International agreements are difficult to obtain, because often there is no final authority that can step in, like a judge in a legal matter, and order compliance. Disputes around the world, from Israel, Palestine and the West Bank, India, Pakistan and Kashmir, or Greece, Turkey and Cypress, even the U.N. has proved incapable of creating and enforcing a solution.
Money, however, is often a useful surrogate for authority. While you may not be able to make anyone do anything by right, you can punish them for not complying by imposing costs either directly by fines or indirectly by excluding them from opportunities.
So it is with The Internal Revenue Service’s spectacular success in obtaining compliance with the Foreign Account Tax Compliance Act (FATCA). The Act, which requires U.S. taxpayers to report amounts greater than $50,000 in foreign bank accounts, presumes many of these taxpayers are not, and so also demands that the foreign bank accounts that hold those accounts are also required to report on those accounts.
The Treasury Department, working in concert with the Department of Justice, has obtained a remarkable degree of cooperation and compliance from foreign banking institutions, perhaps spurred on by almost $3.4 billion dollars in fines and penalties extracted from Swiss banks.
In addition to those penalties, compliance has been obtained from a voluminous list of foreign nations and financial institutions by the largest stick in the Treasury’s toolkit, a 30 percent fine combined with complete exclusion from the U.S. financial markets.
That price would like bring down virtually any major foreign financial entity, and that explains the fact that the FATCA compliance list now contains 77,000 institutions. Not only did the vaunted Swiss bank secrecy laws crumble in the face of FATCA, but also almost every other tax haven has followed the Swiss.
The staggering reach of this Act is highlighted by the fact that at the same time that Russia was engaging a de facto war with Ukraine, and tensions between the U.S. and Russia were at levels not seen since the fall of the Berlin Wall and the collapse of the Soviet Union, Treasury was still able to obtain compliance from Russia. Even China has agreed to comply with FATCA.
And for individual taxpayers, the need to comply is no less imperative.
Source: forbes.com, “Facts About FATCA, America’s Global Disclosure Law,” Robert W. Wood, May 15, 2015