LEGAL
On March 18, 2010, FATCA was signed into law as part of the Hiring Incentives to Restore Employment Act. FATCA generally goes into effect on January 1, 2013 and provides the United States Treasury and Internal Revenue Service ("IRS") with oversight responsibility. The goal of FATCA is to combat tax evasion by mandating that each participating foreign financial institution ("FFI") report select information about their U.S accounts to the IRS. To achieve this goal, FATCA requires FFIs to put processes in place to identify and report their U.S. accounts to the IRS or suffer a 30% withholding tax.
The deadlines for two early steps of FATCA compliance are fast approaching: (1) updating procedures and systems for proper on-boarding of new accounts and (2) analyzing pre-existing accounts for proper classification. At first glance, the two tasks appear technically consistent, as both require the FFI to look for the existence of U.S. indicia for individual account holders and properly categorize entity account holders; however, FFIs should not confuse results with process when deciding on implementation plans. While the end-game – the proper classification of accounts – may looks the same, several key factors such as technology, resources and timing will significantly impact implementation strategies for these two work streams.
In this article, Navigant suggests reasons for deploying a centralized approach to the pre-existing account review and decoupling it, both substantively and by approach, from the projects to implement FATCA compliant on boarding enhancements, which due to the multitude of such systems and variants, is likely better suited for a decentralization.
Navigant further explains how adopting a decentralized approach to the pre-existing account review can be a costly misstep, especially with respect to fulfilling FATCA's certification requirements. In particular, Navigant believes that a decentralized approach is more likely to result in Foreign Financial Institutions undertaking scores of disparate pre-existing account reviews that could result in potentially inconsistent analyses and certification review expenses that rival the remediation costs.
Visit Navigant's FATCA site for more details or download Navigant's FATCA Highlights Volume 2 – Pre-existing Accounts v. New Accounts: Factors to Drive Implementation Decisions.
Ellen Zimiles
Managing Director, Head of Global Investigations & Compliance segment, she is a leading authority on anti-money laundering, regulatory and corporate compliance, fraud control, and public corruption matters.
Richard Kando
A Director in the Global Investigations & Compliance segment and FATCA task force co-leader, he assists clients with litigation, anti-money laundering and regulatory compliance related matters.
Salvatore R. LaScala
Mr. LaScala is a Managing Director in the Global Investigations & Compliance practice, and has 15+ years of investigative experience, specializing regulatory compliance and forensic accounting matters.
Jeffrey B. Locke
Mr. Locke is a Director in the Global Compliance & Investigations segment. With over 10 years investigative experience, he specializes in financial and fraud investigations, asset misappropriations and is FATCA Task Force co-leader.
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