The Tribune

By NEIL HARTNELL Tribune Business Editor THE impending US Foreign Account Tax Compliance Act (FATCA) will create a level playing field that might "flip the model" for many Bahamian financial institutions' attitudes towards US clients, a well-known accountant told Tribune Business in a recent interview. Lawrence Lewis, a partner at Deloitte & Touche (Bahamas), said FATCA's full implementation from 2014 onwards would likely require compliance from financial institutions throughout the world, placing the Bahamas on a level footing with other countries in terms of being able to pitch for tax-compliant US clients again. Mr Lewis explained that many Bahamas-based financials services providers had elected to "shy away" from US clients over the past decade, due to the perceived extra compliance costs and reputational risk attached to them, but FATCA could provide "an opportunity for growth" by enabling local institutions to re-enter this market. And he told Tribune Business that non-compliance with the US Treasury and Internal Revenue Service (IRS) when it came to FATCA was simply a non-starter for Bahamas-based financial services providers, as not only would non-compliance cost them access to the US financial markets and US counterparty institutions, but also non-US counterparties as well. "The biggest challenge is somewhat of a mindset change," Mr Lewis said when it came to the Bahamian financial services industry's approach to FATCA. "We have for the most part been conditioned to shy away from US clients, or those who are perceived to be US clients, so we've been very much a non-US client jurisdiction. This was because of the perception that US clients attracted additional levels of risk, additional levels of compliance, and you wanted to make sure you were not exposed to the risk. "What FATCA has done is flipped the model, and opens up new opportunities. Financial institutions will have fairly robust platforms and services, so why not go after the US market, as the incremental risk is not as great for us. People have legitimate reasons for having offshore structures. The Bahamas is a great platform for dealing with them in a tax compliant manner. "I think for organisations that previously shied away from it, it [US clients and FATCA] may be an opportunity for growth. That is part of the strategic thinking some organisations need to apply to this. Does it create an opportunity for us? There's a cost, a regulatory burden, no doubt, but can we capitalise on this opportunity?" Every Bahamian financial services provider, and their legal and accounting advisers, are currently dissecting in detail the lengthy FATCA regulations that were released by the US government last week. One financial industry source told Tribune Business yesterday that a concern remained that the "goal posts continue to move". The Obama administration's main aim in passing FATCA is to ensure US persons with financial assets, such as bank accounts, outside the US are paying their due taxes to the Internal Revenue Service (IRS). To achieve this, Washington is effectively asking all Bahamas-based financial institutions - and around the globe - to become reporting agents for the IRS. They must enter into contractual agreements with the US Treasury Department to identify and report all US persons, and their assets, otherwise a 30 per cent withholding tax will be imposed on all US-sourced income post-December 31, 2013. Apart from changing procedures to deal with new clients, FATCA will force all Bahamian financial institutions to drill deep down into all accounts, investment funds and structures they oversee and manage, in a bid to detect whether there is even the smallest trace of US beneficial ownership. Given the compliance costs and time associated with FATCA, some may be tempted to opt out of it. This, though, would likely prove a mistake. "One of the questions, as always, is what about staying out, opting out?" Mr Lewis said. "With most of the organisations I talk to, that's the initial reaction, but when you sit down and think about it, can you operate without access to the US market, US counterparties FATCA-compliant counterparties, if it works out the way the US wants it to?" Mr Lewis said that even non-US counterparties were "going to be very concerned about doing business with people that are not FATCA compliant. "We're starting to see people ask questions about whether institutions intend to be FATCA compliant."