their GDP. 12 As a tax partner from
Shearman & Sterling LLP in New York said “The U.S. government no longer has the
ability to dictate tax policy to the rest of the world. People can go to Tokyo, Hong Kong,
and London. They do not have to deal with the headache of doing business in the
U.S."82
Another set of arguments globally against the FATCA-inspired GATCA AEOI
guidelines is also by the Tax Justice Network who says that the OECD is still promoting
corruption and loopholes. “Yet again, the OECD has flunked an opportunity to rid the
world of the curse of tax havenry. Faced with the possibility of creating a multilateral
system for exchanging tax information between all countries, they have come forward
with a set of proposals that offer non-reciprocal processes to tax havens, while requiring

reciprocity from developing countries. This does not reflect well on an organisation
whose membership includes so many of the world-leading tax havens. Much as a
leopard cannot readily change its spots, the OECD also cannot readily drop its pro tax
haven agenda, albeit that its bias lies hidden in the small print.”, in harsh language by
Markus Meinzer, a senior tax analyst at the TJN. According to the TJN, the OECD is yet
sheltering the tax havens. These criticisms include the demands that developing OECD
nations will have to put up the upfront costs (which they won’t be able) to be part of
AOEI but tax havens have to provide financial data but can opt not to receive data
because it believes the developing nation is not providing adequate information, thus
negating reciprocity. 25 The OECD allows tax havens to opt for bilateral agreements,
excluding developing countries from pursuing their tax cheats. Reciprocal exchange of
tax dodger information is only possible through AEOI agreements. A great example of
where a tax havens’ surprising demand for an “exchange model” is preposterously
biased is Nigeria would have to report tax data about wealthy Swiss persons’ accounts
in Nigeria. Conversely, Switzerland would not be legally obliged to give tax information
on Nigerians’ holdings assets in Switzerland since Nigeria would be unable to provide
an equivalent scope of information. Swiss persons’ holdings in Nigeria are not a
significant concern to international tax policymakers because Switzerland is the tax
haven in question, not Nigeria. Nigeria probably does not have the database systems
and trained data-mining experts produced in place to automatically exchange with
Switzerland. 128 Not only does this loophole allow Switzerland to keep Nigerians’ assets
in Switzerland but these gripes potentially ensure Switzerland’s efforts to slow the AEOI
process for as long as possible for the eventual full AEOI implementation while
extremely wealthy tax dodgers can find alternative options.128 The ongoing debate and
developments over the development of AEOI inspired GATCA will potentially affect
further concessions to FATCA by the United States Department of the Treasury, the
IRS, and the United States Congress.
As mentioned earlier, that the United States may not consider the bylaws of what
the AEOI requires. This is contrary to what FATCA had promised. FATCA was written
as a legal assurance that reciprocity would be proactively sought between foreign tax
agencies and the US IRS to facilitate tax evader information gathering. Foreign

governments have undoubtedly hesitated to comply with FATCA without an expectation
that they also may inspect foreign nationals’ securities in American trading markets. The
US is for now singularly acting out on FATCA without reciprocating concessions to
foreign agencies. FATCA’s future remains tenuous for it has many left supporters and
right opponents domestically while also having many opponents overseas, citizens and
foreign national governments alike.45
FATCA’s efforts to establish global trust with the IGAs
FATCA was written in 2010 under a recently elected Democratic majority in both
houses of Congress and a Democratic President. The United States Treasury
Department and the IRS jointly wrote (in July/November 2012 respectively) two models
for Intergovernmental Agreements which makes it easier for nations to address legal
impediments to compliance with FATCA. Multiple criteria for FATCA since 2010 are
mirroring presently held anti-money laundering international sanctions such as KYC and
AML (Know Your Customer & Anti-Money Laundering). FATCA broadens the scope of
breadth of KYC international guidelines by requiring detailed and real-time information
on banking customers of FFIs. FATCA regulations will be more in-depth than the KYC
processes and client background checking before onboarding a new client to the bank’s
various channels legally and in accordance to bank regulations. 62 As mentioned
earlier, FATCA’s main concerns of overseas accounts is the US-related position of the
account rather than the KYC requirements which are parameters more related to credit
risk. FATCA requires that FFIs give the change of the client’s physical addresses or
change in any legal titles which can allow easier gathering of information on the client’s
accounts’ legal US-related status. 61
The IGA’s just like FATCA were written and put into implementation again
without Congressional debate, consultation, nor endorsement. With the IGAs, the US is
promising AEOI in the long-term while extending its own time frame for short term
manipulation of FATCA to best suit its own tax revenue generating needs. Reciprocity is
required by foreign nations to justify America’s apparent “bullying” of FATCA into those
nations’ own tax laws and the IGAs are the solution in the form of appeasement models.
An IGA implementation agreement with a foreign country is Australia. Without the IGAs
Australia cannot legally agree under its laws to comply with FATCA’s obligations. The

IGAs will loosen Australian’s domestic law regulations for FATCA. A senior partner at
EY in Melbourne says that "Clearly, the IGA makes life a lot easier for organisations. It
essentially removes withholding obligations, and it removes a lot of the privacy concerns
that organisations may have about reporting to the IRS.”50 Many countries have yet to
sign IGAs with the US, specifically China, who finally agreed to the IGA accords late
compared to other IGA nations in June 2014. 51
To make amends to opponents of FATCA and ill-prepared nations, banking firms,
and taxing agencies; part of the concessions the IRS and Department of the Treasury
are making for those partners in the implementation of intergovernmental agreements
(IGAs) is that the Treasury department released two models. Either model can be
chosen by various agencies and partners. Model 1 is for bilateral agreements with other
taxing nations that would allow FFIs to fulfill requirements under United States Code
Title 26-IRS Code, Subtitle A-Income Taxes, Chapter 4-Taxes to Enforce Reporting on
Certain Foreign Accounts. Those requirements would include reporting tax information
on US based accounts to foreign tax authorities who would reciprocate tax reporting
information on US-related persons’ accounts in their jurisdiction. Model 1 was unveiled
in July 2012 and Model 2 in November 2012. Model 2 allows FFIs to directly report
specific tax information on accounts with the IRS on a direct basis. The government
AEOI would go into effect on demand subsequently. Several bilateral IGAs have been
formulated due to the two US IGA Models which are regularly given addendums since
their inception. 20 22
GATCA and Rubik: FATCA cousins making an international mess
GATCA, also known as the Common Reporting Standard (CRS) has been
embraced by major global financial wealth holders such as Switzerland. Switzerland
which was one of the main targets of the creators of FATCA, has said it would warmly
welcome FATCA on the expectation that it gets to “cherry pick” what FATCA & GATCA
standards it upholds and rejects which it doesn’t agree with. 21 Switzerland has brazenly
stated that the AEOI parameters will be commenced in detail with “selected” countries
and that “consideration will be given to countries with which there are close economic
and political ties and which, if appropriate, provide their taxpayers with sufficient scope
for regularisation” as quoted by the Swiss Federal Department of Finance. Reading

