Man is an animal suspended in webs of significance that he himself has spun...

Monday, February 24, 2014

French Finance Commission Talks FATCA

On February 11, 2014 the French government Commission des Finances met to discuss the Foreign Account Tax Compliance Act (FATCA).

FATCA is an American law that requires all foreign financial institutions to turn over lists of people with connections to the U.S. (US Persons) and their financial information. Generally, this kind of thing is illegal in most countries and a clear violation of basic privacy rights assured by many nation-state charters and constitutions. The intergovernmental agreements (IGAs) were necessary to making FATCA fly outside the U.S. because they set up a governmental framework that mitigates some (not all) of FATCA's problems with local laws AND offers at least some level of reciprocity - information exchange going in both directions and not just from the rest of the world to the United States.

The French government signed an IGA with the United States late last year (summary here).  And, as has happened in so many other countries where IGA's have been negotiated and signed, the account closures of US Persons have begun or accelerated.  

As some of the unintended consequences (and I feel very safe saying "unintended" since I am very sure that the French government never envisioned French citizens losing their bank privileges) have become clearer, the Commission des Finances invited testimony about the impact of FATCA in France.  

The speakers were Mathilde Dupré of CCFD-Terre Solidaire, Édouard Marcus from the Department of Finance Legislation,  Patrick Suet of the Tax Committee of the Federation of French Banks (Fédération bancaire française) and the secretary general of the Société générale (major French bank), and Jean-Marc Vasseux,  the director of Risk, Control and Compliance at AXA Banque.

Let's begin with Senator Philippe Marini's introduction to the FATCA discussion:
L'initiative américaine revenait à lancer au système financier une proposition, certes fort recevable, mais en usant d'une méthode pour le moins cavalière. La négociation intergouvernementale a heureusement permis de progresser, et les pays tiers ont finalement obtenu que soient signées des conventions bilatérales pour la mise en oeuvre de FATCA, prévoyant, pour certaines, une réciprocité. C'est ainsi qu'un projet de loi autorisant l'approbation de l'accord signé le 14 novembre 2013 entre la France et les États-Unis sera prochainement soumis au Parlement. D'où cette audition. 
Bien des ambiguïtés demeurent, en particulier sur la question de la réciprocité. Au-delà de la question de principe se pose la question de la mise en oeuvre concrète de la loi FATCA par les banques, avec ses difficultés juridiques, ses questions de responsabilité et ses coûts. Pour y voir plus clair, nous avons donc souhaité recevoir l'éclairage des quatre personnalités ici présentes. 
The U.S. initiative amounts to throwing a proposition at the banking system, certainly one for which there is a strong case, but uses a method that is, to say the least, arrogant. Government to government negotiations fortunately allowed us to move forward and countries finally got signed bilateral agreements for the implementation of FATCA, some of which provide for reciprocity. A bill authorizing the approval of the agreement [IGA] signed November 14, 2013 between France and the United States will soon be submitted to Parliament. And that is why we are holding this hearing.

Though ambiguities remain, particularly on the issue of reciprocity. Above and beyond the question of the principle of the matter, there is also the question of the practical implementation of FATCA by banks: legal difficulties, responsibilities and costs. In order to see more clearly, we have asked the four witnesses present here to shed some light on these  matters.
The testimony that followed that introduction is a unique look into how the different actors in France view FATCA.  Each sector had an important point to make and we'll examine their perspectives.  What is rather unfortunate (but we have already seen this at the OECD and the European Parliament) is that FATCA is viewed very narrowly as a subject that only concerns the finance sector and governments (with a token NGO thrown in from time to time).

What we know from experience is that there are stakeholders missing here, and these are the customers of these banks and the citizens of these countries.

CCFD-Terre Solidaire

Mathilde Dupré was the first to speak. She represented an NGO called CCFD-Terre Solidaire,  the Catholic Committee against Hunger and for Development, which is a member of the Tax Justice Network.  

National Sovereignty:  She responded directly to the sovereignty question:  "Dans quelle mesure l'accord FATCA ouvre-t-il la voie à l'influence des normes américaines?" (To what extent does the FATCA agreement open the door to the influence of American standards?)  In principle, she said, French law still prevails and it will be the Conseil d'Etat et le Conseil constitutionnel (the State and Constitutional Councils) that will ensure that.  

