Many are aware that FATCA is perhaps the broadest and most complicated international tax code ever written, designed literally to “span the globe.” FATCA requires all foreign financial institutions to report to the IRS information on U.S. held accounts,
including those with material U.S. ownership interests. Those in violation of FATCA are subject to a 30% withholding penalty tagged to each party. Starting 2015, institutions that do not accurately deduct and remit FATCA withholding will be liable for 100%
of the amount not withheld plus penalties. It’s no wonder that some businesses want to sever ties with the U.S. altogether so that they can operate freely in non-FATCA zones.
FATCA triggers all areas of Compliance, Reporting, Tax, Legal, and of course On-boarding within financial institutions. Additional layers cover Customer Identification, Documentation, and Monitoring. In recent surveys, many compliance and risk officers are
claiming that nothing will slip through the cracks. However, many institutions such as Estates and Trusts are still ill equipped to comply with ‘FATCA: Day 1.’ Without complete prevention against operational “slippage,” many factors will still fail compliance
down the road. And this is a situation nobody wants to be in.
“BAND AID ROLL-OUTS” WON’T STOP THE BLEEDING
For many large and mid-sized financial institutions, the typical in-house “band aid roll-outs” are just not robust enough to manage FATCA head-on. Most shops still rely on legacy infrastructure operating with limited throughput. More outdated is applying
the governance model in appointing tax operations Subject Matter Experts to manually review each transaction as they are processed downstream. Clearly, FATCA presents the perfect business case to leverage disruptive technologies that can be customized to overhaul
multi-channel Account Opening and On-Boarding processes.
RIPE FOR DISRUPTION
There are so many intersecting “moving parts” within FATCA compliance that involve many types of reporting standards including KYC, BSA, CIP, AML and OFAC. Our market is ripe for solutions that allow real-time customer account identification behind unlimited
transaction volumes. To highlight, digital DNA biometrics offers a perfectly balanced alternative via automation. By adding real-time eRecognition over active EID functionality as an over-arching control parameter, many inherent risks will ultimately be mitigated.
Hence, one thing is certain: Although clients understand the requirements of FATCA, they still need to be well-prepared to deal with many operational pain points associated with the broad reaching regulation. As a result, many areas are affected downstream
ranging from on-boarding data quality to reporting data integrity. Immediately, one realizes that opportunities to amass potential solutions are abound.
Our key to helping clients win the FATCA war is to offer a clear transparent blueprint for compliance that serves to disrupt ineffective “line jobs." Having an intelligent framework around controls that govern an overarching roadmap, capable of detours along
winding permutations is top priority. In the future state, all institutions will need complete confidence in proving their FATCA compliance runs effectively and effortlessly, with minimal manual manipulation, so clients can be rest assured that truly, nothing
will risk slipping through those cracks.
REFERENCES:
- Is Your FATCA Compliance in Full Performance Mode?
- 20 Really Stupid Things in the U.S. Tax Code
- Foreign Account Tax Compliance Act
- Foreign Account Tax Compliance Act (FATCA): U.S. Department of the Treasury