Tags: Mix | tax | citizens | foreign

Walter Mix to Moneynews: US Tax Policies Might Hurt US Citizens

Wednesday, 31 Oct 2012 12:27 PM

By Forrest Jones and John Bachman

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New U.S. regulations requiring foreign banks to hand over information on their U.S. clients could prompt those banks to show their American customers to the door, said Walter J. Mix, chairman of the International Bankers Association of California.

The Foreign Account Tax Compliance Act would force overseas banks to disclose information on U.S. citizens' offshore accounts to the Internal Revenue Service as part of an effort to increase tax revenues by targeting those who stash holdings overseas.

The regulation is scheduled to go into effect in 2014.

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Such a move could prompt overseas financial institutions to rethink their relationships with Americans.

"In many cases, I would expect foreign banks to assess on a cost-benefit basis whether it makes sense to continue servicing such clients," Mix, head of the financial services practice at the Berkeley Research Group, told Newsmax TV in an exclusive interview.

"I would expect that, in many cases, you will see foreign banks limit those components of their operations here in the United States."

Not only will the move not drum up additional government revenue, it might do just the opposite.

"It’s my sense it will have the reverse effect [of raising government revenue], which is to say people will make decisions to keep their money offshore or overseas. I’m aware of situations, in fact, where corporations have decided to shift operations overseas because of some of the regulatory requirements in this new law," Mix said.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

Don't expect foreign banks to close up shop in the United States to avoid IRS regulations, though they might limit the services they offer in the United States, especially in light of regulations carried out in the past, which add to compliance requirements.

"It’s important to remember that in addition to the new law there is also the Bank Secrecy Act and the USA Patriot Act, which creates a series of anti-money laundering requirements that are imposed on U.S. banks and foreign banks alike as they operate in the United States," Mix said.

Banks aren't actively engaging in nefarious deeds, but regulations can hamper business.

"I would point out that, for a large global bank, oftentimes in the trillions of dollars in assets, the U.S. legal requirements are just one of many sets of requirements that banks would be required to observe on a global basis."

Turning to U.S. banks, Mix disagreed with a string of calls to break up big financial institutions in the wake of the 2008 financial crisis.

The U.S. repealed the Glass-Steagall Act in the 1990s, thus allowing commercial banks and investments banks to operate under one roof, which gave birth to today's massive financial institutions that critics say would pose systemic risk to the economy should they go under.

Even healthy big banks suffer black eyes occasionally, such as JPMorgan's $5.8 billion trading loss earlier this year, which many say illustrates that banks can get too big to manage.

Size does matter, however, as big banks are needed to compete in today's global financial arena.

"[B]ig banks should not be broken up. In order for, for example, large United States banks to be competitive globally with banks from the United Kingdom, Japan or China, not to mention other countries such as Switzerland and France, it’s important that our banks be allowed to achieve a certain asset size in order to be competitive on a global basis," he noted.

Plus corporations are large and global in scope as well and will need bigger banks to handle their global financial needs.

"It’s important for banks to be able to follow their customers and to service them around the globe. In the developed countries, obviously, there are a number of very, very large global corporations that need funding and other services from banks," Mix said.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

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