[SINGAPORE] Much as they dislike it, Singapore banks are taking steps to comply with a new US law which requires all financial institutions to provide details of US accounts.
The Monetary Authority of Singapore (MAS) also said the US authorities have been constructive in addressing industry concerns about the new law.
The Foreign Account Tax Compliance Act (Fatca) - or the US taxman's "big stick", as some call it - cannot be wished away. Even bankers who say they will not accept US accounts anymore will have to live with it.
"We are working towards Fatca compliance. We've lobbied, frankly, though we knew we could not wish it away," said Ong Ai Boon, director, Association of Banks in Singapore.
The 2010 law, to be phased in starting Jan 1 next year, requires financial institutions (FIs) based outside the United States to obtain and report information about income and interest payments into the accounts of US citizens, Green Card holders and US residents.
If the banks do not comply, they face a hefty 30 per cent withholding tax on all US investments both for themselves and their customers.
"It (Fatca) is a groundbreaking law that makes non-US FIs collect data on US persons. It completely disregards local laws," said Jay Krause, head of wealth planning in Asia for Withers Singapore. "The stick is the 30 per cent withholding tax on US investments.
"As a practical matter, an international bank would be able to consider opting out of Fatca only if they decide to forego the US investment markets, both for themselves and for all of their clients," Mr Krause added.
Some FIs toyed with the idea of not accepting US clients but even that does not get them off the hook. That's because many rich Asians have US connections.
Although Fatca is about getting information on US citizens in order to get them to pay their taxes, the definition of US persons under the Act is pretty wide ranging.
It includes people born in the US, having a US telephone number and standing instructions to transfer funds to an account maintained in the US, said Duncan Edwards, executive director, Ernst & Young Advisory.
Mr Krause added: "We find from our client base that 40 per cent have US family members who have connections to the US through education, or marriage or Green Cards."
These connections have put banks in a bind and they will have to decide if shuttering these accounts makes business sense, said Mr Edwards. "It varies from zero to 100,000 US persons as customers . . . if you have 100,000, that would be a lot of business to lose."
The alternative is to put an expensive system in place to identify clients as defined under Fatca.
"Identifying these . . . is not always that easy. For example, while all US telephone numbers start with the number 1, so do all Canadian telephone numbers," said Mr Edwards.
He said in Europe, one estimate is that it will cost a bank 140 million euros (S$224 million) to become Fatca-compliant.
Neither are regulators keen on banks banning US clients.
"I've spoken to one regulator who has expressed concern about banks which won't accept US persons as clients," said Mr Edwards.
The American Chamber of Commerce in Singapore said there are some 1,500 US companies and more than 22,000 Americans here.
Also, banning US clients is irrelevant in terms of Fatca compliance.
Said Mr Krause: "Under Fatca, whether a bank does or does not have US clients is in many ways irrelevant. What is relevant is whether the bank has agreed to implement client identification procedures as mandated for Fatca purposes."
The three Singapore banks are looking at implementing Fatca.
"We are reviewing the bank's processes such as client on-boarding, management and reporting of client information to ensure that the bank is Fatca-compliant when the proposed regulation comes into force," said a spokeswoman for United Overseas Bank (UOB).
DBS spokeswoman Edna Koh and OCBC Bank head of group corporate communications Koh Ching Ching added that their banks were assessing Fatca requirements.
Meanwhile, MAS said the US authorities had been constructive in addressing industry concerns about Fatca. "Global financial institutions and banking associations worldwide have provided feedback to the US authorities on the compliance burden and implementation issues surrounding Fatca," said MAS, responding to BT queries.
"The US authorities have adopted a constructive approach, having taken on board some of the suggestions from the open consultations to address industry concerns and to phase in the Fatca requirements; and they are continuing to work closely with the financial institutions to provide further guidance on implementation.
"Financial institutions in Singapore can already provide bank account information to the US Inland Revenue Service for the purpose of compliance with Fatca, with the customer's consent," MAS added.