That's what some of the world's largest wealth-management firms are saying ahead of Washington's implementation of the
Foreign Account Tax Compliance Act, known as Fatca, which seeks to prevent tax evasion by Americans with offshore accounts.
HSBC Holdings Plc (HSBA), Deutsche Bank AG, Bank of
Singapore Ltd. and
DBS Group Holdings Ltd. (DBS) all say they have turned away business.
"I don't open U.S. accounts, period," said Su Shan Tan, head of
private banking at Singapore-based DBS, Southeast Asia's largest lender,
who described regulatory attitudes toward U.S. clients as "Draconian."
The 2010 law, to be phased in starting Jan. 1, 2013, requires
financial institutions based outside the U.S. to obtain and report
information about income and interest payments accrued to the accounts
of American clients. It means additional compliance costs for banks and
fewer investment options and advisers for all U.S. citizens living
abroad, which could affect their ability to generate returns.
"In the long run, if Americans have less and less opportunities to
invest overseas, it would be a disadvantage," Marc Faber, the fund
manager and publisher of the Gloom, Boom and Doom report, said last
month in Singapore.
The almost 400 pages of proposed rules issued by the U.S. Internal
Revenue Service in February create "unnecessary burdens and costs," the
Institute of International Bankers and the European Banking Federation
said in an
April 30 letter
to the IRS, one of more than 200 submitted to the agency. The IRS plans
to hold a hearing May 15 and could amend how and when some aspects of
the rules are implemented. It can't rescind the law.
Bank Transparency
The government needs to be tougher on offshore tax crimes than it has
been, said U.S. Representative Richard Neal, a Massachusetts Democrat
and one of the original sponsors of the legislation. Fatca, introduced
after Zurich-based
UBS AG (UBS)
said in 2009 that it aided tax evasion by Americans and agreed to pay
$780 million to avoid prosecution, is already helping to improve banking
transparency, he said.
"People should know, and the IRS should know, what money is being
held offshore and for what purpose," Neal said. "I don't think there's
anything unreasonable about that."
UBS, the world's biggest non-U.S. private bank according to
London-based industry tracker Scorpio Partnership Ltd., said in 2008 it
would discontinue offshore accounts for U.S. citizens. The firm now
refers them to its wealth-management offices in the U.S., or to its
Swiss Financial Advisers unit, which complies with U.S. and Swiss
regulations, said
Serge Steiner,
a spokesman for UBS. The company continues to provide Americans outside
the U.S. with services other than securities investments, including
consumer and commercial loans, foreign-currency spot trading and
precious-metals transactions, he said.
'Too Complex'
Investments in products offered by third parties that non- U.S.
citizens can purchase through UBS or other banks also may be restricted.
"Most of the
hedge funds I know in Asia won't take American clients," said Faber.
Bank of Singapore, the private-banking arm of
Oversea- Chinese Banking Corp. (OCBC),
ranked strongest in the world for the last two years by Bloomberg
Markets magazine, has turned away millions of dollars from Americans
because it doesn't want to deal with the regulatory hassle, according to
Chief Executive Officer Renato de Guzman. The bank had $32 billion
under management as of the beginning of the year.
"It's too complex, too challenging," de Guzman, who at 61 has more
than 35 years of banking experience, said in an interview in Singapore
in March. "You probably should have a dedicated team to handle them or
to understand what can be done or what cannot be done."
Rejecting Americans
At industry meetings he attends in Singapore, not accepting U.S.
clients is "quite a prevailing sentiment," de Guzman said. There are 18
private banks operating in Singapore, including units run by UBS, Credit
Suisse Group AG,
Deutsche Bank (DBK) and HSBC, he said.
"We have enough business in Asia, so we don't want to make our lives too difficult," de Guzman said.
Asia has the world's fastest-growing number of people with more than
$1 million in investable assets, according to a report last year by
Bank of America Corp. (BAC)
and Capgemini SA. Singapore is Asia's largest wealth-management center,
with $512 billion in offshore assets in 2010, data compiled by the
Boston Consulting Group show. Bank of America is the world's No. 1
wealth manager, with $1.9 trillion under management, followed by Morgan
Stanley and UBS, with $1.6 trillion, according to Scorpio.
