|Carlos Fradique Me´ndez|
Fatca imposes complex compliance procedures on FFIs to ensure that they will report so-called American Accounts to the United States tax authority (the IRS). To avoid the imposition of the 30% withholding tax, FFIs must enter into information-exchange agreements with the US government under which they must report certain information about US accountholders, conduct additional due diligence and comply with certain documentation requirements.
Besides the additional costs imposed to comply with Fatca, under Colombian law financial institutions are also faced with a duty of secrecy over client account information which appears incompatible with the purpose of Fatca. The violation of such duty could expose Colombian financial institutions to administrative fines imposed by governmental authorities as well as civil procedures before the Colombian courts. Although there are some exceptions (including disclosure for tax purposes) to this duty of secrecy, these exceptions only apply to instances of tax evasion in Colombia and under Colombian law, which excludes foreign regulations such as Fatca. The Colombian Superintendence of Finance is reviewing this situation to present its formal position and give guidance to Colombian financial institutions in order to deal with these legal prohibitions that contradict the legal requirements imposed by Fatca. Until these legal differences are addressed, however, Colombian financial institutions face higher reputational risks, resulting in a potential loss of client confidence.
In order to comply with Fatca, Colombian financial institutions will require higher levels of know-your-customer, and must undertake increased due diligence. They are thus concerned about the implementation process to comply with Fatca and the operative costs for the identification and follow-up of American clients.
The challenge Colombian financial institutions face is to create, together with the Colombian government, a solution that makes compliance with Fatca feasible and affordable, while not making American clients and American sourced payments completely undesirable for Colombian financial institutions.
Carlos Fradique and Catalina Prieto