between the lines, the Swiss point of view on “transparency” is quite different from the
United States, and concerns arise on the fact that Switzerland is worried more about the
IRS and media scrutiny more than their actual concern with the amounts of cash inflows
and outflows of potential “dirty money” the Swiss multinational banking firms are
controlling. Switzerland’s banks appear to be lobbying the federal Swiss Finance offices
with leverage based on the most favorable and significant banking ventures for
Switzerland’s banking industry and overall financial economy.
While, Switzerland reiterates that it intends to have only bilateral agreements
regarding AEOI, Switzerland seems to be going the opposition direction which is in its
favor. 20 21 According to the Economist, the Swiss willingly giving account holder
information in an AEOI is the “cultural equivalent of American’s giving up guns”. 24
Despite the hardline, Switzerland has attempted compromises with the United
States and GATCA OECD members (which it is also a part of). Switzerland says it will
respond to “bulk” requests by foreign taxing agencies on anonymous clients of various
FFIs within Switzerland. Switzerland has promised to punish British and Austrian
citizens who evade taxes via Switzerland by giving names and increasing penalties and
withholding taxes on future equities income. 13
Yet, Switzerland seems at fundamental odds with its OECD brethren, including
the US, France and even Germany who all are increasingly angered with the Swiss over
its tax haven antics for their respective nations’ citizens. They have voiced their desire
in the past to add Switzerland to a “blacklist” of nations designated by the OECD as
“non-cooperative”. Countries on this list are at higher odds of being branded as high-risk
nations to do financial business and equities trading. These countries may have
exorbitant costs, punitive damages, and negative public image to deal with and may not
be able to undergo banking with OECD nations.37 Sanctions and blacklisting may not be
directly related. Moving forwards, major multinational banking firms that do business
with tax havens may be under serious compulsion to withdraw those links. The blacklist
is made by the OECD’s own Financial Action Task Force on money Laundering (FATF).
The threat of blacklisting has prompted tax havens such as Singapore, Dubai
(United Arab Emirates), the British self-governing islands of Jersey and the Caymans,
and even Panama to now unwillingly proceed with the exchange of financial data. 24

Even immensely populous nations such as India that are known for their own massive
bureaucratic red tape are also under duress because if India cannot sign FATCA, its
almost $80 billion dollars of the Reserve Bank of India’s (RBI) money in the form of US
treasury bond holdings can be levied fines which would prohibitively affect the Indian
economy and RBI reserves. If FATCA can influence a military power such as India and
India’s own monetary policy, then newly developed nations such as China, Brazil, and
Russia have reasons to worry about noncompliance. 60
Switzerland has “retaliated” in its own form of the FATCA/GATCA model called
“Rubik” while adding various unnecessary intricacies in Rubik’s potential
implementation. Yet in late 2012, Germany’s Senate has rejected the “Rubik” after
Rubik’s surprise approval by Germany’s House. 13 In layman’s terms, Rubik allows for
non-reciprocity and allows Switzerland to essentially hide Germans’ or other nationals’
account information within the jurisdiction of Switzerland. 26 The intent of Rubik was to
allow German nationals to continue holding Swiss bank accounts. These Swiss bank
accounts held by Germans were undeclared to the German Federal Central Tax Office
(BZSt). Rubik would implement additional withholding taxes on Germans who didn’t
want to reveal their funds to Germany and give reductions on levies for older accrued
wealth. 27
Despite German opposition the UK and Austria have accords in place through
Rubik. Austria and British nationals with accounts in Switzerland have the discretion to
either divulge their accounts to their nations’ tax agencies or to pay towards Swiss
Rubik withholding tax to ensure ambiguity. The Rubik accords dictate that long-term
assets should be in a different category other than cash flows and incomes. 27 Rubik
ensures account holders’ identities are concealed to their respective nations in return for
a withholding tax. Another reason for Rubik, says the Swiss nonprofit AFBS
(Association for Foreign Banks in Switzerland) is that Rubik would protect Swiss
accountants and multinational bankers in Switzerland legal protection from the foreign
nations’ taxing agencies. 27
Despite the fears of FATCA and the potential new implementation of GATCA,
Rubik is designed to keep Switzerland’s foreign-based assets in Switzerland and
reassure foreign accountholders to keep their accounts open. 29 What’s interesting for