HSBC, Deutsche Bank
HSBC decided last July that it would no longer offer
wealth-management services to Americans from locations outside their
home country after tax authorities stepped up a probe of the
London-based bank's U.S. clients.
Americans would be "better served" by private bankers in the U.S.,
Goh Kong Aik, a spokesman for the firm in Singapore, said in an e-mail.
He declined to say whether those who already have private-banking
accounts abroad will be allowed to remain customers, except that they
would be helped through an undefined "transition process."
Deutsche Bank said it terminated securities accounts held abroad by
people with U.S. residency as of mid-2011. The action didn't include
checking or savings accounts and didn't affect citizens living outside
the U.S. The Frankfurt-based bank said "only a small number of
customers" were affected.
Spokesmen for Credit Suisse, France's
BNP Paribas SA (BNP)
and Amsterdam-based ABN Amro Bank NV, also among the top 10 non-U.S.
global wealth managers, said their banks are studying the issue and
haven't decided what to do with American account holders.
Collateral Damage
"Bank accounts, investment accounts, mortgages and insurance policies
are being refused to American clients, and those with accounts are
seeing them closed or have been threatened with closure," Marylouise
Serrato, executive director of American Citizens Abroad, a Geneva-based
organization, wrote in an e-mail.
U.S. citizens who live in countries that aren't served by U.S. banks
may find themselves unable to bank at all, and implementation of the law
in its current form could cause collateral damage to American
businesses abroad, she said.
"Americans either will not be allowed to enter into international
partnerships or live and work overseas, and will be replaced by foreign
nationals who do not have these limitations," Serrato wrote. "The
extensive reporting requirements of Fatca will be destructive to those
who wish to do business internationally as well as to those Americans
who are legitimately living and working overseas."
'Turned Away'
That view is shared by Richard L. Weisman, Hong Kong-based head of law firm Baker & McKenzie LLP's global tax practice.
"U.S. expatriates already face severe U.S. tax rules related to their
non-U.S. income and investments," Weisman said. "Fatca will increase
the extent to which they are turned away by non-U.S. financial
institutions."
Tan of DBS said she refers Americans seeking private- banking
services to U.S. institutions with operations in Singapore such as
Citigroup Inc. (C), Bank of America, Morgan Stanley,
Goldman Sachs Group Inc. (GS)
and JPMorgan Chase & Co., which are able to open securities
accounts for Americans because they're regulated by U.S. authorities.
Such accounts allow purchases of investment products without restricting
Americans to cash and time-deposit accounts.
While that may be easy for Americans in Singapore, those who live
elsewhere face obstacles. Before Fatca, U.S. citizens in Bangkok or
Manila could find investment opportunities through non-U.S. banks such
as HSBC. Now their only option is to fly to cities where U.S. firms
operate.
Limited Choices
If Americans choose to bank with a non-U.S. firm such as HSBC, their
investment choices are limited. At the HSBC branch in the bank's Asia
regional headquarters in Hong Kong, Americans can hold only savings
deposits. They're prohibited from opening accounts to trade local stocks
or buy products available to non- U.S. customers, including
45 equity funds investing in China or other geographies and industries. There's only one comparable
emerging-markets equity option available on HSBC's U.S.-based investors' website.
Financial institutions that choose not to accept American customers
still must determine whether new or existing clients are so-called U.S.
persons in order to comply with Fatca, according to Michael Brevetta,
director of U.S. tax consulting at PricewaterhouseCoopers LLP in
Singapore.
The definition includes citizens, green-card holders and
non-Americans deemed U.S. residents by being present in the country for
at least 183 days over a three-year period, which makes them subject to
U.S. tax on their worldwide income, according to the
IRS.
Compliance Costs
The compliance costs for banks, asset managers and insurance
companies "could stretch into the billions of dollars," Brevetta said.
Private-banking firms in Hong Kong and Singapore already have operating
costs between 88 percent and 90 percent of their revenue, compared with
70 percent at Swiss banks, PricewaterhouseCoopers estimated in a
September report.
