As the countdown continues to FATCA, banks and politicians from around the world are begging the US Treasury Department to reconsider its ham-fisted law. In April, 2011, Peter van Dijk, Senior Vice President of TD Bank Financial Group, added his voice to the global dissent.
In his letter, van Dijk listed two major concerns with FATCA: That it would force banks to violate local laws, and that the costs of compliance for the banks are greater than the expected benefit to the IRS. Van Dijk draws a distinction between countries that have historically been used as tax havens, and which may warrant a policy like FATCA to catch tax evaders, and countries like Canada. He argues that alternative policies are more appropriate with countries that already have “robust information reporting requirements and information exchange with the United States.”
He reminds the US that banks in Canada must also operate within Canadian laws, such as ABBS:
Canadian ABBS [access to basic banking services] rules may prevent a Canadian bank from denying banking services to individuals even if they refuse to comply with requirements that FFIs [Foreign Financial Institutions] may implement to ensure compliance with FACTA. […] If an FFI closed an account because such information was not provided, the purpose of ABBS rules would be frustrated and, in addition, the FFI could be subject to fines. Each violation of the ABBS requirements would subject the financial institution to a penalty of up to $200,000. Even if an FFI could close the account of an uncooperative accountholder, an FFI could not refuse to re-open an account for such an individual if adequate identification under ABBS were again provided.
Local privacy rules may also conflict with FATCA. In Canada, financial institutions are subject to the Personal Information Protection and Electronic Documents Act (“PIPEDA”), which provides rules with respect to a financial institution’s collection, use, and disclosure of an individual’s personal information. PIPEDA’s compliance requirements apply to all personal information, regardless of an individual’s nationality or residency. Although PIPEDA contains certain exceptions for disclosures “required by law,” it does not appear that compliance with FATCA would fall within this exception because compliance with FATCA is voluntary. It is also unclear whether a foreign, as opposed to Canadian, law requirement could qualify under the “required by law” exception.
This, he warns, places Canadian banks in an precarious position:
In sum, financial institutions could be placed in the untenable position of choosing among violating local law to avoid withholding on their US assets, violating their FATCA agreement to avoid violating local law, or electing not to enter into a FATCA agreement and liquidating their U.S.-source assets.
Van Dijk also expressed concern over the cost to banks to bring themselves into compliance with FATCA. Between changing data collection policies, employee training, and customer communication, he estimates a cost of over $100 million over the first five years to TD’s retail banking. He estimates that the total cost to Canadian financial institutions may be as high as $1 billion in the first five years, and that the global costs for compliance are “disproportionate to FATCA’s expected benefits.”