Letter to Jim Flaherty and Letter from UK govt to US

I don’t how these two things got attached together but I found an interesting letter from the Canadian Bankers Association to Flaherty AND a letter from the UK Ambassador to the US to Geithner. This is the first I have ever seen a foreign governments direct response to the US. Take a read.

 

http://www.clhia.ca/domino/html/submissions/Public_Submissions.nsf/3a76f4bf05a34de68525757e00638de1/8525758200701fa9852578490052b067/$FILE/Letter_from_FS_Council_reFATCA.pdf

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23 thoughts on “Letter to Jim Flaherty and Letter from UK govt to US

  1. The UK letter certainly sounds more forceful. The Canadian Bankers Association seem to be saying they are willing to sacrifice US customers for the sake of their bottom line. Isn’t it a fallacy for them to state that using existing exchanges of information between CRA and the IRS would eliminate privacy breaches? I certainly wouldn’t want CRA giving my financial information to another government.

    One thing I thought about this whole fiasco: if the FFIs are forced to eat the cost of FATCA, wouldn’t it be more than likely that they would simply pass on this cost to ALL of their clients in the form of higher fees?

  2. @zuccgeri81

    Back in December, when my husband was opening a new account (BNS), I spoke with a bank officer about FATCA. I asked him how they were going to pay for the changes required, were they going to simply pass these costs on to all of their customers? He said yes and I remember realizing that everyday Canadians, with no US ties whatsoever, would be subsizing Congress and the IRS’ invasive program. Not only was I blown away by imagining the type of reaction likely to occur, it made me fearful of another backlash of anti-American vitriol.

  3. @tim, amazing finds, really interesting to see documents like that. I don’t think that there can be any doubt that the US was made aware of the so-called ‘unintended’ consequences.

    @zucchero81 – re passing on the costs – no doubt that it would be passed on – that’s how it works. The flood of debt and costs flows ever downwards, and leave those at the bottom of the pyramid to drown in the resulting deluge. And still no evidence of any US attempt to produce any real and robust cost/benefit analysis. Why let the facts get in the way I guess..

  4. @zucchero81

    Remember the UK letter is coming from the UK government not an industry association. Its actually somewhat interesting in my mind the CBA is somewhat opposed it seems to Flaherty’s more strident opposition to FATCA in its entirety. While I know a lot of people here like to pin the blame of FATCA on the Treasury and IRS its also interesting that the CBA referred to the need to communicate with the Senate Finance Committee and House Ways and Means Committee whom they imply would oppose any attempt by the Treasury to water down the application of FATCA to Canada.

    I also understand as recently as February 25th Flaherty reiterated his opposition to FATCA at a speech to the Halifax Chamber of Commerce.

  5. @NobleDreamer

    I think the Canadian Bankers Association is tremendously afraid this whole thing will get caught up in an old school Canadian Anti Americanism outbreak that is why they are being so secretive.

  6. Look at the date of the UK letter. Having worked around FATCA at a bank as recently as Autumn 2011, I can confirm that nothing has changed as a result of the letter.

    The only way the provisions for FATCA will be rolled back is if the law itself is rolled back.

    The big British banks actually raise more capital on the US markets than they do anywhere else. They have to comply in order to stay solvent, despite the huge regulatory burden.

    FATCA is one of many contributors to a perfect financial storm over the coming couple of years.

  7. Great find Tim… You must spend your entire day do nothing but ferreting out these gems. Thanks for your contribution.

  8. To me it’s reassuring that the CBA isn’t pressuring the federal government to change our privacy laws to accommodate FATCA, no “back room tinkering with our sovereignty” at least so far. Yes, a great find. Thank you.

  9. @zucchero81
    I’ve implemented systems like FATCA (e.g. AML, BaseI, Patriot Act) in CDN Banks. *IF* the FI’s must takes this on (versus the CRA) ALL of the professional services to implement this monster will come from the US. ALL of the computer hardware and software will come from the USA via CDN channels. The US companies that help the Canadian FI’s will pay some of their taxes to the IRS. This stuff is all HST-exempt for the CDN FI’s. The FI’s will write their costs off against the CDN taxpayer base, then raise fees and reduce rates of return to cover the costs. All Canadians will pay for the installation, maintenance, and ongoing processing costs. Even if there is not a single US person left in Canada to worry about.

    The same offshore country that has caused this huge problem is the same offshore country that is providing all of the solutions, including personal professional services.

    Lastly, I would expect a rapid FATCA implementation to satisfy date commitments above all else. In this context I suggest that it is possible that one or more CDN FI’s will *not* know at the outset, in detail, exactly what information the US-developed FATCA software will send across the border about ALL Canadians, not just US Persons.

  10. @A Gentleman’s Rapier
    Please expand on your “perfect storm”, if you will? FATCA is unworkable, unless someone or something is thrown under the bus. Any projections of what that will be? The general public is still unaware of this grave situation-they don’t know that they don’t have to love banks to hate FATCA. If nothing can be resolved it will up to our government(s) to bring it to light. Perhaps it’s the romantic in me, but I have a recurring vision of families listening intently to their radios as PM Harper warns all Canadians of the bumpy ride ahead…

  11. @CanadianPat. You are so right.
    The IRS, for example, in a report called “Interim Results of 2012 Tax Filing Season and Summary of the Fiscal Year 2013 Budget Request”, listed:
    Table 7: IRS’s Major IT Investments’ Cost Information:
    FATCA:
    Enacted funds for 2012: $0
    Requested funds for 2013: $11.4 million
    Total estimated cost from 2011-2015: $42.3 million

    There will be an all out effort, I suspect, and there will be many companies jumping on the bandwagon to profit from our misery, most particularly US companies because they have the advantage on understanding (somewhat) the US system.