Reciprocity:  A key problem, she said.  Reciprocity is written into many IGAs, however serious problems remain on the American side.  The U.S. Congress has to agree to reciprocity.  FATCA, the law signed in 2010 by President Obama, only provides for a one-way information exchange from other countries to the United States.  That's not acceptable to most countries and what France and other countries wanted (and got) was a bi-lateral information exchange with France getting information from the United States as well as sending information.  Thus far the U.S. Congress has not voted to permit information exchange from the U.S. though it has been promised by the negotiators on the U.S. side.  It was this issue of reciprocity and the list of exempt entities, she said, that delayed the signing of the French/U.S. IGA until November of last year. 

French Banks

Patrick Suet began by pointing out that although  transmission of financial information to the government is not new for banks,  FATCA is requiring serious and expensive adaptations to systems due to the nature of the information requested.   

IGAs - Help or Hindrance?  Since 2011 France banks have had to put into place some significant compliance projects that he described as "très lourds" (very heavy).  And consider, he said, the case of the French bank the Société générale which has a presence in 77 countries.  This means potentially 77 different IGAs that the bank must take into account.  

Cost/Benefit Analysis:  The definitions of "revenu financier" or of "compte-titre"  are not the same from one country to another, he said,  and he talked about the fact that a simple cost/benefit analysis, "nous conduit à clore les comptes américains dans certains pays" (is causing us to close American accounts in some countries).  Though he admits that is difficult to do when it concerns dual-nationals (France/US).  There is also a real issue with French account holders in France who have a connection to the U.S.:  for example, French citizens who have children living in the United States.

Legal Risk:  Suet raised the possibility that their clients will sue over the data transfer to the U.S.  "un client pourrait contester le transfert en se fondant sur la législation européenne relative à la protection de la vie privée" (a client may contest the transfer based on European legislation that protects privacy.)  A very important point and I personally think it will happen regardless of the IGA or the passing of legislation by the French parliament to implement FATCA.  A case (or cases) will eventually go to the European level to be decided there.

Compensation:  Now, this is a very interesting proposal.  Suet argued that since the banks and their clients are alone in bearing the cost of FATCA,  some compensation is needed here.  Since 2011, he said, the banks have spent 200 to 300 million Euros to get compliant and that's not fair.  "Ne travaillons-nous pas au service de l'intérêt général du monde entier?" (Are we not working in the general interest of the entire world?)

And that proposal led to this interesting exchange between Senator Marini and Patrick Suet:
M. Philippe Marini, président. - N'est-ce pas là un investissement concurrentiel, susceptible de vous acquérir de nouveaux clients ?
(Is this not a competitive investment which might help you get new clients?)
M. Patrick Suet. - C'est plutôt un investissement pour les perdre.... Nos clients pourraient être mécontents de ces nouvelles interrogations. Le coût, en moyenne, est donc au moins de 1 000 euros par client, qu'il faut comparer avec le rendement moyen annuel d'un compte : il faudra cinq à dix ans pour récupérer l'investissement.
(It's more of an investment to lose them... Our clients may be unhappy being asked these new questions. The price, on average, is at least 1000 euros per client, and we must compare to the annual return on an account: it will take 5 to 10 years just to recover the investment.
M. Philippe Marini, président. - Ce ne sont pas n'importe quels clients, cependant...
(But these are not just any clients, however...)
M. Patrick Suet. - Détrompez-vous. Tous les comptes d'expatriés sont concernés. Une banque nous a fourni le chiffre de 2 500 euros par compte en moyenne.
(Think again. All the accounts of expatriates are concerned. One bank gave us the figure of 2,500 euros per account on average.)
Jean-Marc Vasseux of Axa Banque added his concerns.  We are a small bank, he said, with very few American clients (some of whom were also French, I note).  Their logic was simply this:  "Conserver nos relations avec eux supposait des adaptations lourdes : nous avons donc choisi de ne pas poursuivre. Cette décision fut difficile à prendre, car il s'agissait de clients fidèles." (Maintaining a relationship with them meant important adaptations:  we chose not to [maintain the relationship].  This decision was very difficult for us because it concerned loyal clients).  

After the testimony of the banks the discussion went general with reactions and counter-reactions to the information presented.   To summarize the key issues:  cost, sovereignty, reciprocity and OECD/Europe efforts in the area of automatic information exchange.  

