27 April 2012 | By: Malene Alleyne

FATCA – A Fat Pill to Swallow

Posted in Blog

The Foreign Account Tax Compliance Act of the United States (FATCA) has created quite a buzz among Jamaicans; buzz, of course, being a euphemism for alarm. FATCA is the US Government's attempt to improve tax compliance in the area of foreign financial assets and offshore accounts. One of the main arms of this controversial Act requires foreign financial institutions to sign an agreement with the Inland Revenue Service (IRS) to report information about financial accounts held by U.S. taxpayers or foreign entities substantially owned by U.S. taxpayers. These institutions have the "option" of not participating, but at the very high and possibly prohibitive cost of paying a withholding tax.

Some Jamaicans might say this "arm" of FATCA is more like a giant tentacle reaching across the Atlantic, demanding that we render unto Caesar that which is Caesar's. The sentiment here is that this kind of extraterritorial reaching ought to be done by way of multilateral or bilateral agreement at the international level. Others have questioned the compatibility of FATCA with Jamaica's banking secrecy laws. Given this latter concern, an overview of our secrecy laws is both timely and useful.

A banker's duty of secrecy refers to the legal obligation of banks not to disclose information concerning their customer's affairs. This duty has its roots in the English Common Law which, in Jamaica, has been bolstered by statute. Courts have long accepted the duty of secrecy as an implied term in the contract between Banker and Customer. They have recognized that this duty is not just limited to the state of the customer's account, but also extends to all the transactions passing through it.

Courts have also recognized that the duty of secrecy is not absolute, but qualified in the sense that certain disclosures are permissible. The qualifications as outlined in seminal cases include: (1) where the disclosure is made with the express or implied consent of the customer; (2) where the interests of the bank require disclosure; (3) where disclosure is under compulsion of law and (4) where there is a duty to the public to disclose.

Under the Common Law, the breach of a duty of secrecy gives rise to a claim for damages. A customer, however, need not wait until after a breach has taken place to take action. If a customer fears his bank is about to breach its obligation of secrecy, he may also seek an injunction to restrain disclosure.

The Jamaican legislature has given statutory effect to the Common Law duty of secrecy by virtue of the Banking Act and Financial Institutions Act. Under these statutes, bank officials are prohibited from giving, divulging, or revealing any information regarding the money or other relevant particulars of a customer's account. This prohibition extends to any person who, by reason of his capacity or office, has by any means access to the records of the bank, or any material concerning a customer's account.

Both Acts make it a criminal offence to make unauthorized disclosures. However, the Acts also recognize a limited number of situations in which disclosures are permissible. A list of these situations can be found in the fourth schedule of each Act and include, among others, when (1) the customer is an undischarged bankrupt; (2) the information is disclosed to an authorized officer (3) disclosure is required under another enactment and (4) the Minister, in writing, directs disclosure to a foreign government or agency where there exists a bilateral agreement for the mutual exchange of information and the Minister believes that disclosure is in the public interest.

The duty of secrecy is also addressed under the more recent Credit Reporting Act. Under this Act, every Credit Bureau and Credit Information Provider has a duty of secrecy with respect to all documents or information disclosed to it in connection with the performance of its duties or functions under the Act. This is important since the Act allows the Credit Bureau to obtain from any Credit Information Provider information about the customer's financial means, credit worthiness or history of financial transactions, among other things. "Credit Information Providers" include Banks licensed under the Banking Act and Financial Institutions licensed under the Financial Institutions Act.

In short, Jamaica's secrecy laws are quite strong and have teeth since unauthorized disclosures constitute a criminal offence. The question of the compatibility between these laws and FATCA is therefore a legitimate one. It should be remembered that, in the absence of an agreement to the contrary, the contract between a bank and its customer is governed by the laws of the place where the account is kept. Banks and Financial Institutions will therefore have to align their participation in FATCA with one of the qualifications to the duty of secrecy recognized by Jamaican law. To date, there is nothing in Jamaican law that specifically compels the disclosures requested under the FATCA regime. Based on the limited qualifications available, a Bank or Financial Institution can only lawfully make reports to the IRS under FATCA if the customer agrees to waive his rights under our secrecy laws. If the customer refuses, the participating Bank or Financial Institution will be forced to close that account. Jamaicans have therefore found themselves on a rock in a hard place. It seems that for institutions and individuals alike, the FATCA will be a fat pill to swallow.

Social Bookmarks

Leave a comment

You are commenting as guest.