MONDAY MONITOR: What Obama’s Crackdown on Offshore Accounts Means for Your Operations
August 31, 2009
THE WEEK THAT WILL BE
Events and news to watch for in the week ahead.
Tuesday, Sept. 1
J.P. Morgan Chase in Europe starts taking applications for graduate positions in finance, operations and technology
Wednesday, Sept. 2
Securities and Exchange Commission and Commodity Futures Trading Commission, Joint Meeting on Harmonization of Regulation, CFTC Headquarters, Washington, D.C., 9 a.m.
Release of Federal Reserve Open Market Committee minutes, from Aug. 12 meeting
Thursday, Sept. 3
Securities and Exchange Commission and Commodity Futures Trading Commission Joint Meeting on Harmonization of Regulation , SEC Headquarters, Washington, D.C., 9 a.m.
TheStreet.com earnings (originally set to be announced July 29).
Friday, Sept. 4
Unemployment rate announced by Bureau of Labor Statistics, 8:30 a.m.
ON THE MONITOR:
The Obama Administration’s decision to crack down on investors who fail to pay Uncle Sam its fair share of taxes on offshore accounts could result in more administrative headaches for the banks which help them evade their obligations.
Under proposed legislation, which could take effect as early as next year, the Internal Revenue Service would require foreign banks which either are or apply to become “qualified intermediaries” to follow more stringent operational procedures for reporting taxes U.S. and foreign investors owe the U.S. government. The changes will affect foreign investors in U.S. shares, as well as U.S. investors in foreign securities and U.S. securities.
These requirements could include:
- Requiring the intermediaries to subject their books to two auditors, one from inside the U.S. and one from outside.
- Putting in writing the exact procedures they would follow to rectify any mistakes in complying with the rules
- Notifying the IRS of any mistakes in complying with rules, before they are discovered in an audit.
The new take-more-prisoners approach comes after tens of thousands of Americans’ offshore accounts in recent months were shut down by banks under pressure from the U.S. Treasury and requests to open new accounts have been denied.
Switzerland’s financial services giant, UBS, for one, decided to end offshore banking with U.S. customers in July after admitting that it assisted over 50,000 U.S. citizens in evading U.S. taxes. The Swiss bank is now embroiled in a bitter court case with the IRS that threatens the future of Swiss banking secrecy law. The IRS is also threatening to sue other Swiss banks to obtain names of U.S. clients.
The UBS imbroglio is the tip of the iceberg in the Obama administration’s relentless effort to collect billions of dollars in taxes which U.S. and foreign investors aren’t paying. The IRS now claims that offshore banks and their U.S. clients are evading at least $15 billion in taxes each year owed under the so-called qualified intermediary system.
