Thursday, December 18, 2014

Hong Kong Banks Shut Down US Accounts Rather Than Deal with FATCA

Subj: HONG KONG BANKS SHUT DOWN US ACCOUNTS RATHER THAT DEAL WITH FATCA

 HI,

Hong Kong Banks Shut Down US Accounts Rather Than Deal with FATCA

Posted on December 18, 2014 by China Briefing  By Benedict Lynn

Due to its geographical proximity to the mainland, modern and (until now) friendly banking system and transparent legal regime, Hong Kong has long served as a popular gateway into China for foreign businesses. Americans in particular have favored the former British colony, which retains its widespread use of the English language and Western business ideals, as a launching pad for their operations into mainland China.

However, since the Foreign Account Tax Compliance Act (FATCA) came into effect in early July, many Hong Kong based banks have been refusing to open new accounts for, and even shutting down the existing accounts of, American individuals and corporations.

Dezan Shira & Associates have been advising several of our American clients who have found themselves in this frustrating and potentially catastrophic situation. In this article, we examine the effects of FATCA on American businesses and taxpayers operating out of Hong Kong, as well as the implications for Hong Kong’s future as a means of penetrating the Chinese market.

What is FATCA?

The Foreign Account Tax Compliance Act (FATCA) is an American law approved in 2010 that has only slowly been implemented, primarily because of its complexity and because of the necessity to negotiate the cooperation of numerous foreign countries to secure its desired global reach.

The basic idea is that banks and other financial institutions (broadly defined in the law) would be compelled to assist the US Internal Revenue Service (IRS) in collecting taxes from US taxpayers abroad by reporting the details of their overseas financial accounts, including naming and identifying the account holder. Failure to comply will result in a 30 percent withholding tax on all U.S. income.

Individual Americans and corporations are also required to report the details of their overseas accounts, and the IRS will then reconcile the information received in an effort to identify unreported, taxable income.

Headache for HK financial institutions

Hong Kong authorities only signed an inter-governmental agreement (IGA) with Washington in May of this year. Widespread confusion surrounding the law meant that come the first deadline for tax reporting on July 1, which incidentally kicked in as pro-democracy protesters blocked up the city’s business district, only a couple of thousand Hong Kong financial institutions, a mere fraction of the tens of thousands operating there, had registered themselves.

Now that the IGA has been signed, FATCA is as much Hong Kong law as it is American. This means that on top of the U.S. 30 percent withholding tax, these institutions are subject to further penalties from the Hong Kong authorities. The costs do not stop there. Hong Kong banks are now scrambling to find any trace of American presence in their accounts and are having to make significant process and technological changes.

One major Hong Kong bank revealed to DSA that the costs of locating, monitoring and reporting on a U.S. held or controlled account costs at least US$ 7000 a month. Our source indicated that once the costs and benefits of serving the client have been weighed up, only accounts containing some US$ three million are worth the bank’s time. In short, it is often easier and more cost efficient for Hong Kong institutions to simply shut down the accounts of, or reject applications from, American clients, rather than shouldering the costs of complying with FATCA or the penalties for not doing so.

What this means for our American clients:

Key to using a Hong Kong corporation to establish a Chinese subsidiary is the ability open and maintain a corporate bank account in Hong Kong, since a Chinese subsidiary may only receive a capital injection from a bank account held in the name of the parent company.

This has left many American businesses stranded. In some cases, the subsidiary has already been established, but cannot be funded or controlled, as applications for a Hong Kong bank account are rejected. In others, long-running operations are paralyzed, as already existing accounts are shut down.

There are some 50 000 US citizens living in Hong Kong, not including US green card holders who are also required to file US tax returns. Law firms specializing in the area have been reporting record numbers of inquiries about relinquishing US citizenship or green card status.

What this means for Hong Kong:
This has implications for Hong Kong’s future as the preferred gateway into China. Singapore has already replaced Mauritius as the leading source of FDI into India, and investors have long been weighing up the advantages of the city state – its independence from China’s laws and political stability – against Hong Kong’s proximity to, and strong trade links with, the mainland. FATCA may prove to be the final straw.

