Monday, September 29, 2014

Airstrikes may end up fueling militant wave

Op-Ed Global Times

http://www.globaltimes.cn/content/883995.shtml *

The airstrikes against the IS will have minimal effect. As with other militant Islamist groups, cut off the head and two more grow back, unless the core issues are addressed that give rise to such extremist movements in the first place. This US-led coalition will not do this, but will instead fuel further militancy.
 
Illustration: Liu Rui/GT

It has been several weeks since the US started airstrikes against the Islamic State (IS) in Iraq, with the operation recently expanding into northeastern Syria, the militant group's stronghold. While Washington has been quick to call the strikes a "success," facts on the ground tell another story.

The IS has adapted to and is rebounding from the coalition attacks. This has been noted by the Pentagon, with Lieutenant General William Mayville Jr. saying exactly that following the first raid on Syria, "They will adapt to what we've done [...] We have seen evidence that they have already done that."

While the IS is taking causalities and facing setbacks, such losses are being countered following a surge in recruitment since the attacks were launched, with more than 6,000 new fighters joining, of which 1,300 are allegedly foreign fighters, according to the Syrian Observatory for Human Rights. Such factors indicate the fight against the IS will be a drawn-out affair.

Not since the Mujahideen fought against the Soviets in Afghanistan in the 1980s, has there been such a well organized, well funded, and well armed campaign by a Sunni Islamic militant group.

The IS has had years to build up to a strength that enabled it to seize control of swathes of northern Syria and northern Iraq.

Its ranks are made up of seasoned fighters that earned their laurels in Chechnya fighting the Russians, in Afghanistan against NATO, and in Iraq fighting the US forces from 2003 until 2011.

Their operational expertise is bolstered by former Iraqi and Syrian army officers, intelligence officers and former policemen, and their governing capacity by former accountants and surgeons. It is a movement that should have been nipped in the bud early on before developing into a multinational menace, but was instead allowed to flourish by nearly every actor in the Middle East today.


Turkey opened its borders to allow militants to flow into Syria to overthrow the government of Bashar Assad; training and arms were provided to rebel movements by US and European special forces; Islamist rebels were financed by donors in Saudi Arabia, Qatar and Kuwait; and the Syrian government itself released several hundred Islamists from prison - many of whom had fought the Americans in Iraq - to weaken the rebels by turning the conflict into a national struggle against Islamic extremism.*

The IS is therefore very much a demon born from the Middle East's protracted problems and decades of failed policy decisions.

It is also what is feeding the IS' popularity among Jihadists, being a group that is challenging the established order, with its successes touted on social media.

Countering the IS is going to take more than bombs. It is about countering the ideology of the IS, which is to establish a caliphate based on Sharia law.

A major problem here is that the US-led coalition is made up of the very states that have promoted and funded such an ideology for the past 50 years.

The Kingdom of Saudi Arabia and Qatar are both Wahhabi, an extreme form of Islam that came out of Saudi Arabia in the 18th century, which petrodollars enabled to be exported globally.

From being on the periphery of the Middle East, militant Islamism has gradually moved to Iraq and Syria, and is now getting close to the center of Islam itself, Mecca and Medina.

That is what is causing concern among the Saudi elite, which had previously exported their Islamist "bad boys," only to find them back in the Saudi backyard trying to set up the type of state idealized by Saudi Arabia's fundamentalist theology.

Indeed, while the IS' highly publicized beheadings deserve to be denounced, the kingdom itself has beheaded 41 people so far this year.

The airstrikes against the IS will have minimal effect. As with other militant Islamist groups, cut off the head and two more grow back, unless the core issues are addressed that give rise to such extremist movements in the first place. This US-led coalition will not do this, but will instead fuel further militancy.  



* Addition made to published text.

Monday, September 22, 2014

Never the Low-Risk Bank Client, U.K. Charities Say Financial Woes Have Worsened

I was interviewed by ACAMS MoneyLaundering.com on charities and counter finance terrorism following a webinar I presented for Thomson Reuters on the topic, and based on a recent paper I wrote (see post below and to download clink on this link) - http://accelus.thomsonreuters.com/whitepaper/charities-and-terrorism-financing-compliance-approaches-and-challenges-2014 

 Irene Madongo, September 17
Recent political turmoil and ever-rising regulatory expectations for banks have made it significantly tougher for British charities to send financial aid abroad, according to a survey.
Those findings, confirmed by non-profit groups interviewed by ACAMS moneylaundering.com, will be released later this year by London-based Charity Finance Group (CFG). The majority of charities responding to the query characterized the shift as a consequence of banks’ growing averseness to serving risky clients.
“The consequences of greater de-risking by banks in terms of the additional administrative burden it places on charities and the limiting of their ability to operate efficiently can be significant,” said Caron Bradshaw, the group’s chief executive officer.
The findings by CFG follow complaints by Muslim charities about HSBC Holdings Plc.’s decision to drop their accounts due to risk concerns.
While charities have long found it difficult to open bank accounts to send money to third-parties in troubled parts of the world, their standing with financial institutions has worsened to the point that even the largest non-profits have encountered difficulties moving money.
Alternative routes
That happened last year for Oxfam International, which coordinates the efforts of 17 affiliated organizations to fight poverty and deliver aid to disaster victims. Although well-regarded, the group ran into hurdles that delayed aid for Syrians by five months, according to Bob Humphreys, the organization’s finance director.
“The last time I had a conversation with my peer finance directors, I think we were still one of the very, very small number of agencies that had succeeded in getting money into Syria,” said Humphreys. “So I suspect that it is still proving an issue.”
The delays largely revolve around internal controls intended to ensure that the funds don’t end up in the hands of blacklisted entities. Those efforts are then vetted by banks, said Humphreys, adding that smaller charities frustrated with the process may ultimately ask financial institutions in less risk-averse institutions in other countries to handle the transfers.
In such a scenario, small charities may turn to partners “willing to move the funds in some way across the border, and [the charities] simply won’t ask what the mechanism is that they are using because, as soon as [they] know, [they] will have to do something about it,” he said.
‘Chase and chase’
But charities aren’t finding trouble sending money to conflict zones only, according to Bradshaw. Some groups have encountered problems in “unexpected” places with tough regulations, such as the United States, she said.
Earlier this year, London-based Christian charity Tearfund ran into bank resistance related to funds destined for South Asia, according to the group’s finance director, Alison Hopkinson.
“We have had a lot of problems with sending money to India, which surprises me,” she said, adding that: “it just got held up and the banks were not willing to move and we just had to chase and chase until we got it through, and we were never given the explanation as to why.”
Elsewhere, financial institutions have implemented blanket bans on sending cash, according to Hopkinson.
“We have to find other banks, other ways of getting the money across,” she said. “You never know when the bank is going to change its attitude toward a certain country, so you have to keep your options open.”
Conflicting reports
Media reports—some misleading—have also contributed to the sector’s troubles.
Last October, the Telegraph amended a news story and headline claiming that “millions” of pounds from the Disasters Emergency Committee had ended up in the hands of Syrian terror groups. The newspaper changed the story after the Charity Commission, which regulates the non-profits in England and Wales, said it had “no evidence” that “huge amounts” had gone to terror groups.
“The story had to be retracted but reputational damage was certainly done, and Syria is a focus for the Charity Commission,” said Paul Cochrane, a Beirut-based freelance reporter who recently spoke on the topic during a Thomson Reuters webinar.
The commission has launched a separate investigation into whether Human Aid U.K. has implemented poor recordkeeping and fundraising controls as well as little oversight of its trustees. According to records filed with the agency, Human Aid’s income grew by 500 percent last year, with much of the money going to Syrian aid.
“Those working in counter-extremism networks were not surprised to hear that Human Aid is under investigation, given the kind of networks it is involved with here in the U.K.,” said Sam Westrop, director London-based anti-extremism group Stand for Peace. “Human Aid has hosted radical Islamist speakers such as Adnan Rashid, Abdul Hadi Arwani, Yusha Evans and Yvonne Ridley,” he said.
Human Aid denied wrongdoing in a statement posted to its Web site and characterized governmental scrutiny as “an active policy to restrict the work of charities in Syria through continuous monitoring and investigation.” In a statement to ACAMS moneylaundering.com, the group said it will cooperate with the commission.

