Updated: World Council of Credit Unions on FATCA

Boy unlike the big banks in the FATCA partner countries are they pissed in their comment letter.

A couple of key points:

1. Still very concerned about the remittance issue with credit unions in Central America.

2. Want an almost complete exemption for all credit unions from FATCA.

3. Basically impossible in terms of resources for credit unions to fully comply with FATCA even if they wanted to.

4. Want to be able to accept local resident US Persons without a reporting obligation

5. Significant number of credit unions will be non participating no matter what.

It will be interesting to see how this turns out. The left is always a huge fan of credit unions. I wonder how they will play this.

World Council of Credit Unions to IRS (pdf)

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35 thoughts on “Updated: World Council of Credit Unions on FATCA

  1. thanks for posting the letter @Tim. I just skimmed it, but it is very comprehensive, and makes so many irrefutable points. Hope that all these submissions make a dent in the situation. At least to make it less onerous, if worse comes to worse. I was glad to see the inclusion of the issue of the US not recognizing the registered accounts such as the RDSP and the TFSA.

  2. @Everyone

    While I have said it earlier I suspect based on what I have read in some of the other comment letters there will be a one year delay in FATCA from July 1 2013 to July 1 2014. This will give the US more time to negotiate “partner agreements”.

  3. @Everyone

    Interesting blurb I saw buried deep on Canadian Bankers Association website from April 2011.

    CBA takes on the Alberta Privacy Commissioner and wins

    As a result of collaborative advocacy by members, the CBA and the Investment Industry Association of Canada (IIAC), the Alberta Privacy Commissioner decided not to pursue a complaint about a member’s securities subsidiary requiring a photocopy of a driver’s license. The photocopy is needed to comply with the U.S. IRS’s Qualified Intermediary (QI) agreement. Had the Commissioner’s office continued with its investigation and preliminary finding, firms in Alberta would have been precluded from retaining the required documentation to meet the QI requirements, thereby jeopardizing their ability to waive the 30 per cent withholding tax for Alberta clients.

    The collective advocacy not only addressed the QI agreement requirements, but also earned us an ally in our representations on the Foreign Account Tax Compliance Act (FATCA).

    The Office of the Information and Privacy Commissioner now appears to better understand the U.S. requirements and has recently advised the member firm that it has decided to refuse to conduct an inquiry into the matter and that this file is now closed.

    If you have any questions about this matter, please contact Linda Routledge, the CBA’s Director of Consumer Affairs at lroutledge@cba.ca.

  4. From the new Institute of International Bankers FATCA comment letter:

    Second, we understand why the proposed regulations include a “U.S. place of birth” as a U.S.
    indicia, but we believe that it should be eliminated given that it is neither the commercial
    practice for FFIs to collect such information nor is it relevant for AML/KYC purposes.
    Furthermore, we believe that the population of “accidental” U.S. citizens who happened to be
    born in the United States but have not considered themselves Americans may be significantly
    larger than expected by Treasury and the IRS. We question the value of creating a potential
    administrative headache for FFIs, the IRS and affected individuals who will be forced to deal
    with this population of individuals that likely have technical U.S. tax filing obligations but often
    have no effective tax liability given their residence in other high tax jurisdictions. We believe
    that all of the above problems can be easily avoided by focusing on the citizenship country of a
    customer rather than his or her place of birth.

    Yes, Yes, Yes, Yes

  5. @Tim – I so agree. YES YES YES YES YES YES YES
    now, if they’ll only listen to reason & common sense. The credit union letter reinforces my decision to go to a local credit union.
    thanks for finding all of this!

  6. More from IIB

    First, we believe that including U.S. telephone numbers as an indicia of U.S. status adds
    unnecessary complexity and costs, is inconsistent with prevailing AML/KYC obligations, which
    have no analogous requirement, and should be eliminated. The “001” international telephone
    prefix does not apply only to U.S. phone numbers but those in Canada and the Caribbean as well.
    Accordingly, it is not a simple matter to comply with the requirement to track such numbers, but
    requires all area codes in the three geographic areas to be monitored, tracked and updated. As
    you are aware, this is hardly a static set of codes but has proliferated substantially with the
    advent of mobile and smart phones.