all the “encouragement” that Rubik seems to be giving UK and Austrian citizens to hide
their money in Switzerland, its actually generating strong tax withholding revenues in
both nations. 28 The British finance minister George Osborne even said in early 2013
that “[This is] the first time in our history that money due in taxes has flowed to this
country from Switzerland, rather than the other way round," he added. Switzerland has
even transferred about almost a $1 billion USD as of July 2013 to the UK and Austria as
part of the Rubik accords to essentially fulfill the tax withholding requirement of the
concealed UK and Austria nationals’ accounts. These agreements were in effect since
January 1, 2013. Plainly speaking, this is a very high-level of “hush money”. Over the
next six years it is estimated that over £5 billion by 2017-2018 will be brought to the UK
alone from the Swiss Rubik accords. The Swiss Federal Tax Administration (FTA) wing
of the Swiss Department of Finance has made the “tranche” or first series of payments.
Despite the United State not having officially signing the authority agreement to
implement AEOI this past October, it is recommended by the OECD for US persons
abroad to be aware of the OECD’s CRS developments. The secretary general of the
OECD, Angel Gurria also says that despite its seeming obstinacy, the US is a “very
strong supporter of everything that we are doing” and Germany’s finance minister,
Wolfgang Schaeuble, even reiterated that OECD GATCA “would not have been
possible without FATCA, which was the trigger for our process.”
One of the major goals of FATCA was to provide an offshore reporting model
whether deliberately or inadvertently but whatever FATCA’s original intentions; it has
evolved to effect a global agreement to the implementation of GATCA. In fact within a
month of 51 nations signing an OECD pact to implement AEOI in, Switzerland, the most
stubborn and infamous of the tax havens signed AEOI-based GATCA standards as well
by will go under a common reporting standard by 2018. 81 According to Richard Harvey,
FATCA’s long-term implementation and staying power was necessitated on the world
agreeing with FATCA. FATCA in his words is a “marathon, not a sprint” and will require
a multilateral approach to be successful because the OECD’s influence is necessary for
compliance advocacy. The multilateral approach gives one powerful weapon in
preventing tax evaders from investing in foreign assets with Non-Participating Foreign
Financial Institutions (NPFFIs). Basically foreign investments are frozen or blocked.

Thus tax evaders will have to invest in smaller, less reliable financial firms. Investment
options will become eventually so limited, risky, and unreliable that tax evasion could
potentially be eliminated in theory according to Harvey. 81 FFIs may act as qualified
intermediaries (an FFI or other entity is permitted by the IRS to conduct reporting tasks)
and the risk that FATCA brings is that tax evaders may try to move their investments to
NQI (nonqualified intermediaries). Efforts are proposed to impose strict penalties on
NQIs consequently such as FATCA re-categorizing payments by tax evaders from
participating FFIs to NPFFIs as US source payments to incur tax liabilities onto
taxpayers and deter tax evasion furthermore. A unilateral approach is risky because a
US tax evader could put their assets in a NPFFI and convert their assets into non-US
assets thus escaping FATCA’s long arm. The risks for globally inspired GATCA include
GATCA taking several decades, not years, to implement. 81
FATCA has influenced GATCA and GATCA has influenced countries like
Switzerland to propose Rubik to preserve Swiss banking secrecy. Common Reporting
Standards which are the framework for AEOI/GATCA are necessary in the future as
other tax havens and developing nations look to fill their treasury coffers. FATCA is
being used a blueprint for most other nations, while countries like Switzerland are yet
cherry picking their options with regards with what FATCA and GATCA accords they
choose to agree to with the rest of the OECD while other tax havens are choosing their
AEOI options with partner nations. 32
FATCA does have predecessors such as the Qualified Intermediary (QI) for
encouraging honest tax reporting by US taxpayers by inviting them to automatically
report their income while ensuring their financial information being kept anonymous.
The EU Savings Directive is a term that has come up several times as influencing
GATCA and FATCA. The OECD’s CRS initiative is following the Savings Directive’s
template which includes a host of directives that was actually introduced in 2005 but not
all EU members were in concurrence. Perhaps because EU’s Eurozone was relatively
new back in 2005 or perhaps the EU nations were given until 2016 to adopt national
legislation to follow the Savings Directive is not for certain. But its lack of holistic
implementation since 2005 is clear. Evidently, the model for information exchange was
there in 2005 but has evolved into the AEOI now in 2014.

The UK’s tax agency (HMRC) has in 2014 written drafts regarding how the UK
will implement the UK’s own FATCA. The deadline is 2015 for reporting requirements. 32
The UK’s AEOI will be modelled on FATCA and will be seeking UK taxpayers who hide
their money in Jersey, the Isle of Man, and other British sovereignties. The long arm of
FATCA has definitely affected the level of UK scrutiny on UK non-compliance.
Switzerland’s Rubik agreements are so complex that there are doubts that Rubik
will be taken serious internationally and implemented because there is too much data
and too much tax calculation required. 34 The global nature of banking has caused
FATCA to have the major impact that it has now that it would not have had back in the
1980s’ or before.
Local Impact of FATCA
The US Department of Treasury has to fill the requirements of FATCA which
Congress has outlined in 2010 but really didn’t go into detail beyond the bylaws. Four
years later, addendums are being added and notices are yet being made.
Domestically, most Americans have never heard of FATCA (they do not really
need to) yet FATCA’s political impact could be felt because wealthy constituents may
not vote for the “pro-FATCA” agenda party. Political activist groups for Americans
overseas such as Republicans Overseas and Republicans Abroad have held meetings
with US Senators such as Mike Lee (R-Utah) and prominent US attorneys have been
publicly campaigning with other Senators such as Rand Paul (R-Kentucky) for its full
annulment. Democratic leaning groups have countered calling for rectifying some of
FATCA’s main points of issue and quickly passing legislation for innocent Americans
who are immediately and negatively impacted by FATCA. 41 Most of the money hidden
by Americans is not done by middle-class Americans but by the wealthy. Ordinary
Americans would thus have fewer restrictions by their “same country” and would have
local rights back unlike before with FATCA which stripped many Americans of local
banking options. Yet for all the negative publicity, the Democrats do not show signs of
wanting a repeal of FATCA.
Typically, American expatriates are leaning more left than right, yet the
Democratic Party seems to be staunch in its stance regarding FATCA’s
implementations. Signs of a 2016 election being affected by FATCA are getting stronger

