Thursday, January 26, 2012

US Obeys France?

Old Frayed French Flag
Photo by fdecomite
In the article Talk of ‘French mini-FATCA’ as France goes after trusts, we have the following:
[The] new Loi de Finances Rectificative pour 2011¹ contains measures that oblige trusts and their trustees to report on the trust’s French assets, their French beneficiaries, and/or French settlors.

Reporting is also required even if all the parties to the trust reside outside of France, if the trust holds any form of French asset, such as loans, real estate, stocks and shares.
What does that mean? A trust is basically a company which takes care of money for someone else, so France is apparently telling foreign trusts that they must report French assets back to France.²

So let's say you're the manager of a trust in New York City. Maybe you offer private trusts and don't have a legal right to divulge this information. Maybe you manage trusts for corporations and digging through their assets may very well meet with a wall of well-paid lawyers. And do you really want to follow the arbitrary laws of any country which is demanding legal compliance from entities over which that country has no jurisdiction? If this became a common practice, imagine financial institutions the world over suddenly find themselves having to simultaneously follow the laws of 200+ countries? Let's ignore for a moment the implementation costs of this (updating your IT systems to collect and manage information like this is not trivial). Instead, consider that the laws may be poorly defined, conflicting, and possibly illegal for the financial institution to comply with! It's idiocy and you would be right to mock the French government for passing such an idiotic law.

Is the US government really going to stand for France demanding that US financial institutions send private information to the French government?

Yes, the US will happily do this, no matter the cost to US companies.

With the US's FATCA law, the IRS has claimed jurisdiction over every foreign financial institution (FFI) on the planet. It's illegal for many FFIs to comply with FATCA (including all 27 states in the EEA) and it's a huge financial burden for them to try and implement the law, but there have been rumors that the US was trying to offer quid pro quo deals to foreign governments to convince them to not complain about the IRS demanding their bank's compliance and it looks like France may have accepted the deal. I am not a lawyer and my French is awful, so I could have misunderstood some of this, but it doesn't look good.

There's no way this is going to end well.

1. 2011 Budget Amendment Law
2. Text of the French law.