- See more at: http://www.china-briefing.com/news/2014/12/18/hong-kong-banks-shut-us-accounts-rather-deal-fatca.html#sthash.f40QDBVB.dpuf

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walkingstick » December 18th, 2014, 3:01 pm

FOR, EDUCATIONAL PURPOSE/S..

Justice Department Probes Currency Exchange Site That Vanished With Cash

By David Evans and Willem Marx Dec 18, 2014 12:01 AM ET

The U.S. Department of Justice has begun a criminal investigation into the foreign exchange trading website Secureinvestment.com, which vanished last May 1 with as much as $1 billion from investors around the world.

The Financial and Capital Market Commission in Latvia is also probing the involvement of Latvian banks used by Secure Investment, says agency spokeswoman Elina Avotina.

An investigator with the U.S. Attorney’s office for the Eastern District of New York has interviewed Secure investors in the U.S. and Canada, according to the people who were contacted. Two of those people were quoted in “Anything But Secure” in the December issue of Bloomberg Markets magazine. Bloomberg had interviewed customers in 11 countries on five continents who said they saw their money evaporate with Secure Investment when its website disappeared.

“They’re not going to be able to hide forever,” says Ted Liming, a worker in a fast food restaurant in Watford City, North Dakota. Liming invested his savings of $21,725 with Secure Investment. “One day their partying with our money will be over.”

Liming says he has provided copies of his wire transfers to Secure Investment’s bank accounts to a federal investigator.

David Kane, a Houston oil industry technical support manager, also says he spoke to the Justice Department.

‘Feels Good’

“I think the guys behind this could be tracked down if people put an effort into it,” says Kane, who lost $2,000 to Secure. “It feels good that someone in law enforcement is taking an interest in it.”

Nellin McIntosh, spokesman for the U.S. Attorney’s office for the Eastern District of New York, declined to comment. No one at Secure Investment has responded to calls or e-mails since May 1.

Secure had claimed on its website that it traded more than $4.8 billion daily for at least 100,000 investors in 140 countries. The site said its customers averaged net gains of 1 percent each trading day for five years.

By using banks around the world and small related company names for accounts, Secure Investment obscured the paper trail of investor funds it took in, Markets reported. Some of those banks were in Latvia, in the Baltic region of northern Europe.

Latvia’s Financial and Capital Market Commission is investigating the role those banks played with Secure Investment, says agency spokeswoman Avotina. “Upon receipt of information from credit institutions, the FCMC will assess whether the credit institutions had acted in accordance with the provisions of regulatory requirements,” she says.

Never Revealed

Secure Investment, which investors found only on the Internet, never revealed its true location. It listed its call centers’ toll-free phone numbers in Australia, Canada, Hong Kong, the U.K. and the U.S. Secure instructed investors to wire their cash to banks in Australia, Cyprus, Latvia, Lithuania, Poland and the Seychelles.

Secure Investment lured customers by creating its own good reputation and by publishing a seemingly successful trading record on its elaborate website. It was all a lie, Bloomberg Markets reported. The company’s claims to have offices and a large staff were false. At least some of its so-called customer testimonials were actually delivered by actors who said they knew nothing about Secure Investment.

The deception worked -- for a while. In March, Secure’s website was more popular than Forex.com, the second-largest U.S.-based, over-the-counter forex trading firm, according to Alexa.com, a unit of Amazon.com Inc.

North Dakota restaurant worker Liming says he was among those who followed the Secure Investment website postings before he invested. He says he can’t forget the cold shivers he felt as his e-mails to the customer service department came back undeliverable in May, and he couldn’t reach the company by phone.

“It was like someone had drained the blood out of my body,” he says. “I felt very sick. It was like the flu and hangover had a baby together.”

http://www.bloomberg.com/news/2014-12-18/justice-department-probes-forex-site-that-vanished-with-cash.html


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