How U.S. Financial Institutions Can Manage FATCA and AML Risks in LATAM

Does your financial institution work with foreign clients? If so, upcoming deadlines under the Foreign Account Tax Compliance Act (FATCA) and a continued U.S. effort to identify money laundering risk are two issues that are likely top-of-mind at your institution.

The most recent Association of Certified Anti-Money Laundering Specialists (ACAMS) South Florida Chapter Learning Event, hosted by Kaufman Rossin, featured presentations on what some financial institutions are doing to comply with new FATCA requirements and how they can continue to mitigate money laundering risk as financial criminals grow increasingly sophisticated and prevalent in Latin America.

Presenters included:

• John Tobon, assistant special agent in charge, Division of Homeland Security
• Eduardo Solorzano, head of North American AML Investigations with Citigroup Global Investigation Unit
• Stanley Foodman, CPA, CFE, CFF, CAMS, CGMA, CEO of Foodman CPAs & Advisors; and
• Catherine McGrail, marketing director at Foodman CPAs & Advisors

The following is a summary of some of the items discussed by the presenters:

Understanding FATCA

Enacted in March 2010, FATCA targets tax non-compliance by U.S. taxpayers with foreign accounts. Foreign financial institutions (FFIs) are required to provide information on financial accounts held by U.S. taxpayers. If they do not register with the Internal Revenue Service (IRS) and agree to report certain information, certain income payments from said accounts may be subject to a 30% withholding tax. So far, more than 80 countries are in talks with the U.S. government to negotiate intergovernmental agreements (IGAs), which make it easier for those countries to comply with FATCA reporting requirements. More than 100 countries have either already signed IGAs or have agreed to them in substance.

Priorities for U.S. financial institutions

Although FATCA is primarily aimed at FFIs, U.S. financial institutions also have requirements under the law and need to understand their responsibilities for compliance, including:

• Withholding. As of July 1, 2014, U.S. financial institutions should have been withholding 30% on certain amounts payable to foreign entities when FATCA provisions are not adhered to or certain information is not provided to the U.S. financial institution. Outgoing payments should be screened against the Global Impact Investigating Network (GIIN) list to determine if there should be withholding.
• Understanding reporting requirements. U.S. institutions must prepare their internal systems to comply with the relevant reporting requirements, including the requirement to identify entity account owners and to house multiple Tax IDs for residents in participating countries.
• Enhancing due diligence. U.S. institutions should incorporate FATCA – including the reporting requirements – into their systems. They also need to adopt and understand forms W-8BEN or the W-8BEN-E, recently issued by the Internal Revenue Service.
• Training sales staff. Clients of U.S. financial institutions who will be impacted by FATCA should be made aware of new reporting requirements. That means that sales teams need to be properly trained to convey the information accurately.

Identifying and addressing international financial crime

In addition to preparing to comply with FATCA, U.S. financial institutions should stay abreast of evolving money laundering techniques in order to mitigate the risk to their organizations and to the FFIs and international customers they work with. According to Tobon, the Department of Homeland Security is regularly monitoring international trade, travel and finance to identify criminal schemes such as money laundering, bulk cash smuggling and cyber-crime that could put domestic financial institutions at risk.

Financial institutions should have their own programs in place to identify and address the risk of money laundering. The following are four steps, recommended by Solorzano, that financial institutions can take to minimize their risk:

• Require international and domestic customers to identify the source of their funds.
• If underlying activity – including purpose and source of funds – is not transparent, direct customers to cease those transactions.
• Require FFIs to establish anti-money laundering programs, including appropriate transaction monitoring and due diligence to mitigate risks to international customers.
• If necessary, terminate the business relationship with customers or FFIs who do not meet these requirements.

If you have questions about how your financial institution can comply with FATCA or improve AML compliance, please contact me or another member of our risk advisory services team.