Go away, American millionaires.
That’s what some of the world’s largest wealth-management firms are saying ahead of Washington’s implementation of the Foreign Account Tax Compliance Act, known as Fatca, which seeks to prevent tax evasion by Americans with offshore accounts. HSBC, Deutsche Bank, Bank of Singapore and DBS Group all say they have turned away business.
“I don’t open U.S. accounts, period,” said Su Shan Tan, head of private banking at Singapore-based DBS, Southeast Asia’s largest lender, who described regulatory attitudes toward U.S. clients as “Draconian.”
The 2010 law, to be phased in Jan. 1, 2013, requires financial institutions based outside the United States to obtain and report information about income and interest payments accrued to the accounts of American clients. It means additional compliance costs for banks and fewer investment options and advisers for all U.S. citizens living abroad, which could affect their ability to generate returns.
“In the long run, if Americans have less and less opportunities to invest overseas, it would be a disadvantage,” Marc Faber, the fund manager and publisher of the Gloom, Boom and Doom report, said last month in Singapore.
The almost 400 pages of proposed rules issued by the Internal Revenue Service in February create “unnecessary burdens and costs,” the Institute of International Bankers and the European Banking Federation said in an April 30 letter to the IRS, one of more than 200 submitted to the agency. The IRS plans to hold a hearing May 15 and could amend how and when some aspects of the rules are implemented. It can’t rescind the law.
The government needs to be tougher on offshore tax crimes than it has been, said Rep. Richard E. Neal (D-Mass.) and one of the original sponsors of the legislation. Fatca, introduced after Zurich-based UBS said in 2009 that it aided tax evasion by Americans and agreed to pay $780 million to avoid prosecution, is already helping to improve banking transparency, he said.
“People should know, and the IRS should know, what money is being held offshore and for what purpose,” Neal said. “I don’t think there’s anything unreasonable about that.”
UBS, the world’s biggest non-U.S. private bank according to London-based industry tracker Scorpio Partnership, said in 2008 it would discontinue offshore accounts for U.S. citizens. The firm now refers them to its U.S. wealth-management offices, or to its Swiss Financial Advisers unit, which complies with U.S. and Swiss regulations, said Serge Steiner, a spokesman for UBS. The company continues to provide Americans outside the United States with services other than securities investments, including consumer and commercial loans, foreign-currency spot trading and precious-metals transactions, he said.
Investments in products offered by third parties that non-U.S. citizens can buy through UBS or other banks also may be restricted.
“Most of the hedge funds I know in Asia won’t take American clients,” Faber said.
Bank of Singapore, the private-banking arm of Oversea-Chinese Banking, ranked strongest in the world for the past two years by Bloomberg Markets magazine, has turned away millions of dollars from Americans because it doesn’t want to deal with the regulatory hassle, according to chief executive Renato de Guzman. The bank had $32 billion under management as of the beginning of the year.