Obligation to Avoid Fiscal Evasion from Foreign Countries
Foreign Account Tax Compliance Act (FATCA)
As we live in the age of globalization, the exchange of financial information and the fight against tax evasion is becoming the norm. The business of financial information has become tangible through the task force applied by the US Department of the Treasury (IRS) in 2010, called FATCA.
FATCA requires foreign financial institutions, i.e., non-US financial institutions, to report US citizen account holders. These individuals or businesses, if they refuse to provide the information needed by the requirements of this task force, 30% of the interest is withheld. Albania has not yet signed the agreement with the IRS; this legal requirement is applicable mainly by commercial banks that have their parent in one of the European Union countries, however other banks that cooperate with the American Bank as correspondents are required to comply with FATCA.
What are the critical data that make an individual or business subject to FATCA:
Birthplace; citizenship; Residential Address; Registration address; Type of identification document; Telephone number or frequent incoming and outgoing transactions with America. American citizens, residents residing in America, are very familiar with these requirements and the formation of the forms they must fill out.
Common Reporting Standard (CRS)
In 2014, the OECD formally published the Standard for Automatic Exchange of Financial Account Information (AEOI) on Tax Matters, including the Common Reporting Standard (CRS) for Automatic Exchange of Account Information. In October 2014, Albania signed a multilateral agreement with the OECD. According to the revised commitment, the time for exchanging information with other countries participating in this initiative is expected to be 2020. The goal is to identify foreign nationals through data deposited in the bank and share data with countries of origin to minimize fiscal evasion. What are the critical data that make an individual or business subject to CRS:
Birthplace; citizenship; Residential Address; Registration address; Type of identification document; Telephone number or frequent cross-border transactions. The information will be accompanied by relevant documentation. Clients must make available to the bank all the necessary information to comply with domestic law requirements, and consequently, the OECD standard.
Recommendations and Conclusions
Working with the client, whether looking at it from a business perspective, later and as a potential risk for money laundering, I have noticed some shortcomings in all the mechanisms that help in well-identifying businesses and preventing money laundering.
The time element is costly for businesses and all customers in general, as it is for banks. Although we live in Albania’s digitization days, there is still work to pass bureaucratic processes from public administration offices to on-line counters. Centralization of information on businesses and its certification by professional and reliable bodies would facilitate processes, transparency, and unification of data for all market actors: companies, banks, supervisory authorities, prosecutors, etc.
I am listing some developments, which I consider easily feasible and with immediate effect in improving the bank’s identification and verification processes and its customers.
1. Disclosure of Company Shareholder Structures and full identification of beneficial owners is a complicated and complex process. It would serve the businesses themselves by saving time to clarify the ownership structure in a certified institution such as the BCC. So far, NBC has identified only the first line of shareholders for the companies. The institution which will collect information and documentation from the entities will also clarify the ownership structure according to the provisions of the law on PPP and FT. This centralized information should be shared in a network with Banks, other financial institutions, or other law enforcement bodies on PPP and FT. Of course, data must be shared by imposing strong security measures, ensuring the privacy of personal data for individuals such as beneficial owners, according to the GDPR standard and the law on personal data protection. Using this database would be associated with saving physical time for businesses interested in opening accounts or conducting banking transactions. This database will efficiently serve the banks themselves using reliable and unified information for their customers.
2. Online Real Estate Register, to be enriched with updated information on sales-purchase and lease contracts, not only from local real estate registration offices and notaries but also from “Real Estate” agencies. This register will serve to verify the client’s information on the source of income, saving time for the client as well as for the bank and other law enforcement bodies such as GDPML, Prosecutor, etc.
3. Online Register of Life, Property, Health, and Business Insurance Policies
4. The online register of Non-Profit Organizations should be accessible, as should the commercial register with the NBC. This register must contain the name of the organization given on the founding act, the statute and the object of activity of the organization, the members of the board and its chairman and the identification data for them, the donors and their identity, the address of the head office and the places of other where the activity takes place as well as any other changes that the organization undergoes. An essential part of the information should be the financial statements, which reflect the income and expenses during the fiscal year.
The interaction of authorized public and private institutions, the use of documentation deposited in public and private administration offices would increase the transparency, tracking, and verification of information provided by customers, thus building effective processes for the business trinity – financial institutions – state authorities.