now and really depend on the level of clarity or ambiguity of FATCA conforming to
GATCA’s implementation in the next few years. 41 44
Republicans did not vote for FATCA in 2010; FATCA was an exclusively
Democratic proposition. Multiple expats have foresworn the Democratic Party as a
result of the FATCA laws and have even written stories about being ignored or
dismissed by Democratic legislators in the United States. 41
American political parties usually have to cater to elderly voters as the largest
and most influential voting bloc in the United States. It is interesting to note that
FATCA’s stance on non-US retirement plan taxes makes exceptions for that bloc. The
essence of retirement plan taxation is fundamentally different than gross income and
net income for taxing authorities in the United States.48 Since non-US retirement plans
are not high risk for tax evasion, the IRS has decided to exempt those pensions from
FATCA reporting.49 Yet, non-exempt pension plans or those that are categorized in the
IGAs with new guidelines are still required to be filed with the IRS by May but changed
to July due to ongoing complexities and relaxing of compliance deadlines in 2014. 47
Asian preference for FATCA
FATCA has actually increased in popularity in several Asian countries who are
using FATCA to develop their own versions that follow similar guidelines. A Citigroup
Security and Investigative Services (CSIS) director from Hong Kong says that "A lot of
countries want to see where the foreign direct investment is coming from, because of
corruption in their own countries. It [funds] is going to offshore companies and coming
back into their own country. They want to know who that is and the only way to do that
is cross-border exchanges [of tax information]. " 52
FATCA’s recent announcing of its own standards to fight tax evasion is aiming at
the problem of Chinese money going overseas and returning as FDI from the West.
Simultaneously, Malaysia has also been a strong proponent of FATCA because
having taxpayer records could be used to help tax evasion investigations and Malaysia
is committed to an AEOI with the United States and others on the expectation of
reciprocity. FATCA’s global impact is limitless and the OECD’s AEOI will be in place
according to the Citigroup director by "every country to have a FATCA-type situation.
That is probably going to happen in the next 3-5 years." 52

FATCA legal remedies
For all the legal uproar over FATCA it is interesting to note that some older
Americans can actually remember a period of history during the 1970s where the USSR
charged an “exit tax” to Soviet Jews before they fled for Israel. The American
government led international sanctions to block this tax and was equally outraged by the
notion that Soviet Jews’ were taking their intellectual assets away from the USSR and a
“brain drain” was occurring at the expense of the USSR. Today’s FATCA-inspired exit
taxes are much more impactful (up to 30% on capital gains) and far-reaching than the
Soviet ones. 82 90
In fact the US Treasury Department has made strides to soften FATCA’s image
and present it in an encouraging light. In May 2014, the Treasury Department with IRS
support announced that it will willingly consider “good faith efforts” by foreign banks to
acquiesce with FATCA over the transition period from 2014 to the end of March 2015
despite FATCA taking effect July 1, 2014. During this time, “good faith” can be legally
used in courts and with IRS agents to avoid penalties. The Treasury and the IRS require
reporting for all US holders’ accounts to be revealed by the end of 2014 for calendar
year 2014. Several measures have been put in notices by the Department of the
Treasury to help FFIs to comply with FATCA in a prompt method. 76 Financial data
traded by partner tax agencies and nations under IGAs in 2015 will be called to include
only information related to the 2014 calendar year providing a lesser reporting burden.78
The IRS will take into consideration the amplitude to how much an IRS
“participating or deemed-compliant FFI, direct reporting NFFE, sponsoring entity,
sponsored FFI, sponsored direct reporting NFFE, or withholding agent” has attempted
to follow FATCA requirements in accordance to the United States Code Title 26-IRS
Code, Subtitle A-Income Taxes, Chapter 4-Taxes to Enforce Reporting on Certain
Foreign Accounts in good faith and temporary codification regulations.
The United States Code (USC) contains the general and permanent laws of the
United States, catalogued into headlines based content matter.65 Meanwhile, the CFR is
the “Code of Federal Regulations is actually the codification of the general and
permanent rules published in the Federal Register by the executive departments and
agencies of the Federal Government published in the Federal Register” according to the

Government Printing Office (GPO), the agency that prints the official journals of the
government. 67
An example can be whether the withholding agent has made good faith attempts
to authenticate and inspect the USC Chapter 4 status of payees (26 CFR § 1.1471-
3 Identification of payee), apply Chapter 4 USC rules, and in case of a dearth of
reporting data at real-time, to follow presumption rules of the USC and CFR.
Presumption rules are applied to ascertain the status of a payee who may not have
valid documentation to avoid liabilities for tax, interest, and penalties. The status can be
such as in case the payee is an individual, corporation, partnership, or trust. Different
statuses have different withholding rates. Relief and exemption from liabilities is
available only if presumption rules are followed even if the payee does not reliably know
the actual status and actual withholding rates. 66
The IRS will not give relief to certain FFIs and payees who did not regard specific
requirements in the past few years prior to the transition period and who did not follow
the various USC code rules for withholding. Examples include relief relating to
withholding agent’s taking too long to determine their accounts and sources of income
for withholding and payment reasons. With that being said, the IRS has consistently
modified its due diligence, reporting, and withholding rules over the past four years
since FATCA was introduced and as of late 2014 has no patience for those payees who
are “just now” realizing the requirements.68
The IRS is open to “compliance errors” detected as long as there is the
aforementioned good faith effort to comply with FATCA by an FFI according to a tax
partner at the global law firm Latham & Watkins LLP in Washington DC. 64 According to
the same partner, failure or negligence to implement and seek compliance along with
deliberate withholding will very likely lead to severe withholding sanctions. 64 According
to the partner, FFIs should use their legal departments and tax experts to contact the
IRS, DOJ, and their local tax agencies to best reconcile potentially conflicting
information on compliance. FFIs should make FATCA enforcement a top priority for
their short term and long term forecasts. 64
An international tax law lawyer from Dechert LLP has said “Companies worrying
about how to comply with FATCA will welcome this latest round of relief.” The US