Thursday, September 18, 2014

Scotland, Independence and Global Impact


International Link magazine, Hong Kong
http://www.internationallinkmagazine.com.hk/home


The Scottish capital Edinburgh seen from Arthur's Seat


The United Kingdom of Great Britain and Northern Ireland, to use its full title, is facing its biggest internal threat as a geographical and political entity since the Republic of Ireland was formed in 1922. On Thursday, 18 September, Scotland will vote on independence.
If the outcome is 'yes' – the independence campaign's upbeat slogan – then it will end 300 years of political union – the United Kingdom (UK) – and Scotland will stand alone as a new nation as of March 2016. If the 'no' vote wins – London's slogans are “No Thanks” and “Better Together” - then the union will remain, although the issues raised by the referendum will mean it will not be totally 'back-to-business as usual'.
The independence vote has been four years in coming since the Scottish National Party (SNP) formed a majority government in the Scottish Parliament (created in 1999 with certain powers devolved from London) and announced plans for the referendum, which, as the party's name suggests, has long been a policy objective.
The battle for hearts and minds only really started playing out over the past year, and heated up in recent months as Alex Salmond, the Scottish Premier, set out his arguments for Scotland as a “Northern Light” with progressive social policies and a thriving economy, while London pushed their position. Prime Minister David Cameron told Scottish voters this past week: “Let's stick together...There's no going back from this. No re-run. If Scotland votes 'yes' the UK will split and we will go our separate ways forever.”
Until last week, the 'No' campaign was winning in the polls. But the latest YouGov poll shows that the vote will be on a knife's edge, with the 'Yes' vote getting 51 percent for the first time in the campaign. It is certainly proving to be an issue that the Scottish public is keen to vote on, with 97 percent of eligible voters enrolled, the highest ever, and indicating a higher voter turnout than for the British general election in 2010 (65 percent), the Scottish Parliamentary elections in 2011 (45 percent) or the voter turnout for the European elections in the UK in May (36 percent).
Such high political engagement by the Scots reflects the seriousness the possibility of independence is being taken. As the quote from Cameron shows, this is a major decision that cannot be easily reversed, if at all.

The For's and Against's

London argues that Scotland will stand to lose significantly by not being in the union, primarily losing out economically but also on the global stage. This is what London has focused on its “Better Together” campaign, stating that Scotland would not be able to retain the Pound Sterling as a currency if there is independence, that financial institutions and capital would flee the capital Edinburgh for London, and implying that the new country would not be economically viable.
The 'Yes' campaigners of course argue otherwise, that Scotland would be a viable country with a highly educated population of 5.3 million people – England has 59 million – and a USD$211 billion economy which includes a sizeable financial sector, cutting-edge technology and research, oil revenues from the North Sea, tourism and whisky (USD$7 bn).
It is not just economics that has raised questions and been a cause for argument. Foreign policy and military defence have been major points of discussion, particularly as such decisions are made in London and not Edinburgh. While the Scottish parliament acquired more local powers since 1999, it is London making crucial decisions that is a driving force for the Yes voters.
Of the 650 members of parliament (MPs) currently in the Westminster Parliament, 59 represent Scottish seats. With the Conservative (Tory) party in power, Scots feels even more sidelined as the Tory party is popular in England but not at all in Scotland (just one seat). This is accompanied by nationalistic sentiment and the troubled, bloody history of England and Scotland for hundreds of years that ended in the union of 1707. In short, there is the view that Scotland is dominated by its more populous Southern neighbour and does not have control over its own affairs. However, such a sentiment is shared by yes and no voters alike. Nationalists are voting no, and the vote should not be considered as a purely knee-jerk nationalist one.
What may happen if there is independence is in many ways uncertain, particularly economically, and as polls suggest, around half of Scots are not willing to make that gamble. People are weighing up whether more local and immediate power making decisions will improve their standard of living or not, and if independence is needed for that to happen.

The outcomes

If Scotland votes 'No Thanks,' then London will be forced to address many of the issues raised during the referendum, notably to give up more powers and for Britain to become more decentralised. London has already implied greater devolution for Scotland following a No vote, such as giving the Scottish Parliament more power over taxation, spending and welfare.
London will also have to face the spectre of the independence movement not going away, and if Westminster does not follow through with its pledges, this may give further impetus for a successful Yes vote in the future.
If Scotland gets independence, there will be 18 months of negotiations between Edinburgh and London to discuss the logistics of separation. Key topics will be North Sea oil revenues, the pound, divisions of national assets, and military defence. The Queen however will remain as head of state, unless a vote is later called for.
The aforementioned will be difficult topics to hammer out as Scotland comes to grips with being a sovereign state. Other issues are just as thorny, particularly foreign affairs, which Scotland would be running by itself for the first time. Whether Scotland can remain a part of the European Union is a major issue, as no EU country has split apart and then sought to re-enter as a separate member state. Scotland is committed to the EU, but that is not a decision for Edinburgh to decide upon, and becoming a member will be key for the country's economy if there is independence.
The SNP is also opposed to nuclear weapons and has called for the Trident nuclear submarines based in Scotland – the location of Britain's nuclear fleet - to be removed. While the SNP voted in 2012 to support the North Atlantic Treaty Organization (NATO) - with the precondition that Trident would be removed following independence - it has not been a popular decision within the party, while membership of the body of 28 European and North American nations could be in doubt as nuclear weapons are a key means of NATO's overall military deterrence policy.

