The Foreign Account Tax Compliant Act (FATCA), which was enacted by the United States Government in March 2010, requires foreign financial institutions to report directly to the US Internal Revenue Service (IRS) all clients who are US citizens, green card holders living in the US or abroad, or foreign entities in which US taxpayers hold a substantial ownership interest.
FATCA requires US citizens and green card holders with financial assets outside of the US exceeding US$500,000 to report these assets to the IRS.
The legislation is structured so that all accounts will be deemed non-compliant or recalcitrant unless the institution can demonstrate it undertook a rigorous due diligence process to prove it has no US account holders.
A participating foreign financial institution will be obligated to:
• Obtain information to determine which account holders are US persons
• Comply with verification and due diligence procedures on such account holders as required by the IRS
• Report annually to the IRS on the name and address of each US client.
Correspondent banks everywhere may refuse to deal with a financial institution unless that institution can show it is FATCA compliant.
Foreign financial institutions include every member of the investment community—banks, credit unions,asset managers, investment funds and pension fund schemes, brokers and insurance companies.