    How the hell will Canadian banks comply. Are all Canadian now Americans

  7. It really sounds like they think that FATCA is to expose the funds of the resident US person who is hiding money in foreign bank accounts, not the US persons who may be their customers! Does anyone else get this impression?

  8. Possibly, I guess in a polite way the IIB is saying if the goal isn’t to expose the resident US person but instead the “accidental” American be prepared for a political mess. I know as a sub federation of IIB Canadian Bankers Association had input into this letter and several people here have been in contact with the Canadian Bankers Association.

  9. Thanks Tim for posting all these. It usually takes me a while to retain this stuff but I like what I see. The rather insistent tone of WOCCU toward IRS including CU’s as “non registering local banks” would make a lot of sense. Just to clarify for others, this is what allows for that designation:

    •Non-registering Local Bank – Requirements:

    -Must be licensed solely as a bank in its country of incorporation;
    -Must not have a place of business outside its country of incorporation;
    -Must not solicit account holders outside its country of incorporation;
    -Must have no more than $175 million of assets and if a member of an affiliated group, the group must not have more than $500 million of assets;
    -Must be required under the tax laws of its country of incorporation to either perform withholding or information reporting with respect to resident accounts – except if all accounts have a balance of $50,000 or less;
    -If a member of affiliated group, all member must be incorporated in same country and meet all the tests.
    •Need not register with the IRS

    Then everyone here could simply be with a CU and not worry about the hassles of being recalcitrant, proving “not US”, 30% witholding and so on.

    On another site, I saw one of the few suggestions I’ve come across that indicate non-compliance might be possible:

    “Smaller and mid size banks with mainly retail and wholesale banking operations may find it cheaper not to comply if the potential withholding is a manageable amount especially if they can limit or reorganize their US investments.”

  10. The problem is most credit unions have way more than $175 million in assets. Thus the World Council of Credit Unions was asking for this cap to be raised. I thought it was good though that IIB which represents the big major banks was bringing up the “accidental” American issue.

  11. I did not notice in previous post that the reference to not-complying involved banks that would not really serve individuals. Sorry, just got excited that somebody had suggested a possible alternative to complying…..really, when you read the entire WOCCU response, it hits you, once again, just how outrageous and arrogant FATCAT is…and so unlikely to produce enough revenue to justify the costs involved for so many non-US entities. Unbelievable they virtually have no choice but to comply….

    I found a description of the timeline regarding these submissions….When the public hearing on May 15 is held, where would we go to find if it will be aired via internet?

    Proposed regulations are a normal part of the regulatory and rule making process in the US.
    •US Treasury solicits comments – due 30 April
    •Holds a public hearing – scheduled for 15 May
    •Then issues final regulations – expected September 2012

    One not-so-great comment at end of the list:

    •Historically, approximately 90% of what is in proposed regulations ends up in the final regulations.
    argh, cant find the link, sorry….

  12. I doubt the public hearing will be on the Internet although it should be. I wouldn’t necessarily assume 90% number in this case.

  13. Just about every responder though is calling for a one year delay in implementation. Hard to see how they ignore that.

  14. one more year would be helpful to those who can’t renounce until they get the second citizenship

    maybe not 90% but probably better not to get one’s hopes up too much.

    will be curious to see if they do address the comments regarding Accidentals, wouldn’t it be great if they would just let all of that go…..

    one of my credit unions says over $1bil in assets so yes

  15. Thanks for pointing this out, badger. It is indeed heartening to see these specific Canadian accounts (RESP, TFSA and RDSP) identified as ones that should not be recognized for FATCA.

  16. I don’t understand why all these banks not bringing a law suite and get an injection until all this mess and ambiguity sorted out. These ambiguous laws later can be interpreted any way IRS pleases, causing financial withholding mess that end up costing billions to untangle. The ambiguous laws would have huge collateral damage even on non-US citizens, if he wants to protect his identity or unaware of US laws and end up as reluctant customer (and withholdings).

    I know millions of accounts are inactive for decades and owners don’t even bother to verify it. For example, if grand parents gift a child some money for his education, it would be put in a fixed deposit until he goes to collage. There could be million reasons like that.

