Regulatory Burdens Prompt Foreign Entities to Cut Ties
Foreign banks, brokers, and trust companies are rushing to cut ties with US clients. This is due to the strict reporting requirements of federal laws like the Foreign Account Tax Compliance Act (FATCA).
The True Motive
If you’ve ever wondered why laws like FATCA exist, the answer is more elusive than you might think.
Contrary to what Uncle Sam is telling you, it has nothing to do with collecting taxes. In fact, official government estimates for FATCA say it will bring in less than $800 million per year in new revenues. That’s about two tenths of 1% of the $3.9 trillion budget for 2013.
The real answer is a case of “follow the money.”
Wall Street and big US banks don’t want overseas competition. This gives them a huge incentive to promote laws that restrict the investment choices available to Americans to “US only.”
The Dodd-Frank Act: A Closer Look
But there are many lesser-known examples that have been successful at eliminating foreign competition.
A case in point is the Dodd-Frank Act.
Wall Street was officially horrified by this law, which officially sought to end some of the practices that led to the financial collapse and big bailouts of leading US investment firms in 2008-2009. But buried in the bowels of this 2,319-page law was a provision targeted squarely at “foreign investment managers.”
Simply put, the new rule forced every foreign bank, brokerage, or financial advisor with 15 more US clients to register with the Securities & Exchange Commission.
This is an expensive and time-consuming exercise that involves oodles of red tape.
One Swiss-based investment manager who went through the process told me he spent more than $100,000 in legal fees to do it – not to mention the hundreds of hours he and his staff spent filling out forms and talking to lawyers and SEC bureaucrats.
As we’re now finding out, many foreign firms won’t bother. As a result, Americans ability to use safer, more stable and potentially more lucrative options offshore is reduced.
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