Global impact?

The EU will be eyeing the results of the elections carefully. The body is not keen on admitting more members, or for the union to break up into smaller states. A yes vote could galvanise the Catalonians' drive for independence in Spain, along with other separatists movements such as the island of Corsica from France, and the Basque from France and Spain. There are also murmurings in some countries about the advantages of breaking up, such as more economically rich regions like Northern Italy not wanting to fund the poorer South.
Indeed, questions are being raised as to whether a yes vote in Scotland could unleash the end of the multi-ethnic state, repeating the post-colonial period when numerous countries gained independence and the 1990s following the break-up of the Soviet Union and its satellite states, leading for instance to the creation of the Czech and Slovak republics and the Balkan states. For while the world is more interconnected than ever via financial globalisation, there are more nation states than ever, with some 194 countries, the most recent being South Sudan as of 2011.
Such further devolution is not overly probable, but a concern nonetheless, and it is not just in Europe that states are fearing devolution. The breakup of a European state, particularly a former global power like Britain, is viewed with perhaps more concern elsewhere in the world, especially in states with minorities and separatist groups that are battling central powers.
The concern, like in the EU, is that there will be a call for a referendum by separatists, especially if an independent Scotland proves to be successful, with the current economic fears not realised or overcome. It would show breaking off from a bigger country is possible and achievable in the 21st century, which could be a precedent for others to follow.
Scotland's case is different from others however, and comparisons, from the economic to the historical, hard to draw with other aspiring separatists. A major factor is that Scotland has not been under any military occupation for hundreds of years. That in fact has enabled the vote to happen, as there was no need to resort to armed struggle to achieve independence, as Ireland did from 1919-1921. London however was aware that a Yes vote in Scotland is not a certainty, which cannot be discounted as a factor in letting the vote go ahead, but the vote is going ahead in what is expected to be an open and transparent manner.
Ultimately, a No vote will be welcomed in London and Brussels, as well as in many other capitals around the world. Such a result is not likely to dent separatists aspirations, but would take some wind out of their sails. A Yes vote will have much broader ramifications for the United Kingdom, the EU and further afield. Either way, the outcome of this election will be worth following.


Photo by Typhanie Cochrane

Wednesday, September 17, 2014

Compliance is the big question as FATCA law enters force


Commercial Crime International, July 2014
www.icc-ccs.org

The United States' Foreign Account Tax Compliance Act (FATCA) is to go into force on July 1. Aimed at curbing tax evasion by US citizens around the world, foreign financial institutions (FFIs) are required to report on US account holders, but over 200,000 FFIs and 123 countries have not yet signed up. This has raised issues about implementation, as certain non-compliant jurisdictions may try to attract US tax evaders, Paul Cochrane reports from Beirut.

Financial institutions around the world have been scrambling to get ready to comply with FATCA. Under the law, FFIs have to provide information on American customers to the US Internal Revenue Service (IRS). FFIs that are not compliant will be subject to a 30% withholding tax on US sourced income, and risk being locked out of the US financial system.
It is a strong incentive to comply, while compliance is also being driven by financial institutions wanting to only deal with FATCA compliant FFIs. “Very simply, any country that is not involved (with FATCA) gets cut off from the US financial markets,” said Camille Barkho, Chief Compliance Officer at the Lebanon & Gulf Bank, in Beirut.

Long haul

FATCA was introduced in 2010, but the IRS had an uphill battle to get jurisdictions on-board due to the complexities of reporting – the law is over 1,000 pages long – and because some jurisdictions have needed to amend their domestic laws to report to a foreign regulator.
Overriding banking secrecy in certain jurisdictions, for instance, has required letters of non-recourse to be signed by clients, while banks have had to improve compliance systems.
Such requirements by foreign regulators have delayed FATCA's roll out until this year. But with a firm date now in place, there has been a flurry of jurisdictions signing inter- governmental agreements (IGAs) with the IRS. Currently 34 countries have signed IGAs and 36 countries have, in the words of the IRS, “reached agreements in substance” to comply (while no IGA has been ratified, the US will treat such jurisdictions as being compliant).
But as of June, 123 countries – out of a total of 193 jurisdictions recognised by the US - have not signed an IGA or reached an agreement in substance. And while some 77,000 FFIs have signed up, according to the IRS, an estimated 200,000 FFIs have not. The number of recalcitrant FFIs could in fact be even higher as many institutions have registered subsidiaries and other entities as well. “If you look at the list it is not 77,000 FFIs, as this includes branches or affiliates. Some banks for instance are listed eight times, so in fact there are not that many,” said Barkho.

Momentum expected

Analysts expect that more jurisdictions and FFIs will sign up to FATCA once it goes live, driven in part by peer compliance and wanting to access the US market, but with so many FFIs not compliant this could present opportunities for circumventing FATCA.
“Ultimately any smart money launderer could place funds across multiple FFIs in a range of accounts, financial and non- financial, and as long as the deposited funds fall below US thresholds (of $50,000) could launder a fair bit of money that way and FATCA does little to reduce the potential for money laundering,” said Anthony Quinn, Founder of Financial Crimes Consulting in Australia.
Such risks will be greater in the initial years of FATCA until understanding of the law increases and the IRS expands its databases. For instance, a customer may not declare to an FFI that they have US citizenship. The bank has done its due diligence by asking a customer about US indicia, although the customer has effectively broken US law.
“FATCA is a long term project, and the US doesn't expect fast results, so if a taxpayer has evaded FATCA for a while, the IRS now has the ability to ask FFIs about non- reported individuals. I think that catching US tax evaders by the IRS will be only a matter of time,” said Barkho.