    How could US expect every person in the world to know and comply with US laws or risk 30% tax withholding?

  17. @Expat_business_man

    Well at least here in Canada I think in general our relationship with the United State is very much up in the air. For the last 25 we operated on the premise of more free trade and integration with the US. That era I believe is closing for a lot of different reasons FATCA included but also stricter border controls, extraterritorial Volcker rule etc.

  18. @All

    I’ll probably have more tommorrow including hopefuly what they Canadian Bankers Association has to say.

  19. This is all so hypothetical until actual Canadian and EU citizens who happen to be US-born are discriminated against by their long-standing banking and financial service suppliers. These are educated citizens of means, members of advanced democratic human-rights states with activist judiciaries. Will Boris Johnson, the US born mayor of London England, allow his bank accounts to be closed without s struggle? Multiply his response by hundreds of thousands in Canada, Europe, and beyond.

    What is sad: the lack of sovereign pride and moral leadership among banks and governments. The clamor to comply is like lining up to book staterooms on the Titanic… after it struck the iceberg.

  20. Tim, thanks for all the research.

    The only way I see FATCA being scaled back is if many governments, and not banking associations or private individuals, resist or if Congress repeals.

    The IRS has God-like powers in the US, and I think they fail to see that they don’t abroad. My feeling is that all these letters and representations are allowed by the IRS in order to make everyone feel better about going to their certain doom.

    I’ve never seen a government entity willingly relinquish hard power as the IRS has now.

  21. When someone storms into a British bank and starts to complain that their data is being shared with the IRS than sparks will start to fly.

    British banks have learnt their lessons about unhappy customers and legal action resulting in £100s millions being paid out for overcharged banks fees, mis-sold pensions, endowment policies, and currently PPI commercials on the telly.

    Will FATCA and discrimination be next lesson learnt?

    And we haven’t even started to talk about the 30% withholding tax yet?

    The UK government can do what they want by getting in bed with FATCA, but UK courts will decide FATCA’s final version.

    From the US government’s point of view, I can’t remember in living memory a situation where US citizens are fighting thier own government in foreign courts by sueing foreigning companies against implementing a US law. It’s such a waste of time. But Carl Levin would know all about wasting time being a member of the US Senate.

  22. So guys I meant “sparks” early morning typing. [fixed, but it is also early for me, so I fixed the each of the words “start” first before getting the right one–Petros 🙂 ]

  23. @A Gentleman’s Rapier – the IRS and god like powers, let them come to my overseas front door – I’ll give them a “I’ve found JC” moment outside the US.

  24. @Wondering

    What you describe is already happening where I live in the EU and to me personally as an EU citizen unfortunate enough to have a US birthplace. I am currently restricted to current and savings accounts at Deutsche Bank, for example. Unlike in Canada, in the EU you have to show a passport or national identity card and they register your place of birth as well, so it is easy for the banks here to weed out “US Persons” in a way that currently isn’t possible in Canada. This article mentions what is going on in Germany a bit more:

    http://www.thelocal.de/money/20111215-39519.html

    Swedish banks have yet to determine if they will comply with FATCA or simply start dumping US clients like the German banks are doing:

    http://www.thelocal.se/39522/20120306/

    Renouncing citizenship is the only option that I see to be able to plan financially in the long term and not be forced to live in the US. Good work US government!

  25. @Don Pomodoro – has anyone looked into discrimination law. You’re being discriminated by place of birth and as an EU citizen you have the right to equal treatment. Also I’ve read in Germany you are “German” in Germany and the Bundesregierung doesn’t recognise second citizenships.

    As also an EU citizen, if I’m denied financial services because of place of birth, I’m going to raise hell.

    If worse comes to worst I’ll consider printing off an official looking CLN complete with some bull**it seal and present it to the bank and say I’ve renounced – how on earth are they going to verify it? It’s worth a go. As long as you have a valid EU passport are you really breaking German or other EU law by telling bank you renounced your US citizenship when you haven’t?? At the end of the day if you’re opening an account in your legal name and paying the German tax why would the German tax office really care?

    All you want the bank to do is put you down as German or whatever your EU passport says and that’s it.