Treasury has insisted that the recent soothing and slowing of FATCA implementation is
mainly because many FFIS under foreign jurisdictions and FATCA guidelines were not
syncing so FATCA registration obstructions had to be eased. 54
The Department of Justice has in the past summoned identity information for
UBS Swiss account holders and once those names were disclosed, the IRS publicly
listed the prosecution of dozens of UBS clients and bankers. Severe criminal and
monetary penalties of almost $800 million ensued for UBS and for who did not disclose
their previously confidential information.63
Despites Congress’s intention’s 2010, according to the Latham & Watkins
partner, FATCA cannot last unilaterally and is best designed as initially implemented as
a reciprocal attestation system. With the continued implementation of FATCA IGAs
imminent, AEOI is expected between the US and foreign countries. 64 Limited reliefs for
certain types of account holders have been put into place by the IRS allowing for
deadlines extending into 2015. The IGAs’ sets of financial data of US accounts vs non-
US account information are going to be reviewed and consequently revised if
necessary.
FATCA defenders can hitherto cite a GAO finding was that the median account
balance of the 2009 OVDP taxpayers was around $570,000 of over 10,000 reported
cases. 89 These findings were perhaps the basis of one unnamed Congressional
member to defend FATCA saying that many expats were “misinformed” about the reach
of the law and those who are potentially immune to FATCA’s reach. His argument was
that since reporting requirements are only for accounts worth over $50,000, the vast
majority of overseas taxpayers would not be subject to FATCA’s laws in the past,
present or in the future. Many are simply “unaware” of the minimum threshold and the
media and FFIs are only adding to the uproar because the people who would be
“affected” have the “strong incentive not to point out the distinction”. 88
Green Card holders and Lawful permanent residents abroad
Legal remedies and individual impacts by FATCA on US-related persons’ have to
be examined more closely since they are more far-reaching than previously thought. As
mentioned earlier in individual impact to FATCA, FATCA applies to permanent
residents, green card holders, and spouses of citizens abroad. New immigrants to the

United States who leave the United States are not exempt as well. The IRS will fight
those who deliberately try to cheat the system or try to deliberately minimize taxes using
bilateral treaties’ as a way to find loopholes. Green card holders who think they can
plainly leave and not return to the US and are free of US tax liability and obligations to
FBAR and/or FATCA are mistaken.
A practical application of this potential scenario is the recent decision (TOPSNIK
v. Commissioner of Internal Revenue) by the federal trial court for tax, the United States
Tax Court. The Tax Court decided that an “informal surrender” of a US-related persons’
Lawful Permanent Residence (LPR) is not recognized for tax laws despite being
recognized for immigration purposes. 85 Basically a nonresident alien who is not legally
entitled to permanent residency will still be resident for tax purposes because the alien
has not “officially” foresworn their LPR status. 96
The taxpayer in question had been living abroad for quite some time and had
only recently relinquished his LPR (green card) in 2010 which had exempted him from
German taxes as a German resident. He remained an LPR despite having sold his US
properties prior to 2010 so was still liable under US taxation. The taxpayer’s notion that
he “informally” abandoned his LPR status because he left his US residence in 2003 was
rejected by the court because his tax liability was related to his immigration status. 96 He
actually used a prior immigration case that used “informal” abandonment in the trial. The
court decided however that the taxpayer, Topsnik, could not simply make so many
infrequent US visits and sell his Hawaii home to lose his status according to a House
Ways and Means Committee report attached to under United States Code Title 26-IRS
Code Subtitle F-Procedure & Administration-Chapter 79-Definitions-Code Sec.
7701(b)(6) . In fact, the German tax agencies had no record of Topsnik filing his taxes in
Germany despite being registered with German tax authorities.98 His appealing of a
US-German treaty in his arguments was revoked in court because he did not fulfill the
“Treaty Test” obligations meaning he must be taxable on his worldwide income to
Germany if he not a US resident as he “claimed”.
If the petitioner, Topsnik, wanted to formally “surrender”, an official renunciation
would involve filing form I-407, Abandonment of Lawful Permanent Resident Status, to
the USCIS (United States Citizenship and Immigration Services) would have to be filled.

The Topsnik decision is far-reaching and makes it clear that Green Card holders cannot
simply leave the country and be exempt from tax liabilities. 85
Asides from the OVDP, the IRS offers the newly minted “Streamlined” Program
started in 2012. Under this program the taxpayers are exempt from penalties and the
program is cheaper to undertake than the OVDP. Typically, the IRS stance on U.S.
taxpayers under Streamlined is that they have failed to file their tax obligations in a
“non-willful” manner. But these taxpayers are allowed to send these simple returns
because they are “low risk”. It is important to note that the IRS does not consider tax
returns owing less than $1,500 to be material enough to be anything but “low risk”.
Instead of paying up to 50% or more through the OVDP, Streamlined participants pay
only 5% of the highest balance of the OVDP assets. Under “Streamlined”, non-resident
Americans pay no penalty. 97 99
The “quiet disclosure” method mentioned earlier is not recommended by the IRS
because filing amended tax returns and past due FBARS is considered “quiet” if the
taxpayer is filing without partaking in an IRS program. If a taxpayer does this thinking
they won’t attract attention, the IRS will pursue criminal charges in addition to monetary.
To the IRS, “quiet disclosure” is the same is no disclosure. 93
Quiet disclosure and prospective basis can yield far worse penalties than the
27% to 50%, as willful (“act done voluntarily with either an intentional disregard of, or
plain indifference to”) violations can be $100,000 or 50% per account, or furthermore
$250,000-$500,000 in criminal penalties and prison ranging from three to ten years.92 93
95 One example of willful noncompliance was an elderly Florida man, Carl Zwerner, who
owes 150% of his foreign Swiss bank account worth over $2 million because he failed to
file several past years of FBARs and put “No” on his tax forms while maintaining
different entity names. The IRS is seeking almost $3.5 million from him in penalties, and
a jury has upheld the IRS in court. There are discrepancies in the case where Zwerner
tried to join the OVDP in 2011 but was denied because he was under audit during that
time. 94
The current legal status of a resident alien such as Topsnik arises the question
as to whether a person residing overseas be exempt from being liable to FDAP (Fixed,
Determinable, Annual, Periodical) income if they no longer have legal rights to live in the

