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.)