    I’ve also considered creating a second EU identity. In the UK I’ll could change my EU passport name by deed poll for £80, open up new accounts under the new name, transfer funds, and the IRS willl have a fun time trying to matching up your new name if you want to resort to such measures. Where would they start if it was a common name?

    However I’d rather the EU to enforce equal treatment of EU citizens first. As for stocks, I would only invest in foreign stocks and forget about US equities, you can make money in other parts of the world as well.

  26. Both SIFMA(The US Domestic securities trade group) and the American Bankers Association have published comment letters also. ABA and SIFMA among other things want like everyone else FATCA to be delayed for one year and all foreign tax deferred accounts such as RDSP, TFSA, RESP etc to be exempted. SIFMA and ABA are also concerned the US if it is providing true recipricioty with the five European countries would have to require domestic US banks to ask for the nationality of their domestic US customers which ABA claims the US Treasury and IRS have no right to demand under current US law.

    http://bsmlegal.com/PDFs/SIFMACommentsWithAppendix_2012_04_30.pdf

    http://bsmlegal.com/PDFs/TCH-ABA%20Letter%20in%20Response%20to%20Proposed%20FATCA%20Regulations.pdf

    I link comment SIFMA makes several times that FATCA is spiralling out of control.

  27. @Don Pomodoro

    I am so sorry it has come to this for you. It’s unfair by any standard. At risk of sounding naive, there any possibility of legal action based on discrimination or equality laws?

    Why should your German citizenship (I assume that’s what you hold) be second class to other German citizens born anywhere else?

  28. I know some of you in Canada, especially, follow the Credit Union opposition to FATCA closely, and have read their submissions. Thought you would be interested inMr. Michael Edwards with World Counsel of Credit Unions, Incorporated. testimony at the May 15th FATCA Public hearings…

    Note: bold emphasis mine.

    MR. EDWARDS: Good morning. I am Michael Edwards, the chief counsel and vice president for Advocacy in Government Affairs for the World Counsel of Credit Unions. On behalf of the World Counsel, I’d like to thank you for allowing us to make oral comments today.

    The World Counsel is the lead trading association and development organization for the International Credit Union Movement, worldwide there are nearly 53,000 cooperatively-owned, not-for-profit credit unions in 100 countries with more than $1.2 trillion U.S. dollars in savings and over 191 million members. Ninety-five-and-a-half of those are in the United States.

    Credit unions all over the world are very concerned about FATCA, and that doesn’t even count the credit unions that are basically unaware of FATCA and the developments in U.S. laws that could end up having them be potentially blacklisted as noncompliant or nonparticipating FFIs.

    Our biggest concern about the proposed regulation on FATCA is that the definition on nonregistering local bank is drafted in a way that we do not think will apply to credit unions.

    The reason for that is that the proposed definition of “nonregistering local bank” under proposed Treasury regulation 1.1471-5(f)(2)(i) defines nonparticipating local bank in relation to Section 581 of the Internal Revenue Code as though that bank were chartered in the United States, and that’s the key part. In the United States, credit unions are not subject to Section 581 of the Internal Revenue Code, but are instead defined pursuant to Section 501(c)(14)(a) in the case of the state-chartered credit union or 501(c) in the case of a federally-chartered credit union, those that are chartered directly by the federal government.

    In this connection, we very strongly ask you to consider expanding the definition of nonregistering local bank to also include credit unions as defined by Section 501(c)(14)(a), determined as if the foreign financial institution were a state-chartered credit union if it was chartered in the United States, and also include similar cooperative credit organizations in that definition.

    The reason that we ask you to follow the approach for U.S. states is that there’s already a well-established legal regime for determining whether a credit union is a credit union under Section 501(c)(14)(a); that is it defers to the state’s definition of a credit union unless the term is grossly misused, such as if the credit union were really a joint stock bank that the state had called a credit union for purposes of attempting to avoid taxation.

    Now, that does bring an added wrinkle to this, which is that credit unions are called credit unions in the United States, Canada, Australia, Great Britain, Ireland, and a number of other English-speaking countries, but not always. In Africa, they’re often called savings and credit cooperative organizations.