United States while also being offered the protections of the United States overseas as
non-resident Permanent residents? 84 The US tax authorities have found that
compliance levels for reporting are low for overseas citizens and want to reaffirm the
question of how many FDAP income dollars are sent abroad to nonresident citizens and
aliens with no withholding liabilities. Their non-filing is the source of the question as to
who will pay the millions or even billions of dollars of lost tax income revenue on their
FDAP income. FDAP is defined by the IRS as passive investment income stemming
from dividends, interest, rents, royalties, and is considered separate from business or
trade income in the United States. One disturbing proof of the finding is that almost only
about 19,500 ODVP 2009 participants in slightly over 10,000 cases paid an average
penalty of nearly $400,000.101 Over half of the FBAR filing by 2009 OVDP participants
was done from Switzerland alone and over half of the $4.1 billion collected at year-end
2012 was from less than 400 participants alone. 100
The GAO shows discrepancies in the proportion of revenues received from
offshore taxpayers who made $78,000 or less (lowest 10th percentile) paid almost
“575% of the tax, interest, and penalties on their unreported income.” 102 Astoundingly,
the share paid by the top 90th percentile was only around “86 percent or less”. 102
This means over half of the collections from OVDP taxpayers who paid are from
only 2% of all the total offshore disclosing participants. But also, many ultra high-net-
worth individuals are among the many who didn’t pay. Many more noncompliant
persons unfortunately are working class and lower middle class US-related persons
abroad as well. The GAO and TAS show that benign actors are those who owe $1,500
or more but inadvertently fail to report their overseas earnings are unfairly classified as
“bad actors” by the IRS. Unlike benign actors, “bad actors” are designated as those who
intentionally evade taxes by hiding substantial liquid assets and equities in offshore
accounts.
The data is nearly five years old but the GAO is correct in asserting its
applicability for subsequent OVDP measures by 2014, that the IRS and Treasury’s three
subsequent OVDP programs subsequently have generated revenues but are glaring
examples of missed opportunities. 83 Despite the missed revenues, legally, OVDP and
FATCA have been overreaching. In fact, the head of the TAS, Nina Olson, said in her

annual 2013 report that the OVDP has “burdened ‘benign actors’ who inadvertently
violated the rules”. 103 She has stated that the penalties have been “punitive, charging
average penalties of more than double the unpaid tax and interest associated with the
unreported accounts”. While new programs such as Streamlined are fairer and more
flexible, the overall fines are reaching almost “70% of the unpaid tax and interest” Olson
adds. Her reports are annual requirements to Congress required by law to highlight
serious IRS taxpayer concerns. While dozens of the TAS’s propositions have been
discussed, only a handful have been fully approved and followed. 104
FATCA White Papers
One of the most challenging requirements of FATCA is the technological
implementation of due diligence processes required to determine FATCA reporting
status of the FFI’s clients. Currently, FATCA research requires combing through
multiple sets of client data which is usually gathered in disparate databases in different
reporting formats within multiple line-of-businesses due to the client differences,
complexity of multinational FFIs, and various jurisdictions’ compliance. If FATCA
implementation is done right, almost every function within an FFI will be affected; thus it
must be implemented with minimal adverse impact to the business and clients.
According to the global analytics giant, SAS Institute, FFIs need to put into place
processes and IT systems around three wide-ranging spheres of FATCA. 108 109
The first is documentation which will gather the clients’ data and monitor any
taxing regulation changes and analyze the clients’ data in accordance with regulations.
The second is withholding, allowing the IT systems to recognize and develop tools for
“recalcitrant” taxpayers specifically. Lastly, the IT systems need to have a fully-
functional reporting model for US persons to hold their source payment data and
withholding account balances.
This endeavor would require upgrades and retooling of existing systems, such
as KYC/AML systems and databases. New operational systems such as SAS Data
Management and Master Data Management software are designed to identify US tax-
liabilities at the point of onboarding. 109 Onboarding involves several important activities
for new bank clients including credit process compliance, legality terms, enabling the
client to the bank’s features, and all trading systems are set up. New data mining tools

that dig deeper would be needed to ascertain the relationships between accounts using
a data-mining concept called “link analysis”. The highly accurate automated customer
identification workflow will seek US indicia (identifies account holder as US-related
person, US residence address, US birthplace, account based in US, US-based power of
attorney, and “hold mail” US address) and integrate that information with the business
processes and systems of that company. This concept is needed to mature and tested
furthermore. The FFIs must certify that the systems are ready to supervise and audit
account relationships using link analysis while monitoring account status’s under
FATCA with regards to withholding and reporting. 108 109 Operational systems like SAS
are worth the upgrade for they provide “automated, pre-populated, IRS reporting”
capabilities. This information fills forms and is sent to the IRS at the taxpayers’
discretion. A centralized case management system provides a common repository for
crossover data from different departments and channels within a FFI and shared
workflow tools to allow tax investigators easier access to information and reducing time
and efforts to examine tax data. 106 108
While FFIs, have already millions of dollars of software systems to maintain
internally this only adds to the reporting costs and maintenance. 106 It is important for
FFIs to plainly designate and determine what is needed to prepare current legacy
systems and processes for retooling, updating, and compliance. By finding
inconsistencies and inefficiencies in the current legacy systems, FFIs can use FATCA
and modern software systems to enhance their own existing systems by linking
databases, systematizing data, and packaging FATCA workflow covering automated
FATCA classifications. 107
Respectively for achieving FATCA compliance, firstly FFIs are recommended by
the multinational consulting firm Tata Consulting Services (TCS) to modify their IT
systems starting with their updating their existing KYC/AML processes to conform to
FATCA’s client-data gathering, verifying, and updating of processes. According to a
senior executive at Foodman & Associates in Miami, “FATCA adds an additional layer
to the KYC and AML processes that financial institutions currently have in place, but to
a certain extent it is complementary”. 110 Due to the aforesaid multiple lines of business
that customer information is classified under, the upgraded IT systems must present a