Recalcitrant jurisdictions

A bigger issue where the outcome is less certain is the number of recalcitrant jurisdictions, including Russia and China (note: both countries signed up at the last minute, prior to publishing). By not being compliant, this could play into a jurisdiction's hands: “I think that what may occur is certain jurisdictions will hold out, looking for an opportunity to be the destination of funds from jurisdictions that have signed with the IRS,” said Joe Bognanno, Principal, AML Solutions – Americas, at NICE Actimize, a financial crime, compliance and risk management solutions provider in the US. “It is interesting to look at the parallels between jurisdictions that are a risk for money laundering that are also recalcitrant in signing IGAs,” he added.
Indeed, out of the 65 countries of “primary concern” in the US State Department's ‘International Narcotics Strategy Report: Money Laundering and Financial Crimes Volume 2’, March 2014, there are 30 jurisdictions that do not have an IGA in effect or in substance. Other countries that are on the OECD's Financial Action Task Force's (FATF) list of high-risk and non-cooperative jurisdictions are also not in compliance, notably Myanmar, Nigeria, Pakistan, Iran, Syria and North Korea.

Hinderances

What may hinder the effectiveness of FATCA is that it is unilateral. If the multilateral tax enforcement initiatives that are being mulled by the OECD and G20 go into effect, this would bolster FATCA while also leading to greater transparency and a reduction in tax crimes. “One of two things may happen (because of FATCA): account holders will either move to another FFI or some FFIs may say get me out of the US market to where we get 100 percent returns. But that will be a short term thing unless the OECD initiative doesn't happen,” said Bruce Zagaris, a partner at law firm Berliner, Corcoran & Rowe in Washington DC. “With the automatic exchange of tax information it is going to be more difficult for people to conceal their income and assets from the tax authorities, especially as tax authorities are going to be comparing notes and facilitating information, so I think there will be less not more financial crime.”
FATCA's success will depend on greater global adoption, while the IRS has indicated it will provide FFIs with a degree of flexibility in the first 18 months, such as the requirement for banks to carry out know your customer (KYC) on all clients to check for US citizen indicia. Only then will the financial sector and regulators really be able to gauge whether FATCA is open to abuse or not.
“With new regulations and controls there is always the initial execution and then a period to see how effective it is and what gaps there are, which is what we have seen in anti-money laundering laws, that people find new ways around regulations. I am sure FATCA will be the same,” said Bognanno.

Thursday, September 04, 2014

Charities and Terrorism Financing Compliance – Approaches and Challenges in 2014

White paper - Thomson Reuters
 
 
 
 
Regulatory oversight is key to protecting the charitable sector and the financial institutions that deal with them from abuse by terrorist organizations. While compliance with anti-money laundering (AML) and countering the financing of terrorism (CFT) rules has increased globally, particularly by financial institutions wary of falling foul of regulators, the non-profit sector has been given less attention and compliance at the global level is weak.
 
Only now, over a decade after CTF and AML regimes were established, are the regulations being re-assessed and are non-profit organizations (NPOs) being brought into reviews of typologies. The sector is also under greater scrutiny due to a rise in terrorism in the Middle East, especially due to the conflict in Syria.
 
At such a juncture, lessons can be learned from more regulated jurisdictions, such as the UK, which have been struggling to get the balance right between over-regulating the NPO sector, addressing the risks, and ensuring that donations reach their intended target.
 
This paper also discusses ways to improve compliance and enforcement, such as implementing FATF’s risk-based approach that brings together NPOs, regulators and the financial sector at the local, regional and global level.

Charities and Terrorism Financing Compliance – Approaches and Challenges in 2014 - See more at: http://accelus.thomsonreuters.com/whitepaper/charities-and-terrorism-financing-compliance-approaches-and-challenges-2014#sthash.nE0gL4J3.dpuf
Charities and Terrorism Financing Compliance – Approaches and Challenges in 2014 - See more at: http://accelus.thomsonreuters.com/whitepaper/charities-and-terrorism-financing-compliance-approaches-and-challenges-2014#sthash.nE0gL4J3.dpuf
This paper examines charities and Countering the Financing of Terrorism (CFT) regimes, looking into the perceived threats of non-profit organizations (NPOs) being used as front companies and conduits for terrorist or threat financing. The paper provides a global overview of regulations and enforcement related to NPOs and CFT, the current challenges and the approaches being taken to reduce sectoral risk.
- See more at: http://accelus.thomsonreuters.com/whitepaper/charities-and-terrorism-financing-compliance-approaches-and-challenges-2014#sthash.vqayqioo.dpuf
This paper examines charities and Countering the Financing of Terrorism (CFT) regimes, looking into the perceived threats of non-profit organizations (NPOs) being used as front companies and conduits for terrorist or threat financing. The paper provides a global overview of regulations and enforcement related to NPOs and CFT, the current challenges and the approaches being taken to reduce sectoral risk.
- See more at: http://accelus.thomsonreuters.com/whitepaper/charities-and-terrorism-financing-compliance-approaches-and-challenges-2014#sthash.vqayqioo.dpuf

Tuesday, July 08, 2014

Another month, another year, another crisis: eleven years in Beirut

The White Review


http://www.thewhitereview.org/features/another-month-another-year-another-crisis-eleven-years-in-beirut/

Rumours of war and impending conflict have an incredibly destabilising effect, and can wreak a particular type of havoc. This is not as physically manifest as the brutality of war, but less tangible, less spectacular. There are no destroyed buildings, injured or the dead bodies; rather the spectre of war casts its shadow over economic statistics and mental health reports.

People often think journalists are endowed with a special prescience. ‘When do you think the war will happen?’ I am regularly asked in Beirut. Last September the question hung upon whether the US would bomb Syria, whilst lately the concern has been to do with the prospect of civil war as the Syrian conflict impacts Lebanon. In the years following the 2006 war between Hizbullah and Israel, I would be asked: ‘Do you think Israel will invade this summer?’ And a long-term staple asked frequently throughout the years: ‘What do you think of the situation?’ When I moved to Beirut in 2002, such instability was less apparent. The Israelis had recently left with their tails between their legs after eighteen years of occupation in Southern Lebanon. Damascus was in control and keeping the squabbling Lebanese factions from each other’s throats. Beirut was in the midst of a construction frenzy; tearing down bullet-riddled and shelled out buildings to rebuild after the sixteen-year civil war. Those Lebanese who had moved abroad during the war years were increasingly returning, and there was a degree of stability. The Syrian occupation itself was not particularly discernible, especially in Beirut. It was within national politics that Syrian control was manifest and in certain corrupt practices – for example, the skimming of profits generated by state institutions like Casino du Liban. The stifling of free speech was another aspect of this control, as no criticism of Damascus was allowed in the media. In 2002, when I was cutting my teeth as a journalist at Lebanon’s only English language newspaper, The Daily Star, an editor warned me what was taboo: ‘No Syria, no human rights, no homosexuality’.