Penalties for not complying will be stiff. Non-U.S. firms that don't
make required disclosures will be subject to 30 percent withholding of
certain dividends, interest or proceeds from the sale of assets they or
their customers receive from U.S. sources, according to Baker &
McKenzie's Weisman, who has conducted workshops and seminars on the
proposed rules for current and potential clients in Hong Kong and
Singapore.
"Overwhelmingly, financial institutions outside the U.S. don't like
it, for obvious reasons," Weisman said, calling the withholding tax a
"stick" the U.S. is wielding. "The U.S. is outsourcing a tax-compliance
function, which is enormously expensive."
Renouncing Citizenship
Americans who don't comply with Fatca are deemed "recalcitrant," and
income they receive from U.S. sources also is subject to a 30 percent
withholding tax, said Jason Choi, a Singapore-based tax lawyer with
Latham & Watkins LLP.
Renouncing citizenship is an option chosen by increasing numbers of
Americans. A record 1,780 gave up their U.S. passports last year
compared with 235 in 2008, the
IRS reported.
Royal Bank of Canada (RY),
the sixth-biggest wealth manager with $435 billion under management as
of the beginning of 2011, said it sees an opportunity as competition is
exiting, including in emerging markets, where it manages $60 billion.
"We are one of the few wealth managers to hold a Securities and
Exchange Commission license offering U.S.- compliant investment advice
in Switzerland and London and see an opportunity in accepting
tax-compliant U.S. persons as clients outside of the U.S.," said Barend
Janssens, the Singapore-based head of the bank's wealth-management unit
for emerging markets.
Tax Evasion
Coutts, the wealth division of U.K. government-owned
Royal Bank of Scotland Group Plc,
plans to comply with Fatca and to continue accepting tax-compliant U.S.
persons, according to Tim Winter, associate director of the U.S.
Competence Centre at Coutts. The London-based bank has invested since
July 2010 in a "global program of work established to support the
implementation of Fatca," he said in an e-mail.
The Swiss government has been in talks for more than a year with U.S.
authorities, who, after obtaining data on about 4,700 UBS clients, are
now investigating 11 other firms, including Zurich-based
Credit Suisse (CSGN) and
Julius Baer Group Ltd., for alleged assistance in U.S. tax evasion.
Credit Suisse continues to "work hard" to resolve the probe, CEO
Brady Dougan said in an interview April 25. Julius Baer exited its U.S.
private-client business between 2009 and 2011, said Jan Vonder Muehll, a
bank spokesman in Zurich.
Wegelin Forfeiture
Wegelin & Co., a Swiss private bank established in 1741, became
the first Swiss lender to face criminal charges in the U.S. crackdown on
offshore firms suspected of abetting tax evasion. It had to sell its
assets in January to Switzerland's Raiffeisen Group to save its non-U.S.
business before the U.S. indicted the firm in February. The St.
Gallen-based private bank helped Americans hide more than $1.2 billion
in assets and evade taxes, wooing clients spurned by UBS, according to
an indictment filed in federal court in
New York.
U.S. District Judge Laura Taylor Swain ordered Wegelin to forfeit $16
million on April 24, allowing the U.S. government to take the amount
from Wegelin's U.S. account, held at UBS in
Stamford, Connecticut. Albena Bjoerck, a spokeswoman for Wegelin, declined to comment.
Spokesmen for Citigroup, Bank of America, Morgan Stanley, Goldman
Sachs and JPMorgan all declined to comment on how Fatca is affecting
their business, with some citing company policies not to discuss
government regulation.
Standard Chartered Plc (STAN), France's Societe Generale SA,
Barclays Plc (BARC) and Hong Kong-based Hang Seng Bank Ltd., which all have wealth-management businesses, also declined to comment.
'Pain for Americans'
The restrictions on products available to Americans may not matter to
a savvy investor, according to Hugh Young, who helps manage $70 billion
in Asian equities in Singapore for Aberdeen Asset Management Plc.
"The financial institutions can restrict you from some of the best products, but you have others of the best," he said.
Still, the limitations create complications that act as an investment
deterrent, said Philip Marcovici, a retired U.S. tax lawyer who advises
wealthy families and governments.
"It's a pain for Americans to invest in markets outside of the U.S.," he said.
Attractive Tax Rates/Schemes in Singapore