U.S. citizens may become global “pariahs” when a law forcing foreign banks to report their accounts takes effect, according to Switzerland’s oldest bank.
Americans “risk becoming pariahs of the global banking system through the fault of their own government,” Konrad Hummler, managing partner of Wegelin & Co., said in the copy of a speech presented today in the Swiss capital, Bern.
The U.S. law will require all foreign financial companies to supply information on American clients to the Internal Revenue Service and withhold 30 percent of U.S. interest and dividend payments from account holders who provide inadequate information to determine their U.S. status. The Foreign Accounts Tax Compliance Act will complicate offering services to clients with U.S. links when it takes effect in two years, Hummler said.
“The risks run by financial intermediaries promising to respect these rules are considerable,” said Hummler, who is also chairman of the Swiss Private Bankers Association.
St. Gallen-based Wegelin, founded in 1741, advised clients 16 months ago to sell U.S. assets because extended reporting requirements may saddle investors with tax obligations for themselves or their heirs. Wegelin, which is an unlimited partnership, has said that it can’t afford the risk of increased liabilities at time when American tax authorities are cracking down on international banks.
Implementation of the law risks costing the U.S. more than it will generate over 10 years, Hummler said. It’s unclear whether Swiss banks will be allowed to sign such agreements with the IRS under Swiss law, he said.
“We still don’t know whether these criticisms will be taken into consideration or on the contrary, ignored by the American administration,” Hummler said.
Banks have been lobbying for an easing of the rules since the law, known as FATCA, was incorporated into jobs legislation enacted in March. Now diplomats are stepping into the campaign, with countries including Switzerland, the U.K. and Canada weighing in with the Treasury.
According to the Joint Committee on Taxation, the law is estimated to bring in $8.7 billion in revenue to the U.S. over 10 years -- an amount banks and governments say is relatively low compared with the expense of complying with the law.
The Obama administration pushed for the measure in the wake of the political firestorm arising from the case against UBS AG, which in 2009 settled U.S. government claims that the Zurich- based bank helped thousands of rich Americans hide their money offshore.
Wegelin, along with Geneva-based Pictet & Cie. and Lombard Odier Darier Hentsch & Cie., is one of 13 banks in Switzerland in which partners collectively own and have unlimited liabilities for commitments made by the bank.
Switzerland manages an estimated 27 percent of the world’s privately held offshore wealth.
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