If you kept your head down, the problems of daily life were less to do with politics and more to do with power cuts, particularly if you lived outside of central Beirut. At that time, I was living in the capital’s southern suburbs, the Dahiyeh, a densely populated area of some 700,000 people that was predominantly Shia and, as the media like to call it, ‘a Hizbullah stronghold’. Hizbullah certainly knew I was there – I was indirectly informed of the fact – but gave me no problems. Discussions at that time were not about any imminent conflict, but rather about the legacy of the civil war, the brutality of the Israeli occupation, and the role of the Islamic resistance now that the Israelis were out. Soon war loomed on the horizon, however – albeit thousands of miles away – with the US-led invasion of Iraq in March, 2003. The war in Iraq was closely watched in Beirut, and little did we realise that the beginnings of an immense change were underway in what the George W. Bush administration had coined the ‘Greater Middle East’. Syria was concerned it might be next on the hit list, as was Iran, and Hizbullah was hunkering down in anticipation of how the Israelis might take advantage of the tension in the region.

The ‘Pax Syriana’ was soon to end, and quite suddenly. Lebanon entered a new and less stable phase. I had since moved to central Beirut, and a Valentine’s Day breakfast with a girlfriend was abruptly aborted by the sound of a massive explosion a mile or so away, blowing open the windows but not shattering them, unlike in areas closer to the bomb that killed former Prime Minister Rafik Hariri and twenty-two others in 2005. A month later, following a massive demonstration in Martyrs’ Square, Syria withdrew. There was a momentary possibility for change. However, although Damascus was no longer hand-picking politicians, grass-roots movements were quickly nipped in the bud. Key political players from the past were reintroduced into the political fray and the old status quo was revived. Indeed, most of the civil war players were back, at least those that had survived. With no apparent winners or losers or even political reconciliation, and without the iron grip of Syrian control to maintain a semblance of order, rumours of war started to spread; rumours that the state would disintegrate and another civil war was looming, with the parliament split between the opposition 8 March movement (ostensibly pro-Syria, led by Hizbullah and Amal) and the 14 March movement (ostensibly pro-West and pro-Gulf).

The transition to ‘independence’ was not to be an easy one. There were some fourteen bombings and targeted killings that followed over the year. The targets were primarily anti-Syrian politicians and journalists. In early 2006, while the Israeli threat still lingered in the back of people’s minds – the sonic booms of Israeli jet fighters’ overflights of Lebanon a frequent reminder – it was the domestic situation and relations with Damascus that dominated politics and discussions. The economy was on the up and a busy summer tourism season was underway. Few predicted that another war was around the corner.

When the war between Hizbullah and Israel started on 12 July, it caught everybody off-guard. Driving through Beirut was surreal, like venturing out in the middle of the night, as there were no cars on the roads and few people around; it was like being one of the few survivors in a post-apocalyptic movie. The Lebanese were holed up in their apartments if they had not already fled to the mountains, or to Syria, or been evacuated. The war ended on 14 August, and its impact was devastating. The Israelis had come close to their word when they said they would set Lebanon back twenty years. Economic losses were estimated at some $7 billion, 15,000 homes were destroyed, some eighty bridges were wrecked, and infrastructure damage estimated at $3.9 billion. Touring the Dahiyeh and South Lebanon in the days immediately after the war was a sobering experience; I saw ten-storey buildings in neighbourhoods I had known well levelled to the ground.

Although the war was over, Lebanon was to embark upon a schizophrenic period. The government collapsed in the autumn and no parliament was to convene for eighteen months, yet at the same time the economy began to boom. As the rest of the world’s economy was rocked by the subprime financial crisis, Lebanon saw massive inflows of cash into its banks, mainly from the Gulf. Real estate was on the up and tourists returned in droves. Rumours of another round of war with Israel nonetheless abounded, and there were other security incidents: a two-month-long fight-out between Islamists and the army in Nahr Al Bared, north of Tripoli in 2007; on-off fighting in Tripoli; clashes inside the Palestinian refugee camp of Ain-el-Helweh; and street battles in Beirut in May 2008. Crisis had become commonplace. The Lebanese are used to operating under trying conditions. However, having to operate under such conditions creates a culture of short-termism – requiring a quick return on investment before the next crisis – and defeatism. And many went, adding to Lebanon’s diaspora. Emigration was estimated at anywhere between 8 to 12 million. The ‘brain-drain’ is yet another factor contributing to Lebanon’s problems.

Lebanon’s history has made nearly every Lebanese a political analyst. I have found myself discussing politics, unprompted and often unwillingly, with bank-tellers, butchers, carpenters, mechanics, shopkeepers, secretaries, CEOs, bar tenders, taxi drivers, and so on. Few conversations are about the weather. It is politics, politics and to a lesser extent, economics, but always in relation to the ‘situation’. The Levant is a political aficionado’s wet dream. But it is easy to debate the situation endlessly, to get caught up in it and become addicted to politics and the instability that comes with unpredictability.

Since the so-called Arab Spring spread to Syria in March 2011, Lebanon has become even more unstable, not because there is any real possibility of an uprising here – there is enough infighting between the mafia-style political class/kleptocracy – but due to Lebanon being a microcosm of the Middle East as a result of its sectarian make-up and geography. In general, the Shia side with Iran and Syria, the Sunnis with the Gulf States, and the politically divided Christians have various alliances, but the reality is far more complex, of course, in the snake pit that is Middle Eastern poli-tricks. Lebanon, in other words, is not isolated from regional turmoil and feels all the reverberations, being so dependent on the region economically and politically to keep the debt-burdened state afloat (public debt is around $61 billion or 136 percent of GDP). As the economy gets increasingly worse, the conditions for social unrest are ripe. Economic growth was estimated at just 0.7 percent in 2013 (compared to 8.5 percent in 2009) and the indirect economic losses to Lebanon from the Syrian conflict are estimated at $7.5 billion.

Adding to this tension, the government fell again, in March 2013, and it took ten months for a parliament to form. Such sporadic governance means few laws are passed and no action is being taken to address major issues that in most other countries would have people out on the streets. Instead there is public policy paralysis. Indicative of how instability causes paralysis, an advisor to the prime minister told me in October that an e-commerce bill that had been on the shelf for years had not been passed because it was not a priority, despite the potential economic benefits. ‘Due to the situation, it is always security and politics first. It’s like a house burning down – do you put the fire out, or save the furniture first?’ Businessmen are already referring to the 2008-10 period as a ‘golden age’, when the economy was thriving despite a barely operational government and stories about political parties setting up and expanding military wings, and sporadic tensions along the southern border. Right now, it is arguably worse than it has ever been since the end of the civil war, and it is civil war that people fear. What is particularly concerning is that despite there having been some thirty bombings and assassinations in Beirut between 2004 and 2014, it has only been in the past year that attacks have had no specific target that people can rationalise. For those of us that can leave, there are fewer reasons to stay.