    In French-speaking countries, they are called a caisse populaire, and that includes Canada and in case of Quebec. There also is occasionally U.S. credit unions that are called a caisse populaire, and there’s a First Circuit case from 1977 called La Caisse Populaire Sault Ste Marie vs. United States, where the United States challenged whether the caisse populaire was a credit union and the First Circuit determined that it was, indeed, a credit union.

    Other names are an Islamic finance cooperative that includes credit unions in Afghanistan, which are part of the U.S. Agency for International Development’s RUFCOD or Rural Finance and Cooperative Development Program, which is administered by the World Council of Credit Unions. That is one of the key U.S. government efforts to help stabilize Afghanistan.

    Other examples are a credit union in Mexico is usually called a caja. In other Spanish-speaking countries, they’re usually called a cooperativa de ahorro y credito or sometimes also another type of cooperative, such as cooperativa multiactiva, such as in the case of a military credit union that also sells military uniforms or an agricultural credit union that also engages in agricultural activities, but performs credit finance and payments functions.

    We could go on, and I’m not sure if I can pronounce this correctly, but in Poland, they’re called a spóldzielcza kasa oszczednosciowo-kredytowa, sorry, and similar in Russian. So, it’s a very long list.

    And, so, to the extent you can give clear guidance that if you’re a credit union or a similar organization, which are in what we consider credit unions, but have different names, that you can fall within the nonregistering local bank exemption. Without that, then many credit unions are not going to be able to comply and then risk being blacklisted by internationally active commercial banks who would say well, we can’t maintain an account with you.

    To some degree, there’s already concern about this. Credit unions all over the place, essentially in Australia and Canada, credit unions have been told that if they don’t comply with FATCA, they will not be able to do payments business with the banks.

    And what are called corporate credit unions or central credit unions, which are credit unions at the second level, essentially wholesale institutions that are cooperatively owned, they’re also very concerned about this because, typically, they’re institutions or their members are required to be a member of their organization. So, they would not be able to close the account. They’re required by law to have the account. Sometimes, these are old trade associations and a wholesale institution. Other times, you’ll have the wholesale institution run parallel to the trade association, but in either case, you have a lot of the payments business plus other credit functions going through these centrals or in the U.S., they’re called corporates. Sometimes and especially in Spanish-speaking countries, they’re called federations.

    One way that you might be able to help fix the issue with the central bodies is if you were to adjust the expanded affiliated group rules to allow these central bodies to register on behalf of their member organizations.

    We think that would work especially because credit unions in general have common bond requirements that restrict them so that they can only accept members that are local residents and/or workers and anyone else can’t join. Sometimes it’s a particular country, but it’s not easy for an American to become a member of a foreign credit union. In fact, it’s generally impossible unless they were to live locally there.

    Just Me Note: wonder if Mr. Edwards misses the point that FATCA does apply to Americans living locally, and while an American might not easily join a credit Union, a US Person may, and this law applies to them too?

    Now, with the expanded affiliated groups, their field of membership is only other credit unions or mutual organizations that work with credit unions that exist in those countries. But the way that the expanded affiliated group rules are written, they’re written for top-down holding company structures or at least that’s the way we read them.

    So, to the extent that you could have a cooperative organization fall under that, that would help mitigate the issue of the smaller institutions not necessarily knowing they’re able to comply and is especially true if the nonregistering local bank definition is not expanded to hold credit unions within it.

    Now, within the definition of local FFI, which the way we read the proposal is that all credit unions would be local FFIs unless the nonregistering local bank definition is adjusted, we support in general the approach with that, although, we think that there are a number of changes that need to be made.

    For one is that for both the nonregistering local banks and the local FFIs, the proposal proposes to prohibit advertising of dollar denominated accounts on the Web site.

    Now, I understand the policy behind that, “oh, that would seem like they’re trying to solicit foreign business from U.S. people”, but in some countries like Ecuador and El Salvador, they use the U.S. dollar as the local currency. There’s no local currency. It’s a dollarized economy. They use our money because it’s low inflation and highly liquid. So, in those countries, they would have to use U.S. dollars on the account or otherwise they can’t advertise anything.

    In a lot of other countries like Canada, where they have strong trade ties to the U.S., they also offer U.S. dollar-denominated accounts for their members that like to shop or travel to the U.S., and basically every credit union in Canada has that. Also, many other countries, especially in the Caribbean and South America have a lot of dollars in circulation. I’ll give you a couple of examples.

