Wednesday, June 12, 2013

IRS, FATCA, NSA, And The International Banking Conspiracy

IRS? CIA? FBI? Most kids in school know what these acronyms mean. But NSA? What’s that? National Security Agency? What do they do? Although it has been an 800 pound gorilla in the room for quite some time, it is only now, with the recent disclosure and intimation of extensive domestic spying on Americans, that the pundits are now talking about yet another vast government institution which inspires fear and fantasies about Big Brother.

Washington assures us we have no reason to worry because all NSA cares about is keeping track of the mere fact that your computer has received an e mail from Kandahar. It doesn’t matter what it says, as long as the government knows you got it. Also if your search engine happened to land on a web site for a few seconds which offers recipes on how to blow people up with a few ingredients from under the kitchen sink or the garage, we need to know about that too. No one in our government is thuggish enough to presume to read the content of a private e mail message but it’s good to know at least that a few people in the States have pen pals in the quaint, ethnic hamlets in the Swat Valley in Northern Pakistan.

The timing of this latest bombshell could not be worse for Big Government. Just about the time the NSA Scandal is about to gather a real good head of steam, the IRS is going to be back on the front pages yet again, with the opening in July of the much anticipated IRS FATCA PORTAL TO MORDOR.

Finally, after all the talk, the world’s financial institutions are going to get a chance to call the U.S. Government’s bluff! This July, foreign financial institutions have the opportunity to be on the very first IRS published list of companies who are eager "to out" their American depositors, report their names to the IRS and become a full-fledged withholding agent for Uncle Sam. But what if nobody signs up?! What if a vast conspiracy of international foreign bankers agrees to humiliate the United States and ignore the IRS Portal to let them know what they really think about FATCA?

While we are on the topic of the Fantasy World of International Banking, I’ll bet the FATCA Unfriendly countries have already considered how they might use CHIPS to thwart FATCA. According to Wikipedia, The Clearing House Interbank Payments System (CHIPS) is the main privately held clearing house for large-value banking transactions in the United States, settling well over one trillion dollars a day in around 250,000 interbank payments. Together with the Fedwire Funds Service (which is operated by the Federal Reserve Banks), CHIPS forms the primary U.S. network for large-value domestic and international US dollar payments (where it has a market share of around 96%). CHIPS transfers are governed by Article 4A of Uniform Commercial Code. Since FATCA in its simplest terms is about tracking the movement of US Source Income, the FATCA Unfriendlies must surely be way ahead of the game in planning to blow the fuses at the Portal come next month.

Only the largest banks dealing in U.S. dollars participate in CHIPS; about 70% of these are non-U.S. banks. What a chance to stop FATCA in its tracks even before it gets started! Why don’t all the foreign banks which use CHIPS and Fedwire simply conspire to ignore the FATCA Portal next month? That would send a clear message to the American hegemonists and let them know that FATCA is the last straw and the last time America is going to get away with its international bullying campaign.

Las Vegas odds makers aren’t getting a lot of calls for this one but I hear the smart money is on massive compliance. What CEO of a foreign mega bank is going to want to explain to his shareholders why he sat on his hands while competitors had their FATCA applications ready at the stroke of midnight to leap through the Portal and embrace the world of Twenty First Century shared virtual international banking data bases?

Although the FATCA effective date of January 1, 2014, has been front page news in the financial sector and tax blogs for two years, the opening of the Portal this July and the publication of the FATCA Friendly FFI list this December are certain to elevate FATCA to the front page of every paper as well as the nightly news. Lead line: "IRS takes the first steps towards the creation of a virtual international banking data base with automatic exchanges of information between countries. Every foreign financial institution on the planet is to begin its first Big Data sweep of its customer data bases to hunt down suspected Americans."

Under FATCA, if a foreign bank wants to continue to do business with American firms and customers, after January 1, 2014, it must prove to the satisfaction of the IRS that it has in place a robust Know Your Customer and Anti-Money Laundering regime, and that each bank has a good audit trail documenting every effort to trace down every lead, or "indicia of a U.S. person," which might indicate there is a secret (or even "accidental") American in their midst. If they do not leap through the menacing Portal, and the IRS finds out they have been secretly harboring Americans and allowing them to engage in offshore banking without filing an annual FBAR, they will be effectively shunned by the rest of the international banking community and quarantined in a pen under a sign which says: "30% PENALTY BOX! NOT FATCA FRIENDLY!!"

This next flair up of vitriol will not be lacking in entertainment value as conspiracy theorists detail exactly how Lois Lerner of the IRS Exempt Organization Division in the IRS National Office was able to secretly feed the names of every Patriot group to her extensive contacts at NSA just to make sure they are not missing anything.

While they are at it, this might be a good time to do some more digging about the Trilateral Commission and connect those dots to NSA and the IRS through FATCA.

We have noticed under the Voluntary Disclosure procedures that it is suddenly taking 72 hours to get the routine pre-submission clearance from CID to proceed with the submission of the formal OVDI package. From 2009 until very recently, it only took 24 hours to get a fax back from CID saying that our clients were good to go. Surely this is proof of the fact that CID must now be running our client’s Socials through NSA in addition to passing them through the IRS’s super computers. What other explanation could there be for this recent obvious special targeting of certain American citizens?

It should be an interesting summer.




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