Toward the very end of the meeting, the French senator from the Val-d'Oise (Ile-de-France) Francis Delattre, made a statement that I thought went to the very heart of the matter.  He asked very directly the all important question:  why?  Why are doing this and does it make any sense at all?  
"Nous avons entendu, à plusieurs reprises, nos représentants auprès de l'OCDE. Soixante États ont signé un protocole d'accord. Quant aux Américains résidant en France, ils sont aussi des contribuables français. Pourquoi injecter du droit américain dans les relations interbancaires alors que la négociation devrait avoir lieu d'État à État? FATCA introduit beaucoup de confusion, et n'aide pas l'OCDE. Les États-Unis ont prouvé, avec les listes UBS, qu'ils avaient les moyens de contraindre les grands établissements financiers du monde. Ceux qui sont européens se soumettent. Pourquoi devrions-nous, dès lors, mettre en oeuvre FATCA, alors que ce qui compte avant tout pour nous, ce sont les standards de l'OCDE ? Nous avons besoin d'une régulation mondiale. Nos intérêts devraient être défendus par l'Europe." 
(We have heard many times from our representatives at the OECD. Sixty states have signed an agreement. As for the Americans residing in France, they are also French taxpayers. Why inject American law into inter-bank relationships when negotiations should take place between states? FATCA introduces a great deal of confusion and is not helping the OECD. The U.S. has proven, with the UBS lists, that it has the means to rein in the world's big financial institutions. Those who are European have submitted to these. Why should we now put FATCA into place given that what really matters for us are the OECD standards? We need a worldwide regulation. Our interests should be defended by Europe.)

14 comments:

Anonymous said...

What strikes me is the implicit acknowledgement of the legality of the threat of sanctions, and the fact that discrimination is acceptable. They also don't mention the potential ruinous consequences if the US applies the law to the letter to the people whose information is going to be sent.
So many things that has not been negotiated before the IGA was signed. It's just crazy and show the ignorance and incompetence of the people in charge.
As everywhere else, they're more concerned with the impact on the banks than the impact of the people concerned with that legislation. What's important to them is the banks avoiding the fines, not the people who did not know they had to file taxes and FBARs. That aspect really bothers me.

Also, they mention that reciprocity was what delayed the signature of the IGA, yet, they signed without having any guarantee that the US will reciprocate. I don't understand why countries did not unite in denouncing the US approach and working out a international law that would not discriminate against a class of people.
It is also crazy that the OECD rules would not apply to the US.
As Marvin said, I don't think 2 international standards will work. They should unite on one.
Rigth now, they all just acknowledge that the US is the biggest power in the world, and that they can do nothing about it.
Reminds me of that 4 min FATCA video.

Tim said...

I guess the politicians will argue that throwing expat Americans under the bus is a small price to pay for preventing another Great Depression and 25% plus unemployment which is what would happened if non US countries refused to comply with FATCA.

The between myself and politicians is I WANT another Great Depression. The first thing that happens in a second Great Depression is that Obama and his stooges like Patty Murray, Maria Cantwell, and Jim McDermott will be driven from office if not tared and feathered and put in jail.

The challenge to Americans Abroad is whether they are willing to bring down global financial system and push themselves, their "homelander" relatives, and their friends and neighbors in their countries of residence into perpetually 1930s style poverty to prove a point.

http://latimesblogs.latimes.com/money_co/2010/01/aig-bailout-paulson-goldman-geithner.html


0 0 Former Treasury Secretary Henry M. Paulson, who will testify before Congress on Wednesday about the federal bailout of insurance giant American International Group, is sticking with the party line: Allowing AIG to sink would have unleashed economic Armageddon, he says. “Had AIG failed I believe we would have seen a complete collapse of our financial system, and unemployment easily could have risen to the 25% level reached in the Great Depression,” Paulson says in remarks prepared for the House Oversight and Government Reform Committee. -

Ellen said...

It's the discrimination, even for understandable business reasons, that concerns me. Can they really single out certain customers and exclude them because of nationality? Can they do this even if some of those customers are also French? Since the cause of such discrimination is a US law, should there be any compensation for citizens of the US, victims of discrimination?

Rick Adams said...

How can we get a lawsuit going to challenge this discrimination and very real financial damages to US citizens living and France or French / EU citizens connected to them?

Anonymous said...

Intervention de Frederic Lefevre à l'Assemblee Nationale sur la fermeture des comptes bancaires en France:


http://www.dailymotion.com/video/x1cvwn7_intervention-en-seance-sur-la-fermeture-des-comptes-bancaires-detenus-par-des-francais-etablis-aux-u_news?utm_source=All&utm_campaign=Envoi+2+-+CANADA&utm_medium=email

Tim said...

To Ellen's question my understanding of the letter that was sent to MEP Sophie In't Veld was basically no government authorities cannot and will not do anything to stop discrimination under the "right of contract." From my perspective I don't think I have ever heard "right of contract" used as a defense under European law. It IS a very old and controversial defense from early 20th century US jurisprudence. It appears one reason for this situation is the banks and other financial institutions in the EU have been specifically exempted from anti discrimination laws.

Tim said...