    In Trinidad and Tobago and Paraguay, for example, if you go there, a lot of people say don’t change your money. People would rather have dollars, and, so, it’s a world currency. So, we don’t think that’s workable to prohibit advertising in U.S. dollars, especially in some countries.

    Now, on top of that, we think that 95 percent rather than 98 percent would be a better threshold for nonlocal members or customers of the institution. Part of that reason is that especially in Canada, they have certain credit unions that work primarily with an ethnic group like say Croatian people or something like that and then there’s a certain degree of immigration to and from Canada, and, so, more than 2 percent of their members may be outside Canada, but not in the U.S.

    And in connection with that, we’d also like to support what we think your approach is in terms of saying that if a U.S. citizen or a U.S. person is a local resident, then they don’t count towards that 98 or we’d prefer 95 percent limit.

    We noticed you used the term “resident” rather than domiciliary. So, we think you could have more than one residency, as tends to be the rule. You could be a dual resident. This is important, especially in the case of Canada, where many people may have a second home in Canada and live in the United States, and if they are considered to be local as a resident because they spend — you have a test in your rules of 31 days in the past year and 181 or more over the prior 3 years, but it’s not quite that fine. It can get down to intention, whether people intend to come back.

    In any event, not just in Canada, but we’ve been hearing a lot of concern from credit union members who are U.S. citizens or spend some time in the U.S., and specifically in Switzerland, a woman who is a contact of ours because she’s an editor of a credit union publication has renounced her U.S. citizenship in order to continue to bank in Switzerland. Raiffeisen Bank, which is a international cooperative bank and UBS said she could keep her account if she renounced her citizenship and her postal bank basically said the same thing, although, her postman will still not accept deposits directly from her because she’s an American or used to be, because she now has her emancipation certificate.

    So, this is having far-reaching consequences that I don’t think the Congress anticipated, and in any event, if we can find a way or you can find a way to make it easier for credit unions to comply with this, especially by expanding the nonregistering local bank definition — and I also neglected to mention earlier we’d support the asset threshold for that, being $1 billion rather than $175 million.

    Now, that sounds pretty big. I know that the SBA says a small bank is one under $175 million, but at many of these credit unions, even larger ones, people don’t speak English. It’s going to be difficult for them to even do the Web form. We’re going to try to help them with that to the extent they need to do that to become a local FFI, but to the extent they wouldn’t have to register at all, that would be much easier because I’m seriously concerned that they will not all be able to comply regardless of what you do just because they are not aware of U.S. law.

    So, thank you very much.

  29. Below is the list from the IRS and Treasury that were passively listening without any questions were… (no heavy weights, of course.)

    I didn’t see that any representatives or staff from the Congressional offices that came up with FATCA were in attendance officially to listen to feedback. Maybe they were sitting in the audience, or they got the podcast version for their morning exercise routines on the Mall, or early morning fund raisers at the local DC breakfast hangouts!

    In case you don’t know, or forgot, or were not clear… Here are the Best and the Brightest who gave the world this coming systemic calamity!

    Senate Finance Committee Chairman Max Baucus (D?Mont.), House Ways and Means Committee Chairman Charles Rangel (D?NY), senior Senate Finance Committee member John Kerry (D?MA) and Ways and Means Select Revenue Subcommittee Chairman Richard Neal (D?MA) Senator Carl Levin and Representative Lloyd Doggett http://bit.ly/14VRMo

    PARTICIPANTS:
    For IRS:

    QUYEN HUYNH
    Senior Counsel
    (International)

    JOHN SWEENEY
    Senior Technical Reviewer
    (International)

    TARA FERRIS
    Attorney-Advisor
    (International)

    KATE HWA
    Attorney-Advisor
    (International)

    DANIELLE NISHIDA
    Attorney-Advisor
    (International)

    For US Treasury:

    JESSE EGGERT
    Associate
    International Tax Counsel

  30. @JustMe

    All of the people you listed above are what Phil Hodgen calls “hired help.” In fact from the looks of it they may in fact be the same exact people Phil was meeting with a few weeks ago.

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