FATCA “Single Customer View” of a client across an FFI and this requires system
alignment.112 Enhanced CRM (customer relationship management) systems would be
ideal to fill this role, since they are used in the financial services industry already
housing KYC, onboarding, householding (aggregation of all household accounts), AML,
and other client financial processes within themselves as a central platform of
recordkeeping. 111 106
Secondly to achieve FATCA compliance, data processing and other analytics
tools are needed to data mine and find FATCA clients. The clients’ indicia needs to be
run through the system to cross-reference for withholding and reporting purposes. Data-
mining tools will have to be able to “link” disparate data and determine the clients’ profile
from the data. Once this process is fine-tuned, the efforts for FFIs and taxing authorities
to contact clients and pull up their data will be streamlined and efficient. 106
Thirdly to achieve FATCA compliance, data warehousing must be upgraded to
collect client data across multiple business lines and account types to facilitate accurate
account transactions. A FATCA operational data “store” (single data repository) is
recommended to aggregating (capturing) information from multiple sources, onboarding
the big data, and delivering it for individual and wholesale clients. 106
For their IT systems, FFIs would need to levy withholding taxes on payments on
US source income and passthru (payments going to NPFFIs) payments on
uncooperative accounts. Correct determination of liabilities is required for the payment
systems in addition to a record of the withholding process for future reference. In
addition to keeping record of withholding transactions, records of withheld amounts to
escrow accounts could be located with new IT systems. 106
Fourthly to achieve FATCA compliance, trading and settling systems would have
new features to allow determination of uncooperative accounts through the enhanced
due diligence procedures and withholding taxes would be enforced on these accounts.
The complexity of the system is weaving through the transactions between clients,
brokers, and clearing agents (of financial securities trading house) in the trading and
settlement process. The correct determination of the legal taxing entity that is seeking
the tax penalties is another challenge. If this system is not upgraded, future risks in the

settlement of commodities, derivatives, and securities among all US-related persons is
at great risk and poses serious economic ramifications. 106
And in the final TCS recommendation, FATCA would require FFIs to build a new
reporting system to disclose details of US related persons and uncooperative accounts.
The various details include “account balances, gross proceeds, withholding tax
penalties imposed”. Internal reporting would be needed to be shared with tax
compliance agents and FFI investors. The long timeline for FATCA implementation
gives FFIs time to create new reporting systems and the companies who spend the
extra exorbitant costs now can reap the long-term potential benefits by saving their
clients’ money and “future-proofing” their business financially. FFIs can gain competitive
advantage from FATCA compliance if they have a wider scope and method to
compliance by balancing Information Technology Management challenges with “big
data” complexities. To obtain long term cost savings on FATCA, FFIs should also
involve teams of FATCA tax experts with ITM experts, preferably consultants form large
firms that specialize in IT systems implementation.107 Enhanced IT systems will
inherently have the flexibility to accommodate future FATCA implementation regulations
and modifications. FATCA allows firms to redo their client onboarding process and
these upgrades will stem beyond FATCA and allow FFIs to update their systems for
future KYC and AML requirements as well. 106
Technological Implementation Categories
The technology to implement the process of gathering and analyzing disparate
sets of “big data” can be applied in numerous comprehensive ways but three technical
implementations stand out. If these technologies are used wisely, transactions and data
gathering will become “leaner” and more “agile” in responsiveness.
As mentioned earlier, enhanced KYC/AML and CRM Systems are needed for
more “agile” IT systems to handle FATCA compliance. Specifically, a web-based
service should be implemented to allow clients to share and update their financial data
in real-time. This system would be tailored to the aforesaid “Single Customer View”
whose goal is to maintain the least possible interruptions to the FFI’s operations. The
Web-based service tools are going to be laid out in a digital form-based framework and
design. These Web-based service tools would allow clients to supply their FATCA

reporting data and minimize the turnaround times and limit manual reworking of
potentially inaccurate and inconsistent data. Self-service tools are attracting new clients
because they allow for easy access to FATCA reporting data when they are
commencing their reporting or adding additional components to their existing data.
Features including full audit histories allow for building complex reports. All aspects of
FATCA implementation processes are fully configurable with configurable workflows.113
Before the advent web-based service tools, the implementation of “link analysis”
is perhaps the glue that holds the rest of FATCA enhanced IT systems to work. Link
analysis is a form of data-mining which will converge traditional methods such as
phone, email, and postal mail and provide additional in-depth analysis from the new
data using intelligence tools. Specifically speaking, link analysis IT systems are
designed to help FATCA compliance by performing detailed analyses on customer
records, holding documentation on new clients, and reporting to taxing agencies on any
reporting transactions between taxpayers and agencies. Link analysis solutions have an
“end-to-end” goal covering FATCA. The “big picture” goal is not to just organize data but
turn the multiple sets of data into one complete montage or “painting”. Typically clients
leave a “breadcrumb trail” while working with taxing agencies and within their FFIs.
Change of property addresses or title holders may have been changed from when a
taxpayer is securities trading on the open market or requesting tax forms due to
updated FATCA guidance. Those “indicias of ownership” may not be the same now as
when the client had opened their reporting account. Link analysis curtails the
painstakingly cumbersome task of grouping clients with FATCA sections. 113 If link
analysis is implemented into the IT systems, it can highlight documentation errors on
due diligence and correct those for FATCA compliance. 113
Lastly, while seemingly less pertinent to FATCA compliance, online surveys can
actually allow firms to aggregate informational internally within the various sections of a
company and across multiple vertical and horizontal channels. Firms can gauge
FATCA’s ongoing and future breadth and brunt on their business. Surveys are generally
quick to execute and relatively less time-consuming and while being extremely low-cost
in comparison to other forms of implementation. They will erase the need for companies
to spend the money to physically collect this information, thus saving time and money.

