FATCA and the End of Banking Secrecy

Cezary Blaszczyk writes: Among the many recent revelations about American surveillance operations was the fact that, according to Der Spiegel, the U.S. intelligence apparatus “not only conducted online surveillance of European citizens, but also appears to have specifically targeted buildings housing European Union institutions,” Few, if any, of those commenting of late on such affairs mentioned that numerous nations across the globe actually acknowledged the U.S. government’s anti-privacy offensive months before by accepting its Foreign Account Tax Compliance Act (FATCA).

The FATCA legislation attempts to combat bank privacy on many levels and for many reasons including the American state’s desire for more effective tax collecting. According to U.S. tax law, every American taxpayer is obligated to fill out tax forms and pay taxes for their income attained not only on U.S. soil but overseas as well. The Internal Revenue Service (IRS) does not distinguish where the taxpayer lives, since U.S. taxation is based on either residency or citizenship.

Therefore America remains one of the two states worldwide that tax their non-residing citizens. The other is Eritrea, a country not known for an exemplary human rights record.

It is therefore no wonder offshore tax evasion is a substantial problem for the federal government. Senator Carl Levin, chairman of the Permanent Subcommittee on Investigations in Senate, revealed in a statement that tax-dodging schemes cost the Federal Treasury $100 billion a year. More than six (out of seven) million American taxpayers living overseas never fulfilled their tax obligations. Neither the Qualified Intermediary (QI) program, nor direct diplomatic efforts concerning tax havens succeeded, which led to an amendment of FATCA in 2010.

In general, the law forms an additional chapter to the Internal Revenue Code and obligates all Foreign Financial Institutions (FFI) to provide the IRS with information on their clients that are U.S. persons, thus combating tax evasion. FFIs that do not conform to their reporting duties are bound to pay 30 percent tax on any “withholdable” payments owed them in the U.S (U.S. payers are obliged to withhold 30 percent of the gross payments to delinquent FFIs). These include virtually any payment of U.S. source income: payment of interest, dividends, salaries, wages, rents, annuities, licensing fees, profits, gross proceeds from the sale or disposition of U.S. property and even interest paid by foreign branches of U.S. banks. Since the act’s definition of Foreign Financial Institution is substantially broad, every bank, broker, insurance company, private equity fund or hedge fund either identifies and reports to the IRS on their U.S. clients or is robbed of 30 percent of income on American soil. (An FFI is defined as any foreign (non-U.S.) entity that either “accepts deposits in the ordinary course of banking or similar business; or as a substantial portion of its business, holds financial assets for the account of others; or is engaged … in business of investing, reinvesting, or trading securities, partnership interests, commodities, or any interest in such securities, partnership interests, or commodities.”) The IRS has started an internet portal where FFIs can register online and agree to cooperate. The law is effective since January 2013, however withholding does not start until January 2014.

According to FATCA, FFIs might be exempted from the 30 percent tax and recognized as FATCA-compliant if they identify all of their clients that are U.S. taxpayers and inform the IRS of the account holders’ names, TINs, addresses; the accounts’ balances, receipts, and withdrawals. Identification of the pre-existing high value accounts (that is: accounts with funds exceeding $1 million) are to be electronically scanned for so-called “U.S. indicia” and then manually verified (enhanced review) by the relationship manager who might have an actual knowledge about the account holder. Other pre-existing accounts are required to be electronically scanned only and accounts under de-minimis threshold of $50,000 ($250,000 for non-natural persons) are exempted from the search. If individuals meet the U.S. indicia, the participating FFI obtains the relevant tax forms from the account holder. Those who refuse are to be declared recalcitrant account holders, their accounts will be closed, and the tax will be deducted from their funds. U.S. indicia are: U.S. citizenship or lawful permanent resident (green card) status; a U.S. birthplace; a U.S. residence address or a U.S. correspondence address (including a U.S. P.O. box); standing instructions to transfer funds to an account maintained in the United States, or directions regularly received from a U.S. address; an “in care of” address or a “hold mail” address that is the sole address with respect to the client; a power of attorney or signatory authority granted to a person with a U.S. address.

