Bringing back money lying abroad

The US authorities became concerned over tax avoidance by its nationals after a scandal in 2010 involving a Swiss bank. Following it, a law titled the 'Foreign Account Tax Compliance Act (FATCA)' was passed. The law requires most foreign banks and investment funds to report to the Internal Revenue Service (IRS) on information about US customers' accounts worth $50,000 or more. It has two very different federal priorities (1) preventing and prosecuting financing of terrorist activities, and (2) enforcing US tax compliance in foreign jurisdictions.
In general, the stated aim of the FATCA is to enforce overseas tax compliance, while levelling the playing field for those Americans who abide by the US tax law rather than using foreign financial institutions (FFIs) to hide assets. Given the global nature of the financial world, enforcing these laws would not be possible without active support of FFIs.
The FACTA aims to identify Americans in order to ensure that they meet their US tax obligations, while placing their assets in foreign (non-US) accounts --- either directly or indirectly. An American or entity is: a citizen of the US (including an individual born in the US but resident in another country, who has not renounced US citizenship); a lawful resident of the US (including a US Green Card holder); a person residing in the US or spending a significant number of days in the US and US corporations, estates and trusts.
It requires banks everywhere to pony up information on Americans or face serious sanctions. It has shed light on offshore accounts, investments, and incomes of Americans who may not have been rigorously reporting those holdings in the past. The FATCA imposes a 30 per cent withholding tax on what are classified as 'withholdable payments' made to a foreigner or financial institution unless that person identifies his/her US interest holders or owners, and discloses required US tax information.
Banks in many countries, including Bangladesh, used to maintain accounts with American banks to facilitate settlement of foreign trade. If any bank outside the USA fails to report to the US Internal Revenue Service (IRS), the bank's money at Nostro accounts in the US will be withheld. Bankers fear if any banks comply with the US regulation, it will directly affect deposits and investments by non-resident Bangladeshis, who are also taxpayers in the US. Moreover, the local banks have to execute the task at their own cost.
The US started putting pressure on the FFIs to send to it information after enacting the special law to check tax evasion by US citizens and entities residing or doing business in foreign countries.
The consequences of non-compliance with the FATCA could be far-reaching. The compliance will need modifications to many processes and systems to produce the required information, with substantial investment in identifying and documenting US clients, withholding 30 per cent tax if they cannot, or will not, participate and then reporting information to the IRS. It had been indicated that some financial institutions faced one-off costs of up to US$ 100 million to achieve FATCA compliance, and that others had begun to refuse to deal with US clients.
About 18 countries have already signed the inter-government agreements with the US on the FATCA implementation. Bangladesh is yet to sign an agreement with the US over the new law. For this, banks and other financial institutions will have to provide information directly to the IRS.
The FFIs that do not both register and agree to report would face a 30 per cent withholding tax on certain US-source payment to them. The Bangladesh government has not yet decided to execute an inter-governmental agreement with the US; the obligation can alternatively be discharged at individual bank level by registering and signing 'Participation Agreements' with the IRS.
The country's scheduled banks and non-bank financial institutions (NBFIs) will have to sign agreements with the US IRS to avoid giving 30 per cent withholding tax on their income in the US.
The banks and the NBFIs that will sign participant-agreements with the IRS under this Act require all FFIs to report information to their US account holders, including those of Green Card holders. If the government signs an inter-government agreement, banks and NBFIs will not require signing deals with the IRS. If a covered financial institution tries to evade the requirements of the new law, it risks losing its US correspondent banking relationships, among other consequences.
The Bangladesh Bank (BB) has advised the bank companies which have accounts of US taxpayers to report to the US IRS. The BB in a circular ref:  BRPD Circular Letter No-01 16 January 2014 advised the financial institutions (FIs) that the government of Bangladesh has not yet decided to execute an inter-governmental agreement with the US. These obligations can alternatively be discharged at individual bank level by registering and signing 'participation agreements' with the IRS. The National Board of Revenue (NBR) also consented to registering with the IRS if a bank has US taxpayers' accounts in its books.
Such an agreement requires disclosures which would normally be breaches of the banker's general duty of confidentiality. Under prevalent Bangladeshi laws including the Bankers' Books Evidence Act 1891, banks are to obtain written consents from their customers before passing the requested information to the IRS. Banks should communicate with the existing customers well in advance execution of the 'participation agreement' with the IRS enabling the account holders to comply with reasonable requests for information or to provide acceptable documentation to meet the FATCA obligations.
Bangladesh law bars providing such information; the institutions will have to take written permission from their clients. If a client refuses to give a no-objection letter, the central bank has orders to close his/her account. Sections 5 and 6 of the Banker Book of Evidence Act 1891 stipulate maintaining privacy of a client's account and transaction, and information can only be given out if the court issues an order.
A number of Bangladeshis have secured US citizenship and hold Green Cards and pay taxes. Many of these expatriates inherit ancestral properties in Bangladesh or have immovable properties that are a source of income. From now on, they will have to pay the US tax against their income.
Bangladesh has enacted anti-money laundering laws and signed agreements with some countries to stop the illegal flow of money.
The Bangladesh government has not signed any agreement with Switzerland on information-sharing on money laundering issue. The country will not be able to get required information from countries such as Switzerland. To get information, Bangladesh will have to approach foreign banks or authorities with adequate evidence of irregularities and verdicts from courts. Only then will the external parties cooperate with relevant information, and send back the money.
Deposits by Bangladeshi citizens at various Swiss banks rose by 62 per cent year-on-year in 2013. The deposits that stood at Tk 32.36 billion (372 million Swiss franc) at the year-end were Tk 19.91 billion in 2012, according to the latest data of the Swiss National Bank (SNB), the country's central bank.
Businessmen put their money in foreign countries due to the lack of safety, while politicians and bureaucrats who earn money through illegal means do the same fearing detection by any agency. They do not consider Bangladesh as a safe country. Those who are earning illegally are also sending their money to countries deemed safe havens.
Due to globalisation and easy communication system, citizens can earn foreign exchange staying in the country. Bangladesh should relax the rule of in-bound remittance from legal business of its nationals.
Many Bangladeshis have stashed their incomes from external sources into the Swiss banks as income by a Bangladeshi cannot easily be brought into the country due to the strict Foreign Exchange Regulation Act, 1947. There are a number of formalities and compliances. Bangladeshi money is also being invested in other countries such as Malaysia and Canada in the real estate sector. The Section 18-A and B of the FE Act and relevant rules of the Bangladesh Bank regulate the in-bound income of indenters, travel agents, shipping agents etc. The process discourages these foreign currency earners from bringing money into Bangladesh. Their business income becomes illegal due to strict law of the country.
Bangladesh could successfully bring back some amount of money from Singapore lying with the accounts of high-profile persons through the order of courts. But it needs some laws, like the US FATCA, to cope with all such money laundering activities. The Bangladesh authorities cannot influence banks and other institutions outside the country to abide by its laws, but it can gradually enter mutual agreements to prevent tax evasion and money laundering etc.
The Bangladesh authorities are appealing to expatriates to bring money through banking channels and, at the same time, restricting remittance of business income into Bangladesh. These contradictory policies are unexplained.  The Foreign Exchange Regulation Act 1947 should be thoroughly modified in the era of globalisation, putting in place an easy banking service for uninterrupted inflow of valid remittance income from its citizens.
The writer is a legal economist. shah@banglachemical.com