I won’t give the answer to the incredulous question I get from people: ‘You’ve been here eleven years? You must like it?’ Of course I like it, I am not sadomasochistic. When I am away, I crave the place, the lack of predictability, the fabled ‘organised anarchy’. I stay in part because of that addiction, as well as all the other reasons people live in a place they have become familiar with. Yet such instability ensures that the familiar is often challenged; unpredictability is also stimulating. The first half of this year has been a veritable rollercoaster of crisis after crisis: a government formed, then no agreement on who will become the next president. The terrorist attacks in January and February become distant, not forgotten but not discussed as another crisis develops. How will the situation in Syria impact Lebanon further? The situation in Iraq? How will the Israelis deal with the crisis in Syria? What will happen next month? Another day, another month, yet another crisis.

Tuesday, July 01, 2014

FATCA, China and the World 美國《外國帳戶稅務遵守法案》與中國及世界




International Link - Hong Kong
http://www.internationallinkmagazine.com.hk/news/editorialjuly2014


A US-enacted law that is to go into force in July appears set to have a major impact on the global financial sector as well as potentially usher in a new era of tax sharing initiatives. China, so far, is standing on the sidelines of the Foreign Account Tax Compliance Act (FATCA), but it will be dragged into the regulation's net one way or another.
According to some commentators, the Act will have an adverse effects on the US economy – the dumping of Treasury Bonds (TBs), the weakening of the dollar, lower foreign direct investment (FDI) – and will be a contributing factor in hastening indebted America's decline as a financial superpower.
To others, FATCA will lead to greater global tax enforcement by curbing banking secrecy and offshore tax havens - where an estimated $32 trillion is stashed away from the tax man - with “sons of FATCA” laws being mulled by the OECD and the G20 countries to share tax information and go after tax evaders.
So what is this new law that has such global reach, yet few outside of financial circles are aware of, that is slated to go live on 1 July? Enacted in 2010, FATCA is aimed at curbing tax evasion by American citizens with accounts above $50,000. Under the law foreign financial institutions (FFIs) around the world will have to screen all their account holders to verify whether clients are US citizens or not. Such an extra territorial law puts the onus on FFIs to act, essentially, as unpaid agents of the US' Internal Revenue System (IRS), or face a 30 percent withholding tax on US account holders. Further motivation to comply is the possibility of being cut-off from the US financial system and not being able to deal with FATCA compliant institutions.
“The withholding of 30 percent is the big stick the US is using to try and force any recalcitrant banks or countries to sign up to FATCA. That is a hefty fine, and it is going to make FFIs reconsider doing business with US, but can they really leave the US market? The bet is that no one will and if so, will only cause a small ripple, but we'll just have to see it how plays out,” said Andrew Salzman, Senior Associate at law firm Dezan Shira & Associates, which has offices throughout China and South East Asia.
Given such an ultimatum, FFIs – primarily banks – are getting ready to report by 1 July to central banks or directly to the IRS, depending on what governments have decided – a Model 1 intergovernmental agreement (IGA) whereby the FFI reports directly to their central bank/regulator, which then reports to the IRS, or the FFIs report directly to the IRS themselves, known as Model 2, which only seven jurisdictions have opted for, including Hong Kong.


Slow uptake


The uptake of FATCA can be best described as lacklustre in the first years since being enacted. Britain was the first to sign up, in 2012, followed by Denmark, Switzerland and Japan; by the end of 2013, only 13 jurisdictions had signed IGAs. As a result, along with the complexities of wading through 500 pages of legislation, later expanded by a further 500 pages – that was not translated from the English – the FATCA go-live date was delayed multiple times and the US Treasury went on a global offensive to get more countries on-board.
Only this year as the go-live date looms have more countries signed up to FATCA, bringing the total to 34 countries with Model 1 and Model 2 IGAs, while 36 countries have, in the words of the IRS, “reached agreements in substance” to comply – that means that while no IGA has been ratified, the US will treat such jurisdictions as being compliant. Nonetheless, as of June, 123 countries (out of a total of 193 jurisdictions the US recognises worldwide) including China and Russia, have not signed an IGA or reached an agreement in substance. Furthermore, while some 77,000 FFIs have signed up, an estimated 200,000 FFIs have not.
The lack of agreements is raising question marks about how effective the law will be once in force. “I don't know how they will be able to go live on 1 July with so few IGAs signed. I am not saying they should delay again, but is the market ready? Where's Russia? China?” said Camille Barkho, Chief Compliance Officer at the Lebanon and Gulf Bank in Beirut.
The reluctance to sign IGAs has not been, in most cases, due to overtly political reasons but more so to do with issues of sovereignty and the regulatory changes required for FFIs to report to a foreign jurisdiction. Under Chinese banking and tax laws for instance institutions are not allowed to comply with a law such as FATCA. In other jurisdictions privacy laws have had to be overhauled, and in some cases, even changes to the constitution required.
The costs attached to being compliant with FATCA is another factor, with FFIs having to spend anywhere from $25,000, at smaller institutions, up to $1 million for large banks. Indeed, in the IRS’ 2013 Annual Report to Congress, it notes that the Congressional Joint Committee on Taxation estimates that while FATCA “will generate additional tax revenue of approximately $8.7 billion over the next 10 years,” private sector implementation costs could “equal or exceed” the amount FATCA may raise.
Jurisdictions have also taken issue with the law being unilaterally imposed by the US, as have investors. “I am on the record as saying that this is the most arrogant legislation ever penned, as the US is effectively trying to regulate other banks and jurisdictions. It only has teeth as the US is at the centre of the global financial system,” said Simon Black, founder of Sovereignman.com, one of the most popular asset protection websites in the world.
The issue is that while global tax sharing agreements are being mulled, FATCA is essentially a one-way street, of FFIs providing information to the US but getting nothing in return. The US has indicated it is willing to be reciprocal, but whether Washington can in fact do this is a legal gray area. “Are these IGAs even legal? They are not mentioned in the law, they are not passed by Congress, or going through the proper treaty method. And can the US Treasury bind US institutions to be reciprocal when no one has said where the information will come from?” said Salzman.