Not surprisingly, FATCA has been controversial from the very beginning. Canadian Finance Minister Jim Flaherty said the law creates unnecessary paperwork and accused the U.S. of looking for tax havens where they do not exist. American Citizens Abroad (ACA) predicted that FATCA would have a devastating impact on the U.S. economy, U.S. financial markets, and American businesses operating abroad, while European media pinpointed that the main effect of FATCA’s introduction would be the dumping of clients with U.S. citizenship by European banks. Nevertheless the biggest problem is that FATCA affects not only U.S. persons but many entities abroad also. The costs of full compliance were estimated (in case of big banks in Poland) to reach almost 15 million Euro. The act was also heavily criticized for making foreign institutions “arms of US tax authorities.”

Resistance to the act from foreign states has nevertheless been muted. From as early as 2010 Japanese bankers expressed no intention of complying to the regulations and yet they did. On June 11, 2013 the Japanese government signed the Statement of Mutual Cooperation and Understanding between the U.S. Department of the Treasury and the Authorities of Japan to Improve International Tax Compliance and to Facilitate Implementation of FATCA. With the United Kingdom, Denmark, Mexico, Ireland, Switzerland, Norway, Spain, Germany and Japan as intergovernmental agreements (IGA) signatories and others coming, it is fair to say that January 1, 2013 is the day banking secrecy ceased to exist. Even Ueli Maurer, the Swiss president, admitted that “honouring the United States’ Foreign Account Tax Compliance Act led to the lifting of banking secrecy for US customers of Swiss banks.”

We did not have to wait long for a similar initiative from the European Union. According to the latest news, the European Commission seeks to expand automatic information exchange between EU Member States. EU Tax Commissioner Mr. Algirdas Šemeta revealed on June 13, 2013 a proposal for a Council Directive, which aims at eradication of tax evasion in Europe. The automatic exchange of information between member states is going to create a system called AEOI, the most comprehensive treasury and fiscal control in the world. Even Luxemburg and Austria, countries traditionally skeptical about collective anti-tax evasion initiatives, are expected to join the AEOI.

It seems that there is little understanding that it was banking secrecy that helped to resist twentieth-century dictatorships and that high tax rates — not money havens — are responsible for tax evasion, as Prince Hans-Adam of Lichtenstein has pinpointed. Clearly the amount of information collected for the purpose of future tax investigation is enormous, leaving little place for human privacy and dignity. Most importantly, it raises a question as to who gave participating states a right to gather information on people that are not their citizens.

