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Exclusive: Foreigners' accounts in U.S. banks eyed in tax crackdown

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02/04/2013 | 06:58pm EST

WASHINGTON (Reuters) - The Obama administration may soon ask Congress for the power to require more disclosure by U.S. banks of information about foreign clients' accounts to those clients' home governments, as part of a crackdown on tax evasion, sources said on Monday.

In a move facing resistance from some in the U.S. banking industry, two tax industry sources said the administration was considering asking Congress in an upcoming White House budget proposal for the authority to require more disclosure from U.S. banks.

The information-sharing effort stems from a fight by the Treasury Department against offshore tax evasion under the Foreign Account Tax Compliance Act, or FATCA, adopted in 2010 and set to begin taking effect at the end of 2013.

At the heart of FATCA is a law requiring more disclosure by non-U.S. banks of information about Americans' accounts to the Internal Revenue Service, with the goal of exposing Americans' efforts to dodge U.S. taxes through secret offshore accounts.

As Treasury has implemented FATCA, some countries - possibly including France, Germany and China - were said to be driving a hard bargain. They have been saying that if their banks have to tell the IRS about Americans' secret accounts, then U.S. banks should have to reciprocate by disclosing more information about the U.S. accounts of French, German and Chinese nationals.

"The United States is committed to a policy of transparency and equivalence, where appropriate, in furtherance of international cooperation to combat offshore tax evasion," said a Treasury spokesman, declining to comment more specifically.

The president's next budget plan is expected within weeks.


FATCA requires non-U.S. banks, investment funds and other financial institutions to tell the IRS about accounts held by Americans with more than $50,000. Foreign firms that ignore the law could be frozen out of U.S. financial markets.

When FATCA was first approved, many foreign banks complained that they could not comply without violating their home countries' financial privacy laws. So Treasury started negotiating bilateral FATCA agreements with foreign governments so they could be go-betweens for their banks and the IRS.

Only four bilateral pacts are fully completed, with the United Kingdom, Denmark, Ireland and Mexico. U.S. Treasury officials are still negotiating with more than 50 other countries.

Deals are pending with major trading partners such as France, Germany, Italy, Japan, Switzerland, Canada and the Netherlands.

China has been publicly dismissive of FATCA, but it is talking with U.S. officials behind the scenes, sources said.

"The People's Republic of China may be particularly interested in a reciprocal exchange of FATCA information," said Karl Egbert, a lawyer with law firm Dechert LLP in Hong Kong.

France and Germany "have been asking for something more like full reciprocity," said Jonathan Jackel, a lawyer with the law firm of Burt Staples & Maner LLP in Washington, D.C.

The United States already shares some taxpayer information with foreign countries with which it has a tax treaty or a formal information-sharing agreement.


The Treasury Department has acknowledged that more information sharing would be appropriate. The completed FATCA pacts include commitments "to pursue equivalent levels of reciprocal automatic exchange in the future," according to an October 2012 letter from Treasury Assistant Secretary for Tax Policy Mark Mazur to members of Congress.

The IRS this year started disclosing to some foreign governments information about bank interest payments earned by their citizens with U.S. bank accounts. This has raised privacy concerns, particularly for Mexican nationals.

"We are concerned with Latin American countries like Mexico," said Fran Mordi, senior tax counsel at the American Bankers Association. "In the past, U.S. banks didn't report interest payments to non-resident aliens ... IRS is now saying you have to report that."

The Texas Bankers Association is considering a lawsuit against the government to stop accountholder information sharing with Mexico, said Eric Sandberg, the group's president.

Treasury officials have said Mexico's tax-collecting agency was carefully vetted and that officials checked with other U.S. agencies that share sensitive information with Mexico before agreeing to provide the tax information.

"The United States should be moving toward full reciprocity," said Georgetown Law School Professor Itai Grinberg, a former Treasury official, adding it would be "deeply hypocritical" of the United States to ask for U.S. taxpayer information "without offering some kind of reciprocity."

(Reporting by Patrick Temple-West; editing by Kevin Drawbaugh, G Crosse)

By Patrick Temple-West

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