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With a growing desire to combat money laundering and tax evasion, governments worldwide are adopting new reporting requirements and ramping up their enforcement. Multinational families must be diligent to avoid steep penalties for non-compliance, while ensuring the safety of their assets.

While some of these initiatives have similar objectives, there are significant differences in the scope and processes, which has translated into confusion and difficulties for families with cross-border connections. Here we present an overview of these programs and their consequences to help multinational families navigate these evolving and complex requirements.

1.

The Foreign Account Tax Compliance Act (FATCA) Combats Tax Evasion by U.S. Citizens & Residents

Enacted in response to the surprising revelation of the extent to which U.S. taxpayers had been using accounts at Swiss banks to hide assets from the IRS, FATCA significantly increases the reporting responsibilities for both financial institutions and U.S. individuals and entities associated with non-U.S. assets. Read more about FATCA (PDF).

2.

The Common Reporting Standard (CRS) Provides a Process for Many Countries to Exchange Tax Information

The CRS is referred to as “GATCA," the global equivalent of FATCA, although its reporting requirements are broader in scope. Over 100 countries have signed up for the CRS, but the U.S. has not adopted it. This has led to controversy and accusations that its failure to join has ironically made the U.S. the largest tax haven in the world. Read more about the CRS (PDF).

3.

Beneficial Ownership Registries Identify the "True Owners" of Entities

There has been a growing trend to establish central databases of true owners, who are defined as those who own or control the entity through direct or indirect ownership of a sufficient percentage of shares or voting rights. Controversy continues over whether such databases should be available to the public, and whether trusts should be included in these registries.

4.

Governments Are Refining Their Efforts to Enact and Enforce These Laws

FATCA sparked resentment and pushback from foreign countries, financial institutions and individuals. The CRS hasn't provoked such resistance, perhaps because by the time reporting started in 2017, this global trend for information exchange was already too far along to stop. Although controversy regarding beneficial ownership registries remains, regions have taken action toward establishing these databases, with varying levels of enforcement and success.

5.

These Initiatives Have Led to Unintended Consequences

Banks must go to great lengths to identify and verify the sources of wealth and proof of identity for any individuals looking to open accounts. These practices make it difficult — if not impossible — for certain individuals to open accounts or have access to financial services in certain areas. In addition, privacy and data security are major concerns for those affected.

“Although the debate continues, the trend toward increased global transparency regarding financial assets seems secured.”
Financial providers and global families are experiencing the unintended consequences as well as the benefits.
Privacy concerns must be addressed worldwide

Concerns relate both to the amount of information being shared and the people who have access to it. The key issue is to maintain confidentiality during both the reporting and the transmission of the data, and many countries are investing in more robust data security.

Reputable jurisdictions and institutions are adapting quickly

The consensus among financial institutions is generally optimistic; regardless of the inconveniences posed, these reporting requirements offer global families centralized, safe and flexible access to their assets.1 However, given recent, highly publicized data hacks, privacy remains a major concern for these families.

Families need to understand the details of these requirements

Multinational families will be best served by selecting reputable jurisdictions and working with skilled professionals who have experience handling the myriad requirements for all countries connected to the family and their assets.

Financial Action Task Force on Money Laundering (FATF)

An intergovernmental organization established in 1989 to combat money laundering worldwide.

Tax Information Exchange Agreements (TIEAs)

Historically, these provided for the intergovernmental exchange of tax information on individuals and companies suspected of tax evasion; later they proved to be inadequate.

Foreign Account Tax Compliance Act (FATCA)

Established in 2010 by the U.S., this legislation specifically targets serious cross-border tax avoidance by U.S. citizens and residents.

Common Reporting Standard (CRS)

Developed and passed in 2014 by the Organisation for Economic Cooperation and Development (OECD) to automatically exchange taxpayer information. Similar to FATCA, but even more extensive.

Beneficial Ownership Registries

FATF has been a longstanding supporter of maintaining these central databases, which hold information on the “true owners" of entities. They provide increasingly extensive mandates on establishing and offering access to these registries.

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