http://www.marketoracle.co.uk/Article41915.html

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Bitcoin and other cryptocurrencies flash-crashed Saturday night, one day after the US Commodity Future Trading Commission (CFTC) sent subpoenas four cryptocurrency exchanges in an ongoing probe into bitcoin manipulation that began in late July - following the launch of bitcoin futures on the CME, according to the Wall Street Journal
CME’s bitcoin futures derive their final value from prices at four bitcoin exchangesBitstamp, Coinbase, itBit and KrakenManipulative trading in those markets could skew the price of bitcoin futures that the government directly regulates.
In delay reaction, Bitcoin fell as much as $433 or 5.6% in Saturday night trading, with some noting that the flash crash happened shortly after a 90th ranked crypto exchange, Coinrail, had suffered a "cyber intrusion", and was likely the more relevant catalyst for the crypto price drop.
While major Cryptocurrencies were down from 4.5 - 5.5%, Bitcoin Cash dropped over 8.4%. 
The CTFC subpoenas were issued after several of the exchanges refused to voluntarily share trading data with the CME after being asked last December. Of note, the CFTC regulates the CTC. 
According to the WSJ, the CME, which launched bitcoin futures in December, asked the four exchanges to share reams of trading data after its first contract settled in January, people familiar with the matter said. But several of the exchanges declined to comply, arguing the request was intrusive. The exchanges ultimately provided some data, but only after CME limited its request to a few hours of activity, instead of a full day, and restricted to a few market participants, the people added.
What is curious, is that if there was indeed manipulation since the launch of bitcoin futures, it was to the downside, as the price of cryptos peaked around the time the crypto futures were launched, and are down well over 50% in the 6 months since.
Coinbase in particular has been under the watch government regulators. On February 23, Coinbase sent an official notice to around 13,000 customers to notify them they were legally required to turn over their information to the IRS
The IRS had initially asked Coinbase in July 2017 to hand over even more detailed information on every one of its then over 500,000 users in an attempt catch those cheating on their taxes. However, another court order in Nov. 2017 reduced this number to around 14,000 “high-transacting” users, which the platform now reports as 13,000, in what Coinbase calls a “partial, but still significant, victory for Coinbase and its customers.”
Coinbase told the around 13,000 affected customers that the company would be providing their taxpayer ID, name, birth date, address, and historical transaction records from 2013-2015 to the IRS within 21 days. Coinbase’s letter to these customers encourages them “to seek legal advice from an attorney promptly” if they have any questions. Their website also states that concerns may also be addressed on Coinbase’s Taxes FAQ. The ongoing legal battle between Coinbase and the US government dates back to November, 2016, when the IRS filed a “John Doe summons” in the United States District Court for the Northern District of California.
On Feb. 13, personal finance service Credit Karma released data showing that only 0.04 percent of their customers had reported cryptocurrencies on their federal tax returns. 
And in April, former New York Attorney General, Eric "we could rarely have sex without him beating me" Schneiderman, launched a probe of 13 major cryptocurrency exchanges according to the Wall Street Journal - claiming that investors dealing in the fast-growing markets often don’t have the basic facts needed to protect themselves.
Former AG Schneiderman’s office said the program, called Virtual Markets Integrity Initiative,  is part of its responsibility to protect consumers and ensure the integrity of financial markets, and its goal is to ensure that investors can have a better understanding of the risks and protections afforded them on these sites.
CFTC Commissioner: Crypto is a "modern miracle"
While the CFTC, IRS and New York Attorney General's office are all cracking down on cryptocurrency exchanges, it seems to all be part of the government's embrace of virtual currencies.  Last week CFTC Commissioner Rostin Benham called cryptocurrencies a "modern miracleat the Blockchain For Impact Summit held at the UN in New York last week. 
But virtual currencies may – will – become part of the economic practices of any country, anywhere.  Let me repeat that:  these currencies are not going away and they will proliferate to every economy and every part of the planet.  Some places, small economies, may become dependent on virtual assets for survival.  And, these currencies will be outside traditional monetary intermediaries, like government, banks, investors, ministries, or international organizations.
We are witnessing a technological revolution.  Perhaps we are witnessing a modern miracle. -Rostin Benham
Rostin hinted at the upcoming legal action against the exchanges during his speech:
Under the CEA and Commission regulations and related guidance, exchanges have the responsibility to ensure that their Bitcoin futures products and their cash-settlement process are not readily susceptible to manipulation and the entity has sufficient capital to protect itself.  The CFTC has the authority to ensure compliance. In addition, the CFTC has legal authority over virtual currency derivatives in support of anti-fraud and manipulation including enforcement authority in the underlying markets.

Meanwhile, the official Bitcoin website removed references to Coinbase, Blockchain.com and Bitpay, according to Crypto News - only one of which, Coinbase, was subpoenaed. 
http://Bitcoin.org  just removed/censored the 2 largest US Bitcoin companies (@BitPay Payment processing and @coinbase Bitcoin Exchange). It’s a good move: Bitcoin Core is obviously no longer Bitcoin, and should ideally be removed from both @BitPay and @coinbase too.

The CFTC officially recognized bitcoin as a commodity in September of 2015 when it went after Coinflip for operating a platform for trading bitcoin options without the proper authorization. Since the agency effectively asserted its dominance over the bitcoin market with that decision, this is the first time it has given its blessing to an bitcoin options trading platform. Expect a burst of institutional trading activity to follow - especially since they approved institutional options trading in July
This post sponsored by Total Cryptos @ www.totalcryptos.com  

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