Resistance


The threat of the withholding tax and not being able to do business with FATCA-compliant FFIs has spurred countries to sign up to FATCA this year as well as for FFIs to optionally report directly to the IRS. Even Syria, which is under US and EU sanctions, is requiring its banks to be compliant.
But certain jurisdictions clearly will not be playing ball. Iran, which is under the heaviest financial sanctions in modern history, and international pariah North Korea are obvious cases. It is Russia that has taken the strongest stance against FATCA, but only following the Ukraine face-off between Moscow and the West. Within weeks of sanctions being imposed on Russia, Moscow came out to say that Russian banks complying with FATCA would be subject to penalties from the domestic regulator. Indeed, Deputy Finance Minister Alexei Moiseyev told the press in May that Russia will not become “tax agents for the Americans, that will not happen under any circumstances.”
As for China, while Beijing has not signed up, Hong Kong has (Model 2, “in substance”), with commentators speculating it is to see how FATCA plays out in the SAR, and so that FFIs in China do at least have a door to the US market and correspondent banks. A further factor was to retain Hong Kong's financial hub status. “I think a big issue was that Singapore signed up, and there is rivalry between the two as Eastern Asia financial centres. If Hong Kong had not signed US business would use Singapore instead and Hong Kong would get squeezed,” said Salzman.
Beijing has made it clear that while it supports tax sharing initiatives - and is reportedly mulling its own form of FATCA – it wants this done multilaterally not unilaterally. As Liu Xiangmin, deputy director general of legal affairs at the People’s Bank of China, told the press in 2013, “I agree that countering tax evasion is an important policy bill but an uncoordinated extraterritorial measure such as FATCA is unlikely to generate broadly accepted solutions with full consideration of the effects on global financial systems and the conflicts involved...A more co-ordinated multilateral approach should eventually replace the unilateral approach of FATCA.”
While China will not face the issues of some banking centres that have a lot of US citizens on their books, Chinese FFIs will encounter issues dealing with the US and other counterparts as they will not be FATCA compliant. According to the Association of Certified Financial Crime Specialists, only 210 institutions from China and 513 from Russia have registered – compared to 14,835 FFIs in the Cayman Islands and 4,000 in Switzerland.
“Signing the FATCA agreement provides almost all downside and no upside, quid bono FATCA, and China doesn't benefit. Beijing realises that. So they may wait, which is tantamount to financial warfare if China holds out as after July all FFIs will have to gang up on China as not compliant. Would it force the Chinese to sell treasury bills and so on? This is a possibility,” said Black.

The unknown unknowns
This is the unknown factor about what will happen when FATCA goes live. Will there be a slump in business transactions as some 200,000 recalcitrant FFIs will not be able to deal with compliant FFIs? “What happens July 1? There is no line in the sand. There are huge direct costs (of implementing FATCA). As for indirect costs, there will be a loss of business, and it will close the doors on swathes of customers for years or even decades to come,” said Black.
Analysts expect a two-tier financial system to possibly develop: compliant and non-compliant FFIs, with institutions effectively policing one another for compliance. Non-compliant FFIs will clearly deal with one another; compliant FFIs will not, or charge an extra fee.
“Let's assume small and medium sized FIs are not ready, this could have a cascading effect on larger ones, creating a ripple effect,” said Ranjith Kumar, Director at Keypoint, a financial services consulting firm in Bahrain. “But what I believe may happen is that the cost attached to not participating may result in a higher cost of service for financial services, or costs for maintaining the relationship with an FFI. It is unlikely that an FFI will totally stop dealing with them, although there will be a lot of pressure to participate. Some FFIs not critical (to a compliant FFI) for business may be asked to stop doing business.”
A further factor is what may happen with US Treasuries, with overseas institutions holding $5.9 trillion, or 48.5 percent of TBs, more than double the amount held in January 2008, according to the US Federal Reserve.
“What happens when we start shorting payments on our TBs by 30 percent? A sovereign holder is not subject to withholding, but for a private institution, what if the interest payment is done through SWIFT to a commercial bank that has not signed an IGA? Treasury will take the interest,” said Jim Jatras, Manager of RepealFATCA.com, which is lobbying against the law in Washington. “This is the kind of thing that could promote dumping TBs, and affect interest rates and the dollar as a global currency, which are issues nobody has thought out.”
FATCA has arguably already had an effect on US Treasury bills. In March, Russia sold $26 billion, or 20 percent, of its holdings in Treasuries. To offset the sale of TBs by Moscow, Belgium stepped in, becoming the third largest foreign holder of treasuries, although it is not clear if it was Brussels acting independently or through coercion.
“Russia is selling off treasuries – why? Two things came together at once, one FATCA and the other the new advance in Ukraine, as the Russians couldn't anticipate the US response, so sold TBs to be insulated from sanctions,” said Jim Rickards, a veteran Wall Street investor and author of current New York Times bestseller The Death of Money. “Look at the enormous surge in buying TBs through Belgium, it could be (clearinghouse) Euroclear or a third party, or the European Central Bank (ECB) using dollar proceeds from Fed Swaps. Or is it holders in places like the Cayman Islands moving accounts to Belgium to avoid FATCA? It is a good question, and I speculate that FATCA has something to do with it. Russia is dumping, China is not, but they are not buying more and Belgium is, so put all together and we are shuffling deck chairs around on the Titanic.”
It would be ironic if FATCA backfires on the US, as a primary motivation for the Act, and the OECD and G20 mulling multilateral legislation, is that governments are scrambling for tax revenues following the 2008 bailouts of banks due to the financial crisis. Indeed, governments are in debt to the tune of $100 trillion worldwide, with that figure having surged 30 percent since the 2008, according to Bloomberg. What is clear is that FATCA's go live date is bad timing, given the Russia-West standoff, Russia and China strengthening financial ties, and fears in the market of another financial crisis.
“I think we are heading for another financial collapse, and the next one will be bigger than central banks can keep a lid on. Central banks could barely subdue the last crisis and used trillions of dollars to do that, but at this point there's not much left to deal with another crisis, which would be bigger. The only clean balance sheet is the International Monetary Fund's, so it would have to bail out the EU and US,” said Rickards.
Whether another financial crisis is on the cards requires a crystal ball, albeit the fundamentals are pointing in that direction. In any case, there seems to be a global rebalancing in financial power, as the West is in debt and the Asian markets are in much better fiscal health.
“I think we are rapidly seeing more signs of Asian banks becoming increasingly powerful and developing their own financial infrastructure, and places like Hong Kong, Singapore and Shanghai will become more powerful financial centres and the US a secondary system,” said Black. “This creates the conditions for rebalancing as capital goes where it is treated best, and the West goes out of its way to treat savers as poorly as possible. If all the savings are in Asia, and debt and consumption in West, where will power reside?”