  12. @outragec

    At the end of the day though do Canadian banks take orders from Washington or Ottawa from your industry experience.

  13. @Tim
    I’ll take a run at your question. The CDN Banks have lots of influence with the CDN government, helped by their good performance relative to the rest of the world throughout 2008 and 2009. It would seem to me that those with the biggest US operations (TD) have the most at risk given their exposure to the US. That said, they have probably been working the US “system” for years and they know their way around (read: some influence), whereas the other banks not so much. TD would also have many CDN and US employees buzzing back & forth across the border – hard to imagine how this gets sorted-out, or if the employees really know the implications. Pure speculation: TD would see the USP-in-Canada issue (i.e. 1 million zombies) more than other banks. Scotia and Royal have a more worldwide view, and may have a better view of the 6 million zombies. Don’t have thoughts on BMO or CIBC. Believe that Royal and BMO pulled-back from their US ops awhile ago.

  14. @canadianpat

    I agree with you in terms of which banks are the most “tied” to the US. I guess the question is how much influence they have with Flaherty to get him to change CDN law in order to comply with FATCA and prevent a situation where they get withheld on their US asset holdings. My sense is despite the CDN banks good performance relative to the rest of world Ottawa is not pushed around by them. In fact my sense is much of Ottawa views past government intervention in the sector in an even more favorable light such as prohibiting mergers back in 1990s given the recent crisis. Also note Flaherty’s recent comments on mortgage lending for example or his staunch refusal to allow in branch insurance sales.

  15. @Tim

    I think that your senses are right with respect to Ottawa managing CDN banks and your examples are good evidence. I will say that I have speculated that there must be a very strong CDN Insurance lobby that affected these past decisions, but I really do not know. Regardless, Ottawa’s past actions re: the banks are probably are a good indicator of the practical governance that we would expect moving forward.

  16. In a NUTSHELL! And let us RENOUNCE!

    That negotiations include an exemption for Canadian citizens from filing US tax returns in circumstances where those citizens have no US income or assets, or have no real connection with the United States;

  17. @Tim, Canpat and others: This article in Globe and Mail may give us some idea of TD’s intent. According to this, “TD has been plans for the Big Apple.” They aim to be the third largest bank in New York City and already have more branches in the U.S. (1300) as compared to Canada (1100)).

    http://www.theglobeandmail.com/globe-investor/td-in-a-new-york-state-of-mind/article2385474/

    This seems to make it very possible TD will capitulate to US demands under FATCA despite Canadian laws.

  18. @bubblebustin We are probably in the midst of an eventual reset of the world’s financial systems, i.e. the symbiotic relationships between western governments and their banking systems. The Eurozone issues surrounding Greece are just the beginning of it. Governments are going to have to cough up ways to get more money out of their citizenry in order to pay off the banks that lent them the money to bribe their various citizenries with benefits and services (the actual bank accounts of several Greek universities have now been hoovered up to pay bondholders, for instance.) No amount of austerity is going to save most of our countries.

    As this becomes more and more the case – and quite frankly, from looking around, there is no one willing to stand up to this virtual rape of national resources by the “banksters” who are aided and abetted by most of our “leaders” whether they are left or right, in the form of bailouts and further borrowing – things are going to get hairier and hairier for us minnows.

    Add into this mix the fact that our governments don’t really understand the parasitic systems they are propping up – and I think this is down to corruption as much as ignorance – once FATCA withholding becomes a reality, we will have gridlock on the world’s money markets as some banks will not be able to prove straight off that all of their American account holders (both corporate and personal) have paid taxes. Everything passing through their American entities – the entities that secure the funding to keep them floating – will be subject to instant withholding. The fact that it is unworkable is beside the point.

    I’m pretty certain that this has been brought to the IRS’s attention.

    The law is the law is the law for the IRS, and for most Americans. And “if you’ve got nothing to hide, there’s nothing to be afraid of.”

    I know my own parents looked at me like I was an alien for complaining that it costs me about $1000 per year just to get someone to fill out the forms for me correctly, and that, in the eventual likely event I go over the FEIE, I am effectively subject to a 75% income tax. I should be proud of the privilege to do my part. Unfortunately, I’ve got a family who would be majorly affected by any penalties the IRS might want to give me for making a mistake.

    I have no other choice, now…It’s hard enough having to deal with two governments but at least the representatives from the British government treat me like a human being rather than a criminal (just the other day, I got a check from HMRC with a letter saying that they had re-checked the math on my self-assessment, and felt I had overpaid.)

  19. @AGentelman’sRapier (btw, love the name). Thank you for the response. Yes, we are in for a rough ride regardless of who’s thrown under the bus (unless it’s FATCA itself, which is unlikely). I agree that FFI’s will never be able to thoroughly vet their customers well enough to satisfy the IRS (when eggs and sperm can also be US citizens). For example, I recently received a bulletin from an investment firm that made an attempt to inform their customers of the impending FATCA regulations. They stated “For the most part, US Persons are aware of their US status and their duty to file a yearly tax return and other documents with the US government”. With FI’s too being ostriches, I predict we won’t be long into 2014 before we see those withholdings take effect.

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