Advisers forced to dob in American clients

Financial advisers will soon be forced to rat their American clients out to the IRS, but New Zealand's privacy laws will have to change first.

Tuesday, February 14th 2012, 6:51AM 1 Comment

by Niko Kloeten

The Foreign Account Tax Compliant Act (FATCA), designed as part of a US crackdown on overseas tax evasion, is creating headaches for the financial services industry not just in New Zealand but around the world.

The Act will require 30% of any funds invested in America from overseas to be withheld by the Inland Revenue Service (IRS) if the organisation investing the money isn't FATCA-compliant.

Draft FATCA regulations were released last week by the US Department of Treasury and the IRS, and PwC financial services partner Mark Russell said New Zealand's financial services industry still has work to be done before it is seen as compliant with the new rules.

He said a big problem is that the information sharing required by FATCA is actually illegal in a number of countries, including New Zealand under the Privacy Act.

Russell said building societies, credit unions and other non-bank deposit takers look to be the winners in the New Zealand context, if they can bring themselves within a class of ‘local foreign financial institutions (FFIs)'.

However, he said the New Zealand superannuation and KiwiSaver industries don't appear to be eligible for the exemption under the draft regulations.

Many advisers will also be affected by the FATCA rules, creating yet another compliance burden, he said.

"It very much depends on how businesses are organised and the scale of the services they offer. If you accept and manage your clients' money directly the financial advice business itself may be regarded as a financial institution.

"Typically an individual adviser would be unlikely to have money going directly into the US."

However, these advisers could still face compliance obligations through the intermediaries they invest with, he said.

"What that means is the intermediaries will be looking down to the adviser business and going 'are they compliant?'

"The people they [advisers] place the money with are going to be looking to them to provide the information they need to comply."

Russell said one of the components of the law is that advisers will have to work out whether they have American clients.

"There are indications you are supposed to pick up as to whether someone is American, such as having a US address or passport or other indicators. However, in other circumstances you have to specifically ask whether they are American.

"It can be in some cases quite annoying to their customers. If you walk in off the street with a Kiwi accent and they say, 'are you an American' it can be quite insulting."

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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Comments from our readers

On 14 February 2012 at 11:23 am Forthright said:

“dob” or “rat” are emotive and disgusting words to describe a fiduciary duty an adviser has to another countries laws. If a potential client walked in off the street with a bucket of money to invest, it should immediately raise the Advisers suspicion. More over if an Adviser follows the anti-money laundering rules they should know all about who their client is and where the client got their money.

I also agree it would not pay to jump to the conclusion a client was American if they merely spoke with an American accent, after all, they may be greatly offended if they are Canadian…. A.

I am also sure the cheats and sneaks will have no Americans on their books. They couldn’t possibly have Americans on their books if the Americans address was similar to the Advisers address, could they?