Reaction to US Tax Law
European Banks Stop Serving American Customers
The idea was to ensure that US citizens were paying their taxes on investments made through overseas banks. The result, however, has been that Americans in Europe may have difficulties finding banks who want their business.
According to a report in the Wednesday edition of the Financial Times Deutschland, several European banks have elected to no longer serve American securities investors due to stricter reporting requirements pushed through last year by the administration of President Barack Obama.
German financial institution HypoVereinsbank has informed its customers that it will no longer offer certain services to its US-based clients or to US citizens as of Jan. 1. Deutsche Bank told the paper that it already cancelled such accounts held by American citizens in the middle of 2011. Germany's second largest bank, Commerzbank, is considering a similar move. Customers with normal checking or savings accounts in Germany are not affected, however.
British banking giant HSBC has also reported that it will no longer serve US investors as has the Swiss bank Credit Suisse.
'Easier to Write a Check'
Banks say that the law is already resulting in significant costs and that compliance will ultimately be exorbitant. "With FATCA, there is a cost on us in Europe but the benefits are in the US," James Broderick, a senior manager with JP Morgan Asset Management, told Reuters in November.
He says that some financial institutions face one-off costs of up to $100 million. "It would be easier to just write a check to the Internal Revenue Service," he said.
An official for DWPBank, which takes care of securities transactions for 1,600 banks in Germany, estimated that total cost of compliance in Germany alone could amount to 10 billion. Furthermore, some German privacy laws may actually prevent some institutions, particularly insurance firms, from compliance, the official, board member Karl-Martin im Brahm, told the Financial Times.
"Strict laws (for insurers) make it illegal to reveal some customer data," he said. "They are in a very difficult position."
Not Entirely Safe
The US introduced the law in response to numerous high-profile tax-evasion cases, including several involving secret accounts in Switzerland. But banks began lobbying against it almost as soon as it was passed. Several large banks, including Credit Suisse, Barclays and the Canadian bank TD Bank have spent millions fighting the law. European Union officials have also sought changes to reduce the burden on European banks. To no avail.
"The US interest is to have reporting on accounts to stem the tide of offshore tax evasion," senior Treasury Department official Manal Corwin told the Financial Times.
And even banks that cease serving US customers may not be entirely safe. "Even if you have no US customers, you are not out of scope," Mark Naretti, managing director of auditing firm KPMG, told Reuters this week. "This would also require that the firm not have any US investments and not be part of an expanded affiliated group that includes entities that are participating foreign financial institutions."
In other words, HypoVereinsbank and Deutsche Bank may be on the hook no matter what.
cgh -- with wire reports