To Ellen's comment. I actually found a bank in Florida that neither allows US citizens or US residents as depositors. Interestingly enough the justification given does not seem to be an accurate portrayal of US in the circumstances. The US Federal Reserve does allow US bank to pay higher interest rates than otherwise permitted to "foreigners"(which the bank in questions does take advantage of) however, the US Federal Reserve defines "foreign" for their regulations as someone who is NOT a "resident" of the US.

http://www.bb.com.br/docs/pub/atend/dwn/IndivTermsCondEng.pdf.

This Brazillian bank in Miami might be an interesting story to bring up to Congress on Americans Abroad week.

Anonymous said...

With the new OECD proposal on AEOI, do we expect the banks to continue discriminating against Americans? Or are they going to discriminate against all non-citizens or stop the discrimination all together?
The discrimination issue not only comes from the cost of compliance, but from the fear of penalties. One big difference with FATCA and the OECD proposal is that the OECD proposal is not based on penalty for non compliance.
The US needs to scrap FATCA and adopt it if they want the discrimination against their citizen to stop.

James Wattengel said...

To Tim: The Bank you mention is the Banco do Brazil, which is a commercial owned by the Brazilian Government (not the central bank). The link you have posted is has been deactivated. I surmise that this is a specific branch for a some special purpose and does not represent the general BB policy. There are many other BB branches in the US. I do not have a BB account but BB here in Brazil is kind of a bank of last resort for lower income Brazilians because they are obliged by law to have physical branch offices in every municipality and are also obliged to accept account holders that other banks won't accept.

James Wattengel said...

More on BB Miami: "Banco do Brasil Miami works in the Private Banking and High Income segments, with focus on serving clients who are not residents of the USA."

"* Deposits at Banco do Brasil are not insured by the FDIC."

http://www.bb.com.br/portalbb/page100,500070,500253,22,0,2,8.bb?codigoNoticia=37370&codigoMenu=17716&codigoRet=18038&bread=1_1

This is not a typical Branch and should not be cited at the DAB party.

Carolyn said...

This is slightly off topic, but I just read an article in the Wash Post this morning that, while it reports on Americans with accounts in Crédit Suisse, seems to depict all Americans with "foreign" accounts as tax evaders... (http://www.washingtonpost.com/business/economy/credit-suisse-helped-wealthy-americans-cheat-the-irs-senate-report-says/2014/02/25/e45c7dee-9d9d-11e3-a050-dc3322a94fa7_story.html) How about a letter to the editor in response???!!! I'd be happy to co-sign (but don't have the time or as good a handle as you do with all the excellent research that you've been doing).
Carolyn in Brittany

Victoria FERAUGE said...

@Anonymous, what astonishes me is just how little homework they did before they signed the IGA. They keep talking about "Americans". It was the banking rep who finally mentioned duals and other French citizens who are impacted by FATCA. The French lawmakers seems to be operating under the assumption that it's only US citizens who are concerned here which is not true at all.

@Tim, It's not just throwing American expats under the bus, this is something they are inflicting on their own citizens and they don't seem to get that.

@Ellen and Rick, Good points. Perhaps we need to approach the US government for compensation or take something to the ECJ. I know that in Canada a group is planning a Charter challenge. What can we in Europe do and does anyone know of a lawyer who could help?

@Anonymous, That is an OUTSTANDING video and thank you so much for posting the link. I will use it for tomorrow's post and I'll give a summary in English for those who do not speak French. Much appreciated. Merci, Madame/Monsieur.

@Anonymous, Another excellent point. Given the discrimination we are seeing against those of one nationality, what will happen when these standards are worldwide and ALL expats/dual nationals are involved. Will banks in all countries start dumping the accounts of immigrants because it's simply not cost-effective to report their accounts to their home countries? I think this just might happen.

@James, Fascinating. I had no idea.

@Carolyn, not off topic at all. I think a letter to the editor is in order. This is just horse manure. Let's talk via email. I note as well that the senate report on the recent hearing can be found here:
http://www.hsgac.senate.gov/subcommittees/investigations/hearings/offshore-tax-evasion-the-effort-to-collect-unpaid-taxes-on-billions-in-hidden-offshore-accounts




James Wattengel said...

@Carolyn / @Vitoria

FYI a commentor (Anne) on the Economist's View Forum posted this article. I gave a short response. It is about the 22 comment here:

http://economistsview.typepad.com/economistsview/2014/02/link.html#comment-6a00d83451b33869e201a73d81ce8f970d

Anonymous said...

it is never too early to learn about US tax policy which might affect them. Your daughter(s) might want to attend an information session at McGill on Sunday Mar-14. Details available at IBS