Robust AML Framework Can Ease the Burden of FATCA Compliance


How far would you go to avoid IRS red tape, potentially higher taxes and a loss of banking privileges? A growing number of Americans living abroad are weighing the costs of U.S. citizenship and opting to just say no to the rights – and responsibilities – of holding a U.S. passport.

Financial institutions must be ready to identify foreigners from any jurisdiction – not just U.S. taxpayers.

The Foreign Account Tax Compliance Act, or FATCA, is causing the stir. The legislation seeks to combat offshore tax evasion and recover federal taxes by requiring individuals to report their financial accounts held overseas – and directing foreign financial institutions to report information directly to the IRS about accounts held by U.S. taxpayers. The regulations have a phased implementation schedule, and the withholding requirements are set to go into effect next year.

According to a survey conducted by Fiserv at the recent Sibos conference, FATCA compliance is high on the priority list for global financial institutions. FATCA was cited as the second biggest regulatory concern among financial professionals, behind Basel III. Despite the looming implementation of FATCA withholding requirements, 82 percent of respondents reported that only some or few organizations are ready for FATCA compliance.

To comply with FATCA regulations, financial institutions must identify customers who may need to prove that they are not U.S. taxpayers, and, if a customer is a U.S. taxpayer, the financial institution is subject to reporting requirements. Finding the right people involves looking for customers that have one or more of seven possible U.S. indicia, such as a U.S. birth place, residence or telephone number.

While many countries will not be able to exert enough economic pressure to enforce extraterritorial regulations, reciprocal agreements between two or more countries may be what ultimately requires financial institutions everywhere to report on any assets held by foreign customers. Financial institutions must be ready to identify foreigners from any jurisdiction – not just U.S. taxpayers.

To avoid what are seen as arduous, expensive and time-consuming regulatory hoops, many foreign financial institutions are refusing service to Americans living in their midst. Retaining banking privileges, including the ability to open accounts and secure a mortgage, is often at the crux of the matter for Americans who are considering giving up U.S. citizenship.

For financial institutions that have invested in a robust AML platform, there's a silver lining. An AML framework provides the capabilities to orchestrate, execute and manage a FATCA program.

The workflow and case management capabilities of an AML monitoring system enable investigation, approvals, and capture of documents. They also support audit trails and recordkeeping to prepare for future regulatory examinations. AML systems can automatically ensure that necessary checks were completed and produce reports on how decisions were made, by whom and why.

FATCA compliance teams can leverage AML technology to efficiently perform the centralized control, monitoring and reporting functions that will soon be required. With a mature and flexible platform, financial institutions can be prepared in this latest front in the war against tax evasion and other financial crimes.

Want to learn more about FATCA and AML? Watch Jeroen Dekker discuss the issues in this video interview with Waters Technology.

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