113 For firms that unsure of their FATCA information-gathering protocol, client “big data”,
and FATCA source payment methods these surveys allow these FFIs to gather and
index the nature of the data. For large multinationals, huge volumes of “big data” is
needed to be stored across the many working businesses, subdivisions, and global
regions of one. Survey questions must be specific to “cater” to the needs of individual
subdivisions with questions about “types of clients”, “clients per division”, “company
registration”, “source payments”, and “outsourcing functionalities”. 113
Successful FATCA implementation scenarios
A certain clarity to envision what new policies, procedures, and tax training is
required to successfully implement what is needed for the right frame working of FATCA
systems and controls. Case-studies do not exist to determine the development of IT
systems with enhanced FATCA reporting capabilities since the implementations are so
recent. The implementation investment is almost an act of “blind faith” and necessity out
of FATCA’s compliance requirements. A balancing act is required for most
organizations, since most have already spent millions on their IT systems and would not
seek to spend much more on an unproven and timeline-indefinite enhancement. FFIs
should leverage their existing “legacy” systems and allow facilitation of the new IT
system in an independent platform that can cross multiple systems. 107 Large firms
using SAP as their ERP for Finance and Accounting but Salesforce CRM or Oracle’s
PeopleSoft (for Human Resources) applications and modules for other functional areas
in their company will need to consolidate their systems for large-scale solutions. A
seamlessly integrated ERP system would allow FATCA enhancement. A seamless
integration of ERP systems and modules would permit multiple “modes” of “big data” to
be arranged according to different input and output formats so linking data sources
could become “efficient”. A FATCA enhanced solution should be able to access and
make available multiple windows of the client’s position within a single view without
adversely or mistakenly impacting the processes of other various applications. 107 They
should be run virtually and operate as a global platform allowing data to be held and
transferred amongst various jurisdictions. 107
Well-functioning FATCA internal controls IT systems have capabilities that must
be viable and in working order for FFIs to conduct proper onboarding processes using

FATCA indicia criteria. The criteria (US persons, Non-US persons, and uncooperative
persons) must be carefully indexed and integrated into the KYC and onboarding
processes to ensure lower cycle times, ease the burden on IT staff, reduce
inefficiencies and data redundancies, and lower IT costs. New FATCA systems and
their features can be added to existing KYC, AML, and onboarding processes that FFIs
have in place which are automated within CRM software. 111 The improved processing
from enhanced FATCA internal controls will allow for more thorough FATCA client
onboarding, quicker detection of reporting errors and better automated workflows. An
example of using FATCA data as part of the KYC within the CRM is if a client does not
show proof of address, an automated workflow rule can deliver a W-8 tax form and warn
the FFI that they further risk harboring uncooperative individuals who will be penalized
with withholding fines. The complexity of FATCA IT systems is trying to build customer
data capturing, automated workflows, and FATCA data reporting outside the already
established framework of a FFIs’ legacy systems such as CRM application software. 111
Software analytics developers like SAS have multiple capabilities in
implementing FATCA compliance for FFIs. Large multinationals software platforms like
SAS which focuses on advanced analytics and SAP which focuses on enterprise
software and business data have the large-scale experience to deal with “big-data” and
categorize data to reach “high-quality” alerts at low “false-positive” rates. SAS’s recent
collaboration with SAP’s fast in-memory HANA Cloud platform (considered the
successor to current generation SAP R/3) to develop high performance analytics
strategies could be useful for FATCA implementation in the future. These advanced
processes which will further help develop future IT systems for potentially analyzing
FATCA data instantly without IT wait times and allow a user to ask FATCA-based
“iterative” questions.
Currently, SAS’s solutions for its FATCA clients include advanced analytical
capabilities proficient at determining whether tax liabilities exist at the client’s point of
onboarding with an FFI. SAS also offers data integration solutions in the form of an
integrated operations two-way communication system (workbench) with prearranged
FATCA workflows. 109 116Prebuilt IRS reports and e-filing is another feature that is future-
proofed by allowing easy configuration and customization of the workbench to meet

future regulatory changes and requirements. 109 SAS’s FATCA solution is marketed as a
low-cost business intelligence platform creating and upholding custom reports and
queries. To minimize “total cost of ownership”, SAS allows for its systems to be
customized to match the existing legacy system of an FFI. Furthermore, the interactive
single view dashboards allow for drill-down capability which in IT users can go from
general views to specific views. An example would be FFI clients’ FATCA address will
show the country if they have multiple accounts, then will show the state or province,
and then by what jurisdiction and banking firm they use as well. Going deeper into the
specific layers of the data can help build a detailed report.109 116
Risks of new FATCA systems include onboarding of existing client counterparties
and that might be added to existing workflows and IT systems in an inefficient and
hindering pace. 117 Having the correct system architecture is important to successful
FATCA IT systems. In fact, Fircosoft is another FATCA IT systems vendor who
introduces technology solutions that perhaps address FATCA noncompliance risks such
as sanctions by governing agencies for FFIs regarding their AML and KYC reporting.
For Fircosoft, FATCA is already so closely aligned with KYC that Fircosoft only had to
make FATCA requirements an addendum to its existing solutions or KYC/AML. KYC
capabilities are already considered an initial marker as to determining liable clients.117
For successful FATCA implementation updating the existing onboarding
procedures and analyzing current client accounts should be considered as separate
processes. 118 Large FFIs should enhance their IT systems to be responsive and ready
for FATCA and new clients’ onboarding procedures while having separate workflows to
analyze existing accounts. Many FFIs with enhanced IT systems for FATCA
implementation are able to collect the required data sets and documentation for filing.
The FATCA-related data sets have points that can be mapped and exported to the FFI’s
new onboarding systems to ensure consistency between pre-existing accounts and
current FATCA onboarding procedures. The analysis of existing FATCA data requires a
workflow to analyze the millions of accounts consistent with FATCA guidelines. Pre-
existing data must be properly linked to counterparties and managers. Queries of
information and location of electronic and paper data must be easier to access. Pre-
existing data must be able to export data for real-time analysis. 118

FATCA Overview: Tax Compliance Act Impacts US Persons Abroad

FATCA Overview: Tax Compliance Act Impacts US Persons Abroad

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