China's stance


Beijing has not made its official position on FATCA crystal clear, other than in not signing an IGA. What is clear is that Beijing is in favour of a multilateral approach to tax sharing initiatives. Furthermore, in January, Beijing introduced new legislation that requires wealthy Chinese citizens to declare their overseas assets – the “Foreign Asset Reporting Requirements” (FARRs). It is similar to the US forerunner of FATCA, Foreign Bank Account Reports (FBAR) – which has a lower reporting threshold of $10,000 – in that the FARR has no requirements for FFIs to file on Chinese account-holders.
The US providing information on Chinese account holders would be of clear benefit to Beijing for tax enforcement purposes, but the US is highly unlikely to do so, even if China signed an IGA. As noted earlier, the legality of reciprocity is a gray area and has essentially been used as a fig leaf by the IRS to coerce jurisdictions into signing up. Additionally, reciprocity on the US side could lead to the loss of significant funds that are parked in US banks, especially in tax havens, which is a reason why US financial institutions are opposed to multilateral tax sharing initiatives (see below).
For China to comply with FATCA, domestic regulations will need to be changed – such as bankruptcy protection rules - which will be onerous and with minimal benefit to the state or Chinese financial institutions. A further factor is that FATCA could affect Beijing's financial dealings with countries under US sanctions, such as Iran and Sudan, with which China has significant trade relations, especially for hydrocarbons, while US dollar transactions for these countries are often transferred via China.
In international politics, China not playing ball with the US over FATCA would have far reaching affects by being a major global player that will not bend to US diktats, and on the flip side could potentially benefit from inflows of cash from investors avoiding the American market and resultantly aiding further in China's financial rise.
China is in a position to help derail FATCA altogether by not complying. In Beijing not doing so, it would set a strong precedent that could be followed by other countries pulling out, especially if they had minimal business with the US. Indicative is that few of the countries in China's immediate sphere of influence in South East Asia have signed up with the US – Thailand, Malaysia, Cambodia, Vietnam, Myanmar and Laos, as well as US allies the Philippines and Taiwan. Neither has Macau.
Further afield, a region where China has made significant economic inroads is Africa, where only a handful of countries have signed up to FATCA. China could benefit from this in having African funds that had previously gone to the US destined instead for Chinese financial institutions, as well as making amenable African states stay out of FATCA and join the “not FATCA compliant club”.
In other words, China certainly has international leverage, as if it signs, others would too, and by not doing so it will put the breaks on FATCA's global effectiveness, regardless of the fact that Hong Kong has signed an IGA “in substance”. China should press this advantage with the US in its discussions over taxation, fiscal and other economic issues.
However, a financial war is not necessarily in either sides interest, but in the case of FATCA, it was initiated on the US side, and how Washington will respond to China being recalcitrant is not overly clear.
In any case, China has time to see how effective global FATCA-compliance will be before having to make a firm decision either way, as the IRS has deemed 2014 and 2015 a period of transition, with jurisdictions that have to adapt domestic laws to comply with FATCA not to be issued penalties for delays.


Tax Haven Hypocrisy


Overall the roll out and implementation of FATCA has not been well handled by the US. The IRS has implied that it will only gradually enforce FATCA, and will provide FFIs with a degree of flexibility in the first year and a half, with for instance the onerous requirement for banks to sift through all their clients to check for US citizen indicia part of the second phase.
While FATCA is expected to generate $800 million a year for the IRS in tax revenues, commentators suggest the US should look closer to home. “The US is the number one tax haven in the world, yet goes around and terrorizes all these places (through FATCA); the biggest culprit in this charade is the US. If they want to solve the problem, why not make the tax code more attractive?” said Black. “And the funny thing is that most of the money sitting offshore is from the big companies, the Fortune 500, and offshore is permissible under the US tax code.”
Indeed, there is a degree of hypocrisy by the US on clamping down on US tax evaders globally, and requiring FFIs to do so, while still letting it happen within the US and for anyone globally to do so on US territory, such as in Delaware, the top tax haven on the planet. This is preventing the US from being reciprocal when it comes to tax sharing with other countries and, moreover, undermines initiatives for a global move to tackle tax evasion.
“Delaware is highly protected by political lobbies in the US. A huge number of Fortune 500 companies use Delaware, and that is why it will be so hard to push through reciprocity in Congress,” said John Christensen, director of the Tax Justice Network in London. “Perhaps some of the most extraordinary discussions I've had have been in (the state of) Wyoming, where service companies and trust companies seem to compete with one another on being devastatingly secret and illegal. It is real Wild West territory and beyond the federal government. In terms of scale it is not like Delaware but tends to be attracting low life activities, not the Fortune 500, so a bottom feeder.”
To Christensen, FATCA is a good move, and if handled right will push forward initiatives at the G20 and OECD for greater tax sharing initiatives. Indeed, the days of tax havens are limited it seems, although the loopholes need to be stopped. “There is definitely a movement by the OECD for a global tax system and the impediment has been tax havens, Swiss banks and so on, but one by one those dissenters have been knocked out,” said Rickards.
China is for such a global tax sharing initiative, as the People’s Bank of China has stated, while at the 18th Party Congress there was agreement for giving priority to greater political transparency and the rule of law.
For a global tax initiative to work, major economies need to be on-board and especially emerging economies, which have more often than not been the victims of capital flight and tax evasion by the political and economic elites. Done well, a global tax initiative would circumvent concerns about sovereignty, which Christensen regards as “a great rhetorical device.”
“My view is that any country that is unable to tax its own citizens as they are using offshore accounts and tax havens have long since lost sovereignty in tax matters, and need tax measures, including FATCA. For me the sovereignty argument is bogus,” he said.
Some analysts have suggested that FATCA should be delayed to take into account G20 and OECD initiatives. “If FATCA was delayed a final time and its launch coincides with OECD tax initiatives it would make sense, as a tax exchange system would be more powerful and global. I bet China would join, and no one would say this is just from the USA, it would be a worldwide trend to be ethical,” said Barkho.
What the OECD tax regime looks like has been kept under wraps, but there appears to be a move towards a new era that will not tolerate tax evasion. “On the positive side, the OECD is going ahead with proposals. I don't know what they will look like, and I've had long discussions with OECD officials, so we can certainly see a window for moving forward. That is progress,” said Christensen. “Will it achieve political support? It's very hard to say. What is clear is that the fiscal crisis facing many countries is not receding, and governments are under pressure on tax policies because they are increasingly seen as regressive.”
As for the impact of FATCA on the global financial system, the US markets and non-compliant institutions, as well as on future tax sharing initiatives, we will have to wait and see. “There are certainly some people opposed to FATCA and want it to fail – US overreach, impact on the dollar, and predicting doom and gloom. With this being so open-ended and not knowing how it will go, people choose their own narrative,” said Salzman.


Photo from http://www.iexpats.com/china-sign-fatca/